John Faulkner (NSW, Australian Labor Party, Vice-President of the Executive Council) Share this | Link to this | Hansard source

On behalf of the Minister for Finance and Deregulation, Mr Tanner, I seek leave to table a ministerial statement on fiscal policy.

Leave granted.

I move:

That the Senate take note of this statement.

Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Link to this | Hansard source

by leave—I wish to make a comment in response to the ministerial statement by the Minister for Finance and Deregulation, Mr Tanner, on fiscal policy. The minister has kindly made it available and in it he makes a number of assertions about the role of stimulus spending and about the opposition’s position on the reasons Australia has avoided recession. He asserts:

Those opposite like to believe that the avoidance of recession in Australia is somehow down to good luck. Those opposite argue that the stimulus is not necessary. Those opposite protest that planned spending on infrastructure over the next 12 to 18 months should be withdrawn now and that it is no longer necessary because the crisis is over.

None of those assertions are true. I want to place on record our position, which can be summarised as follows. There are, we contend, many factors which have helped Australia avoid recession. The coalition has consistently said that the government’s spending was too large and out of all proportion to the task at hand. There has been considerable waste and mismanagement in the government’s spending, as we are seeing day after day. The excessive spending will have negative impacts on ordinary Australians through a legacy of debt, higher interest rates and higher taxes.

The minister for finance also makes a criticism of the coalition’s record of economic management while in office. It is never clear why the government is so sensitive about the coalition’s good record that it has to refer to it endlessly, but it is a matter of record that the coalition ran underlying cash surpluses for 10 years of the 12 years it was an office. When it came into office the ratio of spending to GDP was 25.6 per cent and it was reduced to 24 per cent by the time it left office. When it came into office it inherited a net debt of $96 billion and when it left office it left no net debt, with $45 billion in the bank. The Australian economy doubled in size while the coalition was in office. In 1995-96 the nominal GDP was $518 billion and in 2007-08 nominal GDP was $1.1 trillion.

The minister for finance also asserts that from 2003 to 2007 there were virtually no savings measures in the budgets, and he is wrong about that too. Let me outline just two of the key long-term savings measures. Firstly, there was the coalition’s Welfare to Work initiative and disability support pension reforms in the 2005-06 budget, which were designed to slow the growth in working-age welfare payments. Secondly, there was reform of the Pharmaceutical Benefits Scheme in 2006, which reversed the unsustainable growth and saved $3 billion over 10 years. The finance minister further asserts that the budget in 2007-08, the final year of the coalition government, was in structural deficit of about 1.2 per cent of GDP. This is also untrue, and I note that the OECD and IMF data show that the budget was in structural surplus at the end of the coalition government.

Finally, I note the minister for finance’s claim that the government is continually running the ruler over spending. It is worth pointing out that before the 2007 election Mr Tanner promised to cut consultancies by $395 million by 2009-10. What we find, at least on the public record, is that the government has awarded $885 million of consultancy contracts since the 2007 election, including awarding over half a billion dollars worth last year. These figures confirm that this government is the highest spending government on consultancies in Australia’s history.

It is widely recognised that there are a number of factors which have contributed to the standout performance of the Australian economy, and it would be good if occasionally the government would acknowledge this. The finance minister to his credit cites several, including: the hard work of Australian workers and small business owners, and we agree with that; the government’s early decisions to guarantee wholesale borrowing by banks and bank deposits, and we recognise the necessity of that, although we questioned the handling of it; the aggressive easing of monetary policy by the Reserve Bank, which certainly had a big impact; and of course the government’s stimulus packages, which are what the minister claims. Some of what he claims is probably novel for the government and is welcome recognition. It makes a refreshing change from the rhetoric of the Treasurer and the Prime Minister, who suggest over and over that the government’s actions were the sole reason for Australia’s relative success.

It is worth referring to an institution as credible as the Reserve Bank that is not prepared to quantify the relative impacts of the factors which have assisted Australia’s economic performance. That is very wise because the economy is a very complex beast. Certainly the Reserve Bank is not prepared to attribute all the success to the government’s stimulus packages. Indeed, how could it? The Reserve Bank, in its minutes of the 1 September board meeting, said:

Members noted that it was hard to disentangle the contribution that Asian demand, fiscal stimulus and easier monetary policy had each made to the better-than-expected outcomes.

We have noted before, that, in our view, there are at least five key reasons why Australia did not go into recession. Firstly, the government inherited a very-well-performing economy—one of the best performing economies in the developed world. The budget was in surplus. There was no net debt. I have referred to growth being above trend at 4.2 per cent and the unemployment rate was at 30 year lows of around four per cent. Secondly, the Australian financial system was well insulated against global shocks, largely due to financial system reforms implemented by the coalition. Thirdly, the Reserve Bank had implemented massive cuts in interest rates. The RBA reduced the cash rate by 4.25 per cent, from 7.25 per cent to three per cent, one of the largest cuts in the developed world. The cash rate is now the lowest in a generation. Fourthly, Australia’s export sector continued to perform remarkably well. Continued strong growth in China has led to export volumes from Australia being maintained at high levels. It was an almost unique position for a developed economy. Most suffered very substantial declines in export volumes due to higher dependence on manufactured goods and their lower exposure to the fast-growing Asian region. Fifthly, the government implemented a stimulus package.

In our view, the government has commenced a program of deficit spending and debt accumulation that far exceeds that required to address the financial and economic shocks. It is a view we formed, and it relates not just to the quantity of spending, which has been out of all proportion to the need, but also to the poor quality of much of the spending. These are themes that we will continue to agitate because we believe that this approach from the government has them absolutely set on the wrong course, which is going to continue to accrue debt and deficit. That is obviously going to mean a big impact on rising interest rates. Borrowed money is the name of the game here. This means that, in due course, it has all got to be repaid with enormous consequences for those who have to meet the debt.

It will be interesting to see whether the government stands by its forecast and debt repayment strategy. The government’s position will be updated in MYEFO towards the end of November, but there are certainly very conflicting messages coming out in public statements made by both the Treasurer and the Prime Minister. It is clear that in respect of interest rates the government believes the era of cheap money is simply over. They have acknowledged that if the Reserve Bank comments are to be taken at face value, as indeed they should, emergency interest rate levels will most certainly be on the rise.

The government’s overall macroeconomic policy stimulus to the economy is both a function of fiscal and monetary policy. Where the combined stance of these two arms of policy is overstimulatory, as we think it is now, there is a choice as to which arm of policy should be tightened. Fiscal policy stimulus can be reigned in through reduced spending or higher taxes, and monetary policy can be tightened through higher interest rates. The government’s fiscal strategy, we think, has simply lost sight of the impact of debt and deficit, and it is ordinary Australians that will pay the price.

Question agreed to.