Harry Jenkins (Speaker) Share this | Link to this | Hansard source

I have received a letter from the honourable member for Curtin proposing that a definite matter of public importance be submitted to the House for discussion, namely:

The Government’s failure to responsibly manage the Budget and to honour its pre-election and post-election commitments to deliver Budget surpluses.

I call upon those members who approve of the proposed discussion to rise in their places.

More than the number of members required by the standing orders having risen in their places—

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

Today Australians are asking why it is that the Rudd government after just 12 months has abandoned the notion of a budget surplus. Having inherited a $20 billion budget surplus just 12 months ago, why has the Rudd government abandoned the budget surplus and decided to plunge the Australian budget into deficit? There is no valid reason for the government to do this. There is no economic reason for the government to plunge the budget into deficit. When you look at the economic growth forecasts for Australia, the OECD, the IMF, the Reserve Bank and the government’s own forecast all predict positive growth over the next year and the year beyond. The government’s own forecast, which the government were committing to just three weeks ago, has growth at two per cent—that is positive, respectable growth at two per cent over the next financial year. Every indicator concerning growth—from the OECD, the IMF, the Reserve Bank and the government—forecasts growth. In those circumstances there is no reason for the government to plunge the budget into deficit.

We have positive terms of trade. We have positive investment. I refer the House to today’s release by the Australian Bureau of Statistics of figures for private new capital investment. Members will recall the Prime Minister talking today about private investment. The results released today show a rise of 2.9 per cent in the September quarter of 2008. With private sector investment increasing, why is the government seeking to use a budget deficit that we know potentially crowds out private sector investment? Deficits have consequences and one of the consequences of increased government expenditure financed by borrowing is that it can crowd out more productive private investment. If government expenditure is at the expense of more productive alternatives then the result will be lower growth.

We have to look at Labor’s history in that regard. When Labor were last in office federally they ran up a debt of $96 billion. Interest on that $96 billion debt was $8 billion to $9 billion every year. When we came into office in 1996 we had to find $8 billion to $9 billion every single year to pay off that $96 billion debt. That is almost equivalent to the government’s stimulatory package. Had the coalition not paid off the Paul Keating government’s debt of $96 billion we would still be trying to find $9 billion each year to pay off the interest. But, no, it was paid off and that interest saving can be used by this government for a stimulatory package.

On the basis of the terms of trade, the growth, the private sector investment, why is this government going into deficit? Look at the question of monetary policy. At present the cash rate is at about 5¼ per cent. There is plenty of room for the Reserve Bank to move in reducing interest rates, which will stimulate the economy. When you look at countries around the world, official interest rates as at the middle of November include those of Canada, at about 2¼ per cent; Switzerland, at 2¼ per cent; the United States, at one per cent; and Japan, at 0.3 per cent. But here in Australia—and we know the history of why this occurred—interest rates are still at 5¼ per cent. Monetary policy can be used to stimulate the economy, yet this government refuses to wait for the Reserve Bank to do what it is meant to do—that is, to use monetary policy to stimulate the economy—when cash rates are at 5¼ per cent.

Why would the government plunge the budget into deficit when its stimulus package of $10.4 billion has not even been delivered? The majority of the package is to be delivered into bank accounts on 8 December. Yet even before the package has had the time to hit the bank accounts of pensioners and families and carers, even before it has had the time to work through the economy and stimulate growth, the Labor government has put up the white flag and said that it will plunge the Australian budget into deficit. What confidence does this government have in its own economic judgement when it chooses to spend—and this is a discretionary spend—one per cent of GDP, about half of the forecast budget of $21 billion, on a stimulatory package yet before that is even delivered puts up the white flag and says, ‘We have to go into deficit’? It has not even given the time for the monetary policy and the fiscal policy to do its work. The OECD has said that Australia will avoid recession. As recently as yesterday the report from the OECD said that this country will avoid recession. Why is the government sending a message to the Australian public that it has so little confidence in its fiscal policy and its monetary policy that it would plunge this budget into deficit?

We heard today that there have been 168—and I would suggest that number is now 169—reviews and committees announced by this government. Another one was announced in question time today. I think we can see the answer to why this government is plunging the government into deficit. This government came to office and inherited a $20 billion surplus. It inherited a situation where there was zero government debt. The government did not have to find $8 billion every year to pay off the interest on a debt. There was zero government debt. It made promises that no government could ever keep. It has set up review after review, committee after committee, knowing that people will come with wish lists, seeking funding promises. How is the government going to meet those expectations? This is all about a political strategy. This is not about a clear economic plan for the future of this country.

We know that this weekend the Prime Minister will be sitting down with the premiers of the failed Labor states, including New South Wales. The Prime Minister will be called upon by his mate Nathan Rees to bail out the incompetent New South Wales government. What has the Prime Minister done? He has flagged in advance to the Australian public that, because of the global financial crisis, he has to plunge the budget into deficit. Yet we know that the plan is to bail out the failed Labor state of New South Wales. That has nothing to do with the global financial crisis. What the Prime Minister is seeking to do is to take federal taxpayers’ funds and divert them into New South Wales Labor. I am not sure how the other state Labor governments are going to cope with the redirection of funds to New South Wales Labor. Maybe the Queensland Labor government will also put its hand out. But you have at play here a political strategy, not an economic strategy.

What a hypocrite this Prime Minister has turned out to be. Remember, before the election, how the Prime Minister said time and time again that he was an economic conservative? When he was asked—

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

Madam Deputy Speaker, the Deputy Leader of the Opposition should withdraw that remark.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

I will ask—

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

That has never been an unparliamentary term!

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

‘Hypocrite’ has been stated before.

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

When?

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

It has.

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

No.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

It has been stated before, and I think it would assist if the Deputy Leader of the Opposition would withdraw.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

I understand the Prime Minister has a glass jaw. Therefore, I will withdraw.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The Deputy Leader of the Opposition will withdraw unreservedly.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

In relation to the glass jaw or in relation to ‘hypocrite’?

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

You will just withdraw unreservedly.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

I withdraw.

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

Madam Deputy Speaker, the Deputy Leader of the Opposition just showed great disrespect for your office by repeating that comment again. She should know better.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

There is no point of order.

Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

We know that before the election the Prime Minister talked big. Last year he took out expensive television advertisements to tell the Australian people that he was an economic conservative. He was trying to convince the public that he could manage the economy as responsibly as the coalition did. In fact, he draped himself in the language of the coalition to reassure the Australian public that Labor would not go back to the bad old days of Labor debt and Labor deficits. The closer we got to the election the more strident the Prime Minister became about claiming to be an economic conservative. He said that to be an economic conservative you believed in budget surpluses. Time and time again he said that. On 23 November, in an interview on AM, he said:

Economic conservative means a fundamental belief in budget surpluses …

Then he tried to claim credit for the Goss government’s surpluses. He said:

… go back to my experience …

This is the Prime Minister. He said:

… go back to my experience in this respect. I worked at a senior level in the Goss government in Queensland in the first half of the 90s.

When national economic circumstances were difficult, when there wasn’t a lot of money flowing into the economy particularly, there wasn’t the presence of a global resources boom, and budget after budget, we produced budget surpluses.

So the Prime Minister, who back then was a bureaucrat in the Queensland government, is now claiming that he delivered budget surpluses, and he said that is what it means to be an economic conservative. In question time today we asked when the Prime Minister, not as a bureaucrat in Queensland but as the Prime Minister of the Rudd government, would deliver the first budget surplus. He was unable or unwilling to answer that question. He will not tell the Australian people when the Rudd government, this government of economic conservatives, will deliver what it says is a fundamental cornerstone of economic conservatism—that is, budget surpluses.

The Prime Minister has said that there will be a temporary deficit. When asked what a temporary deficit is he again refused to answer. He ducked and weaved and avoided the question because he knows that the last time Labor were in government federally and they announced a temporary deficit it lasted for six long years—driving the country into debt to the tune of $96 billion. Over six years, from 1991 to 1996, they blew out the debt from $16 billion to $96 billion. That was in just six short years. So we know that when the government talks about a temporary deficit it means for years and years. In 1990 the last Labor government had a deficit of $438 million. By 1996 it had a budget deficit of $11 billion.

It took a coalition government only two years to re-establish a budget surplus, but it took us 10 years to pay off Labor’s $96 billion debt. The Prime Minister went on and on about his economic conservative credentials. He said he prided himself on being an economic conservative and that meant he was committed to budget surpluses. He said, ‘That’s why I’m an economic conservative: to ensure that we have budget surpluses.’ He said, ‘I’ve said it before; I’ll say it again. I intend to stick to it. I believe as an economic conservative in budget surpluses.’ What we have seen today is a government prepared to throw the economic conservative facade away—and thank goodness because this was never a Prime Minister who was an economic conservative. He has never been an economic conservative and now the facade has been dropped.

What the Prime Minister has been doing over the last couple of days since he jetted in from Lima—since he stopped in Australia for long enough to take off his poncho—is talk down the Australian economy. The OECD and, indeed, the Reserve Bank have said that confidence is all-important. The OECD warned the government that, unless it restored confidence, its stimulatory package would have limited effect. The Reserve Bank warned the government to restore confidence, yet all we have heard from the government is talking the economy down. They do not focus on the strengths. They do not focus on the forecast of two per cent. They do not focus on the positive terms of trade. They do not focus on monetary policy at 5¼ per cent. They do not focus on unemployment at 4.3 per cent—steady at historically low levels. And how was the Prime Minister today suggesting that the coalition did not care about jobs? It was the coalition government that brought unemployment from eight per cent to just over four per cent. We created two million jobs while in government and the last time Labor were in government unemployment rose to 11 per cent—one million Australians were unemployed under Labor. What we are seeing today is a return to old-style Labor: high unemployment, budget deficits and debt. It is in their DNA—debt and deficit equals Labor governments. The government should focus on talking about the strengths of the Australian economy—giving people confidence in this nation. (Time expired)

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

The contribution by the Deputy Leader of the Opposition in this matter of public importance shows that, despite their rhetoric, the opposition are determined to put cheap political point-scoring and economic sophistry in front of good economic management. Everywhere around the world since the 1930s it has been an accepted economic given that at times when there is downward pressure on economic growth, at times of economic downturn, you can put a stimulus into the economy by government expenditure. Not only is it accepted that that is a reasonable approach but it is accepted that that is a responsible approach—accepted by all apparently except those opposite, the Leader of the Opposition and the Deputy Leader of the Opposition, as they attempt to emulate Herbert Hoover and say, ‘All we need is more surpluses and everything will be okay.’ Whatever the question, their answer is the same: surplus. What we have said and what the Prime Minister has said very clearly, despite the mischaracterisation by the Deputy Leader of the Opposition, is that, while our projection is for a surplus, a deficit may be necessary to ensure robust growth next year.

Yesterday the MPI was all about jobs. The opposition proposed an MPI saying the government does not care about jobs. And today the surplus is paramount. The inconsistency and illogicality of those two arguments seem to escape those opposite. Yesterday they said, ‘Where is your plan for jobs?’ and today they say, ‘How dare you have a plan for jobs which involves a stimulus to the economy.’ The hypocrisy and inconsistency is breathtaking. Even if the situation deteriorates further around the world, even if there is upward pressure on unemployment, the view of those opposite apparently is: the surplus must be defended at all costs.

How does this neoclassical, anti-Keynesian view of the world compare to the serious views of economic commentators around the world? Let us start with the managing director of a little organisation called the IMF. This is what Dominique Strauss-Kahn had to say recently:

If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it’s now.

And John Lipsky, the First Deputy Managing Director of the IMF—and this is a particularly interesting contribution—last week said:

It is appropriate, therefore, that fiscal expansion will play a central role in helping to sustain domestic demand.

He went on to say:

Any fiscal stimulus should be timely in its impact, as the need to cushion demand is immediate. As a result, innovative measures could be helpful. For example, measures to support low-income households would be particularly helpful in boosting demand, and would be targeted at those most in need.

That is a pretty good endorsement of the Rudd government’s approach from the IMF, I would have thought. It is not only every credible economic commentator around the world saying this. Let us go to some Australian economic commentators. Let us start with the most respected of them all because of his office, the Governor of the Reserve Bank. Mr Stevens has this to say:

… if governments are able to so order their affairs as to continue supporting worthwhile … investment, even if that involves some prudent borrowing, then Australia will come through the present period.

…            …            …

If we see governments at state level or federal level pull back from worthwhile things because of the budget balance deteriorating which it is going to do in this environment that is not stabilising. That is potentially destabilising.

What a disendorsement of the opposition’s point of view from the Reserve Bank.

Let us have a look at some economists. Chris Richardson from Access Economics said:

We should not fear a deficit. That would be a mistake.

He said of the government on a different occasion:

… I would like to see them do more, more of exactly what they’ve already done with the stabilisation package. That’s good spending, because it’s temporary and it’s targeted and it’s rolled out in time to help protect us against recession. The Government could do more like that. You don’t want deficits to become a habit, but right now they would help, not hurt.

Let us go on to Access Economics. They had this to say:

We support the government’s $10.4 billion package and would make the wider point that Australia should not be scared of a deficit in the next couple of years. Australia’s government has the ability to help the economy fend off tough times and it can assist the Reserve Bank in that endeavour.

The list goes on. Stephen Koukoulas of TD Securities said:

In this context, it is important for the current Rudd government to jettison the idea that the Budget must stay in surplus—even in a recession …

…            …            …

If indeed, the economy is as bad as it looks, embrace a Budget deficit, spend up to limit the inevitable human misery that a recession inevitably brings and manage fiscal policy in a counter cyclical way.

Bill Evans from Westpac said that it would be entirely appropriate to move the budget modestly into deficit. Saul Eslake from ANZ said:

The time is rapidly approaching when it would be appropriate for the Government to push the budget into deficit as a result of deliberate policy decisions rather than deteriorating economic conditions.

The Australian Financial Review, that well-known journal of socialism, said in its editorial:

… Mr Tumbull’s opposition to budget deficits is only pandering to opinion polls that show an understandable but ill-considered concern about deficits in the community. He should not be ruling anything out with the economy facing its biggest negative shock in decades.

Perhaps the most conservative economic commentator in the country, Terry McCrann, not traditionally somebody who supports the policies of this government, said:

More pointedly we should want it to go into deficit—to provide some further boost, along with lower interest rates, to a slowing economy.

There we have every economic commentator in the country saying it would be irresponsible for the government to rule out a budget deficit. As I say, we have indicated that, should the circumstances deteriorate further, a budget deficit may be the appropriate response.

Of course, there have been budget deficits before. I note that the Leader of the Opposition was asked about this on Steve Price’s show this morning. He was asked about the the last federal budget deficit in Australia, which happened to be in 2001. The Treasurer at that time was our old friend, the member for Higgins. The Leader of the Opposition was asked to explain that deficit. He said, ‘There was also the GST as part of that. That was rather a special context.’ So apparently budget deficits are okay some of the time when there is a special context. I am not sure what the biggest global financial crisis since the Great Depression is if it is not a special context. What we are seeing is inconsistency and double standards from the opposition. That deficit was not actually mainly a result of the GST, in fairness. It was a result of the dotcom crash, a very big dislocation in the world financial markets—although, not as big as the dislocation we are going through at the moment.

As I say, it is a well-respected economic approach for governments in times of downturn and downward pressure on economic growth to have an expansionary budget. But in the boom times they should perhaps have a contractionary budget. Of course, the previous government governed through the times of the commodity boom. Their approach was, ‘We can spend our way out of this boom no problems.’

Let us have a look at what some of the economic commentators think about the previous government’s spending record. They lecture us about financial rectitude; let us hear a bit about their record. Again, Mr Koukoulas of TD Securities argued this a couple of days ago:

The current economy circumstances bring into focus the inept, short-sighted and hopelessly misguided handling of the economy in the final years of Howard and Costello government.

He went on to say:

In the period from about 2003-2004—

This is good—

Howard and Costello were continually surprised by the size of the budget surplus as the economy boomed on the back of a once in a century surge in national income from the staggering strength in commodity prices and remarkable growth in Australia’s major trading partners.

Instead of saving for a rainy day or building war chest of money for when this bubble burst … they spent the windfall fiscal gains like drunken sailors, which fuelled a surge in inflation, which in turn caused the RBA to hike rates aggressively, which in turn is one reason why Australia is so vulnerable now to the global slow down. Right now, the near certain collapse of the terms of trade and the risk of a deep recession are not helped by this past profligacy.

I wish he had made his views are bit clearer; I am not really sure what he meant!

We do have others to rely on as well. Access Economics recently provided commentary on the previous government’s spending record. Unfortunately, Madam Deputy Speaker, I cannot repeat what they said because I am a gentleman and it would be most unparliamentary to repeat their language and I would not disrespect your office by trying. Suffice it to say, it is on the public record and honourable members can look it up. It is not just them. Let us have a look at Stephen Anthony, a former very senior official of the Australian Treasury and the Australian department of finance. This is what he had to say about the tax-and-spend Liberals who sit opposite. He said:

Unfortunately, the Howard government lost its way from 2004. When the China boom arrived with soaring commodity prices there was no offsetting tightening in fiscal settings to ‘bank’ windfall revenue gains from mining. The drunken sailors pillaged the budget for political ex-ped-iency and produced a structural deterior-ation in the bottom line.

Pretty clear. He went on to say:

The huge spending injection coincided with the further upturn in the business cycle. Blind Freddy knew inflation would be the result.

There we see not only every serious economic commentator in the country endorsing our result but those same respected serious economic commentators condemming the approach of those opposite without reservation, saying in effect, ‘God forbid the day they ever return to the Treasury benches.’ So they should not come in here and lecture us on fiscal rectitude.

What we have now is a situation in which they, who spent like drunken sailors and who let the situation get out of control, say, ‘There must be a surplus at all costs and you can’t let those nasty socialists get their hands on the surplus because they might spend it with the terrible aim of keeping unemployment as low as possible and economic growth as high as possible.’ What inconsistency.

They say that Australia should ignore the rest of the world. Last night, the European Union recommended to its member states a stimulus package of 1.5 per cent of GDP when already many European countries have deficits approaching three per cent of their GDP. An economic stimulus package in the United States is not only being proposed by President-elect Obama but also being delivered by President Bush. There are economic stimulus packages around the world which have not taken budgets from surplus into deficit but which have significantly increased the size of deficits around the world.

But those opposite have the view that we should wait and we should not flag to the Australian people in an upfront and honest way that next year a deficit may be the appropriate response. They say that we should just sit tight, hold our nerve and defend the surplus against all comers. What an irresponsible point of view. They say that we should wait. I am not sure what for. For the unemployment rate to go up? Maybe for the economic growth rate to go down. Maybe we should wait until it is too late. We have taken a different approach. They do not like to hear it, but we are going to keep reminding them: we like to be decisive; we like to be ahead of the curve. We say: ‘We’re not going to wait for the worst to happen; we’re going to avoid, if we possibly can, the worst happening. We’re going to use our judgement and stimulate the economy where possible with every lever at our disposal.’

The Reserve Bank have indicated that they are more than happy to stimulate the economy, but around the world reserve banks have indicated that it is not enough. Governments have to do the same thing. Governments have to have fiscal policy working in the same direction as monetary policy. I know that that is a concept honourable members opposite have difficulty in coming to terms with. They do not believe that the federal government should use their budget to help the Reserve Bank do their job; they think that the federal government should make the Reserve Bank’s job harder.

The Governor of the Reserve Bank in this country has indicated on more than one occasion that it is useful when the government of the day indicates that fiscal policy will be used in the same direction as monetary policy. That is the responsible thing to do. That is what you do if you want to keep unemployment low; that is what you do if you want to create jobs; that is what you do if you want to promote economic growth in the most difficult circumstances any government has faced since the Great Depression.

There are signs that the world economic situation is deteriorating even further. We stand ready to respond, as we need to responsibly do the right thing. We stand ready. Those opposite stand ready to reject what is common sense and what is obvious to every economic commentator in Australia and around the world.

Kevin Andrews (Menzies, Liberal Party) Share this | Link to this | Hansard source

If you believe what the Assistant Treasurer and the Prime Minister were suggesting in question time today—

Government Members:

Government members—We do.

Kevin Andrews (Menzies, Liberal Party) Share this | Link to this | Hansard source

Then you would be foolish. You would be believing that reducing and paying off a $96 billion debt, which the coalition government inherited along with a $10 billion black hole, was somehow poor economic management. You would be believing that reducing unemploy-ment, which was over eight per cent in 1996, to just over four per cent at the election last year was somehow economically irresponsible. You would be believing that creating over two million jobs in Australia over that period of time and having the lowest unemployment rate for over 35 years was economically irresponsible.

The reality is that the current government was concerned last year when in opposition that the perception of Labor as poor, incompetent and inexperienced economic managers was something that the Australian people believed. We had the then Leader of the Opposition, Mr Rudd, going on television, as Australians will remember, prior to the last election saying, ‘I am a fiscal conservative; I am an economic conservative.’ He did not say that just once; he said it over and over again. You could not switch on your television set prior to the election last year without that advertisement showing Mr Rudd standing up and saying, ‘I’m an economic conservative.’

He went further when asked about that. He was asked, ‘What does it mean to be an economic conservative?’ What he said was, ‘That means amongst other things that we will keep the budget in surplus.’ That was part of his definition of what an economic and fiscal conservative would be.

The reality is that Australians were right to have a perception that Labor are poor, inexperienced and incompetent economic managers. Whether you go back to the Whitlam government—probably the worst in Australia’s history—or you go back to Paul Keating’s recession that we had to have, Australians have a long and realistic memory that Labor are inexperienced and incompetent when it comes to the economic management of this country.

Let us look at the situation that has occurred over the past few months and ask whether that plays into this perception that Australians have about the experience and the competence of Labor as economic managers. Imagine a government that seeks to reassure the public that our financial system is sound but then announces the need for an unlimited guarantee of the banking system. How would you describe such a government? Inexperienced? Incompetent? Panicked?

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

Irish?

Kevin Andrews (Menzies, Liberal Party) Share this | Link to this | Hansard source

Not Irish—the government of Australia. Imagine a government that puts in place a measure to guarantee the financial system and prevent a run on financial institutions that then causes a run on financial institutions in Australia. How would you describe that government? Inexperienced? Incompetent? Imagine a Prime Minister who regularly brags about which world leader he has phoned recently not phoning the Governor of the Reserve Bank before making a critical decision about monetary policy and financial regulation. How would you describe that? Inexperienced? Incompetent? Imagine a Prime Minister who argues that other financial institutions are not banks but then proposes that they all become banks and, regardless of their credit rating, gain bank guarantee status—in order, of course, to solve the mess that he had created. How would you describe that?

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

Order! The discussion is now concluded.