Welcome to day 3. By my count we’re into the 20th hour of the Economic Reform Roundtable. I wanted to begin today, the way I began yesterday and really say thank you again for the way that we collectively approached some really difficult issues yesterday.
And especially pleasing to see the really genuine exchanges around some of the more difficult issues, including artificial intelligence yesterday. And the reason I raised that is because if you think about that AI conversation yesterday, the way that sharing our understandings of that AI opportunity got us a bit closer to something that looks like a consensus on aspects of making that AI opportunity work for us not against us. And us in the broader sway rather than just some of us. I really wanted to shout out in particular the way that we approached that. Not because it’s possible in this room to cross every T and dot every I, obviously there’s a heap of work that has to happen after today. But that really did give me heart and encouragement.
It’s one of the reasons why I feel even more confident at the start of day 3 than I did at the start of day 1 that the effort that’s going into these discussions is worth it. Again, not because by 5 o’clock today we’ll have solved every challenge in our economy. Some of these challenges are immense including the challenges that we will grapple with today. But I do feel confident that by the end of today there will be a good common sense of reform direction in important areas. I hope that there will be a couple of pieces of work that we can accelerate that I will confer with my ministerial colleagues about. But I think the main task will be the way we commission from each other and task each other the further work that needs to happen after we all leave the room later on today.
So, really wanted to thank you for the progress that we’re making. I do think that there are good signs for some emerging consensus in some key areas and that augurs well for the discussion that we’ll be having today.
I wanted to say again that one of the reasons why we’re in this room and one of the reasons why we put this group together is because we wanted to get some collective buy–in when it comes to the big trade‑offs that we grapple with in this room as well. Governing is all about opportunity costs, whether it’s time, whether it’s public funds, whether it’s the emphasis that we place on different reform opportunities and this is really where a lot of those issues come together, in this room. And they also come together in the Budget. This room is where great ideas come to compete for scarce government funding and that’s really one of the themes of today. Again, I think if we think about the first couple of days and why that matters to this third day is because people have been terrific in proposing ideas that we can afford. But the real test will be today. As we think about tax reform, and we think about the Budget more broadly as well. But I appreciate the effort and the seriousness with which people have approached the fiscal part of economic reform as well and I hope that that holds though the course of today.
We take great pride in the progress that we’ve made in the Budget. We don’t pretend that the task of budget repair or fiscal sustainability is finished. It’s never finished. Katy and I make that point repeatedly. We get asked from time to time will this budget focus on budget repair and re‑prioritisation and we say every budget will. Every budget that Katy and I are involved in has an element of that. But we see responsible economic management really as one of the defining features of Anthony’s government. You can see that in the progress that we’ve made. Two surpluses, the first time that’s happened in a couple of decades. The biggest ever nominal turnaround in a budget in a single parliamentary term, a $207 billion improvement. Gross debt last year was $177 billion lower than the forecast when we came to office. And even if you think about last year’s deficit which we will report on next month, in a final sense, that was less than half of what we expected in the Budget and in the PEFO. I think around a quarter of what was forecast when we were first elected. So that’s all a way of saying let’s not forget we have made a heap of progress in the Budget. But Katy, and I and the government acknowledge that the work is ongoing. We need to do more work to make the Budget more sustainable and that’s what we’re asking you to grapple with today.
If you think about spending as a share of our economy, it got up to almost a third during COVID for good reasons. We got that down to about a quarter of the economy, it’s settled a little bit higher than that because of some of the pressures that we will discuss today. But I think that also shows that we’ve been able to make some progress in the last couple of years, but that work continues to be really important. I wanted to pay tribute to the Finance Minister, Katy Gallagher, for the work she has done and the work that we do together on budget repair and really couldn’t hope for a better working relationship than the relationship that Katy and I have on some of these issues.
I wanted to say that the issues paper that we released in the lead–up to these discussions, I think did a good job and I thank Jenny for this and her colleagues in the Treasury, did a good job on focussing our mind on what are now – depending on how you break up some of them – 7 big intensifying pressures on our budget. There are 7 structural issues that we deal with. And the reason why that’s important, including to some of the ways that we’ve come at these issues in the first couple of days, is that 5 out of those 7 are in the care economy. So, it’s a care economy cluster of 5 – that’s why we’ve got Ange Jackson here who knows a lot about this, who’s going to solve all our challenges for us today – but 5 of them are in the care economy and then you’ve got interest costs, and then you’ve got defence. The challenge on us is to convert the progress we’ve made in the near term in the Budget into longer term structural progress in the Budget as well.
I wanted to shout out Mark Butler and I referenced it yesterday, I encourage you to check out the speech that Mark gave yesterday at the National Press Club. Because that really goes to the core of some of those structural pressures that we have in the Budget. And I really just wanted to pay tribute to Mark for the way he set out so clearly some of the issues that we are talking about today. And if you haven’t checked it out yet, I do encourage you to check out that speech because it was a very clear explanation of the way that we come at some of these structural pressures in the Budget and in the care economy more broadly. So, we’ve made good progress on the NDIS and Mark’s laid out the challenge going into the future. We have got the NDIS growth down substantially but still growing very quickly. Aged care similarly I think we were able to put in place a structural save of around $11 billion over the decade at the same time as we improve choice and quality in aged care. And so that’s another good example, I shout out Mark again but Anika Wells and now Sam Rae for the work that they do in that area.
We’re about $60 billion down on interest costs over the next decade because of that near term progress we’ve made in the Budget. So, the 3 of those 7 structural pressures that we’ve made the most advances on are NDIS, aged care and interest. Obviously, the spending side of the Budget is key and that’s why we begin there today. But there will also be an opportunity today to talk about revenue. Our revenue base is evolving. Some of that is by choice, much of it is because of demographics and other big shifts and pressures that we have in our societies and our economy and in the global economy. And aging is the easiest one to understand because there will be proportionally fewer working Australians. Everyone is familiar with that part of our transformation. But net zero as well, changing our industrial and energy base and our resources revenue as a consequence. And these are some of the things that we’ll have to think about when we have a discussion this afternoon about tax. We think that the tax questions are central to some of the other fundamental issues of the first 2 days – productivity and resilience as well. And so we’ve deliberately brought those things together. But we also recognise that tax reform isn’t just about budget sustainability, it’s part of it, big part of it, but not the only part of it. It’s also about how we incentivise work, how we incentivise investment, how we lift productivity, how we make the system simpler and more sustainable, and also how we improve intergenerational equity. And really almost everybody around the table has touched on that in the first couple of days. I shout out Ken and others, Sally, for the way that they’ve raised those issues and tried to put them front and centre. I hope that continues through the course of today as well.
A bit like some of the other areas we’ve actually made some fairly substantial progress on tax reform in the first 3 years of the government. We cut income taxes last year, we’re cutting them next year, we’re cutting them the year after. Those tax cuts were contested. Lifting thresholds, returning bracket creep, incentivising participation, a special emphasis on younger people and women in the tax system who would otherwise have missed out. We’ve got the standard deduction, which is about simplification but also some additional relief. We’ve got the tax breaks for small business and for build to rent. Production tax incentives, for critical minerals and hydrogen. We’ve got reforms to the PRRT, so gas companies are paying more tax sooner. And we’ve got the multinational tax avoidance progress that we’ve made as well. In addition to our efforts to make the superannuation tax concessions more sustainable too.
If you think about spending and you think about revenue, it’s really us recognising that when it comes to budget repair over the medium term we know that it’s not just about pulling one lever and ignoring the others. The combination in the first 4 budgets was really banking upward revisions to revenue, sensible tax changes, savings – we found $100 billion worth of savings in our first 4 budgets, that’s unusual in the context of the 4 budgets before that. So, we’re trying to make progress on all of these fronts at once. And we recognise – and this is where my contribution leads a bit into Jenny’s in a moment – we recognise that a sustainable budget is really important to resilience and how we think about strengthening our economy, and our budget and our country in really uncertain times.
So let’s approach today with the same spirit that we approached the first 2 days. The same openness, the same willingness to try and understand different points of view around the room. And I’m confident that we can make some progress today. Jenny’s going to kick us off in a moment after we excuse our friends from the media. Then I’m going to ask Katy to say a few words. Then I welcome the additional experts and contributors that have been kind enough to give us their time today as well.
With that, I thank the media and ask them to excuse us and then we’ll go to Jenny Wilkinson.