Ms Julie Bishop (Curtin, Liberal Party, Deputy Leader of the Opposition) Share this | Link to this | Hansard source

My question is to the Treasurer, and I ask him to compare the following. The 1975 budget resulted in a turnaround from a surplus of $181 million, which represented 0.3 per cent of GDP, into a deficit of $1.4 billion, or 1.8 per cent of GDP. The announcement today in the government’s updated economic and fiscal outlook will result in a $22.5 billion deficit, or 1.9 per cent of GDP, a turnaround from the 2008 budget, which forecast a surplus of $21.7 billion, or 1.8 per cent of GDP. Does the Treasurer acknowledge that this government’s financial performance will be worse than Whitlam’s?

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

I think the shadow Treasurer has just shown yet again how out of her depth she is. We are in the middle of a global recession which has been caused by a global financial crisis, which has seen the International Monetary Fund revise down their projections of growth three times in the last four months, which has seen global growth go from the strongest that we have seen in 30 years a bit over a year ago, at five per cent—

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

Since Gough!

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

So Gough caused that too, did he? This is just the sort of—

Opposition Members:

Opposition members interjecting—

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

Order! The Treasurer has the call.

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

This is a very serious debate, and we are quite happy to have a discussion with the opposition about the best way to respond to a global recession which has now imposed on Australia very substantial deficits out across the forward estimates. That is exactly what has happened. Revenue was written down by $40 billion over the forward estimates in MYEFO, and by a further $75 billion in the statement today. That is not just a very substantial hit to the government’s bottom line but reflects the damage that has been done to this economy by these global events. It reflects the damage that has hit people who have super. It reflects the damage that has been done to people who are investors in the stock market. And for the opposition to carry on in that vein is an insult to all of those people who have been hurt by the global financial crisis and the global recession—

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

Oh, don’t be sanctimonious!

Opposition Members:

Opposition members interjecting—

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

The Treasurer will resume his seat. The member for North Sydney will withdraw.

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

‘Sanctimonious’, Mr Speaker?

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

No. The member for North Sydney knows what he is withdrawing. Does he withdraw?

Joe Hockey (North Sydney, Liberal Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I do.

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

The rest of the world has imposed a temporary deficit on this country, and it has been left to this government to decide the course that we will chart ahead. And we have decided, in line with recommendations from international bodies such as the International Monetary Fund, to fill the gap created by this very sharp contraction in private demand and to do that in a couple of ways, which I explained earlier. Of course, that means the deficit is a little higher as a consequence of the decision to put this package forward, which we have taken in the national interest to support jobs. What we have done is the responsible thing. What is coming from those opposite is utterly irresponsible.

Amanda Rishworth (Kingston, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Deregulation. Will the minister advise the House of changes to government fiscal policy in response to the global economic slow-down? Why have certain policy options been preferred over others?

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

I thank the member for Kingston for her question. Australia has received quite a bit of bad economic news over the last couple of months. China’s growth rate has virtually halved, the IMF is predicting global growth of 0.5 per cent—the lowest level for many decades—and, of course, we have seen a $115 billion hole blown in our forward projections for revenue over four years. In response, the government is taking decisive action to stimulate economic activity in our economy, and today we have put forward a package that is carefully crafted to ensure that we have the maximum stimulus and the maximum effect across the widest possible range. The package includes temporary tax bonuses, one-off payments and investment in infrastructure, energy efficiency and schools.

It is inevitable that in the lead-up to this package and also in its wake there will be debate about the design of the stimulus and about exactly how it should occur. I want to deal with a couple of the key themes that have emerged in recent weeks about this issue, particularly from the opposition but not just from them. These themes were reiterated by the Leader of the Opposition today. The first is the suggestion that much, if not a majority, of the package that was put forward in December would be saved and that it was therefore of no benefit to the Australian economy and of no benefit to jobs. There is a huge fallacy in this view, and that is the fact that, even though some people will save some of that money for a period of time, much of it will in effect be replaced by spending in a week’s time, in a month’s time or in three months time. If you owe $2,000 on your credit card and the government gives you a one-off payment of $2,000 and you use that not to spend immediately but to pay down your credit card, guess what? The answer is that you are probably not going to be paying down your credit card from your next pay packet—or the one after that, or the one after that—because it will be zero. So the stimulatory effect of those one-off payments will be partly immediate and partly in the ensuing weeks and months; and even that money which is saved in the long term—such as for paying down the mortgage—will effectively liberate an equivalent amount of money available for bank lending, because of course the bank is lending you, the individual, less money than it otherwise would be. There has been a lot of confusion about this, reiterated by the Leader of the Opposition today when he indicated the great flash of genius that these payments could be either spent or saved.

That confusion has also been reflected in the commentary from the opposition in the lead-up to today’s package. There has been a great deal of confusion and, as usual, first prize for confusion goes to the member for Curtin, the shadow Treasurer, who said on Sunday that the government should pursue ‘broad and sweeping tax cuts that will increase the tax base and increase tax revenues.’ Does that sound familiar? Like almost everything we hear from the member for Curtin, there is a familiar ring about this. It is extremely reminiscent of the theories of the now discredited Professor Arthur Laffer, the progenitor of the Laffer curve—the great theory that has produced massive ongoing budget deficits in the United States and has left President Barack Obama with a giant budget deficit to deal with. The theory is that, if you cut taxes, people will work more, they will spend more, they will generate more activity, they will pay more taxes and, magically, the hole in the revenue that has been created by cutting taxes will somehow be filled. This theory has been discredited even, I suspect, amongst Republican economists—with the exception of the one the Leader of the Opposition follows—in the United States. But apparently it is not discredited for the opposition.

The opposition’s suggestions that somehow they are credible on the question of the budget going into deficit is directly contradicted by their advocating blowing a huge permanent hole in the revenue base that would supposedly be filled by the completely discredited analysis of this Professor Laffer. They are picking up the dregs of failed US Republican policies because they have got no ideas of their own.

The government have not chosen to head down that path, partly because we already have very substantial tax cuts built into both the current financial year’s budget and the forthcoming financial year’s budget. The government are committed to getting the budget back into surplus as quickly as possible, and there are three things that will enable that: first, the natural growth of tax revenues back to the ceiling of tax as a proportion of the total economy that we committed ourselves to prior to the election; second, that once the economy resumes normal trend growth rate we will not increase spending beyond two per cent real per annum; and, third, that new policy proposals will be subject to the clear objective of being offset by either spending cuts or equivalent offsets from that portfolio.

The opposition’s approach, to the extent that it is possible to get any coherent position from them, is simply a recipe for huge deficits into the indeterminable future. For them to argue that they are the solution to the temporary deficit problem that the world is imposing upon us and, at the same time, to put forward their solution is completely fallacious. The government has got a balanced package that will deliver substantial economic stimulus and ensure that growth and jobs are supported in the immediate term and will invest in productivity and wealth-generating infrastructure in the medium and longer term.