CHRIS BOWEN MP SHADOW TREASURER MEMBER FOR MCMAHON

SPEECH

ECONOMIC POLICY: LABORS LEGACY AND THE FUTURE WEDNESDAY, 04 DECEMBER 2013 THE NATIONAL PRESS CLUB, CANBERRA

The first three months of a government are important. They set the tone for what is to come. They tell us a lot about a governments priorities and governing philosophy. And of course, there is already a pattern of behaviour emerging under this new government. The new government has developed a habit of inventing a confected scandal about what it inherited to justify their scrapping of firm pre-election promises. The starkest example of this is education and the debacle the rime !inister and "ducation !inister have presided over in the last week or so. #e had the ignominy of the "ducation !inister blaming the media, and the rime !inister blaming the Australian people, for what were in fact very clear election commitments on school education funding. This was followed by a panicked

backflip in which the states have been relieved of any responsibility to improve standards. $n public service cuts, the %overnment acted surprised that it is impossible to achieve a &',((( person reduction in the public service by natural attrition on top of the existing efficiency dividend when they were explicitly warned that this was the case before the election. And of course then theres boats. They seem surprised to find out its actually not safe to turn back boats and that )ndonesia doesnt like it despite being repeatedly warned that this was the case. They are also trying this strategy out on the economy and the budget, in the tried and tested tradition of new treasurers* +Ah look, what a surprise, the budget is bare, that economic nirvana and budget bliss ) promised you is going to be harder than ) thought. ,oe -ockey has even invoked the image of +spiders in the cupboard. .ever have a new rime !inister and Treasurer used this tactic as much as !r Abbott and !r -ockey. And ."/"0 has it been with less justification. 0ecently, of course, the )!1 gave their regular update on the Australian economy. The Treasurer issued a press release about it. 2ut he didnt comment on the first paragraph. ) dont suppose we could blame him, because the )!1 doesnt buy his little story about spiders and cupboards. )n fact, the )!1 re-affirmed the strong economic position inherited by the Abbott %overnment, stating*

Australias economy has performed favourably in recent years compared with other advance economies with a track record of sustained growth, inflation close to target, a resilient financial sector and public debt still low relative to other advanced countries. This performance has been aided by Australias strong institutional and policy frameworks $r perhaps Arthur 3inodinos put it even more succinctly on election night when he admitted that the economy the new government was inheriting was in good shape. #hen ,oe -ockey opens a cupboard door, he finds an economy around &45 bigger than it was in '((6, compared to the 73 economy which is 45 bigger and the 78 and ,apanese economies stagnant or smaller than they were 9 years ago. As a result of this growth of course, Australia jumped three places to go from being the &:th biggest economy in the world to be the &'th biggest when we handed over office. $f course, Australia went back three places during the tenure of the -oward %overnment. This isnt just some school yard competition of course* the si;e of our economy impacts directly on the wealth and well-being of Australians. "ven more impressive than the overall league table of economy si;e is the measure of our wealth reflected in %< per capita. 7nder =abor, Australia rose from being the &6th richest country in the world we took office in '((6 to be the >th richest when we lost office. %< per capita is a scoreboard which really matters.

7nder =abor, Australia scaled the hierarchy of global prosperity faster than at any time in modern economic history. #ill ,oe -ockey be able to claim the same thing at the end of his tenure? )n fact, it is a key test of the Abbott %overnment to keep us in the top ten richest countries, as measured by %< per capita. !r -ockey inherits an economy in which households now pay around @9((( a less a year on an average @A((,((( mortgage than when we came into power in '((6, putting an extra @&&: a week in to the pockets of Australians helping them with their everyday expenses. -e finds an economy in which labour productivity growth, after a decade in the doldrums has had somewhat of a revival, averaging well over '5 in the market sector over the last two years which, as 02A <eputy %overnor hilip =owe has said, gives us Bsome basis for optimismC. And this record as =abor managed the Australian economy through a challenging period* A period in which the global economy was hit by the biggest economic shock

since the great depressionD A remarkably volatile period in which the Australian dollar dropped as low as

9&c and as high as @&.&(. )n challenging times, =abors economic values were tested and not found wanting* #e acted Euickly and decisively to save jobs F because supporting

Australian jobs is a =abor value.

#e supported the economy with a massive boost to infrastructure spending

F because building for the future is a =abor value. #e supported the car industry and small businesses F because maintaining

a diverse economy is a =abor value. #e worked to establish the %'( leaders forum and helped craft a

coordinated global response to the crisis - because working internationally is a =abor value. This is not to say the economy doesnt face some headwinds. As ) talked about during my time as Treasurer, the mining investment boom is coming to an end. #hile we have locked in a permanent increase in our national wealth as the mining export boom continues, it will still be a very different economy. And, with the terms of trade coming off their record highs, Australia will need more than mining production to lift our national income. This all at a time when the baby boomers are beginning to retire, reducing the pool of workers that firms can draw on to grow their businesses. An ageing population will test our ability to maintain the same standard of health and aged care that we are all used to. The message is clear. )f we are to build on our '' consecutive years of economic expansion, careful and deft economic management will be reEuired to navigate us through the coming years. #e need policy settings which encourage investment in the nonmining sector and promote our competitiveness. )s the Goalition up to this task?

The early signs are not good. They are gutting the .2. and have gutted our %onski plan F both policies that will lift productivity over the medium and long term. $nly last week, in his first big test, ,oe -ockey rejected the bid that would have injected significant funds into our agricultural sector. This is a decision that will hurt jobs and growth. There was something of the absurd watching ,oe -ockey perform contortions to try and convince us that it was vital to knock back this foreign investment so that we can boost public confidence in foreign investment to attract more. This decision sends all the wrong signals to the foreign investment community. The Treasurer is too weak to stand up for a pro-growth agenda against noisy elements in his own government. $ne of the coalitions first acts of government is the repeal of the instant asset write off for small business, another blow to encouraging investment in the nonmining sector. This will starve small businesses of much need funds that could be used to invest in new productive technologies. The Australian )ndustry %roup stated in a recent 3enate committee hearing that* BThe proposal to remove the instant write-off facility for small business will have a material impact on them and will decrease investment at the time it is needed mostC. And then there is the car industry.

The submission of -olden to the roductivity Gommission 0eview makes it abundantly clear that the current lack of 1ederal %overnment support is the greatest obstacle to a renewed commitment from -olden to maintaining their Australian manufacturing operations. And while Tony Abbott says he wants to be the infrastructure prime minister, the early signs would indicate that Australia will be going backwards. There are the projects that have been scrapped* 2risbane cross river rail, !elbourne metro and erth light rail come to mind. #ere also seeing a push to weaken )nfrastructure Australia in the legislation introduced by the <eputy rime !inister last sitting week. 1or example, new powers to nominate and exclude projects like urban public transport from costbenefit analysis do not augur well for a continued role for the national interest in big infrastructure decisions. This yet again sets the scene for a triumph of the .ationals interest over the .ational )nterest. 2ut the Goalition also has a broader political problem. -aving relentlessly talked down the Australian economy for six years, they claimed they could return to surplus and cut taxes all at the same time by some magic boost to business and consumer confidence that would eventuate simply because they were elected. $ne example of this was when ) pointed out before the election the terrible impact on the savings of Australias self F funded retirees of the Abbott %overnments re-introduction of double taxation to pay for their extravagant aid arental leave scheme. ,oe -ockey told me ) was wrong because apparently profits were all going to be higher because he would engender higher confidence and better business conditions.

#ell, we did see the traditional post-election confidence boost that we typically experience after elections. 2ut this was particularly short-lived. )n fact, business confidence fell sharply in $ctober, wiping out much of the gains made in the preceding months. #e even saw ,oe -ockey rather desperately try to claim credit for a rather modest increase in retail trade in 3eptember, more driven by unseasonably warm weather in the "astern states leading people to reach into their wallets to bring forward their purchase of shorts and T-shirts rather than any inherent policy brilliance on behalf of the Treasurer. )f he is going to claim credit for increases in retail trade, it will be interesting to see if he takes a consistent approach in those months and Euarters that the outcome doesnt go that way. The glibness and shallowness of the Abbott led $pposition are not enough in %overnment. As we should be judged on our record in %overnment, so will they be, the Goalition will be judged on its own record. And that record started three months ago. The upcoming release of the !id-Hear "conomic and 1iscal $utlook is important. The re-"lection "conomic and 1iscal $utlook issued by the 3ecretaries of the Treasury and the <epartment of 1inance, under the Gharter of 2udget -onesty is the true state of the books the new %overnment inherited.

)t reflected the situation that enny #ong and ) outlined when we released our economic statement before the election was called. The "1$ has become an important yardstick and ) give due credit for eter Gostello for establishing the Gharter of 2udget honesty. )t means new Treasurers cant really rely on the trusted old measure of claiming the previous government hid the true status of the books. )t means the Treasurer cannot credibly claim any fiscal spiders. And we know the starting point. The starting position for the Treasurer is a projected deficit of @A( billion in this financial year and peak gross debt of @A6( billion in '(&9-&6. )n record time ,oe -ockey has gone from campaigning against debt to now working with the %reens F who pre-election Tony Abbott labeled +economic fringe dwellers F on no debt limit at all. There is no doubt, however that the fiscal situation will have deteriorated since "1$. #e already know they have cynically and unjustifiably blown out this years deficit such as through the decision to transfer @>.> billion to the 02A, adding more than a billion to interest costs over the next four years. #e know there have been other, smaller steps like the watering down of the previous governments tax base integrity measures and the tax breaks for people with more than @' million in their superannuation accounts. ,oe -ockey did not inherit a budget emergency, but he has done his best to make the budget situation worse. A cynic would suggest this is all in an attempt to justify the deep cuts he wants to make next year.

3o having talked about the economy the new government inherited, let me talk briefly about what ) see as some of the key tests for the new government, some of the important measuring sticks we will be holding them to account for* $ur tests for the Goalition include*

1. Keeping unemployment below 6 1/4 per cent. Throughout Australia there is a vein of concern about job security and the ability of young people to get into work, despite the very good employment record of the past six years. The =iberal arty was very good at whipping up this concern in $pposition, distributing pamphlets for example, highlighting job losses in the manufacturing sector. #ell, now it is incumbent on the =iberal arty to ensure continued strong jobs growth. This test is should be as easy as ten paces. 7nemployment currently stands at :.6 per cent. )t is projected by Treasury to peak at six and a Euarter percent. The average unemployment rate under the %illard and 0udd %overnments was :.&5 while under the -oward %overnment it was 9.45 The new %overnment finds itself in more benign international economic environment than the one the =abor %overnment had to contend with. The Australian people rightly expect, at the very least, that unemployment should not worsen on their watch, and well be holding them to account on the jobs front.

2. Keep Australia in the Top Ten Wealthiest Countries.

) talked before about Australia now being the >th richest country in the world, measured by %< per capita in purchasing power parity terms. This is an important achievement, having leapt I places in six years. )t is reflected in better standards of living. The Australian people deserve to have this achievement secured, maintained and even improved upon.

3.

aintain AAA Cre!it rating with 3 stable outloo"s.

#hen =abor came to office there were &9 countries that could claim thee AAA credit ratings with a stable outlook, and we werent one of them. .ow there are > and we are one of them. #e joined the club as it became more exclusive. The AAA Gredit rating is now more important than it once was. Hes, it reduces our interest cost on government borrowings. )t also helps attract foreign capital to Australia, something which =abor unashamedly thinks is a good thing, even if not everybody does. And to lose our AAA credit rating would be a blow to consumer and business confidence. #hen asked in arliament about whether the Goalition could maintain this, the best reply ,oe -ockey could come up with was B) certainly hope so.C #e need better than a Bfingers crossedC policy when it comes to the AAA Gredit rating.

4. Keep ta#ation as a percentage o$ %&'( on a)erage( below the *owar!/+u!!/%illar! benchmar" o$ 23., per cent.

$n coming to office, =abor committed to keep the tax to %< ratio below at or below that which we inherited. A promise we kept. This new %overnment has talked the talk on tax, but is yet to set any fiscal rules which tell us their approach. #e know that if tax to %< now was eEual to the peak of the -oward %overnment, then Australias budget would be in surplus. 2ut that is not the way to do it and the new %overnment should commit to keeping tax revenue below this level. These four tests provide some markers by which the economic management of the Abbott %overnment can be judged and for which we will be holding them to account. And of course in addition to these tests, we will in the true =abor tradition, keep a close eye on what happens to poverty and ineEuality on this governments watch F early decisions such as taxing low income earners more on their savings for the future and restoring a tax break for those with balances over @' million are not good signs. )n challenging economic conditions, =abors economic values proved up to the task of protecting our prosperity and preparing us for the future. 2y contrast, the Goalition spent the last : years shirking the hard work of developing strong economic policy. They preferred instead to dwell in slogans and negativity. That might have been an effective political strategy, but it leaves them without an economic strategy. They can articulate what they are against, but not what they are for. They have no plan to deal with the economic challenges ahead. .o plan to support the economy through the end of the mining investment boom. .o plan to improve productivity growth. .o plan to deal with the demographic challenges we face. They have no plan for Australias future.

.ow that we are in $pposition, we will not be adopting the same approach as !r Abbott. #e had an $pposition for years that was good at negativity, talking down the economy and making glib promises. Australia wants and needs more from an $pposition. #ell be robust, but we will be better than they were. 7nder 2ill 3hortens leadership, we will spend time developing positive plans, building on our legacy. #e have three years to prepare for %overnment. #hile not laying out detailed policies today, let me share with you some key areas that =abor will spend some time consulting and reflecting on, and will be releasing over the term considered positions on*

1. Pr !"#$%&%$'. aul 8rugman is over Euoted as saying B roductivity is not everything but it is almost everythingC but he is over-Euoted because he is right. #e got an insight recently to how the government is being advised on the best way to boost competitiveness and productivity, with the rime !inisters business advisory chief arguing that wages are too high. This is not the =abor way. #e need a focus on productivity and improving our skills, not reducing wages.

This will include innovation and infrastructure. )t will also include measures to promote competition throughout the economy, building once again on the procompetitive reforms of the -awke and 8eating %overnments. )t will include supporting innovation by business, increasing collaboration between researchers and industry, investing in the capabilities of our universities and public research agencies and looking at incentives to translate knowledge into innovations. )n &I&9, it was a =abor %overnment that established the Gommonwealth 3erum =aboratories, commonly known as G3=. The 8eating %overnment offered G3= to the market in &II4. Today that company is worth more than @A( billion, employing more than &(,((( people around the world. #hat is the next G3=? #hat is the next industry of the future? 7nder this %overnment with their patent disregard for science and innovation, we may never know. Australia has some great technology companies - Atlassian, 1reelancer, and many more and we can create many more. #e want them starting here and staying here* spreading internationally sure, but not feeling that there only hope of growing, is to move to another country with a more technology nurturing environment. $ne of the best ways to help boost innovation and productivity across Australias tech sector and beyond would have been to invest in significantly improving our nations broadband network. -owever the Goalition is dialing back efforts to do this, turning to copper instead of optic fibre as a way of delivering the broadband service business needs into the '&st century. As a result, theyre stifling the chance to build a technology platform that could have done wonders for innovation and productivity.

7nder the Goalitions dumbed down broadband offering, speeds will be slowed, capacity reducedD the ability of business to receive and shift large chunks of data will be dramatically lowered. Again, were seeing the Abbott %overnment fall into the same hole that trapped the -oward %overnment, warned repeatedly by the 02A that capacity constraints F such as infrastructure shortfalls F would hinder future growth of the economy. A few months ago, 8evin 0udd laid out the Gompetitiveness Agenda to you in this room. )ts good starting block and there is a lot more to do. #ell be building on that competiveness agenda.

2. E# ( )%# *(+,+*)*($ %( "r r*+% (. #e have of course, talked and heard a lot about our relationship with )ndonesia in recent weeks. As far as silver linings go, hopefully this national discussion has meant that we have been able to focus some public attention on the importance of our relationship. -owever the current situation is resolved, we need to move to a much deeper, less transactional relationship with this, the fourth most populous nation in the world which is our northern neighbour. 2y a deeper relationship, ) mean one in which we* not only our governments but also our people and our business communities have a much more enhanced understanding of our cultures and our operating environments. )t means more people to people links. !ore Australians studying 2ahasa )ndonesia is important not so much because it helps Australians trade and do

business there* "nglish is of course widespread in )ndonesia, but because it would engender a deeper interest in studying, and greater respect for, the )ndonesian nation and culture in its wider context. The )ndonesian economy is growing strongly but Australia is not making the most of this growth. )ndonesias middle class has grown strongly and will continue to grow, and yet we see more international students studying in Australia from 2ra;il, for example, than we do from )ndonesia. #e need to get this right and get it right now. $n some projections, )ndonesia will surpass ,apan to become the third largest economy in Asia by '(:(. And it is not just about )ndonesia. )f A3"A. were a country it would be our second largest trading partner. #e need to make deeper enmeshment with the entire A3"A. region more of a focus. #e set out the road map with the Australia in the Asian Gentury #hite aper, with its recommendations of earlier and better engagement in the curricula on language and culture. .one of this, of course, is meant to underplay the importance of engagement with Ghina and )ndia. 2ut the importance of these nations to our future economic growth is broadly understood, while the importance of A3"A. is largely underestimated in the public discourse. Tania libersek, enny #ong and ) will be making this a policy development priority.

3. H "-%(+ A.. r!,/%0%$'

-ousing affordability is, to coin a phrase, a barbeEue stopper in many part of Australia, and rightly so. #hile the housing market has reached boom levels in a low interest-rate environment, first-home buyers are being sEuee;ed out of the property market, making up a record low 9.> per cent of new housing loan commitments in .3# in 3eptember, a sharp fall from the peak of A4 per cent in !ay '((I. )n '((I, around A(5 of lending activity involved first home buyers, in todays market, this number is down to about &'5. The fact is that it has been getting harder for first home buyers. As the %rattan )nstitute showed earlier this year, a home buyer in the &I>(s needed to save a years average income as a deposit to secure a loan to purchase a median priced dwelling. 2y '(&(, the reEuired deposit si;e had increased to around four times average annual income. .one of this is to suggest there are easy solutions or magic bullets and of course this is an issue which reEuires buy in from each of the three levels of government. 2ut we do need to recogni;e that we need to do better. ,oe -ockey said when we debated each other on J and A during the election campaign, with typical chest beating ferocity that he would have more to say before the election about housing supply. #hat followed was more like the sounds of crickets on a summer evening. .ot another word was spoken by him about housing supply during the election.

And then, after the election the new %overnment abolished the -ousing 3upply Gouncil. .ot an auspicious start.

4. S),00 B"-%(*-The %overnment is fond of saying that small business is the engine room of the economy. They are fond of introducing changes that hurt small business at the very time they pay them lip service. Among the new governments first measures have been to reverse the previous %overnments steps to improve the )nstant Asset #rite off and also to abolish the =oss Garry-back measures. 2oth measures encourage the non-mining sector investment that we need. 0eversing them hurts small business. ) get angry when ) see the hypocrisy of a %overnment that loves to talk about small business and takes steps to make their life more difficult all at the same time. =abor will not be seeding the small business community to the =iberal arty. #e will be further developing policies which mean that we show the small business community that we, unlike our opponents, are prepared to back our rhetoric with action. 2ill 3horten has made this a key policy area and as =eader has taken direct responsibility for the portfolio, assisted by 2ernie 0ippol as a keen member of the shadow Treasury team.

#e welcome a debate about small business policy. #ell be participating in robust fashion. 2ecause small business is too important to our economic future to be paid the lip service this government seems intent on serving up to them.

C (#0"-% ( =adies and %entlemen. The =abor arty can win the next 1ederal election. #e can win because of the deep sense of disappointment in the community that ) can detect already, that this is not the %overnment they promised to be. 2ut also because we will put forward positive plans for Australia. And in no area is this more true than the economy. #e do so drawing on our values, building on our track record. #e navigated the economy through difficult global conditions and continued Australias record of economic expansion and prosperity. %overnments should be judged by how they deal with external economic shocks and how they prepare for the future. =aborKs track record on handling the shocks is impressive - we had the %1G and the '(&& summer of natural disasters and dealt with both, working in partnership with the business community and the public. And =aborKs record on preparation for the future is there for all to see, investment in schools, our investment in infrastructure both digital and traditional and our investment in the most vulnerable through <isabilityGare.

This is what !r -ockey really finds when he opens his proverbial cupboard. The test is whether the new %overnment can continue the good work and keep Australia in the good position they inherited. ) for one am looking forward to a robust debate on Australias economy over the next three years. #e will participating constructively, robustly and positively. Ad we wont be taking a backward step.