Sid Sidebottom (Braddon, Australian Labor Party) Share this | Link to this | Hansard source

My question is also directed to the Prime Minister. Will the Prime Minister inform the House how a strong budget surplus helps to fight rising interest rates, particularly in my electorate of Braddon, and what today’s developments in the Senate mean for the budget surplus?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

If we look at the overall global problem of inflation, the governments of the world basically divide into two categories: those which are taking on the inflation challenge and those which are seeking to run away from it. Those opposite join the latter group whilst we on this side of the House are very much in the business of doing what government can to bring down inflationary pressures. If you have inherited 16-year-high inflation rates—because that is the objective economic record of the member for Higgins, a 16-year-high inflation rate; there is no disagreeing with that as it is a fact—then the challenge is what you do about it. You could put your head under the carpet—that is what those opposite are pretending to do at the moment—and blame a Labor government that has been in office for six months after they had 12 years to address supply side constraints in the economy. They had 12 years to deal with the other factors impacting on inflation, like skills and infrastructure, and they did nothing, and in six months—mysteriously—all these things have come home to roost for us, the new Australian Labor government. That is their thesis. It does not even bear logical scrutiny. Serious economic commentators around the world describe the inflation challenge as real. The OECD’s most recent economic outlook on 4 June states:

To avoid rising inflation expectations causing strong wage growth, monetary conditions need to be kept tight until domestic demand and price pressures have moderated sufficiently. In this context, the stabilising role that fiscal policy should play is welcome.

Fiscal policy is budget policy. What is the cornerstone of budget policy? Whether you have a surplus or whether you have a deficit; whether you are going to run a $22 billion surplus or conduct a $22 billion raid on that surplus. We can go also to the minutes released by the Reserve Bank on 3 June. They state:

Members observed that the budget surplus as a ratio to GDP was noticeably higher for 2007/08 and 2008/09 than had been expected in the Mid-Year Economic and Fiscal Outlook last October; at that time, a surplus of a bit over 1 per cent of GDP had been projected for both years. Measured in terms of the change in the surplus, fiscal policy was expected to impart a mildly contractionary effect on the economy in 2008/09.

You see, responsible economic analysts, regulators and commentators recognise that inflation is a problem and that fiscal policy has a role to play. We on this side of the House have developed such a fiscal policy. The contrast lies in what has happened in the Senate today. The Leader of the Liberal Party—that is, before the member for Wentworth makes his move—has directed his colleagues in the Senate to act in a way which has the effect of stripping away $300 million worth of real money from the budget surplus. A few hours ago in the Senate the coalition used its majority to defer the votes on several key budget measures. This is not an academic exercise; this is a real exercise involving real money—$300 million. It depends entirely where those opposite now go in terms of future votes in the Senate. A $300 million assault on the bottom line means that the task of reducing the overall burden on outlays will become much harder in the future. This is real money. It affects the bottom line. Therefore, I will be looking very keenly to those opposite to come up with any proposal by way of spending cuts.

Have we on this side of the House heard a proposal yet for a single savings initiative from those opposite? I cannot remember one from the last budget or the one before because their simple recipe for the future has been, ‘Get out the printing press, print some more money, off you go!’ It has been as irresponsible as that because their spending initiatives have not been accompanied by savings initiatives. We have come up with billions of dollars of savings initiatives on this side of the House. What is pathetic, Leader of the Opposition, is this: you fail to engage seriously in the economic debate. As those who stand up and seek to represent themselves as the alternative government of Australia, you are required to say, ‘We will save here, here and here in order to fund the following initiatives.’ By contrast, the Liberal Party, who once said they were the party of natural economic management, say, ‘We will spend, spend and spend.’

Labor comes up with a $22 billion surplus. Those opposite make a $22 billion raid on that surplus. I draw the Leader of the Opposition’s attention to the action of his colleagues in the Senate. Today has been D-day in the Senate. The Liberal Party have voted against budget measures in the Senate. As a consequence, we will now achieve at least a further $300 million real assault on the budget bottom line. Those opposite stand condemned for this gross act of economic irresponsibility.

Brendan Nelson (Bradfield, Liberal Party, Leader of the Opposition) Share this | Link to this | Hansard source

I ask the Prime Minister, in response to that answer and the purported centrality of fighting inflation to his government’s budget, could he quickly remind the House of the published budget forecasts for inflation for the next two years and the projections beyond that in his budget this year?

Kevin Rudd (Griffith, Australian Labor Party, Prime Minister) Share this | Link to this | Hansard source

For the period ahead, as I recall them, the numbers have been adjusted: on the inflation front, we have been running at about 4.2 per cent. When it comes to the period ahead, we expect that inflation will moderate, from memory, to 3.75 and for the year following I do not have those figures in front of me.

Brendan Nelson (Bradfield, Liberal Party, Leader of the Opposition) Share this | Link to this | Hansard source

On a point of order, Mr Speaker: if I could assist the Prime Minister who may be misleading the House—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

You cannot do that. The Leader of the Opposition will resume his seat.

Opposition Members:

Opposition members interjecting—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! In a very vigorous debate yesterday, I was reminded of the importance of question time to our democracy. I would hope that we will get full cooperation about the importance of democracy by at least treating each other with respect and listening in silence.

James Bidgood (Dawson, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Treasurer. What are the implications for the surplus of decisions taken in the Senate to delay the passing of important budget initiatives and where did these decisions come from?

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

I thank the member for his question. The government has budgeted for a strong surplus to put downward pressure on inflation and to put downward pressure on interest rates, and also to ensure a buffer against international financial turbulence. We have also been able to put in place the essential investment to build the productive capacity of our economy and to build productivity into the future. We have also put in place tax cuts and our $55 billion working families support package that will give a very significant boost to household incomes after 1 July. There has been some commentary about the Reserve Bank board minutes, from which I quote:

As in previous meetings, the central issue was that, over the past year, inflation has picked up to an uncomfortably high rate, against a background of limited ... capacity.

Those opposite would like people to believe that suddenly inflation skyrocketed on the morning of 26 November last year.

Julia Gillard (Lalor, Australian Labor Party, Deputy Prime Minister) Share this | Link to this | Hansard source

And interest rates.

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

And interest rates. Of course, it did not. The legacy of those opposite is inflation at a 16-year high. It has fallen to those on this side of the House to tackle that challenge. Our budget did precisely that—building a $22 billion surplus which is now being vandalised in the Senate by those opposite. Of course, we know why that is the case: it is at the instigation of the member for Wentworth. If he spent more time thinking about policies to fight inflation than asking people about his haircut, the inflation-fighting surplus that we have put in place would not have been voted against today. But it gets worse than that. We know why the focus group was taking place. We have got the real answer. We got it from Tony Abbott on 3AW yesterday. This is what Mr Abbott had to say about his leader—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

The Treasurer will refer to members by their titles.

Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

This is what Mr Abbott, the member for Warringah, had to say about his leader:

... that is not to say that everyone is entirely optimistic at all times about the future, because, look, we’ve done it very tough, but at the next couple of—

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! The Treasurer will resume his seat. The member for Ryan has a point of order.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

Mr Speaker, a point of order—relevance.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

The Treasurer has concluded his answer.