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

Over the past few months we have witnessed a series of truly tragic natural disasters—both here and abroad. At home, our country has been ravaged by floods, with Cyclone Yasi in the north and bushfires in the west. Overseas, we have seen earthquakes hit Christchurch and in the past 12 days we have watched the horrific images as one of the largest earthquakes on record hit Japan, followed by the devastating impact of the subsequent tsunami.

These events have tested us, and they have tested our friends. It has been inspiring to see the way in which communities have come together—here at home and globally—to help those in need. Our focus has of course been on providing immediate relief and assistance and getting on with the difficult task of rebuilding our affected communities. But it is appropriate that just before parliament breaks prior to the budget that I update members on the likely impacts of these events on our economy and on our budget preparations.

Our thoughts in the past few weeks have rightly been with the Japanese people and we have been focused on providing assistance, particularly to those Australians in Japan. These events will leave behind a tragic loss of human life and a damage bill running into many billions of dollars. The economic consequences of these events will become clearer in the coming weeks and months.

But we know that as the third largest global economy, this disaster will inevitably impact on the global economy and on our own. Japan accounts for around six per cent of global GDP and is also an important economy for Australia. Japan is our second biggest trading partner and our third largest source of foreign investment. Around one-sixth of all our exports are to Japan—almost $40 billion. We are Japan’s largest supplier of coal, and Japan is also an important destination for our iron ore exports.

Treasury’s initial assessment is that there is likely to be a short-term impact on some Australian exports to Japan in coming quarters. Japanese demand for steel-making inputs is likely to fall in the near term following the closure of several large steel-making plants and the disruption to Japanese manufacturing. Commodity markets have also generally weakened. Thermal coal prices are down around seven per cent since the earthquake and iron ore prices are down around four per cent. But there may be some rise in demand for other fuels such as LNG as other forms of energy production are more heavily utilised.

In the medium term, reconstruction will support growth in Japan and add to demand for Australia’s bulk commodity exports. But the risks surrounding this assessment are considerable and to the downside. Any escalation in the problems at the nuclear reactors would exacerbate the economic impact on Japan and the global economy, as would further disruption to closely integrated production networks in Japan. There are also considerable risks of dislocation in global energy markets, including rising coal, gas and oil prices.

These events could adversely impact global confidence at a time when the world economy is already facing significant challenges, and there is new instability in parts of the Middle East and North Africa. We will of course continue to monitor the situation closely, including the impact of these events on the global economy and also on our own.

Australia has also taken a direct hit from natural disasters here at home. In economic terms, the January floods and Cyclone Yasi will likely be the largest natural disaster in our history. Together, they will likely reduce economic growth by around half a percentage point this financial year. The supply chains for our coal exports were severely hampered, and production at some of our big mines continues to be disrupted by the floodwaters. On top of this, fruit and vegetable crops have been damaged—the disasters wiped out a significant part of the country’s food bowl. Between our coal and agricultural industries alone, we expect that production will be reduced by around $8 billion—which is slightly larger than our earlier estimates. Our tourism sector has suffered, and other industries—such as manufacturing, retail and transport—have been put under enormous pressure. This is a cruel blow for those sectors already struggling to cope with the high dollar.

The loss of production has also translated into higher prices for families—especially for fruit and vegetables. The region affected by Yasi produces 90 per cent of Australia’s bananas and around one-third of our sugar cane. We expect that the January floods and Cyclone Yasi will increase CPI inflation by half of a percentage point in the March quarter, perhaps more. While this will hurt families doing it tough, these price rises will be temporary, unwinding as crops regrow and production comes back on line.

But just as we are now seeing in Japan and have witnessed in Christchurch as well, the way the community in Queensland and Australia has pulled together has been inspiring. We have seen community groups, business and governments at all levels chip in to help the rebuild. The Queensland Premier’s Disaster Relief Appeal has raised more than $240 million. This is in addition to tens of millions of dollars of in-kind assistance.

And the federal government is providing more than $6 billion for flood and cyclone affected regions across Australia, with the vast majority being invested in rebuilding damaged public infrastructure, such as roads, bridges and schools. More than two-thirds of this will be funded through budget savings, with the remainder funded through a modest, temporary levy. And I am pleased to see that this levy passed the Senate yesterday, with the support of every single Labor MP and senator from Queensland. I do not want to get political here, but I do wonder how the Queensland MPs on that side of the House will look their constituents in the eye when they head home this Friday.

It is against the backdrop of these natural disasters that we will spend the coming weeks putting the final touches on our fourth budget. Recent events—both here and abroad—will make a difficult task even more difficult. The early years of the budget estimates will bear the brunt of the rebuilding and recovery costs, and government revenue will also take a hit from weaker growth in the short term.

But keeping our budget on track to return to surplus by 2012-13 is the right economic strategy for an economy which is expected to be pushing up against its capacity over the coming years. Just as it was the right thing to step in and support demand during the global recession, it is the right thing to do to step back when private demand is strengthening.

We have already put in place around $5½ billion in savings to meet the cost of rebuilding from the floods and cyclone. And we are sticking to our strict fiscal rules, including our cap on real spending of two per cent or less in above trend growth years. We understand that this will mean that we need to do a lot of things in this budget that will not be popular, but they will be the right thing to do.

While these events pose big challenges for our budget preparations, they will not knock our economy off its medium-term path. We were not beaten by the global financial crisis and we will not be beaten now.

Because of the decisions we took during the global financial crisis and our strong fundamentals, we face these new challenges from a position of strength. The Australian economy is halfway through its 20th year of continuous economic growth, with low unemployment, a solid investment pipeline, strong public finances and a sturdy financial system.

In resources alone, investment has gone from $35 billion last year to an estimated $56 billion for this financial year. Next year, it is expected to increase even further, to a record $76 billion. On top of this we have strong job creation—over 300,000 jobs have been added in the past year, and over 700,000 since we came to government. And we are on track to return the budget to surplus faster than any major advanced economy.

Our position of strength gives us the confidence to make the right policy choices, and our fourth budget will also keep the wheels of reform turning. We will not lose sight of the important task of transforming our economy. We have an ambitious agenda to keep our economy strong and prepare it for the challenges and opportunities that lie ahead. We have a plan to build capacity through making critical investments in infrastructure, skills and education. We are doing the hard yards in tax reform and superannuation, to broaden the economy and boost national savings. This will be another responsible budget that helps manage an economy in transition. We are committed to preparing our economy for the future and making sure we are best placed to take advantage of the opportunities.

On climate change we are putting in place the policies to transition our economy to the low-carbon future. It is important that we decouple our economic growth from growth in carbon pollution—we know the earlier we start the lower the cost and the better placed our economy will be.

With the associated investment pipeline, we know that the mining boom will also continue to push our economy towards its capacity. That is why we are investing in the infrastructure and skills, while also putting in place the policies to support increased workforce participation and labour supply. It is also why it remains critical that we deliver on our fiscal commitments and stick to our strict fiscal rules in the upcoming budget. But we will approach this task knowing that by making the tough calls now, we are putting our economy in a position of strength. This was the approach we took to dealing with the worst global recession in 75 years. It is the approach that we have taken when putting together our previous budgets. And it is the approach we will take in finalising the budget I will deliver in this chamber in less than seven weeks.

I ask leave of the House to move a motion to enable the member for North Sydney to speak for 10 minutes.

Leave granted.

I move:

That so much of standing and sessional orders be suspended as would prevent Mr Hockey speaking in reply to the ministerial statement for a period not exceeding 10 minutes.

Question agreed to.

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

Australians have watched on in despair at the devastation caused by the earthquakes that have recently struck Christchurch and northern Japan. The devastation which has impacted our friends in these countries has been difficult to watch, particularly when you see footage of people wandering the streets and cities, which have been reduced to rubble, knowing that they have lost nearly everything—and, in some cases, they have lost their loved ones. These events have truly tested the people of Japan and New Zealand, and our deepest sympathies go out to them in their hour of need.

While we focus our attention on the tragedies that have fallen on our neighbours, we must not forget the natural disasters that our own nation has had to face in recent months. Disasters such as floods, cyclones and fires are a natural and, sadly, a regular part of living in Australia. First there were the floods across much of the eastern states, along with bushfires in the south-west of Western Australia, followed by the monster Cyclone Yasi in Far North Queensland. Cyclone Yasi left an unbelievable path of destruction that has left many North Queensland communities completely disadvantaged. Many are still struggling to pick up the pieces—over a month after the storm has passed.

The Treasurer notes that the government is providing more than $6 billion for flood and cyclone affected regions across Australia, and the coalition welcomes that support. It believes the government should spend whatever it takes to get these shattered communities back on their feet as quickly as possible. What the coalition does oppose is how the government has chosen to fund that commitment with a $1.8 billion new tax. What the government should have done was fund all of the reconstruction through savings measures within the budget—and the coalition showed the way, identifying $2 billion of savings which could have been reallocated to the reconstruction effort.

Imposing new taxes is, sadly, part of the Labor Party’s DNA. Labor has announced 13 new or increased taxes in just two terms. These include the alcopops tax, the increase in the tobacco tax, the significant increase in luxury car taxes and, more recently, the mining tax, the flood levy and now the carbon tax. Enough is enough. Another tax will put already strained household budgets under more stress. Quite simply, Australian households cannot afford another Labor tax. This new flood tax will erode consumer sentiment and stifle consumer spending at a time when the retail industry is already doing it tough. There have been levies before, but the flood levy raises in a single year three times the amount of any levy introduced under the previous government. Besides the Medicare levy, this is the single largest annual levy ever introduced in Australia. The Prime Minister said it was the right thing to do. We in the coalition believe the additional tax is the wrong thing to do.

The coalition also has grave concerns about the capacity of the government to administer such large funds. They have a poor history when it comes to management of programs, including a $1.2 billion blow-out in the computers in schools program; a $1.5 billion blow-out in the Building the Education Revolution school halls program; the Green Loans program, with $300 million wasted and the program finally cancelled; and the GP superclinics, with 36 promised and only eight currently in operation after four years. Preventing these and other program spending blow-outs would have paid the $1.8 billion to be raised through the new levy and much more.

It is also worth noting that, for 2010-11, the interest paid on Labor created government net debt will be $4.38 billion this year alone. That is nearly 2½ times the amount to be raised by the new flood tax. That is a core reason that the coalition are so committed to paying back Labor’s debt when we are next in government. The interest on the debt is a huge burden for the budget. The money can be much better spent on essential services such as health, education and income support. The government also has a much greater capacity to respond to natural disasters when the budget is in surplus and there is money in the bank.

But it is not just the coalition that does not trust the Treasurer with money. The Prime Minister could not trust her own Treasurer to oversee the reconstruction of Queensland. She found it necessary to appoint a Liberal to oversee the job. On 7 February this year, when the Prime Minister appointed former federal Liberal finance minister John Fahey as chair of the Reconstruction Inspectorate, I am sure Lindsay Tanner and a number of other people in the Labor Party who had served so well for so long would have been turning in their political graves. Part of the Reconstruction Inspectorate’s remit is to:

Scrutinise requests for reimbursement by local government for projects completed for the purposes of reconstruction—

and—

Examine high value or complex projects prior to execution

Both these jobs should properly be done by the Treasurer and the Minister for Finance and Deregulation, Senator Wong. But our Prime Minister has decided to appoint a Liberal to do all this because, as she knows from school halls, pink batts and the NBN, the Treasurer is not quite up to the job of dealing with taxpayers’ money—yet the Treasurer is going to deliver a budget in May.

The Treasurer wants us to believe that the budget strategy is back on track and he said: ‘Keeping our budget on track to return to surplus by 2012-13 is the right economic strategy.’ And he went on to say:

And we are sticking to our strict fiscal rules, including our cap on real spending of two per cent or less in above trend growth years.

This is a key point. It is curious that the Treasurer has omitted to mention perhaps the most important of his fiscal rules. Let me remind the House of the three rules which underpin Labor’s medium-term fiscal strategy. They are (1) maintain tax to GDP ratio well below the 2007-08 level on average—which is 23.5 per cent (2) achieve budget surpluses, on average, over the medium term and (3) real growth in spending to be kept below two per cent until the budget returns to surplus. This restraint is to be maintained, on average ‘while the economy is growing at or above trend until surpluses are at least one per cent of GDP’. They are the three rules. The Treasurer has not mentioned the first of these rules relating to tax restraint—the 23.5 per cent rule. I suspect he is now walking away from that commitment—to use the Prime Minister’s words—because he knows that this big-taxing government will not be able to meet that promise. This is a further example of the disingenuousness of the government and it is a clear signal that the forthcoming budget will be built on a lie.

This budget is going to have a gaping black hole. Budgets are supposed to include the financial effects of all policy announcements of government. The government has announced that it will be introducing a carbon tax as early as 1 July 2012. It stands to reason that the funds to be raised through the carbon tax should be included in budget revenue and the spending associated with the so-called compensation measures should be included in expenditure. However, the government has decided, deliberately, not to announce any of the detail of the carbon tax, such as the rate, to whom it applies, which industries will be exempt and so on. It has also failed to announce the households and industries that will receive compensation. It is not even putting an in globo figure into the budget papers. This means that it is virtually impossible for Treasury to determine revenue and spending with any certainty. However, the ongoing speculation about the level of the mining tax suggests that, if the mining tax has a starting price of between $20 and $30 a tonne, the sums will be significant.

On page 27 of Ross Garnaut’s climate change review, update paper No. 6 states that a carbon price of $26 per tonne carbon dioxide equivalent would generate around $11.5 billion in 2012-13 alone—$11.5 billion on the revenue side; $11.5 billion on the expenditure side. A recent report by the Centre for International Economics suggests that the price on carbon will need to escalate rapidly following the end of a fixed-price period in order to achieve the required emissions reduction. Therefore, for a starting price of $20 per tonne, the price increases to $49 in 2016-17. That equates to an annual tax take in excess of $20 billion. For comparison, the GST collects $50 billion a year. So the carbon tax is equivalent to increasing the GST from 10 to about 14 per cent. This is a significant black hole in this budget, and it clearly illustrates that the government is unable to meet the 23.5 per cent target, and that is why the Treasurer has stopped talking about it. It is one of the three major components for fiscal integrity and the Treasurer has dumped it. In order to ensure that he does not break another promise, he has decided to leave the carbon tax and the carbon expenditure out of the budget. That is why the budget in May will be a big lie. It is not telling the truth about the fiscal state of the nation. (Time expired)