Senate debates

Thursday, 27 November 2014

Adjournment

Government Spending

7:07 pm

Photo of Matthew CanavanMatthew Canavan (Queensland, Liberal National Party) Share this | Hansard source

Mr President, I will start with an apology to you. I am sorry to keep you around here for 20 minutes, but I did think that you enjoyed my speech so much the other night that I will actually double it tonight. I know that the hard working girls in the whips office, Charlotte and Bec, really enjoyed it, so I am going to 20 minutes tonight.

I did want to contribute to the debate earlier this evening on government expenditure. I thought that was an excellent debate and a very worthwhile motion moved by Senators Day and Leyonhjelm. It is an incredibly important issue that at times does not get the airing it deserves in this place. Unfortunately, sometimes in question time we seem to focus on what people said yesterday and what they did or did not apologise for today and not on the big issues that actually affect this country. There are not many bigger issues than the debt that we have right now and how we are going to pay it back. We are about $340 billion in debt right now as a nation and that is only growing. It is going to grow faster as our population ages, and I want to talk a little bit about why that is such a risk and why we need to act now to fix it.

While I was listening to the debate from other people, I remembered a quote from a great public choice economist James Buchanan. He was a Nobel Prize-winning economist who basically invented a new field of economics and public choice theory. He once said that socialism may be dead but the leviathan lives on. He was exactly right. While the theories of Marx and his successors have lost credit certainly in the last 20 years, those of Keynes and others have not. I think Hobbes—that quiet leviathan that his book comes from—said many useful things. I mentioned Hobbes in my maiden speech. It is true that we as a parliament and as a government do have a contract with the people of Australia, we do have a contract with the people who are governed by this place, to make sure we provide the right things, to make sure we provide protection to the weak, to make sure we help those who cannot help themselves and of course, most of all, to make sure that we defend our nation from external threats. But Hobbes probably did not anticipate Keynes, and since Keynes came along we have had an obsession with spending and a minimisation of the risks of too much government spending and too much debt. All Western countries—and we are probably at the back of the pack on this, fortunately—have borrowed too much, have spent too much, way above their budgets in the last 20 years or 30 years. Mainly they have done that either in response to economic recessions or threats, with an over-confident or reach to Keynesian policies, or they have done it in a desperate attempt to buy votes, and that has often led to dire outcomes and where we are at right now.

That great economist James Buchanan also said that the response to too much debt, the response to having too much government spending, is like someone dieting. It is like someone with an obesity problem: they are always trying to get onto a better diet, they are always trying to say, 'Today, I am going to eat less, or tomorrow I am going to do this, or next week I am going to exercise more.' And the same thing happens with governments. They make promises to say, 'tomorrow I will be better, tomorrow I will stop spending'. We have seen that in the last six years. We have seen in the last six years a government that continually said, 'We are going to produce a budget surplus, not today but sometime soon. We won't produce it in this budget that we are delivering today, but we are going to produce it in three years' time. We are going to produce it in three years' time, three years early.' The problem is that that never happened. It never happened. The Labor Party clearly had, in a spending sense, an obesity problem. Now in opposition, they need to look at the fact that perhaps they need to go on something like the Biggest Loser. They need to go on a program like that so they get weighed, they can work out how much they are spending, how much debt they have and they can work out how they are going to fix it, What kind of regime are they going to go through to make sure that they can cut spending and actually balance a budget?

The Labor Party have not balanced a budget federally since 1989. I was nine years old in 1989, and the Labor Party have not balanced a budget since then. But they continually oppose those savings that have been put up and they also oppose some that they put up themselves when they said they were going to deliver a budget surplus. When they said they were going to deliver a budget surplus, they put forward savings like those on the R&D tax credit—the legislation that is up in this place right now. But instead of supporting the savings that they actually put up just over a year ago, they have now changed their position and are opposing those savings. That is just the absolute sign of someone who cannot diet properly.

I need to lose a view kilos myself, but I needed to 'carb up' before this speech and I went down to the diner. I had a healthy options to choose from but I went for the bucket chips. Mr President, I sinned, and I do feel a lot better after those chips, but I will certainly not look better next week. That is the problem with the Labor Party: they always go for the bucket of chips. They do not take the proper regimen of having some salads, going for a run around the lake and getting better doing something that is tough right now and comes at some kind of cost but is going to pay off in the future. It is going to pay for the generations who come beyond us.

I want to speak a little bit about what those problems for our future generations. We do often hear about our budget situation today and where we are at. Last year we had a $50 billion budget deficit. Everyone in Australia put $2,000 on their credit card thanks to the government last year—$50 billion is just over $2,000 per person. So anyone listening right now and anyone in this chamber—it's $2,000. We have about six senators here at the moment. So each of us borrowed $2,000, thanks to the Australian taxpayer, and put that on the nation's credit card. But it is only going to get worse. I used to work for the Productivity Commission. About 10 years ago they did a report on the ageing population—it was in 2004, I think. At the time, if we did not change anything and if we just kept going the way we were—and back then in 2004 we had big surpluses—and did not change any policies, the gap between our spending and our revenue as the Australian government and state governments up until 2050, so about 45 years, was going to be $2.2 trillion. Then, if we borrowed to be able to spend that money, we would end up with a debt of over $4 trillion. That is pretty scary. But last year the Productivity Commission issued a new report, an update on the report, if you like, and things have obviously got worse since then. That has been a result of the mismanagement of our finances over those last six years.

This new report says that, from 2011, when the report was started, through to 2060, we are going to have a gap between our spending and revenue of $3.2 trillion—an extra trillion dollars to borrow. It is so much money it is hard to think of. If we borrow that $3.2 trillion over that time—actually the Productivity Commission did not do those calculations this time, but a former staffer from there who is in my office, Colin Clark, helped do the numbers for me—at an interest rate of four per cent, year on year, which is pretty conservative, we would end up with a debt at the end of that period of $7 trillion. That would be about 150 per cent of our GDP at that time. This is all in 2011 dollars, so it takes out inflation. We would be in the category of Greece, Japan and other nations. That is a long way in the future. We have got decades to prepare for that. But we have got to know that when we make decisions now, because every decision we make today not to deal with that issue means it is something that someone has to do in the future to deal with that issue, because we will ultimately end up in that place.

That makes it so much more important to try to get our budget into balance right now. That has not happened in the last six years. As I say, the figures have blown out immeasurably in that time period. The reason they have done that is the deficits we have run in the last six years, in a period where we have had strong economic growth and strong growth in our terms of our trade. If you believed in the lessons of Keynes, you would have thought we would be running surpluses through that period, because you should be saving during a strong economic growth period, to have the funds for a rainy day when things turn around.

Let us just go through it. The Labor Party had six budgets over that period. Their first budget was a $27 billion deficit. The second was a $54 billion deficit. That was a record, that one. That was the biggest in history. It still is. The record is going to be hard to break. The next one after that, the third one, was a negative $47 billion. The fourth was a negative $43 billion. They got to negative $18 billion. I think it was in 2012-13. That was the year they were meant to have a surplus. They shifted a lot of money around to try and get there; they were still $18 billion short. And last year, as I said earlier, we had a $50 billion deficit. All up, we had deficits of $240 billion in just those six years—an unbelievable amount of spending from the Labor Party. But they did do it, and now we have got to clean it up.

The only way to clean it up is to look at the areas of the budget that spend the most money. Fixing the nation's budget should not be overcomplicated. It is no different than fixing a household budget. You look at what your spending items are, you look at what you are spending too much money on and you try and clamp down on it. In our budget, the reality is that a big part of what the federal government spends, what we spend, is taken up by two areas: welfare and health. Welfare accounts for about 33 per cent, a third, of our budget—$140 billion a year. This government has tried to introduce some reforms to cut spending on welfare, as well as encouraging people to get jobs, but the reforms have been blocked by this place, blocked by the Senate. That does two things that are of concern. First, it means we do not get the savings to our budget that we want to get through cutting back on that item of expenditure. Second, it means we do not receive the benefits in terms of productivity or increased workforce participation that those reforms would deliver. It has been doubly disappointing that the Labor Party has blocked those reforms.

The next biggest area of expenditure is health. That is 15 per cent of our nation's budget and growing rapidly. Again, the Labor Party do not want to do anything about trying to help slow the growth in health spending. This side of parliament has taken a very difficult decision to say we should put a price signal on people going to the doctor. The Labor Party believe in putting a price signal on carbon and in putting a price signal on prescription drugs, but they do not believe in putting a price on going to the doctor—a very moderate price signal of just $7 a visit, capped at $70 a year for pensioners and those with healthcare cards. But they do not want to do that. They are not doing it because they see a political opportunity in opposing it. That is unfortunate, because, as I say, we have an economic opportunity to help fix these problems. A moderate cost on people going to the doctor is something that Bob Hawke proposed in the 1980s and that the shadow Assistant Treasurer of the Labor Party proposed a few years ago, in a book called Imagining Australia. I think I have got it in my office. But he has walked away from it. He has walked away from it because of politics, not because of economics. I think that is unfortunate, because, if we do not do things in either the welfare area or the health area, you can pretty much forget about dealing with those long-term budget and expenditure problems that I described earlier—those trillion-dollar problems. If you want to fix a trillion-dollar problem, you have got to start with expenditure in the billions, and that is in areas like welfare and health.

There is another way we can help deal with this problem—and Senator Sinodinos, in the debate today, made very good points in this regard. This is often overlooked. We do need to cut our expenditure. We do need to get those savings through the parliament and have a reasonable and forward-looking debate on them. But the other way we can help deal with this issue is to ensure that economic growth remains strong. We have had a difficulty in the last decade in achieving high productivity growth, and ultimately it is productivity growth which will determine how much money we have in the future, how much we can afford on schools, hospitals and roads, so we need to become as productive as we can. All that means is saying we need to be able to use the resources we have got in the most efficient way. We need to be able to make sure we can do more with less every year. If we do that, we will maintain our high standard of living and our highly equitable access to hospitals and schools, which is a foundation stone of the nation. But in the last 10 years our multifactor productivity growth, which is a broad measure of productivity across capital and labour markets, has been falling at 1.2 per cent a year. There are lots of reasons for that, but it has been falling. Across the world, the average has been 0.6 per cent in the last 10 years, so it has not been a global phenomenon. It is not like we are just going backwards along a wave created by other nations. We have been well behind other nations. It is something that we have to look at and rectify.

Our average productivity growth in the last 30 years has been about 0.7 per cent a year. If we could return to that average over the next 10 years, if we could achieve that productivity growth rate instead of what we have been achieving, in just 10 years we would have an extra $6,000 or so per Australian in our GDP. Average incomes would rise by about $6,000 a year. Think of the changes we make in this parliament. The price signal on Medicare, for example, is going to cost people $70 a year if you are a pensioner or a person with healthcare card. This reform alone could add $6,000 a year—if we were able to get the productivity growth.

More importantly, for this debate on expenditure, if we were able to get the productivity growth rate up, that would automatically bring our spending down as a percentage of GDP because the pie becomes bigger, and what we take up, the resources that we take up in this place, become a smaller part of that pie. If we were able to do that in 10 years, our spending in GDP terms would drop from 26.5 per cent where it is at the moment to 24.8 per cent in 10 years. That would go back to the longer-term average in terms of government spending.

That calculation I did assumes we do not make any savings; we just stay with all our other spending. We keep it all in place just through that action—getting high-productivity growth we would be able to get our spending as a share of GDP back to something more reasonable. That is the power of compound growth and that is why it is so important to make sure each year on year we are achieving as much productivity growth as we can.

As well as the government's saving agenda, the government has established a strong agenda to try and achieve those productivity gains through a range of areas. I just want to highlight a few: first of all, the deregulatory agenda is very, very important. Labor made attempts in the last six years to achieve that—I think they were frustrated in a number of areas; they were frustrated through COAGs. Some of those things were not their fault—I am not trying to be political but it is very, very difficult to get these things done.

This year one of the most important reforms we have achieved is to set up the one-stop shop and improve the approvals for large projects. It has been a national disgrace how long it takes to get large-scale investments approved. That was something the Labor Party wanted to tackle—that former Prime Minister Julia Gillard announced they were going to tackle and then they walked away from it, because the Greens did not like it.

Since we have set up those one-stop shop arrangements, the bilateral agreements with state governments, around a trillion dollars of new projects have been approved. I would like to highlight the bauxite mine south of Emerald, which was approved under the former Labor government just before they stopped—but they took 975 days to approve it. It was initially approved very quickly then the Wilderness Society wrote a letter to Tony Burke and he stopped the clock: it took them 975 days to approve a $1.4 billion project in Cape York—a disadvantaged part of our nation. It is an absolutely disgrace that it took that long. If we deregulate more and get those projects up, we will get more jobs going and that will help our productivity growth.

There are also broader reforms—things we need to do more work on: taxation through the white paper, and Senator Day made a number of important contributions in that regard. I agree with him: we need to look at indexing our tax threshold, because it is a deterrent to people getting ahead. They know that through bracket creep the government is going to get you every time. If they do not get you this year, they are going to get you through inflation and, without becoming wealthier, you are going pay more tax and be in higher tax brackets. If we gave people the confidence that we, as a government, would not just index people's welfare payments but index their tax thresholds, it would give people more confidence to have a go and take some risks in their lives.

It is very important to make sure that, while we do have spending constraint, we do not forget to invest in the areas of our nation which are going to deliver economic growth and those productivity gains. That is going to be at the frontiers of our nation.

There is a basic theory in economics that, when your capital stock is low, your return on capital is going to be higher. That marginal return on capital for just another factory or road in an area where there is not much infrastructure right now will make a big difference.

Senator McGrath spoke earlier about a trip he and I did to the gulf and across to Cairns—there are enormous opportunities in that region. If we can get of our backsides, approve projects and the use of more water, and get some irrigation going, that will create jobs. Again, we will take the sun, water and soil that already exist and start producing a product that people want to buy and that, by definition, is going to increase our productivity.

Finally, I wish to focus on the most controversial and the hardest thing we need to do: industrial relations reform. Senator Dastyari spoke about the casualisation of the workforce, and he is absolutely right: that is a great concern. But it is also fundamentally true that, after the former Howard government introduced reforms to industrial relations after they won the 2004 election, the number of people employed in full-time work surged.

It is pretty simple: if you make it easier to hire people, people are going to hire more people. That is all it is. It is fundamentally true. Not just that: unemployment fell and it fell before GDP rose—usually it is the other way around: GDP usually kicks up, then unemployment starts to fall, because businesses become busier and they get the confidence to hire more people. But after Work Choices came in, it worked the other way: unemployment went down first and then GDP picked up. Unemployment fell so much that, by the end of the Howard government, less than four per cent of people were out of work in this nation—today it is over six per cent. That represents about 250,000 people. If we can do one thing in this place which helps people in a measurable way, it is to help them get a job. I think it is a disgrace that 250,000 people are out of work now, when they need not be, if we had some decent industrial relations laws in this country.

Comments

No comments