Thursday, 8 October 2020
Statement and Documents
I rise tonight to respond to the government's budget, handed down earlier this week. It's a post-COVID budget. It's a budget that takes us from a predicted $11 billion surplus for this year to $213.7 billion of deficit. Gross debt was expected to be 27 per cent of GDP in 2019-20. Gross debt is now expected to be 44 per cent of GDP at 30 June 2021 and to increase to 51.6 per cent of GDP at 30 June 2024. I am just describing the environment.
The government has announced a wide range of revenue measures, reducing tax receipts whilst at the same time spending up big. Spending big might be appropriate as we recover from COVID—as long as money is spent effectively. Spending money is easy. Spending money wisely is a much harder thing to do.
I'm not going to present an alternative plan. That's not the role of an Independent. My job is to give honest commentary as to what I've seen presented by the government. I've decided that I'm not going to talk about what's in the budget, however. I'll have plenty of opportunities to do that as implementing legislation comes before this chamber. Tomorrow, for example, I'll speak on tax related matters in the bill that is currently before the Senate and the subject of government business. Rather, I want to talk about what's missing in the budget. I want to talk about this because COVID brought us the opportunity to sit back and examine how things could be different on the other side of the curve. But that opportunity has been squandered by government—a government without vision or brave thought. They have just delivered same old, same old approaches: tax cuts, instant asset write-offs, tax concessions, spending on this and spending on that. Even having engaged the NCCC, a body of purported visionaries, we still don't have anything visionary that's come out of that particular forum—a forum that has cost the taxpayers a lot of money.
Let's go to revenue. Revenue will fall by $55 billion in this financial year and $283 billion over the four years to 2023. That's revenue based on a number of widely optimistic assumptions. The budget makes the assumption that there are not going to be any second or third COVID waves. Basically, it relies on a vaccination being fully in place by late 2021. We've heard the government talking about vaccinations, and their optimism—talking about dates and then having to slip them, and then slipping them again and then slipping them again. At the COVID committee I asked about the logistics of rolling out a vaccination across Australia—who would be first, who the priorities are and how the vaccination would be dispatched across Australia. The government certainly doesn't have that well planned at this point in time. The reality is that vaccinations take time. We can be very optimistic, and I have no problem with being optimistic, but I prefer the approach by the philosopher Seneca, who said, 'Hope for the best but plan for the worst.'
One of the assumptions in the budget is interesting. In fact, I went back to 2019-20 and saw that the Treasury's estimates for the price of iron ore were $55 per tonne, FOB. I then looked at what this budget said and, amazingly, it said that they predicted the iron ore price would be $55 per tonne, FOB, by the end of the June quarter in 2022. I don't know if this is a cut-and-paste error. I acknowledge that $55 a tonne is in fact a conservative number, but it leaves me questioning the modelling assumptions in relation to the economic outlook—modelling assumptions that simply are not spelt out in detail in the budget. Again based on assumption is the number of jobs—there is no detail as to how the government came to the figures that are being used in the budget. We have to accept those on blind faith.
Still talking about revenue: I would have thought that this crisis would have been the opportunity to engage in significant revenue reform, but it's completely absent. Simplifying the tax system with a few broad-ranging taxes would have been good—personal income tax, corporate tax, private consumption or GST and economic rents from natural resources and land. It's the Ken Henry model. That's the sort of thing we could have been doing to simplify things. Of course, we would still retain taxes for special purposes—things like tobacco taxes to encourage people not to smoke and also perhaps taxes around traffic congestion. Instead, we will retain a complex tax system with other state taxes, job-killing taxes such as payroll tax, not being addressed.
In terms of tax cuts, that is in the budget, but what is missing is any analysis as to whether or not they're affordable. I say that having been through a comprehensive process the last time we looked at it and as a crossbencher having the special privileges of access to Treasury and having examined exactly what was going on inside Budget Paper No. 1. The argument at that time presented to me was: 'We are on the verge of a surplus. Now is the right time for tax cuts.' It turns out now we're at a $213 deficit, and it's the right time for tax cuts! So I'll just put on the record that I have reservations about these tax cuts. This entire chamber will vote tomorrow on tax cuts, blind as to any analysis of whether or not they're affordable.
Senator McKim talked about tax minimisation. Has that been addressed? There's nothing to address the 220 companies that had revenues of $850 billion over five tax transparency years and paid no tax—$850 billion of revenue and they paid no tax. Companies like ExxonMobil last paid corporate tax in 2013. Over the five years 2013-14 to 2017-18, they had $42 billion in revenue, with no corporate tax paid. They told the Senate economics committee in 2018 that the company wouldn't pay corporate tax until 2021. They spent $10 million fighting the tax office in relation to tax. The interesting thing is: on the verge of them suggesting they will pay tax, what are they doing? They're leaving the country. They're selling out of the Bass Strait and leaving the country. They've come in here, they've taken all of our oil and gas, they've paid very little in PRRT and they're leaving the country. What mugs we are! I'll contrast that with what Equinor does in Norway. In 2018-19 they paid taxes of $22 billion. They also paid a revenue to the state, because it's state owned, of about $3 billion. These are huge amounts of money, and that's just one example of how to do it right. We do not do it right here in Australia when it comes to rent resources tax.
Lendlease: five years of tax transparency data show that they've had $43 billion in revenue and have paid not a brass razoo in tax. And we're rewarding them. This year we've given them over a billion dollars of defence contracts to build facilities at Osborne, HMAS Watson and HMAS Stirling. They're not alone. Origin Energy: $59 billion and only $108 million tax paid. Ford: $14 billion and no tax paid. Virgin: $23 billion and no tax paid—but they certainly asked for a handout during the COVID crisis! How do you think most Australians feel when they're listening to the budget? Sure, they're going to get a tax cut, but mums and dads, nurses, tradies, bus drivers and all of those sorts of people are paying their fair share of tax, and you've got companies earning tens of billions of dollars paying no tax at all. It's not right, and you're not doing anything about it. There's nothing in the budget that seeks to address that.
There's no digital tax, so we've got Facebook and Google—one might argue essential utilities—creaming money out of this country, taking it, offshoring the money and paying very little tax. And what's the government doing about it? Nothing. There's nothing in this budget.
I'll turn to grandfathered large proprietary companies—that old chestnut. I know you don't like me talking about it. There are 1,119 companies—privileged companies—that don't have to lodge financial reports with ASIC. ASIC has testified to the Senate that that encourages aggressive tax minimisation. When we ask the coalition why it hasn't dealt with this, there's no policy reason as to why this loophole through which these companies don't have to file their financial returns to ASIC is acceptable or useful. Nothing is being done about that.
Going back to the PRRT, it's just not working. We are giving away our finite resources, and there is no fix in the budget for that. And even when those companies do pay tax and they do pay PRRT they can get it back when they shut down their assets here in Australia. They can draw back off the PRRT they've paid to help them shut down their facilities. They come here, they set up, they write off all of their capital investment, they don't pay a brass razoo for the resources and then they charge us on the way out. Seriously? That's Liberal economic management? There is nothing in the budget to fix it.
How do I know about that little PRRT arrangement when companies leave the country? It's because we've got an example of it playing out right now in the Timor Sea. The Northern Endeavour, an FPSO, a floating production, storage and offtake vessel, was sold by Woodside to a company called NOGA. The Commonwealth basically drove that company into liquidation. I say that because it's on the record. Before NOGA went into liquidation I warned NOPSEMA and I warned the minister that this was going to happen. They were driven into liquidation. That means there's an asset out there, Northern Endeavour, that is the responsibility of the taxpayer. We paid $28 million in 2019-20 to operate this vessel in lighthouse mode. The budget tells us there will be another $47 million for this financial year. We have this uncontrolled cost and no explanation as to how we're going to deal with this vessel that was owned by Woodside. The bizarre thing is that we're now actually paying consulting fees to Woodside to try and sort the mess out. At the same time, we've got Exxon departing Australia. They've got JP Morgan trying to sell their ageing assets in Bass Strait. They'll sell them, and we'll end up in the same situation where the taxpayer ends up operating those stranded assets in lighthouse mode.
I'll turn now to spending—education and training. I do welcome the VET spending and the apprenticeships, but we all know about the higher education funding and how damaging that is going to be for Australia, for our students and for our future. And there is no money for TAFE.
Then I look at our procurement policies. What we should be doing post COVID is directing government agencies to clause 4.7 of the Commonwealth Procurement Rules. I know that particular clause because I helped negotiate it into the Commonwealth Procurement Rules back when the ABCC negotiations were going on. That clause requires officials to look at the economic benefit that flows from a contract: How many jobs does it create? How much capital investment is there in Australia? What's the supply chain effect here in Australia? The clause is in the Procurement Rules. It hasn't been used. One of the first contracts we saw going out in the COVID crisis, when we suddenly hit the realisation that we don't have much resilience, went to Amazon—AWS—instead of Australian companies. I don't know if you know how angry that makes Australian taxpayers.
We should be learning post-COVID about reliance. What we've seen is supply chain shortages as a result of COVID. The interesting thing is that it's passive disruption to our supply chains. It's not like people are trying to stop goods getting to Australia; they're just not getting here. Imagine if we were in a conflict situation—and there is a possibility that might occur—where there was active disruption. Do we see that being addressed? Not through this budget. We're exposing ourselves. We haven't learned.
Then we look at things like defence spending. I know better than most people in this place that we need a strong Defence Force. I understand how it works. I understand its role and its deterrence role. I understand—as much as we would never like to see them used—the importance of having well-trained, well-equipped forces. But I look at some of the projects that have been commissioned by this government. Take the submarines. I'm a former submariner; I like submarines and I think they offer extremely useful military capabilities. But we've got a submarine project that has gone from $50 billion in 2015 to $89 billion. Our Hunter class frigates have gone from $30 billion to $45 billion. So, whilst we're dealing with a huge deficit and a crisis that we're trying to manage, we've got basically no-one doing anything about a $54 billion blowout. Most people don't understand what $54 billion is. To make it clearer, that is 54,000 million dollars. That's the blowout. Has the government looked to address that? No. They say, 'That's okay; we'll just get a billion dollars off our universities and our students.' They've got no idea on how to fix that problem. They remain silent. It's incompetence.
And of course we've got a total lack of AIC commitment—commitment to use Australian industry in those programs. We've seen the percentages for the future submarine. They are shocking percentages, well below 50 per cent despite the 90 per cent promise by the Liberal government. We chose a submarine designer and we restricted ourselves to one supplier, and that supplier is now exercising its commercial advantage, charging us as much as it likes along the way. These are not my words; this is the Auditor-General criticising that particular decision, that there is no competition there. The French are going to European companies that they're used to working with and they're purchasing through their normal supply chains. What a bizarre situation. We have a battery company in South Australia that's been working on Collins batteries for as long as they've been in service—since the mid-nineties—and what are we doing? We're making them compete against a Greek company for the batteries for the future submarine. Really? I can't believe it.
In the budget, we have $1.5 billion allocated to manufacturing. That is totally inadequate. We know that manufacturing creates jobs, we know that manufacturing generates IP, we know that it builds resilience into our supply chains, we know that it helps with export and we know that it helps with our balance of payments, yet we give the manufacturing sector $1.5 billion; that's it. At least we've seen a reversal of the terrible, terrible concept associated with the R&D tax bill that the government was going to pursue. Let me give you a tip: after COVID, we need R&D. But we also needed it before that. I welcome the change but it shows ineptitude.
I am pleased the government have allocated $15 million to build transmission towers in Whyalla for our interconnector—first the South Australia-New South Wales interconnector and then moving on to other transmission towers. That is a good thing. That $15 million will create 180 jobs and will repatriate work back to Australia, using Australian steel. It is a fantastic program that costs $15 million. I wonder whether we test some of the other measures against that sort of result. I do thank the government for that.
But there is nothing in the budget dealing with value-add. In this country we have to stop just exporting rocks, stop taking our iron ore and sending it overseas and stop taking our lithium and sending it overseas. We don't consider the value in conducting these sorts of activities here in Australia. In 2025 we're expecting the lithium export market around the world to be somewhere around the $25 billion mark. Batteries will be in the trillions of dollars. We should be investing in that sort of capability and that sort of value-add here. This is not a criticism, but the problem is that the Liberal Party looks at things and says to Australian companies, 'We need to have minimum wages, we need to have occupational health and safety, we need to have environmental standards and we need to have Australian standards in our products'. They are good things; I don't suggest that we shouldn't do that. But having imposed all these costs on Australian business, we then look overseas and the products are cheaper for some reason. So we buy the cheaper product from the countries that don't have minimum wages and from the countries that don't have environmental standards and have substandard products.
We have to start changing the way we think. Electric vehicles—I'm glad to see there are some charging stations, but we're not doing enough in that space. I congratulate the government for $5 million allocated to a company that will build electric vehicles out of South Australia; that is a great thing. Again, with $5 million seed funding, we will get an industry that will grow from that with up to 2,400 indirect jobs.
We have an extra $10 billion for infrastructure in the budget. Most people would think that is a good thing; however, what people need to understand is these contracts will go to tier 1 construction companies and, in Australia, there are no longer Australian owned tier 1 companies; they are all foreign owned. What's going to happen is the government will award contracts to the tier 1s, not the tier 2s, and those companies will squeeze the Australian supply chain. Most of those companies come from Spain. They will go back to Spain, and they will take products from Spain, because they know those products, and include them in the infrastructure. They will squeeze so much from the Australian companies to make a profit and then they will send that profit offshore. We need to rethink this. We need to make sure that tier 2 companies, the Australian companies, are priming these infrastructure projects. Things must change in that space.
The Space Agency—failure to launch. There is some additional funding in the budget for the Space Agency. We have a space industry that is charging ahead. I was up in Ceduna watching the launch. Unfortunately, it couldn't go to 100 kilometres because the Space Agency is unable to issue launch permits. It can't keep up with industry. The space industry is bringing the work to Australia, and these international companies are leaving because we can't get a launch permit—unbelievable!
We need to think about a national endeavour, perhaps a constellation of satellites that could monitor bushfires. We need to think about national endeavours. That's what we want to have in the budget.
Social housing is missing from the budget. The government likes to talk about affordable housing through a private investor model, but that hasn't worked. We need to think about social housing to tackle homelessness and to revitalise the construction industry.
On energy, let's start looking at things in an engineering light. We set the goals—clean, reliable and affordable—and let the market do its work. Everyone's talking about trying to bring gas prices down. Well, here's a hint: get the gas from the inexpensive sources. We have so much gas here in Australia; there is not a shortage. But what's happening is that companies are sending it overseas. All the inexpensive gas from the Cooper Basin is being exported and we're being left to pay the high wellhead prices. This is a policy failure not addressed in the budget.
And then we come to women. They are massively overrepresented in COVID job loss figures, but this has not been addressed. There's no long-term reform to child care. Where's the funding for domestic violence and legal services? Minister Ruston's response in relation to this is, 'Women can take advantage of driving on new infrastructure and roads, so to suggest the budget doesn't focus on women is wrong.' Seriously? That's the policy—as a woman, you get to drive a car? The next idea coming from the Prime Minister will be to reinstate the old rule where a man with a flag has to walk in front of a woman when she is driving! That's going to create jobs! That's the next idea—I can just see it! Aged care is missing as well. The 23,000 new home-care packages fall woefully short of the 100,000 that are needed.
As I wrap up, my favourite topic, which is dear to my heart, is oversight and accountability—cutting the Auditor-General's budget as retribution for the good work that they've done in disclosing maladministration. There is a shrinking budget for the ABC. They can't recognise the fire coverage they had. They don't recognise the value of their journalism. ICAC is missing. There is no vision in this budget. It's a bit like the Governor-General's speech—which was not the Governor-General's speech, it was the Prime Minister's speech. There is no vision in it. There is no growing the pie. There is no making the pie tastier. We have lost huge opportunities in this budget.