Thank you John for that introduction and for inviting me to speak over breakfast this morning.
Can I acknowledge the presence this morning of: Brad Cooper, Chief Executive of BT Financial Group and FSC Deputy Chairman; Geoff Summerhayes, Chief Executive Officer of Suncorp Life and FSC Director; and Pauline Blight-Johnston, Group Executive at AMP and FSC Director.
As many of you would know, the Australian economy is in the midst of a transformation.
The economy is transitioning from growth led by investment in resources projects, to economic activity driven from the services side of the economy. This is occurring at a time when the economy is growing below trend and the unemployment rate has been rising. Last night’s budget forecast real GDP to grow at 2.5% in 2014-15, returning to trend growth in 2015-16 and then projected to grow at 3.5% in 2016-17 and 17-18.
Leading indicators of dwelling investment are consistent with rising activity and household consumption and retail trade numbers, as well as confidence, have improved recently.
In 2014-15 the Australian economy is forecast to grow slightly below trend, with a large fall in resources investment partly offset by a boost from higher resources exports and the household sector responding to low interest rates.
The outlook for the global economy has improved gradually since the end of 2013, led by a pickup in activity in advanced economies, most notably the United States.
While activity has moderated in emerging markets, these economies are still expected to contribute nearly three quarters of global growth over the forecast period.
In China, while growth is forecast to slow, it is still expected to exceed 7 per cent in 2014, 2015 and 2016.
Despite continued solid growth in China, prices for Australia’s key commodity exports have fallen sharply since the start of the year. Coal prices are expected to remain weak and iron ore prices are expected to ease further in line with growing world supply.
There are both upside and downside risks to the economic outlook and, as we’ve seen, there is always a degree of uncertainty around forecasts. This uncertainty is also reflected in divergent views outside government. In this Budget, the Treasury has published key forecasts at both 70 per cent and 90 per cent confidence intervals.
It is with this economic backdrop that the Treasurer delivered the budget last night.
Last night the Treasurer took a significant step towards ensuring that government can live within its means.
Last night we put Labor’s intergenerational theft to bed and started the journey to get the Budget back on track.
Last night we moved the Budget from one focused on unaffordable consumption to one focused on productive investment for tomorrow.
When the Coalition left office in 2007, we left a budget surplus of $20 billion and net government assets of $45 billion.
But the budget we inherited last year was vastly different.
Australia was currently borrowing around $1 billion a month to pay the interest on the debt Labor had accumulated. And all of you know that borrowing money to service debt is simply unsustainable.
After six years of Labor, the budget required significant repair.
The World Economic Forum Global Competitiveness Report, highlighted that, in terms of the wastefulness of government spending, Australia fell from 10th place in 2007 to 56th place in 2013.
In the time they were on the Treasury benches Labor presided over the fastest deterioration of the Australian Government debt position in modern Australian history.
Without action, Australia faced a decade of deficits, and debt heading to $667 billion by 2023-24.
The 2014-15 Budget is the first step in our economic action plan to return the Budget to a more sustainable footing.
As the Treasurer stated last evening, it is the first word, not the last word.
Coalition decisions have contributed $36 billion toward improving the budget bottom line over the forward estimates.
Over the next ten years the Coalition will reduce our expected debt by nearly $300 billion from $667 billion to $389 billion. And that is after we prudently budget for future taxation relief.
These savings and the reduction in debt will reduce our interest bill by around $16 billion a year in ten years’ time.
In constructing this Budget we stood by four key principles:
- asking all Australians to contribute to Budget repair;
- getting the Budget on a realistic path to surplus;
- building Australia’s infrastructure future; and
- transforming the role of government.
In this year’s Budget we have taken structural reforms to improve the sustainability of the Budget in the longer term.
First, we are reintroducing indexation of fuel excise from 1 August 2014 to ensure there is a stable and growing source of funds to support long-term investment in Australia’s roads. Further, every dollar raised by the excise increases will be linked, by law, to the road building budget.
We are also making the Age Pension system more sustainable into the future and targeting it to those who need it most.
Consistent with our promise not to change the pension this term, we are building on the former government’s move to increase the pension age to 67 by 1 July 2023, by increasing the Age Pension age to 70 by 1 July 2035.
We will also index pensions, including the Age Pension and the Disability Support Pension, to inflation rather than wages from September 2017, after we hopefully secure a mandate for this change.
Recognising the need to make Australia more productive and best utilise our ageing population, the Government will introduce a new wage subsidy from 1 July 2014 to encourage the employment of older Australians; with a subsidy of up to $10,000 to be paid to employers who hire an eligible mature age job seeker on a full time basis.
We are also tightening the eligibility criteria for unemployment benefits, so that people under the age of 30 are encouraged to earn or learn.
We believe assistance to the unemployed should help them move into employment, rather than encouraging them to remain on welfare.
In the health sphere, the Coalition is introducing new patient contributions and increasing medicine co-payments.
From 1 July 2015, previously bulk-billed patients can expect to contribute $7 per visit towards the cost of standard GP consultations and out-of-hospital pathology and imaging services.
We are also bringing the excessive growth of public hospitals funding under control while ensuring real funding increases every year.
Alone, these measures are not enough. They will take time to generate the necessary savings over the longer term.
That is why we are also introducing a range of temporary savings measures to help with the immediate task of budget repair.
The indexation of certain government payment eligibility thresholds will pause and the fortnightly payment rates of family tax benefits will remain at current levels for two years.
For the Age Pension, we are pausing means test thresholds and resetting the deeming thresholds in 2017-18, to ensure our pension system is sustainable with an ageing population.
We’re also asking self-funded retirees to do their bit by ceasing payment of the seniors supplement and including untaxed superannuation in the means test for the Commonwealth Seniors Health Card.
These measures are part of a sensible way forward that balances the need for budget repair with an economic recovery that is still in its early stages.
Asking those on low and middle incomes to bear the full burden of the consolidation would be unfair. All Australians — from households to businesses and the public sector — will contribute to getting the budget back on track.
It is in this context – the immediate task of budget repair – we are also introducing the Temporary Budget Repair Levy.
The Temporary Budget Repair Levy will start from 1 July 2014, and remain in place until 30 June 2017.
The Levy is progressive and will apply at a rate of 2 per cent on individuals’ annual personal taxable income above $180,000.
With everyone making a contribution, we’ve been able to put Australia back on track to a credible path to surplus.
The sustained savings achieved mean our budget position should strengthen over time to surpluses of well over one per cent of GDP by 2024-25. Importantly, this path takes into account future tax relief.
The improvement in the Budget position will see debt decline to $389 billion by 2023-24, compared to the $667 billion that was projected under the status quo left to us by Labor.
This decline in debt is equivalent to more than $10,000 for every Australian.
The Coalition’s credible path to surplus is in stark contrast to that of our Labor predecessors.
In his 2008 Budget speech, the then Treasurer, Wayne Swan, said he was delivering, “a surplus built on disciplined spending…” but then delivered a $27 billion deficit.
In 2009 Swan said his Budget would “put us on the path to surplus…” but then delivered a $54.5 billion deficit.
In his 2010 he said he had “a strategy that will see the budget return to surplus” but then delivered a $47.5 billion deficit.
In fact, in every single Budget speech of the Rudd and Gillard Governments a budget surplus was promised. Instead, Australians were hit with the five biggest deficits in our nation’s history.
Despite the constant promise of surpluses from Labor, the IMF has warned that, without policy change, Australia would record the fastest spending growth of the top 17 advanced economies and the third largest increase in net debt.
In this Budget you won’t see Labor’s spin and rhetoric, instead we’ve focus on structural reforms that will deliver medium-term savings.
The dividend of tackling excessive and unnecessary spending is an investment in Australia’s future infrastructure.
We will invest in a stronger economy by redirecting Government spending to measures that will boost productivity and workforce participation.
This Budget secures the future living standards of all Australians through a major Infrastructure Growth Package.
We have committed an additional $11.6 billion to transport infrastructure.
This will bring the Government’s investment to $50 billion by 2019-20, taking investment from all levels of government and the private sector to over $125 billion.
This investment is designed to expedite critical infrastructure, create real activity at a time when the economy is going through a significant transition, and boost long-term productivity and living standards.
As the Treasurer has already flagged, the Government will establish an Asset Recycling Fund, including by using the proceeds from the sale of Medibank Private and other possible privatisations.
This initiative is designed to provide $5 billion for financial incentives over five years to the States and Territories to sell assets and reinvest the sale proceeds into additional productive infrastructure.
This historic National Partnership Agreement has the potential to realise close to $40 billion of new infrastructure.
On top of this Fund, the Budget commits $3.7 billion to new infrastructure, substantially on national highways, including:
- Stage 2 of the East West Link in Melbourne;
- the North-South Road Corridor in Adelaide;
- the Toowoomba Second Range Crossing in Queensland;
- the Perth Freight Link.
Here in Sydney, we will join with the NSW Government to fast-track new infrastructure including major roads and a new airport at Badgerys Creek.
In Western Sydney alone, we will invest $2.9 billion over 10 years in major road upgrades.
Without doubt, this is a Budget that delivers on the Prime Minister’s ambition to be known as an infrastructure Prime Minister.
But our investments in infrastructure are just part of our plan to build future prosperity.
The Budget we delivered last night also includes building a new $20 billion Medical Research Future Fund — the largest of its kind in the world — within the next six years, with a guaranteed stream of support.
This Fund will facilitate Australia maintaining a world class medical research sector, with access to cutting edge innovation and clinical breakthroughs in our hospitals.
The additional funding will roughly double the Government’s direct funding to medical research.
We will also provide a further $150 million for the funding of critical research infrastructure.
And in education, we will provide direct financial support to all students studying higher education diplomas, advanced diplomas and associate degree courses, as well as those studying bachelor degrees, at all approved higher education institutions.
While we make these investments in our future, the Government is transforming its role to be smaller and as efficient and well-targeted as possible.
This accords with our plan to reduce the Government’s share of the economy over time, which in turn will free up resources for private investment.
As the Treasurer said last night, our Economic Action Strategy is not about weakening Government; it is about redefining the role of government in people’s lives. The age of entitlement is over. It has to be replaced, not with an age of austerity, but with an age of opportunity.
We have already announced the sale of Medibank Private and we will continue selling assets where no compelling reason for government ownership exists.
Last night we committed to undertake scoping studies into the ownership of Australian Hearing, Defence Housing Australia, the registry function of ASIC, and the Royal Australian Mint.
We will reduce waste and duplication within the public sector by reducing the size of the public service, consolidating government programs and bodies and examining service delivery options.
The Australian Public Service will consolidate by 16,500 by 2016-17. A leaner public sector will deliver better value for each taxpayer dollar.
We have already abolished 70 bodies, boards, committees and councils, and 230 programs have gone. The Government is now systematically assessing whether remaining government functions should be open to competition and outsourced.
This process will lead to new private sector opportunities and more efficient and effective service delivery. And while we invite the private sector to make government more efficient, we will also be arranging government to help make the private sector more efficient.
Past industry assistance policies have delivered rapid growth in assistance – now more than $6,000 per employee – but they have failed to arrest the decline in the share of employment in assisted industries. Spending without achieving an outcome cannot continue.
The Government is taking a new approach to industry based on greater self-reliance and flexibility.
We have moved away from corporate welfare and will instead support business by concluding free trade agreements, facilitating access to markets, supporting capability development, and cutting red tape and taxes over time.
Given the audience, I would like to touch on two particular announcements from last evening.
The first was the decision to make the taxation of excess superannuation contributions fairer. Prior to last night, superannuation contributions that exceeded the non-concessional contributions cap were taxed punitively at the top marginal rate.
Given non-concessional superannuation contributions come from income that had already been taxed, this could take the overall tax rate up to 93 percent.
Invariably, these breaches of the non-concessional caps are inadvertent and even, on occasion, beyond the direct control of the contributor.
It was a punitive tax penalty targeting people doing the right thing by saving more so they can look after their own needs in retirement.
We announced last evening the Coalition was honouring its election commitment by making sure inadvertent breaches of the non-concessional contributions cap do not incur a disproportionate penalty.
For any excess contributions made after 1 July 2013, breach the non-concessional cap, the Government will allow individuals to withdraw those excess contributions and associated earnings with no excess contributions tax payable and any related earnings taxed at the individual’s marginal rate.
The second announcement related to progress the Government has made in relation to the backlog of taxation and superannuation measures that were announced by former governments but not yet legislated.
Following additional consultation with stakeholders and the ATO, we have determined that it is not possible to implement a number of these measures as originally announced.
Accordingly, the Government has decided to: not proceed with changes that would have applied to multiple entry consolidated groups; modify integrity measures in relation to the foreign resident Capital Gains Tax regime and the consolidation regime; and defer the start date of measures relating to managed investment trusts and offshore banking units and the legislative elements of the measure to improve tax compliance through third party reporting and data matching.
The Government has not made a decision on a targeted anti-avoidance provision to address certain conduit arrangements and is still seeking advice on this matter.
Last night the Treasurer outlined our Economic Action Strategy – we’ve asked all Australians to contribute so that we can deliver balanced and credible budget repair.
Last night’s budget was a budget to embrace lifters and not leaners. A budget to deliver a sustainable future for generations to come, and a budget the builds a better, more productive future.