Lindsay Tanner (Melbourne, Australian Labor Party, Minister for Finance and Deregulation) Share this | Hansard source

When you are in opposition for a prolonged period of time you go through some difficult periods, and often you have some serious discussions about how you can get yourself back into the political contest and how you can improve your performance. I would have to say that, having spent 11 or so years in opposition, we had a few of those discussions in the Labor Party from time to time. But, equally, over the past few weeks the performance of the Liberal Party on the key economic issues of the day has brought back some interesting memories for me—one in particular.

I vividly recall a debate some years ago in our caucus about our economic positioning, which ended up being reported in the media. The contribution I made in that debate was to argue that you cannot sign up to economic credibility; you cannot simply stand up and assert that you are economically credible; you have to earn it. You have to build econ-omic credibility. It is the accumulated outcome of decisions and positioning over an ex-tended period of time. It is particularly difficult to build credibility but it is very easy to lose it.

Over the past three or four weeks, the opposition have been engaged in a mad venture to try to destroy what is left of the lingering economic credibility that the Liberal Party has. They have been seen to take every conceivable position that is designed to play for cheap cheers and for short-term popularity but not in the long-term interests of this nation’s economic standing and not in the long-term interests of working people in this country.

The underlying inflation rate in Australia is 4.2 per cent. That is above the Reserve Bank’s target zone, as we all know, and, as a result of that inflation pressure, the Reserve Bank has in recent times been putting up interest rates. That pattern has been occurr-ing for an extended period of time—we have had 12 rate increases in a row—but it particularly gathered momentum in the latter half of last year. That momentum, of course, has continued on into the beginning of this year.

There has been one important area, amongst the various factors involved in those interest rate increases, where the former government had direct control over, negligently failed to deal with and, as a result, has contributed very significantly to the increase in inflation and the increase in interest rates, and that is government spending. Government spending has been increasing at over five per cent in real terms per annum. In the middle of a mining boom—a situation where the world is paying ever-increasing prices for our mineral exports—which is pushing more and money into our economy, government spending has been growing at an unsustainably fast rate. In particular, that spending has largely not been directed to building economic capacity to enable Australia to increase its productive capability and therefore to absorb the additional spending. As a result, the Rudd government has inherited a budget which was set in a very wasteful, inefficient and loose fiscal position, a budget that was pushing upwards on inflation and interest rates.

We had no choice but to take action to drastically slow the rate of government spending in order to push back against rising interest rates and rising prices. That is why the government have delivered a surplus of almost $22 billion, or 1.8 per cent of gross domestic product, for the forthcoming financial year. That is why we have slowed the rate of growth in government spending from over five to 1.1 per cent in real terms. That is why we have cut government spending as a proportion of the total economy by around one percentage point of GDP. That is actually a very substantial reduction in government spending as a proportion of the total economy and, in fact, it is the smallest that government spending as a proportion of our total economy has been for almost 20 years.

There have been some commentators who have argued that we have not gone hard enough, that we should have tightened even further. There are many who have argued that we have roughly got it about right. But there are hardly any serious economic commentators that I have seen who have suggested that the government have tightened the fiscal settings too much and that we should be spending more. The only significant players in public debate—the only significant contributors to political and economic debate in this country—who have been arguing that spending should be increased more rapidly, that we should loosen the purse strings, have been the Liberal opposition. In doing so, they are in the process of completely trashing their economic credibility.

The opposition want to go soft on inflation. The opposition want to go soft on the battle to keep interest rates as low as possible. They are the only significant group in Australian public debate who are calling for softer fiscal policy, who are calling for more government spending. They want to restore various tax lurks. They want to revive the notorious Regional Partnerships program. In spite of all the holes in the proposal, they want to bring back the access card that was going to cost over $1 billion. They want to hand out various tax reductions. We saw in the budget reply speech by the Leader of the Opposition that they had a variety of tax reductions they were offering, including one that was not even costed: a change in the capital gains tax treatment for small business owners where there was not even an attempt made to identify what cost that would be to the budget.

In all of this there has not been a single cent in savings, not a dollar, not a cent—no attempt whatsoever to identify where the money is going to come from. Having been in opposition, having been a shadow finance minister for a total of 5½ years, I know only too well how tough it is. But in opposition we did identify savings. Over a year ago we were putting out savings packages of $3 billion—and copping flak and criticism for a number of the proposals in it. But Labor tried to do the hard stuff in opposition, tried to ensure that when we were putting forward spending proposals we were also advocating savings.

The so-called party of economic responsibility, the party that sees itself as Australia’s economic managers, is standing before the Australian people today advocating higher spending, advocating a huge hole in the budget surplus—around $4 billion in the forthcoming financial year and $22 billion over the course of the next four years—and not identifying any offsetting savings at all. It is admitting that the spending, this loosening of the settings of the budget, would actually come from reducing the surplus. That is simply a recipe for higher inflation, higher prices in the supermarket and higher interest rates. That is all that that means. You will not find a serious economic commentator who will dispute that proposition. If you ask serious economic commentators, ‘If there is to be a substantial loosening of fiscal policy from where the government has set it in the budget that has just been handed down, what effect would that have on inflation and interest rates?’ they will tell you that the effect would be upward pressure—it would increase inflation and increase interest rates.

It is not that long ago that the key players in the opposition who are now proposing a cut in fuel excise were part of the Howard cabinet, part of the Howard government, which refused to cut fuel excise and rejected that proposal. It is extraordinary how the opposition has suddenly discovered the merits of cutting the excise on fuel without any kind of offsetting saving and therefore putting upward pressure on inflation and interest rates. It is extraordinary how it has suddenly discovered the merits of this proposition, after having rejected it when it was actually in charge of the nation’s government literally only months ago. Even the wasteful, spendthrift, lazy former Treasurer, the member for Higgins, did not support this proposal when he was in government, and to his credit it is clear that he does not support it now—as a number of key players in the opposition do not support it. The opposition’s approach on petrol, on other issues and on the wider economic front is simple—spend, spend and spend again. More spending, a lower surplus, let inflation rip and therefore allow interest rates to be pushed up even further. This has all been put forward in the context of a very appealing grab bag of giveaways. But that is not an economic policy.

I will turn to the competing positions that we have in the public debate on the issue in a more specific sense—that is, on the one hand the opposition’s position with respect to fuel excise and on the other the government’s FuelWatch proposal. The opposition, as I said, discovered the merits of this position relatively late in life after having had many years in government and many long months of opportunity to actually put it in place. They finally discovered the merits of taking 5c off the fuel excise, having found themselves in opposition. The taxes on fuel actually consist of two separate things: the excise levied by the Commonwealth; and the GST, which is levied by the Commonwealth and passed on to the states. The excise, of course, is fixed at a set sum and is not indexed, so it is falling in real terms and will continue to fall in real terms. That means that over time it gradually becomes smaller and smaller relative to wages and prices and everything else in the wider economy. It only falls very slightly each year but it is slowly eroding in real terms. The GST, of course, was imposed by the former Liberal government, and the issue that arises from its interaction with the excise is a consequence of decisions taken by the former Liberal government. At the time of the inauguration of the Ken Henry-led commission into Australia’s tax and transfer payment systems, we did indicate that one of the many issues that was in play was that specific question of the GST and the excise interconnection.

In reality all we are dealing with here on the part of the opposition is a desperate attempt to shore up the leadership of the Leader of the Opposition and to ward off the shadow Treasurer, who famously sent an email saying that the policy was wrong. The Leader of the Opposition has shredded the Liberal Party’s remaining credibility by in effect standing up and saying, ‘The surplus should be $4 billion less than it otherwise would be and the Liberal Party is quite happy to carry the impact on inflation, on prices, on interest rates that that inevitably involves.’

Finally I will turn to the government’s policy on FuelWatch. Much has been made of the fact that coordination comments for the cabinet discussion from several departments actually criticised the proposal in various ways. There is one really important thing that we have to emphasise here. Those coordination comments were all about one page long—and in 1½ spacing, from memory. So they were all a few hundred words each. On the one side we have a routine process where individual departments, without being approved by their ministers, routinely put comments attached to cabinet submissions giving their views. Ministers in some cases disagree with their department’s comments. In many cases the comments that come from different departments will actually be in conflict. Some departments will support a proposal, some will oppose it. There will be differing angles. Some will only pursue the specific matters that are relevant to their area and so forth. So it is hardly unusual that you get differing points of view from government departments as part of a process of cabinet discussion of an issue, and in some cases—as in this one—the view being put by an individual department was not the same as the view being expressed by their minister. I refer to my own situation.

The key difference is that on the one hand you had four pages in 1½ spacing, about 1,000 or maybe 1,500 words, and on the other hand you had hundreds of pages, economic modelling, serious research, serious analysis by the competition watchdog—the key pool of expertise in the government that is designed to advise the government on these matters: the ACCC with serious research and analysis of this issue. The conclusion they have reached, and the position the government has adopted on their advice, is that FuelWatch has been successful in Western Australia, that it has had the effect of pushing petrol prices lower than they otherwise would have been by somewhere between 1c and 2c per litre and that that can be replicated across the rest of Australia.

It is important to note that divergent views in the government and the bureaucracy about these issues are actually symptomatic of a wider situation. There are divergent views in the Liberal Party, there are divergent views across the states and there are divergent views within motoring organisations, because this is a complex issue. You are dealing with a complex phenomenon, petrol pricing, which is affected by a wide variety of factors. You are dealing with a complex market; you are dealing with consumer behaviour and information. This is a complex issue. It is hardly surprising that you get different views. We know the Liberal Party in Western Australia introduced FuelWatch, we know Senator Adams supports it and we know the leader of the Liberal opposition in New South Wales supports it. So there are different views. But we stand by the position that we have taken. We are going to pursue FuelWatch. We do not claim that it is some kind of magic wand or silver bullet that will solve petrol price issues overnight. There are no guarantees, nor were there guarantees given about petrol prices by the then opposition when we were in opposition prior to the election. On numerous occasions the Prime Minister and the Treasurer were asked, ‘Can you guaran-tee?’ and they said: ‘No, we can’t guarantee. All we can guarantee is that we will make an effort to do the things within our power to have an effect.’ And that is precisely what we are doing. This problem is occurring in developed countries all around the world. (Time expired)

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