Address by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
Wednesday, 6 February 2008
The way that governments manage public money is critical to the every day lives of working people.
A tax dollar is a dollar that a family can’t spend on petrol, schoolbooks, groceries or holidays. So when a government takes that tax dollar it has a very real responsibility to ensure it provides value in return. That responsibility is even greater in an economy where pressure on inflation and interest rates is threatening to put additional strain on household costs.
In the final years of his government John Howard seemed willing to spend taxpayers’ money on anything he thought might buy him a vote. He let the inflation genie out of the bottle and Peter Costello and Nick Minchin threw away the cork. Elevated inflation is the Liberals’ parting gift to the Australian people.
The circumstances in which the Rudd Government must frame its first budget are challenging. Borrowers have worn eleven interest rate increases in a row. Underlying inflation is running at 3.6%. The prices of many groceries, rent and petrol are surging. Much of Australia is still feeling the human and financial effects of the drought. Our domestic economy is suffering from serious capacity constraints and the outlook for world economic growth is uncertain. This isn’t spin, or the predictable posturing of an incoming government, as some people have tried to suggest. It is simply cold hard economic reality.
Labor is not in the business of talking down the Australian economy. With the right policy settings Australia remains very well positioned to deal with these challenges. But there should be no more fudging on inflation.
After the June ’07 inflation data showed underlying inflation at 2.8 per cent, Peter Costello said “inflation is right where we want it”. When underling inflation hit 3% in the September quarter Mr Costello bragged that “this of course is a very low average inflation rate”. Even last week Brendan Nelson was still saying the Liberals left the economy “in absolutely first rate condition”.
Just like teenagers whose party just keeps getting bigger and going longer regardless of the consequences the Liberals ignored 20 Reserve Bank warnings on inflation and 10 interest rate rises. They kept partying. Brendan Nelson and Malcolm Turnbull are still looking at the Australian economy through the big yellow shades.
The Liberal’s neglect has left Australia with inflation at a 16 year high. It is now time for some discipline. The Australian Government has to apply sensible fiscal restraint to put downward pressure on inflation and interest rates, and boost investment in the productive capacity of the Australian economy.
Interest rate rises like we had yesterday are a kick in the guts for working families. That is why we will be working hard to put downward pressure on inflation, because higher inflation means higher interest rates.
The Prime Minister recently outlined his five point plan to fight inflation which addresses both demand side and supply side pressures on inflation.
The Government will help take the pressure off demand by running a strong budget surplus of at least 1.5% of GDP in 2008-09, provided growth prospects remain as currently anticipated. This will help make the task of the Reserve Bank easier.
We will encourage private savings and we will act to address skills shortages in the economy. Infrastructure Australia will develop a national approach to tackling infrastructure bottlenecks, and we will help people re-enter the workforce and remove disincentives to working hard to lift workforce participation.
The Government will deliver a strong surplus while also delivering on our election commitments to improve education, deliver high speed broadband, reform Commonwealth-State relations and cut taxes for working families.
Let me be very clear about something here. Labor’s tax cuts are not the problem. They’ll improve workforce participation and provide some much needed relief to working families under financial pressure.
The problem we have inherited from the former Liberal Government isn’t to do with tax cuts. It’s government spending that is growing at an unsustainable rate.
Peter Costello’s own figures published in the election campaign showed government spending growing by 4.5 per cent in real terms this financial year. When my Department re-calculated the figures to exclude the distorting effect of booming mineral prices, they found government spending growing even faster. That is after the effect of inflation has been removed. And it doesn’t include the tax cuts.
For the past decade the Liberal Party has governed in some of the most economically favourable times we have ever seen in this country. What of lasting substance does Australia have to show for it? What have they left us? Previous governments left legacies like occupational superannuation, the Snowy Mountains scheme, a national universities system, and an internationalised Australian economy. How has the Howard Government added to the productive capacity of Australia?
The bounty from the mining boom and 16 years of continuous economic growth has been largely squandered, not invested in the future of the nation. What Australia has been left with is a lot of missed opportunities and an inflation threat the Liberals still won’t own up to.
We now have to rein in government spending to tackle inflation and deliver better value for money. The Liberals spent a staggering $350 million in 2007-08 on WorkChoices, when previous annual spending on industrial relations was a third of this amount at $116 million. And this does not even include the scandalous $457 million spent on government advertising in their final 16 months in office, much of it on blatantly political WorkChoices ads.
Kevin Rudd announced during the election campaign that we’d establish a Razor Gang to cut wasteful government spending. Razor Gangs have a lengthy history in western democracies, stretching as far back as the Geddes Committee in early 1920s Britain. Its cuts to government spending became know as the Geddes Axe.
Combating Australia’s inflation challenge requires action in the short and longer term. The Liberals have allowed inflation pressures to build for the last couple of years and Labor can’t fix this overnight.
During the election campaign we identified $10 billion in savings. The Liberals spent almost this much in their campaign launch alone. We promised to cut government advertising and require government departments and agencies to deliver an additional two per cent efficiency dividend in the 2008/09 financial year. The conservative side of politics, by contrast, gave up the savings challenge altogether.
Our Razor Gang effort will occur in two stages. The first stage will deliver substantial spending cuts in the 2008 Budget to start relieving some of the pressure on inflation and interest rates.
Next week I’ll be delivering a modest initial instalment when I introduce the Additional Estimates bills in the Parliament. Some of the former Liberal Government’s last minute spending commitments will be revised or abandoned.
Five minutes before an election the Liberals were throwing the cash around making desperate promises trying to buy votes. This irresponsible spending will now be cut to reduce outlays by $643 million over four years including $243 million in 2007 - 08. This is a $643 million down payment on the bigger cuts we will announce on Budget night.
Amongst the measures we will not be proceeding with is the former Government’s Innovation Ambassadors program.
We will reverse the decision to fund the Flemington Racecourse Alternative Water Strategy. Money allocated to a range of advertising programs including the Simplified Superannuation initiative will not be spent. We will not be funding the proposed Fishing Hall of Fame or the Australian National Rugby Academy.
The Growing Regions program will be abolished and the estimated cost of re-establishment assistance for farmers affected by the drought will be revised down to reflect lower than expected rates of take-up.
If we are going to tackle inflation we have to start now. These savings are a modest but important first step in reining in the excessive spending we have inherited.
Soon we’ll get a real insight into the Opposition’s position. Do they accept the need for cuts? Do they recognise they’ve left us with a serious inflation problem? Will they acknowledge that every dollar wasted is coming out of a working family’s budget?
The 2008 Budget isn’t the end of the Razor Gang’s work. It’s the beginning. Stage two of the Razor Gang will be part of a wider reform agenda. We intend to radically increase efficiency, transparency and accountability.
The second stage of the Razor Gang will be an intensive program-by-program review of government spending and tax concessions to be completed before the 2008-09 Mid-Year Economic and Fiscal Outlook is released. Measures will be announced towards the end of 2008.
This stage will also deliver savings and improve the quality of expenditure. We intend to streamline government and improve the efficiency of service delivery. A good example of this is the work already occurring with the co-ordination of child immunisation information between Medicare and Centrelink. But there’s more to be done across Government, and we will be looking to further improve the delivery of services in agencies like Centrelink and Medicare.
Procurement of goods and services will also be overhauled. The Liberals treated departments and agencies as individual private companies with the government as a kind of giant holding company. This radical decentralisation of government has created widespread inefficiency.
There is very little centrally shared information about what different agencies are doing in procurement, let alone co-ordinated purchasing. They are all out there trying to catch and kill their own. Agencies are effectively bidding against each other for goods and services without adequate advice or support, and rarely if ever making use of the buying power that a coordinated government approach to purchasing could deliver.
We won’t go to the other extreme, because excessive centralisation would be just as bad. But we will drive tax dollars further through greater co-ordination. And with around $30 billion worth of government contracts awarded every year, even small improvements will deliver substantial dividends.
Disciplined processes are the essential foundation of strong budget management. The Strategic Budget Committee will meet at the beginning of each budget cycle to set the strategic direction for future budgets. All expenditure decisions will be taken through the annual budget process unless there is a genuine and urgent need for consideration at another time. This will allow competing spending proposals to be considered together so that the genuinely highest priorities can be identified.
The Expenditure Review Committee will meet throughout the year, not just for a few weeks during the budget process. Where urgent spending measures are needed they will be required to be considered by the ERC, Treasury, Finance and, wherever appropriate, Cabinet.
John Howard and Peter Costello announced a $10 billion water plan without proper scrutiny by Treasury or Finance, and without consideration by Cabinet. Yet they had Cabinet approve a $350,000 grant to a private individual to fund a jewel-encrusted horse-drawn carriage as a private gift for the Queen. That’s no way to run a government. It won’t happen under Kevin Rudd and Labor.
The government will be instituting new rules to end the Liberal and National Parties’ great grants rip-off. Just how far discretionary grants were debased by the previous government was revealed in last year’s report by the Auditor General into the $417 million Regional Partnerships program.
Grants were approved by Ministers before formal applications had been submitted. Ministers overruled departmental advice and gave grants for no apparent reason other than the money would be spent in a Coalition seat. Large numbers of grants were approved in the lead-up to and even during election campaigns. The former Deputy Prime Minister’s Chief of Staff directed a junior Minister to approve a $1.1 million grant to an ethanol refinery in his boss’s seat. The refinery was never even built.
In 2006 alone the Commonwealth spent more than $2.7 billion on discretionary grants. This money should have been properly administered. In the future it will be. Ministers will not be allowed to make decisions on discretionary grants for their own electorate. Consistent with rigorous probity principles, that decision will be made by other Ministers. Unlike the previous government, Ministers will also be expected to consider and respect Departmental advice. All agencies will be required to publish details of awarded or announced grants on their website at the earliest opportunity.
My Department is also undertaking a comprehensive review to examine the value of discretionary grants and the transparency and effectiveness of existing programs. The review will report to me in August. I will then take further recommendations to Cabinet on the management and monitoring of discretionary grants.
Spending discipline is a critical priority for the Rudd Government. We have already established Infrastructure Australia to ensure genuine rigor and accountability in infrastructure spending. Infrastructure investments will be subject to expert analysis. If a government chooses to invest in a project for political rather than economic reasons everyone will know about it.
We’ve commenced a major process of reform through the Council of Australian Governments, to create a clear and rational framework of state and national responsibilities. And we’ve created a specific Ministry for Deregulation to reduce the ever-mounting red-tape burden on business. I’m delighted to have been given this responsibility in partnership with Craig Emerson. It’s a critical part of the task of reforming government.
Openness in public administration is fundamental to good government. Accountability means better government and better public outcomes. I am personally very committed to greater openness in government. There has been too much fudging, dishonesty and cover-up in Australian public life in recent years.
One of my core objectives as Minister for Finance and Deregulation is greater government transparency. I’ve already published the government’s consolidated financial statements with the GST accurately reflected as a Commonwealth tax. I am determined to eliminate the trickery that has enshrouded budget information in recent years. I am committed to ensuring the Government provides more detailed financial information and better disclosure of government contracts.
Democrat Senator Andrew Murray shares my passion for open government. He has agreed to conduct an independent review of all available transparency and disclosure options and to map out some future directions for improving government transparency and disclosure. I have called these reforms Operation Sunlight. I think Senator Murray would probably call it Keeping the Bastards Honest.
Budgets are about choices. Every dollar a Government spends is a dollar that a family or individual does not have to spend as they wish. It’s a dollar that won’t be directly creating jobs in the private sector. Every interest rate rise reduces the amount of money families have to spend on essentials such as food, clothing and textbooks.
This budget will involve tough choices. Inflation is above the Reserve Bank’s target band. The Government has a responsibility to the Australian people to make the tough choices to put downward pressure on inflation and interest rates.
The previous government fuelled inflation with expansionary and wasteful spending. Rather than investing in the drivers of productivity it tried to fund its own electoral fortunes. This government will not make those mistakes.
We realise that political success ultimately comes from good government. That means new programs, but it also means transforming processes. Finding savings and improving efficiency won’t get the headlines that computers in schools, public hospital reforms and a national broadband network will.
But the big things we want governments to do won’t happen unless we transform the way government operates. And it’s my job to make that happen.
It is also my job to keep government spending in check. Rising inflation and rising interest rates are making things tough for working people and tough for business. The Government is committed to helping the Reserve Bank get on top of the inflation and interest rates threat and we are committed to getting on with it now.
Labor wants to build a strong economy for the future which delivers for all Australians, especially working families under pressure from rising costs and interest rates.
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