It's really great to be here on George Street in the heart of Sydney's CBD as part of the continuing engagement between government and the business community. We really put the foundations of this relationship in place during the darkest days of 2008 when the global economy was on the brink. Through that period I probably spent more time on the phone to senior business people – in the financial sector in particular – than I did with my wife or kids.
It was that direct line to business that was so instrumental in helping us shape our successful response to the global financial crisis. Real time advice on market and general trading conditions, consumer behaviour and supply chain developments were absolutely crucial in guiding the action we took to keep the doors of business open. Whether it was a direct line to what was unfolding at the bank teller's window, the cashier's till or on the fitting room floor – it was essential. The result is a world-beating economy which walks tall in the world.
We were almost alone among developed economies in avoiding recession and the massive loss of skills and capital that would have flowed from such a destructive outcome. And we have continued that engagement with the business community on issues at the heart of our future economy. Leaders of the business community who are right now still marshalling their decades of corporate knowledge to guide their organisations through the continuing fallout from the most volatile global conditions in 80 years.
I've got a huge amount of time and respect for anyone who has done the hard yards in either building or running a business. And the Gillard Government will keep working with business at every opportunity to get our economic settings right to ensure sustained growth and prosperity in the decades to come. That's why the Prime Minister and I announced a major new Economic Forum to continue the discussion on making the most of our opportunities in the Asian Century. I look forward to that discussion on the challenges of structural transition occurring in our economy - like the sustained higher dollar and skills shortages - as the weight of global economic power shifts to our region.
The Economic Forum will build on the partnerships we've already established like the COAG Business Advisory Forum on deregulation, which is a critical part of our agenda to cut unnecessary red tape and boost productivity growth in our economy. And to start off today, I'd like to focus on another successful partnership we've built – in relation to tax reform through the Business Tax Working Group.
Following the Tax Forum in October, we established the working group to look at how our tax system can best help businesses increase productivity and respond to the pressures of our patchwork economy. We wanted to methodically explore what kind of business tax system will best support Australia's future growth prospects. It was through this collaborative process between business, government and other stakeholders that the recommendation came for a new loss-carry back reform. And I think it's worth just spending a bit of time reflecting on why this is such an important measure to introduce in an economy in transition.
I've been talking for some time about how we can benefit from Asia's rise as the engine of global growth. I've also spoken at length about Australia's rock-solid economic fundamentals – contained inflation at the same time as solid growth, low unemployment and record levels of mining investment. But I know a lot of Australian business people hear me talk about the strength of our economy and the promise of the Asian Century and feel like that picture doesn't accord with their own experience. Just like many households feel excluded from the benefits of the boom, many Australian businesses also feel like it's someone else's boom. Manufacturing, tourism and education are struggling under the weight of a higher dollar pushed up by the record high terms of trade and strong investment in our world-beating economy. Retailers are doing it tough with the cautious consumer, cheaper imports and changing consumer preferences. Residential construction is facing challenging conditions with buyers wary of taking on debt, particularly with softness in housing prices.
Despite our strong economic fundamentals, parts of our economy are being tested by the profound structural transition we are going through. That's why a central plank of this Budget is spreading the benefits of the boom to businesses in those sectors under pressure in our patchwork economy. That is why in this Budget we are introducing the new loss-carry back reform which received widespread support at the Tax Forum and was recommended by the Business Tax Working Group in its final report. This measure will provide vital new business tax relief to support businesses not in the fast lane of the mining boom and encourage them to invest and grow. In its first 4 years, we expect this major tax reform will provide much-needed assistance to nearly 110,000 companies struggling with these challenges of an economy in transition. This includes the likes of around 8,000 manufacturing companies and 17,000 construction companies who've been hanging out for relief.
We want to help struggling businesses ride out difficult times and we want to encourage them to invest in the capital, skills and restructuring they need to become more competitive. This investment will help these businesses lift their productive capacity and in turn lift the productive capacity of the economy. It will also help alleviate the serious pressures being felt in parts of our patchwork economy, and help businesses struggling with the high dollar and the cautious consumer. I think it's worth just having a bit of a look at how this measure will help.
Currently, many struggling businesses are able to carry forward their tax losses to offset future profits and reduce future tax liabilities. This new initiative will allow businesses to also ‘carry back' their losses, to offset past profits and get a refund of tax previously paid on that profit. In doing so, this reform will mean businesses can use their tax losses when they need to, rather than in the future when their businesses are performing better. Loss carry-back will encourage companies to adapt to changing economic conditions and take advantage of new opportunities through investment. The introduction of the loss carry back tax reform implements another recommendation of Australia's Future Tax System review. It's just part of the Government's broad reform agenda to boost productivity by helping businesses invest and innovate.
In fact, just this morning I visited a local manufacturing firm called Goldstein Eswood – an Australian business that's been around for over a hundred years and across four generations. Goldstein Eswood makes commercial cooking equipment and dishwashers which they sell to the hospitality industry. Australian-made and Australian‑designed. And I'm really proud of the fact that this typical Australian firm stands to benefit from our business tax reforms which are worth some $4.4 billion over the forward estimates. These will provide incentives for businesses to invest and thrive – with flow-on effects right across the business network.
As Goldstein Eswood has observed, you don't have to be one of the 110,000 businesses that will claim the new loss carry back to benefit from it – it will benefit their whole supply chain. Clearly anything which builds your customers' capacity to invest in new equipment and technology is good for all the businesses operating upstream in the value chain. And in the business world where cash is king – anything that boosts your customers' cash flow and helps them pay their accounts quicker is valuable for not only their business but also for yours as their supplier.
Critically, around 90 per cent of the companies expected to benefit from the new loss carry back are small businesses. That's around one hundred thousand small businesses who will get further relief in addition to other major tax relief measures for small business that start in the 2012-13 income year. Because loss-carry back is part of our broader agenda to help provide more relief for business through tax reform and help them invest in the productive capacity of the economy.
Loss carry back builds on the $6,500 instant asset write‑off for the 2.7 million small businesses right across Australia – worth around $1 billion in its first year alone. From 1 July this year, small businesses will be able to immediately deduct the cost of any new business assets costing less than $6,500, for as many assets as they purchase. We also recognise that for many small businesses their biggest asset is their car, ute or van – whether you're a builder, a caterer or a sparky. So from 1 July this year we're letting small businesses immediately deduct the first $5,000 of a new or used motor vehicle, purchased. These reforms will make the tax system simpler for small businesses, whether sole traders, partnerships, trusts or run through a company.
I think we are providing a really powerful combination here through measures like the instant asset write-off and the loss carry back reform. We're funding much of these significant tax breaks from the proceeds of the MRRT, because it's part of our broad agenda to spread the benefits of the mining boom fairly to all sectors of our economy. Of course, this is an agenda we've been driving for some time. We've put in place the MRRT to spread the benefits of the mining boom to all Australian industries and geographies. We've argued every hour, every day and every week since the MRRT's inception for some of the revenue to go to cutting the company tax rate.
The Government has always been committed to sharing the benefits of the resources boom with sectors of our economy doing it tough. But every step of the way we have been opposed by the Coalition. Despite our drive to cut company taxes - including releasing draft legislation in March – this reform was rejected in full by the Liberal Party, and in part by the Greens. In fact, instead of cutting the company tax rate, the Liberal Party have committed to increasing it to 31.5 per cent in an unwelcome slug to those businesses already doing it tough in our patchwork economy.
For our part, I want to make it really clear that the Gillard Labor Government is still in the cart for genuine business tax reform. And we will keep working with the business community to deliver more relief by seeking a new consensus later this year on the tax changes proposed by the Business Tax Working Group.
The Prime Minister and I want to build a consensus for affordable tax reform - funded from savings in the business tax system – that has the support of the Parliament. And in the same way that we strongly argued the case for cutting the company tax rate funded from MRRT revenues, will we continue to work vigorously towards this goal together with the business community.
The bottom line is this Labor Government was not prepared to stand by and allow parliamentary gridlock to deny struggling Australian businesses the benefits of the boom. That's why in this Budget we announced that some of the funds for company tax cuts have been redirected to help deal with the challenges of our patchwork economy through reforms like loss carry-back.
It's also important to remember that the Spreading the Benefits of the Boom package in this budget will put more money in the pockets of low and middle income households, which will in turn support business activity, particularly in retail. In this respect, I was pleased to see the very positive response to the budget from business leaders in the retail sector. Importantly, the Budget has found room to do this while still returning the Budget to surplus to provide a buffer against global uncertainty and give the RBA maximum flexibility on interest rates.
At the very core of this Budget is the right fiscal strategy for Australia. We are returning the Budget to surplus, on time, as promised. And I think it's worth just reiterating why this is so important.
Delivering a budget surplus in 2012-13 is the appropriate thing to do in an economy forecast to grow around trend. The Australian economy is expected to outperform every single major advanced economy over the next two years. Four years of strengthening surpluses will continue to ensure we are not generating price pressures in an economy where we've got nearly half a trillion dollars of investment planned in mining alone.
Balancing the budget gives the RBA maximum flexibility to reduce interest rates if it thinks that's appropriate – like it did at its last meeting. The cash rate is now lower than at any time under the previous Government and a full 300 basis points lower than when they left office. A family on a $300,000 mortgage is now paying around $3,500 a year less in repayments than when Labor came to government. A small business with a $300,000 five-year loan secured by a residential mortgage is saving around $1,000 a year in loan repayments. So returning the budget to surplus is very much about getting our economic settings right for Australian business to grow and thrive.
Not only are we making room for monetary policy, but with businesses facing pressures from the high dollar it is important that fiscal policy is focused on the medium term. Returning to surplus is also our best defence in uncertain times – and sends a message of confidence to the world about our strong economy. This is critical for every Australian business that borrows in international funding markets or competes for foreign direct investment, and for every Australian firm that does business overseas. And we've achieved growing surpluses - as promised - despite global uncertainty ripping $150 billion from government revenues.
But a surplus alone won't secure Australia's future. That's why it's so important that we get our economic settings right at the same time. In particular, it's why we've got a wide-ranging agenda to boost productivity growth so we can promote sustainable long-term growth and job creation. That's why collaborative efforts like the COAG Business Advisory Forum and the Business Tax Working Group are so important.
These partnerships build on the huge investments the Government has already made in skills and infrastructure that Australian businesses need to grow and prosper. Like the $1.75 billion deal that the PM secured with the States and Territories last month, to transform our training system. And the $700 million National Workforce Development Fund, announced last year, which puts industry at the heart of the national training effort. Together these initiatives will deliver 375,000 additional training places in the next five years with more than 115,000 of them here in New South Wales.
We're also boosting skilled migration places by over 5,000 in 2012-13, mainly focussed on skilled migrants.
On the infrastructure front, we are investing a record $11.8 billion in NSW infrastructure through the Nation Building Program.
In the coming financial year (2012-13) we will be injecting $1.2 billion into NSW – a record level of federal transport funding for NSW. And in last year's Budget I announced a comprehensive package of infrastructure reforms to promote a bigger national pipeline and mobilise up to $25 billion of private investment.
As well as the new Regional Infrastructure Fund we've established using some of the proceeds of the MRRT to reinvest the benefits of the boom in building productive economic capacity where we need it most.
The Government is also putting in place the policies needed to underpin our competiveness as the world moves to cut carbon pollution. The introduction of a carbon price will drive investment in clean energy and energy efficiency, and support new industries and jobs. The Government's Clean Energy Future Plan includes significant support for business, including $8.6 billion over three years through the ongoing Jobs and Competitiveness Program and $1.2 billion through the Clean Technology Program.
In the coming weeks the Government will be announcing the first recipients of grants under the Clean Technology Program, which will help improve the efficiency and competitiveness of Australian manufacturers by supporting investment in new clean technologies. This is occurring at a time when competitive pressures on the sector make support for new productivity improving investment especially welcome. And that's what this Budget is all about.
It's about spreading the benefits of the boom to all corners of the country and to every sector of our patchwork economy. It's about supporting those businesses – large and small - that aren't in the fast lane, while they invest and position themselves for the future. Because the extraordinary returns on our natural resources are just a platform for us to build an even more robust, diversified and vibrant economy that can make this the Australian Century in Asia.
An economy that capitalises on our vast reservoirs of talent, ingenuity and ability – and that entrepreneurial spirit at the heart of every one of Australia's 2.7 million small businesses.
An economy that spreads wealth and opportunity to every city, every town, every suburb, every office block and every class room.
An economy that continues to grow and thrive as the basis of a strong and fair Australia.
So thanks for having me, I'm happy to take any questions you have.