Thanks very much Laurie, and thank you all for coming along today. This is one of my favourite traditions of the week, mainly because my family is always here to share it with me. I want to start by acknowledging my colleagues – particularly Penny and the ERC team – for their tireless work, and I also want to thank all the officials and staff for their dedication behind the scenes. In particular, I want to thank the hard working people in the Treasury, many of whom have served this country for a very long period of time and have made such a huge contribution to our economic success. I think the day after the Budget is a good day to sit back and reflect on the battlelines that inevitably get drawn about interpretations of the Budget and interpretations of the economy. It's been a pretty wild ride in the global economy over the last five years. We've had to make some defining choices about our priorities. But as Labor ministers know, the task of the evangelist is never easy. The fact is, none of us gets the chance to serve the nation in the circumstances of our choosing. But we do get the privilege of serving.
And even when the times are challenging – especially when the times are challenging – we accept our duty, which is to give it our best, and leave the nation in better condition than it otherwise would be. If a global recession strikes when we come to office – all the more incentive to work hard to defend the economic strength of our country. All the more incentive to get us through the difficult times intact, and to strive for a better future for the country and its people. That's what I've sought to do – it's what I'd expect any Treasurer to do. This Budget has been put together in some of the most unprecedented circumstances in our nation's post-Federation history. Given what we've faced, I think we've got the balance right. As always people have different, often extreme criticisms to make. I don't always sign up to the idea that if you have critics on either side of you then you have probably found the right balance. But I do think there's a sweet spot between the austerity-freaks who say cut way harder, and the Green-types who would happily see the bottom fall out of the budget. I think we've struck that balance in this Budget, just like we did in the last five. And just like those last five, this one will turn out to be the right strategy at the right time.
Today I want to step back and look at the challenges we faced in this Budget against the backdrop of Australia's broader economic transition.
The message I want to leave you with today is this: In Australia, we've always been a country that runs the ball right up the middle on the fifth tackle. We've never seen a challenge we didn't like, and we've certainly never run from one. We've got some big challenges ahead, but the grit we've shown and the success we've had amid our huge economic adjustments should give us the confidence to take on the next round. Of course, there's naturally a lot of focus at this time of year on the numbers in the budget bottom line. But budgets, like everything, are about context. I think it's really important that we don't lose sight of everything we've achieved as a nation during the biggest peacetime upheaval our economy has been through since the early 1930s. Let's just take a moment to reflect on what we've been through. Five years of prolonged uncertainty and rolling crises in the world economy after the worst global recession in 80 years. A once-in-a-century increase in our terms of trade driving the biggest boom in business investment we've seen in over a hundred years. A profound change in the structure of our economy flowing from these massive shifts, reshaping industries across the country. So yeah, I think a lot about the numbers in the Budget.
But I'm also really proud of some of the other numbers we've achieved through the middle of what has been a huge economic transformation. Our nation has accomplished so much in the last five-and-a-half years. Our economy is over 13 per cent bigger. We're now the 12th largest economy in the world, climbing three places from 15th – with only the 51st largest population. We've created around 960,000 jobs in our economy. Our unemployment rate starts with a '5', at the same time that both underlying inflation and our official interest rates start with a '2'.
I remember when I got this job the biggest issue was interest rates – it was a deadset political livewire with the RBA even jacking up rates to slow an overheating economy in the heat of the '07 campaign. What really strikes me now is how the pressure has come off because we've got new record low rates – the politics seem to be largely out of it. All the things we've achieved together add up to a remarkable story of Australian success given everything our economy has been through. I've now done half a dozen Budgets, we're in the top dozen economies in the world, and we're heading for two dozen straight years of growth. And of course we've got the gold-plated AAA-rating from all three global ratings agencies for the first time in our nation's history. Of course, the extraordinary structural changes we've been through have made life incredibly tough for some sectors of our economy. The Aussie dollar has been above parity now for the better part of two-and-a-half years – nearly half the time I've been Treasurer. The more I think about it, the harder it is to escape the conclusion that the high dollar is the price we are paying for our economic success.
This is how I look at it: an exchange rate is just a relative price. For the last couple of years, the world has put a higher value on us. Against the challenges faced elsewhere, Australia is seen as a safe haven for investment and that's keeping our dollar high, even though our terms of trade have peaked and our interest rates are at record lows. The good news is, more businesses are starting to successfully adapt, helping mark the beginnings of a productivity upswing. And parts of the non-mining economy – like housing construction and retail – are starting to respond to lower interest rates. Together with the production and export phase of the mining boom – as it continues to ramp up – these will become bigger drivers of growth. But big transitions like this are rarely seamless. There's no escaping the fact that the high dollar has become a dominant force in our economy. And it's having a very acute impact on our budget revenues.
I've been upfront about the fact that we simply didn't know how deep and enduring the impact on tax receipts would be from the unique cocktail of global forces and the high dollar. We could not have perfectly foreseen the prolonged nature of subdued prices and profit growth right across the Australian economy. What we've been dealing with is a rapidly moving policy equation. Now of course, I understand the natural inclination to look at all of this through the prism of politics and use that as a benchmark for success. As I've said, I'm happy to be judged by the decisions we've made. But I also think it's true that the complex, evolving and nuanced policy environment we're dealing with doesn't fit neatly within a certain number of column inches or in a grab on the evening news. That's not a judgement of anyone, just a reflection on where we are. The money simply isn't coming in the door like it used to. While my predecessor got a cumulative $334 billion revenue windfall and redefined what we mean by fiscal largesse, I've copped $170 billion in revenue writedowns. That's now more than half a trillion dollar turnaround in the period from 2004 to now – no small beer, not by a long way. If our tax level was as high as Howard and Costello had, we'd have an extra $24 billion in 2013-14 and be comfortably in surplus. Again, that's not something to complain about, it's just a fact. But while the economic circumstances have constantly changed, I've put Australian jobs first at every turn.
In the days that followed the collapse of Lehman Brothers in late 2008, as the global economy began ripping apart at the seams, I set myself two overriding objectives to guide my decisions as Treasurer. First, to do everything in my power to protect Australia from recession as the carnage unfolded and keep as many Australians as possible in work. Second, to keep our economy in the best possible position so that when the world economy turned up again we could drive Australia forward. In early October last year, I kept this objective front of mind as we went about putting together the mid-year budget update in the wake of a sharp and unexpected fall in commodity prices in the previous months.
As we said at the time, the savings we undertook in MYEFO were carefully designed to minimise the impact on economic growth. While we weren't expecting the revenue situation to get significantly worse from there, we knew that if it did we wouldn't be able to cut much further without putting jobs and growth at risk. Well as you know, the revenue outlook did get worse. Much worse. By early December, we had the October monthly financial accounts and a full appreciation of the impact on our budget of the hit to revenues. The news was staggering. The entire $4 billion revenue writedown we'd expected to be spread over the whole of 2012-13 had hit us in just the first four months of the year.
That's what our collections money in the tin showed. The September quarter National Accounts confirmed the high dollar was weighing heavily on prices across the board and nominal GDP growth. Global uncertainty and the high dollar were clearly having a much more acute impact on our budget revenues than we'd expected. As I said in December, a surplus in 2012-13 looked unlikely. I'd been up in Townsville the day before that December press conference, and I'll remember that day as much as the next one. I'd just stopped into Townsville Hospital to catch up for a coffee with some of the hardworking nurses, and as I was chatting away to them, about their lives and work and all the rest of it, I felt a real sense of calm. Looking back on it now, I think it was more than just the cuppa and the chat, I think I knew then talking to those nurses – so modest about their huge contribution to our community – that I'd made the right decision. I knew the announcement I'd make the next day would be rugged. I'd be fronting up to take a hit as the politics and economics collided. But I also knew that jobs were on the line in places like Townsville that were already reeling from Campbell Newman's savage cuts. And that made our decision the right one. As the monthly revenue numbers rolled in through the end of last year and the start of this one, each set painted a bleaker picture than the last. By February, the balance of evidence had irretrievably shifted. The closer we got to the end of the financial year, the harder it was becoming to fill the hole in revenue without hurting jobs and growth.
The hit to revenues we've taken in 2012-13 alone is the second biggest in a single year since the Great Depression, with only the GFC worse.
In the months leading up to this Budget, I continued to view every policy decision I took through the prism I had set out for myself in 2008.
I knew it would be a national tragedy to give in to the fiscal fearmongers by cutting further and deeper because we'd be destroying the strong economic position that all Australians had worked so hard to achieve. I will never sacrifice jobs and growth on the altar of political expediency or to satisfy the ideologies of editorial writers. Not then. Not now. Not ever. In setting out a pathway to surplus, we also can't ignore the nature of the big adjustment that's going on in our economy. It would be irresponsible to impose a savage fiscal consolidation on the economy when it's still transitioning from mining investment to other growth drivers in the face of the doggedly high dollar.
By contrast, the significant fiscal consolidation we previously put in place was at a time when mining investment was going gangbusters.
Of course, we must continue our focus on the sustainability of the budget, but with all our economic resilience we can't afford to lose sight of everything we need to do to keep driving Australia forward. That's why we've found savings to make room for investments that will create fairness and wealth and give us a better society in the future. Over six Budgets, we've put in place around $180 billion in savings. And despite the hit to revenues we've seen, real growth in spending has remained low at an average rate of 1.3 per cent from 2012-13 to 2016‑17 – that's the lowest five-year average growth rate for 25 years. We've been methodically improving the sustainability of the budget through structural savings which permanently improve the bottom line. The structural savings we've put in place will deliver cumulative savings to the budget of over $300 billion by the end of the decade. We have explicitly identified savings to fully fund our priority investments in both schools reform and DisabilityCare over the next decade and beyond – a fiscal achievement unprecedented in our nation's history. And we're doing this while setting out a pathway to surplus and paying down our already low and responsible level of borrowings. This is a one-year Budget, but it's a long-term plan for Australia. We're making the smart investments this country needs to help boost productivity and participation for the long term. Just consider our school reforms. Simply accepting our current declining trend in education performance would see our economy end up $1.5 trillion smaller than it should be over the life of a child born today. On the other hand, if we increase Year 12 completion rates to 90 per cent, we'll increase workforce productivity by 0.6 per cent a year and lift our GDP growth by 0.65 per cent a year. Investing in our schools is also about choosing what kind of society we want to be. Why does a young kid in Broadmeadows have to battle through with out-of-date textbooks and her classroom falling down when a kid in Brighton gets a state-of-the-art computer with the latest software?
The Australia I believe in is a country where you don't have to be well off or able bodied to dream the big dreams. That's why I'm deeply proud that this Budget will establish DisabilityCare Australia, following in the big footsteps of Medicare. I think the gravity of this historic reform really hit me hardest when I was in Melbourne with Julia and Jenny a couple of weeks ago to announce the strong and enduring funding stream that would help support it. We stopped in across the road at a café to spend a bit of time with some of the hardworking carers and the downright inspirational Australians that they take care of. I had this young kid, Julian, just come jump on my lap like he'd known me all his life, and we chatted away about this and that. As he showed me his matchbox cars, I looked at Julian, sitting there at 12 years old, and thought about everything he could grow up to be. I couldn't have been prouder to know that striking the right balance in this Budget means other young Australians will no longer have to wait all week for a shower, or three years for a new wheelchair. And like our school education reforms, the creation of DisabilityCare isn't just about a fairer society, it's also about a stronger economy. In 2011, the Productivity Commission found that a National Disability Insurance Scheme of the type we are building would 'generate profound economic benefits' by boosting productivity and participation. We're also building on the $36 billion we've already invested in road, rail and ports. Over the next five years, we'll invest another $24 billion to boost our nation's economic capacity for the decades ahead. This comes on top of the roll-out of the superfast National Broadband Network to boost productivity for health care, education and businesses right across our low-carbon, high-technology economy of the future.
Now I don't want to get too political, but let me just say a few words about the Opposition. Mr Abbott and Mr Hockey now have the numbers. They are there in black and white for all to see, and were prepared by the same officials who prepared eleven Budgets for the former Liberal Government. The policy choices in this Budget are those of the Gillard Government. The officials give us the numbers. We choose the policies. That's how government in Australia works. The Treasury does not have one set of numbers for this Government and another set for the alternative government. There's just one set. The Opposition can now make its own choices, choose its own priorities. But what they cannot do is choose their own numbers. If they don't want a particular revenue source they must either specify another one, cut a service, or hit the bottom line. If they want to add a new policy, they must either take funding away from another policy, find a new revenue source or hit the bottom line. It they want to keep pretending the economy and revenues would grow faster under the Coalition, they must say why and by exactly how much. And their starting point is a long way back from ours. Even if the Liberal Party does not want to fund the investments we have made in this Budget, they will start with over $50 billion worth of budget deficits over the next four years unless they agree to our savings. They must then add this amount to the $70 billion budget crater that Mr Hockey announced on breakfast television on 12 August 2011.
And of course, we all knew Mr Hockey has a bit of a habit of saying whatever comes into his head and being a bit loose with the truth. But I think a lot of Australians would've been very disappointed last night to hear him say there was nothing in this Budget to give anyone hope. I wonder if he'd have the guts to stand up in front of our teachers and school kids and say there was no hope for them in last night's Budget. I wonder if he'd have the guts to say it in front of the 410,000 Australians with a permanent and severe disability. Australians expect all of the members of this Parliament to rise above the politics and make the investments we need as a nation.
That's what we've done in this Budget, as we've done in the five before. I'm proud of this Budget, and I'm proud to be judged against it. I know we are ensuring the Budget is sustainable for the long term. I know we are doing the right thing to support jobs and growth. And I know the smart investments we're making will give every kid in the country the best possible start in life and will give a long-overdue helping hand to Australians with a disability and their carers. We've delivered this Budget in the spirit of every decision we have made in the last five years in the interests of the Australian people. I'm proud that we've protected their jobs and their standard of living and we've started building a better future for their children. And I'm deeply proud that we've done all of this in the face of some of the most challenging and unique circumstances in living memory. Thank you, and I look forward to taking your questions.