Speech by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
Tuesday 15 July 2008, Melbourne
Good afternoon and thank you for inviting me here to speak today at the Royal Melbourne Hospital’s Inaugural Chairman’s and Chief Executive’s Luncheon. I would like first to acknowledge the Wurundjeri people of the Kulin Nation as the traditional owners of this land.
This is to be the first of a series of addresses to mark the 160th anniversary of the Royal Melbourne Hospital. A hospital which is older than Victoria itself, and pre-dates even Australian Rules football.
As Australia’s busiest hospital, the Royal Melbourne is not just an integral part of the Melbourne community, having cared for generations of Melburnians and Victorians, but also an Australian institution. Many of our current and future doctors and nurses have and will train at the hospital.
Over the past 160 years the Royal Melbourne Hospital has grown along with the city of Melbourne – and if future population growth projections are realised and we reach 4.5 million people in Melbourne by 2020, it will need to continue to grow.
In order for the Royal Melbourne to meet our city’s needs into the future, it will need to rely not just on government support but the support of events like today.
As the local member for Melbourne and Minister for Finance and De-regulation I have been asked today not to talk about issues directly linked to the hospital and instead focus on the Rudd Government’s economic reform agenda.
This is of course a very broad topic, covering issues from Climate Change to tackling indigenous disadvantage – but I will keep today’s discussion focused more heavily on areas for which I have responsibility:
While the hospital community and all Melburnians are celebrating the Royal Melbourne’s 160th anniversary, as a nation we are facing uncertain economic times – driven by high domestic inflation and international uncertainty following the sub-prime mortgage crisis in the United States.
The saying goes that if the USA economy sneezes, the Australian economy catches a cold. Much of the focus of the Government over its first seven months in office has been to ensure that this does not occur.
Oil prices are at their highest level for a generation, the global credit markets are no longer providing easy access to finance, and consumer confidence in Australia is at a 16 year low.
That said, there are still major positives for the Australian economy – unemployment is at record lows, the terms of trade are the best seen in a generation and domestic growth remains resilient. We are in the middle of a mining boom which presents us with many challenges but also immense opportunities.
The Government’s strategy is to put downward pressure on inflation and interest rates through delivering a responsible fiscal strategy that delivers a strong surplus and invests in the future.
Higher inflation means higher interest rates which in turn tend to reduce economic growth and reduce employment growth. Which is why it is paramount for Australia to ensure inflation is kept in check.
That’s why it’s vital to run a strong surplus to put downward pressure on inflation and interest rates, and that’s why it’s vital for Australia to invest for the long term in the economic capacity, the skills, and the infrastructure that will deliver prosperity for the future.
In the budget we delivered a tight, well-managed economic plan which focused on the practical solutions to immediate problems and long-term planning and investment for future challenges.
This was largely delivered through the focus on delivering savings through the first stage of the comprehensive review of Government expenditure.
The first stage – Razor Gang 1– delivered $33 billion in cash savings over four years in the Budget, including $7.3 billion in savings in 2008-09.
The savings in the budget helped us cut the real growth in Government spending from 5.2 per cent in 2007-08 to 1.1 per cent in 2008-09. This put direct downward pressure on inflation and interest rates.
The second stage of our Razor Gang process is focusing on more structural inefficiencies, which build up over time due to governments being unwilling to undo or scrap previous failed policies.
The Razor Gang 2 special taskforce has been formed in my department.
The taskforce will work together with portfolio departments and agencies, and central agencies, to analyse and advise the Government on opportunities and options for improvements in expenditure in a range of areas.
Most of this work will take place over the remainder of the year. It will also be used to inform our 2009-10 Budget deliberations. Of course, some of the more complex issues may require a longer timeframe to finalise.
Our commitment to the Razor Gang process stems most fundamentally from our understanding of the high opportunity cost of poor government decisions.
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.
The 2008-09 Budget marked the end of end of short term irresponsible spending and the beginning of long term responsible investment.
Which is why the Liberal Party’s opposition to many of the Government’s savings measures is completely irresponsible. The effect of their position on these issues would have a significant upward effect on inflation and interest rates, if it’s allowed to come into effect.
Recent growth figures and unemployment figures have reinforced the need for responsible spending and dealing with the capacity constraints that the Rudd Government has inherited after a decade of neglect. The Government’s aim is to get the long term policy settings right to build a modern economy with strong growth and low inflation.
To this end the budget delivered on the Government’s long term plans to invest in the future productive capacity of the economy. The Government recognise that it has a central role in modernising the Australian economy and this is more than just a one budget strategy.
Through establishing three investment funds – the Building Australia Fund, the Education Investment Fund and the Health and Hospital Reform Fund – and earmarking $40 billion to be deposited into the funds, we have set the foundations for the investment needed to ensure a healthy future for our economy.
These funds will be used to invest in the transformation of Australia’s education and training sectors, our ports, roads and bridges, to build a national broadband network and rebuild our hospitals and health system.
Back in 1845 the creation of the Royal Melbourne was reliant upon a government subsidy of one thousand pounds. In the future, this hospital may benefit from funds from the Health and Hospital Reform Fund.
The Funds sit within my portfolio, Finance, and will be the joint responsibility of both the Treasurer and I. Decisions regarding spending from the funds will be driven primarily by the relevant Minister, in this case, the Minister for Health.
The funds will be managed by the Future Fund Board of Guardians – which currently manages the Future Fund which has the objective of meeting unfunded public sector superannuation liabilities by 2020.
Both the capital and earnings of the Funds will be available to finance projects, representing a significant increase in the investment funding that will be available in coming years.
All projects financed from the Funds will need to satisfy rigorous evaluation criteria assessed by independent advisory bodies. We will be looking to invest in partnership with the private sector, through such mechanisms as public private partnerships.
Australia is currently in its 17th consecutive year of economic growth. This has put significant stress on our capacity to continue to grow, and keep inflationary pressures in check.
Looking at the challenges ahead – tackling climate change, the ageing of the population and increasing competition from our economic partners – we need to invest in our productive capacity to ensure we can continue to enjoy increases in our living standards.
The advisory boards will be tasked with evaluating potential projects using a strong public policy framework. These funds are not slush funds and we do not want investments of the funds to be crowding out investment by private enterprises or substituting investment by the states.
The three funds will also help drive the largest transformation of the roles and responsibilities of the federal and state governments seen in Australia through channelling funds through the Council of Australian Government – COAG – Reform Fund.
We have laid out the most ambitious reform agenda ever attempted in Commonwealth-State Financial relations – and the investment in infrastructure from the three funds is a central part of this transformation. The Commonwealth Government will finally take some responsibility for the economic and social infrastructure of the nation.
The COAG Reform Fund will be the mechanism for joint investments between the State and Federal governments.
To ensure that total capital spending from the funds is consistent with the Government's macroeconomic goals, the Australian Loan Council will provide advice on whether the combined spending envelope of both Commonwealth and the States can be delivered in prevailing economic conditions without putting at risk the Government's inflation targets.
These are challenging times, but these are exciting times and these are definitively times of change. After 12 years of denial from the previous government on many of the challenges we face as a nation – from Climate Change, to infrastructure bottle necks and the need to invest in education – there is a lot of work to do. But there is also a need to take our time to get the solutions right and ensure that macroeconomic settings are not jeopardised.
We understand that people are impatient for action and change. But we also understand that our job is to get the long term fundamentals right, and set Australia up for a prosperous future.
That is why our Budget balanced the upfront investments needed to lift productivity and participation, with cuts in government spending to put downward pressure on inflation and interest rates and the long term investment plans to transform the economy.
Thinking back to 1845, and the small group of citizens successfully applying, on the third attempt, for a one thousand pound grant from government, it is amazing to think what has been created and built on by generation after generation of Victorians.
As a government we are now firmly focused on looking forward, to ensure that the investments today build a healthy economic future for the nation.
Thank you.
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