Address to the National Press Club, Parliament House, Canberra
The Budget in perspective
*** Check against delivery ***
Thanks Laura [Tingle] for your very kind introduction, and the Board and Maurice, for having me back at the National Press Club to speak for the sixth time, but the first time as Treasurer –
Carrying on an important tradition of fronting up the day after the Budget, to give you a broader sense of perspective behind, and beyond, the numbers.
I acknowledge the elders, customs and traditions of the Ngunnawal and Ngambri people – and reiterate how proud I am of our government’s commitment to a Voice to Parliament.
And I’m really proud of the Budget we handed down last night –
Grateful to my colleagues, especially the economic team and the Expenditure Review Committee –
And the key to that of course, Katy Gallagher, who’s played such an influential role –
And also of course to the Prime Minister, who has joined us today, and I appreciate the support he’s given all of us as we’ve put the finishing touches on the Budget.
There are a number of public servants in the room – I see Glyn [Davis], I see Steven Kennedy and a number of other public servants here.
We appreciate all of the hard work that goes into this, often around the clock.
So a big thanks to them. And to all of you for being here.
The task and the test of any Budget is to understand and respond to, simultaneously, the challenges around the world and around the kitchen table.
This time perhaps more than ever.
Much of what we presented last night was motivated by the extreme cost of living pressures faced by Australians around the country –
Brought about by the lingering impacts of the pandemic, the war in Ukraine, and by natural disasters at home – pressure on supply chains and prices.
Budgets at their best bring together the global and the local.
On this occasion there’s almost no distinction.
So, a bit of a confession: I was in two minds about heading to DC less than a fortnight from the Budget.
But I’m pleased I went because I benefited so much, I think, from the opportunity to spend two‑and‑a‑half very long but very valuable days there –
Talking with my G20 counterparts and the heads of central banks, the IMF and World Bank, and some of the world’s biggest investment houses.
The big lesson was that you have to get monetary policy and fiscal policy working together, not at cross purposes – and I’m confident in that regard we got things lined up nicely last night.
But of all the value I got from that trip, one contribution stands out – from Tharman Shanmugaratnam, a Singaporean Minister and longstanding friend of Australia.
He made three main points that I want to share with you, because I think his prognosis fits our circumstances pretty well, and it’s a pretty pithy way of describing them.
His diagnosis was:
One: the world is increasingly marked by fragility and vulnerability – in our communities, our economies, our budgets, our energy markets, our international relationships, our politics.
Two: these vulnerabilities have all been made worse by underinvestment and complacency over a number of years, not just because of the pandemic – and this is what I mean by the wasted decade we had here.
And three: our task goes beyond managing what the economists call counter‑cyclical fiscal policy. Instead, it’s to redirect spending towards quality investment in the capabilities of our people and the capacity of our economies.
So, a pretty neat summary of the three things that underpinned our thinking as we finalised yesterday’s Budget.
Consider the historical context this way.
There are a number of you who have done more Budget lockups than me, I know, but yesterday was my 16th – and while I haven’t done a hard count, I think this is probably more than anyone else in the Parliament.
In that time, we’ve had two serious global downturns, and now we confront the prospect of a third – all in the space of just a decade and a half.
The first was a financial crisis that became a demand shock.
The second was a health crisis that became a supply shock.
Those crises and their responses had different elements – but both involved a substantial fiscal and monetary response.
This time is different, and it warrants a different response.
Inflation is back, at a level we haven’t seen since I was in primary school.
We were reminded of that an hour or so ago with new CPI numbers showing we hit 7.3 per cent through the year to the September quarter.
We expect inflation to peak later this year – and stay higher for longer, mainly due to energy prices – before moderating.
These rising costs of energy come courtesy of the war in Europe, but a decade of energy policy chaos hasn’t helped either.
That’s why energy prices are a bigger reason why inflation is higher than we’d like for longer than we’d like.
Now, it’s already well understood that Australia enjoyed nearly three decades of uninterrupted economic growth, until it ended in 2020.
But it should also be understood that low and stable inflation was a cornerstone of that remarkable run.
And now we are in genuinely different and genuinely difficult times.
A period of multiplying economic uncertainties – war in Europe, inflation in the US, a slowdown in China – with significant braking forces operating on our economy internationally and domestically, in the form of tighter monetary policy.
So, the global downturn that is now in prospect could be described as an energy shock combining with the after‑effects of the pandemic –
Which has brought about blunt and brutal interest rate rises globally, more synchronised than anything we’ve seen in the decades‑long inflation targeting era.
And that has implications – the substantial hit to growth, the potential for a hard landing, the possibility of a global recession.
Today I’d like to explain how these factors and forces have shaped our thinking as we pulled together this Budget, in three areas:
How they shaped our approach to cost‑of‑living relief.
How they shaped our approach to strengthening the economy.
And how they shaped our approach to Budget repair.
First, to cost‑of‑living relief.
There’s never any shortage of worthy and well‑meaning offers or ideas on where we might spend more money.
And that temptation becomes a lot stronger when you see people hurting.
As a Labor government, as Labor people, we feel that – we care about that, it keeps us awake.
We see what rising prices means for families – taking more from hip‑pockets, and pushing people closer to the edge.
Whether it’s food, whether it’s electricity, whether it’s rent –
Inflation is public enemy number one. Inflation is the dragon we need to slay.
In the weeks leading up to yesterday, cost‑of‑living relief was the subject of most of the questions I got from yourselves and your colleagues – that’s not surprising.
Because it’s the source of most concern in our communities right now.
Which is why it was the centrepiece of our Budget.
But there’s a right way to spend and a wrong way to spend.
And perhaps surprising to some, was our determination to deliver cost of living relief only where it met very strict and specific criteria.
Relief that was targeted in the right way, timed in the right way, and which delivered the right kind of result.
And we did it in this way not to appear tough, not just to win kudos with the econocrats or the markets or the commentariat –
But because we knew that doing any different would be doing damage to the people we’re here to serve.
An indiscriminate spraying of cash would have made our inflation challenge more profound, more prolonged – ultimately, more painful for people –
Who would have felt it through higher prices and higher interest rates.
And I think most people get that.
My sense in recent months is that there is a pretty solid understanding in our communities of how this works – the balancing act, the tightrope that we’re trying to walk here.
At a time of rapidly rising interest rates, we were not prepared to do something that might have made a nice splash on Budget day, but would ultimately be counterproductive to tackling the inflation challenge.
So that meant any cost‑of‑living measure couldn’t be inflationary, and had to deliver at least another purpose, pull at least another lever in the economy.
Whether on the supply‑side, or through productivity, or through participation – it had to deliver some kind of economic dividend.
And you see that in the plan that we set out last night.
Cheaper child care because it helps more people, especially women, back into work.
The same goes for paid parental leave – good for participation, good for productivity.
Cheaper medicines is a pretty simple example of an investment that recognises healthier people are more productive.
Our agenda for housing affordability – and the new Accord at the centre of it –
Increasing supply in a sector of the economy that desperately needs it –
Helping people live closer to where they work –
But taking the time to do it right, and not at a time when the supply chains in the construction sector are already crunched.
And our agenda to get wages moving again in strong but also broad and sustainable ways.
So, if the centrality of inflation drove our response to cost‑of‑living relief and wages policy, it also drove the second part of our focus in the Budget: investing in a stronger and more resilient economy.
The age of stagnant wages didn’t just happen on its own. It was no unhappy accident.
You can draw a line through the last 10 or so years and you can find all the points of friction –
Giving the game away on clean energy.
Surrendering an entire industry and its manufacturing capability.
Undermining penalty rates and job security.
Letting our skills base crumble and collapse.
And through all of that, you can see why – in an unfamiliar fit of honesty – the Liberals said stagnant wages were a deliberate design feature of the economy on their watch.
When you tally it all up, yeah, it looked pretty deliberate.
This low‑skill, low‑productivity, low‑wage reality is the result of a lack of investment and a lack of interest in the key drivers of sustainable growth – stretched out across a decade.
We pay the cost of that now – because it’s made our economy more susceptible, more vulnerable to the kinds of global shocks we’re going through, and our people more exposed to its effects.
If our vulnerability to these shocks has been exacerbated by underinvestment in the potential of our people and our economy –
It stands to reason that investing in those areas builds our strength and resilience against future shocks.
And that’s the approach we took last night –
Towards quality investments in the capabilities of our people and the capacity of the economy.
Making sure more people can get a trade or other vocational training – because the jobs are there, and more are coming, but the skilled workers aren’t.
Getting our energy market firmed up, and driving investment in cleaner and cheaper and more reliable forms of power –
It’s about finding a place for modern manufacturing in our country, and adding value to global supply chains instead of just waiting at the end of them.
Building on the things we know are good for a modern economy – like a better NBN.
And I think, really above all else, greater equality, greater recognition and greater participation for women.
Understanding not just the moral imperative of gender equality – but the economic potential that comes with it.
So if this Budget’s approach to the economy is about resilience –
Then our approach to the Budget position is about restraint.
That’s important for the particular position the Budget is in and for the inflation challenge which drove the deliberations of the ERC and decisions of the Cabinet.
We’ve got two things happening here.
The first – much higher levels of employment and much higher prices for commodities than initially assumed, delivering substantial revenue improvements over the next couple of years.
The second – five big pressures on the spending side of the ledger, which you’re all very familiar with by now: health, aged care, NDIS, defence, and the fastest growing – the cost of servicing debt at higher interest rates.
Many of the factors contributing to increases in revenue since the pre‑election outlook are temporary, they are forecast to fade and fall – as you saw in the Budget papers.
The factors contributing to spending growth are expected to get bigger every year – constant and compounding pressures on the Budget.
Now, knowing that, it would be reckless to spend a revenue windfall right now – for three reasons:
Because it would almost certainly add to inflation –
Because even with it, the Budget is still deep in the red –
And because we don’t expect it to last.
Instead, we’re returning almost all of that revenue to the Budget.
That means that over the next two years, when inflation is at its most acute in the forecasts – new spending is substantially offset, and real growth in payments is negative.
That’s the responsible Budget management these times call for.
And it recognises that the Budget remains in persistent structural deficit, substantially weighed down by those five big and growing spending pressures we’ve discussed –
One, the unavoidable cost of the debt, and the other four, fundamental policy priorities.
These four spends are generally classified as structural pressures, but they are more than that.
Keeping our nation safe.
Empowering people with disability.
Guaranteeing Australians access to good and affordable health care.
Restoring quality and dignity and humanity and security to aged care.
These are not just structural costs, they are vital investments.
They are fundamental to our values, to our people’s quality of life.
And they speak to who we are – people who look out for each other and look after each other.
So, returning tax receipt upgrades to the Budget is about dealing with inflation, it’s about making room for fundamental priorities down the track – and it’s also, in historical terms, pretty unusual.
I want to dwell on this for a minute because it is central to why last night’s Budget wasn’t just responsible by recent standards, but responsible by the standards of a much longer historical sweep.
In absolute terms, this was the biggest ever instance of returning tax upgrades to the Budget – $124 billion extra brought in over the forward estimates, excluding GST, and $114 billion returned to the Budget.
And if you cast back and look at every Budget and Budget update for the past 25 years, since the Howard and Costello Budgets –
There have been 33 occasions when tax receipts have been upgraded.
On average, across those revisions over the past quarter‑century, about 60 per cent has been spent, and about 40 per cent has been returned to the bottom line.
Last night, we returned more than 90 per cent of the upgrade to the Budget –
99 per cent of the upward revisions for the next two years.
And 92 per cent of the upward revisions over the forward estimates.
This compares to the Howard‑Costello average of around 30 per cent.
To the Abbott‑Hockey‑Turnbull‑Morrison‑Morrison‑Frydenberg average of around 40 per cent.
And a bit better than the Rudd‑Gillard‑Swan average of around 80 per cent.
Our decision not to spend all of the upwards revision in tax receipt saves the Budget $47 billion in interest payments over the forward estimates and medium term.
Helping us deliver a lower debt position over the forward estimates, compared to the March Budget.
With gross debt at the end of the decade lower by over four per cent of GDP, than if that money had been spent.
There have been 14 occasions over the past 25 years where 100 per cent of a tax receipt upgrade was spent, and not a cent returned to the Budget in that year.
And they have all been under Liberal‑National Governments –
12 under Howard and Costello;
And two under Morrison and Frydenberg.
So, we had a choice to make – return the windfall to the Budget, or spend it at a time of high inflation, with a worsening outlook in later years.
We chose spending restraint.
It would have been easier, frankly, to spend these upgrades, but not the right fiscal strategy.
Not when the number one defence we have in the face of global uncertainty is a responsible Budget here at home.
And so that’s what our Budget is.
Responsible, not reckless.
Restraint on the fiscal side, and resilience on the economic side.
Right for the times, and ready for the future.
Now, if I can very briefly take you back again – not quite 25 years, but just five months –
To election night, 2022.
When the Prime Minister‑elect addressed the nation for the first time.
I think Anthony changed the tone that night –
And when he changed the tone of our national politics, that helped us change the substance as well.
Of how a government ought to behave.
How a Cabinet ought to operate.
How we discuss issues, how we deliberate, and how we come to decisions.
I think we kept faith with that on Budget night.
One of the nice things I hear a fair bit about Anthony’s government is that people feel like the adults are back in charge.
It’s nice to hear, it’s how we intend to continue, I think it says something about how seriously we take our responsibilities –
But I also think it says something about how people seeing us talk about the economy, the Budget and its challenges in a fairly open and honest way.
Last night I spoke briefly of the Australian character that reveals itself most in times of crisis – like natural disasters.
We see that in the worst of times, the best of our humanity finds a way to break through.
Filling up sandbags, rebuilding roads, serving meals, going house‑to‑house to check in on neighbours and strangers alike.
That’s who we are – it’s part of our character.
And part of that character is us levelling with each other about whatever adversity we face – so we can face it together, work it out, and get on with it.
Whether in politics or in life, I think we appreciate being brought in, not talked down to, or talked past.
That’s been a practice more breached than honoured in our recent politics – from my perspective, it’s probably one of the things that has most unmoored public life from public esteem.
Since taking on this job, I’ve tried to have a serious go at being as upfront as I can be about what’s happening in the economy and what it means for the Budget.
Sometimes I don’t get it bang‑on, it can be inelegant, it can be ineloquent. But I always try to preference the blunt over the polished.
But I want to take people into our confidence about what we’re seeing, what we’re doing and why we’re doing it.
As I said last night, as I’ve said before, this is just the beginning of the conversation I want us to have about the longer‑term position of the Budget –
About the things we’ve got going for us and the things we need to confront –
About our priorities as a country, and the choices we need to make to honour and pay for them.
This springs from an optimistic, realistic mindset – not a pessimistic one.
Because for all that’s confronting and challenging about this period –
We aren’t daunted or distracted.
We are driven – driven by our determination to transform this moment of adversity into an age of long‑term prosperity for our people.
We are energised by this opportunity.
We are determined to do something with it, in the time that we’ve got.
To steer our country through these choppy waters –
And towards a better future.
A future worthy of the Australian people that we are so privileged to serve.
Thanks very much.