For the Finance Minister there arent many weeks in the calendar bigger than Budget Week.
The Budget is the culmination of months of work.
It represents the Governments priorities. And it sets out our plans for the future.
With the 2013-14 Budget, the Government made a choice to keep our economy strong and to invest in our future.
It is a Budget that responds to the economic circumstances, and supports jobs and growth.
It is a Budget informed by Labor values the values that guide our outlook for the nation.
And it is a Budget that presents a clear pathway to balance the books by 2015-16 and to return the budget to surplus by 201617.
The pathway to surplus requires a number of significant saves.
But these difficult choices are necessary to fund the key investments that will see a stronger economy, a smarter nation and a fairer society.
Budgets are about choices. They involve choices about priorities. About what to spend and where to save.
But they are much more than an aggregate of these decisions.
At the core of a Budget this Budget is a choice about the future.
Because it is only by resourcing a plan that it becomes real.
A good idea is just that until it is put into action.
And in this Budget, you see the funding for DisabilityCare.
You see us make possible our school reforms.
One of the great privileges of being in Government is that we can make these good ideas, these plans, these important reforms, real.
Unfortunately, some of the commentary this week has missed this point, preoccupied with suggestions that this Budget was designed to be a wedge some kind of trap. We even had former Prime Minister John Howard enter the fray, suggesting that funding the school reforms and DisabilityCare was part of some strategy to politically disadvantage the Opposition.
This is not only ridiculous, it is contrary to the facts.
This Budget fully funded two historic reforms of this Government over the forward estimates period, and beyond. Far from it being a wedge, this is the fiscally responsible approach to budgeting.
The 2013-14 Budget responds to the economic circumstances and puts in place the right investments for our future.
It brings together values and circumstance; the enduring and the temporal.
So, while the economic circumstances before us are unlike any that a Government has faced before, our approach to the Budget remains embedded in our core principles.
As the Treasurer said on Budget night: No Government gets to choose the global economic circumstances in which the Budget is framed, but you do get to choose the priorities for the nation.
And our priorities are clear.
To support jobs and growth, and to make the right investments for our future.
Our nation's outlook is bright, building on our impressive record of resilience over the past five years.
- More than 950,000 jobs have been created under Labor, with more Australians in work today than ever before in Australias history.
- We have Triple-A credit ratings from all three major global agencies one of only eight countries to do so with a stable outlook. And all have been reaffirmed since the Budget was handed down on Tuesday night.
- Our economy is more than 13 per cent bigger than it was when Labor came to Government. In comparison, the UK economy has shrunk more than 2 per cent, while the United States has grown just 3.2 per cent. And our growth is set to continue to outpace most of the developed world.
- We have contained inflation, record low interest rates and strong public finances.
There are two big transitions underway.
First, we are seeing the mining sector entering a new phase shifting from an unprecedented growth in investment to rapid growth in exports as production ramps up.
Second, the economy is transitioning towards broader non-mining sources of economic growth as investment and activity in other sectors picks up.
These transitions will not be seamless. They will best be managed by continuing the sensible approach to fiscal and monetary policy that have underpinned the growth and employment Australia has achieved to date.
And these transitions dont occur in a vacuum.
They are taking place against a backdrop of a global economy undergoing profound change. It is a time that sees the economic opportunities of the Asian Century closer than ever before.
But while our economy has been resilient, and starts ahead of most our peers, we are facing some pretty unusual and testing circumstances.
These are the economic facts and this is what serious leaders have to confront.
Weve seen nominal GDP growth fall below real GDP growth in through-the-year terms over the past three quarters. This is unprecedented in the 50 year history of the national accounts. And its largely due to the unusual combination of the sustained high dollar in the face of lower terms of trade.
This combination makes it tougher for exporters who receive less for what they sell, and, in an attempt to keep profits up, they push back on suppliers, often paying less than they would in better times.
Its also hard on those domestic firms that compete with imports that have become cheaper.
They too are under pressure to keep their prices down think of the domestic tourism sector for example.
Most of us intuitively understand the pressures the high dollar brings.
But what is less understood is the transmission effect that these circumstances are having through the Australian economy as suppliers in the non-tradeable sectors reduce prices to remain competitive.
In the end, virtually no part of the economy is immune.
Even those non-trade exposed sectors which we traditionally think are largely unaffected feel the pinch as consumers switch their spending away from things like restaurant meals towards cheaper imports of clothes or electronics.
The net effect is increased competitive pressures that make it tougher for businesses right across the economy from retail trade to manufacturing to tourism.
As a result of these forces, prices are growing slowly and profits are being squeezed by more than we or frankly anyone else expected, right across the board.
This has seen the National Accounts measure of corporate profits fall for a record five consecutive quarters.
Outside of mining, profits grew by not quite 1per cent in 2012, well below the average of 14per cent in the 10 years before the GFC. And because so much of government revenue is based on profits, this squeeze on profits has fed straight through to lower tax collections by government.
The impact of this on the Governments Budget combined with a slower recovery in capital gains tax and lower revenue from resource rent taxes has been savage.
This years Budget includes the second biggest writedown in tax receipts since the Great Depression a total of $60 billion over the next four years. That is, we now expect to receive $60 billion less than was anticipated just 6months ago.
There has been plenty of commentary about our revenue forecasts.
Id like to briefly make two points in the context of these writedowns.
First, as several economists have already acknowledged, our Budget forecasts on which revenue projections rely like nominal GDP growth and the terms of trade are broadly in line with the RBAs and other private sector forecasts.
Second, while revenue is expected to grow next year, it is from a much lower base and more slowly than we anticipated.
Tax receipts are expected to be just 21.5 per cent of GDP in 2012-13 lower than the 22.2 per cent we expected in MYEFO and dramatically below the average of the five years prior to the GFC of 24 per cent.
That is, we forecast for much lower levels of tax than Peter Costello received; but tax levels dropped even further.
In fact, if we collected the same level of taxes as a share of the economy as left by the previous government we would have an extra $24 billion in taxes in 2013-14 and be comfortably in surplus by around $6 billion.
In light of this change in circumstances, the Government faced a clear choice.
We could have chased revenue down and pursued a surplus in the coming Budget year or in 2014-15. We could have made the savage cuts required to bring the Budget back to surplus next year.
But we made the choice to not go down this path because of it consequences for Australians.
It was not an academic decision, nor a decision taken in a vacuum. The austerity counter-factual exists.
It doesnt take much reflection on the European experience following the GFC to see what harm can happen when governments cut too much, too quickly.
In Spain you have every second young person out of work.
In Ireland it is every third young person without a job
You have the depletion of capital as businesses close and dislocation from the labour market as economies contract.
The effects of an austerity regime in Europe will see a forgotten generation in some countries a generation that will look to Australia with envy.
Again, we dont get to choose the economic circumstances, but we do make the choice about how to respond.
And the 2013-14 Budget is driven by the imperative of ensuring the nations prosperity today and tomorrow. It is about jobs that families rely on today and the opportunities we want for our children tomorrow.
The Budget handed down this week is a responsible economic plan that gets the big calls right.
It maps a pathway to surplus over the forward estimates, and fully funds critical reforms to deliver a smarter, fairer and stronger future.
This discipline is important, and it is necessary for a reforming government. Marrying reform and fiscal discipline defines the Labor project.
We were not going to short change future generations by delaying the big reforms.
But we also werent going to announce a significant new spending without detailing how they will be funded.
The Prime Minister set this out in her National Press Club speech in February, stating that we would introduce structural savings when introducing structural calls on the Budget.
And the Budget includes $43 billion of responsible and targeted savings that improve the budget bottom line.
These savings contribute to a sensible pace of fiscal consolidation and help make room to invest for the future.
After accounting for new spending, the savings in this Budget deliver a net improvement in the budget bottom line of $28.4billion over the forward estimates. And they bring the total amount of savings identified in the last six budgets by Labor to around $180billion.
Many of these savings will improve the budget position over time.
Significant longterm savings measures in the Budget include the increase in the Medicare Levy to fund DisabilityCare; reforms to family payments that improve the sustainability of the system; and phasing out the poorlytargeted net medical expenses tax offset.
When added to the long-term savings we have made since our first budget in 2008-09, these savings mean the cumulative budget position is better off by $300billion by 202021.
The Budget again delivers on our disciplined approach to spending.
Payments as a share of GDP average 24.2 per cent over the five years from 2012-13 lower than the average over the previous thirty years of 25 per cent. And real spending growth averages 1.3 per cent, in line with our fiscal rules that constrain growth to 2 per cent on average.
In contrast, spending growth under the last five years of the Howard government was nearly three times faster, at 3.7percent.
Within the necessary fiscal constraints, the Government has made the investments we know are vital to our countrys future.
These reforms to build a smarter, strong and fairer Australia will shape the economic and social future for the next generations.
These investments continue the Labor tradition of government.
We are the political party that always looks to the future, and is prepared to do the work both policy and political to build that future. We understand that central to the future is the next generation.
The Budget lays out and fully funds our commitment to a smarter Australia.
Australias current school funding arrangements arent up to the task.
We know that children from less-affluent backgrounds are up to three years behind their peers.
One in 12 Australian kids arent meeting minimum standards in reading, writing and maths.
And the average Australian 15 year old maths student is two years behind a 15 year old in Shanghai.
As the Budget papers make clear, were the current funding formula to stay in place, schools across Australia would be $16.2 billion worse off the next years.
That is why the Government is funding schools reform to lift all schools and providing funding on the basis of need, and not a students postcode.
The Budget also fully funds our plans for a fairer Australia through our commitment to DisabilityCare this generations Medicare.
The impact of this policy on those families affected by disability will be profound.
For too long disability has been a cruel lottery.
The reforms introduced under this Government means that is no longer the case, giving comfort and certainty to Australian families.
DisabilityCare is the next piece in the social safety net built step-by-step by Labor governments over the past century. It is the next part of a social project for a fairer and dignified society.
The Budget also lays out our plans for a stronger Australia with $24 billion in productivity enhancing infrastructure investments.
Across Australia, this Government is funding the next wave in nation building projects, including the:
- Cross River Rail Project in Brisbane;
- The Sydney Motorways projects; and
- Here in Melbourne, the Melbourne Metro.
In putting together a Budget together, the role of the Finance Minister is not only to pore over the numbers.
Its also to keep focussed on the future. To make the best decisions for today and tomorrow.
Because the choices we make in the Budget the investments and the savings we make will shape this and the coming generation. This is true for both the aggregate and the specific.
We need a Budget that is appropriate in size to the economy, with the right policy mix to underpin jobs and growth. This requires a significant amount of work behind the scenes.
The Finance Minister rarely stands up at the big policy announcements. But the Finance Minister plays an active role in making sure these reforms become reality by allocating and reallocating the finite resources of government.
Finding the room for these reforms is not always a glamorous job.
As Finance Minister, I am often charged as being the one who always says no.
But Ibelieve that the best representation of my job is prioritisation.
And to dispel the myth once and for all there are rarely any easy saves of any material significance.
The choices before government arent in the simplified world of good and bad spending. They are in the world of worthy and more worthy spending choices.
This is evident in the funding identified for DisabilityCare Australia. This is a reform as pivotal to our society as Medicare, yet for all the virtues of the policy, savings were needed to fund the reform. The importance of this reform demanded it.
When you see firsthand the impact that this policy will have for hundreds of thousands of Australians, how could we shy away from the funding task?
In addition to the increase in the Medicare Levy, controversial reforms to Private Health Insurance, health tax offsets and superannuation concession were taken to fund DisabilityCare, not just over the coming four years, but over the coming decade.
It is decisions like these that demonstrate how the 2013-14 Budget charted the responsible course of maintaining a strong fiscal position, supporting economic growth and investing in our future.
With the Budget tabled and the announcements made, it is easy to forget that another Government faced with the same economic circumstances could have approached the Budget very differently.
The counter factual can be telling.
Consider a Budget that made savage cuts to deliver an early surplus.
It would have precluded investment in the important reforms that will see our children in the top five schools in the world.
It would have meant that DisabilityCare would have remained as out of reach as it had before this Labor Government started this important process.
It would have meant that the once in a generation opportunity to reform our schools was missed.
And more fundamentally, it would have put jobs at risk and it would have put growth at risk. A risk of higher unemployment and lower growth not a risk this Government would be prepared to take.
Alternatively, we could have pursued the big reforms but not exhibited the discipline required to put them on a sustainable budget position.
We could have avoided the political pain of abolishing the Baby Bonus and closing business tax loop holes.
These were not easy decisions, but when faced with the Budget challenge, we chose to make them.
When faced with the reform imperative needed to set our country on the path to a smarter, strong and fairer future we made the right calls.
Budgets are about choosing the future.
And this Labor Government, like those before it, is clear about the future we want for Australia.
If you take stock and look at the best aspects of public policy in this country the policies that strengthen our community, the policies that make a fair go a reality and not just a slogan, and the policies that support all working Australians, you realise that these are the results of Labor Governments.
Our legacy in Government is the Australian experience.
This Labor Government is making the same choices as those that have come before us. And our reforms are firmly in the Labor tradition seeking to bring about a modern Australia; a fairer society; and a growing economy.
This Government is implementing the reforms that will shape my daughters generation.
School reform and DisabilityCare Australia continue our reform agenda.
We build on Labors record of establishing Medicare by continuing to invest in our health services.
We have delivered thousand extra nurses, over 90,000 more elective surgery places, 13,000 extra aged care places and 1.5million teenage dental checkups.
We are determined to see women supported to return to work, and stay in contact with the labour market.
That is why we have introduced paid parental leave 18 weeks at about $600 per week.
A long fought for reform that is already helping hundreds of thousands of Australian women.
We know that the future economy is a clean economy.
That is why we have introduced a carbon price which is driving down greenhouse gas emissions and lifting investment in renewable energy.
That is why we declared the largest marine parks in the world and saved the Murray Darling from irrevocable damage.
We know that opening the doors of our universities is crucial to overcome disadvantage and to our economic future.
That is why we have uncapped university places for degree courses and increased our investment by 75 per cent since 2007, leading to a surge of new students from lower socio-economic backgrounds.
And today there are over 18,000 more students in university from low-income backgrounds than in 2007.
We also know that supporting working families to support their kids is crucial to a modern Australia.
That is why we have supported families through increasing family tax benefits, increasing the childcare rebate and the SchoolKids Bonus.
And the trebling of the tax free threshold from $6000 to $18,200, has liberated the 1 million of our lowest paid workers from the tax system.
Labor built the superannuation system because we believe Australians all Australians deserve a dignified retirement.
That is why we introduced compulsory superannuation, and why, under this Government, we are increasing the superannuation guarantee from 9 to 12 per cent.
We also know that an inclusive society is a stronger, more productive society.
That is why from Whitlam to Gillard Labor Prime Ministers have opened up opportunity for women, ensuring that no door remains closed because of gender.
All these reforms have been built on a base of sound economic management and a growing economy.
Labor knows that it is only through a growing economy that the social policies that underpin our society exist.
The policies of Government are all about choices. And our Budget sets out the choices of this Government.
In the same way, elections are all about a choice.
We saw last night a sneak peek of what Australia would look like under an Abbott-led government.
It would be an Australia where:
- Our school children would fall further behind.
- Where the retirements of 8.4 million working Australians would be diminished.
The only reason a Liberal Government ever has a Commission of Audit is to justify deeper cuts than those they were prepared to reveal before an election.
The choice for Australians could not be more stark.
While we are planning a once-in-a-generation reform to schools funding, Tony Abbott is planning a once-in-a-generation cut to services.
This has been a difficult Parliament and at times the political culture has been toxic.
The temptation to turn off and disengage is real. But while you can make a decision to not be interested in politics, you are always affected by the decisions a government makes.
Ultimately, politics is a contest about the future.
About the future you want for your family and the Australia you want.
And we have laid out our plans for a stronger, smarter, fairer Australia.
