It is my pleasure to be here today to talk to you about the Australian Government’s 2005-06 Budget.
In my remarks today I will outline how the Budget continues the Government’s commitment to strong, sustainable growth - and its commitment to improving the opportunity for all Australians to contribute to the economy and society.
This Budget lays the foundations for sustained prosperity.
It maintains strong economic management.
It provides further tax cuts and measures to encourage workforce participation.
It also introduces the Future Fund, which will invest money for Australia’s future. For your future!
Let me take each of these in turn.
Strong economic management
First, maintaining strong economic management.
Australia is in a good position to address our future challenges because our economy is in good shape. Our economic performance has been outstanding since the recession of the early 1990s.
Our prospects remain good, with economic growth forecast to be 3 per cent in 2005-06.
Business investment is expected to remain strong, increasing the productive capacity of the economy. Housing investment and consumer spending are expected to ease to more moderate growth rates.
We expect world economic activity will continue to support the Australian economy and exports are set to expand in 2005-06.
We expect inflation to remain moderate and we expect the unemployment rate to stay around its current 28 year low at 5 per cent.
The Government expects to deliver its eighth budget surplus in 2005-06. A surplus of $8.9 billion.
Substantial surpluses are also projected for the next three years.
By maintaining budget surpluses, the Government is doing its part to reduce pressure on the current account and interest rates.
Australia’s strong position contrasts with the fact that most OECD countries are expected to record budget deficits in 2005-06.
Because we are ahead of other OECD countries in our fiscal performance Australia is better placed to deal with the challenge of an ageing population, a challenge which is affecting all developed countries.
The ageing population presents challenges that we cannot avoid. This year’s budget tackles head-on the need to ensure greater labour force participation and productivity in the economy.
The Government has also taken steps to invest wisely to help address future pressures on the budget. This will provide benefits now and into the future.
Improving incentives through tax cuts
The 2005-06 Budget includes personal income tax cuts worth $21.7 billion over four years.
These tax cuts will assist low income earners, boost disposable incomes, reward participation and hard work.
They build on the $14.7 billion in income tax cuts provided in last year’s Budget.
From 1 July this year, the 17 per cent marginal tax rate will be cut to 15 per cent.
The 42 per cent tax threshold will increase from $58,000 to $63,000 on 1 July 2005 and to $70,000 on 1 July 2006.
From 1 July 2005, the 47 per cent threshold will increase from $70,000 to $95,000 and on 1 July 2006 increase again to $125,000.
These changes ensure that more than 80 per cent of taxpayers are subject to a top marginal income tax rate of 30 per cent or less over the forward estimates period. And from 1 July 2006, the top marginal rate will apply to only 3 per cent of taxpayers.
Encouraging workforce participation
The Budget also includes a $3.6 billion package of welfare to work initiatives, which will encourage people on income support payments who have the capacity to work to do so.
This will help boost our labour force, a key to sustained economic growth.
Australia’s welfare system is out of date.
The majority of the 2.6 million Australians of working age on income support are not required to look for work and, notwithstanding very low levels of unemployment, too many Australians are dependent on welfare payments.
Increased workforce participation will be required if we are to continue to improve our living standards as the population ages.
From 1 July 2006 a wider range of income support recipients will be obliged to seek work.
Changes to the Newstart income test will improve the returns from part-time work for new and current recipients.
The Government will also provide funding of more than $2 billion in new and expanded services to help those with new work obligations find and keep a job.
Parents, those with disabilities and the mature aged will benefit from new services designed to help them find work.
Investing in the future
The Future Fund aims to offset the Government’s largest financial liability, its unfunded superannuation obligations.
These liabilities are currently estimated at $91 billion and will continue to grow.
By establishing the Future Fund today the Government will strengthen Australia’s long term financial position without passing yesterday’s liabilities to future generations to pay as they fall due.
The policy aims to grow financial assets in the Future Fund sufficient to offset unfunded superannuation liabilities by around 2020.
Seed capital for the Fund will be determined once the 2004-05 surplus is realised.
On current estimates this will be in the order of $16 billion.
To grow the Fund the Government will reinvest its earnings as well as investing future surpluses.
The Future Fund will be governed by a statutory Board.
The Government will set out an investment mandate to guide the board in managing the Fund. Draw downs from the Fund will not be allowed until such time as it has accumulated assets sufficient to offset the liabilities.
Concluding remarks
In conclusion, I’d like to say that the 2005-06 Budget is about our future.
Australia’s successful economic performance over the last decade provides a sound basis for future national prosperity as long as the right decisions are made for the future.
The big decisions announced in this Budget: incentives for work; measures to encourage work force participation; and the Future Fund are the right decisions to ensure our sustained prosperity and future opportunity.