9 March 2017
Thank you very much, Michael, it is wonderful to be here. I look forward to having a discussion with Laura Tingle, the Australian Financial Review’s political editor.
And thank you, Michael, for your endorsement of my economic agenda and your concern that it is not being sufficiently widely embraced just underlines the need for more people to read the Australian Financial Review.
In a prolonged period of global uncertainty and volatility, Australia has enjoyed a quarter-century of uninterrupted economic growth.
Despite the sharp, and inevitable, fall in mining investment, unemployment remains relatively low and we are growing faster than any of the G7 economies.
This, according to the Wall Street Journal, is an economic miracle.
But of course it is not a miracle.
It is the result of a combination of farsighted economic reforms starting in the 1980s, a rich resource endowment to meet rising Asian demand, and the hard work of millions of Australians.
We made our own luck by harnessing good fortune, the right policies and hard work. And despite the tough economic outlook we face today, we can do it again.
I have a clear vision for Australia and my Government’s policies are focused on achieving it.
We stand for opportunity and security - the opportunity to get ahead and get back on your feet when times are tough, built on a foundation of economic and national security.
We are building an Australia that is as successful as it is generous, that recognises that a strong economy with high wages is the backbone of our free and just society.
We are engaged in more than just protecting old gains, we are in it to win it in a race to the top.
And we live in times of change unprecedented in their scale and pace. Many Australians feel that globalisation and advances in technology have reduced the control they have over their lives.
But as a small open economy - and as a great multicultural nation - Australia has overwhelmingly benefited from those changes.
Key drivers of productivity growth - deregulation, competition, innovation, consumer choice and open markets are no longer mere phrases. They are part of Australians’ everyday experience.
And they are not ‘dirty words’. Improving productivity does not mean working longer hours. It means working smarter and is the single most important factor determining our future living standards.
That’s why our economic policies are focused on the need to innovate, on making businesses more productive and competitive, including by lowering the company tax rate, so we don't fall off the back of the pack.
It is not populist politics - it is the right call for the times.
It is why we have asked the Productivity Commission to regularly report on how and where we can boost productivity.
It is why we want to increase participation through simpler child care and more support for low to medium income families.
We must not ignore the benefits of policies that have delivered us prosperity and we cannot take growth for granted - it won’t happen on its own or by luck.
And we must confront our economic challenges head on, beginning with a frank and honest discussion. Australians deserve a mature, responsible and constructive economic debate.
Without it, we risk putting our prized AAA credit rating - hard earned and long deserved - under even greater pressure.
The situation is as serious as it is real, yet some people choose political soundbites and petty point scoring over facing up to our nation’s economic challenges.
Playing on the fears and vulnerabilities of some Australians is reprehensible. It is not an economic policy. And it inches us closer to losing our AAA rating.
We must respect the intelligence of the Australian people.
Not long ago, both major parties agreed that lower business taxes would encourage investment, grow the economy and increase employment. Now we hear company tax cuts dismissed by Labor as “handouts”.
On that view of the world every dollar earned by a business belongs to the Government, and what is left after tax is a gracious “handout” from the Government to those impertinent shareholders who seem to think they are entitled to a return on their investment.
Both major parties used to back export deals to boost our national income, benefit the regions and create jobs. Now, the Opposition flirts with protectionism and the unions actively embrace it.
The two major parties used to agree on Budget repair. Now, Labor goes to an election promising to make the deficit worse.
And until recently, both major parties accepted the independent umpire’s decision on penalty rates. Now, Labor grossly exaggerates the number of people affected and lies by suggesting nurses and other professions will be next.
We cannot afford an ideological, even evangelical, embrace of policies that sound good but deliver bad outcomes.
A mature debate must include energy security and affordability and its place in the economy.
The evolution of more efficient, powerful and cleaner energy has driven economic progress over the past 200 years. It is the oxygen of the economy.
Yet our energy is among the most expensive in the developed world. Electricity prices for families have doubled over the past decade. And industrial electricity prices outpaced inflation by a factor of three between 2002 and 2013.
The competitiveness of Australia’s energy intensive businesses - particularly our manufacturers - has been underpinned by affordable and reliable energy.
And that competitive advantage is now being undermined because policymakers have put ideology and politics ahead of engineering and economics, introducing large amounts of variable energy - wind and solar, in particular - without the necessary storage and additional transmission infrastructure.
As a result, costs are rising, investment is at risk and jobs are being lost.
We must think carefully about how we manage our electricity system, recognising the rapid changes in generation, storage and distribution.
Pumped hydro, for example, can play a vital role of providing stability to the network and removing volatility in price. It can be deployed at a relatively small scale, such as Cultana on the Spencer Gulf, or at a large scale to further underpin electricity security.
In a rapidly changing energy market, our goal must be keeping the lights on and affordably for consumers. We can achieve this through dynamic markets that deliver lower prices and support innovation to drive efficiencies. That means more choice and fewer emissions.
It is not only important for households. It is critical for businesses, particularly as I noted Australia’s industrial sector, which accounts for nearly 50 per cent of all demand.
Meeting the demands, however, of a large aluminium smelter - the technologies deployed and demand management used - is different to a household or even a commercial building.
Grid electricity was developed when electricity was almost always generated from large centralised industrial plants. Increasingly it is not.
If we get the settings right, it reduces pressures on price and lowers emissions. But it doesn’t mean that large scale generation won’t play an important role.
Generation costs are changing rapidly. Solar panels per watt dropped from around $100 in 1975 to 61 cents in 2015, and the wholesale spot price for a module was just 31 cents per watt in January.
By 2020, some battery technology costs are expected to fall 40 to 60 per cent.
We have seen other technological advances too, such as Carbon Capture and Storage, where two power plants in North America were recently retrofitted with this technology.
This is why we have asked Australia’s Chief Scientist, Dr Alan Finkel, to investigate the best approach to integrating these technologies into the grid.
This will help us deliver the most efficient, flexible market arrangements, so that households and businesses can access affordable and reliable electricity, while reducing emissions.
We’re also tackling the barriers in our gas supply market. We again call on the states, to lift their restrictions on gas exploration and development.
The report released overnight by the market operator about the potential shortfalls in gas and the pressure that may place on the electricity market, is very concerning.
That’s why I’ll be urgently calling the chief executives of the east coast gas companies together, to explain how they plan on addressing this threat to their customers.
Now on Tuesday, I was in Jakarta where there is real momentum behind the Indonesia-Australia Comprehensive Economic Partnership Agreement, which President Widodo and I have agreed should be completed by the year’s end.
Indonesia, well on the way to becoming the world’s fourth-biggest economy, represents an enormous opportunity for mutually beneficial growth in trade and investment.
And we are so well situated here, as part of the fastest growing region in the world. But we must never become complacent. In the 21st century, geographic proximity is less of an edge all the time, and in any event, London and Paris are closer to Beijing than Sydney and Melbourne.
Our response to the challenges and opportunities of our times will determine our future.
Do we sit on our hands and let other countries take these opportunities?
Will we resign ourselves to an occasional increase in living standards, watching as our hard-earned gains in social welfare, education and health are whittled away?
Will we turn inward and revert to the false promises of higher barriers to trade and investment?
Or, will we take charge of our economic destiny and tap into the dynamic economies of the region for jobs and investment?
Will we be following them or will they seek to replicate our success?
One thing we do know - business as usual will not be good enough.
Which brings me to the serious issue of Budget repair.
A strong Budget guarantees the services that hard working Australians rely upon, including Medicare, schools and national security.
Returning the Budget to surplus is not an ideological goal - it is borne out of pragmatism and necessity.
Higher spending leads to rising deficits and rising debt, which will need to be repaid.
Fixing the Budget therefore is fundamental to productivity and rising living standards.
We must not put these difficult choices in the too hard basket.
Intergenerational Reports have warned for years that our spending must be more efficient to counter the costs of an aging population. By 2035, there will only be 3.2 working age Australians for every person aged 65 and over, less than half the level there was in 1990.
Now what that means is that we are better able to live within our means, better able to pay off our debt than future generations will be.
So how can we, in good conscience, throw enormous mountains of debt on the shoulders of future generations?
A strong Budget helps us weather external shocks from a position of strength. It’s good insurance as the Governor the Reserve Bank recently remarked.
The Howard Government left us a fully paid up, first-rate insurance policy - large surpluses and money in the bank.
But Labor cashed in the policy, spent the inheritance, putting enormous strain on the AAA rating.
That’s Labor’s fiscal legacy.
Programs were piled on to the Budget - record funding for health, education and social services was committed. But these were unfunded and spending ballooned.
Labor assumed they would limit long-term real spending growth to 2 per cent but it was actually growing at around 3.5 per cent per year.
At the last election, Labor showed that they hadn’t learnt a thing, promising a worse Budget position over the next 7 years, even after adding $100 billion in taxes, increasing the probability of losing the AAA rating.
Now, I won’t make promises I can’t keep and I won’t commit to spending money that simply isn’t there.
Under the Coalition, even after the Budget returns to balance - in the absence of further spending restraint - Budget surpluses are projected to remain less than 1 per cent of GDP. That's not a big buffer.
So it is not good enough for the Parliament to say we should simply raise taxes and ignore spending. That tells current and future generations that because we have refused to live within our means, they deserve lower living standards and less reward for effort.
Budget repair therefore is not just a fiscal imperative - it is a moral one.
Is it right to say to our children and grandchildren that we expect them to pick up the tab for our spending?
My Government’s commitment to the frontline services that Australians rely on is ironclad. But we must be able to pay for them.
We must make sure our spending is fair and fit for purpose.
Ending compensation for a tax that no longer exists is fair.
Phasing out poorly targeted Family Tax Benefit supplements and reinvesting money into child care and fortnightly family payments, is fair.
They were not popular calls to take to an election, but they are the right ones.
We are eliminating waste too through the biggest reforms to MPs entitlements in more than a generation, and we have abolished the Life Gold Pass for former parliamentarians.
Restraining spending is just one part of the solution. The complex economic picture we face means we must consider all parts of the economy and how they can work better.
By improving our infrastructure, for instance, we can ensure more efficient funding while boosting the economy. Quality infrastructure does not just improve our quality of life – it is an economic enabler that connects people with jobs, businesses with businesses and gets our goods to market.
The Commonwealth can no longer be an ATM to the States. We must have a say in where and how taxpayers’ funds are invested.
We must select, plan and invest in projects in a business-like manner supporting the right projects, in the right way at the right time.
Infrastructure Australia’s 15 Year Plan and Priority List forms the backbone of our decisions to make sure we prioritise the projects that deal with urban congestion, and enhance regional and international connectivity. We have already committed funding to 15 out of 18 projects on the February 2017 Priority List.
So we must be a partner in infrastructure, using more financing to leverage more investment than grant funding alone can deliver.
That’s why we have established an Infrastructure Financing Agency to work closely with Commonwealth Departments, the private sector and states to release finance for priority projects.
Using more financing will unlock more private investment and improve value for money for the taxpayer. All options should be on the table, including equity stakes, concessional loans and value capture.
Now, economic growth is not an end in itself, something to satisfy the bean counters or the history books, or the editor of the Financial Review for that matter.
Economic growth is the difference between strong growth in family incomes and just getting by.
It allows businesses to generate great ideas, products and services that keep lives progressing, that enable us to realise our dreams.
And it enables children to grow up with even greater hope and broader horizons than their parents had.
We are working with Australians to lift our sights and build a stronger, more resilient and more competitive Australia.
Clear-eyed and ambitious, pragmatic and principled, recognising that our values of freedom are the right ones for our time - now is the time to deliver even greater opportunities and wider horizons for all Australians in the years to come.
Thank you very much
Address to the Australian Financial Review Business Summit - Sydney
9 March 2017