I acknowledge the traditional owners of the land in which we meet, the Kulin nation, and acknowledge elders past, present and emerging.
And I acknowledge my session counterparts John Daley of the Grattan Institute and Professor Guay Lim.
This conference is an important one in our national political discourse, and the topic of this session Fiscal Stimulus in the age of debt is an important one, which goes to the heart of Labors fiscal agenda, the need to return to structural fiscal balance, in part to allow more room for potential stimulus in future international downturns.
Today, I want to cover two topics:
Firstly, Labors approach to budget repair, the why and the how.
And secondly, how budget repair should be seen in the broader policy and political context in the current environment.
Firstly, Labors approach to fiscal policy and budget repair.
Let me make a number of points.
The Labor Opposition has laid out more a more detailed approach to budget management than any opposition since 1993.
We took to the last election, well take to the next election, detailed plans.
You might like them, you might not.
You might, more likely like some of them and not others. But no-one could fairly accuse us of running a small target strategy.
Labor has, unusually for an opposition, laid out more than $60 billion in good structural medium term budget repair measures over the next decade.
And this is an important point, for reasons I will come to in a moment, in relation to how budget repair is achieved.
Let me deal very briefly as to the why of budget repair.
Budget repair is necessary in Australia for several reasons.
We are currently spending more $1 billion a month on debt interest. Thats money that could be better spent.
We need to protect the AAA rating, or that debt bill will increase even further.
And, as indicated by the topic of this session, we need to provide the room to support the economy in the future as international economic circumstances require.
As the World Bank recently pointed out, economic multipliers owing to stimulus measures tend to be much larger when fiscal positions are strong and can be weak or even negative when initial fiscal positions are weak.
The case for fiscal repair is strong, but the how is equally important
Ill thought out attempts at budget repair will be counterproductive, lose public support and set back the important task of fiscal consolidation.
The 2014 budget and the three years of false starts and change in direction that have followed are the starkest recent examples of this.
If we dont get the how right, success will be difficult to come by.
There are two essential elements on how to undertake successful fiscal consolidation, which mark our approach from Opposition and will be hallmarks of the approach of a Shorten Labor Government.
These are the importance of seeking a mandate and the importance of fairness.
On the importance of getting a mandate.
Governments at both the state and federal level have too often revealed their budget plans AFTER an election in the first budget of the term.
In fact, it could be reasonably argued the current government knew exactly what they were going to do before the election, but deliberately hid things from the public until after the election.
This eats away at the credibility and support for our political institutions. It means governments struggle to claim the moral authority to implement their changes because they didnt have the courage to be honest about them before an election.
By contrast, we want the first budget of a Shorten Labor Government that I bring down not to be one of surprises, but of implementation of the mandate we have sought at the previous election.
And then on fairness.
Achieving fairness doesnt mean that there are no losers, or that only high income earners make a contribution to budget repair.
But it does mean that the Government can look Australians in the eye and say that the ability to contribute has been at the heart of the budget repair program.
For our policy development, first and foremost has been examining and reforming tax concessions which are no longer fit for purpose and are regressive.
A 2017 UK Office of Budget Responsibility report shows Australia has more tax expenditure concessions than any other OECD nation bar none.
This is based on 2010 data, but the situation is highly unlikely to have improved since then.
And this doesnt even account for other expensive tax breaks like negative gearing, and a range of other concessions that continue to erode the tax base.
Can we really as a nation in need of a more structurally healthy budget continue to pretend that these concessions and loopholes can continue unreformed?
Of course, we cant.
In fact, Id go further and argue that unless the community sees the Government take action on these concessions which largely accrue to higher income earners, it will only risk further backlash if other budget reforms adversely affect lower and middle classes.
This is why Labor is taking the approach it is.
Labor has already announced our plans to reform:
- The capital gains tax discount tax concession a concession where 70% of the benefits accrue to the top 10% of income earners and costs the budget over $10 billion a year
- Negative gearing tax concessions where half the benefits accrue to the top 10% of income earners, and a concession, together with the capital gains tax discount leaves prospective home owners at a distinct disadvantage in trying to get into the housing market
- The unlimited deductions for managing tax affairs The average Australian claims $378 to manage their tax affairs. We would limit the deduction for managing tax affairs to $3000 a year. Of course, people can spend as much as they want to manage their own tax affairs, but tax payers should only be asked to subsidise up to $3000 a year. This is a sensible reform. But it has proved too hard for the current government.
This approach of carefully and systemically examining reforms which makes our tax system more progressive and provides a very positive return to the budget bottom line will continue to be our approach to making the tax system fairer and more fit for purpose.
Meanwhile, the Governments tax agenda is dominated by their corporate tax cut.
Of course, this is a very significant long term structural drag on the budget, costing $65 billion over the medium term and a full $14 billion a year in 10 years time.
Compare this to Labors reforms to negative gearing and capital gains, reforms that will see an $8 billion boost to the budget bottom line each and every year by the end of the decade.
And while the Governments corporate tax cut is unfunded in specific terms, the corporate tax is more broadly paid for by PAYG tax payers paying more.
As the Parliamentary Budget Offices recent report showed, the average tax rate on personal income will rise from 22.7% to 25.9% over the medium term.
Of the total real growth in tax receipts over the next decade, the PBO estimates that 56% owes to higher taxes on workers.
This brings me to the broader context in which the budget debate must been seen: the development of economic policy at a time of declining real wages, record high levels of income inequality, record high underemployment and ongoing concerns over regional inequality.
The facts and the challenges are clear:
- Income inequality in Australia is at 75 year highs.
- Real wage growth is currently negative
- Home ownership and particularly first home ownership rates are at record lows.
- The nearly 1 in 5 young people that are underemployed, with underemployment for this group the highest in 40 years
- People in regional areas of Queensland and South Australia for example facing unemployment rates at closer to 10%, not the 3-4% we take for granted in many cities.
- Half of all jobs in Australia over the past decade were created within 2 kilometres of the Sydney and Melbourne CPOs.
Now there is a tendency for some commentators and participants in the political debate to describe policies designed to deal with these concerns as populist.
On the contrary, well designed policies to deal with low wages growth and rising inequality are far from populist: they are essential in ensuring a dynamic, growing and fair economy.
A Government which proposes allowing a cut in wages for weekend workers in this environment simply doesnt understand the nature of the challenge.
There is of course a populist offering available in both Australia and around the world.
A populist offering which blames false causes of immigration and open trade and offers simplistic, counter-productive solutions.
The Productivity Commission has highlighted this week the potential costs of going down this road.
But policies which ignore or worsen the genuine, real and justified concerns of people about the challenges I outlined earlier make it easier for these dangerous sentiments to take hold.
I was struck by the recent contribution of Former Fed Reserve Chairman, Ben Bernanke entitled When Growth is not enough.
Bernanke argues forcefully that despite an American economy looking a lot better than it was in the aftermath of the GFC, Americans are dissatisfied with how things are faring.
Bernanke blames the toxic mix of declining social mobility, regional distress and disadvantage and political alienation and distrust of institutions, both public and private.
As Bernanke says : "If the populist surge we are seeing today has an upside, it is to refocus attention on both the moral necessity and practical benefits of helping people cope with the economic disruptions that accompany growth."
And Bernanke describes an approach to a policy solution to these challenges:
"it's clear in retrospect that a great deal more could have been done, for example, to expand job training and re-training opportunities, especially for the less educated; to provide transition assistance for displaced workers, to mitigate residential and educational segregation and increase to access of those left behind to employment and educational opportunities; to promote community redevelopment, through grants, infrastructure construction and other means; and to address serious social ills through addiction programs, criminal justice reform and the like".
This thinking is in line with the policies Labor has been developing and will continue to release.
We need to spur on and engender an environment of innovation in the cities and across the regions.
It needs to be underpinned by decent wages, and a fair reward for effort and a strong social safety net.
We need an economy more dynamic and more inclusive.
The good thing is, we have a template, like the period of our greatest economic reforms, in the 1980s and early 1990s.
As the Hawke-Keating government floated the dollar, deregulated the economy and brought down tariffs, they achieved this through a grand bargain, a social compact.
Reforms which opened up the economy were accompanied by new social standards through Medicare, superannuation, increased school retention rates and the social wage.
Hawke and Keating understood that these were vital re-assurances at a time when they were serious threats to the status quo and were essential components of reform.
Fast forward to today, a different approach has been tested.
And has failed.
Wages are not keeping up with the general cost of living.
Yet the Government stands by as many low and middle income workers over the coming years will see absolute cuts to their penalty rates.
In an era of political backlash, its more important than ever to have a program that doesnt see one particular group isolated and alienated.
As weve seen over the last 4 years, policy mis-steps and the lack of a holistic approach has left a government paralysed, with little political capital to expend on putting forward new and much needed reforms.
We dont see our reforms to negative gearing and the like as the end of the reform road.
We see them as down payments for the type of approach we will continue to make, delivering both budget repair and making room for important investments.
It is this policy development we have undertaken in Opposition which will mean we are better placed to deal with the policy challenges that will greet an incoming Shorten Labor Government.