Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I would like to congratulate senators Leyonhjelm and Day for proposing this motion today. Senators Leyonhjelm and Day have demonstrated that they are committed to taking a positive and constructive approach to resolving the fiscal challenges that we are facing as a nation today.

Of course, it is a matter of public record that when we came into government in September last year we inherited a weakening economy, rising unemployment, low consumer confidence, business investment which had plateaued, a rapidly deteriorating budget position and one of the steepest debt growth and spending growth trajectories in the world. The previous, Labor government, back in 2007, inherited a strong economy and a strong budget. They inherited a budget with no government net debt, a $20 billion surplus, and about $70 billion in net Commonwealth assets. Indeed, the previous, Labor government inherited a situation where, back in 2007, the Commonwealth was collecting more than $1 billion in interest payments a year on the back of a positive net asset position.

At that time—back in 2007—federal government spending as a share of GDP was at about 23.1 per cent. Labor will say that we have had the GFC and all these issues and that that is why the whole thing turned into such a mess so quickly. I argue that that is not actually true. Labor did rapidly increase spending in their first two years in government—by 17 per cent in real terms, in fact. It was an extraordinary spike in spending in Labor's first two years in government. And that became the new base from which future spending increases kept happening, from year to year.

Even worse, in the period beyond the published budget forward estimates at the time of the last election Labor locked in a whole lot of structural spending increases in various areas of government that were never properly funded. They locked in spending growth that was taking us to spending as a share of GDP of 26.5 per cent. Why is that of concern? Why is spending at 26.5 per cent as a share of GDP of concern? If you accept the proposition, as we do—and as, I believe, Leyonhjelm and Day do—that as a government and as a country we should be living within our means, that we should not be living at the expense of our children and grandchildren and that we should not be borrowing from our children and grandchildren in order to fund a significant proportion of our living expenses today, then our revenue has to cover our expenditure.

It is a pretty basic proposition. Every family, every business across Australia, understands that unless your revenue covers your expenditure over time you keep adding to you debt and to your debt interest. At some point that will have to be paid back. If we do not pay our own way then what we are asking our children and grandchildren to do is to pay it back for us with interest, which means that they have to pay higher taxes or accept deeper spending cuts in order to make up the ground that we have lost for them. That is the fundamental unfairness of the parliament or the Senate not dealing with some of the structural challenges that we have inherited.

The problem here is that instead of spending as a share of GDP being 23.1 per cent—which it was in the last year of the Howard government—the previous, Labor government put Australia on a trajectory where spending as a share of GDP was heading for 26.5 per cent by 2023-24—and rising beyond that. Why is that a problem? If you look at tax revenue as a share of GDP over the last 20 years, you find that it averaged at about 22.4 per cent. With spending at 26.5 per cent as a share of the economy, and revenue at 22.4 per cent as a share of the economy, you will see that there is a big gap. And that gap, essentially, is what we are adding to our debt every week, every month and every year—and forcing our children and grandchildren to deal with down the track, unless we get it under control now.

To be a bit more generous in terms of the average tax take as a share of GDP, in the period between the introduction of the GST and the global financial crisis, tax revenue as a share of GDP was at 23.9 per cent. But even at 23.9 per cent there is still a significant gap between the level of revenue and the level of expenditure that the previous government has structurally locked in, on top of various spending growth pressures that we are facing in any event. Not all of it is Labor's responsibility. I readily admit that. We are, as a nation, facing some structural challenges that are the result of things like the ageing of the population. The ageing of the population means that we have falling workforce participation rates. That has an impact on our capacity to grow the economy as strongly as we might with higher participation rates.

Obviously, with the ageing of the population also comes higher levels of expenditure in health and social services, in particular. The other structural challenge that we face as a nation—it is a challenge that is particularly acute now—is that, as an economy with a relatively small population for the size of our continent and for the size of our economy, and with a very significant part of our economy being export oriented or trade exposed in terms of imports coming in, the level of commodity prices matter to us.

Now, over five of the six years of the Labor government they had the best terms of trade in 140 years. Between 2008 and 2012 we had the best prices for our iron ore exports, for our coal exports and for a number of other key exports. What would normally happen in countries like Australia, where there is that level of exposure to global fluctuations in commodities prices and the like, is that when prices are very high you put away savings and resources for a rainy day. The previous government did the exact opposite. When we were getting record prices for our commodities—when our economy was growing strongly on the back of record terms of trade—the previous government was exposing us to unsustainable levels of expenditure.

Now that the situation is turning around, now that commodity prices are coming down much faster and much deeper than had been anticipated by anyone, we are too exposed. Do not take my word for it. A couple of months ago we had a visit to Australia by a gentleman called Pascal Lamy, a former French Socialist finance minister and former head of the World Trade Organisation. None other than Pascal Lamy made the point that Australia cannot sustain the levels of debt that certain countries in Europe have incurred. Why? Because our economy is inherently more risky because of our exposure to global markets. That is, of course, exactly right.