The Budget And A Better Future: New Confidence And Competence, Or More Conflict And Complacency?

22 March 2022

Address To The Australian Chamber Of Commerce And Industry Pre-Budget Lunch





Thank you for the jobs you create and the opportunities you generate here in New South Wales and around Australia.

It’s a crucial time to gather with you once again.

Natural disasters at home and war abroad.

Seven days from the Budget.

About seven weeks from an election.

The future leadership and direction of the country up for grabs.

And an economy in the balance.

Ten years of mediocrity and calamity behind us.

Ten years of uncertainty and opportunity ahead of us.

By which I mean:

Mediocrity before the pandemic.

The weakest decade of growth since the 1930s, stagnant business investment, productivity and wages, growing debt.

Calamity during it.

A deep recession, another deep downturn, and half a dozen false starts and false dawns over two years, entrenched by poor policy decisions and a lack of planning.

Uncertainty now.

For households, workers, businesses and investors.

About the consequences of floods and war, when interest rates will rise, the challenges of falling real wages and skills shortages – all against the backdrop of a lingering pandemic.

And opportunity ahead.

So long as the recovery is strong and broad, sustainable and enduring, and works for everyone.

And only if we now get the economic decisions right – in the Budget, in the ‘burbs and in the boardrooms.


What the Budget Shouldn’t Be

That’s what I want to talk about today.

Because it’s not just an election that could go either way here.

The recovery, our economy – our country as well.

We mustn’t embark on another wasted decade of missed opportunities.

Not after all we’ve been through together.

Another decade of stagnant living standards can’t be the thanks Australians get for all the sacrifices they’ve made.

So it can’t be yet another Budget long on politics and short on purpose.

Another political patch and paint job.

More about setting the Government up for another term than setting Australia up for a better future.

We can’t afford more irresponsible or wasteful spending, banking a political dividend but not an economic one.

If that’s been the form of the first eight budgets, there’s not much hope for a ninth delivered on the eve of an election.

Already we’ve seen around $30 billion wasted on sports, car parks and other rorts, broken defence contracts, dodgy land deals, government advertising, the Robodebt settlement and on JobKeeper for companies whose profits increased while many employers and employees who needed it missed out.

$16 billion in secret funds in the last update alone.

A trillion dollars in debt as a consequence, but with nowhere near enough to show for it.

A government that has taxed much more, spent much more, and delivered much less than its predecessor.

We’d all prefer things were different.

You know that we have been, by and large, a constructive Opposition during the worst of the pandemic.

We thought that was the responsible course during a once in a century public health emergency.

So I don’t make these pre-emptive criticisms of the coming Budget in anger, but in disappointment.

I spend a lot of time consulting with the business community and I’m yet to come across anyone who expects next week’s Budget to be any better than the others.

Disappointment then that we share, but disappointment that should fuel our determination to do better.


What the Budget Will Be

Parts of the economy are recovering and the Budget with it.

We expect very substantial write-ups in revenue and lower payments next week.

The Treasurer confirmed that on Friday.

The January financial statements showed the Budget had already regained at least $13 billion compared to forecasts.

PwC suggests the bottom line will improve by $20 billion.

Deloitte Access Economics have suggested the improvement could be more like $30 billion.

Even if all of this was to be injected back into the Budget bottom line – and it won’t be – we’d still be left with the third biggest deficit, in dollar terms, on record. 

And both PwC and Deloitte see significant deficits for at least the next decade, which will be the longest period of consecutive deficits at least since the 1920s.

The title of Deloitte’s Budget Monitor – “Commodity boom meets election” – gives a clear indication of what they think is in large part responsible for this upgrade and what they think the Government will do with it. 

It’s no secret that key commodity prices like iron ore, coal and gas have been skyrocketing, with these higher prices more persistent than first thought – driving higher company tax collection forecasts across the forwards.

This is unsurprising given that, even when MYEFO was handed down, banks like CBA and UBS noted that commodity prices were much higher than those assumptions.

And we’ll also likely see improvements from revised economic growth forecasts, but it’s worth remembering most of the growth forecasts before the pandemic fell short of what the Government predicted.

The impact of the war in Ukraine will also have some impact.

Costs of living in Australia were already skyrocketing before Russia invaded, in some areas dramatically so.

Petrol, building supplies, groceries, rent, childcare – and more – and real wages were already going backwards.

But the invasion has made things worse.

The price of oil, wheat and thermal coal in global markets increased by 40 per cent between the start of February and their March peak.

As a major exporter, I’ve outlined how these price hikes could increase nominal GDP and flow through to the Budget – boosting profits and the bottom line through higher taxes.

But as Phil Lowe reflected this month, these higher prices, especially at the petrol pump, will also restrain household and business spending.

Despite a likely boost in national income and the Budget bottom line, we will be touched by global investor uncertainty and the impacts of higher energy costs on the world economy.

How this nets out will be key.

As will whether, or when, Australians feel secure enough to start to spend the $250 billion accumulated in savings.

If they hang onto those savings because of uncertainty, rising interest rates, and skyrocketing living costs, the recovery could stall.

Those rising interest rates are inevitable – they can’t and won’t be at or near zero forever, no matter who wins office.

If rates rise by one percentage point, which many of the banks expect over the next year, owner-occupiers could be paying $13 billion more in interest each year.

Rising interest rates won’t just punch holes in family budgets, they’ll punch holes in the national Budget too.

While we’ve been able to take advantage of record low interest rates to borrow for longer there is still expected to be significant borrowing at higher rates.

Since MYEFO interest yields on some Commonwealth bonds have doubled and 2-, 3-, 5- and 10-year bond yields have increased by more than 70 basis points.

If we were to pay 100 basis points more on our new and maturing debt, the Commonwealth could be paying an extra $10 billion in interest over the forward estimates.

In 2024-25 we could be paying $4.7 billion more in interest, taking our interest bill to much more than we spend on family tax benefits, the pharmaceutical benefits scheme and more than double what the Commonwealth spends on government schools or childcare support.

This is not just rising interest on pandemic debt – remember the Coalition had already doubled debt before then.

In fact, between 2013 and 2019, we had the second highest percentage point increase in net debt across advanced economies, with nothing to show for it.

Instead, we have generational debt without a generational dividend.


What the Budget Should Be

I’ve spoken a bit about what the Budget shouldn’t be, what it will be, but now I want to turn to what it should be.

It should be judged against five key tests:

Whether it rebuilds communities impacted by flood and fire fast enough.

Whether it eases costs of living pressures enough, responsibly enough.

Whether it ends the rorts and waste and sets out a clearer path to Budget repair.

Whether it supports the recovery and makes supply chains, businesses, vulnerable communities, public health, and family budgets more secure and resilient.

And whether it lifts the speed limit on the economy – boosting productivity to get growth without adding to inflation.

Any Budget framed for the next ten years rather than ten weeks needs to do these things, but I want to expand a bit on two of the related tests: supporting the recovery and lifting the speed limit on the economy.

There’s a not-always resisted temptation to talk about getting Australia back to the economy of 2019.

I understand that in terms of the economic and personal freedoms we enjoyed pre-pandemic; it’s human nature.

But the economy of 2019 was not in great shape, nor was the Budget.

Much of what we are proposing is not just repairing the pandemic economy but ensuring it’s stronger after COVID than it was before.

This will require policies to boost investment in cleaner and cheaper energy – to end the climate wars and the uncertainty that comes with it, and to create new jobs, industries and opportunities.

Plans for free TAFE, more university places and sensible migration settings to address skills shortages.

A more modern NBN, as part of a digital economy that helps people decide not just how they work but from where.

Economic reforms to create a bigger pool of available workers, by making childcare cheaper and more accessible.

And partnerships on procurement and co-investment to make your supply chains more resilient and to create new jobs, new industries and more opportunities in more parts of Australia.


Labor’s Fiscal Strategy

If – a big if – we win office in May, and these aren’t the central features of the Government’s final Budget in March, they would be defining features of our first Budget later this year.

We’d take advice on the best specific timing, and confer with Treasury on the possibilities, with an eye to bringing down a proper Budget before the end of 2022.

It could be on the usual mid-year update timeframe, at the latest, or sooner.

We’d have a chance to look at the full extent of nearly a decade of rorts and waste and start dealing with it.

But one Budget could not possibly undo all of the damage of the last ten years, not even the last two – no Budget could.

Having already spent 95 hours alongside Katy Gallagher, chairing the Shadow Expenditure Review Committee this term, we know there’s not even room for all the good ideas, let alone the bad ones.

Our job is to prioritise and sequence.

Our guiding light is the quality of spending, not just quantity.

And the fiscal approach we’ve agreed has four parts:

First, we acknowledge that the best way to fix the Budget is to grow the economy and create more jobs.

Second, we will focus on the quality of our spending, measured by the extent to which it delivers broader more sustainable growth, creates more jobs or supports more people.

Those core economic investments that I’ve outlined above should be judged on their impact on the opportunities they will create, in cities, suburbs and in our regions, on the ways that they will grow our human capital, and on the investment that they will unlock in businesses across the country.

This has always been important. But even more so now in an economy where the pressures are on the supply side.

Third, we will end the rorting and wasteful spending. 

We will spend for maximum economic impact, community need, collaboration with other levels of government – and not via colour-coded spreadsheets against the advice of government departments.

Fourth, we will work with other countries to make big multinationals pay their fair share of tax in Australia where they make their profits.

This will benefit Australians and Australian businesses who do the right thing.

Our fiscal strategy recognises now is not the time to flick the switch to austerity.

Nor is it time to spray money around unnecessarily.

Uncertain times like these call for fine judgements.

Not just about the nature of Budget repair, but the timing too.

But we can begin almost immediately.

We can improve the Budget in ways I’ve talked about today without cruelling the recovery.

Our investments can be part of the solution to high and rising inflation, not part of the problem.

That’s why we don’t feel bound by superficial comparisons between the bottom lines the major parties take to the election.

We ask to be judged on the quality of our investments, not just the quantity of the spending.


What the Election Should be About

I think the country is up for a different debate about Budgets and how we measure progress.

And that the days of being lectured on fiscal responsibility by our political opponents are well and truly over.

No Government since the war has gone to an election with a worse record on the Budget.

Or with less of a grasp of, or vision for, the future.

That’s why I challenge the Treasurer to at least three debates on the economy, between the Budget and the election.

An election which should be about the economy, and a recovery, that works for everyone.

About skyrocketing costs of living and doing business.

About falling real wages at the same time as skills shortages.

Not false distinctions over national security.

Not weird sledges about weight loss or eyewear.

There should be more interest in the shape of Morrison’s Budget than the physical shape of his opponent. 

Especially when so many of the challenges faced by businesses of all sizes, and by Australians from all walks of life, are so shared and synchronised.


Competence not Complacency

That’s also why we don’t just need new approaches to policy, we need renewed approaches to governing.

Not just what we’d do but how we’d go about it.

My message here is the same as to the businesses, manufacturers, bankers, investors foreign and domestic, the employers of all sizes – at one forum after another this month.

The same as what Anthony Albanese told the Financial Review conference.

That when we say we want to govern in partnership with business – we mean it.

That this needs to be a private sector-led recovery is not contested.

We want the spirit of collaboration to be ingrained into the culture of how we work; to be a defining feature of a new Labor Government.

Employers, employees, government all at the same table.

There is an appetite for reform in our ranks that needs to be matched by an appetite for consensus in yours.

That’s an important part of ending a decade of conflict and complacency.

And replacing it with a new decade of confidence and competence.

In which you’re key participants, and beneficiaries, and where the economy works for you and everyone you employ.

Thanks, and I look forward to your questions.