THE HON ANGUS TAYLOR MP 

SHADOW TREASURER 

 

NATIONAL PRESS CLUB ADDRESS – SHADOW TREASURER’S BUDGET REPLY 2022

Wednesday 2 November 2022

 

'No one held back, no one left behind' – the central broken promise of this Budget

INTRODUCTION

Just a few weeks before the Budget, I spent eight days on a bike for this year’s Pollie Pedal. 

Riding through the New South Wales south west slopes where the canola, wheat, wine, and sheep fuel our exports, I had the opportunity and the privilege to meet with and listen to Australians at the front line of our economy. 

Economics is often conflated with statistics, forecasts and government accounts.

But ultimately economics is about people.

And the people I met are under pressure.

Business is good, but they can’t find staff. 

They’re getting more hours, but their groceries are costing more.

They’re proud to have saved for their first home, but their mortgage repayments keep going up. 

The main street is booming, but the roads into town need more investment after several wet years. 

And whether a small business, a manufacturer, or a household – power bills are eating into their pockets and they’re worried it is only going to get worse. 

At the Cowra Neighbourhood and Information Centre – a not for profit which provides help for those doing it tough – the CEO Fran Stead told me that the demand for their services has never been so high. 

More than 60 people are coming in every day, many who have jobs and a mortgage but are struggling to make ends meet.

They’re asking for help and for everyday staples like bread and milk. 

People who have never had to ask for help before because they are too proud to do so. 

But now they simply have no other choice.

These people might not get profiled in the weekend papers or be subject to glossy photo shoots.

But these are the people who the Budget is really about.

And the Budget was silent on what it would do to help them. 

 

ECONOMIC CONTEXT 

The people I’ve spoken about are real world examples of the economic dilemma presented by inflation. 

The economy is – at a macro level – in a very strong position.

The Australian economy is fundamentally resilient.

Just two years ago, we were staring down the prospect of permanent business closures, tens of thousands of deaths, and an unemployment rate of 15 per cent.

Today we have more businesses, strong terms of trade, record commodity prices, economic growth over three per cent and record low unemployment. 

Now, not every decision during COVID was perfect.

But Australia’s economic recovery is a testament to the Coalition’s economic management. 

The Coalition left Labor with a strong economy and a rapidly improving Budget position – in far better shape than most thought was possible even a short time ago. 

Our March Budget saw a $103 billion turnaround – the largest since Federation. 

The Final Budget Outcome for our last full year in office saw $47.9 billion improvement in the Underlying Cash Balance from the Budget forecasts.

This trajectory continued in last week’s Budget in the updated forecasts for 2022-23.

But despite this turnaround and despite this economic strength, people aren’t feeling it in their everyday lives. 

The pressures of inflation on household Budgets are eating away these national gains.  

And a Budget that fails to treat the inflation problem at its source is a Budget that fails to support Australians through symptoms of these cost-of-living pressures.  

The best way a Government can put downward pressure on inflation is through a clear and comprehensive plan with a sound Budget at its core.  

No Government can control all of the circumstances and the context it faces. 

Of course it can’t. 

In Government we had plenty of challenges thrown our way.

What the Government can and must control though, is the response to these challenges. 

 

THE TEST

The Budget handed down by the Treasurer last week was an opportunity to start outlining his plan to deal with the challenges in the economy. 

The test for the Federal Budget was simple. 

• To deliver a comprehensive plan to consolidate the strong economic and Budget position inherited from the Coalition;

• To put downward pressure on inflation and interest rates without increasing taxes;

• To relieve supply side pressures in the economy by increasing productivity and participation and;

• To deliver the key promises Labor made to the Australian people at the election.

The Government had the opportunity to deliver a Budget that outlined a shorter-term plan to reach or even approach Budget balance, containing interest rates and inflation.

It had the opportunity to map a longer-term plan to empower aspiration and enterprise and reasserting the role of productivity and lower taxes in driving growth and real wages.

We said we would work with Labor if it stayed true to these common-sense principles and we will.

We have been upfront on the measures that we support in this Budget. 

As Peter Dutton outlined in his Budget in Reply speech we will support a number of measures such as;

• The extension of the childcare subsidy

• The increased flexibility of paid parental leave

• Measures to reduce the pharmaceutical benefits scheme co-payment and

• Sensible approaches to ensuring the NDIS is sustainable.

From early on in my role as Shadow Treasurer I have made a point of laying out the principles we will use to evaluate policy, giving the government the opportunity to look for areas of bipartisanship.

But overwhelmingly, this Budget was a missed opportunity.

This is ultimately a high-taxing, high-spending traditional Labor Budget.

The Prime Minister and Treasurer are out today saying it could have been worse. 

Perhaps. Any Budget could be worse.

This is hardly a glowing self-evaluation.

But my point is that it could be a lot better.  

For a start, what we needed in this Budget was recognition that economic growth over the medium term has to be stronger than spending growth.

That’s what we did in government between 2013 and 2019.

It is achievable, but it's hard and it requires enormous discipline.

Instead of a comprehensive plan to consolidate the strong economic and Budget position, we have growing deficits and no medium-term fiscal strategy for balanced Budgets. 

Instead of delivering economic growth stronger than spending growth, we have $142 billion of extra taxes and likely more to come.

Instead of a productivity agenda, we have union red tape, more big government, and cuts to employment, innovation and small business programs. 

And in broken promises, there are many:

• $275 reduction in power prices – gone.

• No changes to franking credits – gone.

• Real wage increases in this term of government – gone.

But the biggest broken promise is the one the Prime Minister made before the election – the promise that no one would be held back, and no one left behind.

This is a Budget that tells Australians the Government knows that it’s tough but doesn’t have any solutions. 

This is a Budget that tells older and younger Australians wanting to work more that this Government will hold them back.

This is a Budget that tells Australians pain is coming and leaves them on their own to deal with it. 

Even on Labor’s own tests, the Budget fails.

Before the Budget, the Treasurer spoke a lot about managing debt and deficits, yet his own Budget papers show the policies of his government will see increasing deficits, not narrowing ones and therefore increasing debt. 

 

SYMPTOMS, NOT THE SOURCE

The biggest missed opportunity is that Labor’s Budget does little to address the root cause of inflation.

To help Australians facing rising prices, we need to tackle the source – not just the symptoms – of cost of living pressures.

The Budget fails to use fiscal policy to make any headway to reduce pressures on inflation – the source of the pressure. 

This is something that central bankers around the world have been calling for. 

Instead the Budget raises the white flag on inflation.

At the same time, the Budget is forecasting rising pressures on Australians.

• A more than 50 per cent increase in power prices over the next two years

• Rising inflation

• Rising unemployment

• Slower economic growth

• No real wages growth in this term of Parliament  

Meanwhile since the Budget was released, we have seen annual inflation hit 7.3 per cent – the highest level in more than three decades. 

We have seen the Reserve Bank, ANZ, and the Commonwealth Bank of Australia among others now forecast end of year inflation to be higher than what was contained in the Budget.

The Budget does not make the Reserve Bank’s job to contain this inflation any easier.

Stephen Koukoulas, former economist to Julia Gillard, has said the Budget puts no downward pressure on inflation, leaving “the RBA [with] all of the work and carrying the can in getting this inflation rate lower”.

This sentiment has been echoed by a range of economists. 

Yesterday we saw the RBA raise interest rates for a seventh consecutive month. 

This means a family with a $750,000 mortgage is now paying more than $1,200 extra every month on their repayments compared to May this year. 

 

GOVERNMENT’S FISCAL STRATEGY

Concerns expressed by some economists and commentators should not be a surprise. 

The government is spending an extra more than $100 billion over the forward estimates compared with March. On policy decisions alone, it has added almost $23 billion in extra spending.

Across the forward estimates, the government is clocking up deficits to the tune of $181.8 billion. Deficits are now forecast to grow higher over the forward estimates period – rising from $32 billion in the 2021-22 final Budget outcome to $51.3 billion in 2024-25. 

And spending growth over the forward estimates is forecast to exceed economic growth. 

The long-term trend and the long-term signal is that fiscal policy is going to continue to expand at a time when the economy is already running hot. 

But what is most alarming is that the government’s own fiscal strategy abandons the goal to return the Budget to balance.

In March, the Coalition Budget’s fiscal strategy emphasised the need to reduce gross and net debt, cap tax at 23.9% of GDP and to return the Budget to balance. Indeed, every Budget since 1996 has emphasised the need to run Budget surpluses, or Budget balances, over the medium term. 

Last week, the Labor Government’s fiscal strategy abandoned any references to balancing the budget and capping taxes. 

This makes Jim Chalmers the first Treasurer since the Charter of Budget Honesty came into effect to abandon the goal of balancing the Budget. 

Professor Steven Hamilton from the ANU’s Tax and Transfer Policy Unit has said this Budget delivers the “the weakest economic and fiscal strategy of any government since the Charter of Budget Honesty was established, and the exact opposite [approach] of a responsible economic manager.”

Hamilton also notes that the Government “is actively driving the Budget deeper into structural deficit”.

By failing to adopt responsible fiscal policy, the Government has abandoned its role in supporting the RBA to reduce inflationary pressures. 

 

NO PLAN FOR PRODUCTIVITY

But we see this refusal to acknowledge the impact the government can have extend beyond the fiscal strategy and in the broader choices it has made.  

Before the Budget the Coalition called on the Government to adopt policies that in the medium-term grow the economy faster than spending with pro-growth policies that support innovation, enterprise, and reduce red tape. 

Instead, it has decided some of its first targets for cuts are programs that support business innovation, that support work experience, that get young Australians into jobs, and that help small businesses reduce their power bills.   

The costs of these programs are modest, but instead – we are seeing that money funneled away from supporting the economy, and into the public sector and the union movement.  

Tens of millions to the public service and 20,000 new public servants.  

$6.1 million in grants to the CFMEU to audit our textile industry. 

And tens of millions to develop and enforce workplace laws that will mean any business with more than 15 employees will be subject to industry wide bargaining and strikes.  

All the while the pension work policy proposed by the Coalition has been watered down by the government. 

The Treasurer is happy to use super to pursue a range of social causes but not to support choice for young Australians, and older women trying to buying a home.  

And regional infrastructure – a vital enabler of productivity and growth – has been raided to fund other priorities that seem to conspicuously align with the electoral prospects of the Victorian Labor Party.  

By pursuing these priorities, the government has failed this test. 

The consequence is a Budget that offers little relief to small businesses to find more staff and relieve supply constraints, and this will make many of those pressures worse in the medium-term. 

But the choices in this Budget – on infrastructure, on industrial relations, and on tax – set Australia up for less growth, less productivity, higher costs, and fewer jobs. 

 

INFRASTRUCTURE

Infrastructure investment drives economic growth, creates jobs, encourages investment, boosts productivity, busts congestion, and supports resilient supply chains. 

In Government the Coalition backed local communities with a range of long-term infrastructure projects that meet the challenges they face. 

But a Prime Minister who regularly talks up his infrastructure credentials has decided to cut $2.8 billion of infrastructure projects and delay a further $6.5 billion in infrastructure projects in the Budget.

I’ve seen first-hand in recent weeks how much these projects mean to regional communities whose roads need investment and growing populations need support. These projects are productivity game changers that bust congestion, build capacity, and improve quality of life in our regions. 

Infrastructure Minister Catherine King claimed there would be transparency on decision-making in her portfolio. But communities across Australia are scrambling to find out what has happened to their local projects. 

At the same time, it has put $2.2 billion dollars behind the Suburban Rail Loop – a project which hasn’t been recommended by Infrastructure Australia and that the Victorian Auditor General found has a cost benefit ratio of just 0.56.

Meanwhile New South Wales, the Prime Minister’s home state – my home state –  our largest state – is receiving less funding than Victoria, Queensland, and the Northern Territory.

This is a telling statement about the government’s priorities on productivity. 

It is a blatantly political decision, a government which is abandoning our regions to reward its supporters. 

And we see more of this in its approach to industrial relations. 

 

INDUSTRIAL RELATIONS

The Government is trying to use the cover of the Federal Budget to introduce its extreme industrial relations reforms.

Everyone wants to see higher real wages. Of course we do. 

But the Government is seeking to hide behind this noble aim to implement one of the biggest re-regulations of the labour market in decades. 

They are doing this against business wishes, and against small business wishes, despite a promise to work with business before the election.

These changes will: 

• lead to more strikes and job losses

• allow unions into small businesses which have never had to deal with them before, businesses that are easily targeted because they don’t have HR departments  and lack the resources to negotiate complicated, expensive changes

• undermine competition, so Australians have fewer choices and face higher cost of living and cost of doing business. 

The productivity hit of these changes come on top of the costs of repealing the construction watchdog. 

The ABCC is essential to ensure a fair playing field for a productive construction sector. 

For more than 445,000 small businesses in the construction sector, the certainty that they can run their business without stand over tactics or intimidation is gone. 

Independent modelling earlier this year found that the abolition of the ABCC  could lead to more than $47 billion in lost productivity. 

It is just another example of the Labor Party prioritising payback to their masters over the national interest. 

 

TAX

There is no greater marker of values in this term of Parliament than what will happen with taxes.

Delivering the stage three tax cuts was an ironclad promise at the election from Jim Chalmers and Anthony Albanese.

Any move to walk away from them will be a broken promise of incredible magnitude. 

The Budget already increases tax revenues by $142 billion compared with March – over $12,000 for a typical family.

Inflation will drive income tax receipts up by 1 per cent of GDP between now and the stage three tax cuts coming into effect.  

This is the insidious work of that thief in the night, bracket creep.

It’s a tax on the hard work and savings of the Australian people as more income goes into higher tax brackets. 

It disincentivises people to work more and work harder because it’s ultimately swallowed up by higher taxes. 

Labor have abandoned the tax-to-GDP cap, despite having one when they were last in Government, taking the guard rails off taxes and spending.

The stage three tax cuts mean the vast majority of Australian workers will keep at least 70 cents of every extra dollar they earn.

It sends a signal to Australians to get out there, build businesses, build careers, take risks, and have a go.

If they do, they can use a simple of rule of thumb for the reward for effort – between $45,000 to $200,000 they keep at least 70 cents in the dollar.   

It should concern all Australians that the Labor Government has lost interest in this pledge, and has a placeholder in the Budget to water it down or get rid of it. 

We know from interviews with the Treasurer before the Budget, that this discussion is being led with the Prime Minister’s support.

We have already seen in this Budget, the Prime Minister and the Treasurer break their promise not to make changes to franking credits.

Retirees and fund managers would have been surprised to find an unannounced $550 million tax grab on retirees and Australian investors in Budget Paper 2. 

Something never promised at the election.

And never floated with industry.

It is clear that the Government has decided to pursue their 2019 reforms incrementally.

But the destination is the same.

Higher taxes, sapping aspiration, ruining confidence, and dragging down the productive capabilities of the economy. 

Along with the Government’s approaches to industrial relations and infrastructure, this is not a medium-term solution for economic growth. 


CONCLUSION

The solutions to the economic challenges we are facing are not unknown. 

In the short-term, it is crucial to address the supply side challenges that drive inflation and embrace prudent fiscal management. 

In the medium-term, it is critical to grow the economy faster than spending growth, to return the Budget to balance.

Rather than embracing a back-to-basics economic agenda, this Budget is full of missed opportunities.

It’s a Budget that confirms that the price everything is going up except real wages. 

A missed opportunity to build on the improving Budget position left by the Coalition.

A missed opportunity, to put in place prudent Budget strategy that will put downward pressure on inflation.

I began this speech, by making the point that the economy, and Budgets are fundamentally about people.

Everyday Australians going about their lives and doing their best to make ends meet.

Just before the election, the Prime Minister told Australians that they “will be better off under a Labor government.” But the unfortunate reality is that by Christmas, the typical Australian family will be at least $2,000 worse off.

These Australians will be making tough decisions this Christmas because of a Government that has no plan. 

Every nation is facing challenges born from the pandemic and amplified by global economic headwinds. 

But we approach these challenges in a stronger position than almost any other nation in the world. 

If the government embraces sensible and pragmatic policies that deal with inflationary pressures, and set up Australia for growth, we will back them. 

But if it continues to raise taxes, raise deficits and break promises we will hold them to account. 

Australians deserve no less.