Below is the full text from Shadow Treasurer Angus Taylor’s keynote address at the National Press Club today.
Let me start by asking a question. Do you feel better off today than you did a year ago?
I ask this question of many Australians, and I get a consistent answer.
Inflation hurts all Australians. The impact of inflation is not limited to some.
I witnessed this first hand growing up in Nimmitabel, a tiny timber and farming town, two hours south of here, in the 1970s and 80s.
In many ways this was the reason I became interested in economics. We were living it every single day.
I saw neighbours – good family businesses – making investments, growing their businesses and borrowing money only to see inflation and high interest rates devastating their plans.
Persistent inflationary pressure is the new crisis for the government to face.
Bringing down cost of living pressures and delivering long term economic growth is hard government, requiring hard choices, just like those the Coalition made during the pandemic.
COVID v Inflation
We all remember the challenge that was before us in March 2020. We probably would prefer to forget.
A crisis that required difficult decisions, required governments of all persuasions to challenge their instincts.
It required policymakers to respond to the demands of the time.
And do so quickly. There was no luxury of time.
That’s what we did.
And because of these policies, Australia achieved a remarkable v-shaped recovery and emerged from the pandemic in a better position than most or all countries we benchmark ourselves against, with:
- Record low unemployment.
- Record numbers of apprentices in training.
- And a Budget that from the moment the east coast states re-opened was in surplus.
From November 2021, when Victoria and NSW left lockdown, to today – the Department of Finance has published 17 months of financial accounts.
The monthly figures show that from the moment the east coast emerged from lockdown and travel restrictions began to ease, the government has experienced a net Underlying Cash Balance surplus of $33 billion dollars.
As respected economist Chris Richardson has pointed out, net debt to GDP has returned to where it was prior to the pandemic.
But just as the pandemic crisis required constant adaptation and response, so does the current environment.
With inflation raging across our economy, this is the crisis this government has to deal with.
Hardworking families are climbing a mountain day-in day-out to pay the bills and support their children.
A typical family paying off their home is $25,000 worse off than they were a year ago – hit hard by higher mortgage costs, taxes, energy bills and other costs of living.
Families like Nicole and Dougie from Goulburn.
Raising two children in a home they recently bought.
They are paying an additional $890 on their mortgage every month.
And while their increases are less than many, Nicole is facing the possibility that she might have to go back to work earlier than she had thought after her second child, just to help make ends meet.
Then there’s Cory and Sarah – young parents working hard to pay off their home in Perth.
They are everyday victims of inflation, struggling under the pain of rising interest rates, higher grocery prices and skyrocketing energy bills.
Cory said “what this Budget has said to all Australians … is … the government hasn’t listened to any of us … there is no help for us in this Budget.”
Small business owners Brianna and Alex are feeling the pinch of rising expenses due to high inflation.
The parents of two have had to pull back on hiring extra staff and cut back hard on their own spending.
These are just a few examples of working couples faced with difficult decisions so they can keep paying the bills and putting food on the table.
The choices are stark: Do they pull their children out of sport or cancel the annual family holiday?
Does dad take on a second job or weekend work or does mum go back to full time work while the kids are still babies?
Lifeline reports that 80 per cent of its calls now relate to cost-of-living pressures.
Deloitte Access Economics estimates that approximately 300,000 Australians are living in negative cash flow.
High inflation means that hard working Australians who want to get ahead are only going backward.
It risks the creation of a new generation of working poor.
Inflation Economics is different
There’s a deep conflict between our current economic context and the economic ‘orthodoxy’ many have supported in recent times, particularly during the pandemic.
We’ve become accustomed to hearing from our political opponents that more government and more spending is the solution to most economic challenges.
But inflation economics is fundamentally different.
Big government makes the situation worse.
American economist Eric Leeper has documented the many mistakes governments made through the 60s and 70s that led to inflation getting out of control and remaining untamed.
The mistakes can be characterised very simply – governments responding by treating the symptoms of inflation, not the source.
This Budget makes that mistake.
It gives with one hand, while taking away with the other through higher prices and higher taxes.
It means the Reserve Bank is slamming the brakes at the same time as the government has its foot on the accelerator.
And when you do that – you wreck the engine.
A year into this Government, Australia has one of the highest rates of core inflation amongst major economies. At 6.6%, Australia’s core inflation is higher than the UK (6.2%), the US (5.6%), Canada (4.3%) and the Euro Area (5.7%).
Headline inflation remains stubbornly high, particularly in our services sector.
The RBA’s latest monetary policy decision should have rung like an alarm bell through the government about the urgency of the challenge.
Australians are making hard choices every day. Yet they are not seeing in the government a willingness to do the same.
Inflation is coming from Canberra now, not from the Kremlin, and so it’s Canberra’s problem to solve.
Inflation will be stronger, for longer, if governments deny the problem and adopt the wrong solutions.
While many argue that the principles that have driven Coalition economic policy have become less relevant than in the recent past, the values that drive us give us the right toolkit for the times.
- We believe that private business drives opportunity and prosperity – not big government.
- We believe in fiscal discipline to take pressure off prices. Lower taxes, balanced budgets and spending growth restraint.
- We believe that productivity reforms are the key to making life easier, removing supply side constraints and setting our economy up for longer-term growth.
- And we believe in backing hardworking, aspirational Australians to get ahead. To lift all Australians together.
This is the pathway back to a low inflation, high growth economy.
But by focusing on the symptoms, the Budget divides Australia into the worthy few and the forgotten. The forgotten being:
- Small businesses
- Middle income families
- Mortgage holders
- Regional communities
- And others
Less inflation is good for all Australians, not just a few.
Rather than dividing the country, you bring it together, giving all Australians a pathway to more prosperity.
Giving Australians every opportunity to fulfil their own goals.
This is what Peter Dutton outlined in his Budget Reply.
Peter also clearly laid out that while there are differences in the approach we would take, there are also places where we can find common ground with the government on.
We have again reiterated our support for ensuring the NDIS is sustainable into the future. As we did with the RBA review – I think very well – this is something that we are prepared to work with the government to achieve.
The NDIS is too important – securing its future should be above politics.
Fiscal restraint and supply side measures take pressure off prices
Well ahead of this Budget we were clear on the need fiscal restraint and other sensible measures to take pressure off all Australian households and businesses.
It was a simple test for Labor and any Party that seeks to claim it can manage the economy.
Instead, we saw the opposite:
- $185 billion in new spending since Labor came to office.
- $2 of new spending initiatives for every new dollar of revenue initiatives.
- Poorly planned migration that the Treasurer’s own Budget papers say will drive up housing costs.
- A fiscal strategy that removed “fighting inflation” from what was already called “the weakest fiscal strategy in living memory” (as Steven Hamilton has said)
- A failure to heed the calls of major business groups and economists to restore the fiscal guardrails that had been in the fiscal strategy since 1996 including a commitment to Budget balance.
As has been pointed out by the Australian Financial Review’s John Kehoe, this Budget even walks away from the Treasurer’s one fiscal rule in the last Budget.
Far from returning 99 per cent of revenue windfalls to the bottom line, as promised in October, the government has banked just 40 per cent of improvements in the budget bottom line since PEFO, and spent 60 per cent of the massive windfall from strong commodities and job markets.
No one wins from a big spending government in an inflation crisis.
At best the Budget fails to address inflation.
At worse it adds fuel to the fire.
There is a credible case that it is making it worse.
Rich Insights director Chris Richardson said he: “had thought that the Reserve Bank was done and dusted but this has notably raised the chance that they will do another swing of the baseball bat”.
S&P Global Ratings disputed the Government’s forecasts, stating: “We expect inflation to be stubbornly higher than the Reserve Bank of Australia’s target until fiscal 2026” and that “handouts in today’s budget may add to inflationary pressures.”
Betashares Chief Economist David Bassese called the Budget “unambiguously expansionary.”
It is concerning to see the Treasurer, who has spent more time spinning budgets than studying them, dismissing the views of economists so easily.
Meanwhile, the government seems to have spent the last week trying to work out who this budget is supposed to help – rather than being focused on it from the start.
Middle Australia was not spoken of in the lead up to the Budget or in the Treasurer’s Budget speech and yet, in the post-Budget wash-up, the Treasurer mentioned “middle Australia” 41 times.
The Prime Minister? 15 times in his media appearances and counting.
Labor can try and spin its way out of a Budget failure but it won’t change the fact that there is no light at the end of the tunnel for hardworking Australians who are trying to get ahead.
Given the strength of commodity prices, the jobs market and the trend of monthly surpluses coming out of the pandemic, it’s been clear a drover’s dog could have delivered a surplus this year.
It is essential the government do so next year.
It is also within reach to deliver ongoing budget balance. This is the test for Labor.
It’s not easy. But it can be done. We did it.
Prior to the pandemic, the Coalition balanced the Budget.
We did this while increasing spending on essential services, growing Defence spending to over 2% of GDP and supporting the creation of more than 1 million jobs and 250,000 businesses.
Simpler and lower taxes
The path to fiscal consolidation is not to tax Australians more.
Labor’s fiscal strategy sets no cap on tax growth and contains no commitment to private sector-led growth.
This is the wrong strategy.
Higher taxes stifle investment, innovation and aspiration.
As economist Alberto Alessina has shown us, tax driven fiscal improvements damage growth compared with containing spending growth.
Put simply, you cannot tax your way into economic prosperity, just as you cannot spend your way out of high inflation.
Australians struggling with the cost of living will see taxes rise on top of ever-increasing prices.
But worse – some of these taxes are bound to be passed right on to consumer’s bills:
- The truckie tax adding to the cost of food and freight;
- $153 million tax on our farmers
- Labor’s franking credits and super taxes will be directly felt by self-funded retirees and pensioners alike.
- And bracket creep, the tax you don’t notice until you look at the impact on your bank account, is eating away at Australians earning power. The Budget papers show income tax as a percentage of GDP growing over the forwards.
- Over the next five years, the tax paid by Australians will increase by more than $300 billion.
This Budget has abandoned tax incentives that support innovation, investment, and productivity that grow the economy.
- The patent box regime has been abandoned.
- The Technology Investment Boost has not been extended.
- And while we welcome the retention of the Instant Asset Write Off, the government has decimated its asset value cap and removed access to the investment allowance for medium-sized businesses.
Labor’s big spending, high taxing, high regulation agenda risks putting us in to a period of stagflation.
Inflation and low economic growth are a dangerous combination.
It’s why the Coalition is committed to restoring the same fiscal rules that delivered lower taxes and a balanced budget in 2019.
- It is why the Coalition is committed to restoring the tax-to-GDP cap.
- It is why we are committed to delivering the stage 3 tax cuts.
- And it is also why we will continue to fight Labor’s broken promises on taxes to superannuation and franking credits.
The Path To A Low Inflation, High Growth Economy
Strong economic growth over the short term and the longer term is essential to boosting quality of life.
At a time where inflation is making quality of life worse, productivity gains are the only pathway to ensure Australians can realise their aspirations.
Making it easier to do a job or run a business.
Making it easier to for customers to get a better deal or to engage with government services.
The McKinsey Global Institute has highlighted that productivity reform is essential to solve the challenges confronting most advanced economies – ranging from labour market shortages, debt, inflation, and energy.
The Reserve Bank minutes from April have sounded the alarm on productivity, but the government isn’t listening.
The government talks a lot about productivity to justify billions of extra expenditure.
Yet its own Budget shows a deteriorating productivity position, despite the spending.
The Productivity Commission’s five-year review, has been all but buried with not a single measure in Budget Paper No 2 a direct response to the recommendations made.
Worse, the Budget throws up challenges to productivity and economic growth, particularly when it comes to people and energy.
People – Migration
The Budget has the Australian population growing by substantially more than the size of Adelaide over the next five years. But with no plan to address housing supply and infrastructure needs.
We all support a well-planned migration program – and that’s the history of Coalition governments.
But over five years, net overseas migration will see our population increase by 1.5 million people.
It’s the biggest migration surge in our country’s history and it’s occurring amidst a housing and rental crisis.
Migration is an enormous part of our history and has been critical to our economic success, our culture, our lifestyles and who we are.
I saw the power of aspirational migrants as a kid growing up near Cooma in the Snowy Mountains – one of the proudest migrant communities in the nation.
More than 100,000 people from over 30 countries travelled to the Snowies after the Second World War to work on the Snowy Hydro Scheme.
While migration will continue to serve us well into the future, it only works if you have a plan around the infrastructure, the housing and the services.
Instead the government is cutting infrastructure spending in real terms and reallocating to pet projects.
People – JobSeeker
If you talk to any business big or small and they will tell you one of the biggest supply constraints in the economy remains labour shortages.
We have record job vacancies – more than 435,000.
Alongside managed immigration, there is an opportunity to give more Australians the incentive to get into work, or increase their hours.
A high proportion of the 550,000 unemployed Australians are capable of working 30 hours or more.
There is nothing like getting a job to improve someone’s life.
Australians on Jobseeker face effective marginal tax rates of up to 60c. This is a disincentive to work at a time the economy and Jobseekers cannot afford it.
It’s why Peter Dutton announced our proposal, to increase the amount a JobSeeker recipient could earn before their payment is affected.
This is a common sense policy that could boost the income of someone on JobSeeker that works not by $40 a fortnight but by up to $300.
It is similar to the Pension Work Bonus reform we championed, and the government ended up implementing a version of last year.
We have suggested this in a bipartisan, constructive way because we think that this is ultimately better for those on JobSeeker but also better for the country.
Another major barrier to growth is energy prices going in the wrong direction, alongside Labor’s attacks on the gas sector. A sector we need to support lower emissions and lower energy prices.
Between the gas caps, the PRRT, the safeguard mechanism, delayed approvals and the abandoning of carbon capture and storage incentives – one of our largest export industries is under attack from this government.
It’s a death by a thousand cuts for an industry that has powered our nation and the economy for so many years.
Meanwhile, most hardworking Australians will not benefit from a cent of the government’s cost-of-living relief despite power bills still increasing by more than $500.
A more prosperous Australia demands a sharp focus on a low inflation and high growth economy.
In Peter Dutton’s Budget Reply, he made several downpayments on an agenda that will promote growth in the medium-term:
- Supporting gas as a medium-term energy source and removing barriers to nuclear energy;
- Restoring mental health sessions to Medicare so Australians can be healthier at a time of crisis for many;
- Committing to a tax-to-GDP cap that will incentivise productivity in government;
- Repealing Labor’s super tax.
The starting point for real action on productivity is to take action to support businesses to lower costs and keep employment low.
A dollar today is worth less than it was a year ago.
And this government’s policies risk inflation and interest rates that are higher for longer, prolonging the pain.
Australians trying to get ahead will be the ones who pay the biggest price.
The Coalition has been clear that we would not have delivered this Budget.
Our priority would be to bring down inflation and set up Australia up for growth in the medium-term through lower taxes and productivity enhancing policies.
This would take pressure off prices and prevent a generation of Australians becoming the working poor.
It would support the Reserve Bank by having fiscal policy pulling in the same direction as monetary policy.
And it would set all Australians up for the future they deserve.