Local Government Association of Queensland Annual Breakfast



16 June 2014

National Convention Centre, Canberra

Thank you for the invitation to be with you for breakfast this morning at the beginning of the annual Local Government General Assembly.

We're in Canberra at what is a pretty momentous week for the people on the other side of the lake. The last two weeks of parliamentary sittings for the retiring senators. Traditionally, the last two weeks of sittings for the Parliament until the winter recess, but because of the unusual circumstances this time around, we're actually going to come back and sit in July.

And if you think the weather is bad in June in Canberra, you will realise what a sacrifice us Queenslanders are going to be making to come down to Canberra for the sittings in July. I hope that your conference is a successful one.

I know that you're meeting at a time when there are a lot of critical issues affecting local government.

There are some uncertainties around about what the future may hold in a large number of areas, and I just learned this morning that it is likely that the High Court will make its decision on the Williams case this week. That's much earlier than we expected and I don't know that that's a good sign. Maybe it is; maybe it isn't. But that decision has the potential to dramatically change our Federalism and in the process, potentially also affect local government.

While this case is not specifically about local government, the implications involve at least 400 separate programmes, and a few of those are in relation to local government. So it is not a decision about local government, but it's a decision that certainly could affect the relationship between the Federal Government and local government, just as it could affect the Federal Government's capacity to fund schools and hospitals and a whole range of other services where there has been a tradition now built up over time that there will be some Commonwealth assistance.

You also are here, of course, while we are in discussion in the Parliament about the recent Budget, and I know that the Budget has given some concern also to local government.

And so let me first tell you a little bit about the Budget and the issues that we confronted and what our goals and objectives are. You will be aware that when we came to office we inherited a growing debt and a succession of Federal Budget deficits, deficits which over the previous six years totalled over $190 billion.

So, we have gone from a period when we had come to expect that our Federal Government would be delivering balanced budgets or a surplus, putting money aside because of some of the significant structural changes that are occurring in our economy, our ageing, the need for replacement of assets, etc. Significant issues arising for the future that we should have been putting aside for so that they could be funded in an era when there will be less people in the workforce and less capabilities to rely on some of our traditional industries.

So we should have been saving and we were, but over the last four or five years, we have in fact not been saving. We've been spending vastly more as a government than we've been earning. And that is simply an unsustainable situation. The $191 billion worth of deficits were projected to be followed by another $123 billion of deficits over the forward estimates of the previous government. So things were going up, going up.

We were heading on a debt trajectory to $667 billion worth of Federal debt. We are already paying $1 billion every month for interest on the debt that we have today, as a nation. If our debt is allowed to roll out to $667 billion that will mean around $3 billion every month would have to be paid as interest. And that's not an optional payment.  

You all know that if you've got a debt, you've got to pay the interest. You've got to pay the redemption. The banks don't just say, well, hopefully one day you might be able to get over it and you may be able to deal with the issues sometime in the future. You've got to pay your way all the time and for that reason, the Federal Government's capacity to do many of the things that we wanted to do is impaired because the first billion dollars of tax revenue raised every month has to go to paying the interest on the bill we have today.

And that number was going to get worse.

So we could do for local government what we do now every month if we didn't have to pay the interest. The Snowy Mountain Scheme cost $1 billion in the prices of its day. We could do that every month if we weren't paying interest. The money we're devoting now for infrastructure we could do time and time again if we didn't have to pick up this interest bill. So it does matter. It does matter.

We've got a number of states including Queensland that have lost their AAA credit rating and that have got debts of their own which are very, very difficult to manage. And when you lose your AAA credit rating, your cost of borrowing goes up. That's natural. And you end up then in a cycle that's very, very difficult to get out of. Queensland may not have yet reached a stage where it has tipped over that balance, but it's certainly teetering on the edge.

States like Tasmania certainly have and it's almost impossible find a way through where Tasmania can become prosperous and able to pay its own way into the future. And South Australia is close to the edge as well. So we do need to take advantage of the mineral wealth that we have at the present time, the enormous capacity we've got to build markets in Asia.

To be able to put aside for the future, the first step is to try and get the Budget back into balance so that we're able then to plan responsibly for the future. Now, that has meant unfortunately we've had to make some very, very hard decisions.

That hasn't been easy. I've been through the whole ERC process. I've been through it in my council days. I remember the Budget—hopefully most people in Kingaroy have now forgotten about it— where we put the rates up 34 per cent and we just had no other option.

Remarkably, we got away with it. Most people have—didn't even make a fuss then—I thought they should have but they didn't. So the reality is, you know, I've been through these tough budgets and I sat through all of our expenditure review committee meetings and I left so often with a knot in my belly because we had to make decisions that would have simply been unthinkable not all that long ago.

There is no minister - no minister came out of the ERC process with a smile on their face. Everyone has had to endure a significant pain. We've had to make cuts and we've had to make changes. In particular, we've sought to concentrate on trimming growth rather than reducing expenditure in key areas in the short term.  For instance, our welfare bill is becoming such a huge part these days of total budget expenditure.

We're an ageing population. By 2050, there will be twice as many people above 65 years of age as there are today. There will be four times as many people above 85 years of age as there are today and one in three children born today can expect to live to be 100. So as Bill Shorten said in his response to the Budget, there will only be two and a half people in the workforce for every person living in retirement by 2050.

So we've got to plan for that and it will be only a relatively small proportion of our population paying any tax by 2050. And so we have to have a welfare system which encourages people to put aside if they've got resources of their own, but will be sustainable for those who will need it.

We will have people who are ill or who for one reason or another, have not been able to put aside for superannuation. We will need to be able to ensure that they can rely upon a safety net to look after them in their retiring years, or when they become ill or infirm or disabled for one reason or another.

So it's about planning for those types of things.

We have put a lot of money over recent years into encouraging people to take out superannuation but there's still 1100 extra people applying for the Aged Pension every week - every week.

And we've got 1000 extra qualifying for the Disability Pension every week. And so those sorts of numbers are expensive to deal with now, but if you project them through to 2050 or some other time, then clearly those issues become much, much more difficult to address.

So when we're looking at the sort of questions that we're talking about, when we're looking at balancing a budget, what we have sought to do is to tighten the future assets and various eligibility tests so that those most in need will be the people who will qualify for welfare benefits. And that particularly applies, I guess, to the so-called middle class welfare that people have been talking about.

You know, you get quite substantial payments from the Government and you can have income of $50,000 or $80,000 a year and still get payments from the Government. Well, maybe we can't afford that sort of thing in the future.

You can certainly have - to this day, have - and this is not going to change, you can have more than a million dollars in the bank and still get the Aged Pension or a bit of it. And in particular you then get the Health Care Card which of course can be a very substantial asset if you're not well.

So there are significant issues that we've sought to address. There are not going to be any changes to the pension over the next three years. Unfortunately there are a lot of things out in the ether which are simply not true.

The pension will be unchanged for the next three years and pensioners will continue to get their increases in March and September using the same indices that have applied in the past for the next three years.

After that, they will still continue to get pension increases in March and September but they will be based on the CPI alone, not the other two indices which give the pensioners three options when it comes to an increase. Ironically, the last pension increase and the one ahead are both likely to be based on the CPI anyhow, so people will probably not notice a difference.

So we do know that we have an obligation to the retirees. We have an obligation to those with disabilities and we're determined to try and do what we can to support them.

The other thing that I need to mention about the Budget process is the time bombs that were placed in the Budget. The previous government had made big commitments to an increase in expenditure and education, a new deal with the states in relation to hospitals, and big increases in disability services, the National Disability Insurance Scheme.

A lot of Defence equipment has been ordered and, of course, big increases in foreign aid. All of those were commitments that were well and truly entrenched in the minds of the Australian people and expectations they had for the future. But in reality, they had provided no money for any of those increases in their forward estimates. Our Coalition Government provides budgets essentially for four years each time we bring down our statement.

Now, what Labor had promised was large amount of expenditure, but all of it only began in year five. Gonski ramped up in year five. No major increases in the first four years. It all went in years five and six. The same with hospital funding: the big increases happened in years five and six. The same with foreign aid and NDIS. There's not much extra money for disability services until you got to years five and six.

Well, Labor's year five is our year four, and so we had to come to grips with all of these issues in this Budget, and that's why there is talk in some circles about cuts in health and education etc. Well, there's no cuts in health and education over the next three years, and I'll give you a couple of figures in a moment.

But from years four and five onwards, we are not increasing the expenditure as much as what had been alluded to by the previous government, but for which they had never provided in any of their budgets. So what you're looking at in years five and six is a smaller growth, not a cut in actual contributions to states and others who are receiving funding.

And can I in particular make a couple of references to the situation with states like Queensland, because we're all Queenslanders, and make it clear that the Commonwealth's contribution to the State of Queensland in this next financial year will be $21.5 billion. That's 5.5 per cent more than last year, so there is more money coming to Queensland—from the Commonwealth to Queensland in the next year.

And when it comes to hospitals, for instance, across Australia there will be a nine per cent increase from the Commonwealth to the states for health but, in Queensland's case, because of the growth in population etc and the nature of the formula, Queensland will get a 13 per cent increase in hospital funding this year, another 10 per cent in 2015–16 and 10 per cent in 2016–17.

So it getting above the national average, and a 13 per cent increase is not my language for a cut. When it comes to education, there is an eight per cent increase on average going to the states for schools, but Queensland will be getting 11 per cent this year and in the subsequent two years. So there's significant funding still going to the states for all of these key purposes.

Of course, the centrepiece of our Federal Budget, the centrepiece and the element that gives me the greatest pride as Minister for Infrastructure, is a $50 billion commitment to infrastructure across the nation, particularly roads, but also expenditure on rail, to make a real difference to improving our transport network. This is by far the biggest commitment to infrastructure by any Australian government in our history.

It means substantial projects everywhere. Queensland's share of that is the second highest, at over $13 billion over the life of that programme. And it means that we'll be able to spend money on a wide range of very, very important projects. You've heard quite a bit about many of those.

Our $6.7 billion commitment to the Bruce Highway: the Queensland Government is making that up to an $8.5 billion commitment between the Commonwealth and the State to rebuild and improve the traffic flows along the Bruce Highway from Brisbane to Cairns. In this Budget we've announced 45 new projects on the Bruce Highway and continued funding for another 16.

Last week I was in Toowoomba for the expression of interest stage in building the Toowoomba Range Second Crossing. That'll be the biggest project there's ever been in regional Australia, and it's an attempt—it'll be the first really significant attempt—to build a major public road infrastructure project, with a private-public partnership.

So we're looking for industry to contribute to that project. At the expression of interest meeting for tender there were over 200 people present, so there's a lot of interest in taking on what will be about a $1.7 billion commitment. A major project, and one that'll make a real difference to the traffic flowing both from Brisbane to Melbourne but also to service inland Queensland.

There's over $500 million to spend on the Warrego Highway. We've got significant investments, indeed, on every one of the national highways. There will be a major project on all of them. And of course, we've made commitments to a number of other roads on the state network to help overcome some particular traffic difficulties: the D'Aguilar Highway, the Eton Range, just to mention a couple. And we'll be working with the Queensland Government to help deliver on those sorts of projects.

And when it comes to the local level, there will also be a substantial boost in expenditure. There'll be a substantial increase on what we're going to spend on local roads. Firstly, we've committed to continue the Roads to Recovery programme for another six years: two and a half billion dollars to distribute to councils over that period. And in 2015–16, we will be making a double payment to councils.

So instead of there being the usual $350 million, in 2015/16 you will get - nationally there will be a distribution of 700 million, a double dose. We're also - and I'll be saying something about it when I talk to the Local Government General Assembly later in this week, about the Bridges Renewal programme. We'll be releasing the guidelines for that programme, so that we can start inviting applications.

It's a $300 million programme where the Commonwealth will pay 50 per cent of the cost of replacing some of your old or dilapidated bridges, ones that need extra carrying capacity and the like. I'm told, as many as 30,000 bridges across the country, many of which need a repair and upgrade.

There's been a substantial boost to the Black Spots programme. $565 million will be available for the Black Spots programme over the next five years, and the Heavy Vehicle Safety and Productivity programme that provides funds for things like rest areas for trucks, road projects that make a difference to the transport sector has also had a boost. They have a role in deciding how that money will actually be spent.

So a lot of that you will see on your local roads. This $50 billion programme includes spectacular projects in each of our capital cities, but it also includes a major commitment to roads at the local level. Roads and streets should also benefit from this particular project.

Can I also make mention of the fact that we remain committed as a government to getting rid of the carbon tax, and that will have a significant impact on local government. Firstly, if the carbon tax package was to be implemented from 1 July— that's only a couple of weeks away—there would be another seven cents a litre imposed on diesel fuel, because that was a part of the carbon tax package.

Now, if we can repeal the package, well, then that's not going to happen. But on top of that, you are already paying carbon tax on your road construction, on your garbage dumps, on your street lighting etc, and to strip that cost away will help make managing your budgets a little easier.

Now, we're reasonably confident that if the current Senate won't pass that legislation, the new Senate will, and we will, in fact, be able to get rid of this burden, this burden on productivity, but this addition to your costs, which is making a real difference, obviously, to your capacity to be able to do your job.

Now, I'm not avoiding the issue of the freeze in indexation. I mentioned to you earlier that everyone has been asked to make a contribution towards the budget repair task, and this is what we're asking of local government. We will continue to provide the level of funding that local government has received, but there will be no indexation over the next three years.

I appreciate that has an impact. It has an impact over the longer term. I suspect that the impact in Queensland will not be as great as in some states, because you have a bit of population growth and therefore Queensland's share may be greater than some other states.

So, the impact will be greater in some states than the others and, because of your own Local Grants Commission, some councils will still get a bit more, - but more will probably get less as a result of those changes.

There are some councils who've told me that the extra Roads to Recovery money that they're going to get will be more than they're going to lose from the Grants Commission, but that will be a minority of councils.

Clearly the net impact is greater than the compensation you will get from just the Roads to Recovery money. But of course, the savings to - on the carbon tax are substantial, and those sort of things will also offset your overall situation.

So I appreciate that that creates a difficulty. It's a difficulty you're sharing with the states, because in some instances there have been grants that we're not continuing to the states. As an example, one of those has been - and I have to admit, it came as a surprise to me to find out that the Commonwealth was actually paying some of the state governments' concessions to pensioners.

We pay our own - we pay 100 per cent of our own cost of pensioner concessions, but over recent years the Commonwealth has been paying a contribution to the states so that they can make concessions to pensioners for which, of course, they've been taking the credit.

It's only about 15 per cent of the states' pensioner liabilities and I'm confident that the states will be able to carry that forward because, as I've mentioned earlier, they still continue to receive grants from the Commonwealth Government which are higher than they've received in the past.

So ladies and gentlemen, that's a bit of summary of the Budget.

I appreciate that there are challenges there. At this conference you'll have an opportunity to look at some of the issues that are confronting local government, and some of those I'll talk about a little bit more later in the week. But I want to specifically mention to you what's happening in Queensland and look at how best we can address those issues collectively.

Thanks for being here this morning.