On the Friday of Budget week it is very easy to get caught in the partisan fire fight that inevitably follows the presentation of the Budget and the Oppositions response to it.
For politicians, the media, and the commentaries Budget week can become focused on the politics. Who is winning the battle of perceptions? What has the reaction been? Was the budget too tough or not tough enough? Which side has the best sound bites? Which talking head said what?
But there are more important questions and far bigger challenges. These deserve our focus, the focus of political and business leaders alike, because our answers define so much of our future.
So today I want to focus on the economic challenges which frame the budget, and the fiscal strategy that underpins it.
This is a Budget bookended by two contrary and overlapping dynamics. In the short term, by revenue write-downs and a softer economy. In the medium and longer term, by a mining boom gathering pace, imposing its growing demands on an economy increasingly straining at the seams. These dynamics are, of course, part of a broader story of the changes in the global economy driven by the changing of the guard as economic power increasingly centres in Asia. This generation of Australians is not only witnessing this change, we are living it.
In the face of these economic forces, the Governments focus through the Budget has been clear to bring the budget back to surplus, to invest in skills and training, and to get more Australians into work.
In doing so, we have been focused on both the why and the how. On how to improve the sustainability of the budget, not only by 2012-13, but over the longer term, and on how government can better direct its spending towards improving the capacity of the economy.
First, the Budget lays out our path for returning to surplus. It does so despite the large downgrades in revenue as flowing from the GFC, the natural disasters and as a consequence of out patchwork economy. The high dollar, a cautious consumer, the floods, Cyclone Yasi and the impact of disasters in two of our closest partners have all had an impact. Growth was revised down this year by a full percentage point, and revenues took a $16 billion hit.
Over a five year period the revenue write-downs total around $130 billion dollars. Notwithstanding these obstacles, we have delivered a budget that will return to surplus in 2012-13 as committed.
The first principle in achieving this has been to impose real spending restraint. Our fiscal strategy sets a cap of real spending growth of 2% per annum. The last five Costello budgets delivered an average of 3.7% per year. This Budget delivers spending growth across the forward estimates on average of 1% per year. To put this in context, this is the lowest real growth rate over five years since the 1980s.
This spending restraint is demonstrated by the reduction in government spending as a share of GDP over the Budget period, falling from 25.2 per cent of GDP today to 23.5 per cent of GDP by 2014-15. This is significantly lower than the long-run average in the ten years prior to the GFC government spending averaged 24% as a share of GDP.
Weve also taken a range of savings decisions, as well as re-prioritising existing spending. The Budget outlines $22 billion of savings measures.
Predictably, some of these havent been popular. Unsurprisingly, the responses have varied between those who say we havent been tough enough, and those who say we have been too tough. What has been more surprising is that these opposing views sometimes emanate from the same people in the same sentence, most noticeably our opponents.
A number of the savings weve taken in this Budget continue this Governments work in repairing the long term structural position of the budget. They are decisions that will deliver ongoing savings in the years ahead.
We have abolished the Dependent Spouse Tax Offset for spouses born after 1 July 1971. The offset was originally introduced in 1936 and reflects the values of an earlier time.
The abolition is a significant save, amounting to $2.6 billion over the 10 years to 2020 and $360 million in that year. It is also an important reform to underpin our participation agenda: it will see over 100,000 people with stronger work incentives.
The Henry Review recommended that we reform the FBT treatment of cars, by replacing the current distance model with a flat statutory rate; we have acted on this recommendation.
This is an important change to the tax treatment of this fringe benefit and will save $3.8 billion over the 10 years to 2020.
On top of these changes were are abolishing the (misnamed) Entrepreneurs Tax Offset, removing the Low Income Tax Offset for unearned income of Minors, changing the concessional arrangements for superannuation caps and taking significant savings in the delivery of pathology services.
Collectively these and other structural budget saves will save $20 billion over the next 10 years.
These savings build on the decisions we have taken across our last two Budgets to improve the sustainability of the budget.
Responsible economic management is also about making room within the budget for important investments that reflect the economic challenges we face, and improve the long term prosperity of the nation.
Investments that ensure every Australian can share in the benefits of a growing economy. Investments that provide more skilled workers that business needs. Investments that help all Australians reach their full potential, including disadvantaged Australians.
We want every Australian who can work to be working in the coming years. Our economy needs skilled workers to grow and the experience of work brings benefits and dignity to each individual.
Increasing participation and increasing the skills of our workforce are major themes of this Budget and important for the long term health of business. With unemployment heading down to 4.5 per cent, capacity constraints are emerging and some groups are at risk of being left behind.
Some of the initiatives outlined in the Budget to increase participation, and involved savings for the budget. Ive already mentioned the changes to the Dependent Spouse Tax Offset. We are also changing eligibility criteria for the Parenting Payment Single, Parenting Payment Partnered and Youth Allowance (other).
However, increasing our already high participation rates does not come cheaply. As a government we have made spending on participation initiatives a priority because it is crucial for the prospects of the economy. We are also a government that believes strongly in the benefits and dignity of work.
We also want to make sure work is rewarded and that people have the right incentives to get into work. We cannot afford for any group of Australians to be left behind: we need to see them participating and developing their skills.
We dont want to see some Australians trapped in a cycle of disadvantage that limits their potential and creates a long term cost for the community.
Were rewarding work for low and middle income earners by changing the Low Income Tax Offset so they get to take home more cash in their weekly pay packet.
Were also rewarding work for targeted groups by improving income tests for single parents and young people, and incentives for employers that hire people with a disability and the very long term unemployed.
Were providing new opportunities to get people into work through training, education, childcare and improved employment services.
Were introducing new requirements for the very long term unemployed, Disability Support Pension recipients, teenage parents, jobless families and young people.
And were also taking new approaches to address entrenched disadvantage in targeted locations for those Australians that are most at risk of being left behind.
Increasing participation and increasing skills need to go hand in hand. This is why the Government is investing $3 billion over six years to increase the skills of Australia's workforce.
Through our skills package, we are investing $263 million to help people attain basic workforce skills, such as language, literacy and numeracy.
We are working with business and state governments to deliver 370,000 training opportunities over the next four years including $1.75 billion over six years for a new reform-driven National Partnership with States and Territories.
We will put industry at the heart of the training effort through a new National Workforce Development Fund. Through the $563 million fund the Government will partner with industry to respond to the emerging skills needs in the Australian economy.
New training places will require co-investment from industry, recognising the shared responsibility for training between Government and industry.
We also know that more Australians than ever before are embarking on a career through a trade apprenticeship we are supporting some 400,000 apprenticeships each year.
But the reality is that while many Australians start an apprenticeship, on average fewer than half will complete one. And yet the economy is crying out for more skilled workers.
That is why the Government will reform the apprenticeship system to make it work for more Australians providing more than $200 million support through additional mentoring and allowing apprentices to progress through their training as they learn (rather than having to serve out time).
These are important investments investments that recognise the economic challenges of today, and of tomorrow, and responds to them; investments guided by our ambition to spread the opportunities the boom creates across our country and for years to come.
As I said earlier, the Budget includes savings decisions that total $22 billion across the forward estimates and much more over the next decade.
Spending decisions in the budget have been more than offset by savings, meaning policy decisions deliver a net improvement to the bottom line of $5.2 billion across the forward estimates.
You have to look back a long way to see a budget that delivered anything like this net save to the budget bottom line.
We are delivering this improvement in the budget while keeping taxes low as a share of the economy. Tax receipts as a proportion of GDP are projected to be 21.8 per cent in 2011-12 and 22.9 per cent in the outyears. This is a level of taxation well below the level we inherited of 23.5 per cent.
Restraining spending and building surpluses means were not compounding inflation and cost of living pressures in the years ahead.
This is not a budget that will please everyone. But it is a budget that is grounded in the economic and fiscal realities of the nation. As is should be.
Because these realities cannot and should not be brushed aside by politicians who are only spoiling for a fight.
And we will not permit them to be.
Our political leaders do better when they strive to build, then when they set to wreck.
And the country does better when leaders work today, for tomorrow.
Our budget is a budget that sets up the economy for the future.
A budget that delivers for today and for tomorrow.
Thank you.