Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

In a curious speech last year, the Prime Minister's No. 1 business advisor, Maurice Newman said:

… Australian wage rates are very high by international standards and our system is dogged by rigidities.

In a carefully crafted takedown, the noted economist Stephen Koukoulas observed that Mr Newman had kicked an own goal. He cited a number of nations with lower minimum wage rates than Australia but in each case the country he cited had a higher unemployment rate. The example was most extreme in the case of Canada—which Mr Newman curiously referred to as our closest competitor—which, in the 38 years since 1975, has never had an unemployment rate below 5.9 per cent, compared to Australia, where the unemployment had at the time not been above 5.9 per cent since 2003. So much for low wages helping labour market efficiency and driving unemployment lower.

The facts fly in the face of the Prime Minister's No. 1 business advisor, in much the same pattern as we are seeing for government advisers on climate change. Like Maurice Newman, Dick Warburton is a climate change sceptic and yet Australia is now seeing temperature records being broken across the board—the year of the highest temperatures on record, the summer of the highest temperatures on record and record hot spells dispelling the climate change deniers like Maurice Newman and Dick Warburton.

Today, a speech by Christopher Kent, of the Reserve Bank of Australia, went further and dispelled the views of Mr Newman on wages. In a speech titled 'Cyclical And Structural Changes in the Labour Market', Christopher Kent noted a number of points about the labour market. He noted, in particular, that the NAB business survey showed that wage growth has slowed over the past year. Wage outcomes of more than four per cent have become far less common than was the case a few years ago, and outcomes of two to three per cent are more common than outcomes of three to four per cent. He went on to note:

The slowing in wage growth across all industries has meant that firms have experienced relatively slow growth in their labour costs. This is more striking after accounting for the growth in the productivity of labour, which as I've already noted has picked up somewhat compared with the pace we had become accustomed to over much of the 2000s. Over the past year and a half, the growth in nominal wages has been matched by growth in labour productivity. As a result, there has been no increase in the cost of labour required to produce a unit of output.

In turn, slower growth in labour costs is having a beneficial effect on international competitiveness.

So the data gives the lie to the Prime Minister's No. 1 business advisor, who would have you believe that there is a wages break-out in Australia. The problem with the rhetoric about a wages break-out is that it distracts Australia from more pressing economic challenges. As Reserve Bank officials have noted many times when they have appeared before the House of Representatives Economics Committee, Australia does not have a deficit problem by comparison with other nations around the world. With debt levels peaking around a tenth of national income, Australia is extremely well placed compared to the typical developed country, whose debt is often nearly as large as, and in some cases larger than, their national income. Why does Australia have debt? We have it because we chose to step in and to support 200,000 jobs and tens of thousands of small businesses.

Opposition Members:

Opposition members interjecting—

Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

When those opposite interject and suggest that they would have had Australia take on no debt, effectively they are taking the position of the man who chooses when the floodwaters rise not to put a lifeboat on the credit card. They would have chosen loss of jobs and a recession ahead of taking on modest debt. What Australia bought for the modest debt that we took on during the global financial crisis was hundreds of thousands of lives not blighted by unemployment and small businesses that were able to survive. The best small business policy ever pursued by a government over the course of the last generation was fiscal stimulus in the teeth of the worst downturn since the global recession. When those opposite seek to airbrush out the global financial crisis from Australia's history they are doing a disservice to the bipartisan fiscal stimulus policy supported in its first tranche by the coalition but then backed off from by those who would have you believe that it is better to drown in floodwaters than to put a lifeboat on the credit card. Like the rhetoric on a 'wages break-out', the rhetoric on deficits is belied by the facts.

To the extent that anyone is concerned about deficit levels in Australia they should be concerned about a government that has increased the deficit compared to the Pre-Election Economic and Fiscal Outlook. The yardstick when a government takes office—as Peter Costello taught us through the Charter of Budget Honesty, and as Scott Morrison, the Minister for Immigration and Border Protection, admitted in question time—is the Pre-Election Economic and Fiscal Outlook. As the minister for immigration put it, that is when officials tell the truth. Compared with that benchmark, the deficit is higher this year, it is higher next year and it is higher under the forward estimates. So those opposite can bleat all they like about deficits. They have increased deficits not decreased them.

Government members interjecting—

Those opposite may laugh but these are simple numbers. You can laugh in the face of the budget papers all you like, but the only way those opposite are able to show that they have decreased deficits is if they compare Joe with Joe: if they compare the outcome in the Mid-Year Economic and Fiscal Outlook brought down by Joe Hockey with the outcome in the budget brought down by Joe Hockey. If we do the right thing, the fair thing, the only decent thing, the Charter of Budget Honesty thing, and compare this budget with the Pre-Election Economic and Fiscal Outlook, we see that it has a bigger deficit not a smaller one.

Globally Australia does not have a debt and deficit problem, but this government is making the problem worse with its deal with the Greens for unlimited debt and with its increase in the deficit. Australia has serious economic challenges to focus on, but those challenges are being distracted from by a government more interested in trash talking the economy than talking it up. We have seen a collapse in consumer confidence, we have seen declining retail sales and we are seeing a fall in house prices. These things are being driven by a government that is fundamentally wanting to remain in opposition mode. We have a Treasurer who is a shadow Treasurer in drag: he is more interested in talking about the problems of the Australian economy than speaking about the great bipartisan success of two decades of uninterrupted economic growth. As Stephen Koukoulas has pointed out and as Matt Cowgill has articulately pointed out on many occasions, the data give the lie to Mr Hockey's attack on the Australian economy. But his attack on the Australian economy has real consequences. It is not just coalition voters who spend; it is Labor voters too and their consumer confidence is going through the floor.

Australia's biggest challenges are around innovation, around increasing literacy and numeracy scores and around inequality, which has risen through a generation—a generation in which battlers have done worse than billionaires, in which earnings have risen three times as fast for the top 10 per cent as for the bottom 10 per cent, in which the top one per cent income share has doubled and the 0.1 per cent income share has tripled, and in which the richest three Australians have more wealth than the poorest one million Australians. But this budget is a redistributive one—a budget, as John Falzon told a rally for International Cleaners Day in Federation Mall at Parliament House, that takes away from the most vulnerable to give to the most affluent.

They have taken away from the most vulnerable to give to the most affluent. As independent NATSEM research has shown, having taken one-tenth of their income away from the poorest single parents to give to the most affluent Australians, those opposite have the gall to call it class warfare when low-income Australians complain. They do not think it is class warfare when they take money out of the pockets of the poorest single parents in order to give $50,000 to millionaires for a parental leave scheme. They do not think it is class warfare when they cut the pension in order to raise the non-concessional superannuation cap from $150,000 to $180,000. No—they only think it is class warfare when the most vulnerable Australians object to having money taken out of their pockets after a generation of rising inequality. (Time expired)

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Standing Committee On Economics' review of the Reserve Bank of Australia's annual report of 2013. I must admit I am a little confused about what issues in that report the Shadow Treasurer and member for Fraser was actually talking about, but I do know that he is the author of some very informative books where he makes some very wise and insightful comments. But I am afraid, after some of the points he raised there, that his next book will be more likely to be a children's fiction novel than anything of economic significance.

I will address a couple of the points that the member for Fraser raised. He talked about unemployment. Let us be clear: the record of the previous Labor government saw the unemployment queues of this nation increase by 200,000 people. We can fill the MCG twice with the extra number of people who became unemployed under the policies of the previous Labor government. So the member for Fraser is in no position to stand up here and lecture us about unemployment. Already this year we have seen an extra 100,000 jobs and the majority of those are full-time jobs, as the member for Herbert correctly points out.

The member for Fraser also went on about small business—about the wonderful work that the previous Labor government did for small business. Let me remind the member for Fraser of the number of jobs lost. Does the member for Fraser know the number of jobs lost in the small business sector over the previous six years, when he was a member of the Labor government? It was 513,000. Over half a million jobs in small business were lost during the six years of the previous regime.

Government Member:

A government member interjecting—

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

That is right. There were six separate ministers—a revolving door of small business ministers—and the member for Fraser comes in here and tells us about the wonderful things the previous Labor government did for small business. Dear, oh dear, oh dear, Deputy Speaker. Then he talks about consumer confidence. Well, if you want to damage consumer confidence, you run around the nation engaging in misleading scare campaigns. That is exactly what we hear from the opposition since the budget was handed down: we hear them running out scaremongering, scaring pensioners and students. What they should be out doing is telling the truth.

Firstly, the truth when it comes to health care: there are no cut; there is a nine per cent increase this year, a nine per cent increase next year and a nine per cent increase the year after that. In education, it is eight per cent this year, eight per cent next year and eight per cent the year after. But what upsets me most about the damage they are doing to consumer confidence is the way they are scaring young students, telling them these outrageous stories about how this coalition government is supposedly ruining their future. Let us get some facts right: in this country the coalition plan is to give the opportunity to give 80,000 more young Australians to get into higher education and learning. And you know what? They will be able to do so without spending one cent up-front. We know, also, that if you leave year 12 and go on to get a university education, throughout your life you will earn on average 75 per cent more than your peer who leaves school at year 12. Over a lifetime that is an additional million dollars.

That is the value of education. That is the message we should be out there telling our kids and our young people: get that education because it will allow you to earn a much greater living in the future and to make a greater contribution to our nation. Yes, you will have a HECS debt, but the taxpayer will pick up at least 50 per cent of the cost of your education. You will only have to pay 50 per cent, and that is one of the best deals those young people could ever get. That is the message we should be out there telling the young of Australia, not the scare campaigns that we are hearing from the opposition.

Getting back to the report of the Reserve Bank, what this report actually shows is the dangerous denialism we are hearing about the debt and deficit crisis that we have in our nation. We all know that back in 2007 we had no net debt—zero. We actually had money in the bank. Then of course the Labor government was elected and we heard that we would have a temporary deficit. Well, we had six years of so-called 'temporary' deficits, the six largest deficits in our nation's history. The debt that this nation now has outstanding at the end of June, as per the budget papers, is expected to be $358 billion.

What is the cost of that? The cost is the interest payments to service the debt. We must pay this back sometime in the future, but until we do that we have that interest cost, the cost of the debt. At the moment, that cost is $12 billion every year—a billion dollars every month, $33 million every single day. That is the cost. That has an opportunity cost. Instead of spending on the services that we need—the infrastructure, the aged care, the hospitals, our kids with disabilities, more money on education—we have to put that money aside and we have to use it to pay the interest bill on the debt that the previous Labor government ran up. And we have to do that forever until we start paying that debt back. We know that if nothing is done and we continue in the direction we are going, that debt will not be $300 billion. We are heading in a decade's time to a net debt of $666 billion. If we ever hit that day, the interest payments would not be $12 billion a year; they would be close to $36 billion.

But we must remember one thing about the cost of this debt and how we are stuck with it forever and how we are lumbering this onto our children and our grandchildren who will have to pay it: what will the bond rate be in 10 or 20 years time? At what interest rate will this nation be able to go out there and sell government bonds in 10 or 20 years time? At the moment, that billion-dollar a month we are paying is done on the current 10-year bond rate at around 3.7 per cent. So I do not care how far-sighted or how clever anyone is. No-one knows what rate we will have to sell those bonds again in 10 or 20 years time if we do not start paying that debt off.

We do know how inaccurate the long-term economic forecasts have been. If we look to the past, most of the long-term economic forecasts that have been made are simply wrong. So again I ask: what will the interest rate be in 10 and 20 years time? If we go back through history, that can give us an idea of where it could possibly be in the future. The long-term average of the bond rates between 1969 and this year is 7.78 per cent. We are now half the long-term average. In fact the highest bond rates we had were back in May in 1982 when we were selling government bonds for 16.4 per cent—16.4 per cent versus 3.7 per cent. One of the biggest risks we have in this nation going forward is what happens if there is a spike in global interest rates and those bond rates creep up to where they were for the long-term average of the last 40 or 50 years?

If they do, we will not be facing interest repayments of $30 billion. We as a nation could be facing interest repayments of up to $60 billion.

Just imagine if future governments had to find another $30 billion on top of the present debt. That is the risk we are putting on our kids. This is why we need to take this action, to get our debt under control, to reduce it. I do not want my grandchildren or great-grandchildren to have around their heads the burden of needing to pay this huge amount of debt and interest or the risk that it could blow out and double because of the increases in the long-term bond rate. That is one of the risks that this— (Time expired)

Debate adjourned.