What I want to do tonight is take the opportunity to share some of the big-picture principles, if you like — as I prepare my first Budget as Treasurer, at this critical time for our economy.
My purpose is straightforward – to clear a path for growth and job in a stronger new economy.
A transitioning economy
Australians know that their future depends on how well we continue to grow and successfully shape our economy as we move from the unprecedented investment boom in mining to a stronger, new economy with more jobs.
This is the greatest economic challenge we face today.
Australians know that meeting this challenge is how we ensure that Australians have a secure job, can grow their business, are able to provide for their future, enable us to pay for the services they need and give their children the opportunities to be successful and have choices.
Australians know that securing growth in a highly competitive, volatile and uncertain global economy is no easy task. But they also know that together we are already making this happen.
Despite the global headwinds, our economy is growing faster than the worlds most advanced economies, faster than the United Kingdom, the United States, Japan and Germany. We are growing twice as fast as Canada, faster than NZ and Singapore and matching it with economies like South Korea.
As you would know, the December national accounts showed our real GDP grew by 0.6 per cent over the quarter — and 3 per cent for the year.
In the last year we’ve seen almost 300,000 jobs created, the most since the Howard years.
And it’s a similar story when it comes to business conditions.
Business conditions are strong, and growing stronger. We’re seeing particular strength from businesses in financial services, in business services, in property and construction.
We continue to benefit from growing demand for our natural resources. Record mining investment of over $700 billion is now translating into an increased production capacity and the capital stock in the resources sector is now four times higher than before the boom.
Australia is the world’s largest exporter of both iron ore and coal. By the end of this decade we expect to overtake Qatar to be the largest exporter of LNG. Australia is also one of the largest exporters of gold, zinc, nickel and copper.
The resources sector today accounts for around a tenth of our economy, brings in around $170 billion annually in export earnings, and directly employs more than 226,000 Australians plus many more in related industries.
But services exports are now also growing strongly, supported by the depreciation in the Australian dollar
Service exports volumes are up 8.3 per cent through the year to December.
Net services exports added around 0.5 percentage points to GDP growth over the past year after having been a drag on growth.
In the December quarter investment by services industries increased strongly by 12.4 per cent in the quarter.
This rebalancing has created jobs. Services are far more labour intensive than mining.
Australians are already seizing the opportunities and demonstrating once again that we will not be intimidated out of our prosperity.
Our economy is transitioning from strength to strength — from the strength of our resources sector to the strength of our non-mining sectors, particularly our all-important services.
This was confirmed again yesterday with the NAB monthly business survey reporting a strong result in March, and concluding ‘a jump in both business conditions and confidence this month provides more assurance the Australian economy is weathering the global challenges well and that is successfully transitioning through the end of the mining boom’.
And we have reason to be confident that we can continue to achieve this success.
We have access to the fastest and largest growing economies in our own region, namely China and India as well as the emerging economies of South East Asia.
Australia’s neighbours are growing, and Australia’s flexible economy continues to adapt to benefit most from the changing opportunities presented by our region. Our flexible exchange rate is helping the economy through this transition.
Tonight the Prime Minister is on his way to China. As Treasurer, my first (and only overseas visit to date) was also to China. China continues to be a dominant part of our economic story and opportunity.
This story has begun a new chapter, as our biggest trading partner is shifting from investment-led growth to greater reliance on consumption and services.
What is exciting for Australia is that the expanding parts of the Australian economy are also the expanding parts of the Chinese economy — or, to put it another way, we’re in synch.
That’s something worth being upbeat about.
The services sector, for instance, currently represents more than 50 per cent of China’s total GDP.
And despite lower growth than it’s become accustomed to in recent times, China still has a GDP growth target of 6.5 to 7 per cent for 2016.
China’s purchasing power is more than 50 per cent higher than six years ago, when it was growing at 10 per cent.
It’s an opportunity for education, tourism and financial service exports; for health and ageing services; for businesses, large and small.
Currently our services sector comprises 79 per cent of our employment but only some 20 per cent of our exports.
China is already our largest services market with exports in services worth $8.8 billion in 2014-15.
On some estimates China’s middle class is projected to increase from around 12 per cent of the population in 2009 to 70 per cent by 2030.
The scope of the opportunity for business and our economy is enormous.
Take the health and ageing services as just one example.
China’s proportion of population aged 60 and up will grow almost threefold – from 15 per cent to 38 per cent – over the next 50 years.
By 2019 the number of people aged sixty and over in China will exceed the number of people aged 0 to 14.
So we are making our way, and we do have the opportunities ahead of us to secure growth and jobs in a strong, new economy
It is imperative that we do all we can during this critical phase of rebalancing in the economy to encourage investment and to support activity in our economy that will underpin our continued growth and prosperity.
It is important we remain focused on growth-friendly policies.
We are on the right path for growth and jobs
Since coming to Government two and half years ago we have been clearing a path for growth and jobs and that task will continue to be taken up in this year’s budget.
We have worked to remove the things that were holding Australians back and restore the things Australians needed to go forward.
We reduced the burden on families and businesses by cutting taxes and better targeting our support - most notably abolishing the carbon and mining taxes, as we promised, and cutting taxes for small business.
We have cut more than $4.5 billion in business red tape, provided more than $1 trillion in environmental project approvals and opened up our trade links with ground breaking free trade agreements in Korea, Japan, China and the TPP.
We have supported State Governments to recycle their assets to invest in more productive economic infrastructure like roads and ports, while committing to projects like Westconnex, Bruce Highway upgrade, the Monash Freeway, the North South Corridor in Adelaide and Freight link in Perth.
We have been cleaning up the mess at the NBN. Close to two million homes and businesses can today access the NBN and there are more than 900,000 active users.
That compares to just 51,000 users connected between 2010 and 2013. Under Labor, around $6.5 billion was spent to deliver broadband to less than 3 per cent of premises.
We have introduced more effective means testing and stronger integrity measures to better target our welfare system and reduce the abuse.
We have delivered on our commitments in health and education, but have refused to engage in fantasy funding by committing taxpayers to expenditure with money that is not there.
We are restoring investment in our defence forces that was previously run down to pre Second World War levels while upgrading our national security infrastructure to keep Australians safe. And we stopped the boats – just saying.
In the past eight months we have placed innovation at the centre of our growth agenda to drive jobs in our new economy.
For instance, we’ve given an extra spark to innovation in this country with our innovation statement: a $1 billion package of measures that, we hope, will change how we approach business in this country.
As part of this, we’ll make it easier for up-and-coming businesses to raise equity finance, with tax incentives for early stage investors and venture capital investment.
This will be teamed with a 10-year exemption on capital gains tax if investments are held for at least twelve months.
And the stigma that comes with business failure? We’re going to tackle this by revisiting insolvency and bankruptcy laws.
This will involve reducing the default bankruptcy period from three years to one, and introducing ‘safe harbour’ for directors from personal liability for insolvent trading.
None of you would be strangers to FinTech, or financial technology. You’d have seen first-hand how FinTech can stimulate technological innovation and simplify financial transactions — from crowdfunding, to mobile payments, to digital currencies.
It’s transforming the world’s financial systems and economies. And the Turnbull Government wants Australia to have a bigger slice of this, which is why we released a FinTech statement containing measures to support growth of the industry.
We’ve also established a FinTech advisory group to advise us on the important issues facing the industry.
And while the work we’re doing on innovation is key to our future growth, we are backing in our transition through many other forward looking economic policies.
We have endorsed and responded to the Harper and Murray Reviews we initiated, to make changes that seek to deliver greater choice for consumers, promote competition and an even stronger banking and financial system to protect consumers and support businesses to grow and create jobs.
This included getting rid of the bank deposits tax, outlawing unfair credit card surcharging and taking a decision on misuse of market power laws.
Obviously the BCA took a different view on section 46.
We had the conversation, with the BCA and many other stakeholders. We considered it; we did it carefully, and with respect for the views of all sides.
The BCA has been involved throughout the consultation processes that came with the Harper Review. And the Government wants that to continue.
We’re conscious of the needs of business, and the changes are designed to reduce the uncertainty associated with amending the law. So I encourage you be involved — to share your knowledge and expertise — as we progress the legislative changes.
We have also adopted substantial and long ignored changes to our media and digital services laws that bring our information and entertainment media industries into the 21st century and allow a more even playing field against overseas companies.
We have continued to tighten up our welfare system, ending the practise where people could walk away from their welfare debts after six years. The number of Australians on the disability support pension is now falling, and has fallen below 800,000 from a peak of over 830,000 not long after we were elected.
And we have also acted to make sure multinational companies pay their tax, with new laws to combat Multinational tax avoidance, secured through the parliament, despite the Labor Party voting against it.
Backing in investment
Looking ahead we need to drive investment — and that needs to come from the private sector.
It is business – small, medium and large - that delivers growth and jobs. And it’s the Government’s job to clear the path, remove the barriers and to pull the levers needed for enterprises to succeed, grow and employ.
That is what I will be focusing on in this year’s budget:
- backing in Australians to invest and earn more, by keeping taxes as low as we can,
- backing in policies that enable us to become even more innovative, more competitive and more outward looking, and
- backing in infrastructure projects that make our cities and regions more workable and more liveable.
This is how you drive jobs and growth.
But it’s also how you strengthen our nation’s finances, by supporting the revenue gains that come from growth we have rather than higher taxes.
Since becoming Treasurer, I have been consistent in my view that Australia has a spending problem.
Given that over the current budget and forward estimates expenditure is projected to remain above the long run average, while revenues will rise to eclipse their long average next year, this is an obvious point.
When you hear someone say we have revenue problem, what they are saying is that Australians should be taxed more - that the tax burden on the Australian economy must be increased. Bill Shorten and Chris Bowen agree – that is why they are proposing, even boasting, that they will increase the tax burden on the Australian economy by over $100 billion over the next ten years if they are elected.
This includes increasing capital tax by 50% on everything other than new housing. And they are not just removing negative gearing on exiting residential housing, but factories and shops, as well as shares and business investments.
Labor believe they can knock out one out of every three buyers in every auction or sale and think there will be no impact on the value of your home and how much more rent Australians will pay.
They fail to understand that when Australian lose confidence in the value of their own homes, their single biggest asset, that this will flow through to more generally to confidence, that is so critical to our transitioning economy.
Labor’s plan for higher taxes is a direct threat to our transitioning economy. It does not clear a path for jobs and growth, it blocks that path, and for many it could close it. For the overwhelming majority of users – mums and dads, police officers, nurses, teachers, clerks and defence force personnel – this is their chance to build their wealth.
This how they help their children into the property market.
Labor tax more because they cannot summon the discipline not to spend more. But even then their taxing is not enough to catch their spending.
Budget estimates are done over four years not ten. The reason is simple – estimates over longer periods can be highly unreliable.
This is how Labor got into so much trouble in Government by promising and committing to expenditure with money that wasn’t there – all pushed out beyond the budget and forward estimates – health, education, disabilities, just to name a few.
When you deliver a budget you must present your figures over four years – they’re the commitments you make.
Over four years, Labor has at least $11 billion in new spending since last year’s budget they have promised. They continue to block over $13 billion in budget savings, and have opposed at least $35 billion in other savings measures by the Government that they would reverse, if elected.
This means Labor would add around $60 billion in expenditure over the budget and forward estimates – which is almost an additional one percentage point of our economy to outlays.
To pay for this higher spending, Labor have $7 billion in higher taxes and just one $1 billion in savings on spending. $8 billion in tax increases and spending reductions for $60 billion in new spending. It just doesn’t add up.
By contrast, in this Budget the Coalition will continue to live within our means. Households are doing it, families are doing it, businesses are doing it – so must Government.
As outlined in MYEFO, we are reducing our expenditure as a share of the economy.
By the end of the current budget and forward estimates period expenditure as a share of the economy is projected to fall to 25.3% and the deficit reduced from 2.4% last year to 0.7%.
We are achieving this by saving more than we are spending and we are reducing taxes more than we are increasing taxes.
This is the discipline needed to remain committed to growth and maintain the consolidation of our budget position to protect us against the economic shocks and uncertainties that can threaten our success.
Through this disciplined process, our budget will also be able to achieve the equally important objectives that the budget will address to:
- help more Australians, especially young people, to get into work and get off welfare and become independent over their working life and beyond
- invest in education, health and social services, in a fairer and more sustainable way that taxpayers can afford – rather than higher taxes and higher debt, and
- protect our national security, keep Australians safe and make our communities stronger.
This is the Budget that the Australian economy needs now. It doesn’t matter when the election is held, this is the Budget that we need to deliver. It will be a budget focussed on clearing a path for jobs and growth.
To finish, let me again thank the BCA for your invitation.
The conditions are in place for the next phase of Australia’s transition, namely businesses in the non-resources sector increasing their investment, while our resources sector continue into its production phase, growing its market share in foreign markets.
We know that growing the size of our economy is how you create jobs, opportunity and deliver greater living standards for Australians. It’s how you help Australians earn more.
You don’t get this by increasing the burden on hard-working Australians and business owners with higher taxes as Labor eagerly wish to do.
And you don’t get this by living beyond your means as Labor will again if given the chance.
The Government gets this. The BCA gets this, too.
The BCA, has always been an advocate for growth, investment and as a result, jobs.
We share with you the foundational belief that entrepreneurialism and private investment is always how Australia has succeeded and will continue to succeed.
And I look forward to continue to working with you as Treasurer, both in the days immediately following the Budget, and hopefully well beyond, should the Australian choose our plan for jobs and growth.
I know that with the business community’s efforts, Australia will continue to make a successful transition, and enjoy a prosperous economic future.
Thanks for your attention.