Last weekend, the Government delivered its response to the Henry Review on Taxation. Next week, the Government delivers its third budget.
Through both, the Government is delivering on the two core elements of our economic strategy: tackling the immediate macroeconomic challenges from changing global and national economic conditions, while undertaking the long-term microeconomic reforms to build a more productive and globally competitive economy.
Through fluctuating global economic circumstances over the last two years, the Government has implemented a consistent countercyclical fiscal policy to support macroeconomic stability. We have also sought to lay the foundations for long term prosperity by building the enablers of sustainable market-based growth - by investing in skills, infrastructure and a regulatory framework that boosts productivity growth, workforce participation, and brings about a seamless national economy.
These have been the two fundamental elements of the Government's continuing economic strategy since its election.
Through the Government's tax policy announcements last week we have sought to strengthen public finances, increase the global competitiveness of our economy, support small business and boost superannuation for working families.
Through the Government's budget we will continue to deliver stable conservative fiscal policy - through a 'no frills' budget that continues to consolidate on and deliver our overall economic strategy together with social policy and environmental policy.
Two years ago, when the Government was framing our first budget in 2008, I gave a speech in Perth outlining the framework that would guide our approach to that budget. I said in that speech that our first budget would be governed by the following four principles:
"Our first priority is to build a strong economy through responsible economic management - a strong economy that also delivers for working families.
Second, we are committed to honouring our commitment to help working families under financial pressure.
Third, we will deliver on our commitments to prepare Australia for the great challenges of the future - acting on areas of long-term government neglect: in education, health, infrastructure, climate change and water.
Fourth, we will plan and provide for our nation's long-term defence and security needs in a rapidly changing threat environment."
These were the four principles we outlined before our first budget. Looking back, these four principles have been applied in both of the last two budgets we delivered and now, two years later as we finalise our third budget, those same principles continue to guide our approach to fiscal policy for the future.
The first budget principle I laid out two years ago was responsible economic management - to maintain our economic strength.
The Australian Government's first two years have seen significant swings in global economic conditions from the inflationary boom of 2007, through the global slump of 2008, and towards the emerging dawn of a new era of growth following the worst global recession since the Great Depression. Through these cycles, the government has maintained a conservative countercyclical fiscal policy: restraining public expenditure growth when the private economy is strong, and stepping in to protect jobs and businesses when the private economy is weak.
This policy approach guided our response to the boom conditions the Government inherited two years ago. In 2007, the Australian economy was suffering from capacity constraints, inflation was rising to 16-year highs, and the Reserve Bank had delivered 10 consecutive interest rate rises.
In these circumstances, the Howard Government - perversely - ran a procyclical fiscal policy. Despite the booming Australian economy from 2003-2007, real spending grew at an average of 4 per cent a year - including 5.2 per cent in the final budget year in the middle of the boom. New spending decisions in the Liberals' final Budget totalled $40 billion over the forward estimates.
Saul Eslake, former ANZ Chief Economist said last year: "The previous Government squandered much of the good fortune that came its way...We could have run much bigger surpluses..."
Prior to coming to Government, I committed to end the era of fiscal irresponsibility under the Howard Government. From Opposition I articulated our fiscal strategy through a medium-term fiscal framework. This medium-term fiscal strategy was the most comprehensive commitment to fiscal discipline ever provided by an Australian government.
This statement provided the first commitment in Australia's history to keep the budget in surplus over the cycle. This framework guided the preparation of our first Budget - delivering responsible countercyclical fiscal policy.
The 2008-09 Budget delivered savings of $33 billion over four years. This was nearly three times the total savings delivered by the Liberals in their last three years in Government.
The Government budgeted for a surplus of $21.7 billion, or 1.8 per cent of GDP, in the 2008-09 Budget to provide a buffer for difficult economic times. Towards the end of 2008, global economic conditions changed rapidly and dramatically. Major developed economies fell one by one into recession. Global merchandise trade fell by around 40 per cent.
Again, the Government applied countercyclical fiscal policy to protect Australia from the global recession. The Government took strong and decisive action to provide immediate support to the economy including cash payments to support consumption, the trebling of the first-home owners' boost and an increased business tax break for private investment.
The Government's economic stimulus plan focussed on the urgent need to support the economy rapidly but also kept one eye on the future needs of sustainable economic growth. That is why about two-thirds of total direct investment under the nation building for recovery strategy is investment in infrastructure.
As the IMF concluded: "The increase in public investment will continue to support activity in the near term, while addressing infrastructure shortfalls."
As we emerge from the global recession, the Government will continue to apply the same core economic principles.
Last year, when Australia like all other developed economies around the world was dragged into deficit through collapsing revenues brought about by the massive contraction in global economic activity, the Government enshrined our budget principles in three core fiscal rules to guide the budget back to surplus in a post-global recession environment.
First, the Government's 'expenditure rule' caps the real growth in government expenditure to 2% once the economy returns to above trend growth, and this will apply until the budget returns to surplus.
Second, in order to meet the 2 per cent cap, the Government has set itself an offset target which requires the impact of new spending across the forward estimates to be fully offset in the budget.
Third, the Government has committed to saving the revenue improvement associated with a stronger economy, while ensuring that the level of taxation remains lower on average than the level we inherited in 2007-08.
These Australian fiscal rules are among the strongest of any in the OECD. As the IMF commented last year: "Few other advanced countries have adopted such a clear commitment" to return to surplus.
And Australia is in a better fiscal position than other countries.
Of course, much international attention is currently being focused on the fiscal crisis in Greece. This highlights the fact that the global financial crisis is not over yet and we continue to cast a weather eye on the global reverberations of developments in Europe. But beyond Greece, the challenge of restoring fiscal sustainability exists across most advanced economies.
* In the United States, the budget deficit is expected to be 11.0 per cent of GDP this year.
* In the United Kingdom, the budget deficit for 2010 is expected to reach 11.4 per cent of GDP.
* In Japan, the deficit is forecast to be 9.8 per cent of GDP.
* By contrast, MYEFO forecast Australia's deficit to fall to 3.5 per cent of GDP in the 2010-11 financial year.
Large fiscal imbalances across the industrialised world are resulting in a large accumulation of public debt. According to the IMF, the global recession has caused an increase in average debt to GDP ratios in advanced economies from about 75 per cent in 2007 to about 110 per cent in 2014. As a result, government debt in advanced G20 countries is projected to rise to an average of 117 per cent of GDP in 2015.
In contrast, again, the Mid Year Economic and Fiscal Outlook forecast that Australia's net public debt would peak at 9.6 per cent of GDP in 2013-14, and by 2015 will be in decline.
Most economies are only in the earliest stages of finding their way back towards fiscal balance. Australia is acting well ahead of the pack.
We have articulated strict and clear fiscal rules, and by complying with those rules we have an unambiguous pathway back to surplus. Australia's fiscal rules will ensure that our budget position remains the envy of the world. These rules represent the continued embodiment of the Government's core commitment to fiscal conservatism - as the private sector rebounds, the Government's direct support to the economy will contract.
These fiscal rules will ensure that this budget is not a pre-election spendathon. This will be a no-frills Budget with conservative fiscal management firmly at its core.
Despite the fact that 2010 is an election year, this Government will not be repeating the pattern of Liberal pre-election splurges. We will stick to very strict limits on spending while responsibly investing in our health and hospital system, building critical economic infrastructure, and boosting superannuation.
The fiscal policy of the Liberal party is not characterised by the same clear and disciplined framework. Since Tony Abbott became Leader of the Opposition, the Liberal Party has racked up $11.8 billion in unfunded commitments over the 5 years from 2009-10.
* More than $2 billion through his opposition to our responsible reforms to private health insurance rebate, which Treasury estimates will still see 99.7% of people remaining in private health insurance, because he would rather have teachers and nurses subsidise the private health insurance of politicians and millionaires.
* Almost $3 billion to reinstate welfare for millionaires, including removing the means test on the Baby Bonus and Family Tax Benefit B.
* More than $5 billion over the next 5 years for his so-called climate change policy.
* Over $1 billion on unfunded road commitments.
And now Mr Abbott is threatening our ability to deliver $12 billion in tax reform by not supporting a new resource super profits tax which will ensure all Australians can benefit from the commodity boom. This means we won't be able to deliver tax cuts to businesses, including small business, or improve the adequacy and equity of our superannuation system.
Instead, he would slap a huge tax bill on business - around $2.7 billion each year - to fund a Paid Parental Leave scheme that offers full replacement income for a person on $150,000 a year.
The Liberal Party has a magic pudding approach to economic policy, where they complain about debt, spend money like drunken sailors and rarely, if ever, advance budget savings. As the budget approaches, Mr Abbott has no alternative but to come clean with the Australian people and tell them what taxes he is going to increase, or what services he is going to cut to meet the cost of almost $12 billion in unfunded election promises he has already made.
The second budgeting principle I articulated in 2008 was a commitment to help working families under financial pressure. This budget will again deliver for working families through scheduled tax cuts from 1 July 2010.
Since coming into office, the Government has reduced the tax burden on working Australians three times. From July 1 this year:
* Someone on $30,000 will pay $750 less in tax than in 2007-08 - that's 26% less tax
* Someone on $50,000 will pay $1,750 less in tax than in 2007-08 - that's 18% less tax
* Someone on $80,000 will pay $1,550 less in tax than in 2007-08 - that's 8% less tax
Since coming to office we have taken practical steps to ease the pressure on working families' budgets. To help pensioners week to week the Government provided an increase in payments to around 3.3 million pensioners, including people receiving the Age Pension, Disability Support Pension, Carer Payment and service pensions. From 20 September 2009, around 2.3 million full rate pensioners have received a significant increase of $35.41 a week for singles and $14.96 for couples at a cost of $12.3 billion over the forward estimates.
The Government is helping working families meet the cost of education through the education tax refund. For the first time, eligible families can claim up to $750, gaining a $375 per child refund, for each child undertaking primary school studies and $1,500, gaining a $750 per child refund for each child undertaking secondary school studies. Around 1.3 million families and 2.7 million students can benefit from the scheme.
The Government is supporting families through the Teen Dental Plan to improve the dental health of teenagers by providing a voucher to eligible teenagers which in 2010 is worth $157 to assist with the cost of a preventative dental check. The Government has committed $490.7 million over five years for the Teen Dental Plan which commenced on 1 July 2008 and has already seen more than half a million teenagers receive a check up because early dental health is critical for later life.
Last week the Government announced an historic reform to boost the retirement income of more than 8.3 million Australian workers. The Government's superannuation reforms will make Australians more secure in their retirement - taking away some of the worry many working families feel when they think about the future. Our plan includes concessions on additional Superannuation Guarantee contributions, a new government contribution for low income earners, and higher caps for over 50s. Increasing super from 9 to 12 per cent will mean:
* Someone aged 30 now on average weekly earnings will be $108,000 better off at retirement.
* Someone aged 40 now will be $57,000 better off at retirement.
* Even someone who is 50 now will be $22,000 better off at retirement - and even higher if they take advantage of the new tax break for additional super contributions from older workers.
Taken together, these reforms to income tax, pensions, superannuation, health and direct family assistance for education have helped the family budget to deal with cost of living pressures.
The third budget principle I laid out in 2008 was that the Government would deliver on our commitments to prepare Australia for the great challenges of the future, acting on areas of long-term government neglect: in education, health, infrastructure, climate change and water. We have never lost sight of our core long term economic strategy - to reform Australia's economy, boost productivity and build a platform for future growth. That reform process must be anchored to productivity growth, workforce participation and the development of a seamless national economy.
Over the past two years, our Government has been acting decisively to turn around our nation's flagging productivity performance. We've been working to ensure that Australian businesses aren't held back by inadequate and poor quality infrastructure. We've established Infrastructure Australia and we have embarked on the biggest nation building infrastructure program in Australia's history, including a $36 billion transport infrastructure plan to double investment in roads, quadruple investment in rail and invest in the nation's ports for the first time.
The Government is also boosting productivity by investing in an education revolution that will prepare our kids for jobs in both the traditional trades and in industries of the future. That is why we are establishing a single national school curriculum; providing parents with transparent information on school performance; delivering computer access to all year 9 to 12 students by 2011; installing state-of-the-art trades training facilities available to every secondary school; and delivering the largest school building modernization program in Australia's history with new libraries, science centres and language centres.
The Government is also countering the effect of the ageing of the population by boosting workforce participation. We have established Australia's first-ever system of Paid Parental Leave, coming into effect from January 2011, increased the child care rebate from 30% to 50% to support parents return to work, and introduced a 'Learn or Earn' Compact with Young Australians to make sure our kids are in either work or study.
The Government is also committed to delivering long-term productivity growth by creating a seamless national economy. It makes no sense for Australian business to have to abide by up to 8 different state regulatory frameworks. That is why the Australian Government has worked through COAG to identify 27 areas of regulation which should be harmonised to create a seamless national economy across Australia, including occupational health and safety.
The Government is also committed to a superfast national broadband network to ensure our schools, hospitals and businesses have the infrastructure necessary in the 21st century. We are committed to a National Broadband Network because fast and affordable broadband is the only way we will be able to compete with economies in our region like Japan, Korea, and China. If we don't have fast broadband it will cost us lost jobs and lost business opportunities that will go to countries overseas.
The National Broadband Network is the single biggest nation building project in Australia's history; it is modernising the Australian economy for the future.
Today, the Minister for Broadband Stephen Conroy is releasing a 500-page Implementation Study. I pleased to announce that the Study confirms that our National Broadband Network vision for Australia is achievable and can be built on a financially viable basis with affordable prices for consumers.
12 months ago, the Government committed to investing in a $43 billion NBN. The Study confirms that the company will generate sufficient earnings by the end of year 7 so that the Government's recommended investment peaks at $26 billion.
The Study confirms that the NBN business model establishes that taxpayers are paid back their investment with a modest return by year 15 of the project on the basis that privatisation is completed.
The Implementation Study shows that the National Broadband Network can be done - and we are absolutely committed to it.
By contrast, I note that the Opposition spokesman declared this morning that he didn't care what the study said - he said, quote "...even if the study makes out a business case, that won't alter our view." Let me just say: this takes Opposition for opposition's sake to a new level - they are opposed to the biggest single modernising nation building project in Australia's history even before they see a plan that says it can be done.
The Opposition spokesperson went on to say, quote: "...there are alternatives that are more responsible to deliver faster and affordable broadband." Well - here's my challenge to the Opposition: let's see your broadband plan. In two and a half years of opposition they haven't offered any concrete alternative plans and in Government they had 18 failed broadband plans in 12 years that left Australia with some of the slowest and most expensive broadband in the developed world.
On Sunday the Government took decisive action on a key area of microeconomic reform and one with profound macroeconomic consequences. The tax plan will:
* Keep government finances strong;
* Protect the future of the Australian economy; and
* Ensure working families and small businesses get their fair share.
These reforms will allow all Australians, including working families and small business, to share in the benefits of the resource boom. These reforms will convert Australia's economic strength into a new generation of prosperity for the future. These reforms will make our whole economy stronger:
* Reducing company tax to keep it competitive with similar OECD nations will create new jobs, attract investment and grow the economy.
* Cutting tax and reducing red tape will boost Australia's 2.4 million small businesses.
* Building a $5.6 billion fund for investment in nation building infrastructure such as better roads, more rail, and bigger ports will help to support growth for the future.
* And increasing Australia's pool of superannuation by $85 billion will strengthen our economy and lift our national savings - these measures are projected to add around $500 billion to the existing pool of superannuation savings, and contribute to further increasing national savings by around 0.4 per cent of GDP by 2035.
Finally let me make some remarks about the Resource Super Profits Tax. I want to address some of the recent commentary head on.
First, I believe it is right that the most profitable mining companies pay more during a global commodities boom. All Australians deserve a fair share of our natural wealth, but the fact is that as prices have risen in recent years the share coming back to Australians has been falling.
10 years ago royalties used to account for 1 dollar in 3 of mining profits. now they take 1 dollar in 7. Resource profits were over $80bn higher in 2008-09 than in 1999-2000, but governments only collected an additional $9bn in royalty revenue.
Second, the mining boom has brought benefits to Australia but also some costs in terms of increased demand for infrastructure. Every community in Australia - and especially those in the resource states - are crying out for infrastructure. When Infrastructure Australia opened for applications it got $14.5bn in applications from Western Australia. State premiers themselves have tried for 20 years to negotiate with the mining companies to raise royalties - partly to fund infrastructure.
It is surprising that a Premier such as the Western Australian Premier could constantly ask the Commonwealth Government for infrastructure but oppose the tax that provides the finance for that infrastructure.
The third area of debate in the community is about the impact of the RSPT on investment in the resources sector. Let me be clear that the design of the RSPT aims to broaden our mining sector and increase overall mining production.
Put simply, if companies aren't earning super profits, they don't pay the tax. In fact, the new regime can actually help more marginal mining ventures because state royalties will be refunded, meaning that emerging mining companies may actually get a cash flow gain, and for exploration companies, the Commonwealth has provided a billion-dollar exploration rebate to encourage the development of our natural resources.
For these reasons, independent modelling by ECONTECH shows that the Government's reforms will increase mining activity in Australia by around 5.5 per cent.
The mining industry is a great industry. I want to see it broadened and deepened in Australia.
I thank the mining executives I have met with over the last few days in Western Australia for their engagement with the Government. The conversations I have had were robust; but constructive. Some other commentary has been less constructive.
The Government's tax reform plan will help Australia take full advantage of the economic opportunities that lie ahead:
* broadening and deepening our resources industry by boosting emerging mining projects and providing greater incentives for exploration;
* funding the rail, roads and ports our resources sector needs and making investment in nation-building infrastructure a permanent structural feature of State and Commonwealth budgets for the future;
* increasing the competitiveness of Australian business - particularly small businesses who drive employment and innovation in our economy.
Over the last 18 months, Australians have faced one of the toughest global economic challenges in our lifetime. As we look back, I am proud of the success of Australia in navigating the global recession. It is a testament to the ability of the whole community - businesses, unions, workers and government - to pull together, and the strong and decisive leadership from government economic policy.
I am proud of the Government's economic stimulus strategy and the results it has produced.
I am proud of the more than 200,000 jobs that Treasury estimates were saved by the stimulus.
I am proud that so many Australian businesses kept their doors open while so many millions closed overseas.
I am proud that Australia had the shallowest slowdown of all the advanced economies.
In fact, the overall economic report card is strong. Compared with all the major advanced economies, Australia has the fastest growth, the lowest debt and deficit, and the second lowest rate of unemployment.
This should be a reason to be confident. It should not be a cause for complacency. Just as we worked hard to ensure our economy was the envy of the world during the downturn, we now must work hard to capitalise on this position as we move through the economic recovery phase and a return to economic growth.
That is why the Government is taking strong action through the Henry Review and through the Budget to deliver responsible economic management.
This will be a no-frills, fiscally conservative Budget that will fund the substantial health and tax reforms we've announced in recent weeks. We will stick to very strict limits on spending while responsibly investing in our health and hospital system, building critical economic infrastructure, and boosting superannuation.
It will be a responsible Budget that makes the key investments in our future that are so critical to turning our success during the global recession into a stronger economy for working families.