[Acknowledgements]
Thank you for that introduction. Its a pleasure to be here today and to participate in this session, and I look forward to the contributions of Nick Greiner and Professor John Daley later in this session.
Over the years, this event has made a substantial contribution to the discussions of Australias opportunities and challenges.
And few issues are as important as the topic of this session Restoring the Balance particularly for the Finance Minister.
Because fiscal policy is central to securing our future.
Fiscal policy underpins the role of the Government in the economy.
Today I want to widen the discussion and focus on the long term fiscal challenges before Australia and the opportunities we need to grasp.
The ageing of our population, and the resulting long term fiscal pressure, provides the backdrop for the coming decades, however, alongside this challenge we see significant opportunity.
As I will discuss today, the Asian Century and our place in it has the potential to shape the fiscal position of future governments as much as our demography will.
Getting our place in Asia right will be the key to securing our economic future.
 
Setting fiscal policy in todays Australia is a challenging task.
The experience of most Australians is one of change, as our economy adjusts to both domestic and global influences.
These same forces exert an influence on the Commonwealth budget, compounding the complexity of fiscal policy.
This is to be expected for an open, medium sized economy like ours.
We are not large enough to set the direction of the global economy, but we are open enough to be dictated to by it.
The impact of the global financial crisis is an example of both our exposure and the interconnected nature of the global economy.
And the effect is primarily seen in the Governments revenues.
 
Since the global financial crisis, Government receipts have been written down by around $160 billion.
This loss of revenue demonstrates the impact global volatility can have on our fiscal position.
It also reminds us of the inherently uncertain global environment we have to navigate.
The effects of an open economy have undeniably been more positive than negative for this nation.
With our openness has come great opportunity. We are an advanced economy with plentiful resources, and we have benefited from opening our economy to the world.
Our trade to GDP ratio has grown from 25 per cent in 1970 to over 40 per cent in the last few years.
Nevertheless, past experience underlines the importance of fiscal sustainability to ensuring our resilience in a volatile word.
 
When setting fiscal policy, it is important to distinguish the short term from structural and enduring trends.
The short term can, from time to time, require active fiscal policies, whereas structural trends should be addressed through policies that ensure fiscal settings are right over the longer term.
Good budget policy will have the flexibility to address both, and will situate them in the context of a broader fiscal approach one that is defined by the values of the Government and the community.
The impact of the GFC, for instance, spurred a specific fiscal response shaped by the progressive values of this Government.
We avoided recession and acted to support jobs. In doing so, we avoided compacting the downturn with the further destruction of business capital stocks.
And we avoided the human impact that comes from sustained periods out of the workforce that usually occurs in a severe economic downturn.
Central to this response was the deficit exit strategy, demonstrating a clear plan to restore the budget position; a strategy that required us to allow taxation receipts to recover naturally and to restrain spending growth.
At the same time as we were being buffeted by the GFC, the budget was also hit by the effects of natural disasters.
And whilst the tragic human cost of Hurricane Sandy is uppermost in our minds today, we also know that US governments will have to rebuild and repair.
 
But fiscal policy also needs to be appropriate in light of the structural trends that shape our economy and our community.
It needs to be able to address the long term issues through informed decisions.
Key to this challenge is our demographics.
Over the coming decades, the percentage of Australians that are aged 65 and over is projected to increase from 13.5 per cent in 2010, to 22.6 per cent by 2050 up from 8.3 per cent in 1970.
This ageing of the population will see the proportion of working age people fall, with only 2.7 people in the workforce to each Australian aged 65 years and over.
This compares to 5 working aged people today, and 7.5 working people in 1970, for each Australian aged 65 years and over.
The demographic profile of the Australian population will see more and more Australians move into the upper age brackets as the baby boomer generation moves from employment to retirement.
Indeed, with population growth returning to more natural levels in the decades following the post-war heights, we are faced with a demographic overhang as the ratio of taxpayers to non-taxpayers declines over time and the dependency ratio goes up.
This narrowing of the tax base will have profound implications for fiscal policy. So too will community expectations for expanding social services specifically in healthcare where innovation is spurring new treatments and drugs.
We know that each generation expects improved services to those that preceded them, spurred by improvements in technology and innovation.
This dynamic has been accommodated for the better part of a century by a large working age cohort.
Without change and on current settings these factors will lead to a sustained period of fiscal imbalance, a fact which has been reported in three Intergenerational Reports under both major parties.
In terms of fiscal policy, these parameters will define the coming decades.
This will require more than just policy.
It will also require the polity to face up to these facts.
 
From early in my time as Finance Minister I have referenced the long term fiscal challenges that lay before Australia.
I have taken the view that while we budget over the forward estimates we also need to keep an eye the longer term.
And the MYEFO released last week demonstrates the enduring effects of structural savings taken since the 2008-09 Budget.
Without these structural savings, the medium term budget outlook would be in a much poorer position.
Rather than net debt returning to zero in 2020 21, it would be over $250 billion in that year without policy decisions such as reforms to the family payments system and fringe benefits tax, means testing for aged care recipients, reforms to tax offsets and changes to the concessional contributions arrangements for superannuation.
These reforms have all contributed to a stronger medium term budget position.
These have not been easy decisions nor have they had bi-partisan support.
But they underline an important aspect of budgeting under our Government.
 
Some of todays rhetoric would have you believe that a Labor Government addressing long term budget issues is counter intuitive.
To use the words of a Conservative Prime Minister, I take this position on the long term challenge not despite being a Labor Finance Minister, but because I am a Labor Finance Minister.
I believe progressive politics calls for long term budget sustainability.
Indeed, to see why, you only need to look around the world at the actions of conservative parties when faced with economic downturns.
Just look at the decision by the British Conservative-led Government to triple university tuition fees which will see access to higher education for a generation of Britons defined by their wealth, not their intellect.
We know that a sustainable budget provides the means to deliver the services and policies that are central to the Labor party, today and into the future. It enables intergenerational fairness.
The Labor project looks to enable opportunity, provide support to those in need, and ensuring a strong economy.
These all require a strong budget position.
 
Budget decisions can ultimately be framed by a simple question: who should the government be providing assistance to?
There are clearly some policies where universal access is the right policy prescription, but in many areas of the budget it is not the case.
Under this Government, across a number of budgets, we have looked to means test some aspects of the Commonwealth budget to target funding to those most in need.
For example, one of our long established policies is to improve the sustainability of the health system, which is why we have means tested the private health insurance rebate.
This has been a significant reform. Without it, projections out to 2050 show that private health insurance expenditure reaches 75 percent of the Medicare Benefits Services payments.
With the ageing of the population increasing the total share of health expenditure in the budget, this scale of growth on a single budget item was clearly unsustainable.
These and other structural improvements to the budget position help secure our capacity to deliver in the future.
 
Informed by this approach - I tend to look at fiscal policy from two different perspectives.
The first is the aggregate fiscal position the fiscal stance of the Government in the economy.
Our fiscal position needs to be responsible and appropriate for our economic circumstances.
In an economy with projected growth at or around trend, the responsible position is to budget for surpluses.
Returning the budget to surplus provides ongoing scope for monetary policy to respond to economic developments and underpins confidence in Australias public finances at a time of global economic uncertainty.
The MYEFO handed down last week shows the budget returning to surplus in 2012-13, with surpluses growing over the forward estimates.
This has been achieved in part by constraining real spending growth to 1.8 per cent over five years.
As a reference point, this is well below the average of 3.7 per cent real spending growth in the last five years of the previous Coalition government.
More pointedly, spending as a share of GDP falls to 23.8 per cent of GDP in 2012-13 and remains around that level for the forward estimates. This is the longest period that payments remain at or below 24% of GDP since the early 1980s.
 
The second perspective I take is to consider the priorities within the budget.
The composition of spending is a key component of fiscal policy.
We need to keep this front of mind, because the way resources are allocated in the budget contributes to the health of the broader economy.
Future revenues and expenses are in part a feedback mechanism on the quality of spending and investment by governments current and past.
From this perspective, you start to understand that the choices we make today will set the parameters of Budgets in the future.
This has framed our approach to driving productivity, to encouraging participation, and to investing in skills and education.
We have increased university funding by 50 per cent on the previous four years under the Howard Government and we have better targeted assistance to those most in need.
Our record in supporting future growth in the economy is written in the pages of the five Budgets we have delivered.
To give a specific example, the policy decisions taken by this Government in response to the GFC avoided the worst of the downturn and kept Australians in employment.
And these decisions are reflected in the growth and employment figures that underpin the recently released MYEFO. Had we done nothing in the face of the GFC, these figures would be far worse.
 
Getting the fiscal stance and the fiscal priorities right requires an understanding of the long term challenges before us.
Importantly, it also requires an understanding of the opportunities.
As I mentioned earlier, the demography of our population will have significant implications on government budget balances into the future. It will constrain government spending, and see a narrowing tax base.
All of us have to face up to this challenge. Governments cannot afford to delay addressing this issue.
A structural challenge requires a structural response.
It is important that we identify the long term opportunities and make the right choices to strengthen our economy and fiscal position because we can only address the long term challenges by making the most of our opportunities.
That is why I see the Asian Century, and maximising Australias place in the region as key to address the long term fiscal challenge.
 
It is in this context that the Australia in the Asian Century White Paper is such an important roadmap for this country.
The White Paper sets out a coherent and considered framework that will see Australia our economy, our society and our people take advantage of our geography.
Over the past 20 years, China and India have almost tripled their share of the global economy and increased their absolute economic size six times over.
The sheer scale and speed of this rise will define this century.
Indeed, the opportunity of the Asian Century properly harnessed can give us the capacity to meet our long term fiscal challenge.
But we cannot afford to be passive.
While the reality is that, due to our proximity, Australia will benefit from Asias rise regardless of our policy response, it is a question of whether Australia rides the wave of the Asian Century or flounders in the whitewash.
Our integration and our capacity to leverage this growth is central to answering this question.
It is one thing to benefit through increased sales in goods and services, it is quite another to integrate our businesses and economy with Asia to fully harness their growth.
Because spillover gains from the Asian Century alone will not address the fiscal imbalance that will come with the ageing population.
Rather, the Australian economy can firmly link our economy to Asian growth and exploit their rise.
We need to continue to invest, support, and strengthen our relationship with Asia to properly position Australia.
The White Paper is the roadmap. It establishes the framework and the perspective needed to frame government decision making.
Through a clear articulation of the type of economy we want for Australia, and the ways in which we can integrate and benefit from the Asian Century, the White Paper provides a focal point for a number of existing policies and provides direction for future policy development.
It shows the path to a productive high wage, high technology economy where our workers are at the forefront of competitiveness.
Where investments in schools and the curriculum lift all students to attain higher rankings in the core capabilities and give every student the start they need.
We will build on our investments in economic infrastructure to make more Australian jobs high tech jobs.
And utilising the NBN, our workforce will be more connected and closer to Asian business than ever before.
I firmly believe that we can choose to be either constrained by bandwidth or have innovation boosted by it.
Coupled with investments in education and skills, the conditions for improved productivity growth are being put in place.
 
Maximising the potential of the Asian Century requires the getting the policy prescriptions right today.
It requires governments to invest in the drivers of growth and work coherently towards making the most of the Asian Century; to lay the foundations of a high productivity, high wage economy that will be vital to the future health of the economy and the Governments budget position.
With policy also comes the need to improve the discourse and to open the minds of all Australians not just to the opportunities before us, but also the challenges.
This is not an easy debate and it is one where the long term argument is often lost in the noise of day-to-day politics.
At times our policy debate lurches between absolutism and populism; between criticism that there has not been enough slashing of middle class welfare and a reduction in the Baby Bonus being likened to the one child policy.
If we are serious about meeting the challenges that this conference is rightly focused on, we need a less polarised debate.
If we are serious about grasping the opportunity of the Asian Century, we need to have an open minded approach.
Ultimately, these are issues the Australian community will decide.
They should have the opportunity to do so on the basis of an informed and factual discussion. Any less, and our future may not be as bright as we all hope.
I, for one, am optimistic about our capacity to make the right choices.
But I am also realistic about the preconditions for this sound debate: greater cooperation and the building of consensus.
Weve done it before, and we can do it again.

ENDS