WEDNESDAY, 17 OCTOBER 2018

***CHECK AGAINST DELIVERY***

I acknowledge the traditional owners of the land, the Ngunnawal and Ngambri people.

I acknowledge elders past, present and emerging.

We thank for them for their stewardship of this land over 40,000 years.

I also acknowledge the speakers that have been here today at this conference:

• Bernie Fraser, former Governor of the Reserve Bank of Australia
• Professor Patricia Apps, Professor of Public Economics, The University of Sydney Law School
• Dr Michael Keating AC, former Head of Department of Prime Minister and Cabinet

Congratulations to the Australia Institute for organising this conference on this important issue.

Of course, identifying the revenue needed for funding essential services and appropriate investments, whilst also ensuring healthier and stronger surpluses as a buffer for uncertain economic times has been a key part of Labors agenda over the last five years.

We havent done so for fun or political convenience.

As we have done so, plenty of people have been willing to write Labor off politically because we have been willing to tackle issues that have been regarded as politically too sensitive for years, like negative gearing; family trusts and dividend imputation refundability.

Now, while we are not getting ahead of ourselves and there is a long way to go to the next election, it is fair to say that Labors bold agenda here has not led to our political deaths and indeed we remain highly competitive as we approach the next election.

In the time available today, I want to deal relatively briefly with a couple of things:

Firstly, the state of the debate and Labors approach.

Secondly, deal with some of the shriller attacks on Labors approach.

And finally, talk a little about the comparative economic impacts of tax and spending.

But first to Labors approach.

When it comes to budget repair weve taken a very deliberate and methodical approach to looking at ways to put the budget on a more sustainable footing.

We recognised the revenue challenge early in our term.

While the Liberal party wants the Australian public to believe that essential services can be guaranteed on the back of a stronger global economy, this relies on Australias terms of trade remaining around 50% above the long-run historical average and our growth record continuing with no economic shock over the next decade.

The return to budget surplus is also predicted and projected on sustained wages growth, which is far from guaranteed.

This is why weve gone about looking at the myriad tax concessions in the budget.

Ive seen firsthand the appropriate level of scrutiny of government expenditure.

I served in the expenditure review committee of the Cabinet for more than 3 years.

The expenditure review committee goes through the budget line by line.

Each item of expenditure is scrutinised on an ongoing basis, ensuring it meets government objectives and is fit for purpose.

But there is no explicit body that does the same for tax concessions.

There is a Tax Expenditure Statement which shines a light onto the billions of tax concessions in the budget.

But this is a statement of fact about how much is expended, not a process or review.

Tax concessions such as the capital gains tax discount and the refundality of imputation credits for example, both put into the system around 2000 and left at set and forget.

And negative gearing, an feature of the taxation system for decades, has rarely been assessed for its public policy objectives and ongoing suitability.

Assessing these concessions is exactly what we have sought to do in opposition.

Weve shone a light onto those tax concessions that, in our minds, are not sustainable and are no longer fit for purpose.

Take our reforms to dividend imputation and removing the refundability of franking credits.

This was a concession that was put in place by the Howard government at a very different time we have today the budget was in surplus and Australia was heading into the largest mining boom the country has ever seen.

It cost around half a billion a year when implemented. The cost has blown out to $6 billion a year.

In very different budget circumstances, and with an ageing population, this is simply no longer affordable or sustainable.

And its unfair.

Despite the desperate and inaccurate rhetoric of the government and vested interests, the fact is this is a concession where for people of retirement age more than 80% of the benefits of this concession are enjoyed by the wealthiest 20% of households.

I often think of it like this. If you were to start with a blank canvas and we were wondering about the best way of writing off $6 billion a year, is this how youd spend it?

I dont think so.

Our methodical approach of careful analysis of tax concessions and the right model of reform has meant we can make the commitment to budget repair and the financing of important expenditure.

Ive been struck, despite the difficult nature of the reforms, at how many people come to me and say, I benefit greatly from these arrangements, but I agree with what you are doing.

They will make the tax system fairer.

Its not unanimous, but its not uncommon.

Next, I want to turn to deal with some of the shriller attacks on Labors approach to budget repair.

Theres been no shortage of metaphors used to describe Labors policies, although admittedly they are almost exclusively from the Prime Minister.

A dark vision, will lead to the economy strangling itself, and my personal favourite, the snake eating itself, basically that it will be the end of civilisation as we know it.

Its why I thought it is timely to set out in a measured way some of the facts.

During the Howard years tax-to-GDP averaged around 23% GDP over a 12 year period.

In some of those years it hit 24.3% and in five years it was at or above 24%.

This compared to the less than 21% of GDP (on average) experienced during the former Labor Government.

I didnt hear much about a dark vision back then. Scott Morrison doesnt allege to my knowledge that Peter Costello presided over a snake eating itself.

Currently, the 2017-18 final budget outcome shows that the Commonwealths tax burden at just 22.7% GDP.

If the budget had the tax-to-GDP of the Howard years, the budget would have recorded a surplus, not a deficit last financial year.

Its also instructive to have a look at how we, Australia, compare internationally when it comes to the overall tax take.

The overall tax take does of course have implications for our competitiveness, both the amount, and the mix.

The most recent International Monetary Fund World Economic Outlook shows that when it comes to revenue as a proportion of the economy (which incorporates all levels of government, not just the central government), Australia is actually in the bottom half of all advanced economies.

Despite the bold nature of Labors policy agenda, if Labor wins the next election and implements its program of revenue measures which includes tax relief for workers and businesses when it comes to tax-to-GDP:

• Australia would remain in the bottom half of all advanced economies;
• Australia would remain well below the advanced economy average; and
• Australia would remain below that of other comparable advanced economies such as Canada.

If the government believes Canadas economy is a dark vision then so be it.

Im sure the Canadians think quite differently.

Its an annoying fact for the government, but far from the scare tactics about a future Labor Government even with our, admittedly bold agenda, Australia will remain a relatively low taxing jurisdiction.

Now I want to briefly finish by talking about the comparative economic impacts of tax and spending.
There is a stark difference in the thinking of the liberal party when it comes to public spending.

The liberal party sees public investment as a cost. We see it as just that, an important investment.

For years the current government relied on a big corporate tax cut as the only way to grow the economy.

Their one point plan for economic growth.
Now I am not denying that cutting tax rates wont lead to more investment.

In many cases it can.

Its exactly why were going to boost investment and growth through our Australian Investment Guarantee which provides an allowance on the condition the investment occurs, and avoids large windfall gains to investments that occurred years ago.

The problem the government has is that it sees tax cuts as the only way to grow the economy.

Of course, well targeted public investments add to growth and productive capacity.

There is an unlimited amount of work undertaken by organisations like the OECD on this precise matter.

A 2016 OECD study found that that the average effect of public investment on growth is sizeable.

Take our recent announcement on funding early childhood education for 3 and 4 year olds.

This is what Bill has described as the fourth pillar of our education system taking its rightful place alongside schools, TAFE and university.

This will add, albeit modestly, add to the size of government.

Yet the economic benefits are undeniable.

Investing in our people increases Australias human capital stock which in turn drives productivity and living standards.

As Ross Gittins said last week, I cant think of any other single initiative more likely to benefit us socially and economically.

Or our substantial investments in skills.

Our vocational education policy has a well-funded TAFE system at the centre of efforts to lift the skills and prospects of young people across the cities and regions.

And our Building TAFE for the Future Fund and that we will scrap the upfront fees for 100,000 TAFE students making it easier for Australians to gain the skills they need to get a good quality job.

If our economy doesnt have the right skills set, we wont be able to take advantage of the rapid innovation occurring around the world.

As Philip Lowe said earlier this year Investment in human capital also helps with the diffusion of new technologies and emerging skills shortages.

The government through its ideological lens may think it can leave all this to the private sector, we think the economic spill overs are simply too large to ignore.

Conclusion

So thanks for inviting me to be here today.

If you care about good quality government services.

If you care about society.

If you care about society standards.

If you care about fiscal buffers for uncertain economic times.

If you care about fairness and progressivity.

Then you care about revenue.

You care about getting the settings right.

Your conference is an important opportunity to discuss Labors policy settings and I appreciate the opposition to do so.