Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

by leave—From the earliest months of this government I have provided regular updates to the House on the unfolding global recession and its impact on our own economy.

In a March 2008 ministerial statement I warned that ‘the deteriorating global outlook does present a significant risk to the Australian economy.’ In June that year I cautioned that ‘much of the impact on the real economy is yet to be felt’. And in September I described ‘a challenging time for the Australian economy and the global economy’, adding that ‘if we engage and work on the challenges we face, we will come through this difficult time better placed to enjoy and secure the long-term prosperity this government is committed to delivering’. This last point is what the Rudd government has been focused on—getting Australia through difficult times while building long-term prosperity.

On the first day of this new parliamentary session, it is appropriate that I again update honourable members, and through them the Australian people, on global economic conditions, how the Australian economy is faring, the performance of our stimulus, our prospects for recovery, and the challenges that lie ahead.

It is now more than two years since the first signs of the global financial crisis emerged, and next month will mark the anniversary of the collapse of Lehman Brothers. Back then, few were predicting the full severity of the global recession that has now unfolded—a recession that is expected to claim up to 60 million jobs globally by the end of this year.

The most striking feature of this downturn in both developed and developing nations has been the blinding speed with which it has unfolded. The financial institutions and real economies of many nations have been crushed by its brutal and uncompromising force.

The Australian story has been quite different, for three main reasons. Our communities and businesses and workers have all pulled together. Among our inherent strengths are our geographic location and our more secure banking system, bolstered by very effective bank guarantees. And in tandem with monetary policy, we acted quickly and powerfully with three waves of stimulus that we now know have supported thousands of businesses, saved thousands of jobs and prevented a deeper downturn.

We knew extraordinary times called for extraordinary actions. We knew the conditions were unprecedented, and so our response had to be as well. We of course ignored those opposite who said do nothing, instead delivering two major stimulus packages, a budget and a MYEFO, a guarantee of our banking system, and other important measures—all in the last 10 months.

I am proud to say these measures have helped the Australian people withstand, for now, the worst the world could throw at us. But I remain conscious of the ongoing impact of a global recession that will continue to wash through our economy, altering forever the world’s economy and presenting us with a new set of imposing challenges.

Today Australia finds itself countering the worst impacts of the global recession while simultaneously reaching for the fantastic opportunities presented by recovery in this Asian century.

I remind honourable members that conditions in the global economy are still very difficult. Even after upgrading its forecasts last month, the International Monetary Fund still expects world output to contract by 1.4 per cent in 2009. This will be the first contraction of the world economy since World War II. For advanced economies, the situation is even worse, with the IMF forecasting a massive contraction of 3.8 per cent for this year alone.

Australia was one of only two advanced economies to grow in the March quarter. The average contraction across all advanced economies was 2.1 per cent. Eight of Australia’s top 10 trading partners have fallen into recession or contracted over the past year. And the United States and United Kingdom have continued to record falling output into the June quarter.

Despite all of this, we are beginning to see some encouraging signs that the pace of contraction in the global economy is slowing. The IMF now expects world output to grow by 2.5 per cent in 2010—an increase on its April forecast of 1.9 per cent. In our region, we saw Chinese growth of 7.9 per cent in the year to June. And the extraordinary actions of governments and central banks around the world to support their economies are beginning to have an impact.

These improvements to the global outlook are, of course, welcome. But there is still some way to go before we can say confidently that a sustainable recovery has taken hold. We agree with President Obama that encouraging signs are ‘little comfort if you’re one of the folks who have lost their job and haven’t found another’.

Even after the crisis abates, it is likely that world output will grow by less than it has in the past, as economies adjust to the effects of greater risk aversion, increased capital requirements in the financial system, and of course lower leverage.

In the face of the worst global recession in 75 years, the government acted early and decisively to cushion the Australian economy. We intervened to ensure stability in our financial system, to support demand in our economy and to put in place the Jobs and Training Compact.

We moved quickly in October last year to secure the savings of 15 million Australians. As Governor Stevens and others have clearly stated, the bank guarantee has been vital to maintaining the stability of the Australian financial system at a time when financial systems were collapsing in other economies.

The government’s guarantee of wholesale funding has allowed Australian banks to raise $110 billion. This money is ensuring banks continue to lend to businesses and households, providing vital support for jobs and growth. Without these funds, our banks would have had no choice but to ration lending to households and small businesses, including through higher interest rates.

In the face of the most severe contraction in global economic activity since the Great Depression, the government moved to support demand in the Australian economy through fiscal stimulus. That stimulus came in three stages—attracting praise from international and local analysts for the speed of its implementation and the foresight of its design.

The first phase provided timely, temporary and targeted income support for pensioners, low-income families, carers, veterans and primary producers. The second phase is delivering investment in shovel-ready infrastructure projects across the country from now until 2011—upgrading schools, homes and communities as part of the $42 billion Nation Building and Jobs Plan. This year’s budget delivered the third phase of our stimulus strategy—larger and longer-term nation building infrastructure projects—the roads, rail, ports, energy efficiency projects and broadband that we need for the future.

Seventy per cent of total direct investment under the nation building for recovery strategy is investment in medium- and long-term infrastructure. Construction is already underway in every community and Australians are hard at work on more than 30,000 separate projects right across the country. We also understand many could still lose their jobs or will enter the labour market but not be able to find work as a result of the global recession. Unemployment will rise, and we have always been upfront about that. Our responsibility is to avoid the mistakes of earlier recessions, intervening early to prevent jobs being lost in the first place while working with those unemployed Australians to build skills for when the economy recovers. We refuse to contemplate a generation of wasted talent. That is why we are delivering a $1.5 billion jobs and training compact, comprising initiatives for young and retrenched Australians and for our local communities.

I am pleased to report to the House that there is now substantial evidence that the government’s measures to soothe financial markets and support the economy are working, helping to steer Australia through the most difficult period in the global economy since the Great Depression. In the March quarter, Australia’s growth of 0.4 per cent was the strongest of any advanced economy and was one of only two advanced economies to grow in the quarter. Without the economic stimulus, Treasury estimates our economy would have contracted by 1.1 per cent in the December quarter and a further 0.2 per cent in the March quarter. That would have resulted in an economy around one per cent smaller today, translating into more business closures and more Australians out of work.

Recent data from the Australian Bureau of Statistics showed very strong growth in retail turnover in the June quarter. Retail sales are now 5.2 per cent higher than they were in November last year, just before the government’s first stimulus payments to households. In contrast, over the same period retail sales have fallen by 1.6 per cent in the United States, 2.2 per cent in Canada, 2.3 per cent in the euro area and 2.5 per cent in Japan.

The government’s first home owner boost has also provided important support to activity in the housing sector. Finance commitments for the construction and purchase of new dwellings have increased by 59 per cent since October, just before the boost was introduced, and the number of first home buyers has almost doubled.

The second phase of the government’s stimulus plan—investments in shovel-ready infrastructure, education and social housing projects—is also providing significant support to non-residential construction activity. The value of non-residential building approvals almost doubled in June and the recent Access Economics Investment Monitor showed 104 new public sector projects in the June quarter compared with just 14 new private sector projects.

This support for economic activity is also providing support to the labour market. Our unemployment rate, at 5.8 per cent, is lower than any of the major advanced economies bar one. We do expect further increases in the unemployment rate, but Treasury estimates that 210,000 more Australians would be out of work and unemployment would be 1½ percentage points higher if not for the stimulus package. As a consequence, Australia’s unemployment rate is expected to peak well below the double digit rates forecast for many of the major advanced economies.

The success of the stimulus is also helping to support confidence. Consumer and business confidence are now back to pre-crisis levels. Consumer confidence has increased by 23.2 per cent over the past two months, the largest two-month gain since the survey was first conducted in 1975, and business confidence has bounced back to its levels of mid 2007, before the worst of the global financial crisis had become evident.

Just this morning we have seen a significant rebound in the latest business expectations surveys from Dun & Bradstreet and the National Australia Bank. The D&B survey showed that sales and profit expectations recorded their biggest one-quarter increase in the history of the survey and capital investment plans are at their highest point in six years. Business confidence in the NAB survey jumped back to around historical norms. All of these developments will have obvious implications for our economic forecasts, which we will update in the usual way at the time of the Mid-Year Economic and Fiscal Outlook.

It is important to remember that the positive signs we have seen in our economy and the recent upward revisions to forecasts by the IMF and the RBA are predicated on our temporary stimulus being fully implemented. That is why, to those who suggest we should wind back stimulus, I say that would be pulling the rug out from underneath the recovery—not to mention an attack on the small businesses and tradespeople relying so heavily on stimulus to build recovery and employ more workers.

All Australians should be encouraged by these early signs that the economic stimulus is working, but we should be very cautious as well. The external environment remains very difficult, and the events of the past year show just how volatile the global economy can be. Just as it has pushed almost every developed economy into recession, the global recession has savaged the budgets of governments worldwide.

Increased public borrowing is the necessary consequence of falling tax revenues and the implementation of critical economic stimulus packages. In Australia, the effects of the global recession have stripped $210 billion from expected tax revenues, driving the budget into deficit.

In the face of this savage hit to budget revenues, the only responsible course of action is to borrow to finance the temporary deficit. The alternative—massive spending cuts or tax increases—would have resulted in a deeper and longer downturn and much higher unemployment. And those opposite know it, which is why they have still not uttered one word of an alternative fiscal strategy.

Our budget deficit is expected to peak at 4.9 per cent of GDP in 2009-10. In comparison, the 2009 budget deficit in the US is expected to be 13 .6 per cent of GDP, in Japan 9.9 per cent and in the UK 9.8 per cent. Net public debt in Australia will rise to 13.8 per cent of GDP in 2013-14 before falling in subsequent years. This leaves Australia in a much stronger fiscal position than any major advanced economy. In contrast, by 2014, net government debt is expected to rise to 75 per cent of GDP in the euro area, 83 per cent in both the UK and the US and 136 per cent in Japan.

As the IMF said of its recent forecasts, this ‘would leave Australia in an enviable fiscal position by international standards’. Despite our position of relative strength, the recovery will be long and tough, with bumps along the way. The fall in global commodity prices is forecast to take up to $50 billion from our economy in 2009-10 and with it tens of thousands of jobs. Private investment has retreated. In the coming months and years, there will inevitably be positive and negative data on the economy. This includes the possibility of future negative quarters of growth.

Unemployment will continue to rise for some time, even after the recovery gets underway. It is inevitable that global interest rates will rise from their current historical lows and, as the Reserve Bank has indicated, domestic rates will eventually rise as well, and the government will have to ask Australians to accept more tough decisions to bring the budget back to surplus.

Global economic growth will be weaker than over the past decade. The IMF forecast of global economic growth of 2.5 per cent next year is significantly lower than the global growth rate of 5.1 per cent in 2007.

Growth is being supported today by the extraordinary actions taken by governments right around the world, and as we move into 2010 I expect growth to be increasingly supported by the global rebuilding of inventories. How the world sustains growth beyond 2010 remains the key challenge.

Not only will we see weaker global growth as we emerge from the global recession but the very structure of the global economy is changing dramatically. No longer will we be able to rely so heavily on the American consumer as the primary driver of global growth. Emerging economies, in particular in our region, will increasingly need to generate their own internal demand.

While it will bring challenges, this rebalancing of global growth toward our region could make Australia one of the biggest beneficiaries of the recovery, if we are bold enough to grab the opportunities of this Asian century.

These adjustments will need to be facilitated by sound global policies that deal with the aftermath of the global recession and ensure the world economy is placed on a more stable path. That is also why we are working through the G20 to ensure a coordinated global response to these issues.

Over the coming months, the Prime Minister and I will be working at summits in London and Pittsburgh to ensure the G20 delivers on its commitments to reform the global financial system and ensure that efforts to support growth and jobs over the year ahead are fully implemented.

Consistent with this, we will work with our G20 colleagues to map out an appropriate time frame and processes for the coordinated unwinding of the extraordinary measures taken by governments to stabilise the global economy and support recovery.

At home, we are also building a sustainable growth model for our future. This challenge begins with the recognition that the source of Australia’s future growth cannot simply be the same as for our past growth. In the past, Australia has relied too much on the rollercoaster of mining and stock market boom and bust for our prosperity. Instead, Australia needs to build more stable foundations for growth for the future, by reforming the economy to boost long-term productivity growth. Though the path to global economic recovery will be tough, this does not mean that we must accept the inevitability of lower growth in Australia.

We have a great opportunity to take stock of where we want to go as a nation and how we seize the opportunities presented by the global recovery. If one lesson is clear from the last year it is that tomorrow’s prosperity will turn on policy choices that we make today.

Our task is to maintain the focus on investment in the drivers of productivity at the same time as we pay off the debt that was forced on us by the global recession’s impact on revenue. That means implementing a broad and ambitious agenda that encompasses:

• tax and welfare reform;
• a surge in nation-building infrastructure investment;
• an education revolution;
• a CPRS and investments in energy efficiency;
• a national broadband network;
• fixing the health system;
• working through COAG to create a seamless national economy; and
• tireless regional and global engagement.

The way our communities, our businesses and our workers have pulled together during the worst global recession in 75 years shows this reform agenda is not beyond us. We have faced the toughest global conditions in living memory yet still moved forward with confidence. This is what makes the stimulus greater than the sum of its parts—the impact it has had on confidence. Almost everybody in the Australian community has had a role to play in building that confidence in each other and working together to meet these massive global challenges.

Unfortunately, that does not include those who sit opposite. Having voted against the stimulus that they know is working to support jobs, their focus now is on a con job on debt and an argument that the stimulus is now actually too successful and should be wound back. For these reasons, many Australians would probably share our suspicion that the Liberal Party would prefer to see the country fail than the stimulus succeed.

In contrast, this side of the House agrees with the assessment of the Governor of the Reserve Bank last week. He said:

The fact that we have managed to get through the past nine months in reasonable shape ought to give us some quiet confidence in our capacity to meet the current set of ‘crisis’-related issues.

Having demonstrated our capacity and resilience in the face of a global recession, I know Australians have the commitment and determination necessary to finish the job on stimulus and meet the big challenges of a new, post-crisis global economy. For our part, the government is investing in productivity and long-term growth and focusing on carving out for Australia a bigger share of global wealth than we enjoyed before the crisis, because that, in turn, means a new generation of prosperity for our people, built on sturdier and more enduring foundations than ever before.

I ask leave of the House to move a motion to enable the member for North Sydney to speak for 22 minutes.

Leave granted.

I move:

That so much of the standing orders be suspended as would prevent the member for North Sydney speaking for a period not exceeding 22 minutes.

Question agreed to.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

On behalf of the opposition I would like to respond to the Treasurer’s statement. We are pleased to acknowledge the better news which has recently been released on the performance of the Australian economy. It now looks as if this downturn, thankfully, may not be as severe as was forecast in the May budget papers. In fact, this downturn may not be as deep as the recession of 1990-91 under Treasurer Paul Keating. This will place Australia as one of the best performing economies in the developed world, an outcome which all Australians should justifiably be proud of.

The one area of economic performance which remains of significant concern to the coalition is the state of the labour market. Although recent data suggest that employment is holding up well, the pool of unemployed potential workers continues to swell. Unfortunately the situation in the labour market is forecast to get worse before it gets any better. We need to have policies that create full-time jobs for all Australians who want them.

The Treasurer has made much of the government’s stimulus packages helping to insulate Australia against the global financial and economic downturn. The Treasurer wants to claim all the credit for himself, but we believe his emphasis on the importance of the government’s measures is ambitious and misplaced. The Reserve Bank, in its recent monetary policy statement, identified five factors that have helped to maintain Australia’s economic activity through the crisis. These include, firstly, the strong state of the Australian financial system. I would argue that this is in no small part due to the regulatory reforms introduced by the former coalition government, which provided for separate and stringent regulatory supervision of deposit-taking institutions. That included, when I was the Minister for Financial Services and Regulation, the establishment of ASIC and APRA. This was a contentious issue at the time because different financial systems had different types of supervision. It was rather contentious to take prudential supervision away from the Reserve Bank, but it was exactly the right thing to do, particularly in the face of a global financial crisis.

The second factor is the significant monetary stimulus arising from a 4¼ per cent reduction in the cash rate since September last year. I note that that is the second largest reduction in the cash rate of any major Western economy. It is second only, I think, to that of New Zealand. But even though that flowed through significantly to home borrowers because of the large number of Australians who have variable home loan rates, the IMF stated that only 150 basis points flowed through to business lending. Under those circumstances it certainly has not had the same impact.

The third factor is the fiscal stimulus. It was a massive fiscal stimulus. The combined packages represent, as a percentage of GDP, one of the largest fiscal stimulus packages in the developed world. The opposition was concerned about the scale of those stimulus packages, particularly when aligned with the massive reduction in interest rates and what the Reserve Bank calls the ‘transmission factor’ of that money flowing through into households because so many Australians have variable rate home loans.

The fourth factor is the depreciation of the exchange rate last year, which provided a massive stimulus to domestic activity and helped to deliver real benefits in the terms of trade, which flowed through in the national accounts.

Finally, the fifth factor is the strong recovery in China, which has boosted commodity prices and demand for Australia’s exports. As the Treasurer knows, the terms of trade since the election of this government have become more favourable for the government than they were under the previous coalition government. Having said that, they have come off reasonably significantly in the last few months. But, even so, commodity prices remained relatively strong in particular areas because of the massive fiscal stimulus in China and their consumption of, in particular, iron ore.

On the fiscal stimulus, while the Reserve Bank does give some credit to the government’s spending, I want to make two observations. The first is this: if you throw enough money at a problem then of course it must have some impact. Our concern with the government’s spending is that, in part, there is enormous waste and mismanagement in their reckless level of spending—building school halls where a school hall is not needed, building facilities in schools that are about to be closed and using centralised contracting where local suppliers could have done it sooner and for much less. The government’s so-called Building the Education Revolution has delivered too little for too much money—and it is all borrowed money.

The second point is that this government was able to engage in the massive fiscal stimulus because the opposition left the Labor Party with a very strong budget. We did so after having paid off $96 billion of the previous Labor government’s debt, leaving in excess of $60 billion in net assets in the Future Fund. Significantly, we left a surplus, not the suggested fiscal deficit that some have been running with—particularly the odd media commentator. We left the government with a significant amount of money. So the government inherited fiscal strength that was pretty much unmatched anywhere in the developed world. This provided the government with enormous capacity to use fiscal policy to offset the cyclic downturn in the economy without jeopardising the structural integrity of budget policy over the longer term. This government seems reluctant to acknowledge the hard work and fiscal discipline exercised by the coalition in government.

The Reserve Bank seems to recognise that the specific stimulus measures put in place by itself and the government were only intended to provide support during the time of crisis. Now that crisis appears, thankfully, to be passing, although I do note a word of caution. There is continuing evidence that some western European banks have to deal with major credit risk over the next two months. That is one of the areas where this crisis may well reappear in a dramatic fashion, which we and everyone else need to be very mindful of.

In preparing its growth and inflation forecast out to the end of 2011, the Reserve Bank has done something quite extraordinary. Instead of assuming the cash rate will remain unchanged over the forecast horizon, as is its usual practice, the bank has explicitly assumed ‘a return to a more normal setting of monetary policy over the forecast horizon’. It says:

… it is not particularly realistic to assume that the cash rate remains at the historically low level of three per cent out to the end of 2011.

It is very interesting the Reserve Bank should say that. We ask ourselves: why would the Reserve Bank have felt the need to explicitly signal that it will unwind its very stimulatory monetary policy settings over the forecast period? The answer may be that it believes the economy no longer requires that degree of support. Well, terrific; it is saying the economy is going to perform better than it was expecting. Moreover, it may feel, I think, that the dangers in continuing to run such an expansionary policy stance—which was conceived and implemented when the outlook was far darker and uncertain—are of concern.

The government is not heeding the Reserve Bank’s warnings. Even in the Treasurer’s statement which he just concluded, he insisted he would implement his stimulus package in full. He said:

… the positive signs we have seen in our economy … are predicated on our temporary stimulus being fully implemented.

The Treasurer intends to continue with what we believe to be his irresponsible deficit and debt strategy, despite the Treasurer himself acknowledging that there are signs of economic recovery underway. In the May budget papers, the Australian economy was forecast to remain below trend for only three years. The Treasurer indicated in his statement today that the outlook is likely to be revised in MYEFO to account for the better economic news in recent months, and yet the Treasurer plans to continue to run significant budget deficits and to progressively increase government debt for seven consecutive years—seven consecutive years of deficits for what may be three years of below trend growth. The accumulated debt load will be higher by Australian standards. Gross debt is still expected to peak at around $315 billion, and the interest on that is somewhere in the order of $17 billion a year.

There are several risks in continuing to run expansionary policies when the economy no longer needs them. The first is that it can lead to higher inflation and higher interest rates. Using a motoring analogy, both the Reserve Bank and the government have the pedal to the metal. This was done to accelerate the car out of a slow spot. But now the economy is accelerating nicely again it is sensible to ease off the accelerator; otherwise there is a danger of overshooting, of breaking the speed limit, of approaching the next curve far too rapidly.

Underlying inflation in Australia is still at levels which are high relative to history. Over the year to the June quarter, the Reserve Bank’s preferred measures of core inflation increased by 3.9 per cent, down from the peak of 4.7 per cent in the September quarter 2008 but still well above the target band of two to three per cent. The Reserve Bank forecasts that core inflation will return to the bottom of the target band by the end of next year but on the proviso that the bank itself returns monetary policy to what it calls a more normal stance—that is, an increase in interest rates.

Higher interest rates make it more difficult for the private sector to service and repay debt. They make it more difficult for households to purchase their own homes. They make it more difficult for business to invest and create jobs. And higher interest rates are to the detriment of ordinary households and businesses in this environment, particularly as unemployment continues to rise. I want to emphasise this: we are facing a period of rising interest rates while unemployment continues to rise. So unemployment continues to rise and interest rates are rising at the same time, which is quite a cocktail for the average Australian family.

The second concern with the government’s deficit and debt addiction is the danger of what is called crowding out the private sector from the capital markets. The Minister for Finance and Deregulation scoffed at me and said crowding out does not exist. It is well recognised that Australia is in fact capital deficient. We do not save enough money as a nation to finance all our investment needs. The pool of domestic savings is actually small, so to make up the shortfall we are a large importer of capital from offshore. This has been the case since white settlement began in Australia. We have always imported money, particularly for investment in mining and infrastructure, and our access to offshore markets is not unlimited. It depends on the willingness of offshore investors to provide the funds. This is particularly important to recognise at a time when most major Western economies are running large fiscal deficits and, to fund these deficits, they are tapping the same global capital markets as Australia is for funds.

We saw the dangers inherent in Australia’s reliance on overseas funding as the global financial crisis unfolded in 2007 and particularly in 2008. Access to offshore capital markets for some corporates and institutions became very difficult and, as a consequence, there were some business failures. Other businesses had to rely on their traditional domestic banking relationships to replace the lost funding. Access to funding for the economy as a whole became much tighter. I believe it is unrealistic for government to assume that its borrowings will never compete with or displace private sector borrowings. It is extraordinary that this government believes that its unprecedented borrowings will not crowd out the private sector’s own demands for capital, particularly as the Australian economy begins to grow again.

Let me illustrate the point by examining the government’s proposed borrowings against the expected availability of capital from offshore. The budget forecast that Australia will run a current account deficit of 5¼ per cent of GDP this year and 5¾ per cent of GDP in 2010-11. This is estimated to equate to around $62 billion this year and $70 billion next year. In 2009-10 the government proposes to borrow $57.6 billion and in 2010-11 it proposes to borrow $57.1 billion. So if the federal government were to finance itself entirely from offshore borrowings, it would vacuum up 93 per cent and 82 per cent of the expected available offshore funds. Overwhelmingly the government would be borrowing from offshore to fund what would be its budget deficits. On top of that we will have capital hungry state governments borrowing in the markets for their own significant infrastructure programs, state government and utility borrowings that will rise to a conservatively estimated $230 billion by June 2013. That will give a total public sector debt of around half a trillion dollars.

My point is that the federal government and the state governments will be placing enormous significant additional demands on global capital markets at a time when the outlook for the Australian economy is improving. So when Australian small businesses, Australian farmers and large Australian corporates are desperately trying to raise money to buy the machinery, to invest the money that is going to create jobs and to take advantage of the growing economy, the cost of funds—the cost of borrowings for those small businesses, those farmers and those manufacturers—will be incredibly high, unnecessarily high. The 800-pound gorilla in the market, which is the Commonwealth government with its AAA guarantee, and so many other organisations enjoying the AAA guarantee, will be competing directly with those small businesses, those farmers and those larger businesses for desperately needed capital.

That does not take into account the massive borrowings of the United States, which are of increasing concern to me and I think are of increasing concern globally. The sovereign debt of the United States is reaching extraordinary levels, in excess of 80 per cent of GDP. That of the United Kingdom is heading towards 100 per cent of GDP, and obviously Japan and a number of other countries are in excess of that. The net impact is that Australia is competing for scarce money and the biggest player in Australia, being the government, is competing with the smallest businesses to borrow money. Who is going to win? Obviously the government does, and business pays a heavy price.

Private sector businesses will want to take advantage of a more optimistic environment as the economy recovers. They will want to increase their borrowings to finance the investment that will underpin growth today and tomorrow and they will want to increase borrowings to create the jobs that Australia so desperately needs. I know that those businesses have been turning full-time jobs into part-time jobs at a rapid rate over the last few months. But if they cannot get the investment to seize the opportunity of a growing Australian economy then those part-time workers will become unemployed people. There is not much room the government is leaving for the opportunities at hand.

I have outlined the dangers of continuing with an irresponsible program of deficit and debt. It runs the risk of driving up inflation and certainly driving up interest rates. It runs the risk of denying much-needed capital to private businesses and, because of the reckless commitment of the government to run deficit and debt, it runs the risk of choking off the economic recovery just as we start to see some benefits flow through. I note that the Treasurer in his address talked about improving productivity. We look forward to the tax and welfare reform initiative of the Henry review. We look forward to seeing that. But I ask the Treasurer: what is the productivity benefit of building school halls, $14 billion in school halls, in what the government has called an education revolution? The government says it has got a surge in nation-building infrastructure investment. Well, the government has in fact handed out more in cash to individuals than it is spending on infrastructure that it says is going to improve productivity in the economy.

On a national broadband network, Senator Conroy does not know whether he is Arthur or Martha in relation to the National Broadband Network, when anyone who takes a cursory glance at it will know that his ambitions of it being completed in a short period of time are simply that, unachievable ambition. On fixing the health system, there is a grab list of initiatives in relation to health, but, similar to the Obama plan, no plan to pay for it. How is it going to be paid for? There is mention of working through COAG to create a seamless national economy. I thought the economy was actually performing pretty well. I thought it was in pretty good shape and that one of the reasons why we have come through this is that it is in good shape. But I do not think having the states simply thrust their hands into the till is going to improve the performance of the economy without actually getting some real outcomes from the states.

On a tireless regional and global engagement, I say to the Treasurer this: there is a very real risk of capital protectionism, and we are at one with the government in being opposed to that capital protectionism which is emerging. That is exactly one of the reasons why you have to try not to spend as much money as it may be tempting to do when you have an unlimited credit card thanks to the hard work of the coalition. The danger for the government is that, at the time when money will become most scarce, the time when so-called quantitative easing—that is, the printing of money—comes to a dramatic end because of rising inflation and rising interest rates, it will be too late, because the money will not be in the bank. Then you will not be able to spend the money so necessary to build the infrastructure, to build the economy, to build the enterprise that is going to create and protect jobs for generations of Australians.