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CHRI S BOWEN MP
SHADOW TREASURER
MEMBER FOR MCMAHON

SPEECH

*** CHECK AGAINST DELIVERY ***

LABORS APPROACH TO FISCAL POLICY

ADDRESS TO THE NATIONAL PRESS CLUB

THURSDAY, 11 SEPTEMBER 2014







Im honoured to be addressing the press club in the week of its 50
th
anniversary.

And Im delighted that many of you turned up despite nursing sore heads.

Thank you for the invitation to be here today.

It is unusual for a Federal budget to still be the matter of intense national discussion
almost four months after it was delivered.

As much as we Treasurers and putative Treasurers might like to think otherwise,
budgets have normally receded into the collective national memory by now.

The fact that this Governments first budget is still the main topic of political
discussion right across the nation is testimony to a number of things: its unfairness,
its poor economics and its laying upon a shaky foundation of a contrived budget
emergency and a politicised Mid-Year Economic and Fiscal Update.

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This weeks further collapse in consumer confidence provides further evidence that
the budget is still weighing on the public consciousness, with the proportion of
respondents recalling budget and taxation issues at the second highest level since
the 1970s.

All in all, Treasurer Hockeys budget has spectacularly failed the credibility test with
the Australian people.

There is no underlying consistency to this budget. Its unfairness is so apparent
because it applies an inconsistent framework.

It tells Australians that we must make cut backs, while introducing a massive new
welfare scheme in the form of paid parental leave.
A $5.5 billion scheme which is not means-tested and so is poorly targeted, unfair
and expensive.

The Treasurers credibility is fatally undermined when he talks about ending the age
of entitlement while introducing a massive new entitlement scheme.

This is not to mention the other spending programs the Treasurer wants to fund
from his large cuts to low and middle income household budgets, spending
programs that remain hidden in the contingency reserve of the budget papers.

At the end, the only sustainable explanation for the fatal inconsistencies in the
budget is a simple one: prejudice.
This budget does not represent a high point of right wing ideology, it represents a
low point of prejudice.

Prejudice against people of modest income. Prejudice against people who have
worked hard all their life but who need Government support for a dignified
retirement. Prejudice against people of a lower socio-economic background who
aspire to a tertiary education. Prejudice against science.

If the budget was constructed around a laissez-faire ideology inspired by Hayek,
Friedman or Von Mises, I would fundamentally disagree with it, but I would have
some respect at least for its consistency.
I have no respect for prejudice.

Apart from the rejection of the unfairness and prejudice in this budget by the
Australian people, there is another reason the budget narrative lacks all credibility.

There is a time honoured tradition in Australian politics: new Prime Ministers and
Treasurers coming to office after an election point to a fiscal situation being worse
than they thought in order to justify the jettisoning of election promises.

Pursuing deep cuts to important services, that were kept secret throughout the
election campaign.

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The Charter of Budget Honesty was designed to make this tactic a thing of the past;
to introduce more transparency and accountability to the budget process and to
budget outcomes.

I dont mind giving credit where it is due. The Charter was an initiative of Peter
Costello. It was a good one. For a long time, it worked. In six years in office the
Labor Party did not seek to jettison it or weaken it.

The Charter provides for twice yearly updates on the state of the books.

Importantly, during an election campaign, the state of the finances is revealed not
by the Government of the day, but through a statement from the Secretaries of the
Department of Treasury and Finance known as the Pre-election Economic and Fiscal
Outlook or PEFO.

Under the Charter, budgets and Mid-year updates remain government updates, the
property and outlook of the Treasurer. They are informed by Treasury advice, but
they remain political documents.

The names of the Treasurer and Finance Minister are printed on the front of the
document, indicating their ownership of the numbers contained inside.

The creation of the Charter of Budget Honesty was designed to stop Treasurers
misleading the Australian people about the true state of the books and also to stop
new Treasurers from being able to claim that the cupboard is bare as an excuse for
breaking election promises.

But the Charter did not stop J oe Hockey from embarking on this tactic.

It simply obliged him to be more creative in his accounting.
The Treasurer wanted the budget deficit that he claimed to have inherited from
Labor to big as possible.

He wanted to be able to paint Labor as fiscally profligate to suit his sound grabs and
narrative.

He needed the budget to reflect three years of overblown rhetoric.
He also needed to be able to point to large and growing deficits in order to justify
cuts he always he intended to make, but refused to seek a mandate for.

In order meet his political imperative against the strictures of the Charter of Budget
Honesty, the Treasurer was forced to do things that previous Treasurers have not
because the true state of the books was confirmed before the election by the Pre-
Election Fiscal and Economic Update released by the Treasury and Department of
Finance.

This document showed a deficit for 2013/14 of $30 billion or less than 2 per cent of
GDP.
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But these facts, presented independently by the countrys central economic agencies
did not suit the Treasurer.

Accordingly, he made a number of decisions.

He transferred $8.8 billion to the Reserve Bank which he no doubt concluded, had
the neat political outcome of blowing out last financial years deficit at the same time
as improving the possibility of greater dividends from the Bank in the next couple of
years.

To this day he refuses to release the paperwork which led to this decision.

If he had nothing to hide, he would have released this paperwork months ago.

This single decision was the lions share of the $13.7 billion in increased spending
that the Treasurer announced in his mid-year economic update, which contributed to
a $17 billion blow-out in the 2013-14 budget deficit.

In other words, 60 per cent of the blowout in the 2013-14 budget deficit announced
by the Treasurer in December was due to specific decisions made by the Treasurer,
and yet shamelessly attributed to Labor.

But he also went much further than this. Not content with blowing last financial
years budget deficit, the Treasurer wanted to increase the projected budget deficits
for the next four years and also for the next ten.

By dropping Labors fiscal rules the government changed the underlying assumptions
in the budget accentuating projections of debt and deficit.

A report by the Parliamentary Budget Office, commissioned by the Opposition
showed the impact of removing Labors fiscal rules on the long term budget
projections.

Without these changes, net debt would have been $260 billion less than the $370
billion projected in MYEFO.

Gross debt would be $270 billion lower by 2023-24, a huge 40% decline on the $667
billion figure in MYEFO.

And finally, the budget would have been in surplus by $34 billion by 2023-24: a
huge $46 billion swing from the $12 billion deficit projected in MYEFO.

The Liberal Party dealt cynically with the Charter of Budget Honesty in Opposition:
holding their detailed election costings until the Thursday before the election.

But it is the post-election manipulation of the Mid-Year Economic update which has
taken this cynicism to a new level.
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Let me be clear. There are medium and long term challenges in our budget. They
are real.

But the Treasurers manipulation of the books to suit his own political narrative does
nothing to engender a proper and considered national discussion about the nature of
this challenge.

The Governments attempt to circumvent the Charter of Budget Honesty is more
than a cause for complaint.

It has been a spur for us in the Opposition to consider ways that the Charter of
Budget Honesty should be strengthened and improved, so that this situation cannot
occur again.

Let me be very clear: I am not going to hold J oe Hockey to a standard to which I am
not prepared to hold myself in the future.

As someone who hopes and plans to be the next Labor Treasurer of Australia, I do
not believe it is healthy for any Treasurer, Labor or Liberal to be able to do what J oe
Hockey has done.

While the Charter of Budget Honesty has served Australia reasonably well, it is now
eighteen years old, and, has been proven by J oe Hockeys tactics to be in need of
renovation.

Accordingly, I can announce today that the next Labor Government will move to
strengthen the Charter of Budget Honesty in office.
These announcements reflect worlds best practice when it comes to budget
accountability and transparency.

We have closely examined the operation of budgets and fiscal agencies around the
world, and learnt from the best overseas experiences in formulating the policy that I
am announcing today.

More transparent forecasts

The only significant change to the Charter of Budget honesty since its inception has
been the creation of the Parliamentary Budget Office by the previous Labor
Government.

It was a timely reform. Already, the PBO has improved the capacity of Oppositions to
develop alternative policies and has proved a worthwhile fiercely independent and
transparent fiscal agency.
But, understandably for a new agency finding its way, the PBOs powers and
capacities have been quite circumscribed.

And, naturally enough, the PBOs functions and powers can be expected to grow
iteratively.
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While the PBO has many sister agencies throughout the world, many play a bigger
role in their nations budgeting process and/or bring more independent analysis to
the public debate than the PBO has been allowed to this point.

But the PBOs influence is constrained due to Parliamentary edict, not capacity.

The PBOs greatest strength is its independence.

We see this strength as something to be nurtured and utilised.
Labor believes the time has come to strengthen the Charter of Budget Honesty in a
way which fully utilises the potential of the Parliamentary Budget Office as an expert
agency, completely independent of the Executive and free from political interference.
Accordingly, I am announcing three initiatives today to strengthen the Charter of
Budget Honesty.

Budgets and MYEFOS have, at their core, economic forecasts and projections.

What a budget or MYEFO predicts for unemployment, inflation, and real and nominal
GDP and Terms of Trade have a huge impact on the forecast budget outcomes.

As I have said, these forecasts are currently the prerogative of the Treasurer.

A Government unafraid of accountability and transparency would not be afraid of
outsourcing this forecasting in their budgets and economic statements.

While budget decisions will always be a matter for the Treasurer and Government of
the day, the underlying forecasts should not be a political play thing.

At the moment, the Parliamentary Budget Office is prohibited under legislation from
preparing economic forecasts. It is time for this to change. Indeed, it is time to go
further.

Today I am announcing that a Shorten Labor Government will legislate to mandate
that the Parliamentary Budget Office would prepare all economic forecasts and
projections that would underpin all budgets and economic statements.

This will include forecasts for all key economic parameters including inflation,
unemployment, terms of trade, and nominal and real GDP.
There will, of course, be a degree of policy implementation detail which would need
to be worked through by the PBO and the Treasury, in consultation with the
Department of Finance, Reserve Bank and the Department of Prime Minister and
Cabinet.

However, we would seek to have this new regime implemented within twelve
months of Labor forming office, as an important step forward in improved
accountability and transparency.

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As with the Office of Budget Responsibility model in the United Kingdom, I anticipate
the PBO will continue to work closely with Treasury and other government
departments in fulfilling its new expanded mandate, possibly through the
development of transparent memoranda of understanding.

Structural Budget Balance

I can also announce a second policy initiative today. A Shorten Labor Government
will legislate for the Parliamentary Budget Office to publish an annual report on
whether the budget is in structural deficit or surplus.

The budget deficit and surplus will always fluctuate from year to year based on
economic cycles. What is more important though is the underlying structural
situation of the budget, the state of the bottom line which looks through annual
fluctuations and cyclical events and tells the true state of the books.

In 2013 the Parliamentary Budget Office released analysis of the structural budget
balance and found that the structural budget position deteriorated sharply from
2002-03 and actually went into structural deficit almost a decade ago towards the
end of the Howard/Costello government, even though an actual deficit did not
emerge during this period.

The budget had been running a healthy structural surplus of 1-3 per cent of
GDP in the early 2000s.

As our terms of trade were experiencing their largest and most prolonged rise in
Australias history during the early to mid-2000s, government revenue was on an
unstoppable upward trajectory.

It is telling that a 2013 IMF study showed that it was the Howard government that
received the gold medal for being the most profligate spender since the 1960s with
the Rudd-Gillard era failing to rate a mention.

It would have been useful for the nation to have had an annual real time analysis of
the structural budget balance in the early 2000s, instead of just a historical analysis.

So it would indeed be a useful addition to have more regular and transparent
updates on the structural state of the budget now and into the future to assist in
ensuring well considered commentary and sound fiscal management.

Annual reports of the structural deficit may not always be convenient for
governments.

But the Australian people deserve to know the true state of the budget, free from
spin and manipulation.

This initiative will deliver a much greater and desirable level of transparency when it
comes to the state of the budget.
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Intergenerational Report

Finally, I am announcing today that a Shorten Labor Government will mandate the
Parliamentary Budget Office to prepare the five yearly Inter-generational report,
independently of government.

Again, the Intergenerational Report has become an accepted and useful forward
looking document.

Labor kept the publishing of an intergenerational report in place during our time in
office, and a report was released in 2010.
Recently, the Treasurer announced that he would be bringing forward the
publication of the next Intergenerational Report, to assist as he struggles to sell his
unfair budget.

And there should be no doubt what J oe Hockeys IGR would say. I dont even have
to wait for its release.

It would be a continuation of the most politicised Budget Papers in my memory,
from a Treasurer using the high office of Treasurer to push the low politics of
prejudice and unfairness.

It wont mention their broken promises, the cuts they have made to services the
most vulnerable in our society rely.

And we will have to see whether it will outline the long-term huge cost of the
governments outlandish paid parental leave scheme.
But the Intergenerational Report should not be the Treasurers political plaything,
either in timing or in content.

It is an important document that should inform an important public debate about
intergenerational equity and the long term budget sustainability.

Again, it is important that the Australian people have faith in the projections
contained in it.

Accordingly, the next Labor Government will legislate that the Intergenerational
Report will be prepared by the Parliamentary Budget Office, independently from
Government.
We wont be on our own here.

Most fiscal councils and independent budget offices around the world undertake
long-term projections of budget finances.
Of course, the PBO will be free to consult with the Treasury or any Government
department or agency and to collect the data it needs to fulfil this role.

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But the final report will not be the property of the Government of the day, rather the
product of a completely independent process.

The announcements that I make today will improve transparency and accountability.
But I make no apology for the fact that they are also designed to improve rigour in
our nations budgeting.

And with an expanded mandate and extra responsibilities, we would of course look
closely at the governance arrangements around the PBO to ensure its continued
independence from political interference and we would reflect on international best
practice when it comes to appointing the Parliamentary Budget Officer, resourcing
and governance.

Of course, Labor in office would also welcome the Parliamentary Budget Office to
continue to produce the ten year medium-term spending projections that it released
a few weeks ago.

This too is a useful contribution to the national conversation on budget policy.

I do want to say very clearly that the announcements today are about enhancing
independence and moving towards international best practice.

They are not a reflection of the professionalism of the Treasury.
Tasking the Parliamentary Budget Office with forecasting responsibility is not a
reflection on the ability of Treasurys forecasters.

Rather, it is reflective of Labors view that transparency and rigour in budgeting need
to be improved.

It is our view that a separation of roles and responsibility strengthens the Budget
debate.

The PBO will need to expand its forecasting capacity significantly and I would be
surprised if they dont take on some of the very capable staff from Treasury as well
as others from the private sector.

Treasury will continue to work closely with the PBO once the new arrangements are
up and running.

And of course, Treasury will continue to serve Australia by providing first rate policy
advice. It will remain the countrys pre-eminent economic policy agency.

Labors commitment to social justice must always be tempered by fiscal prudence.
Our commitment to fiscal prudence must always be in the context of our
commitment to fairness, opportunity and growth.

Improvements to budgeting and accountability are, of course, entirely in keeping
with the Labor tradition.
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It is easy to forget just how much budget transparency has improved in the last few
decades.

Before Paul Keating became Treasurer, budgets only dealt with the immediate
financial year.

It was Treasurer Keating who introduced the concept of forward estimates, so that
the public could see the impact of budget decisions for years beyond the immediate
financial year and the state of the budget going forward.

The announcements I make today are in keeping with that tradition.
These initiatives would not only improve transparency and accountability when it
comes to budget making, but would also assist rigour in budget making.

Rigour in process, like independent and more transparent forecasting, leads to
better policy making.

Good fiscal policy means budgeting to increase aggregate demand when stimulus is
required, and returning to surplus as the economic cycle allows. That is what the
former Labor Government intended.
It was absolutely essential for Labor to stimulate the economy in 2008 and 2009.

Not to do so would have seen Australia career into recession, with thousands more
people thrown on to the scrap heap of unemployment.

This not just an interesting historical hypothetical or counter-factual.

As Treasury again reinforced on Friday, the impact of stimulus was "the addition of
210,000 jobs and the peak unemployment rate was estimated to be 1.5 percentage
points lower as a result of the fiscal stimulus".

The Treasury also laid out again the platitudes Australia received from international
financial institutions at the time.

The IMF commended the quick implementation of targeted and temporary fiscal
stimulus and the OECD concluded that Australias stimulus package was among the
most effective in the OECD and not only helped to avoid a recession but also had a
pivotal role in boosting overall confidence.

So many countries around the world are still dealing with the economic over-hang of
recession, with lingering high unemployment and a generation of youth
unemployment which has proved impossible to shake.

But the fiscal rule that Labor adopted in the post-GFC environment, namely the
limiting of real expenditure growth to 2% per annum, on average, was also
appropriate.

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This rule was abided by, despite the misleading rhetoric of our political opponents.
In fact, real growth in spending averaged 1.4% from 2009 to 2013.

This took difficult decisions.

Decisions like abolishing unsustainable programs like the Baby Bonus and bringing
under control the fastest single growing area of the federal budget: the private
health insurance rebate.

Means testing this benefit was introduced by the previous Government over the
violent objection of the Liberal Opposition.
It will improve the budget bottom line by $25 billion over the next ten years.

Abiding by our fiscal rules actually saw nominal government spending (that is,
government spending in actual terms, not adjusted for inflation) fall, year on year
for the first time since the relevant figures have been available, that is for more than
fifty years.

As Ross Garnaut has said: there can be no credible argument that the budget was
too loose from 2011.

J oe Hockey has pointed out that his budget contains less fiscal consolidation than
previous budgets, both Labor and Liberal.
Hes right. But in saying this he doesnt bolster his argument, he undermines it.

Labor does not necessarily object to the quantum of fiscal consolidation in this
budget.

We completely agree that tough decisions are necessary to return the budget to
surplus over time. This is a discussion Labor started when we were in office.

It was not a discussion that the then Opposition made a constructive contribution to.

When we started to pare back the baby bonus, J oe Hockey said the new policy was
akin to Chinas one child policy.

He launched a shrill scare campaign across the country when the former
Government made an adjustment to the fringe benefit tax concession on company
provided cars requiring some evidence of work related use. I could go on.

I simply make the point that some of us have not only been talking about the need
for tough budget decisions for sometime, weve been making them.

But every decision we took in office was considered through the prism of fairness.

Fiscal consolidation can be achieved without the attacks on the social fabric
contained in this budget.

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Labor delivered savings or revenue measures amounting to $180 billion without the
comprehensive rejection of the budget that we have seen over the last four months.

The announcements that Ive made today reflect Labors commitment to rigour in
fiscal policy which will underpin our next Government.

They reflect a commitment to good fiscal governance and good sound economic
policy.

What we have announced today will not always be convenient for Treasurers of the
future.

But if we are to improve quality of our economic debate and our budget making,
they are an imperative.

We will go to the next election with an alternative vision for the nation, with detailed
policy commitments and with savings proposals which will ensure that our election
commitments are funded and that we have plan for a sustainable budget.

Not all these savings proposals will be universally popular or will necessarily win us
votes.

But we wont make the same mistake that this Government has made of misleading
people as to our intentions in an election campaign and failing to achieve a mandate
for the sort of decisions that are necessary for the future.

The Australian people deserve better than the fiscal dysfunction that this
Government has delivered over the last year.

They deserve a Government that is honest with them about the scale of the
challenges facing the nation, one that doesnt engage in subterfuge before an
election and fiscal sophistry after the election.

They deserve a Government committed to honesty and transparency when it comes
to our budget and our economy.

That is exactly the type of Government the Labor Party plans to form.