Address at the Bank SA and the Advertiser State Budget Brunch



20 June 2014

Keith Murdoch House, Adelaide

Well, look, thank you Paul, or Stazza, for the introduction. It is great to be here. Tom, congratulations on your first Budget. It is a great honour to be the treasurer of a state and a great challenge and it's not a job you ever get particularly thanked for but it is very important. And thank you for your kind words. I often joke at these functions when people say nice things about you that my mother should stop writing introductions but if my mother's helping you out Tom, I am very worried.

I noticed yesterday the State Government took an unusual approach to a budget by producing two budgets, they say they produced two budgets. So, during the week when they made that announcement, I thought we'd help them out and produce a couple of other alternatives for them to have a look at.

So we did one which was our Budget without Labor's $667 billion debt that they left us; that was alternative one. We also thought we'd help out with an alternative state budget so we did an alternative state budget with the Olympic Dam expansion going ahead. And we reached back in time; we thought we'd do the last one on a state budget without Labor Party's State Bank disaster.

Now, look, that is being flippant of course but it makes a point which is that budgets are about choices and everyone's confronted by the reality of the day and we were confronted when we came to government last September with the reality of the day.

And I'll talk about our Budget in a moment but I might, to begin with, just confront a few of the myths that I think that have been created for a political purpose in the framing of the State Budget. And this has not just been in South Australia; some of our good friends in other states have played the same game and it's not historically unusual for state treasurers and premiers to seek to blame Canberra for all their faults.

One point I should make to start with, of course, is that compared to last year's state budget and the last budget delivered by Tom's very good friend Penny Wong as the Finance Minister, South Australia is $1.5 billion better off from the Federal Government compared to last year's state budget. There's $1.5 billion extra funding from the Commonwealth that they didn't have last year. That's a very important point to start with when you compare apples to apples from last year.

There's been a 37 per cent increase for government schools over the next four years from the Federal Government. There's a 22 per cent increase for non-government schools over the next four years, this is in South Australia alone. There's, in South Australia, a 33 per cent increase in hospital funding to 17–18 with a 7.1 increase in hospital funding this year. I think Tom used the word starving; that's an interesting way to go on a diet. Pensions, which there's been claims that we've cut pensions or we are cutting pensions, is simply not true. Pensions will continue to rise every six months, March and September every year; pensions will continue to go up.

So there is a lot of myths around about what the Federal Budget has done or hasn't done or has caused Tom to make decisions he has made. But the reality is it gets to this point. What Tom and the Labor Party here have done or what some of my friends in the eastern states are trying to do is to concoct a fairy tale that a Labor election commitment, in respect of spending outside the forward estimates, outside the budget period, were somehow put in to state budgets as expected revenue or as expected funding from the Federal Government.

It's a complete fairy tale. If the Labor Party had have been elected last year, the commitments they had made to the state governments in the dying days of that government, when things were reasonably clear that there would be a change, were completely undeliverable. They were pie in the sky, undeliverable promises, outside of the forward estimates, not included in any budget papers. No area in Tom's budget paper last year or Jay's at that point, is there a reference to this funding because both the State and Federal Budget are put together on four year periods. Four year allocations, the forward estimates, as we like to call them in the business, Tom.

So, this is a fairy tale being concocted to deal with a situation of their own making. In fact, on radio this morning I was listening in on 891 driving down from the hill, and I heard Tom talking to Matt and Dave and he made this point himself, he said that this year's Budget, the $1.2 billion deficit that he delivered yesterday, has nothing to do with the Federal Government. Nothing to do with the Federal Government. So budgets are about choices and they're difficult and you have to take political responsibility for them and that's indeed what we're doing.

So if I can deal with our Budget and make some comments on that respect. When we were elected, last September, there were certain facts that we confronted as a government. We faced the fact that we knew that the Labor Party for six years had spent more money than they'd earned. They delivered successive budget deficits and if we hadn't changed the settings in this Budget that would have led to $667 billion worth of debt being built up.

We also faced the fact, well the reality from advice from Treasury that over the next two years, in the 15–16, 16–17 budget periods, there was a substantial and sustained drop off in the construction activity in the mining sector. As the mining sector has moved from being in its construction phase, to take advantage of the growth in our region, into a production phase, there's a substantial drop off. Macquarie Bank showed me some figures during the week that their analysts have put together which show that in the last decade, about 8 per cent of our GDP the contribution has been from the construction activity in the mining sector. With this drop-off, that's some, they expect 6 per cent reduction in our GDP.

It's a very substantial amount of reduction in economic activity, and it's a very substantial reduction in jobs. So we were confronted by two truths after we were elected. The first was, we had an unsustainable budget; we needed to fix it. The second was, we needed to grow the economy quicker. We need the private sector to invest to grow the economy quicker. So on the first point; we have to address the sustainability of the Budget. We promised at the election four things. You'll remember in fact some were critical of the Prime Minister for being consistent with his messages on those four things, some called them slogans. I know Tom wouldn't have, but some did.

But there were four things we committed to. We said we'd stop the boats. Yesterday marked the sixth month since a boat has arrived in the northern parts of Australia. We said we'd abolish unnecessary taxes, and we'll get rid of the carbon tax after the first of July, because the Labor Party continues to ignore what the Australian people said in September, to vote to abolish the carbon tax. That indeed, would help Tom's Budget. That would help Tom's Budget enormously. We said we'd build the road to the 21st century. And in this Budget we've contributed $50 billion, and I'll talk about that more in a moment; and we said we would fix the Budget. And fixing the Budget is difficult and it's not at all popular, but fix the Budget we must, because it is unsustainable. And in the end, if we continue down the path of an unsustainable budget, it will be those in our society who can least afford to pay who will pay the most dearly. The lesson from Europe was that if you continue to spend more than you earn each year, if you continue not to take the lesson that you have to live within your means, it is the poor that pay. That is the lesson from Greece. The people who pay the most are those who need to access the services the most. And sure, in international comparisons, our debt to GDP is comparatively good. The IMF tells us, in the last five years, Australia has led the way, compared to our 17 competitor countries, in spending growth. We are spending more each year than we earn, and that will end in disaster. We've got to address the sustainability of the budget.

I'll make a few points in that respect.

Thirty-five per cent of the Federal Budget now goes to welfare. The OECD household income survey shows that Australians in the lowest 20 per cent of income have the highest reliance on government for any income in any country in the world. One in ten households rely completely on the government for income. One in ten households in our society rely completely on the government for income.

Over 50 per cent of households receive a payment from government of some form, and average working Australians are working for over a month, full time, each year, just to pay the welfare bill of a fellow Australian. It is unsustainable. And we have to address the curve of spending. The challenge we face is more difficult than what Peter Costello faced in 1996, and Peter likes to dispute this. He says his debt to GDP was 17 per cent and ours was about 12. He's right on that, we'll give him that point. But he inherited an economy which was starting to yield the benefits of changes that had been made in the 1980s and the early 1990s, and indeed changes that that Government made too, which led to a productivity uplift in the economy. Increases to our productivity ensured there were more jobs and there were higher living standards. In fact, since 1994, the average Australian household is $290 better off per week, in real terms. So, the changes they made, indeed, made us richer.

The reality however is, our situation is very different. We are facing not an economy that has been reformed in a good way, but an economy that has been shackled down by regulation in the last six years. The Labor Party Government re-regulated the economy in an enormous way, and you feel it. You feel it in the business community. So we're not going to get the productivity uplift that the Howard and Costello Government were able to enjoy. We've also got an aging population. We've got demographic challenges that have been unique in our history. So, our welfare spending has got to be sustainable to be able to deal with those situations.

That's why we focused very heavily in the Budget on ensuring everyone contributed to the task of fixing the Budget. We asked everyone to contribute. But we also put in place a growth package to grow our economy. To ensure that we are addressing the challenge of the next couple of years, with the downturn in the construction activity, but also to ensure that we are growing quicker. If there is more opportunity, then the private sector will invest. Because the Government cannot fix the economy alone. We can put in the framework, but it is up to you to make the investments, to be competitive. On the battle for global capital we must be as lean and mean as we possibly can. So, where we can help is infrastructure. Is regulation, and with regulation we've already had our first regulation repeal day in March this year, and there'll be a second one in October this year. And we continue to work away at our aim of reducing business costs regulation by a billion dollars per year.

On infrastructure, we're investing $50 billion in this Budget to build the infrastructure for the 21st century. And we're doing it in conjunction with state governments across the country. We're doing it here, in South Australia, as Tom acknowledged, with $2 billion dedicated to infrastructure in the next four years in South Australia, including nearly a billion dollars on the two South Road projects. The Torrens to Torrens project, which we're funding on a 50/50 basis with the State Government, and the Darlington project, which we're funding on an 80/20 basis with the State Government. We've doubled next year the Roads to Recovery grants to local government for investment in our regions, and we've increased Black Spots funding by $200 million over the next two years, again to increase our productivity and make our roads safer. And we'd like to do more in South Australia. We would like to do more in South Australia.

And our Asset Recycling Initiative that the Treasurer has talked about. Every treasurer, I should say, agreed at the State Treasurers Conference recently, every treasurer in the room signed up to the communique where it was agreed. There's a $5 billion fund established for states, where they recycle an asset, use that money on productivity-lifting infrastructure, they'll receive a 15 per cent bonus payment for the Federal Government. And it is very heartening to see that Queensland, New South Wales, and Victoria have already indicated that they want to access that by recycling their assets and using the proceeds for productivity-lifting infrastructure.

It is very important, we think, to grow our economy. And I think it would be good in South Australia if we had that debate in an open and honest way about how we could use some of those proceeds to build new infrastructure. Not just what we've already committed to, but more. And I think the obvious target for more—and I know Tom agrees with this, because he's raised it with me—is the Northern Connector. And the Northern Connector would help our minerals industry; it would help our agriculture industry, make more of the opportunities of the growth in our region.

By putting that piece of infrastructure in place it would create a dedicated freight corridor from the north, getting trucks off local roads, and getting through to the port. But it can't be done just by government. Both the Federal and the State Government have not got the capacity. We need to involve the private sector, and South Australia is the only mainland state in this Budget that has not had a private sector involvement with a road project which we're funding.

In Western Australia, we're introducing a truck toll for the Perth Freight Link under a similar basis. Creating a dedicated freight corridor in Western Australia, where we're contributing $920 million to building it and the State Government's contributing 20 per cent of the government cost and the remainder will be paid for by the private sector with a truck toll applying. Not for private cars, but for the freight industry. The freight industry welcomes it; indeed, they desire it because it means that they have got a much more efficient route to port than what they've got at the moment. They don't have to deal with suburban cars as much. It gets cars off the freight corridors, back onto local roads. It gets big trucks off local roads, making those roads safer. And I think we should look at that in South Australia, and we will have a conversation. We are very keen to have a conversation with the South Australian State Government to do so. In fact, we will indeed pay for some of the work to be done to look at the possibility of private sector involvement in that project if the South Australian Government would be willing to do that. We want to build the infrastructure for the 21st century because we know it is absolutely vital to ensure that we get the private sector investment we need to grow our economy.

It is one thing for governments to build hospitals and to build ovals and to build roads, but it won't sustain our economy for the future. The only way we can sustain our economy for the future is for you to invest. For you to invest in your businesses. For you to invest in your people and then create more jobs and to grow more quickly. I dare disagree with an economist—I'm always reluctant to—but I don't think we should aim for two per cent growth in South Australia and be satisfied with it. There is no reason we should be satisfied with two per cent growth in South Australia.

One of the concerning figures is, I think, in the federal and state relationship is the allocation of the GST. Something that South Australian Members of Parliament fight very hard to ensure we don't change formulas on. Because if we did change the formula on the GST allocation, we would have a real problem with Tom's Budget. In fact, if we changed our allocation of the GST to per capita, as some of my colleagues in Canberra would like to do, we would lose $1.2 billion per year.

At the moment, for every dollar of GST in South Australia contributed, we get $1.29 back. In Western Australia, they get 39 cents, and I think that's an indicator of economic performance and we've got to address that. We've got to do better here in South Australia, and we will work with the State Government to do better in South Australia. But it cannot be driven by the government; it must be driven by you, the private sector. We've got to create the opportunity for you to invest more, and that's what we're looking to do with infrastructure: to build the networks, to build the arteries, as Tom put it, so we can grow quicker.

That's what this Budget is about: sustaining our fiscal situation into the future; making tough and honest decisions about where Australia is at so we have got the safety net that people need when they fall through the cracks; but also creating the infrastructure and the economic circumstance for you in the private sector to grow quicker to create more jobs, more prosperity, and so in 10 years' time we can equally say, like our predecessors said, that Australia is a richer, more prosperous country and, of course, always the best place on Earth to live.

Thank you very much.