The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Speech of 15/05/2007

ADDRESS LIBERAL PARTY LUNCH

THE GOLD COAST INTERNATIONAL HOTEL
GOLD COAST

TUESDAY, 15 MAY 2007

Well Margaret May, thank you so much for those very kind and very generous words.  It has really been an honour for me to be in the Parliament with such outstanding people, of whom you are one and I appreciate all of the support that you have given to me over those years in Canberra and the wonderful way in which you represent the Gold Coast here and long may you continue to represent the Gold Coast here.

And also Steven Ciobo, who has been a great colleague of mine, served with me on the Treasury Committee, served extremely well, somebody who has got a huge and a bright future in front of him. And Astra – lovely to have both of you here as well.  Thank you very much.

And Stuart, you are going to be up here soon we hope, as the Member for Fadden and all the very best in the election to you.

Ian told you that I was down at his radio station earlier on today and they gave me one of those trick questions.  They said: ‘you are on a plane with Julia Gillard and Kevin Rudd, the plane is about to crash, there are only two parachutes, who takes them?’  And I said: ‘I am on the plane with Julia Gillard and Kevin Rudd?’  They said: ‘yes, there are only two parachutes.’  I said: ‘I’m on a plane with Julia Gillard and Kevin Rudd? I leave the parachutes there and I throw myself out!’

I knew what Ian was working up to when he went through all of those famous things that happened around the 14th of August.  I think you said that it was the day before the 14th of August Halle Berry was born?  Well you could have had her today but you have got me.  Commiserations to the gentlemen in the room.

But I wanted to share with you something of what we were trying to do in last week’s Budget, to talk to you about how I see the Australian economy and what our challenges will be.  And leave you with this thought: that we have made great progress over the last 11 years or so. 

Australia is immeasurably stronger than it was back in 1996.  We have 2 million people more in jobs than we had in 1996.  Our unemployment rate at 4.4 per cent is the lowest since 1974, since Whitlam got to the economy.  Our Budgets, which used to be in deficit, are now in surplus.  And our Commonwealth Government is carrying no net debt.  The past is like another country and we don’t want to go back to where we were.  I want to leave you with this thought: that what Australia needs to do is it needs to lock in the progress of the last decade.  To lock in those jobs.  To lock in that Budget position.  To lock in low inflation.  To lock in our economy.  And now we need to invest for the decades which lie in front of us.  To lock in past gains and to take on new challenges. 

That is what I am thinking about our country and its economy at the moment. 

And that is what I was trying to do in last week’s Budget. 

To make sure that all of those hard yards of economic reform are not lost.  And they could so easily be frittered away.  You don’t want to take anything for granted in this world or in this business. 

The Australian economy has an annual output of about $1 trillion.  A thousand billion dollars. It is 50 per cent larger than it was 11 years ago.  And that is where we have come from and it doesn’t run itself, any more than your business runs itself.  You know if you are in business, you have got to make sure every day you are on your game.  You are getting up, you are making the right decisions, you are looking after the customers, you are paying the bills, you are going out to make sure that new developments in the market aren’t leaving you behind. 

And it is a bit like that with an economy.  You have got wake up early in the morning.  You have got to have attention to detail.  You have got to make some hard decisions.  But having made those hard decisions and having made great progress, I want to lock that progress in now and I want to take us forward.  So let me very briefly go through some of the progress that we have made over recent years. 

Now, some of you may have trouble seeing this screen and I will try and explain it on the way through.  You will see two red bars there.  The first represents the current financial year 2006-07, the second represents our Budget year, 2007-08.  You will see that we are forecasting that the Budget remains in balance, about 1 per cent of GDP.  Now, remember I said the Australian GDP was about $1 trillion, a thousand billion.  One per cent is about $10 billion.  And you can see that since inheriting Budget deficits from the Labor Party back in 1996, in 1997 we drove the Budget into surplus and we have delivered 10 surplus Budgets in a row.

Our Budget is in surplus.  The first blue bar here is 2006-07, the red bar is 2007-08, our Budget year, Budget surplus is about 1 per cent of GDP.  Our Budget is in surplus.  Comparable countries around the world are all in deficit.  The Europeans about 1 ½ per cent of GDP.  The OECD, the rich club of the world, about 2 per cent, the UK 2 ½ per cent, the United States 3 per cent, Japan about 4 per cent.  These countries are all running Budget deficits but Australia is in surplus. 

A lot of argument goes on in this country about how large a Budget surplus should be.  And I want to say to you this is quite a new argument.  When I become Treasurer we never argued about how big a Budget surplus should be.  We used to have ‘guess the deficit’.  Guess the deficit.  What deficit will Mr Keating be bringing in?  ‘Ooh’, they would say, ‘that is a low deficit, that is only about 3 per cent of GDP’.  But we changed that paradigm. 

And we have changed the paradigm in Australia compared to other countries around the world – and it has enabled us to pay off Commonwealth debt.

You can see Commonwealth debt here peaking at about 20 per cent of GDP in 1996.  And we have gradually paid that off over 10 surplus Budgets so that the blue line is now below the axis.  We don’t have net debt anymore.  As the Treasury said to me in 2005-06 when we first went below the line, they said: ‘Good news Treasurer, we now have negative net debt.’  And I said: ‘Negative net debt, is that so?  Is that a fact?’  ‘Yes,’ they said, ‘that is what happens when debt goes negative.’  I said: ‘That’s an interesting one.  Debt goes negative.  Let’s have a think about this.  What is the situation when debt goes negative?  How about this?  Savings!’  ‘Ooh,’ they said, ‘we have never heard words like that before in a Federal Budget.’ 

Savings.  And we are starting to build savings in our Future Fund.  Of course if you get rid of your debt, you get rid of your interest payments – which is that red line – and the Commonwealth Government is saving $8 ½ billion of annual interest payments now. 

When I first became Treasurer, we had to raise $8½ billion in taxes to pay our interest bill – a year.  A year.  But we don’t have to raise $8½ billion in taxes to pay interest any more because we have cleared our debt and we don’t have interest payments. 

In fact, the Treasury would look at that red line and say: ‘Ooh, negative net interest payments.’  So our net interest payments have now gone negative as well as our debt.

Have a look at that.  This is the debt position of other counties.  Canada, about 20 per cent of GDP; the OECD, about 40 per cent of GDP; the UK, 40 per cent; Japan about 100 per cent of GDP.  If we were carrying Japan’s government debt we would have, at 100 per cent of GDP, we would have $1 trillion in Government net debt.

If we were carrying the United States we would have about $400 billion.  But Australia in fact, have a look at that: we are in a strong position, now carrying no debt at all, and that gives us annual savings in terms of interest payments. 

So this is some of the progress that we have been able to make.  You don’t make this in one year or two years but you can make this over 10 or 11 years.  So, we are now building an asset position to fund our superannuation liabilities.  The biggest of which is that blue line – defence and military superannuation.  And this yellow line here is our Future Fund. 

Our Future Fund, which we established in 2005, is now enough to find all liabilities of public servants but not yet enough to fund all liabilities of our defence personnel.  And we will put more money into that this year and it is our objective to make sure that we can fund all future liabilities of the Commonwealth Government, including its military, which is that blue set of lines there.  And I established this Future Fund and one of the guardians of that Fund is here today.  It is to make sure that we earn and re-invest the earnings, like you do in a superannuation fund, so we can meet all future liabilities of the Commonwealth Government.  So that future generations won’t have to meet the liabilities of this generation.  This generation will have met all of its liabilities.  Future generations will be given the opportunity to use their taxes for their investment and their services.  Not their taxes for our services.

This is a pro-youth policy we are about here.  Making sure that we take the debt monkey off the back of future Australian generations.  And they will need it because our population is ageing.  And they are going to have enough trouble just funding the ageing of the population without having to fund liabilities that have been accrued by previous generations. 

So we first of all want to go debt free, and then we want to fund our liabilities in relation to superannuation. 

Now, some people come along and they see this Future Fund and they say: ‘This is investing for the future, we would like to take money out of that Fund and use it for our election promises.’  There are some people who do that.  And they are robbing from the future.  The money will have to be made up.  If you take money out of the Future Fund, that yellow line, which is the line of accumulated earnings, won’t be anything like that projection. 

There are people who want to rob this Future Fund within two years of its establishment.  And let me make this point.  State Governments are all trying to fund their superannuation liabilities and the State which is more advanced than any other is Queensland.  Going right back to the days of Bjelke-Petersen who did fund superannuation liabilities. 

And no State Opposition has ever proposed raiding a State investment fund.  Goss never proposed it when he was against Bjelke-Petersen and Borbidge never proposed it when he was running against Goss, and Beattie never proposed it when he was running against Borbidge.  But there are people at the Commonwealth level who want to raid the Future Fund.  Rob future savings.  They say they have got good projects, well anybody can think of a project to spend other people’s money, that doesn’t take much at all. 

Why would you do that?  Why would you want to raid this Future Fund?  Just as we have got ourselves out of debt, as we are provisioning for the future, along comes someone who wants to use it for his election promises.  You know who he is.  His name is Kevin and he is from Queensland.  And he is not here to help.  He is not here to help us.  If he starts robbing this Future Fund it is hard for me to think of anything as irresponsible.  Now, I don’t think he actually understood what he was saying when he said it.  I really don’t.  He is not a detail man and he doesn’t understand economics. 

But it is thoroughly irresponsible.  And that is why I am saying to the guardians of the Future Fund, you guys have got to stand up too, we have all got to stand up.  It is not for him or his election promises.  This is for future generations of Australians.  And I am not going to sit by after having made all of this effort for future generations of Australia and let it be dissipated by people who appear on the political stage and wander across it and have their own ideas.  This has taken a lot of work and I am going to lock in the progress. 

And from now until election day, we are going to make it clear to our fellow Australians that some serious issues are at stake here.  Some very serious issues about where our country is going to be in 10 and 20 and 30 and 40 years’ time. 
Well, not only are we funding future liabilities, but if we can continue to keep unemployment low and inflation low, we can actually start investing for the future.

And one of the best announcements that I think we were able to make on Budget night of course, was our Higher Education Endowment Fund. 

The blue bar there represents all of the financial investments and endowments which are currently in the Australian higher education system which have been built up in some cases over 150 years.

We announced on Budget night that the Government would set up a new endowment, with the endowment to be managed by the Guardians of the Future Fund, with the monies to be invested, with the universities able to tender on a competitive basis for projects, for facilities, first-class facilities which can improve the state of higher education in our country. 

And I think this Endowment Fund is an incredibly forward looking proposal.  If our economy continues to grow and our Budget continues to remain in surplus – that is, if a Coalition Government continues to be in Government – we would like to add in the years to come to that Endowment Fund and to grow it and to keep the capital in perpetuity.  So that long after I am gone and the current generation of people who are in the Parliament are gone, this Higher Education Endowment Fund will be there for future generations.

You see, this is what we are on about.  Locking in the progress of the last decade and investing for the future with our Higher Education Endowment Fund.  And I think this will give us first-class institutions and first-class students. 

I couldn’t help but be impressed today as I was out at Bond University seeing some of these young people excited about learning.  That is what we want in our young people, to be excited about learning.  Be the best that they can be in first-class institutions.  We know it is not just a question of getting the tertiary sector right, you have got to get it right all through the education system.  At the primary level with reading and writing, at the secondary level with apprentices, at the tertiary level with higher education.  And we announced the whole comprehensive package on Budget night to improve access, to improve teacher quality, to improve schools, to improve vocational education and training and to improve universities.  Including some really innovative stuff to reward schools who lift performance amongst their students.  Including schools in underprivileged areas. 

You know, if you find a good teacher you want to reward them and I think one of the problems is we haven’t rewarded good teachers enough.  And we have got a whole proposal in here to give rewards to teachers who lift standards in their schools, so that teachers know that we value them.  We value the outputs that they can get.  All of us I think could name a teacher who has had a significant influence in our lives one way or another.  If you come across a good teacher they can change your life and by improving and recognising the skills of those teachers we can make a real difference.  And that is what realising our potential, our educational reforms laid down in this Budget are all about.

One of the things that we also announced in our Budget were proposals to increase apprenticeships.  To get apprenticeships up to, we hope, to about 160,000 in 2006 in traditional trades.  As you know, and as I know, with a strong economy, with low unemployment we do have skill shortages in some areas of the Australian economy.  We’ve got to invest in apprenticeships to make sure that we deal with those skill shortages.  And I often say skill shortages is a problem in the economy, there is no doubt about it, but it is a good problem.  It is a better problem than the reverse, which is job shortages.  It is better to have more jobs going than people to fill them than more people going than jobs they can take up.  When our Government was elected in 1996, nobody complained about labour shortage.  Unemployment was over 10 per cent.  A lot of people were complaining then about job shortages.  Young people who couldn’t get into work.  There wasn’t much complaint about finding labour. 

Now problems are never good but some problems are better than others.  It is better to have the problem of labour shortages in an economy because you’ve got so many jobs than mass unemployment because you’ve got so few jobs.  So economic policy will have to change.  We will have to change our focus so that we can lock in this employment growth.  We will have to invest more in things like apprenticeships, which we are doing with a bonus of $1,000 for first and second year apprentices.  Provision for their training, so that we can grow the workforce in this country.  See, now that unemployment is down to about 4.4 per cent, we have got to grow the workforce.  We have got to get more people to join the workforce.  And it might be people who are retiring earlier, we want to say to them: ‘No, no, see if you can stay in the workforce.  Take advantage of our superannuation reforms.  Stay in the workforce a bit longer.’  It might be women who have had children and want to come back and work part-time, we will say: ‘Well, we have got some additional assistance with childcare, come back into the workforce.’  It might be young people who were dropping out, not looking for work to whom we want to say: ‘Hey, what about an apprenticeship?  What about getting a real skill which will set you up for life?’  And we want to grow the size of our labour force.  And we’ve got to do that frankly to deal with the ageing of the population.  We are going to have more and more people in retirement, and fewer workers unless people really take up my advice to have one for Mum, and one for Dad, and one for the country in a bigger way than they have so far.  I’m open for offers on that too, by the way.

And that is why in this Budget, some of you won’t be able to see this stuff up the back, we cut taxes particularly for those middle income earners, lower and middle income earners.  From 1 July you will just pay 15 cents in the dollar up to $30,000 of income, 15 cents in the dollar up to $30,000 of income.  And that is to say to people who may out working part time, ‘What about an extra day?’.  People who want to improve their skills, ‘What about improving your skills?’  To try and grow the size of the workforce.  We are also going to shift those other thresholds so that from 1 July 2008 you won’t go on the top tax rate until you have earned a dollar over $180,000.  So you get the advantage of the 15 cent rate, and the 30 cent rate, and the 40 cent rate, and you are only on the top marginal tax rate on that amount of your income which is over $180,000.  Two per cent of Australians are in that category. 

Changing taxes and cutting them in that way has actually delivered big tax cuts to people in middle income areas.  The red is the tax they were paying three years ago, and the blue is the tax that they will be paying from 1 July.  So if you are on $50,000, three years ago you were paying $11,172 in tax, now you are paying $9,600 – a cut of 14 per cent.  If you are on $40,000, your tax has been cut by 24 per cent.  If you are on $30,000, your tax has been cut by 45 per cent.  If you are $25,000 by 41 per cent, $20,000, 37 per cent and on $15,000, 54 per cent.  That’s the percentage tax cuts in the last three years, in three years the percentage tax cuts.  That is because, as Margaret said earlier, our philosophy is that if you can balance your Budget, pay off debt, invest for the future, fund road, rail, aged care, health, pharmaceuticals, defence, national security and still have the capacity to lower the tax burden you should.  And we have now cut tax in Budgets since 2003, 2004, 2005, 2006, 2007. 

Now I have heard it said that, you know, the Federal Treasurer spent $30 billion across four years in the Budget.  No I didn’t spend it.  I cut tax.  We didn’t take the money and then spend it.  We said to people – keep the money.  We reduced the tax burden by $30 billion.  There are some in the media that think this is very strange.  I think that is because they have been covering State Labor Governments for so long.  Very strange to come across a government that actually cuts tax.  You know, we have never head of one of them before because we have not seen any evidence of this with cuts to stamp duties or land taxes or payroll taxes at the State level, but that is our philosophy. That is Liberal philosophy.  The Liberal philosophy is you balance your Budget, keep your debt down, invest for the future.  If you can keep your economy strong, then you should do that with a tax burden that is as low as is consistent with that.  We actually believe in that.  We have no qualms at all about reducing the tax burden because we think that gives better incentive to people.  Now you can’t always do it, and you can’t always do it to the amount that you would like to do it, because at the end of the day we all want roads, and we want rail, and we want hospitals, and we want aged care, and we want a defence force, and we want national security.  We all want that, and in our country people are entitled to good public service, and we want to look after the disabled, and we want to look after the aged, and we want to have an education system.  Good economic policy consists of trying to do all of that and keep your tax burden as low as is consistent with that.  And I think this is very distinctive Liberal policy and it invigorates the business sector and the business sector creates jobs and jobs means that you spread the tax burden even further.  People say well how are you able to cut taxes? Well one of the reasons is that we have got 2 million more Australians in work, so you are paying unemployment benefits to 2 million less people say, it doesn’t quite work like that but, and you are collecting tax from 2 million more Australians this is the outcome of good economic policy.  This is what we have been shooting for, this is the culmination of 10 or 11 years, this is the benefit that we want to lock in.

And of course no wonder, having seen these benefits, and the distance that we have travelled under this economic policy, the Leader of the Opposition comes out and say he is an economic conservative too.  Well why wouldn’t you be an economic conservative if it delivers outcomes like this wouldn’t you all like to be an economic conservative?  He says he is an economic conservative, now you could have knocked me down with a feather when he said that he was an economic conservative because he has hidden it really well.  He has been operating under deep cover for the last 10 or 11 years.  When he was voting against balanced Budgets, and paying off debt, and the introduction of the GST, and opposing the tax cuts of the 2005 election, blow me down! He was just a deep secret mole economic conservative.  All those years.  He really had us fooled didn’t he?  Of course he is not an economic conservative, everything he has said and done and voted illustrates that, but why wouldn’t you want to be if the policies of this Government are now delivering outcomes like this?  Why wouldn’t you want to get on the train now?  And I would say to him it is more than just advertising.  It is more that just getting up and proclaiming that you are an economic conservative.  If you want the results you have got to do the hard work.  Isn’t that the story of life?  If you want the results you have got to do the hard work.  You can’t just turn up when all the hard work has been done and say ‘I was responsible for the result’. 

If you want the result you have go to do the hard work and there have been a lot of hard decisions that have got us to this place.  Balancing the Budget, paying off debt, decisions that weren’t too popular at the time.  The reform of the GST, cutting Capital Gains Tax, cleaning up the waterfront, introducing a better industrial relations system, going through the privatisation process. A lot of hard yards to get us to where we now are.  You can’t turn up and say: ‘well I was against every one of those steps but I am in favour of the outcome’. Life isn’t quite like that.  You know imagine if you bought a block of land and you wanted to build your house and the next door neighbour lodges an objection with the council for planning approval.  You dig the foundations and your next door neighbour kicks them in again; you have the bricks delivered and your next door neighbour brings in a contractor to have them carted away.  And you bring in the electrical contractor and your next door neighbour shoos him away.  And you bring in the painter and he puts paint all over the front of the house.  Imagine your surprise if you finish the house finally and the next door neighbour says: ‘I’d like to live in that house’.  Imagine your surprise if you saw a politician that was opposed to balancing the Budget, and paying off debt, and introducing the GST, and cleaning up the waterfront, and changing industrial relations who said: ‘I’m an economic conservative and I would like to inherit the results’.  Imagine your surprise, you would feel like the house builder.  We all know that the rewards come with the effort; you have got to make hard decisions in order to get those kinds of outcomes. 

Well I see very much where we were and how we have got to where we are now as part of sustained strong economic policy but I want to invest for the future.  We can go further than this with our Future Fund, with our Higher Education Endowment Fund, we can go further than this in response to environmental issues and we will do it better from a strong economy.  Anybody says to you: ‘well I am in favour of health care but I’m against a strong economy’ don’t believe it because if you want good health care you have got to have a strong economy to pay for the health care.  Look around the world. Which countries have the best health care systems in the world?  It is not developing countries, not because developing countries are against health care systems, it is because in a developing country you can’t afford it.  In a strong economy you have the ability to fund a proper health care system.  Look around the world, who has the best aged care systems?  Not the developing countries, because they can’t afford it.  And that is why a strong economy is the basis of what we want to do because it is the prerequisite for a strong health care system and a strong aged care system.  And it will also be the basis to give us strength with which to meet the challenges of climate change.  So locking in the progress of the last 10 or 11 years, investing for the future, going on to meet these challenges from a position of strength and not being distracted by those who are appearing on the scene after the work was done is going to be very important to our future prospects.  We are a team, we are a team that works well together and we are a team that works in the interests of our country.  A team that includes wonderful members as you have here on the coast and it has been a great pleasure to address you, thank you all very much.