Its good to again be addressing a CEDA conference.
The last time I was here I gave a speech in my capacity as Minister for Climate Change and Water.
Although you would think the position of Finance Minister is quite removed from that of climate change and water policy, as I hope my remarks today make clear, my focus on long term reforms remains unchanged.
Todays discussion is an opportunity to focus on the year ahead.
To consider the economic and political circumstances of 2011 and perhaps to muse over how it might play out.
The circumstances certainly offer a wealth of material for the political analyst: minority government, the change in the Senate mid-year, a demanding reform agenda including health reform and carbon pricing, and a Budget coming back to surplus.
None of which are easy. All will require tough calls.
Unsurprisingly there has been plenty of analysis from the pundits.
Endless opportunities for conjecture.
But there is a bigger story, a more important story that demands our attention.
It is the story of where we are and where we have to go.
It is the story of Australia in 2011 and our vision for Australia in the decades ahead.
This should be our focus.
It is the story that begins with understanding where we are, identifying what we have to do and charting a course for the years ahead.
Australia in 2011
Gradually the remarkable position we are in is beginning to be understood within the Australian community.
It is an understanding that must be at the centre of our national politics, because it is at the centre of our economy.
The mining boom is generating the biggest investment surge since the gold rush, pushing Australias terms of trade to historic highs.
The private sector is responding with over $124 billion in new investments slated for this year alone.
We have witnessed a fivefold increase in mining investment since 2004, with more to come.
Including for South Australia the proposed investment in the Olympic Dam expansion by BHP, who only a few days ago announced a 72 per cent increase in their first half profits.
There is no doubt the sector is booming.
But with this good news comes challenges.
We will see capacity constraints become more pronounced, and the effects on the high Australian dollar continue.
We have come through the GFC in a position of strength, we now need to manage the boom.
We cannot afford to fritter away the once-in-a-generation opportunities.
We now need to capitalise, we need to leverage the mining boom and build the foundations for long term growth.
Above all, these circumstances present an opportunity; an opportunity to build our prosperity in the years ahead.
The temptation to do otherwise is always going to be present. We have seen examples of this in the recent past.
But the temptation must be resisted.
All of us need to stand firm for long term reform.
This applies equally to those in the Parliament, the Government, and business.
This insight must be central to informing the debate and understanding the decisions we make.
Our job is to turn todays growth into tomorrows prosperity.
Asking the right questions
We need to act today to deliver our vision for tomorrow.
This will not be easy in the current political environment.
With the opportunities for non-Government parties never greater - the stage never more enticing - the debate can be lost between blunt obstructionism in one corner and easy popular offerings in the other.
Politics always risks being caught in the present.
On one level this has always been the case: its just politics.
But the current state of the federal parliament has amplified these tendencies.
In the face of this, we must work to shift the debate. To raise the sights of politicians and the public from the daily cut and thrust to the substantive issues that will shape this country for the coming decades.
Governments are elected by the current generation, but are expected to look to the future. We cannot forget this.
Taking the debate forward, and articulating a coherent and sound policy argument is vital, day after day.
To do this we need to be asking the right questions.
We need to be asking whether a policy will be good for the country in five, ten, twenty years time.
Whether a child born in 2011 will have more opportunity than someone born in 1951?
Whether a decision on one policy closes off another more significant reform down the track?
In health care, education, the economy and climate change, the government is reforming now, so that future generations can enjoy standards of service and living comparable to our own.
The need to take this approach is acute.
Now is the time to be asking the long term question because the opportunities for reform have never been greater.
The current fundamentals of the Australian economy are strong, with Treasury predicting that high levels of demand for our commodities will continue for an extended period.
However we do know that the resources boom wont last forever, therefore it is imperative that we use this opportunity to reform.
That we make the most of the boom to set Australia on the right trajectory.
That the benefits of natural resources extracted by one generation are shared with future. This is the right course of action.
We must be a Government that makes decisions for the long-term.
We must be a Parliament that makes decisions for the long-term.
This is the way I will approach my first Budget as Finance Minister.
It is the same way I approached the difficult issue of climate change.
Because some challenges are too great to fit within an electoral cycle.
The challenge of addressing climate change.
The challenge of reforming our health system to enable sustainable services into the future.
The challenge of returning our budget to a strong and robust surplus.
These are challenges that demand a long-term lens.
These are challenges that require politicians to listen to the silent voices of the next generation over the din of todays vested interests.
These are challenges that we must address today, for tomorrow.
The merits of a price on carbon become very clear if you think forward to the costs being imposed by inaction on our children and grandchildren.
So too with the economy and the Budget.
For example, we know states will be incapable of funding their health budgets in just a few decades time if we dont tackle the flawed funding arrangements that we have today. This is why the agreement the PM struck with state Premiers on the weekend was so important.
We know a surplus will become an increasingly difficult goal if we shy away from the unsustainable funding pressures embedded in our budget.
This is why this Government will face challenging decisions in the upcoming budget.
The difficulty in this Parliament is that we are up against the consummate short-term politician a politician who will always put his political interests above the interests of everyday Australians.
A politician who appears incapable of discussing, or even contemplating, the merits of long-term reform.
His focus is on the next few days.
As the Government, our focus has to be on the next few decades. And it very firmly is.
Getting the policies right
The key challenge I see from my portfolio, simply defined, is converting this period of growth into a lasting prosperity.
Ensuring our success outlasts the boom.
In achieving this goal I see three touch stones.
Returning the Budget to Surplus
The first is the need to get the Budget back to surplus. The Governments commitment to a surplus in 2012-13 is the cornerstone of our fiscal policy. There has been much commentary over the merits of returning to surplus in two years time - both from within the Parliament and out.
So why is the return to surplus important?
In an economy nearing capacity, self evidently a government should not be adding to demand pressures. Notwithstanding the impact of the recent natural disasters, all evidence points to an economy close to capacity over the medium term, an economy on a strong growth trajectory.
We are experiencing record terms of trade, and a strong Australian dollar as demand for our minerals increase unabated. Growth rates in China and India are surging, and their appetite for minerals and the raw inputs of production are a boon for Australia.
Against this background its sensible for the Government to make space for the expansion of private sector activity.
And it is responsible for the Government to be committed to budget surpluses.
Expanding capacity and improving productivity
The importance of the government running a surplus is only one part of the equation in a growing economy.
The Government is also using the boom to strengthen the broader economy, to leverage the exponential growth in one sector to benefit the entire economy.
The MRRT is supporting structural reform in the economy. It will reduce capacity constraints today, and reform the economy for the future.
Revenues from the Minerals Resource Rent Tax will be directed to the infrastructure needs in the resource heavy regions. Without the MRRT, such vital investment would not be possible, and the fast approaching capacity constraints would become real restrictions on growth.
The MRRT will also support the increase in the superannuation guarantee, from 9 to 12per cent. For workers this will see a more dignified retirement, but also, as the population ages, reduce pressure on age pension payments.
This is a structural reform that will reduce the call on Budget for decades to come. The corresponding reduction in the company tax rate will ensure the economy as a whole benefits from the boom.
Again, this is supporting structural reform in the economy.
This is responsible management of the boom leveraging the boom now and strengthening the economy for the future.
Similarly, investing for the future should be prioritised in a period of significant growth. An investment today will yield returns tomorrow.
The National Broadband Network is a key plank in this strategy of investing for the future. Rolling out high speed broadband to every household and business enables a step change in our economy, and our community.
The NBN is providing a platform with universal access and universal coverage from which the opportunities for innovation across the gamut of business and human interaction is profound.
We only have to look to the accountant in Yorke Peninsula providing services across the country, the radiologist making a diagnosis hundreds of kilometres from the patient or the proliferation of applications on smart phones to just glimpse the possibilities.
The NBN is a platform for the future, a driver of innovation that will provide endless opportunities for all Australians.
It is another key part of how this Government is ensuring that our success outlasts the boom.
Sustainable budgeting
We know the boom wont last forever, and we must resist the temptation to spend as if it will, to lock in ongoing pressures.
We do not have to look to far to see how the boom shouldnt be managed.
During the final term of the previous Government the Coalition government saw revenue windfalls of $334 billion over the years from 2004-05 to 201011.
Of this, 9 in 10 dollars disappeared in either permanent revenue reductions or permanent increases in government expenditure.
9 in 10 dollars.
This was endemic of government more focused on using the Budget to announce new spending, than reform.
They had an opportunity to look to the future.
But far from facing up to the tough challenges, they made the situation worse.
They disregarded the long term position of the Budget and spent the boom.
Our Government will not be repeating their mistakes.
We know that without sustainable finances, progressive outcomes will not be possible. Labor values of fairness, equity and opportunity will not realised.
This will require prioritisation. This will invariably require tough choices.
But it is the right approach.
Health reform
The Governments recently announced health care package demonstrates our commitment to sustainable service delivery.
Consider that in real terms, the Australian Governments expenditure on health per person is projected to increase more than three-fold over the 40 years to 204950.
Driven by an ageing population and ever expanding medical services and pharmaceuticals, Australian Government health care expenditure will increase as a proportion of GDP from 4.0% in 2009-10 to 7.1% in 2049-50.
Treasury has concluded that by 2045-46, total spending on health and hospitals would consume, in aggregate, the entire revenue raised by State governments.
That is, every dollar of revenue coming in will be required to keep up with rising health costs.
This statistic is telling State governments would not be able to fund teachers, police officers, fire fighters and bus drivers if the situation is ignored.
State Governments would not be able to provide for the next generation.
In South Australia this challenge is more pressing than in other States.
South Australia is already experiencing a lower ratio of working age to retirement age residents.
The Australian Bureau of Statistics projects that the aged dependency ratio nationwide Australia will deteriorate from 5.2 in 2010 down to 3.2 by 2050.
In comparison, the starting point for South Australias ratio is significantly lower at 4.0 in 2010 and will fall to 2.3 by 2050.
These demographic trends pose significant and pressing challenges for Governments at all levels.
One response to this is to ignore the problem, to let the next generation of politicians deal with it, let them make the tough decisions and take the political flak.
This was the response of the Federal Coalition government.
It is not the response of this Government.
The Gillard Government is acting today, so that our children can enjoy better health care standards than our generation.
To ensure that health care remains accessible, world class and affordable.
In the face of this structural pressure the Government is putting forward a structural reform.
From 2017-18 the Commonwealth will fund 50% of the efficient growth in hospital funding.
To give an indication of the benefits, on a population share basis, SA could expect to receive an additional $1.2 billion in hospital funding between 2014-15 and 2019-20.
This investment is matched by significant reform.
There will be more local control of hospitals.
There will be a new funding model with a clear efficient price for hospital services and activity based funding, to drive efficiency and reduce waste.
And more transparency through strict reporting to the public via the MyHospital website.
As an advanced society, people have high expectations, and for the first time the public will have full information to assess hospital performance.
With an ageing population and advancing medical technology there are significant pressures on our health system.
The choice for Governments is whether they act now so their health system can cope with increased demand and challenges, or to sit back and let health systems and budgets gradually be overwhelmed.
This Government has acted now, so generations of future Australians can continue to receive world class health services.
Concluding Remarks
Across the policy spectrum, the Gillard Government is reforming for the future.
We are asking this generation to think about the next, and to act accordingly. In the current political environment this will not be easy.
But this approach is central to being a Labor Government.
We are the party committed to governing for the future.
We are the party committed to governing to realise progressive outcomes.
We are the party committed to the ensuring that the next generation has greater opportunities than our own.
My hope is that in ten years time the CEDA conference outlook for 2021 is able to look back at circumstances in 2011 and say we invested well.
That we used the boom to deliver for the next generation.
That we acted for the future.
