Senator FIFIELD (Victoria) (4.43 pm)-As a Victorian senator, this is the first time I have risen in this chamber since the awful and traumatic events in my home state over the weekend. Like all my Victorian colleagues, including Senator Ryan and Senator Marshall, who are in the chamber, I have been distracted and preoccupied. It has been hard to concentrate-I think colleagues will agree-though I do hope to have the opportunity tomorrow to speak about what is happening back home. There is work to do here today, but in doing so what is happening back home will never be far from my thoughts.
My purpose here today is to talk to the Appropriation (Nation Building and Jobs) Bill (No. 1) 2008-2009 and related bills before us. We are, indeed, in difficult economic times. That Australia would face an economic challenge in the wake of the US subprime crisis was inevitable. The global financial crisis has wider and more serious implications for national economies than many had predicted. Many of our top trading partners are in recession. The IMF is predicting world growth to be just 0.5 per cent in 2009-the worst global figure since World War II. High commodity prices, which have contributed to Australia’s recent economic growth, have collapsed and even China, a core part of the growth engine for the world economy in the last decade, is cooling dramatically.
It is clear that these challenges demand action. No responsible government would sit idly by through such a crisis. But the circumstances do not just demand action; they demand calm assessment, sober judgment and a well-formulated and well-executed plan. It is important that the response is targeted, cool-headed and precise. It must recognise the seriousness of our challenges and also be mindful of the wider implications of taking action. Any economic package designed to boost our economy will not be cost-free. Every dollar that the government spends addressing this crisis is a dollar that cannot be spent on something else of value. Any government considering taking the budget into deficit and borrowing money must approach such plans warily and with the utmost caution.
Thankfully, Australia is in a very strong position. Just last week officials from the Department of the Prime Minister and Cabinet appearing before the Senate inquiry into this legislation agreed that Australia was in a much better financial and economic position than almost any other country in the world, and it is not hard to see why. The incumbent government inherited an economy with no net debt. They inherited a currency which was AAA rated and a government with an impeccable credit rating. They found themselves with financial markets so well-regulated that Australia’s four largest banks were in the soundest financial position of any in the world. They inherited APRA, a world-leading financial market regulator put in place by the former coalition government. It is no coincidence that there have not been any bank failures in Australia so far. We have not faced the difficult experiences of the United Kingdom with the Royal Bank of Scotland or Northern Rock. We have not had to bail out financial institutions or spend billions of dollars buying bad debt to keep them afloat, as has happened in the United States. In fact, the only turbulence Australians have experienced in the banking sector was thanks to the government’s bungled deposit guarantee, which undermined the confidence of nonbank deposit holders. This highlights the wider implications of taking decisive action. In this case the government acted quickly and probably did more harm than good.
The last Labor government, led by Mr Keating, left Australia with a $96 billion government debt to pay off. But even that enormous sum was racked up over 13 years in office. In just over one year in office, Mr Rudd is asking us to increase his credit card limit to $200 billion. If we were bank managers and an applicant came to us with the repayment history that Labor has, there is no way we would ever approve a loan of that magnitude-let alone a smaller amount. This situation should not surprise us. Any psychologist will tell you that the best predictor of future behaviour is past behaviour, so we should not be surprised that Labor has the budget on track for deficit and debt yet again. The only surprise is that the government has done so in barely over one year. It took the coalition 10 years to pay off the last Labor spending binge, and it took disciplined financial management, something it seems that only this side of the chamber is capable of. When the coalition took office in 1996 it was, as the former Treasurer said, a bit like a responsible flatmate coming home after a wild party. The clean-up was long and not particularly pleasant, but at least we had a clean house to be proud of when we were finished. We had hoped after a long period of going cold turkey that our irresponsible flatmates might have learnt from their mistakes and not trash the house like they did before. But the moment they are let back in, sadly, the flatmates go back to their old habits. The question is: how long will it take for a future coalition government to clean up what could become a $200 billion mess?
Of course, the Prime Minister and the Treasurer counter that these are extraordinary times and that this is a grave situation which demands urgent action. They state that they do not really like deficits but circumstances demand a decisive response. It is possible to be decisively right. It is also possible to be decisively wrong. That is where the coalition fears this government is heading.
Let us look at what we are getting for Labor’s proposed debt of $9,500 for every man, woman and child in Australia. Treasury says that the package will support 90,000 jobs, unlike the last package which apparently created 75,000 jobs. I eagerly await the updated unemployment figures showing a decrease in unemployment of 75,000. But let us take the government at their word and assume that this spending package will support 90,000 jobs. Forty-two billion dollars of taxpayers’ hard-earned money will be spent to support 90,000 jobs. That works out at more than $450,000 per job. It is an interesting figure and this gets me to the heart of our criticism of this package. It is an extraordinarily poor-quality spend. Forty-two billion dollars is an enormous outlay of taxpayer dollars and it will be responsible for driving this government deep into deficit and debt.
So we on this side of the chamber would want to be supremely confident that the expenditure was well targeted and represented the best use of taxpayers’ money. But this package clearly does not provide for that. The one-off sugar hit, in the form of $950 cheques, will evaporate as soon as the cheques are mailed, just like the $10 billion pre-Christmas spend. What is the medium-term benefit or long-term benefit of all this for the Australian economy? It is not being used to increase Australia’s productive capacity. It is not being invested to upgrade our infrastructure as much as it should be or to make Australia a more internationally competitive, attractive place to invest in. What it does is plunge the budget into huge deficits for years to come.
Insulating homes to lower the costs of heating and cooling is certainly a worthwhile project, for instance. I am sure that Australians appreciate support to make their homes more energy efficient. But is it really a useful tool to stimulate the economy? We are talking about a huge, narrowly targeted increase in government spending on a tiny part of the economy. It will certainly be a boost for those who produce insulation and for those who install it. But how many Australian jobs are going to be created or saved by such a massive boost to a small industry? What is likely to happen is this: a massive, unscheduled increase in demand for home insulation will see a major spike in the prices of home insulation. Some employees from other productive sectors of the economy will switch over to installing insulation in people’s homes. Once the government incentive stops or the installations are complete, the insulation sector will experience a massive contraction and a huge percentage of its workforce will be laid off. So what have we bought for our billions of dollars? Massive price increases, an artificial short-term boost and then a crash in a tiny sector of the Australian economy. That does not sound like a smart stimulus package to me.
Let us be honest. The home insulation policy is in the package for one reason and one reason only: so that
Mr Rudd can claim that the package not only boosts the economy but supports green jobs and is helping to fight climate change. If the government were genuinely interested in boosting the entire Australian economy, not just in headlines, then their measures would have been wide ranging and broad based, like the coalition’s alternative plan.
Investing in schools, for instance, is a worthy objective-so worthy that the previous coalition government had a terrific program called Investing in Our Schools. Schools across Australia benefited. Sadly, this government chose to discontinue that program. The government are in part endeavouring to resurrect this program by promising a new library, a technology wing and a language laboratory for every primary school across the country. But their program is not targeted. It does not matter if a school has just built a new library or if it is the wealthiest, poorest or most remote school in the country. I do not believe that this is the best form of stimulus for the Australian economy. Will it expand our ability to trade, produce or invest? Will it augment our productive capacity in the short term? Of course it will not. However, I must give the government this: it certainly does make sense, from a political perspective. It gives Labor MPs photo opportunities with local papers and it gives them a tangible benefit to spruik to the electorate. It might sound good but it will not stimulate our economy in any meaningful way.
The quality of the spend is poor. The global financial crisis is being used by the government as a cover for pork-barrelling and junk spending. But it is also being used as a cover for a failure to manage the budget properly. The government has repeatedly claimed that falling tax revenues as a result of the GFC will cause the budget to fall into deficit. But this simply is not true. As colleagues will remember, Treasurer
Swan confidently predicted a $21.7 billion surplus in the May budget for 2008-09. The Updated Economic and Fiscal Outlook, released last week, predicts a $9.3 billion fall in tax receipts as a result of a cooling economy. You do not have to be a maths professor to work out that even with this revenue shortfall the budget would still be comfortably in surplus to the tune of $10 billion. Instead, we are going to have a multibillion dollar deficit. Why? Simply because of policy decisions taken by this government-because of the $10 billion pre-Christmas spending splurge and because of the latest $42 billion dollar spending spree. It is clear that Mr Rudd and Mr Swan want to shirk responsibility for the looming deficits. They know that the Australian people do not take kindly to politicians who mortgage their futures with reckless spending programs. Instead the government fudge it and pretend the reason for the budget deficit is parameter changes rather than policy decisions taken by this government.
The opposition are providing a clear alternative. The government will claim that the coalition are just proposing a smaller budget deficit. No! The coalition, if in office, would have had a different starting point. Firstly, we would have built upon the strengths which were found in November 2007: a budget in surplus, no net government debt, world-class financial institutions, world-class prudential regulation, a booming economy, strong business confidence and strong consumer confidence. Unlike Labor, we would not have undermined these very strengths. We would not have trash-talkedthe economy.
There is no doubt that the economic downturn will be deeper and longer than it need to have been as a direct result of actions and decisions by this government: consumer and business confidence slammed into the wall by a government talking up inflationary expectations, interest rates rising in response to government jaw-boning, growth slowing as a result, non-bank institutions undermined by the bank deposit guarantee and new meddling like the looming Ruddbank, and a budget completely undermined. Our starting point would have been very different: stronger growth, higher revenues and a budget in surplus.
But our starting point in this debate unfortunately has to be where Labor has placed the Australian economy. So we propose a package of modest size which recognises the seriousness of the problem but does not blow a hole in the budget, a package which has immediate measures to lower the costs of employing Australians for small business, a package which has long-term benefits and not just short-term handouts. We have proposed bringing forward tax cuts scheduled for 2009 and 2010. Presumably the Rudd government do not think that these tax cuts are unfair. How could they think they were unfair, inequitable or unnecessary? They legislated them, so why not bring them forward? Why not give taxpayers the certainty of an ongoing increase in take-home pay, not just a oneoff? That is what we should be doing.
We have also proposed supporting small businesses with their superannuation liabilities. This will help reduce the cost of employing staff, encourage small businesses to keep on existing staff and even make hiring new staff far more attractive. It is a direct, targeted measure aimed at protecting jobs, not a wild, untargeted and politically motivated package.
I have no doubt that many Australians would welcome and indeed be able to spend very sensibly a $950 cheque from the government. But I do not think it will provide any medium- or long-lasting benefit to the Australian economy. All we will be left with is slightly better quarterly sales figures and tens of billions of dollars in debt. Now while I sympathise with the government’s desire to massage the quarterly growth figures for political reasons, I do not think that what serves the political interests of the government necessarily serves the interests of Australians.
And I am not the only one. Professor Warwick McKibbin, a member of the RBA board, thinks that the government’s pre-Christmas cash splash was ineffective. He notes that retail sales increased by about $1 billion in December, which represents a paltry 10 per cent return on the $10 billion spending binge. And as Peter Costello has said, if the objective of the government was to boost the sales at Woolworths, Westfield and other retail stores, it would have been much smarter and easier to just directly hand them the cash. The objective should have been directed at supporting and creating jobs. It should have been done with targeted action to lower the cost of hiring staff, not hoping that free cash would indirectly result in more shop attendants being hired to process retail transactions.
Professor McKibbin also makes a very important point about the government’s mismanagement of the economy. He says, ‘The loss of confidence… has been largely self-induced’ and that ‘Playing politics is very dangerous because it wipes out confidence.’
What might he be referring to? Would it be the constant carping and talking down of the economy by the Treasurer and the Prime Minister? Would it be the absurd strategy of trying to cool the economy in the May budget last year when it was clearly the last thing we needed? Or would it be the frequent and destructive attacks by the Rudd government on the economic record of the previous government for political purposes? The Prime Minister and the Treasurer talked up the inflation genie, attacked the former government for supposedly ‘overheating’ the economy, watched with bated breath every time interest rates rose, whacked higher taxes on luxury cars, alcohol and crude oil, and were proud to slash spending to cool the economy in their first budget. The results were clear for all to see. Consumer and business confidence dropped to their lowest levels in decades and Australians pulled back their spending at the worst possible point in the economic cycle.
But we know that it is thanks to the previous government that Australia is the best placed nation in the world to handle this crisis. You will not hear that too often from those on the other side, but I give credit to Deputy Prime Minister Gillard, who told the Davos conference a few weeks ago that we have a ‘better than worldclass financial prudential regulatory system’. How true. But you will not find that in the Monthly magazine, because it does not fit the government’s political argument. They want people to believe that the coalition left Australia ill-prepared to battle this financial crisis. In this fantasy land, it is Kevin Rudd who, despite inheriting a government and an economy in terrible shape, is able to save Australia with his sheer daring and brilliance, with his decisive action and economic prowess.
We on this side of the chamber know the truth. We know that the Rudd government were very fortunate to have inherited the economy that they did and a government budget in such good shape. We also know that our stand on this spending spree might not be popular, but it is the right thing to do. The coalition will always stand up for good policy, will always stand up for good budget management, and that is what we are doing here today.