http://archive.malcolmturnbull.com.auRSS feeds for Malcolm Turnbull MP60http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/41/Small-business-confidence-in-Rudd-collapses.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=41http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=41&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/41/Small-business-confidence-in-Rudd-collapses.aspxThe Rudd Government has received the worst rating of any Government in Australia in the latest Sensis Business Index for Small and Medium Enterprises (SMEs).  The report shows business confidence has fallen 8 percentage points to reach 25 points, the lowest level since the survey began 15 years ago and less than half the level recorded at the same time last year. Significantly, support among SMEs for the Rudd Government recorded a further fall, with its net rating declining by 57 points since the election.  And after only nine months in office, the Rudd Government recorded the lowest support of any government in Australia, with a net rating of minus 28 points.  The report shows businesses think the policies of Kevin Rudd are worse than those of Morris Iemma, John Brumby, Anna Bligh, Mike Rann, Alan Carpenter, David Bartlett, Paul Henderson and Jon Stanhope.  Mr Rudd must take responsibility for this dramatic collapse in confidence, without blaming someone else in the next breath.  http://www.smallbusiness.sensis.com.au/ Media Contact: Brad Burke 02 6277 4208  adminFri, 29 Aug 2008 05:43:00 GMTf1397696-738c-4295-afcd-943feb885714:41http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/44/Matter-of-Public-Importance-Economy.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=44http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=44&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/44/Matter-of-Public-Importance-Economy.aspx  The collapse of confidence in the Australian economy and the fact that Australians are worse off since the election of the Government Mr TURNBULL (Wentworth) (4.57 pm)—The Assistant Treasurer has treated us to a classic tirade of irrelevance. He reminds us of his great performance with Fuelwatch, which is, I think, an emblem of the hopelessness of this government and part of the cause of this incredible collapse in confidence. Whether you look at business confidence or consumer confidence, the measures today are at all-time lows unless you go back to the ‘recession we had to have’ in the late 1980s. Times are not as tough now as they were in 1991. We hope they will not get that tough. But what we have with this government is a crisis of confidence. This is a government that has been in office for eight months, and yet there is only one government in Australia that the Sensis survey tells us business has less confidence in. Do you know which government that is? That is Morris Iemma’s government. Morris Iemma and his colleagues have been working on hopelessness in government for 13 years. They are practised exponents of hopelessness. The Rudd government has got there in eight months. Consumer confidence and business confidence, by the other measures, are as low now as they were when business interest rates were 21 per cent. Why is that? The answer is a collapse in leadership. All during 2007 we had an outpouring of empathy from the Labor Party. There was not a shopping centre aisle or petrol station forecourt in this country in which you could not find the then Leader of the Opposition, the now Prime Minister, Mr Rudd, draping himself around, filled with sympathy and empathy. He was concerned about rising prices and he was going to fix them. Well, the empathy of Kevin 07 has been replaced by the impotence of Kevin 08. He has thrown up his hands. He cannot deliver; he cannot perform. That is why confidence has crashed. The Assistant Treasurer said: ‘It’s all international factors. It’s got nothing to do with the Australian situation. There’s a global credit crisis. Confidence is down in many countries and we are no better or worse off than them.’ That is not true either. ACNeilsen, as it happens, conducts a global survey which gauges consumer sentiment across 51 countries consistently. It is true that consumer confidence has fallen around the world. The survey shows that it has fallen by six points in the last six months. That is the largest single drop recorded in the last three years. But the drop in Australia was 11 points—nearly twice the average—and of the 51 countries surveyed only nine had a more negative shift in sentiment than Australia. And yet our economy is stronger than almost every one of those countries surveyed. We are not heading into recession. Economic growth is still positive. Unemployment is still at very low levels. Yes, the economy is slowing, but we are a strong economy nonetheless. Why has confidence collapsed? At the beginning of this year the government made a very political decision. They decided they would not have any economic strategy; they would simply have a political strategy. They could see, as we all could, the looming problems of the global credit crisis. It was obvious that the collapse of the mortgage market in the United States, the lack of confidence between banks, between financial institutions, was going to put up interest rates and was going to cause lenders to have less confidence in their counterparts. It was going to mean money would be more expensive and harder to obtain—in other words, a credit squeeze. Australia did not deserve to be hard hit by that credit squeeze. We did not create the subprime crisis. Subprime mortgages are 16 per cent of the US mortgage market. Here they are less than one per cent. Our banks are well capitalised. They are profitable. Our prudential regulation is first class. Our level of mortgage defaults is plainly higher than we would like it to be but it remains low by international standards and even low by historic standards. So we had a strong story to tell. We had a story to tell that should have enabled our markets to get the benefit of the superior economic management this economy had enjoyed over a long period of time. A strong government, a government of leaders, a government that believes that leadership carries responsibility would have called from the rooftops that Australia was different, that it was better and that we did not deserve to be tarred with the subprime brush. But instead we had a Treasurer who made headlines around the world when he said, the day before the Reserve Bank board met, ‘The inflation genie is out of the bottle.’ Then he said it again and again and again. He talked up inflation. He said inflation was out of control. That was the message from the Treasurer of the Commonwealth of Australia. The Assistant Treasurer says the Reserve Bank board would be stupid to take any notice of the Treasurer. That may well be right. I think the real stupidity was on the part of the Prime Minister in making him the Treasurer in the first place, because words have consequences. The Treasurer is the man in charge of the economic management of the Commonwealth of Australia. His representatives, his secretary, sit on the Reserve Bank board. The idea that his remarks about inflation are just inconsequential political rhetoric, which is what the Assistant Treasurer was suggesting, is wrong. I think the Assistant Treasurer might want to review his remarks when he sits down with his boss a little later today. They are not just rhetoric. They matter and they made headlines around the world. The Reserve Bank has to cope with inflationary expectations. If you have the Treasurer saying that inflation is out of control, believe me, it will become a selffulfilling prophecy. That is the great difference. Wayne Swan, the Treasurer, is unique in the whole world. He is the only Treasurer in the world who has been talking up inflation. He was hysterically saying that inflation was out of control and egging on the Reserve Bank to put up rates. I might say that this is the same Treasurer who, now that inflation is, according to the Reserve Bank, heading to five per cent, is nervously begging the commercial banks to lower interest rates. He was egging on the Reserve Bank to put them up at the beginning of the year. At the time that he was displaying no leadership and pursuing a shabby political strategy to blacken the economic reputation of the Howard government, in the United States, a country facing much graver economic challenges, much higher inflation, higher unemployment and much graver concerns about the stability of its financial system, the Treasurer, Henry Paulson, was doing his job. On the same day that Wayne Swan was saying, ‘The inflation genie is out of the bottle,’ HenryPaulson was saying: The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.… … … While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again. That is real leadership. What we have seen is just political spin. Look at the nonsense we have been treated to today about tax. What about the Treasurer pretending that the budget cuts taxes? His own budget papers reveal that the budget increases taxes by over $19 billion over the forward estimates. How can he seriously suggest that putting up the prices of alcohol, cars, private health insurance and so on is doing anything other than fuelling inflation? This is an old-fashioned Labor government, just like its state colleagues—all spin, no substance, tax and spend, no leadership, politics first and national interest last.  adminThu, 28 Aug 2008 06:11:00 GMTf1397696-738c-4295-afcd-943feb885714:44http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/43/Rudd-must-take-responsibility-for-confidence-collapse.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=43http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=43&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/43/Rudd-must-take-responsibility-for-confidence-collapse.aspx Kevin Rudd must take responsibility for the dramatic decline in consumer confidence rather than blame it entirely on overseas events.  The latest ACNielsen Global Consumer Index - which gauges consumer sentiment across 51 countries - shows that in the first half of 2008, the collapse in consumer confidence in Australia has been almost twice as severe as that of the rest of the world. The 11 point fall in Australia over the last six months was far worse that the average global change of 5.6 points.    Of the 51 countries surveyed, only 9 had a more negative shift in sentiment than Australia.  The fall in confidence here was worse than in France, Germany, Japan, Hong Kong, Canada, Sweden and Switzerland - to name just a handful of countries.  The Rudd Government’s unwillingness to take any responsibility for the dramatic decline in consumer confidence is a failure of economic leadership. adminThu, 28 Aug 2008 06:09:00 GMTf1397696-738c-4295-afcd-943feb885714:43http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/42/Swan-clueless-on-consumer-confidence.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=42http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=42&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/42/Swan-clueless-on-consumer-confidence.aspxIn Question Time today Wayne Swan attempted to dismiss the collapse in consumer confidence in Australia by comparing the situation to that in other economies. But in each of the countries he identified - Japan, Germany, France, Italy and Canada – the economy is weaker but the decline in consumer confidence less than in Australia. In the first half of 2008 the collapse in consumer confidence in Australia exceeded the fall in confidence in every one of these countries cited by MrSwan. With a growth rate of 0.6 per cent in the 2008 March quarter and an unemployment rate of 4.3 per cent, Australia is in a far stronger overall economic position than these economies.  This is why Mr Swan must explain why consumer confidence has fallen so severely in Australia, even though underlying economic conditions are stronger than many other economies around the world.  It is simply not good enough to continue blame the dramatic decline in consumer confidence in Australia on overseas events.  Country Most Recent Quarterly Growth Rate Change in Confidence Australia +0.6 -11 Japan -0.6 -10 Germany -0.5 0 France -0.3 -10 Italy -0.3 -4 Canada -0.1 -9 Sources: Growth rates – The Economist Consumer confidence - Nielsen Global Consumer Confidence Index Media Contact : Brad Burke 02 6277 4208  adminThu, 28 Aug 2008 05:46:00 GMTf1397696-738c-4295-afcd-943feb885714:42http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/115/Matter-of-Public-Importance-Economy.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=115http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=115&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/115/Matter-of-Public-Importance-Economy.aspx Source: Parliament House The collapse of confidence in the Australian economy and the fact that Australians are worse off since the election of the Government. Mr TURNBULL (Wentworth) (4.57 pm)—The Assistant Treasurer has treated us to a classic tirade of irrelevance. He reminds us of his great performance with Fuelwatch, which is, I think, an emblem of the hopelessness of this government and part of the cause of this incredible collapse in confidence. Whether you look at business confidence or consumer confidence, the measures today are at all-time lows unless you go back to the ‘recession we had to have’ in the late 1980s. Times are not as tough now as they were in 1991. We hope they will not get that tough. But what we have with this government is a crisis of confidence. This is a government that has been in office for eight months, and yet there is only one government in Australia that the Sensis survey tells us business has less confidence in. Do you know which government that is? That is MorrisIemma’s government. MorrisIemma and his colleagues have been working on hopelessness in government for 13 years. They are practised exponents of hopelessness. The Rudd government has got there in eight months. Consumer confidence and business confidence, by the other measures, are as low now as they were when business interest rates were 21 per cent. Why is that? The answer is a collapse in leadership. All during 2007 we had an outpouring of empathy from the Labor Party. There was not a shopping centre aisle or petrol station forecourt in this country in which you could not find the then Leader of the Opposition, the now Prime Minister, Mr Rudd, draping himself around, filled with sympathy and empathy. He was concerned about rising prices and he was going to fix them. Well, the empathy of Kevin 07 has been replaced by the impotence of Kevin 08. He has thrown up his hands. He cannot deliver; he cannot perform. That is why confidence has crashed. The Assistant Treasurer said: ‘It’s all international factors. It’s got nothing to do with the Australian situation. There’s a global credit crisis. Confidence is down in many countries and we are no better or worse off than them.’ That is not true either. ACNeilsen, as it happens, conducts a global survey which gauges consumer sentiment across 51 countries consistently. It is true that consumer confidence has fallen around the world. The survey shows that it has fallen by six points in the last six months. That is the largest single drop recorded in the last three years. But the drop in Australia was 11 points—nearly twice the average—and of the 51 countries surveyed only nine had a more negative shift in sentiment than Australia. And yet our economy is stronger than almost every one of those countries surveyed. We are not heading into recession. Economic growth is still positive. Unemployment is still at very low levels. Yes, the economy is slowing, but we are a strong economy nonetheless. Why has confidence collapsed? At the beginning of this year the government made a very political decision. They decided they would not have any economic strategy; they would simply have a political strategy. They could see, as we all could, the looming problems of the global credit crisis. It was obvious that the collapse of the mortgage market in the United States, the lack of confidence between banks, between financial institutions, was going to put up interest rates and was going to cause lenders to have less confidence in their counterparts. It was going to mean money would be more expensive and harder to obtain—in other words, a credit squeeze. Australia did not deserve to be hard hit by that credit squeeze. We did not create the subprime crisis. Subprime mortgages are 16 per cent of the US mortgage market. Here they are less than one per cent. Our banks are well capitalised. They are profitable. Our prudential regulation is first class. Our level of mortgage defaults is plainly higher than we would like it to be but it remains low by international standards and even low by historic standards. So we had a strong story to tell. We had a story to tell that should have enabled our markets to get the benefit of the superior economic management this economy had enjoyed over a long period of time. A strong government, a government of leaders, a government that believes that leadership carries responsibility would have called from the rooftops that Australia was different, that it was better and that we did not deserve to be tarred with the subprime brush. But instead we had a Treasurer who made headlines around the world when he said, the day before the Reserve Bank board met, ‘The inflation genie is out of the bottle.’ Then he said it again and again and again. He talked up inflation. He said inflation was out of control. That was the message from the Treasurer of the Commonwealth of Australia. The Assistant Treasurer says the Reserve Bank board would be stupid to take any notice of the Treasurer. That may well be right. I think the real stupidity was on the part of the Prime Minister in making him the Treasurer in the first place, because words have consequences. The Treasurer is the man in charge of the economic management of the Commonwealth of Australia. His representatives, his secretary, sit on the Reserve Bank board. The idea that his remarks about inflation are just inconsequential political rhetoric, which is what the Assistant Treasurer was suggesting, is wrong. I think the Assistant Treasurer might want to review his remarks when he sits down with his boss a little later today. They are not just rhetoric. They matter and they made headlines around the world. The Reserve Bank has to cope with inflationary expectations. If you have the Treasurer saying that inflation is out of control, believe me, it will become a selffulfilling prophecy. That is the great difference. Wayne Swan, the Treasurer, is unique in the whole world. He is the only Treasurer in the world who has been talking up inflation. He was hysterically saying that inflation was out of control and egging on the Reserve Bank to put up rates. I might say that this is the same Treasurer who, now that inflation is, according to the Reserve Bank, heading to five per cent, is nervously begging the commercial banks to lower interest rates. He was egging on the Reserve Bank to put them up at the beginning of the year. At the time that he was displaying no leadership and pursuing a shabby political strategy to blacken the economic reputation of the Howard government, in the United States, a country facing much graver economic challenges, much higher inflation, higher unemployment and much graver concerns about the stability of its financial system, the Treasurer, Henry Paulson, was doing his job. On the same day that Wayne Swan was saying, ‘The inflation genie is out of the bottle,’ HenryPaulson was saying: The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.… … … While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again. That is real leadership. What we have seen is just political spin. Look at the nonsense we have been treated to today about tax. What about the Treasurer pretending that the budget cuts taxes? His own budget papers reveal that the budget increases taxes by over $19 billion over the forward estimates. How can he seriously suggest that putting up the prices of alcohol, cars, private health insurance and so on is doing anything other than fuelling inflation? This is an old-fashioned Labor government, just like its state colleagues—all spin, no substance, tax and spend, no leadership, politics first and national interest last. adminThu, 28 Aug 2008 04:55:00 GMTf1397696-738c-4295-afcd-943feb885714:115http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/46/Gloomy-words-to-take-a-nation-down.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=46http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=46&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/46/Gloomy-words-to-take-a-nation-down.aspx Back in January it was obvious the global credit crisis posed real threats to our economy. A credit crisis is a crisis of confidence. Interest rates are higher because investors are less certain about the prospects and security of those to whom they are lending. In response, our Government should have pursued at least two clear economic objectives. First, we had to be careful to ensure that economic policy reacted prudently to higher levels of inflation. It was almost inevitable that the United States credit crisis would result in a global credit squeeze. In other words, higher interest rates and tighter credit were coming our way, anyhow. Second, we had to do everything we could to differentiate our financial system, our banks and our mortgage markets from the wreckage in the US. Australia had a much more prudent lending culture than the US. Subprime loans amount to less than 1 per cent of mortgages outstanding. In the US, the number of foreclosures was rocketing but in Australia they remained at historically low levels. Banks were well capitalised and profitable. We did not deserve to be tarred with the same brush as the US mortgage markets. The securitisation markets, closed to US mortgages, should not, by rights, be closed to ours. That closure has made our mortgage market less competitive and raised the cost of finance for all Australians. We had a vital national interest in differentiating our market from that of the US. That is why in January I spoke about the underlying strength of the Australian financial system and encouraged the Reserve Bank not to raise interest rates but to stay its hand and watch international developments. There was likely to be, I said at the time, more than enough monetary tightening coming through the global system. To my horror, the federal Treasurer, WayneSwan, took the opposite approach. Again and again, and most notoriously on February 4 - the day before the Reserve Bank met - Swan repeated what became his own Swan song: "The inflation genie is out of the bottle." This was not just egging the Reserve Bank to put up rates; it was begging the bank to do so. Swan and KevinRudd then continued all year to talk up inflation and talk down the economy which, despite evidence to the contrary, they contended had been left in a smoking wreck by 11½ years of mismanagement by JohnHoward. Rudd developed his own theme. Not content with an "inflation genie," he talked of an "inflation monster". So intent were Swan and Rudd on their political strategy of fingering the Howard government for economic mismanagement, they forgot that every time they undermined confidence in our economy they increased inflationary expectations and added to the cost of money for Australian households and businesses. Swan is the only Treasurer in the world who has spent this year talking down his own economy. The US Secretary of the Treasury, Hank Paulson, with a much worse economy and graver challenges, consistently showed leadership and confidence. While Swan was shrieking about genies escaping from bottles, Paulson said on February 5: "The US economy is diverse and resilient, and our long-term fundamentals are healthy … While we are in a difficult transition period as markets reassess and reprice risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." When Australia desperately needed leaders who would proclaim that we were different, that our economy was stronger, our mortgages more secure, our banks better capitalised - that we should not be tarred with the subprime brush - they instead made headlines with their repeated claim that inflation was out of control. Instead of trying to blacken the reputation of the Howard government, they should have been burnishing Australia's financial and economic reputation. They should have been using the bully pulpit of high office to pry open the securitisation window for Australian mortgages and restore international confidence in our financial markets. Australia is a much safer place to invest than many other countries and markets. But we need leaders who will shout that from the rooftops, who will look beyond the confines of party politics and recognise that the heavy price of trashing the economic reputation of JohnHoward in 2007 is undermining confidence in Australia's economy in 2008. adminThu, 21 Aug 2008 06:27:00 GMTf1397696-738c-4295-afcd-943feb885714:46http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/45/Speech-to-the-Association-of-Financial-Advisers.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=45http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=45&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/45/Speech-to-the-Association-of-Financial-Advisers.aspx **check against delivery** Ladies and Gentlemen, it is a delight to be with you at today’s AFA luncheon. Today I would like to speak to you about a number of themes, especially those affecting your industry. Tax Reform One of Mr Rudd’s favourite authors is George Orwell. A great example of Mr Rudd’s Orwellian Newspeak was when he said that for eleven and a half years the Coalition Government “did not put forward a strategic vision for the tax system”. The tax reforms of the Coalition Government, in particular the GST, were the most sweeping in any of our lifetimes.  Mr Rudd described these reforms as a “fundamental injustice”.   MrSwan went further and called the GST a “bastard tax”.   Since the defeat of the Keating Government, Labor has vehemently opposed tax reform, just as it has opposed economic reform generally. I welcome the Rudd Government copying the Coalition by commissioning a tax review under Ken Henry. Treasury’s initial discussion paper, makes a useful contribution to the tax reform debate.   I think this would be a useful publication to be released each year with the Budget. If we are to reform the tax system, the first step is to know from where we are starting. But is it not amazing that the Rudd Government explicitly excluded Dr Henry from inquiring into the GST?   Surely a thorough inquiry should include analysis of the third largest tax in Australia? We will support genuine tax reform.  But I’ll remain sceptical about the prospects of Labor Tax Reform until I see the details of any proposals. The tax system should be designed and maintained to collect no more money than the Government needs, and it should do so fairly and efficiently.  Tax compliance and administration should be easy and above all designed to minimise economic waste. Our tax system is both fairer and more efficient than it was in 1996, but there is much more to be done.  The Coalition wants to reduce the burden of taxation, and replace inefficient taxes with efficient taxes. That is why we commissioned Professor Henry Ergas to undertake a study of Australia’s taxes at all levels of Government. I would encourage the AFA to make a submission to this review.  The Coalition will be developing its tax policy – and other policies – over time and naturally we will release these policies at a time of our choosing closer to the election.  But we will be consulting widely in developing these policies. The Coalition is committed to good government, sound policies and a strong, dynamic and efficient economy. At the meeting with Shadow Treasurers I hosted recently, we issued a communiqué that agreed, among other things, to pursue policies to reduce or eliminate inefficient Commonwealth, State and Territory taxes. There are over 125 taxes paid by Australians each year. As noted in the Treasury paper, 90 per cent of revenue was derived from ten taxes.  In 2006-07, the Australian government collected $262.5 billion (including the GST) while the States and Territories collected $48.9 billion and the local governments collected $9.4 billion. Taxes vary in their inefficiency. But all taxes tend to cost the economy more than the revenue they raise. In principle taxes could be ranked in order of their efficiency. More efficient taxes cost the economy less for given revenue raised.   It would be useful for Treasury to publish estimates of the average and marginal efficiency costs of each of Australia’s 125 taxes. Inefficiency arises from distorting the economy. Resources – capital and labour – flow to their most valued use. But taxation distorts this flow. The greater the distortion that a tax causes, the less efficient is the tax. Professor John Freebairn has estimated that the efficiency cost of all taxation in Australia – the total deadweight loss of our tax system – is around 6 per cent of GDP. That is, to raise $320.8 billion in tax revenue at all levels of Government imposes an additional cost to the economy of $66 billion.  Of State and Territory taxes, 24 per cent are collected through stamp duties and 6 per cent through insurance taxes.  Nearly 60 per cent of your members write risk insurance. Insurance taxes – which you will all no doubt be familiar with – raised just over $3.7 billion in 2006-07.  All States and Territories levy duty on general insurance, and all except Western Australia levy duty on life insurance.  The rates of duty on general insurance vary across the States, from a low 7.5 per cent of the premium in Queensland, to a high of 11 per cent in South Australia.   In most States the relevant tax base is the insurance premium plus the GST.   But Victoria and New South Wales also impose fire levies, and those too are included in the base for the insurance duty.  These taxes are notoriously inefficient. Like many inefficient taxes they have tended to be the least visible, and therefore among the least controversial.  When it comes to reallocating risk throughout the economy, it makes little sense for governments to actively discourage the choice of one particular alternative, and to artificially induce individuals to substitute into more costly, and ultimately more risky, options.   But that is exactly what State governments around Australia are doing today by imposing duties on insurance.  These insurance taxes hinder the efficient allocation of risk, and deter many individuals from taking out market insurance. For many of our biggest economic challenges – such as climate change policy, which is a massive risk management exercise – they make no sense.   These taxes create a burden for those who pay them, but that is only half the story. What about the economic costs that are incurred by those who choose not to insure?  Access Economics has found that the demand for market insurance is relatively responsive to changes in price. That means that if the price of market insurance rises, individuals respond by reducing their insurance cover.  This substitution leads Access Economics to rank insurance taxes as being among the least efficient in terms of the deadweight loss that they create.  Perhaps the most economically irrational aspect of insurance taxes is that in the long run, well-functioning private insurance markets save taxpayers money. They allow individuals to become resilient without government assistance. This means that when catastrophic events occur there is no undue strain placed on government resources. This, in turn, means that other taxes can be lower than they would otherwise be.  The Role of Financial Advisers in Australia Financial advisers bring buyers and sellers of financial products together and play at least three key roles in Australia’s economy.  First, saving and the accumulation of capital are key drivers of future economic growth and increases in living standards.  By helping to match the supply of savings by households to the demand for investment by firms, financial advisers help to allocate funds to their most valued use over time, improving the dynamic efficiency of our economy.  Second, by writing insurance, financial advisers play a key role in helping to allocate risk throughout the economy. In a competitive insurance market, individuals who are unwilling to bear particular risks can purchase insurance from firms that are more willing and better placed to bear those risks. Financial advisers help bridge the gap between these two sides of the market.  Third, there is the planning and informational role played by your members.  I strongly believe that markets function more efficiently when the participants have accurate information and can plan for the future. Accurate information and good advice are valuable commodities.  And many economic studies have found that financial awareness or literacy is an important influence on risky asset holdings. This is why the Coalition established the Financial Literacy Foundation.  The crucial question for economic policy is who should produce and supply information. Who should undertake economic and financial planning, and who should be in the business of raising financial awareness in our community?  The Coalition recognises that for many Australians dealing with financial matters can be a daunting task.  That’s where your members come in. The right financial adviser can help individuals set their financial goals, devise strategies to meet those goals, choose investments that suit individual needs, and make informed financial decisions.  And being able to make those decisions is one of the keys to individual economic freedom. Having access to an affordable and qualified financial adviser allows Australians to take responsibility for their own financial affairs and maintain their own financial freedom and independence, without the need for Mr Rudd peering over their shoulder telling them where to invest.  In other words, in a world of imperfect or incomplete information, a robust, competitive and flourishing market for professional financial advisers is critical.  Thanks to your members, Australians are better able to manage their financial future, without having to be an expert in superannuation, equity markets, insurance products, or other financial matters.  The Australian Economy AFA members provide advice to over 3 million Australians per year, employ over 300,000 people and offer over $40 billion worth of services.  Many of your members write superannuation, which has become a key vehicle for household savings in Australia.  The Coalition’s time in office was a period of significant growth in superannuation assets – from around $200 billion in 1995-96 to more than $1 trillion in 2006-07.  In the 2006 Budget, the Coalition Government introduced Better Super – the biggest reform to superannuation ever. This reform swept away the raft of complexity faced by retirees, increased retirement incomes, gave greater flexibility as to how and when superannuation could be drawn down and provided more incentives for older Australians to stay in the workforce. Conventional measures of savings – such as the net saving rate that is published in the national accounts – do not take into account capital gains on equities, which have been a key driver of increases in household financial wealth (and therefore a key source of savings) over the last decade.  According to figures published by the Reserve Bank of Australia, between March 1996 and December 2007 the real value of financial assets held by households and unincorporated enterprises increased by more than 140 per cent.  And Treasury estimates that total Australian household wealth – which includes the value of dwelling assets - increased from $1.74 trillion in 1996 to $5.05 trillion in 2007, an increase of 118 per cent in real terms.  A strong and dynamic economic environment has been a key determinant of this increase in wealth.  The Australian economy remains robust and resilient, but it is showing clear signs of weakening since Mr Rudd took office.  In particular, we have witnessed a stunning reversal of the growth in household wealth.   Earlier this month, ABNAmro published research showing that household wealth has fallen sharply, dropping by about 5 per cent in real terms over the first half of this year due to falls in equity and house prices.  Their research also noted that “in the post-WW2 period, the decline so far this year has only been surpassed by the decline seen in the early 1980s recession.” In its August Statement on Monetary Policy, the Reserve Bank noted that since last November equities have fallen 27 per cent, the largest fall in the past 20 years and one of the largest since the beginning of the 20th century.  The Bank also noted that the local market has underperformed in 2008, falling by more than other markets after rising by more in 2007.  As a result of these falls in share prices, Australian superannuation funds had a median return (net of taxes and ongoing fees) of minus 8½ per cent over the 2007-08 financial year.  That is the lowest annual return in at least two decades.  An interesting trend in superannuation has been the relative growth of defined contribution rather than defined benefit funds. This is understandable, particularly as Australians – like elsewhere in the world – move more frequently between jobs. With these negative returns over the past six months, some people argue that defined benefit funds provide more protection to employees. Yet these funds substitute the risk of final salary for market risk: no fund is truly “risk free”. It is certainly important to view superannuation as a long-term investment where returns on a year-to-year basis can be volatile. While the Coalition was focussed on the choice of super fund and portability to boost competition in the provision of superannuation, Labor has embarked on policies that aim to restrict choice and reduce competition. Senator Sherry has 14 reviews outstanding across his portfolio of superannuation and corporate governance. There is a real risk of the financial services industry being strangled by regulation arising from these reviews. The Coalition will be following these reviews closely. We will be looking in particular for any sense that the Government might be trying to restrict choice or reduce competition in both the provision of financial advice and the range of superannuation funds. But a key thing missing from this plethora of reviews is the big picture in superannuation: the adequacy of retirement incomes.  The Better Super reforms significantly boosted the incentives for many people to contribute to superannuation. It increased choice. Sadly it appears that the Rudd Government is intent on reducing choice and reducing competition. In part this is because Mr Rudd is patronising. He thinks that too much choice is bad. That Australians are not intelligent enough to make their own minds up on where to invest. That the Government knows better on investment strategies. By June 2007 there was $1143.2 billion invested in superannuation – more than 100 per cent of GDP. This is a remarkable amount of money. But it is also a remarkable temptation for Government. And this is another area of concern – the noises from the Government about directing or encouraging superannuation funds to invest in this or that project. To finance infrastructure for example. One of the great strengths of our superannuation rules is that trustees must act in the interests of their members. When Governments get into the act of directing investments it is a recipe for disaster. It is a recipe for lower superannuation returns. If an infrastructure project is sufficiently worthwhile, it will attract funds – without the need for Government intervention. Swan, Rudd and Paulson By every measure, the Australian financial sector is strong and resilient compared with its peers overseas. It is less exposed to the sub-prime crisis, has higher capital adequacy, better profits and much lower levels of impaired assets. Yet it too has been marked down dramatically over 2008. Foreign investors, it seems, could not distinguish between the strength of our financial institutions and those in Europe and the US.  Why should this be so? More importantly, where was the Government in informing foreign investors about the strength of our financial sector? Unfortunately part of the answer may be found in the way the Rudd Government has been talking down the Australian economy and talking up inflation for political purposes rather than speaking positively about our economy and the strength of our institutions. The contrast between Labor’s rhetoric and the language used by some of their counterparts overseas is quite stunning.  Take the United States, for example. In February in the US, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. And yet although the US was experiencing serious difficulties, US Treasury Secretary Henry Paulson refused to talk down his economy. On February 5 he said that: “The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.” He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy.  But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent?  It is a matter of public record that he was going around the country, talking up inflation for political purposes.  Three times in four day, including 4 February - the day before the Reserve Bank met to consider its stance on monetary policy - MrSwan said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control. What kind of a Treasurer repeatedly says that inflation is out of control - not once, but three times – in the leadup to a meeting of the board of the central bank?  The Prime Minister’s record is no better.  In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: “Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy.” Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent.  And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the “inflation monster” could “wreak havoc” on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent.  On June 18th the Chancellor, Alistair Darling, said that “Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence.” Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence.  And what does Kevin Rudd, have to say about Australia’s economy? He shrugs his shoulders and says “We've done as much as we physically can.”  Conclusion Ladies and Gentlemen we live in challenging times. Australia desperately needs leaders who proclaim to the world that we are different, that our economy is stronger, that our mortgages are more secure, our banks better capitalised. That our financial sector is stronger than its overseas peers. Instead of trying to blacken the reputation of the Howard Government, Messrs Rudd and Swan should have been burnishing the financial and economic reputation of Australia. They should have been using the bully pulpit of high office to confirm and restore international confidence in our financial markets. Building Australia’s Economic Future, Address to the Lord Mayor’s Business Breakfast Perth at http://www.pm.gov.au/media/Speech/2008/speech_0032.cfm House Hansard, 30 June 1999, A New Tax System (Bonuses for Older Australians) Bill 1999, Consideration of Senate Message. House Hansard, 8 June 1999, Matter of Public Importance, Goods and Services Tax: Low and Middle Income Earners. Architecture of Australia’s tax and transfer system, August 2008 at www.taxreview.treasury.gov.au Freebairn, J, 1998, “Efficiency Issues”, Tax Reform Debate, ed. P. Abelson, Allen and Unwin, Sydney Commonwealth of Australia, Australia’s Future Tax System, August 2008. NSW Treasury (2007) Interstate Comparison of Taxes 2007-08, TRP 07-2. http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0010/10171/trp07-2.pdf Access Economics (2008) Analysis of State Tax Reform Including Taxes on General Insurance,  Report prepared for the Insurance Council of Australia.  Cardak, B. and Wilkins, R. “The Determinants of Household Risky Asset Holdings: Background Risk and Other Factors” Melbourne Institute of Applied Economic and Social Research Working Paper Series No. 2/08. http://www.melbourneinstitute.com/wp/wp2008n02.pdf APRA March 2008 Quarterly Superannuation Performance. http://www.apra.gov.au/Statistics/upload/March-2008-Quarterly-Superannuation-Performance-final.pdf RBA Bulletin, Table B. 20. http://www.treasury.gov.au/documents/1352/PDF/04_Household_net_worth.pdf ABN Amro, Australian Economics Weekly, Friday 1 August 2008. adminThu, 21 Aug 2008 06:14:00 GMTf1397696-738c-4295-afcd-943feb885714:45http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/116/Speech-to-the-Association-of-Financial-Advisers.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=116http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=116&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/116/Speech-to-the-Association-of-Financial-Advisers.aspx**check against delivery** Ladies and Gentlemen, it is a delight to be with you at today’s AFA luncheon. Today I would like to speak to you about a number of themes, especially those affecting your industry. Tax Reform One of Mr Rudd’s favourite authors is George Orwell. A great example of Mr Rudd’s Orwellian Newspeak was when he said that for eleven and a half years the Coalition Government “did not put forward a strategic vision for the tax system”. The tax reforms of the Coalition Government, in particular the GST, were the most sweeping in any of our lifetimes.  Mr Rudd described these reforms as a “fundamental injustice”.   MrSwan went further and called the GST a “bastard tax”.   Since the defeat of the Keating Government, Labor has vehemently opposed tax reform, just as it has opposed economic reform generally. I welcome the Rudd Government copying the Coalition by commissioning a tax review under Ken Henry. Treasury’s initial discussion paper, makes a useful contribution to the tax reform debate.   I think this would be a useful publication to be released each year with the Budget. If we are to reform the tax system, the first step is to know from where we are starting. But is it not amazing that the Rudd Government explicitly excluded Dr Henry from inquiring into the GST?   Surely a thorough inquiry should include analysis of the third largest tax in Australia? We will support genuine tax reform.  But I’ll remain sceptical about the prospects of Labor Tax Reform until I see the details of any proposals. The tax system should be designed and maintained to collect no more money than the Government needs, and it should do so fairly and efficiently.  Tax compliance and administration should be easy and above all designed to minimise economic waste. Our tax system is both fairer and more efficient than it was in 1996, but there is much more to be done.  The Coalition wants to reduce the burden of taxation, and replace inefficient taxes with efficient taxes. That is why we commissioned Professor Henry Ergas to undertake a study of Australia’s taxes at all levels of Government. I would encourage the AFA to make a submission to this review.  The Coalition will be developing its tax policy – and other policies – over time and naturally we will release these policies at a time of our choosing closer to the election.  But we will be consulting widely in developing these policies. The Coalition is committed to good government, sound policies and a strong, dynamic and efficient economy. At the meeting with Shadow Treasurers I hosted recently, we issued a communiqué that agreed, among other things, to pursue policies to reduce or eliminate inefficient Commonwealth, State and Territory taxes. There are over 125 taxes paid by Australians each year. As noted in the Treasury paper, 90 per cent of revenue was derived from ten taxes.  In 2006-07, the Australian government collected $262.5 billion (including the GST) while the States and Territories collected $48.9 billion and the local governments collected $9.4 billion. Taxes vary in their inefficiency. But all taxes tend to cost the economy more than the revenue they raise. In principle taxes could be ranked in order of their efficiency. More efficient taxes cost the economy less for given revenue raised.   It would be useful for Treasury to publish estimates of the average and marginal efficiency costs of each of Australia’s 125 taxes. Inefficiency arises from distorting the economy. Resources – capital and labour – flow to their most valued use. But taxation distorts this flow. The greater the distortion that a tax causes, the less efficient is the tax. Professor John Freebairn has estimated that the efficiency cost of all taxation in Australia – the total deadweight loss of our tax system – is around 6 per cent of GDP. That is, to raise $320.8 billion in tax revenue at all levels of Government imposes an additional cost to the economy of $66 billion.  Of State and Territory taxes, 24 per cent are collected through stamp duties and 6 per cent through insurance taxes.  Nearly 60 per cent of your members write risk insurance. Insurance taxes – which you will all no doubt be familiar with – raised just over $3.7 billion in 2006-07.  All States and Territories levy duty on general insurance, and all except Western Australia levy duty on life insurance.  The rates of duty on general insurance vary across the States, from a low 7.5 per cent of the premium in Queensland, to a high of 11 per cent in South Australia.   In most States the relevant tax base is the insurance premium plus the GST.   But Victoria and New South Wales also impose fire levies, and those too are included in the base for the insurance duty.  These taxes are notoriously inefficient. Like many inefficient taxes they have tended to be the least visible, and therefore among the least controversial.  When it comes to reallocating risk throughout the economy, it makes little sense for governments to actively discourage the choice of one particular alternative, and to artificially induce individuals to substitute into more costly, and ultimately more risky, options.   But that is exactly what State governments around Australia are doing today by imposing duties on insurance.  These insurance taxes hinder the efficient allocation of risk, and deter many individuals from taking out market insurance. For many of our biggest economic challenges – such as climate change policy, which is a massive risk management exercise – they make no sense.   These taxes create a burden for those who pay them, but that is only half the story. What about the economic costs that are incurred by those who choose not to insure?  Access Economics has found that the demand for market insurance is relatively responsive to changes in price. That means that if the price of market insurance rises, individuals respond by reducing their insurance cover.  This substitution leads Access Economics to rank insurance taxes as being among the least efficient in terms of the deadweight loss that they create.  Perhaps the most economically irrational aspect of insurance taxes is that in the long run, well-functioning private insurance markets save taxpayers money. They allow individuals to become resilient without government assistance. This means that when catastrophic events occur there is no undue strain placed on government resources. This, in turn, means that other taxes can be lower than they would otherwise be.  The Role of Financial Advisers in Australia Financial advisers bring buyers and sellers of financial products together and play at least three key roles in Australia’s economy.  First, saving and the accumulation of capital are key drivers of future economic growth and increases in living standards.  By helping to match the supply of savings by households to the demand for investment by firms, financial advisers help to allocate funds to their most valued use over time, improving the dynamic efficiency of our economy.  Second, by writing insurance, financial advisers play a key role in helping to allocate risk throughout the economy. In a competitive insurance market, individuals who are unwilling to bear particular risks can purchase insurance from firms that are more willing and better placed to bear those risks. Financial advisers help bridge the gap between these two sides of the market.  Third, there is the planning and informational role played by your members.  I strongly believe that markets function more efficiently when the participants have accurate information and can plan for the future. Accurate information and good advice are valuable commodities.  And many economic studies have found that financial awareness or literacy is an important influence on risky asset holdings. This is why the Coalition established the Financial Literacy Foundation.  The crucial question for economic policy is who should produce and supply information. Who should undertake economic and financial planning, and who should be in the business of raising financial awareness in our community?  The Coalition recognises that for many Australians dealing with financial matters can be a daunting task.  That’s where your members come in. The right financial adviser can help individuals set their financial goals, devise strategies to meet those goals, choose investments that suit individual needs, and make informed financial decisions.  And being able to make those decisions is one of the keys to individual economic freedom. Having access to an affordable and qualified financial adviser allows Australians to take responsibility for their own financial affairs and maintain their own financial freedom and independence, without the need for MrRudd peering over their shoulder telling them where to invest.  In other words, in a world of imperfect or incomplete information, a robust, competitive and flourishing market for professional financial advisers is critical.  Thanks to your members, Australians are better able to manage their financial future, without having to be an expert in superannuation, equity markets, insurance products, or other financial matters.  The Australian Economy AFA members provide advice to over 3 million Australians per year, employ over 300,000 people and offer over $40 billion worth of services.  Many of your members write superannuation, which has become a key vehicle for household savings in Australia.  The Coalition’s time in office was a period of significant growth in superannuation assets – from around $200 billion in 1995-96 to more than $1 trillion in 2006-07.  In the 2006 Budget, the Coalition Government introduced Better Super – the biggest reform to superannuation ever. This reform swept away the raft of complexity faced by retirees, increased retirement incomes, gave greater flexibility as to how and when superannuation could be drawn down and provided more incentives for older Australians to stay in the workforce. Conventional measures of savings – such as the net saving rate that is published in the national accounts – do not take into account capital gains on equities, which have been a key driver of increases in household financial wealth (and therefore a key source of savings) over the last decade.  According to figures published by the Reserve Bank of Australia, between March 1996 and December 2007 the real value of financial assets held by households and unincorporated enterprises increased by more than 140 per cent.  And Treasury estimates that total Australian household wealth – which includes the value of dwelling assets - increased from $1.74 trillion in 1996 to $5.05 trillion in 2007, an increase of 118 per cent in real terms.  A strong and dynamic economic environment has been a key determinant of this increase in wealth.  The Australian economy remains robust and resilient, but it is showing clear signs of weakening since Mr Rudd took office.  In particular, we have witnessed a stunning reversal of the growth in household wealth.   Earlier this month, ABNAmro published research showing that household wealth has fallen sharply, dropping by about 5 per cent in real terms over the first half of this year due to falls in equity and house prices.  Their research also noted that “in the post-WW2 period, the decline so far this year has only been surpassed by the decline seen in the early 1980s recession.” In its August Statement on Monetary Policy, the Reserve Bank noted that since last November equities have fallen 27 per cent, the largest fall in the past 20 years and one of the largest since the beginning of the 20th century.  The Bank also noted that the local market has underperformed in 2008, falling by more than other markets after rising by more in 2007.  As a result of these falls in share prices, Australian superannuation funds had a median return (net of taxes and ongoing fees) of minus 8½ per cent over the 2007-08 financial year.  That is the lowest annual return in at least two decades.  An interesting trend in superannuation has been the relative growth of defined contribution rather than defined benefit funds. This is understandable, particularly as Australians – like elsewhere in the world – move more frequently between jobs. With these negative returns over the past six months, some people argue that defined benefit funds provide more protection to employees. Yet these funds substitute the risk of final salary for market risk: no fund is truly “risk free”. It is certainly important to view superannuation as a long-term investment where returns on a year-to-year basis can be volatile. While the Coalition was focussed on the choice of super fund and portability to boost competition in the provision of superannuation, Labor has embarked on policies that aim to restrict choice and reduce competition. Senator Sherry has 14 reviews outstanding across his portfolio of superannuation and corporate governance. There is a real risk of the financial services industry being strangled by regulation arising from these reviews. The Coalition will be following these reviews closely. We will be looking in particular for any sense that the Government might be trying to restrict choice or reduce competition in both the provision of financial advice and the range of superannuation funds. But a key thing missing from this plethora of reviews is the big picture in superannuation: the adequacy of retirement incomes.  The Better Super reforms significantly boosted the incentives for many people to contribute to superannuation. It increased choice. Sadly it appears that the Rudd Government is intent on reducing choice and reducing competition. In part this is because Mr Rudd is patronising. He thinks that too much choice is bad. That Australians are not intelligent enough to make their own minds up on where to invest. That the Government knows better on investment strategies. By June 2007 there was $1143.2 billion invested in superannuation – more than 100 per cent of GDP. This is a remarkable amount of money. But it is also a remarkable temptation for Government. And this is another area of concern – the noises from the Government about directing or encouraging superannuation funds to invest in this or that project. To finance infrastructure for example. One of the great strengths of our superannuation rules is that trustees must act in the interests of their members. When Governments get into the act of directing investments it is a recipe for disaster. It is a recipe for lower superannuation returns. If an infrastructure project is sufficiently worthwhile, it will attract funds – without the need for Government intervention. Swan, Rudd and Paulson By every measure, the Australian financial sector is strong and resilient compared with its peers overseas. It is less exposed to the sub-prime crisis, has higher capital adequacy, better profits and much lower levels of impaired assets. Yet it too has been marked down dramatically over 2008. Foreign investors, it seems, could not distinguish between the strength of our financial institutions and those in Europe and the US.  Why should this be so? More importantly, where was the Government in informing foreign investors about the strength of our financial sector? Unfortunately part of the answer may be found in the way the Rudd Government has been talking down the Australian economy and talking up inflation for political purposes rather than speaking positively about our economy and the strength of our institutions. The contrast between Labor’s rhetoric and the language used by some of their counterparts overseas is quite stunning.  Take the United States, for example. In February in the US, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. And yet although the US was experiencing serious difficulties, US Treasury Secretary HenryPaulson refused to talk down his economy. On February 5 he said that: “The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.” He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy.  But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent?  It is a matter of public record that he was going around the country, talking up inflation for political purposes.  Three times in four day, including 4 February - the day before the Reserve Bank met to consider its stance on monetary policy - MrSwan said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control. What kind of a Treasurer repeatedly says that inflation is out of control - not once, but three times – in the leadup to a meeting of the board of the central bank?  The Prime Minister’s record is no better.  In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: “Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy.” Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent.  And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the “inflation monster” could “wreak havoc” on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent.  On June 18th the Chancellor, Alistair Darling, said that “Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence.” Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence.  And what does Kevin Rudd, have to say about Australia’s economy? He shrugs his shoulders and says “We've done as much as we physically can.”  Conclusion Ladies and Gentlemen we live in challenging times. Australia desperately needs leaders who proclaim to the world that we are different, that our economy is stronger, that our mortgages are more secure, our banks better capitalised. That our financial sector is stronger than its overseas peers. Instead of trying to blacken the reputation of the Howard Government, Messrs Rudd and Swan should have been burnishing the financial and economic reputation of Australia. They should have been using the bully pulpit of high office to confirm and restore international confidence in our financial markets. Building Australia’s Economic Future, Address to the Lord Mayor’s Business Breakfast Perth at http://www.pm.gov.au/media/Speech/2008/speech_0032.cfm House Hansard, 30 June 1999, A New Tax System (Bonuses for Older Australians) Bill 1999, Consideration of Senate Message. House Hansard, 8 June 1999, Matter of Public Importance, Goods and Services Tax: Low and Middle Income Earners. Architecture of Australia’s tax and transfer system, August 2008 at www.taxreview.treasury.gov.au Freebairn, J, 1998, “Efficiency Issues”, Tax Reform Debate, ed. P. Abelson, Allen and Unwin, Sydney Commonwealth of Australia, Australia’s Future Tax System, August 2008. NSW Treasury (2007) Interstate Comparison of Taxes 2007-08, TRP 07-2. http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0010/10171/trp07-2.pdf Access Economics (2008) Analysis of State Tax Reform Including Taxes on General Insurance,  Report prepared for the Insurance Council of Australia.  Cardak, B. and Wilkins, R. “The Determinants of Household Risky Asset Holdings: Background Risk and Other Factors” Melbourne Institute of Applied Economic and Social Research Working Paper Series No. 2/08. http://www.melbourneinstitute.com/wp/wp2008n02.pdf APRA March 2008 Quarterly Superannuation Performance. http://www.apra.gov.au/Statistics/upload/March-2008-Quarterly-Superannuation-Performance-final.pdf RBA Bulletin, Table B. 20. http://www.treasury.gov.au/documents/1352/PDF/04_Household_net_worth.pdf ABN Amro, Australian Economics Weekly, Friday 1 August 2008. adminThu, 21 Aug 2008 04:58:00 GMTf1397696-738c-4295-afcd-943feb885714:116http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/139/Gloomy-words-to-take-a-nation-down.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=139http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=139&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/139/Gloomy-words-to-take-a-nation-down.aspxBack in January it was obvious the global credit crisis posed real threats to our economy. A credit crisis is a crisis of confidence. Interest rates are higher because investors are less certain about the prospects and security of those to whom they are lending. In response, our Government should have pursued at least two clear economic objectives. First, we had to be careful to ensure that economic policy reacted prudently to higher levels of inflation. It was almost inevitable that the United States credit crisis would result in a global credit squeeze. In other words, higher interest rates and tighter credit were coming our way, anyhow. Second, we had to do everything we could to differentiate our financial system, our banks and our mortgage markets from the wreckage in the US. Australia had a much more prudent lending culture than the US. Subprime loans amount to less than 1 per cent of mortgages outstanding. In the US, the number of foreclosures was rocketing but in Australia they remained at historically low levels. Banks were well capitalised and profitable. We did not deserve to be tarred with the same brush as the US mortgage markets. The securitisation markets, closed to US mortgages, should not, by rights, be closed to ours. That closure has made our mortgage market less competitive and raised the cost of finance for all Australians. We had a vital national interest in differentiating our market from that of the US. That is why in January I spoke about the underlying strength of the Australian financial system and encouraged the Reserve Bank not to raise interest rates but to stay its hand and watch international developments. There was likely to be, I said at the time, more than enough monetary tightening coming through the global system. To my horror, the federal Treasurer, WayneSwan, took the opposite approach. Again and again, and most notoriously on February 4 - the day before the Reserve Bank met - Swan repeated what became his own Swan song: "The inflation genie is out of the bottle." This was not just egging the Reserve Bank to put up rates; it was begging the bank to do so. Swan and KevinRudd then continued all year to talk up inflation and talk down the economy which, despite evidence to the contrary, they contended had been left in a smoking wreck by 11½ years of mismanagement by JohnHoward. Rudd developed his own theme. Not content with an "inflation genie," he talked of an "inflation monster". So intent were Swan and Rudd on their political strategy of fingering the Howard government for economic mismanagement, they forgot that every time they undermined confidence in our economy they increased inflationary expectations and added to the cost of money for Australian households and businesses. Swan is the only Treasurer in the world who has spent this year talking down his own economy. The US Secretary of the Treasury, Hank Paulson, with a much worse economy and graver challenges, consistently showed leadership and confidence. While Swan was shrieking about genies escaping from bottles, Paulson said on February 5: "The US economy is diverse and resilient, and our long-term fundamentals are healthy … While we are in a difficult transition period as markets reassess and reprice risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." When Australia desperately needed leaders who would proclaim that we were different, that our economy was stronger, our mortgages more secure, our banks better capitalised - that we should not be tarred with the subprime brush - they instead made headlines with their repeated claim that inflation was out of control. Instead of trying to blacken the reputation of the Howard government, they should have been burnishing Australia's financial and economic reputation. They should have been using the bully pulpit of high office to pry open the securitisation window for Australian mortgages and restore international confidence in our financial markets. Australia is a much safer place to invest than many other countries and markets. But we need leaders who will shout that from the rooftops, who will look beyond the confines of party politics and recognise that the heavy price of trashing the economic reputation of JohnHoward in 2007 is undermining confidence in Australia's economy in 2008.adminWed, 20 Aug 2008 22:43:00 GMTf1397696-738c-4295-afcd-943feb885714:139http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/47/Speech-to-The-Property-Council-of-Australia.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=47http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=47&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/47/Speech-to-The-Property-Council-of-Australia.aspx **check against delivery** Ladies and Gentlemen, it is a delight to be with you at today's Property Council luncheon. Today I would like to speak to you about a number of themes, principally tax reform, but also I wish to touch on some other important issues affecting your industry. Tax Reform The Prime Minister’s MySpace website lists his favourite authors: Robert Ludlum, Manning Clark and, most ominously, George Orwell. A great example of Mr Rudd’s Orwellian Newspeak was when he said that for eleven and a half years the Coalition Government “did not put forward a strategic vision for the tax system”. (Building Australia’s Economic Future, Address to the Lord Mayor’s Business Breakfast Perth at www.pm.gov.au/media/Speech/2008/speech_0032.cfm) The tax reforms of the Coalition Government, in particular the GST, were the most sweeping in any of our lifetimes. Mr Rudd described these reforms as a “fundamental injustice” (House Hansard, 30 June 1999, A New Tax System (Bonuses for Older Australians) Bill 1999, Consideration of Senate Message). Mr Swan went further and called the GST a “bastard tax” (House Hansard, 8 June 1999, Matter of Public Importance, Goods and Services Tax: Low and Middle Income Earners). Since the defeat of the Keating Government, Labor has vehemently opposed tax reform, just as it has opposed economic reform generally. I welcome the Rudd Government copying the Coalition by commissioning a tax review under Ken Henry. Treasury’s initial discussion paper (Architecture of Australia’s tax and transfer system, August 2008 at www.taxreview.treasury.gov.au), released last week, makes a useful contribution to the tax reform debate. I think this would be a useful publication to be released each year with the Budget. If we are to reform the tax system, the first step is to know from where we are starting. But is it not amazing that the Rudd Government explicitly excluded Dr Henry from inquiring into the GST? Surely a thorough inquiry should include analysis of the third largest tax in Australia? It seems that Mr Rudd once again announced an inquiry to meet the news cycle and deflect criticism of a lack of vision on tax that followed my announcement of the Coalition’s tax review under Henry Ergas. We will support genuine tax reform. But I’ll remain sceptical about the prospects of Labor Tax Reform until I see the details of any proposals. The tax system should be designed and maintained to collect no more money than the Government needs, and it should do so fairly and efficiently. Tax compliance and administration should be easy and above all designed to minimise economic waste. Our tax system is both fairer and more efficient than it was in 1996, but there is much more to be done. The Coalition wants to reduce the burden of taxation, and replace inefficient taxes with efficient taxes. That is why we commissioned Professor Henry Ergas to undertake a study of Australia’s taxes at all levels of Government. I welcome the Property Council’s recent submission to the Ergas Review. The Coalition will be developing its tax policy – and other policies – over time and naturally we will release these policies at a time of our choosing closer to the election. But we will be consulting widely in developing these policies. The Coalition is committed to good government, sound policies and a strong, dynamic and efficient economy. At the meeting with Shadow Treasurers I hosted last Friday, we issued a communiqué that agreed, among other things, to pursue policies to reduce or eliminate inefficient Commonwealth, State and Territory taxes. There are over 125 taxes paid by Australians each year. As noted in the Treasury paper, 90 per cent of revenue was derived from ten taxes: personal tax, company tax, GST, fuel excises, payroll taxes, conveyance stamp duties, local government rates, superannuation funds, tobacco excise and land taxes. As a result of the Coalition’s GST tax reforms, accommodation tax, financial institutions duty, marketable securities duty and debits tax were abolished. In addition, agreement was reached on a timetable for the abolition of mortgage duty, rental duty, lease duty, stamp duty on unquoted marketable securities, cheque duty and stamp duty on conveyances of non-real non-residential property. Progress has been slow, though, on the abolition of stamp duty on non-residential conveyances of real property. In 2006-07, the Australian government collected $262.5 billion (including the GST) while the States and Territories collected $48.9 billion and the local governments collected $9.4 billion. Of State and Territory taxes, 24 per cent are collected through stamp duties and 6 per cent through insurance taxes. Conveyancing stamp duty and other stamp duties raised close to $15 billion in revenue. These transactions taxes are notoriously inefficient. And until recently, like most inefficient taxes they have tended to be the least visible, and therefore among the least controversial. Professor John Freebairn (Freebairn, J, 1998, “Efficiency Issues”, Tax Reform Debate, ed. P. Abelson, Allen and Unwin, Sydney) has estimated that the efficiency cost of all taxation in Australia – the total deadweight loss of our tax system – is around 6 per cent of GDP. That is, to raise $320.8 billion in tax revenue at all levels of Government imposes an additional cost to the economy of $66 billion. Taxes vary in their inefficiency. But all taxes tend to cost the economy more than the revenue they raise. In principle taxes could be ranked in order of their efficiency. More efficient taxes cost the economy less for given revenue raised. It would be useful for Treasury to publish estimates of the average and marginal efficiency costs of each of Australia’s 125 taxes. Inefficiency arises from distorting the economy. Resources – capital and labour – flow to their most valued use. But taxation distorts this flow. The greater the distortion that a tax causes, the less efficient is the tax. Transactions taxes – such as stamp duty – distort trade. They drive a wedge between the price received by the seller and the price paid by the buyer. That wedge reduces the quantity of transactions, reduces the gains from trade, and imposes a real cost on individuals, families and businesses. One big area that is ripe for tax reform is stamp duty on conveyancing, particularly on residential property. Stamp Duty on Conveyancing All States and Territories levy duty on residential property transfers. Stamp duties of various kinds have been levied in Australia since before Federation. Of course, they were around before that; for example in 1694 they were levied in the United Kingdom to help pay for the war with France. They subsequently became very popular in Europe, and were applied to newspapers, legal documents, business licences, diplomas – almost anything written on paper. In March 1765 Britain was again at war with France in North America, and following riots in Britain against the cider excise that was levied under the Sugar Act, the British attempted to levy stamp duties on the American colonists. This attempt failed, of course. The Stamp Act started a rebellion in the American colonies, united them against a common British enemy, popularised the phrase “taxation without representation is tyranny”, and eventually led to a tax revolt: the American War of Independence. In Australia we learned that taxation with representation is not so great either. Initially our stamp duties were very similar to user charges. Many consisted of fees that were charged by government clerks to cover the administrative costs of validating contracts. The States also levied probate fees, which were designed to cover the costs of issuing probates and letters of legal administration. These were very similar to stamp duties, in the sense that they were taxes on written documents. Because property transfers from deceased estates were relatively inexpensive to monitor, the rates of duty gradually increased, and they eventually evolved into death duties. These were first introduced in New South Wales in 1851 and existed until the early 1980s. In New South Wales in 1875, customs and excise duties comprised over 90 per cent of revenues, with probate and stamp duties comprising only 0.4 per cent. By 1896 that had increased to 15 per cent of NSW government revenues. The share of revenue has grown over time. In 2008-09, for example, the New South Wales government estimates that transfer duties and other stamp duties will account for 28.3 per cent of total own-source revenue. Despite their attractiveness as sources of revenue, however, there are several problems associated with conveyancing stamp duties. Consider the case of New South Wales, where the standard, non-concessional rates of stamp duty on conveyances range from 1.25 per cent to 5.5 per cent. Under the state’s First Home Plus Scheme (www.osr.nsw.gov.au/lib/doc/factsheets/fs_fhb1.pdf), eligible purchasers – first home buyers and first home builders – are exempt from paying duty on homes valued up to $500,000. Duty concessions are also available for homes valued between $500,000 and $600,000. However, what is interesting is that the concession is withdrawn at a rate of 22.49 cents in the dollar. Thus, the average concessional rate of stamp duty is lower than the standard rate, but each extra dollar between $500,000 and $600,000 effectively attracts a tax rate of 22.49 cents. The most recently available March quarter data from the Real Estate Institute of Australia (REIA) shows that the median house price in Sydney is $554,000. In other words, a first homeowner buying a median house in Sydney pays $11,470 in stamp duty, and those who pay $600,000 or more pay over $22,290 in stamp duty and receive no concession at all. But most importantly, on that median Sydney house, the effective marginal rate of transfer duty facing a first homebuyer is 22.49 per cent. For first homebuyers the average rate of stamp duty is obviously lower than the standard rate, so the recipients of the concession are obviously better off with it than without it. But the economic costs of a tax depend on marginal disincentives, and those can be quite high in the case of the stamp duty concession because of the high effective tax rate. I wonder how many first home buyers realise that when they bid an extra $1 on that median priced home, they effectively pay Mr Iemma an extra 22.49 cents! Another point which seems to be underemphasised in the debate is that stamp duty – being a transactions tax ­ is not really a tax on housing or property at all. It is a tax on moving. In reality, the underlying economic activity that is being taxed is migration from one suburb to another, or from one city to another. Seen in this light, the tax rate that the States and Territories are levying on that base is very high indeed. For example if the economic activity of moving house costs you $10,000, then stamp duty in NSW could easily end up being more than double that. This means that the effective rate of tax on the underlying economic activity - moving - could easily be more than 200 per cent. The distortions that this tax on moving creates reveal themselves in many different ways. Young families might decide to buy a larger house than they initially require. Older individuals and families might decide to stay put, in houses that are too big for their existing needs. Alternatively, families might decide to renovate instead of moving. Individuals may decide not take a new job in a different suburb or city. So stamp duty discourages labour mobility and encourages frictional unemployment. And what about the equity effects of stamp duty? According to the Australian Bureau of Statistics 2006 census, the median weekly individual income (age 15 and over) in Sydney is $518, or $27,000 per year. That means that stamp duty on the median Sydney home is 42 per cent of the median individual income and 16 per cent of median family income, even with a first homebuyer concession. It hardly seems equitable that people who have to move house ­ for whatever reason ­ have to pay so much more tax than anyone else. In short, stamp duty punishes ordinary Australians just for getting on with their lives. Some people move homes because they want to get married, start a family or are having more kids and need a bigger house. Some people move house because the kids grown up and have left home. Others move for health reasons or because they are getting older. Other people want to change jobs. Others want to be closer to family and friends. Some people just want to live in a more desirable area. Stamp duty is a tax on all of these activities. Green Buildings I also welcome the Council’s work in improving the energy efficiency of Australian new and existing residential and commercial buildings. Increased energy efficiency in our buildings can make a substantial contribution to the overall reduction in Australia’s greenhouse emissions. The Centre for International Economics (Centre for International Economics 2007, Capitalising on the Building Sector’s Potential to Lessen the Costs of a Broad Based GHG Emission Cut, Canberra) estimated that residential and commercial buildings account for 23 per cent of Australia’s emissions from electricity consumption alone, with rapidly growing emissions. Some of the technologies that could reduce emissions from the stock of our seven million private dwellings, with 150 000 new dwellings a year, include better insulation, double glazing, and more efficient appliances. Research cited in the Garnaut Climate Change Review Draft Report by the International Energy Agency (IEA 2006, Energy Technology Perspectives 2006 – scenarios and strategies to 2050, Paris) estimates that increased energy efficiency could account for 45 to 53 per cent of global emissions reductions to 2050. I commend the Property Council on its efforts in this field, especially in encouraging cost-effective technologies to reduce Australian greenhouse emissions. The Australian Economy While an open foreign investment regime and competitive tax system are important to Australia and to the Property Council’s members, a strong and dynamic economy is the crucial foundation. By any measure, the Rudd Labor government inherited a much stronger, more resilient and flexible economy than the Coalition inherited in 1996. It was especially important that our fiscal house be put in order, which the Coalition achieved by paying off Labor’s $96 billion debt and ensuring strong fiscal surpluses. The Australian economy remains robust and resilient, but it is showing clear signs of weakening since Mr Rudd took office. The S&P 200 index for the Australian stock market has fallen from 6330.2 to 4981.1 – a fall of 21.3 per cent compared with a fall of only 12.6 per cent on the US S&P 500. The Reserve Bank has increased official rates by 0.5 percentage points, while banks have increased by more – the Commonwealth Bank, for example, increasing its standard variable rate from 8.57 per cent to 9.58 per cent over the same period: an increase of 1.01 percentage points, or 0.51 percentage points than the official rate increases. Under the Rudd Government, mortgage interest rates have risen to levels not seen since Labor was last in office. Small business overdraft rates, now at around 12 per cent, are at levels not seen since 1992. They have increased 1.15 percentage points since the election. Inflation has increased to 4.5 per cent – a rate not seen since the last Labor Government, if you exclude the one-off GST effect. Underlying inflation, with the RBA’s trimmed mean at 4.3 per cent, is also at its highest level since Labor was last in office. The Melbourne Institute’s most recent survey results show that consumer inflationary expectations are high, with the median expected inflation rate at 4.9 per cent. And the proportion of survey respondents expecting annual inflation to fall within the Reserve Bank’s target band of 2-3 per cent is only 8.8 per cent, lower than the average over the last year of 12 per cent. During the Coalition’s term in office, median inflationary expectations averaged 3.1 per cent – the best average performance of any government since the survey began. In contrast, since Rudd has taken office, median inflationary expectations have averaged 4.9 per cent. That is the highest 9 month average since 1991 ­when Labor was last in office. The RBA also conducts a survey of inflationary expectations and publishes the results in its Statement on Monetary Policy. Its latest August Statement tells a very interesting story of what has been happening with their survey since Labor has taken office. The RBA’s data shows that between August 2007 and November 2007, expectations of 2008/09 inflation actually fell among market economists, and remained steady among union officials. But since Mr Swan started talking up inflation back at the beginning of February, expectations of inflation among market economists have increased in every RBA survey. And union officials have revised up their expectations of the inflation that they believe will occur in 2008/09 by a full percentage point, from 3 per cent to 4 per cent. That is why, in its most recent August Statement, the RBA notes that “inflation expectations are at high levels, and an upward trend is evident across measures.” At the same time that inflationary expectations have been rising, a slew of economic indicators now suggest that the economy is slowing. Retail turnover figures for the month of June showed a fall of 1 per cent, well below market expectations. The ABS housing finance release found that the value of housing commitments fell by 0.9 per cent in the month of June. The number of housing commitments for owner occupiers fell by 3.7 per cent. ABN Amro has recently found that household wealth suffered its biggest decline over the past six months since the 1982-83 recession. And consumer confidence has plummeted. The Roy Morgan consumer confidence rating index at 90.1, the lowest level since December 1991. The Sensis consumer index has fallen 16 percentage points since the election, with record numbers of Australians worried about their financial future. The latest Westpac-Melbourne Institute consumer sentiment index shows that consumer confidence is very low at 86.2, lower than it was in February 1992 ­ right in the middle of Labor’s “recession we had to have” According to this measure, consumer confidence has fallen 26.3 percentage points since the election. To top it all off, business confidence has completely collapsed. The National Australia Bank quarterly survey shows that in the June quarter, business confidence fell to its lowest level since early 1991. The Dunn & Bradstreet business expectations survey showed that for the June quarter 2008, the growth in sales was the lowest since the March 1991 quarter. And the Commonwealth Bank-ACCI Business confidence index, as measured their Expected Economic Performance indicator, fell to its lowest level since the survey began in 1994. Finally, as if all that was not bad enough, let me give you one more piece of data. This is the crowning glory of Mr Rudd’s incompetence. As you know, Morris Iemma and his colleagues have been mismanaging New South Wales for well over a decade. They have been working on hopelessness for a very long time. Kevin Rudd has only been in office for eight months, and yet in the recent May Sensis survey on the attitudes of small and medium enterprises, the only Australian government in which those businesses had less confidence in than Kevin Rudd’s Federal Government was Mr Iemma’s motley crew! In other words, according to the Sensis business confidence survey – which has fallen 53 percentage points since the election ­ Kevin Rudd is currently the silver medallist in governmental hopelessness, only being pipped at the post by Morris lemma. Of all the other Labor governments around the country, Mr Rudd has done that in only eight months. His biggest ambition seems to be to ensure that his political epitaph reads: “I was not as bad as Morris Iemma.” Swan, Rudd and Paulson In the Reserve Bank’s August Statement on Monetary Policy, the Bank revised down its economic growth forecast for the year to December 2008 from 2¼ per cent to 2 per cent. It revised up its forecast for inflation to 5 per cent over the same period. The very next day, in a report in Tuesday’s Australian, David Uren and Brad Norington wrote: “the Reserve Bank is predicting an economic slowdown so severe that 100,000 people will be thrown out of work in the next 12 months, pushing the unemployment rate to 5 per cent and possibly higher if the financial crisis worsens”. None of this should come as a surprise to Mr Rudd and Mr Swan, because since coming to office they have been talking up inflation and talking down the economy on a regular basis. The contrast between Labor’s rhetoric and the language used by some of their counterparts overseas is quite stunning. Take the United States, for example. In February in the US, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. And yet although the US was experiencing serious difficulties, US Treasury Secretary Henry Paulson refused to talk down his economy. On February 5 he said that: “The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.” He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy. But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent? It is a matter of public record that he was going around the country, talking up inflation for political purposes. On February 1st, he said that “the Howard Government let the inflation genie out of the bottle.” Two days later on February 3rd, Mr Swan again talked up inflation, saying that “the former Treasurer, the former Government, let the inflation genie out of the bottle.” And just in case nobody got the message, on February 4th ­the day before the Reserve Bank met to consider its stance on monetary policy ­ Mr Swan again said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control. What kind of a Treasurer repeatedly says that inflation is out of control ­ not once, but three times – in the lead up to a meeting of the board of the central bank? The Prime Minister’s record is no better. In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: “Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy.” Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent. And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the “inflation monster” could “wreak havoc” on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where industrial production actually declined by 1.6 per cent in May, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent. On June 18th the Chancellor of the Exchequer, Alistair Darling, said that “Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence.” Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence. And what does the Hollowman-in-Chief, Kevin Rudd, have to say about Australia’s economy? He shrugs his shoulders, and famously declared in the Adelaide declaration “We've done as much as we physically can.” Labor’s New Protectionism Despite all of the talk about being ‘economic conservatives committed to an independent central bank’, the Rudd Government has an inbuilt distrust of the market and a sloppiness of process. It lacks analytical rigour and displays no sign of strategic thinking. Labor is a policy free zone committed to style over substance. And Labor’s protectionist psychology has emerged spectacularly. Addressing the ALP National Conference on 28 April 2007, Kevin Rudd said that: "I don't want to be prime minister of a country which doesn't make things any more.” No statement could better capture the underlying psychology of protectionism. And Labor has backed up its protectionist words with protectionist deeds. Mr Rudd recently announced that his Government will spend $35 million of taxpayer funds to subsidise Toyota to build hybrid cars in Australia. The Victorian Labor government will match this subsidy. This was on top of his appointment of Steve Bracks to head a review of the automotive sector and Roy Green to head a review of the textiles, clothing and footwear sector. Both of these reviews should properly have been conducted by the independent Productivity Commission which has the expertise and skills to undertake these inquiries. The Coalition certainly would have used the PC. The Commonwealth and Victorian governments have also pledged to provide further assistance, with Victoria to buy 2000 vehicles for its government fleet and Mr Rudd promising to buy up to 4000 Australian-made hybrid vehicles by 2020. Toyota plans to produce about 10,000 hybrid Camrys per year, starting in 2010. It will apply its existing petrol-electric Prius technology, but all of the engine components will be imported from Japan, where the hybrid Camry is already being produced. Toyota already sells the Camry Hybrid in the United States at a price of $US 25,650. It also plans on producing the hybrid Camry in Thailand. The worst part of this entire episode is that it appears that the decision to make petrol­electric hybrid Camrys in Australia had already been made and was due to be announced “within months”. That is Mr Rudd basically paid $35 million of taxpayer funds just to secure bragging rights. Ford has already announced plans to build an Australian clean-diesel version of the Ford Focus, and GM Holden is planning to produce hybrid and diesel versions of the Commodore within two years. There is a very good reason why Toyota, Ford and GM Holden are producing these hybrid cars. And it is the same reason why Toyota did not need this subsidy, and why Ford and GM Holden do not need it: unleaded petrol prices have almost doubled since 2001. If that increase is not enough to induce consumers to demand greater fuel efficiency and switch to hybrid cars, not to mention improve profitability for hybrid producers, then what is? Mr Rudd is a mercantilist at heart. He believes exports are good, imports are bad. His recent criticisms of Noble Laureate Friedrich Hayek show he does not understand the market economy. He does not understand the benefits of free trade. He does not understand opportunity cost. That should be of great concern to all Australians, and should particularly concern the Property Council. After all, the benefits of free trade apply just as much to capital flows as they do to trade in goods and services. Free trade in goods, services and capital has improved our standards of living. It has provided competition to drive innovation and productivity. It has increased real wages. Free trade has given more choice to Australians, more freedom to Australians and more job opportunities to Australians. And allowing financial capital to flow freely across borders is just free trade by another name. It is a matter of record that the Great Depression was extended by the ‘beggar thy neighbour’ protectionist policies that followed. Sadly, there are protectionist tendencies re-emerging in the world, some under the guise of environmental policies. For Australia to continue to be strong, dynamic, flexible and resilient, it will require a Government willing to prosecute the case for free trade. adminSat, 16 Aug 2008 06:28:00 GMTf1397696-738c-4295-afcd-943feb885714:47http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/117/Speech-to-The-Property-Council-of-Australia.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=117http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=117&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/117/Speech-to-The-Property-Council-of-Australia.aspx**check against delivery** Ladies and Gentlemen, it is a delight to be with you at today's Property Council luncheon. Today I would like to speak to you about a number of themes, principally tax reform, but also I wish to touch on some other important issues affecting your industry. Tax Reform The Prime Minister’s MySpace website lists his favourite authors: Robert Ludlum, Manning Clark and, most ominously, George Orwell. A great example of Mr Rudd’s Orwellian Newspeak was when he said that for eleven and a half years the Coalition Government “did not put forward a strategic vision for the tax system”. (Building Australia’s Economic Future, Address to the Lord Mayor’s Business Breakfast Perth at www.pm.gov.au/media/Speech/2008/speech_0032.cfm) The tax reforms of the Coalition Government, in particular the GST, were the most sweeping in any of our lifetimes. Mr Rudd described these reforms as a “fundamental injustice” (House Hansard, 30 June 1999, A New Tax System (Bonuses for Older Australians) Bill 1999, Consideration of Senate Message). Mr Swan went further and called the GST a “bastard tax” (House Hansard, 8 June 1999, Matter of Public Importance, Goods and Services Tax: Low and Middle Income Earners). Since the defeat of the Keating Government, Labor has vehemently opposed tax reform, just as it has opposed economic reform generally. I welcome the Rudd Government copying the Coalition by commissioning a tax review under Ken Henry. Treasury’s initial discussion paper (Architecture of Australia’s tax and transfer system, August 2008 at www.taxreview.treasury.gov.au), released last week, makes a useful contribution to the tax reform debate. I think this would be a useful publication to be released each year with the Budget. If we are to reform the tax system, the first step is to know from where we are starting. But is it not amazing that the Rudd Government explicitly excluded Dr Henry from inquiring into the GST? Surely a thorough inquiry should include analysis of the third largest tax in Australia? It seems that Mr Rudd once again announced an inquiry to meet the news cycle and deflect criticism of a lack of vision on tax that followed my announcement of the Coalition’s tax review under Henry Ergas. We will support genuine tax reform. But I’ll remain sceptical about the prospects of Labor Tax Reform until I see the details of any proposals. The tax system should be designed and maintained to collect no more money than the Government needs, and it should do so fairly and efficiently. Tax compliance and administration should be easy and above all designed to minimise economic waste. Our tax system is both fairer and more efficient than it was in 1996, but there is much more to be done. The Coalition wants to reduce the burden of taxation, and replace inefficient taxes with efficient taxes. That is why we commissioned Professor Henry Ergas to undertake a study of Australia’s taxes at all levels of Government. I welcome the Property Council’s recent submission to the Ergas Review. The Coalition will be developing its tax policy – and other policies – over time and naturally we will release these policies at a time of our choosing closer to the election. But we will be consulting widely in developing these policies. The Coalition is committed to good government, sound policies and a strong, dynamic and efficient economy. At the meeting with Shadow Treasurers I hosted last Friday, we issued a communiqué that agreed, among other things, to pursue policies to reduce or eliminate inefficient Commonwealth, State and Territory taxes. There are over 125 taxes paid by Australians each year. As noted in the Treasury paper, 90 per cent of revenue was derived from ten taxes: personal tax, company tax, GST, fuel excises, payroll taxes, conveyance stamp duties, local government rates, superannuation funds, tobacco excise and land taxes. As a result of the Coalition’s GST tax reforms, accommodation tax, financial institutions duty, marketable securities duty and debits tax were abolished. In addition, agreement was reached on a timetable for the abolition of mortgage duty, rental duty, lease duty, stamp duty on unquoted marketable securities, cheque duty and stamp duty on conveyances of non-real non-residential property. Progress has been slow, though, on the abolition of stamp duty on non-residential conveyances of real property. In 2006-07, the Australian government collected $262.5 billion (including the GST) while the States and Territories collected $48.9 billion and the local governments collected $9.4 billion. Of State and Territory taxes, 24 per cent are collected through stamp duties and 6 per cent through insurance taxes. Conveyancing stamp duty and other stamp duties raised close to $15 billion in revenue. These transactions taxes are notoriously inefficient. And until recently, like most inefficient taxes they have tended to be the least visible, and therefore among the least controversial. Professor John Freebairn (Freebairn, J, 1998, “Efficiency Issues”, Tax Reform Debate, ed. P. Abelson, Allen and Unwin, Sydney) has estimated that the efficiency cost of all taxation in Australia – the total deadweight loss of our tax system – is around 6 per cent of GDP. That is, to raise $320.8 billion in tax revenue at all levels of Government imposes an additional cost to the economy of $66 billion. Taxes vary in their inefficiency. But all taxes tend to cost the economy more than the revenue they raise. In principle taxes could be ranked in order of their efficiency. More efficient taxes cost the economy less for given revenue raised. It would be useful for Treasury to publish estimates of the average and marginal efficiency costs of each of Australia’s 125 taxes. Inefficiency arises from distorting the economy. Resources – capital and labour – flow to their most valued use. But taxation distorts this flow. The greater the distortion that a tax causes, the less efficient is the tax. Transactions taxes – such as stamp duty – distort trade. They drive a wedge between the price received by the seller and the price paid by the buyer. That wedge reduces the quantity of transactions, reduces the gains from trade, and imposes a real cost on individuals, families and businesses. One big area that is ripe for tax reform is stamp duty on conveyancing, particularly on residential property. Stamp Duty on Conveyancing All States and Territories levy duty on residential property transfers. Stamp duties of various kinds have been levied in Australia since before Federation. Of course, they were around before that; for example in 1694 they were levied in the United Kingdom to help pay for the war with France. They subsequently became very popular in Europe, and were applied to newspapers, legal documents, business licences, diplomas – almost anything written on paper. In March 1765 Britain was again at war with France in North America, and following riots in Britain against the cider excise that was levied under the Sugar Act, the British attempted to levy stamp duties on the American colonists. This attempt failed, of course. The Stamp Act started a rebellion in the American colonies, united them against a common British enemy, popularised the phrase “taxation without representation is tyranny”, and eventually led to a tax revolt: the American War of Independence. In Australia we learned that taxation with representation is not so great either. Initially our stamp duties were very similar to user charges. Many consisted of fees that were charged by government clerks to cover the administrative costs of validating contracts. The States also levied probate fees, which were designed to cover the costs of issuing probates and letters of legal administration. These were very similar to stamp duties, in the sense that they were taxes on written documents. Because property transfers from deceased estates were relatively inexpensive to monitor, the rates of duty gradually increased, and they eventually evolved into death duties. These were first introduced in New South Wales in 1851 and existed until the early 1980s. In New South Wales in 1875, customs and excise duties comprised over 90 per cent of revenues, with probate and stamp duties comprising only 0.4 per cent. By 1896 that had increased to 15 per cent of NSW government revenues. The share of revenue has grown over time. In 2008-09, for example, the New South Wales government estimates that transfer duties and other stamp duties will account for 28.3 per cent of total own-source revenue. Despite their attractiveness as sources of revenue, however, there are several problems associated with conveyancing stamp duties. Consider the case of New South Wales, where the standard, non-concessional rates of stamp duty on conveyances range from 1.25 per cent to 5.5 per cent. Under the state’s First Home Plus Scheme (www.osr.nsw.gov.au/lib/doc/factsheets/fs_fhb1.pdf), eligible purchasers – first home buyers and first home builders – are exempt from paying duty on homes valued up to $500,000. Duty concessions are also available for homes valued between $500,000 and $600,000. However, what is interesting is that the concession is withdrawn at a rate of 22.49 cents in the dollar. Thus, the average concessional rate of stamp duty is lower than the standard rate, but each extra dollar between $500,000 and $600,000 effectively attracts a tax rate of 22.49 cents. The most recently available March quarter data from the Real Estate Institute of Australia (REIA) shows that the median house price in Sydney is $554,000. In other words, a first homeowner buying a median house in Sydney pays $11,470 in stamp duty, and those who pay $600,000 or more pay over $22,290 in stamp duty and receive no concession at all. But most importantly, on that median Sydney house, the effective marginal rate of transfer duty facing a first homebuyer is 22.49 per cent. For first homebuyers the average rate of stamp duty is obviously lower than the standard rate, so the recipients of the concession are obviously better off with it than without it. But the economic costs of a tax depend on marginal disincentives, and those can be quite high in the case of the stamp duty concession because of the high effective tax rate. I wonder how many first home buyers realise that when they bid an extra $1 on that median priced home, they effectively pay Mr Iemma an extra 22.49 cents! Another point which seems to be underemphasised in the debate is that stamp duty – being a transactions tax ­ is not really a tax on housing or property at all. It is a tax on moving. In reality, the underlying economic activity that is being taxed is migration from one suburb to another, or from one city to another. Seen in this light, the tax rate that the States and Territories are levying on that base is very high indeed. For example if the economic activity of moving house costs you $10,000, then stamp duty in NSW could easily end up being more than double that. This means that the effective rate of tax on the underlying economic activity - moving - could easily be more than 200 per cent. The distortions that this tax on moving creates reveal themselves in many different ways. Young families might decide to buy a larger house than they initially require. Older individuals and families might decide to stay put, in houses that are too big for their existing needs. Alternatively, families might decide to renovate instead of moving. Individuals may decide not take a new job in a different suburb or city. So stamp duty discourages labour mobility and encourages frictional unemployment. And what about the equity effects of stamp duty? According to the Australian Bureau of Statistics 2006 census, the median weekly individual income (age 15 and over) in Sydney is $518, or $27,000 per year. That means that stamp duty on the median Sydney home is 42 per cent of the median individual income and 16 per cent of median family income, even with a first homebuyer concession. It hardly seems equitable that people who have to move house ­ for whatever reason ­ have to pay so much more tax than anyone else. In short, stamp duty punishes ordinary Australians just for getting on with their lives. Some people move homes because they want to get married, start a family or are having more kids and need a bigger house. Some people move house because the kids grown up and have left home. Others move for health reasons or because they are getting older. Other people want to change jobs. Others want to be closer to family and friends. Some people just want to live in a more desirable area. Stamp duty is a tax on all of these activities. Green Buildings I also welcome the Council’s work in improving the energy efficiency of Australian new and existing residential and commercial buildings. Increased energy efficiency in our buildings can make a substantial contribution to the overall reduction in Australia’s greenhouse emissions. The Centre for International Economics (Centre for International Economics 2007, Capitalising on the Building Sector’s Potential to Lessen the Costs of a Broad Based GHG Emission Cut, Canberra) estimated that residential and commercial buildings account for 23 per cent of Australia’s emissions from electricity consumption alone, with rapidly growing emissions. Some of the technologies that could reduce emissions from the stock of our seven million private dwellings, with 150 000 new dwellings a year, include better insulation, double glazing, and more efficient appliances. Research cited in the Garnaut Climate Change Review Draft Report by the International Energy Agency (IEA 2006, Energy Technology Perspectives 2006 – scenarios and strategies to 2050, Paris) estimates that increased energy efficiency could account for 45 to 53 per cent of global emissions reductions to 2050. I commend the Property Council on its efforts in this field, especially in encouraging cost-effective technologies to reduce Australian greenhouse emissions. The Australian Economy While an open foreign investment regime and competitive tax system are important to Australia and to the Property Council’s members, a strong and dynamic economy is the crucial foundation. By any measure, the Rudd Labor government inherited a much stronger, more resilient and flexible economy than the Coalition inherited in 1996. It was especially important that our fiscal house be put in order, which the Coalition achieved by paying off Labor’s $96 billion debt and ensuring strong fiscal surpluses. The Australian economy remains robust and resilient, but it is showing clear signs of weakening since Mr Rudd took office. The S&P 200 index for the Australian stock market has fallen from 6330.2 to 4981.1 – a fall of 21.3 per cent compared with a fall of only 12.6 per cent on the US S&P 500. The Reserve Bank has increased official rates by 0.5 percentage points, while banks have increased by more – the Commonwealth Bank, for example, increasing its standard variable rate from 8.57 per cent to 9.58 per cent over the same period: an increase of 1.01 percentage points, or 0.51 percentage points than the official rate increases. Under the Rudd Government, mortgage interest rates have risen to levels not seen since Labor was last in office. Small business overdraft rates, now at around 12 per cent, are at levels not seen since 1992. They have increased 1.15 percentage points since the election. Inflation has increased to 4.5 per cent – a rate not seen since the last Labor Government, if you exclude the one-off GST effect. Underlying inflation, with the RBA’s trimmed mean at 4.3 per cent, is also at its highest level since Labor was last in office. The Melbourne Institute’s most recent survey results show that consumer inflationary expectations are high, with the median expected inflation rate at 4.9 per cent. And the proportion of survey respondents expecting annual inflation to fall within the Reserve Bank’s target band of 2-3 per cent is only 8.8 per cent, lower than the average over the last year of 12 per cent. During the Coalition’s term in office, median inflationary expectations averaged 3.1 per cent – the best average performance of any government since the survey began. In contrast, since Rudd has taken office, median inflationary expectations have averaged 4.9 per cent. That is the highest 9 month average since 1991 ­when Labor was last in office. The RBA also conducts a survey of inflationary expectations and publishes the results in its Statement on Monetary Policy. Its latest August Statement tells a very interesting story of what has been happening with their survey since Labor has taken office. The RBA’s data shows that between August 2007 and November 2007, expectations of 2008/09 inflation actually fell among market economists, and remained steady among union officials. But since Mr Swan started talking up inflation back at the beginning of February, expectations of inflation among market economists have increased in every RBA survey. And union officials have revised up their expectations of the inflation that they believe will occur in 2008/09 by a full percentage point, from 3 per cent to 4 per cent. That is why, in its most recent August Statement, the RBA notes that “inflation expectations are at high levels, and an upward trend is evident across measures.” At the same time that inflationary expectations have been rising, a slew of economic indicators now suggest that the economy is slowing. Retail turnover figures for the month of June showed a fall of 1 per cent, well below market expectations. The ABS housing finance release found that the value of housing commitments fell by 0.9 per cent in the month of June. The number of housing commitments for owner occupiers fell by 3.7 per cent. ABN Amro has recently found that household wealth suffered its biggest decline over the past six months since the 1982-83 recession. And consumer confidence has plummeted. The Roy Morgan consumer confidence rating index at 90.1, the lowest level since December 1991. The Sensis consumer index has fallen 16 percentage points since the election, with record numbers of Australians worried about their financial future. The latest Westpac-Melbourne Institute consumer sentiment index shows that consumer confidence is very low at 86.2, lower than it was in February 1992 ­ right in the middle of Labor’s “recession we had to have” According to this measure, consumer confidence has fallen 26.3 percentage points since the election. To top it all off, business confidence has completely collapsed. The National Australia Bank quarterly survey shows that in the June quarter, business confidence fell to its lowest level since early 1991. The Dunn & Bradstreet business expectations survey showed that for the June quarter 2008, the growth in sales was the lowest since the March 1991 quarter. And the Commonwealth Bank-ACCI Business confidence index, as measured their Expected Economic Performance indicator, fell to its lowest level since the survey began in 1994. Finally, as if all that was not bad enough, let me give you one more piece of data. This is the crowning glory of Mr Rudd’s incompetence. As you know, Morris Iemma and his colleagues have been mismanaging New South Wales for well over a decade. They have been working on hopelessness for a very long time. Kevin Rudd has only been in office for eight months, and yet in the recent May Sensis survey on the attitudes of small and medium enterprises, the only Australian government in which those businesses had less confidence in than Kevin Rudd’s Federal Government was Mr Iemma’s motley crew! In other words, according to the Sensis business confidence survey – which has fallen 53 percentage points since the election ­ Kevin Rudd is currently the silver medallist in governmental hopelessness, only being pipped at the post by Morris lemma. Of all the other Labor governments around the country, Mr Rudd has done that in only eight months. His biggest ambition seems to be to ensure that his political epitaph reads: “I was not as bad as Morris Iemma.” Swan, Rudd and Paulson In the Reserve Bank’s August Statement on Monetary Policy, the Bank revised down its economic growth forecast for the year to December 2008 from 2¼ per cent to 2 per cent. It revised up its forecast for inflation to 5 per cent over the same period. The very next day, in a report in Tuesday’s Australian, David Uren and Brad Norington wrote: “the Reserve Bank is predicting an economic slowdown so severe that 100,000 people will be thrown out of work in the next 12 months, pushing the unemployment rate to 5 per cent and possibly higher if the financial crisis worsens”. None of this should come as a surprise to Mr Rudd and Mr Swan, because since coming to office they have been talking up inflation and talking down the economy on a regular basis. The contrast between Labor’s rhetoric and the language used by some of their counterparts overseas is quite stunning. Take the United States, for example. In February in the US, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. And yet although the US was experiencing serious difficulties, US Treasury Secretary Henry Paulson refused to talk down his economy. On February 5 he said that: “The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy.” He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again." Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy. But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent? It is a matter of public record that he was going around the country, talking up inflation for political purposes. On February 1st, he said that “the Howard Government let the inflation genie out of the bottle.” Two days later on February 3rd, Mr Swan again talked up inflation, saying that “the former Treasurer, the former Government, let the inflation genie out of the bottle.” And just in case nobody got the message, on February 4th ­the day before the Reserve Bank met to consider its stance on monetary policy ­ Mr Swan again said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control. What kind of a Treasurer repeatedly says that inflation is out of control ­ not once, but three times – in the lead up to a meeting of the board of the central bank? The Prime Minister’s record is no better. In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: “Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy.” Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent. And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the “inflation monster” could “wreak havoc” on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where industrial production actually declined by 1.6 per cent in May, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent. On June 18th the Chancellor of the Exchequer, Alistair Darling, said that “Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence.” Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence. And what does the Hollowman-in-Chief, Kevin Rudd, have to say about Australia’s economy? He shrugs his shoulders, and famously declared in the Adelaide declaration “We've done as much as we physically can.” Labor’s New Protectionism Despite all of the talk about being ‘economic conservatives committed to an independent central bank’, the Rudd Government has an inbuilt distrust of the market and a sloppiness of process. It lacks analytical rigour and displays no sign of strategic thinking. Labor is a policy free zone committed to style over substance. And Labor’s protectionist psychology has emerged spectacularly. Addressing the ALP National Conference on 28 April 2007, Kevin Rudd said that: "I don't want to be prime minister of a country which doesn't make things any more.” No statement could better capture the underlying psychology of protectionism. And Labor has backed up its protectionist words with protectionist deeds. Mr Rudd recently announced that his Government will spend $35 million of taxpayer funds to subsidise Toyota to build hybrid cars in Australia. The Victorian Labor government will match this subsidy. This was on top of his appointment of Steve Bracks to head a review of the automotive sector and Roy Green to head a review of the textiles, clothing and footwear sector. Both of these reviews should properly have been conducted by the independent Productivity Commission which has the expertise and skills to undertake these inquiries. The Coalition certainly would have used the PC. The Commonwealth and Victorian governments have also pledged to provide further assistance, with Victoria to buy 2000 vehicles for its government fleet and Mr Rudd promising to buy up to 4000 Australian-made hybrid vehicles by 2020. Toyota plans to produce about 10,000 hybrid Camrys per year, starting in 2010. It will apply its existing petrol-electric Prius technology, but all of the engine components will be imported from Japan, where the hybrid Camry is already being produced. Toyota already sells the Camry Hybrid in the United States at a price of $US 25,650. It also plans on producing the hybrid Camry in Thailand. The worst part of this entire episode is that it appears that the decision to make petrol­electric hybrid Camrys in Australia had already been made and was due to be announced “within months”. That is Mr Rudd basically paid $35 million of taxpayer funds just to secure bragging rights. Ford has already announced plans to build an Australian clean-diesel version of the Ford Focus, and GM Holden is planning to produce hybrid and diesel versions of the Commodore within two years. There is a very good reason why Toyota, Ford and GM Holden are producing these hybrid cars. And it is the same reason why Toyota did not need this subsidy, and why Ford and GM Holden do not need it: unleaded petrol prices have almost doubled since 2001. If that increase is not enough to induce consumers to demand greater fuel efficiency and switch to hybrid cars, not to mention improve profitability for hybrid producers, then what is? Mr Rudd is a mercantilist at heart. He believes exports are good, imports are bad. His recent criticisms of Noble Laureate Friedrich Hayek show he does not understand the market economy. He does not understand the benefits of free trade. He does not understand opportunity cost. That should be of great concern to all Australians, and should particularly concern the Property Council. After all, the benefits of free trade apply just as much to capital flows as they do to trade in goods and services. Free trade in goods, services and capital has improved our standards of living. It has provided competition to drive innovation and productivity. It has increased real wages. Free trade has given more choice to Australians, more freedom to Australians and more job opportunities to Australians. And allowing financial capital to flow freely across borders is just free trade by another name. It is a matter of record that the Great Depression was extended by the ‘beggar thy neighbour’ protectionist policies that followed. Sadly, there are protectionist tendencies re-emerging in the world, some under the guise of environmental policies. For Australia to continue to be strong, dynamic, flexible and resilient, it will require a Government willing to prosecute the case for free trade. adminSat, 16 Aug 2008 04:59:00 GMTf1397696-738c-4295-afcd-943feb885714:117http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/48/Shadow-Treasurers-Meeting.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=48http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=48&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/48/Shadow-Treasurers-Meeting.aspxCOMMUNIQUÉ Commonwealth Shadow Treasurer, Malcolm Turnbull MP, hosted a meeting of his fellow Shadow Treasurers today.  Attending the meeting were Martin Hamilton-Smith (Shadow Treasurer and Leader of the Opposition, South Australia), Will Hodgman (Leader of the Opposition, Tasmania), Greg Pearce (Shadow Treasurer, New South Wales), Bruce Flegg (Shadow Treasurer, Queensland), Brendan Smyth (Shadow Treasurer, Australian Capital Territory), and Neale Burgess (representing Kim Wells, Shadow Treasurer Victoria). Apologies were received from Terry Mills (Shadow Treasurer Northern Territory) and Steve Thomas (Shadow Treasurer, Western Australia). Shadow Treasurers reaffirmed their commitment to a strong Australian market economy, with a reduced burden of regulation, low taxes and enhanced freedom. Shadow Treasurers agreed to pursue policies to reduce or eliminate inefficient Commonwealth, State and Territory taxes.  These taxes disproportionately cost Australians and raise limited revenue for the regulatory and other burdens they impose upon Australian businesses and citizens. State and Territory Shadow Treasurers agreed to support the Ergas Review of Taxation to assist in the development of good taxation policy at the Federal level and guide the development of good taxation policy at the State and Territory level. Noting that the Rudd Labor Government has established $40 billion slush funds, Shadow Treasurers agreed to carefully monitor the management of the Fund and the allocations from the Fund to provide some constraint to the Rudd Government from wasting taxpayers’ money on frivolous, poor quality and politically motivated projects. Shadow Treasurers noted with concern that Labor State and Territory Governments are again plunging into a $111 billion debt binge – a repetition of the mismanagement of past Labor Governments and in stark contrast to the responsible economic management of the Commonwealth during the Howard Government. Shadow Treasurers expressed their concern about the inability of Labor Treasurers to control spending and the risks this poses for the future fiscal stability of the States and Territories. Shadow Treasurers agreed to meet regularly to further coordinate Coalition economic policies and to provide a coherent economic framework across Australia to increase the prosperity and wellbeing of Australians.adminSat, 09 Aug 2008 06:30:00 GMTf1397696-738c-4295-afcd-943feb885714:48http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/118/The-Australian-Economy-and-the-Political-Landscape.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=118http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=118&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/118/The-Australian-Economy-and-the-Political-Landscape.aspx  The Australian Economy and the Political Landscape Menzies Research Centre ****Check against delivery**** Introduction By any measure, the Rudd Labor government inherited a much stronger, more resilient and flexible economy than the Coalition inherited in 1996.  In 1995 – Labor’s last full year in office - the consumer price index grew by 5.1 per cent through the year to December.  And in 1996 the Coalition inherited an unemployment rate of 8.2 per cent and a participation rate of 63.5 per cent.  We also inherited a $10 billion budget deficit – Mr Beazley’s famous “black hole” (which he of course repeatedly insisted was a surplus) -  and $96 billion in net government debt.  In its first Budget – the 1996-97 Budget –  the Coalition took policy decisions to reduce Government spending by $2.9 billion in 1996-97 (0.6 per cent of GDP), $5.2 billion in 1997-98 (1 per cent of GDP) and $4.8 billion in 1998-99 (0.8 per cent of GDP).  In other words, the Coalition’s policy decisions to reduce Government spending in its first Budget totalled $12.97 billion over three years – and our economy was much smaller than it is today.  Fast forward to 2007: Labor inherited an inflation rate of 3 per cent, an unemployment rate of 4.2 per cent and a participation rate 65.2 per cent. And what about the fiscal situation that Mr Rudd inherited? In the Coalition’s last full year of office – 2006-07 - the budget surplus was 1.6 per cent of GDP and net debt was negative. Since 2001-02 the budget surplus never fell as a proportion of GDP.  In making these comparisons, my point is simply this: with inflation now running at 4.5 per cent at the same time the economy is starting to show signs of slowing, can you imagine the dire economic straits we would be in, but for the Coalition’s exemplary economic management of the last 12 years?  What would have been the economic consequences of not paying off Labor’s $96 billion debt? There can be little doubt that we would now be entering what appears to be a period of slower growth with much higher interest rates.  What would the economic landscape look like today if the labour market had not been made more flexible? There can be little doubt that we would now be entering what appears to be a period of slower economic growth with lower real wages and many more people out of work.  And imagine, if you can stomach it, the economic carnage that Mr Swan could have caused if the Coalition had not made the Reserve Bank independent.  From day one, Wayne Swan has been egging on the RBA to raise interest rates. He even went so far as to say that inflation was out of control the day before the Reserve Bank Board met.  That reckless rhetoric simply exacerbated inflationary expectations and made the Reserve Bank’s job more difficult.  But imagine the damage Mr Swan could have caused if he believed that inflation was out of control as well as thinking that he had the Reserve Bank in his back pocket.  We would have had Paul Keating on steroids!  In short, but for the Coalition’s economic management, we would now be entering a period in which Labor would now be creating much more economic damage than it has been seeking to cause.  The Economy under Labor The Australian economy remains robust and resilient, but it is showing clear signs of weakening.  Since the election of the Rudd Government, most economic indicators have weakened – some significantly.  The S&P 200 index for the Australian stock market has fallen from 6330.2 to 4972.5 – a fall of 21.5 per cent compared with a fall of only 10.5 per cent on the US S&P 500. The Reserve Bank has increased official rates by 0.5 percentage points, while banks have increased by more – the Commonwealth Bank, for example, increasing its standard variable rate from 8.57 per cent to 9.58 per cent over the same period: an increase of 1.01 percentage points, or 0.51 percentage points than the official rate increases.   Under the Rudd Government, mortgage interest rates have risen to levels not seen since Labor was last in office.  Small business overdraft rates, now at around 12 per cent, are at levels not seen since 1992.  They have increased 1.15 percentage points since the election. Inflation has increased to 4.5 per cent – a rate not seen since the last Labor Government, if you exclude the one-off GST effect. Underlying inflation, with the RBA’s trimmed mean at 4.3 per cent, is at its highest level since Labor was last in office.  The Melbourne Institute’s most recent survey results show that consumer inflationary expectations are on the rise, with the the median expected inflation rate currently at 5.9 per cent, up from 5.2 per cent in May.  And the proportion of survey respondents expecting annual inflation to fall within the Reserve Bank’s target band of 2-3 per cent decreased to 8 per cent in June, down from 9.5 per cent in April.  At the same time that inflationary expectations have been rising, a slew of economic indicators now suggest that the economy is slowing.  Only last week retail turnover figures for the month of June showed a fall of 1 per cent, which was a far lower result than market analysts expected. Yesterday the Australian Bureau of Statistics’ Housing Finance release found that the value of housing commitments fell by 0.9 per cent in the month of June.   The number of housing commitments for owner occupiers fell by 3.7 per cent.     ABN Amro has recently found that household wealth suffered its biggest decline over the past six months since the 1982-83 recession. And consumer confidence has plummeted. The Roy Morgan consumer confidence rating index at 90.7, the lowest level since December 1991. The Sensis consumer index has fallen 16 percentage points since the election, with record numbers of Australians worried about their financial future. Tellingly, nearly 80 per cent of Australians believe they are no better off than they were a year ago.  The Westpac-Melbourne Institute consumer sentiment index has fallen to 79, the lowest level since January 1992. It has fallen 31.5 percentage points since the election. To top it all off, business confidence has completely collapsed. The National Australia Bank quarterly survey shows that in the June quarter, business confidence fell to its lowest level since early 1991 – during Labor’s “recession we had to have”. The Dunn & Bradstreet business expectations survey just released this week showed that for the June quarter 2008, the growth in sales was the lowest since the March 1991 quarter.  And this week the Commonwealth Bank-ACCI Business confidence index, as measured their Expected Economic Performance indicator, fell to its lowest level since the survey began in 1994. Finally, as if all that was not bad enough, let me give you one more piece of data. This is the crowning glory of Mr Rudd’s incompetence.  As you know, Morris lemma and his colleagues have been mismanaging New South Wales for well over a decade.   They have been working on hopelessness for a very long time. Kevin Rudd has only been in office for eight months, and yet in the recent May Sensis survey on the attitudes of small and medium enterprises, the only Australian government in which those businesses had less confidence in than Kevin Rudd’s Federal Government was Mr Iemma’s motley crew! In other words, according to the Sensis business confidence survey – which has fallen 53 percentage points since the election - Kevin Rudd is currently the silver medallist in governmental hopelessness, only being pipped at the post by Morris lemma. Think about how extraordinary that is. Since Mr Rudd has come to office, small and medium enterprises have less confidence in his government then they have in Anna Bligh’s, than Alan Carpenter’s and John Brumby’s. Of all the other Labor governments around the country, Mr Rudd has done that in only eight months.   His biggest ambition seems to be to ensure that his political epitaph reads: “I was not as bad as Morris Iemma.”  Labor’s Failure on Economic Leadership And all of this has taken place in an environment where our terms of trade – the ratio of our export prices to our import prices – is rising rapidly, due to rising commodity prices.  The latest Reserve Bank Commodity Price Index showed an increase of 3 per cent in the month of July, or 36 per cent in the year to July 2008. The March quarter national accounts showed that Australia’s terms of trade increased by 1.1 per cent over the year, to be the highest level since the Korean war.  The Budget forecasts the terms of trade to rise further, by 3¼ per cent in the four quarters to June 2009. Australian-Japanese contract prices for most hard coking coals have tripled for Japanese Financial Year 2008, rising to around US$300 a tonne for premium hard coking coal. In April 2008, Australian coal suppliers and Japanese power utilities settled thermal coal contract prices at US$125 a tonne for 2008, an increase of around 125 per cent on last year.  2008 is the sixth consecutive year in which we seen contract prices increase for iron ore, with recent demand being driven by steel production in China.  This is an economic environment where Mr Rudd inherited the strongest fiscal situation in Australia’s history, with a run of strong surpluses and negative net debt of $44.9 billion or minus 3.7 per cent of GDP.  An environment where our financial sector is strong and resilient. Where Australians were enjoying strong economic growth, low unemployment, rapid employment growth and rising living standards. After inheriting such a favourable set of economic circumstances, what went wrong?  The Coalition recognises that there have been enormous ructions in the financial markets around the world. Managing the economy is never plain sailing. When we were in government we navigated many storms - successfully.  But what Wayne Swan and Kevin Rudd have done is make those problems worse. So keen were they to capture the economic high ground, Mr Rudd and Mr Swan played a blame game from day one, trying to sheet home responsibility for inflationary pressures to the previous Government.  But that plan has badly backfired. Instead of moderating, instead of managing, instead of leading, they have had a political agenda to talk down the economy, talk up inflation and lay the blame at John Howard's door.  As a result, inflation has increased, inflationary expectations have blown out, but at the same time consumer confidence has plummeted and indicators of economic activity are showing weak growth.  There is no other way to put this: we are suffering lack of economic leadership in this country and we are paying a very heavy price for it. There is a failure to recognise that leadership requires men and women who will inspire confidence in our economy and give people the confidence to invest, to hire, to make plans for the future.  Mr Rudd and Mr Swan have undermined that for a very shabby political purpose from the moment they got into office. Through 2007 Mr Rudd and Mr Swan made as their key narrative the failure by the Howard Government to do something on fuel prices and grocery prices. They then copied the Coalition’s tax cuts and tried to market them as their own.  But Mr Rudd is the most economically illiterate Prime Minister since Gough Whitlam.  And Mr Swan is as competent as Jim Cairns and as confident as Norman Gunston.  Now with the keys to the Lodge, Mr Rudd doesn’t know what to do.  Like rabbits in the glare of the headlights, the Labor Party apparatchiks stand still, not knowing which way to go. First they trumpeted their ‘five point plan’ to fight inflation.  They soon dropped that and promised a horror budget “to put maximum downward pressure of inflation and maximum downward pressure on interest rates”. Then they delivered a budget which loosened fiscal policy in 2007-08 and that was mildly inflationary. Then to fix fuel prices, they come up with FuelWatch – a policy discredited by economists. Mr Rudd now proposes GroceryChoices, where Australians will be able to consult a website to see what local supermarket prices looked like – for a small set of products – a month ago. Here’s a newsflash, Mr Rudd: If you want to get a better handle on what grocery prices will look like next week – not what they looked like last month - just do what the rest of us do. Pick up a newspaper, or walk to the letterbox and take a look at the dozens of catalogues distributed by local retail outlets.   Like Chauncey Gardiner in the film Being There, Mr Rudd is the Prime Minister who likes to watch.  Indeed, it is all about being there, and Peter Sellers is an inspiration for the Prime Minister,  just sitting there, waiting, watching talking about problems. When these great challenges of living standards and prices and battles with ever-rising prices and pressures are brought to bear, what does the Prime Minister do?   He talks about the problem and sets up a website.  In truth, Mr Rudd and his colleagues have no ideas.   They are full of symbolism but empty of solutions.  Mr Rudd’s symbolism reached its apogee at the 2020 summit.  His neglect of the here and now is palpable.   The clear message of the 2020 summit and the first eight months of the Labor government is that Mr Rudd will start governing in 2020  - in 4165 days time.   What is supposed to happen in the meantime?  Three weeks after the Budget, we had the spectacle of Mr Rudd raising the white flag, shrugging his shoulders and saying that his Government had “done as much as it physically could.”   Harry S. Truman had a sign on his desk which read “the buck stops here”. Mr Rudd simply hides under his desk. Labor has been caught out by its own rhetoric. The economy does not run on autopilot – it needs a competent and confident driver who can drive economic reform. It needs a government willing to take responsibility - not one which seeks to blame the previous government, overseas events, or “big oil.”  So much for Mr Rudd’s vision of “New Leadership”, which he used as a slogan at the last election. We now know that the slogan should have read “No Leadership”.  In 2007 we heard Mr Rudd and Mr Swan accuse the Coalition of “11 years of neglect”. Now it is “12 years of neglect”. In 2010 can we expect it to be 14 years of neglect? Mr Rudd and Mr Swan are now reaping the fruits of their reckless rhetoric and politically motivated blame game. Inflation and inflationary expectations have increased, and the economy is showing signs of slowing. It didn’t have to be this way.   Mr Rudd inherited an economy that was strong. It is resilient. It is dynamic.  With a strong economic team in Government, Australia could be expected to pass through the global downturn in good order. After all, it did so on numerous occasions under the Coalition Government, for example the Asian Financial crisis, SARS, the tech wreck, September 11 and so forth. But Australians have been poorly served by this Government.  Just recall – the Australian stock market has declined more than in the US. Australian confidence indicators have collapsed.  Yet we have rising terms of trade, a strong and robust financial sector, relatively strong economic growth, low unemployment, and a strong fiscal position. Why should confidence here be more affected than in the United States, where the sub-prime crisis started, where the fiscal position is worrisome and where house prices have collapsed? There is only one explanation: we have an incompetent and inexperienced Government with no coherent economic strategy.  Swan Rudd and Paulson In February in the United States, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. [1] And yet although the US was experiencing serious difficulties, US Treasury Secretary Henry Paulson refused to talk down his economy.  On February 5 he said that: "The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy." He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again."[1] Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy.  But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent ?  It is a matter of public record that he was going around the country, talking up inflation for political purposes.  On February 1st, he said that “the Howard Government let the inflation genie out of the bottle.”  Two days later on February 3rd , Mr Swan again talked up inflation, saying that “the former Treasurer, the former Government, let the inflation genie out of the bottle.” And on February 4th, the day before the Reserve Bank met to consider its stance on monetary policy, Mr Swan again said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control.  What kind of a Treasurer repeatedly says that inflation is out of control - not once, but three times – in the leadup to a meeting of the board of the central bank?  The Prime Minister’s record is no better.  In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy."[2] Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent.  And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the "inflation monster" could "wreak havoc" on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where industrial production actually declined by 1.6 per cent in May, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent.  [2] On June 18th  the Chancellor of the Exchequer, Alistair Darling, said that "Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence." [3] Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence.  And what does Kevin Rudd have to say about the economy?  "We've done as much as we physically can".  State Finances and Concluding Remarks Looking to the future, what can we expect from the Rudd government’s Labornomics over the next two years?  With the economy showing signs of slowing, we have already started to see some of the results.  In this year’s budget Mr Swan implemented a six point plan: Tax, tax, tax; and spend, spend, spend.  He took policy decisions that will increase revenue by $19.5 billion over the forward estimates.  Much of this increase in revenue comprises tax increases (none of which were mentioned during the election campaign) that will put upward pressure on prices. The only tax cuts were those copied from the Coalition Government. And then Mr Swan took policy decisions to increase spending by a total of $14.9 billion over the forward estimates.  Of course, this is just the start of the spending blowout. Remember that most of the reviews commissioned by Mr Rudd and his colleagues have yet to report. Make no mistake, very few, if any of these reviews will recommend lower government spending.  And on top of all that we have to add Labor’s deferred spending – the Building Australia Fund – which will conveniently be deployed before the next election.  But truth be told, as bad as the Federal budget was, it could have been a lot worse: Mr Swan could have used the record of the State Labor governments as a guide.  All of the State and Territory Labor Governments have now brought down their 2008-09 Budgets.  The aggregate results show that in underlying cash terms, Labor’s economic wizards in the States expect government finances to deteriorate significantly over the forward estimates, to 2011-12.  In 2008-09, the aggregate underlying cash deficit in the Labor States and Territories is expected to be $2.9 billion.  But the States’ own Budget figures suggest that these deficits will deteriorate by a further 41 per cent over the forward estimates, with the aggregate deficit reaching $4.2 billion in 2011-12.  The situation with respect to Non-Financial Public Sector (NFPS) Net Debt in the Labor States and Territories is even worse.  In 2008-09, aggregate State and Territory non-financial public sector net debt is expected to be $61.6 billion.  Labor’s own Budget figures suggest that this net debt will grow by more than 80 per cent over the forward estimates, with aggregate NFPS net debt projected to blow out to $111.5 billion in 2011-12.  To put those figures in perspective, remember that the Coalition officially paid off $96 billion of Labor’s debt on April 21, 2006. And yet the Labor States will be racking up almost exactly the same amount in real terms over the next few years.  How such a large public debt will help Australia achieve lower interest rates is beyond me. There is a significant risk that the State and Territory Labor governments will turn to their Labor mates in Canberra – Wayne Swan and Kevin Rudd – to bail them out. When Federal Labor announced in the Budget on 13 May that it would spend both the capital and earnings from its slush funds, it was obvious to all what they were really doing: deferring government spending into future years in order to make the 2008-09 Budget bottom line look better.  The only remaining question is whether this honey pot will be spent directly by Wayne Swan and Kevin Rudd in the leadup to the next election, or whether it will be used to subsidise the financial mismanagement of their State Labor mates. The Coalition must never forget that every dollar of government spending must ultimately be financed by taxation, which has economic costs above and beyond the amount of revenue that is raised.  That is why I am always in favour of reducing wasteful government spending: taxation is costly, so we need to make sure taxpayers get value for money and that the benefits of spending outweigh the costs of raising revenue.  We should continually review programmes for their efficacy, efficiency and effectiveness.  There is no virtue, none whatsoever, just in spending taxpayers’ money. There is virtue in spending taxpayers’ money and achieving real results as long as the benefits exceed the costs. The real benchmarks for political achievement are not how much money can be spent on any given good cause, but how much can be done, how much reform can be effected and how efficiently taxpayers’ money can be deployed. That benchmark should apply to every level of government. After all, a dollar of government spending is still a dollar of government spending, whether it is at the local, state or territory or federal level.  Unfortunately, as the recent State Budgets show, that test doesn’t seem to apply in Mr Rudd’s brave new world of Labornomics.  [1]http://www.treas.gov/press/releases/hp805.htm [2]http://www.treas.gov/press/releases/hp1001.htm   [1]http://www.treas.gov/offices/economic-policy/macroecon/monthly_economic_data.pdf [2] http://www.economist.co.uk/markets/indicators/displaystory.cfm?story_id=11849060&CFID=16012908&CFTOKEN=15677397 [3] http://www.hm-treasury.gov.uk/newsroom_and_speeches/speeches/chancellorexchequer/speech_chx_180608.cfm  adminSat, 09 Aug 2008 05:00:00 GMTf1397696-738c-4295-afcd-943feb885714:118http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/49/The-Australian-Economy-and-the-Political-Landscape.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=49http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=49&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/49/The-Australian-Economy-and-the-Political-Landscape.aspx The Australian Economy and the Political Landscape Menzies Research Centre ****Check against delivery**** Introduction By any measure, the Rudd Labor government inherited a much stronger, more resilient and flexible economy than the Coalition inherited in 1996.  In 1995 – Labor’s last full year in office - the consumer price index grew by 5.1 per cent through the year to December.  And in 1996 the Coalition inherited an unemployment rate of 8.2 per cent and a participation rate of 63.5 per cent.  We also inherited a $10 billion budget deficit – Mr Beazley’s famous “black hole” (which he of course repeatedly insisted was a surplus) -  and $96 billion in net government debt.  In its first Budget – the 1996-97 Budget –  the Coalition took policy decisions to reduce Government spending by $2.9 billion in 1996-97 (0.6 per cent of GDP), $5.2 billion in 1997-98 (1 per cent of GDP) and $4.8 billion in 1998-99 (0.8 per cent of GDP).  In other words, the Coalition’s policy decisions to reduce Government spending in its first Budget totalled $12.97 billion over three years – and our economy was much smaller than it is today.  Fast forward to 2007: Labor inherited an inflation rate of 3 per cent, an unemployment rate of 4.2 per cent and a participation rate 65.2 per cent. And what about the fiscal situation that Mr Rudd inherited? In the Coalition’s last full year of office – 2006-07 - the budget surplus was 1.6 per cent of GDP and net debt was negative. Since 2001-02 the budget surplus never fell as a proportion of GDP.  In making these comparisons, my point is simply this: with inflation now running at 4.5 per cent at the same time the economy is starting to show signs of slowing, can you imagine the dire economic straits we would be in, but for the Coalition’s exemplary economic management of the last 12 years?  What would have been the economic consequences of not paying off Labor’s $96 billion debt? There can be little doubt that we would now be entering what appears to be a period of slower growth with much higher interest rates.  What would the economic landscape look like today if the labour market had not been made more flexible? There can be little doubt that we would now be entering what appears to be a period of slower economic growth with lower real wages and many more people out of work.  And imagine, if you can stomach it, the economic carnage that Mr Swan could have caused if the Coalition had not made the Reserve Bank independent.  From day one, Wayne Swan has been egging on the RBA to raise interest rates. He even went so far as to say that inflation was out of control the day before the Reserve Bank Board met.  That reckless rhetoric simply exacerbated inflationary expectations and made the Reserve Bank’s job more difficult.  But imagine the damage Mr Swan could have caused if he believed that inflation was out of control as well as thinking that he had the Reserve Bank in his back pocket.  We would have had Paul Keating on steroids!  In short, but for the Coalition’s economic management, we would now be entering a period in which Labor would now be creating much more economic damage than it has been seeking to cause.  The Economy under Labor The Australian economy remains robust and resilient, but it is showing clear signs of weakening.  Since the election of the Rudd Government, most economic indicators have weakened – some significantly.  The S&P 200 index for the Australian stock market has fallen from 6330.2 to 4972.5 – a fall of 21.5 per cent compared with a fall of only 10.5 per cent on the US S&P 500. The Reserve Bank has increased official rates by 0.5 percentage points, while banks have increased by more – the Commonwealth Bank, for example, increasing its standard variable rate from 8.57 per cent to 9.58 per cent over the same period: an increase of 1.01 percentage points, or 0.51 percentage points than the official rate increases.   Under the Rudd Government, mortgage interest rates have risen to levels not seen since Labor was last in office.  Small business overdraft rates, now at around 12 per cent, are at levels not seen since 1992.  They have increased 1.15 percentage points since the election. Inflation has increased to 4.5 per cent – a rate not seen since the last Labor Government, if you exclude the one-off GST effect. Underlying inflation, with the RBA’s trimmed mean at 4.3 per cent, is at its highest level since Labor was last in office.  The Melbourne Institute’s most recent survey results show that consumer inflationary expectations are on the rise, with the the median expected inflation rate currently at 5.9 per cent, up from 5.2 per cent in May.  And the proportion of survey respondents expecting annual inflation to fall within the Reserve Bank’s target band of 2-3 per cent decreased to 8 per cent in June, down from 9.5 per cent in April.  At the same time that inflationary expectations have been rising, a slew of economic indicators now suggest that the economy is slowing.  Only last week retail turnover figures for the month of June showed a fall of 1 per cent, which was a far lower result than market analysts expected. Yesterday the Australian Bureau of Statistics’ Housing Finance release found that the value of housing commitments fell by 0.9 per cent in the month of June.   The number of housing commitments for owner occupiers fell by 3.7 per cent.     ABN Amro has recently found that household wealth suffered its biggest decline over the past six months since the 1982-83 recession. And consumer confidence has plummeted. The Roy Morgan consumer confidence rating index at 90.7, the lowest level since December 1991. The Sensis consumer index has fallen 16 percentage points since the election, with record numbers of Australians worried about their financial future. Tellingly, nearly 80 per cent of Australians believe they are no better off than they were a year ago.  The Westpac-Melbourne Institute consumer sentiment index has fallen to 79, the lowest level since January 1992. It has fallen 31.5 percentage points since the election. To top it all off, business confidence has completely collapsed. The National Australia Bank quarterly survey shows that in the June quarter, business confidence fell to its lowest level since early 1991 – during Labor’s “recession we had to have”. The Dunn & Bradstreet business expectations survey just released this week showed that for the June quarter 2008, the growth in sales was the lowest since the March 1991 quarter.  And this week the Commonwealth Bank-ACCI Business confidence index, as measured their Expected Economic Performance indicator, fell to its lowest level since the survey began in 1994. Finally, as if all that was not bad enough, let me give you one more piece of data. This is the crowning glory of Mr Rudd’s incompetence.  As you know, Morris lemma and his colleagues have been mismanaging New South Wales for well over a decade.   They have been working on hopelessness for a very long time. Kevin Rudd has only been in office for eight months, and yet in the recent May Sensis survey on the attitudes of small and medium enterprises, the only Australian government in which those businesses had less confidence in than Kevin Rudd’s Federal Government was Mr Iemma’s motley crew! In other words, according to the Sensis business confidence survey – which has fallen 53 percentage points since the election - Kevin Rudd is currently the silver medallist in governmental hopelessness, only being pipped at the post by Morris lemma. Think about how extraordinary that is. Since Mr Rudd has come to office, small and medium enterprises have less confidence in his government then they have in Anna Bligh’s, than Alan Carpenter’s and John Brumby’s. Of all the other Labor governments around the country, Mr Rudd has done that in only eight months.   His biggest ambition seems to be to ensure that his political epitaph reads: “I was not as bad as Morris Iemma.”  Labor’s Failure on Economic Leadership And all of this has taken place in an environment where our terms of trade – the ratio of our export prices to our import prices – is rising rapidly, due to rising commodity prices.  The latest Reserve Bank Commodity Price Index showed an increase of 3 per cent in the month of July, or 36 per cent in the year to July 2008. The March quarter national accounts showed that Australia’s terms of trade increased by 1.1 per cent over the year, to be the highest level since the Korean war.  The Budget forecasts the terms of trade to rise further, by 3¼ per cent in the four quarters to June 2009. Australian-Japanese contract prices for most hard coking coals have tripled for Japanese Financial Year 2008, rising to around US$300 a tonne for premium hard coking coal. In April 2008, Australian coal suppliers and Japanese power utilities settled thermal coal contract prices at US$125 a tonne for 2008, an increase of around 125 per cent on last year.  2008 is the sixth consecutive year in which we seen contract prices increase for iron ore, with recent demand being driven by steel production in China.  This is an economic environment where Mr Rudd inherited the strongest fiscal situation in Australia’s history, with a run of strong surpluses and negative net debt of $44.9 billion or minus 3.7 per cent of GDP.  An environment where our financial sector is strong and resilient. Where Australians were enjoying strong economic growth, low unemployment, rapid employment growth and rising living standards. After inheriting such a favourable set of economic circumstances, what went wrong?  The Coalition recognises that there have been enormous ructions in the financial markets around the world. Managing the economy is never plain sailing. When we were in government we navigated many storms - successfully.  But what Wayne Swan and Kevin Rudd have done is make those problems worse. So keen were they to capture the economic high ground, Mr Rudd and Mr Swan played a blame game from day one, trying to sheet home responsibility for inflationary pressures to the previous Government.  But that plan has badly backfired. Instead of moderating, instead of managing, instead of leading, they have had a political agenda to talk down the economy, talk up inflation and lay the blame at John Howard's door.  As a result, inflation has increased, inflationary expectations have blown out, but at the same time consumer confidence has plummeted and indicators of economic activity are showing weak growth.  There is no other way to put this: we are suffering lack of economic leadership in this country and we are paying a very heavy price for it. There is a failure to recognise that leadership requires men and women who will inspire confidence in our economy and give people the confidence to invest, to hire, to make plans for the future.  Mr Rudd and Mr Swan have undermined that for a very shabby political purpose from the moment they got into office. Through 2007 Mr Rudd and Mr Swan made as their key narrative the failure by the Howard Government to do something on fuel prices and grocery prices. They then copied the Coalition’s tax cuts and tried to market them as their own.  But Mr Rudd is the most economically illiterate Prime Minister since Gough Whitlam.  And Mr Swan is as competent as Jim Cairns and as confident as Norman Gunston.  Now with the keys to the Lodge, Mr Rudd doesn’t know what to do.  Like rabbits in the glare of the headlights, the Labor Party apparatchiks stand still, not knowing which way to go. First they trumpeted their ‘five point plan’ to fight inflation.  They soon dropped that and promised a horror budget “to put maximum downward pressure of inflation and maximum downward pressure on interest rates”. Then they delivered a budget which loosened fiscal policy in 2007-08 and that was mildly inflationary. Then to fix fuel prices, they come up with FuelWatch – a policy discredited by economists. Mr Rudd now proposes GroceryChoices, where Australians will be able to consult a website to see what local supermarket prices looked like – for a small set of products – a month ago. Here’s a newsflash, Mr Rudd: If you want to get a better handle on what grocery prices will look like next week – not what they looked like last month - just do what the rest of us do. Pick up a newspaper, or walk to the letterbox and take a look at the dozens of catalogues distributed by local retail outlets.   Like Chauncey Gardiner in the film Being There, Mr Rudd is the Prime Minister who likes to watch.  Indeed, it is all about being there, and Peter Sellers is an inspiration for the Prime Minister,  just sitting there, waiting, watching talking about problems. When these great challenges of living standards and prices and battles with ever-rising prices and pressures are brought to bear, what does the Prime Minister do?   He talks about the problem and sets up a website.  In truth, Mr Rudd and his colleagues have no ideas.   They are full of symbolism but empty of solutions.  Mr Rudd’s symbolism reached its apogee at the 2020 summit.  His neglect of the here and now is palpable.   The clear message of the 2020 summit and the first eight months of the Labor government is that Mr Rudd will start governing in 2020  - in 4165 days time.   What is supposed to happen in the meantime?  Three weeks after the Budget, we had the spectacle of Mr Rudd raising the white flag, shrugging his shoulders and saying that his Government had “done as much as it physically could.”   Harry S. Truman had a sign on his desk which read “the buck stops here”. Mr Rudd simply hides under his desk. Labor has been caught out by its own rhetoric. The economy does not run on autopilot – it needs a competent and confident driver who can drive economic reform. It needs a government willing to take responsibility - not one which seeks to blame the previous government, overseas events, or “big oil.”  So much for Mr Rudd’s vision of “New Leadership”, which he used as a slogan at the last election. We now know that the slogan should have read “No Leadership”.  In 2007 we heard Mr Rudd and Mr Swan accuse the Coalition of “11 years of neglect”. Now it is “12 years of neglect”. In 2010 can we expect it to be 14 years of neglect? Mr Rudd and Mr Swan are now reaping the fruits of their reckless rhetoric and politically motivated blame game. Inflation and inflationary expectations have increased, and the economy is showing signs of slowing. It didn’t have to be this way.   Mr Rudd inherited an economy that was strong. It is resilient. It is dynamic.  With a strong economic team in Government, Australia could be expected to pass through the global downturn in good order. After all, it did so on numerous occasions under the Coalition Government, for example the Asian Financial crisis, SARS, the tech wreck, September 11 and so forth. But Australians have been poorly served by this Government.  Just recall – the Australian stock market has declined more than in the US. Australian confidence indicators have collapsed.  Yet we have rising terms of trade, a strong and robust financial sector, relatively strong economic growth, low unemployment, and a strong fiscal position. Why should confidence here be more affected than in the United States, where the sub-prime crisis started, where the fiscal position is worrisome and where house prices have collapsed? There is only one explanation: we have an incompetent and inexperienced Government with no coherent economic strategy.  Swan Rudd and Paulson In February in the United States, inflation was running at 4.1 per cent, the unemployment rate was 4.8 per cent, and industrial production declined by 0.4 per cent in the month. [1] And yet although the US was experiencing serious difficulties, US Treasury Secretary Henry Paulson refused to talk down his economy.  On February 5 he said that: "The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy." He also said that: "While we are in a difficult transition period as markets reassess and re-price risk, I have great confidence in our markets. They have recovered from similar stressful periods in the past, and they will again."[1] Mr Paulson was doing what any good Treasury Secretary would do: maintaining confidence in the economy.  But what was our Treasurer Wayne Swan doing in February, when Australia’s most recent official headline inflation rate was 3 per cent, the underlying rate was 3.6 per cent, and the January TD Securities inflation measure had just been reported to be 3.9 per cent ?  It is a matter of public record that he was going around the country, talking up inflation for political purposes.  On February 1st, he said that “the Howard Government let the inflation genie out of the bottle.”  Two days later on February 3rd , Mr Swan again talked up inflation, saying that “the former Treasurer, the former Government, let the inflation genie out of the bottle.” And on February 4th, the day before the Reserve Bank met to consider its stance on monetary policy, Mr Swan again said that “the inflation genie is out of the bottle.” The plain meaning of that phrase is that inflation is out of control.  What kind of a Treasurer repeatedly says that inflation is out of control - not once, but three times – in the leadup to a meeting of the board of the central bank?  The Prime Minister’s record is no better.  In the United States in June, inflation was running at 4.9 per cent, unemployment was 5.5 per cent, and annual industrial production growing at a rate of only 0.4 per cent, US Treasury Secretary Henry Paulson said that: Overall, I believe that the United States is on the right path to resolving market disruptions and building a stronger financial system. Our long term prospects remain strong. One thing is very clear to me – whatever our current difficulties, I wouldn't bet against the U.S. worker or the U.S. economy."[2] Australia has a much better performing economy – we have lower inflation, lower unemployment, and a healthier annual economic growth rate of 3.6 per cent.  And yet, just a day after Mr Paulson’s remarks, the Prime Minister was undermining confidence in our economy, telling the Parliament that the "inflation monster" could "wreak havoc" on Australian living standards. And take the case of Britain, where annual economic growth is currently only 1.6 per cent, where industrial production actually declined by 1.6 per cent in May, where unemployment is currently at 5.2 per cent, and which has an inflation rate of 3.8 per cent.  [2] On June 18th  the Chancellor of the Exchequer, Alistair Darling, said that "Our macroeconomic framework is facing its toughest test in a decade. But we will come through it with renewed confidence." [3] Again, here is an example of a finance minister not talking down the economy, trying to maintain confidence.  And what does Kevin Rudd have to say about the economy?  "We've done as much as we physically can".  State Finances and Concluding Remarks Looking to the future, what can we expect from the Rudd government’s Labornomics over the next two years?  With the economy showing signs of slowing, we have already started to see some of the results.  In this year’s budget Mr Swan implemented a six point plan: Tax, tax, tax; and spend, spend, spend.  He took policy decisions that will increase revenue by $19.5 billion over the forward estimates.  Much of this increase in revenue comprises tax increases (none of which were mentioned during the election campaign) that will put upward pressure on prices. The only tax cuts were those copied from the Coalition Government. And then Mr Swan took policy decisions to increase spending by a total of $14.9 billion over the forward estimates.  Of course, this is just the start of the spending blowout. Remember that most of the reviews commissioned by Mr Rudd and his colleagues have yet to report. Make no mistake, very few, if any of these reviews will recommend lower government spending.  And on top of all that we have to add Labor’s deferred spending – the Building Australia Fund – which will conveniently be deployed before the next election.  But truth be told, as bad as the Federal budget was, it could have been a lot worse: Mr Swan could have used the record of the State Labor governments as a guide.  All of the State and Territory Labor Governments have now brought down their 2008-09 Budgets.  The aggregate results show that in underlying cash terms, Labor’s economic wizards in the States expect government finances to deteriorate significantly over the forward estimates, to 2011-12.  In 2008-09, the aggregate underlying cash deficit in the Labor States and Territories is expected to be $2.9 billion.  But the States’ own Budget figures suggest that these deficits will deteriorate by a further 41 per cent over the forward estimates, with the aggregate deficit reaching $4.2 billion in 2011-12.  The situation with respect to Non-Financial Public Sector (NFPS) Net Debt in the Labor States and Territories is even worse.  In 2008-09, aggregate State and Territory non-financial public sector net debt is expected to be $61.6 billion.  Labor’s own Budget figures suggest that this net debt will grow by more than 80 per cent over the forward estimates, with aggregate NFPS net debt projected to blow out to $111.5 billion in 2011-12.  To put those figures in perspective, remember that the Coalition officially paid off $96 billion of Labor’s debt on April 21, 2006. And yet the Labor States will be racking up almost exactly the same amount in real terms over the next few years.  How such a large public debt will help Australia achieve lower interest rates is beyond me. There is a significant risk that the State and Territory Labor governments will turn to their Labor mates in Canberra – Wayne Swan and Kevin Rudd – to bail them out. When Federal Labor announced in the Budget on 13 May that it would spend both the capital and earnings from its slush funds, it was obvious to all what they were really doing: deferring government spending into future years in order to make the 2008-09 Budget bottom line look better.  The only remaining question is whether this honey pot will be spent directly by Wayne Swan and Kevin Rudd in the leadup to the next election, or whether it will be used to subsidise the financial mismanagement of their State Labor mates. The Coalition must never forget that every dollar of government spending must ultimately be financed by taxation, which has economic costs above and beyond the amount of revenue that is raised.  That is why I am always in favour of reducing wasteful government spending: taxation is costly, so we need to make sure taxpayers get value for money and that the benefits of spending outweigh the costs of raising revenue.  We should continually review programmes for their efficacy, efficiency and effectiveness.  There is no virtue, none whatsoever, just in spending taxpayers’ money. There is virtue in spending taxpayers’ money and achieving real results as long as the benefits exceed the costs. The real benchmarks for political achievement are not how much money can be spent on any given good cause, but how much can be done, how much reform can be effected and how efficiently taxpayers’ money can be deployed. That benchmark should apply to every level of government. After all, a dollar of government spending is still a dollar of government spending, whether it is at the local, state or territory or federal level.  Unfortunately, as the recent State Budgets show, that test doesn’t seem to apply in Mr Rudd’s brave new world of Labornomics.  [1]http://www.treas.gov/press/releases/hp805.htm [2]http://www.treas.gov/press/releases/hp1001.htm [1]http://www.treas.gov/offices/economic-policy/macroecon/monthly_economic_data.pdf [2] http://www.economist.co.uk/markets/indicators/displaystory.cfm?story_id=11849060&CFID=16012908&CFTOKEN=15677397 [3] http://www.hm-treasury.gov.uk/newsroom_and_speeches/speeches/chancellorexchequer/speech_chx_180608.cfmadminFri, 08 Aug 2008 06:33:00 GMTf1397696-738c-4295-afcd-943feb885714:49http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/50/Address-to-the-Investment-and-Financial-Services-Association-IFSA-Conference-Opening-Cocktails.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=50http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=50&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/50/Address-to-the-Investment-and-Financial-Services-Association-IFSA-Conference-Opening-Cocktails.aspxWelcome to the IFSA annual conference – Innovate 08.  Innovation is essential to the future growth and prosperity of the Australian economy. Innovation leads to higher productivity which drives higher real wages for Australians. It is what leads to higher living standards for Australians.  The financial services industry employs 1.25 million Australians.  It provides advice, products and tools to enhance the wealth of Australians. An interesting trend in superannuation has been the relative growth of defined contribution rather than defined benefit funds. This is understandable, particularly as Australians – like elsewhere in the world – move more frequently between jobs. With the negative returns we are seeing in the market over the past six months, some people argue that defined benefit funds provide more protection to employees. Yet these funds substitute the risk of final salary for market risk: no fund is truly “risk free”. It is certainly important to view superannuation as a long-term investment where returns on a year-to-year basis can be volatile. The Liberal Party is the party of enterprise and individual freedom. We are the Party of the market economy and competition. In the 2006 Budget, the Coalition Government introduced Better Super – the biggest reform to superannuation ever.  This reform swept away the raft of complexity faced by retirees, increased retirement incomes, gave greater flexibility as to how and when superannuation could be drawn down and provided more incentives for older Australians to stay in the workforce. By allowing tax free payments from a taxed superannuation fund to people over 60 years of age, IFSA members have been able to deliver innovative superannuation pensions which look and feel like bank accounts to pensioners. The Howard Government also introduced choice of super fund and portability to boost competition in the provision of superannuation. Labor, by contrast, despite claiming to have invented superannuation, seems to have dropped the ball. It is embarked on policies that will restrict choice and reduce competition. Senator Sherry has 14 reviews outstanding across his portfolio of superannuation and corporate governance. There is a real risk of the financial services industry being strangled by regulation arising from these reviews. The 15th review – the only one to report to date – has been the financial services working group’s model product disclosure statement for the Government’s First Home Saver Accounts. The results of this review were described in the Australian Financial Review editorial as ‘micro-management’ and the ‘black letter law tick the box disclosure duck which got financial services in such a mess in the 1980s’.  The Coalition will be watching these reviews closely. We will be watching in particular for any sense that the Government might be trying to restrict choice or reduce competition in both the provision of financial advice and the range of superannuation funds. But a key thing missing from this plethora of reviews is the big picture in superannuation: the adequacy of retirement incomes. Something on which the previous Government was focussed upon. The Better Super reforms significantly boosted the incentives for many people to contribute to superannuation. Just as importantly, it simplified super and therefore helped improve Australians’ confidence in superannuation as a savings vehicle. The Super co-contribution scheme has been enormously popular, delivering over $1 billion per year into the super accounts of Australians. Competition is the key to better choice for Australians and better returns for Australians. Australia has a balance between various types of superannuation fund: retail funds, employer funds, public sector funds, industry funds and self-managed super funds. All have their advantages and all have their role. Sadly it appears that the Rudd Government is intent on reducing choice and reducing competition. In part this is because the Rudd Government is patronising. It thinks that too much choice is bad. That Australians are not intelligent enough to make their own minds up on where to invest their superannuation. That the Government knows better on investment strategies.  There are also indications that the Government’s policies – as expounded by Minister Sherry – lack neutrality. For example, the reinstatement of superannuation as an allowable matter in industrial awards gives a strong advantage to industry funds and is anti-competitive. That means that when a new employee joins a company with an award, there is a default super fund. This undermines choice. Even the regulator – the Australian Prudential Regulation Authority (APRA) – is wading into this, with a recent paper by APRA’s Wilson Sy suggesting a default National Super Fund. Minister Sherry has not repudiated this view. In so many areas, the Rudd Government is assaulting competition. In the markets for petrol, groceries and hospitals – competition is under threat. Now it is the turn of super funds. Which are so important for reducing the pressure off the public pension. And which helps position Australia for our ageing population, as noted in the 2006 Intergenerational Report. The growth in superannuation over the past 12 years has been remarkable. In June 1996, there was $245.3 billion invested in superannuation, around 37.9 per cent of GDP.  By June 2007 this had grown to $1143.2 billion, more than 100 per cent of GDP. As of June 2007, there were 289 corporate funds with $69.2 billion invested, 74 industry funds with $197.3 billion invested, 40 public sector funds with $177.6 billion invested, 172 retail funds with $369.7 billion invested, 365 992 small funds with $286.6 billion and 101 pooled funds with $83.7 billion invested. That is a remarkable amount of money. But it is also a remarkable temptation for Government.  And this is another area of concern – the noises from the Government about directing or encouraging superannuation funds to invest in this or that project. To finance infrastructure, for example. One of the great strengths of our superannuation rules is that trustees must act in the interests of their members.  If there is one “free good” in economics, it is that a diversified portfolio of assets can achieve a given rate of return for less risk than an undiversified portfolio. When Governments get in the act of directing investments it is a recipe for disaster. It is a recipe for lower superannuation returns. If an infrastructure project is sufficiently worthwhile, it will attract funds – including from superannuation funds – without the need for Government intervention.  The Coalition is strongly committed to allowing freedom of choice in superannuation. We are strongly committed to competition and we are opposed to Governments directing the investment behaviour of superannuation funds. Thank you for inviting me to address your Conference. I hope that the Conference will be entertaining, enjoyable and informative. adminThu, 07 Aug 2008 06:35:00 GMTf1397696-738c-4295-afcd-943feb885714:50http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/119/Address-to-the-Investment-and-Financial-Services-Association-IFSA-Conference-Opening-Cocktails.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=119http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=119&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/119/Address-to-the-Investment-and-Financial-Services-Association-IFSA-Conference-Opening-Cocktails.aspxWelcome to the IFSA annual conference – Innovate 08.  Innovation is essential to the future growth and prosperity of the Australian economy. Innovation leads to higher productivity which drives higher real wages for Australians. It is what leads to higher living standards for Australians.  The financial services industry employs 1.25 million Australians.  It provides advice, products and tools to enhance the wealth of Australians. An interesting trend in superannuation has been the relative growth of defined contribution rather than defined benefit funds. This is understandable, particularly as Australians – like elsewhere in the world – move more frequently between jobs. With the negative returns we are seeing in the market over the past six months, some people argue that defined benefit funds provide more protection to employees. Yet these funds substitute the risk of final salary for market risk: no fund is truly “risk free”. It is certainly important to view superannuation as a long-term investment where returns on a year-to-year basis can be volatile. The Liberal Party is the party of enterprise and individual freedom. We are the Party of the market economy and competition. In the 2006 Budget, the Coalition Government introduced Better Super – the biggest reform to superannuation ever.  This reform swept away the raft of complexity faced by retirees, increased retirement incomes, gave greater flexibility as to how and when superannuation could be drawn down and provided more incentives for older Australians to stay in the workforce. By allowing tax free payments from a taxed superannuation fund to people over 60 years of age, IFSA members have been able to deliver innovative superannuation pensions which look and feel like bank accounts to pensioners. The Howard Government also introduced choice of super fund and portability to boost competition in the provision of superannuation. Labor, by contrast, despite claiming to have invented superannuation, seems to have dropped the ball. It is embarked on policies that will restrict choice and reduce competition. Senator Sherry has 14 reviews outstanding across his portfolio of superannuation and corporate governance. There is a real risk of the financial services industry being strangled by regulation arising from these reviews. The 15th review – the only one to report to date – has been the financial services working group’s model product disclosure statement for the Government’s First Home Saver Accounts. The results of this review were described in the Australian Financial Review editorial as ‘micro-management’ and the ‘black letter law tick the box disclosure duck which got financial services in such a mess in the 1980s’.  The Coalition will be watching these reviews closely. We will be watching in particular for any sense that the Government might be trying to restrict choice or reduce competition in both the provision of financial advice and the range of superannuation funds. But a key thing missing from this plethora of reviews is the big picture in superannuation: the adequacy of retirement incomes. Something on which the previous Government was focussed upon. The Better Super reforms significantly boosted the incentives for many people to contribute to superannuation. Just as importantly, it simplified super and therefore helped improve Australians’ confidence in superannuation as a savings vehicle. The Super co-contribution scheme has been enormously popular, delivering over $1 billion per year into the super accounts of Australians. Competition is the key to better choice for Australians and better returns for Australians. Australia has a balance between various types of superannuation fund: retail funds, employer funds, public sector funds, industry funds and self-managed super funds. All have their advantages and all have their role. Sadly it appears that the Rudd Government is intent on reducing choice and reducing competition. In part this is because the Rudd Government is patronising. It thinks that too much choice is bad. That Australians are not intelligent enough to make their own minds up on where to invest their superannuation. That the Government knows better on investment strategies.  There are also indications that the Government’s policies – as expounded by Minister Sherry – lack neutrality. For example, the reinstatement of superannuation as an allowable matter in industrial awards gives a strong advantage to industry funds and is anti-competitive. That means that when a new employee joins a company with an award, there is a default super fund. This undermines choice. Even the regulator – the Australian Prudential Regulation Authority (APRA) – is wading into this, with a recent paper by APRA’s Wilson Sy suggesting a default National Super Fund. Minister Sherry has not repudiated this view. In so many areas, the Rudd Government is assaulting competition. In the markets for petrol, groceries and hospitals – competition is under threat. Now it is the turn of super funds. Which are so important for reducing the pressure off the public pension. And which helps position Australia for our ageing population, as noted in the 2006 Intergenerational Report. The growth in superannuation over the past 12 years has been remarkable. In June 1996, there was $245.3 billion invested in superannuation, around 37.9 per cent of GDP.  By June 2007 this had grown to $1143.2 billion, more than 100 per cent of GDP. As of June 2007, there were 289 corporate funds with $69.2 billion invested, 74 industry funds with $197.3 billion invested, 40 public sector funds with $177.6 billion invested, 172 retail funds with $369.7 billion invested, 365 992 small funds with $286.6 billion and 101 pooled funds with $83.7 billion invested. That is a remarkable amount of money. But it is also a remarkable temptation for Government.  And this is another area of concern – the noises from the Government about directing or encouraging superannuation funds to invest in this or that project. To finance infrastructure, for example. One of the great strengths of our superannuation rules is that trustees must act in the interests of their members.  If there is one “free good” in economics, it is that a diversified portfolio of assets can achieve a given rate of return for less risk than an undiversified portfolio. When Governments get in the act of directing investments it is a recipe for disaster. It is a recipe for lower superannuation returns. If an infrastructure project is sufficiently worthwhile, it will attract funds – including from superannuation funds – without the need for Government intervention.  The Coalition is strongly committed to allowing freedom of choice in superannuation. We are strongly committed to competition and we are opposed to Governments directing the investment behaviour of superannuation funds. Thank you for inviting me to address your Conference. I hope that the Conference will be entertaining, enjoyable and informative.adminThu, 07 Aug 2008 05:02:00 GMTf1397696-738c-4295-afcd-943feb885714:119http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/140/Labors-rhetoric-in-search-of-policy.aspx#Comments0http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=110&ModuleID=403&ArticleID=140http://archive.malcolmturnbull.com.au/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=140&PortalID=0&TabID=110http://archive.malcolmturnbull.com.au/Media/LatestNews/tabid/110/articleType/ArticleView/articleId/140/Labors-rhetoric-in-search-of-policy.aspx Source: Sydney Morning Herald In March, Kevin Rudd proudly boasted that his Government had put "a considerable and necessary emphasis on macro-economic stability". Then, just two months ago, he declared in Parliament that the "inflation monster" was out of control in Australia. That was the considered assessment of the national economic situation by the new Prime Minister following the first Labor Government budget in more than a decade. Not to be outdone, before May 13 Wayne Swan travelled the country repeating again and again that the "inflation genie was out of the bottle" and that the swinging spending cuts that were planned for budget night would cause "pain" for ordinary Australians. The message was clear: Rudd and Swan believed the economy was overheating and needed to be slowed. Labor's budget focus would be on short-term macro-economic issues, and they would attempt to use fiscal policy in a counter-cyclical fashion. To sell their political message, they ramped up the rhetoric. Instead of speaking in a careful, measured way about inflation, both Rudd and Swan have been talking up inflation, exacerbating inflationary expectations and egging on the Reserve Bank to raise interest rates and slow the economy. Australian home buyers should never forget that it was Wayne Swan who coined his notorious and reckless claim that the "inflation genie was out of the bottle" just before the Reserve Bank met in February. It was a clear and unequivocal message to the Reserve Bank: put up interest rates. At the time, I urged him to stop talking up inflation and talking down the economy. It was obvious that the subprime crisis in the United States was not just a cloud on the horizon, but a gathering storm. It was clear that we were in for tougher economic times. A global credit squeeze was looming. Far from preparing for it, Swan and Rudd set out to make it worse. Well, it now looks as though Labor's wishes for a slowdown will be granted. Since Labor has come to office the growth rates of retail turnover, building activity and approvals, motor vehicle sales, and household and business credit have all weakened. Since December a plunging sharemarket has hammered superannuation returns, property values have started to slide in many of our cities and consumer confidence is at its lowest level since Paul Keating's 1991 "recession we had to have". The recent May Sensis Consumer Report found that 35 per cent of households now feel they are worse off than they were a year ago. To top it off, yesterday the Commonwealth Bank/ACCI business confidence indicator reached an all-time low. So much for creating economic stability. Yet, following the release of this economic data, Mr Rudd has run for the hills. On Friday, in one of the more bizarre interviews Rudd has given since becoming Prime Minister, he singularly refused to acknowledge either any slowdown or his Government's role in creating it. The interview, on the ABC's AM program, began with the straight-forward question: "Is this the slowdown we had to have?" Rudd refused to come close to addressing that or any other question. This flaky performance only served to underline the fact that Rudd has a political strategy built on spin but no economic strategy or substance. Since last year's election, Labor has been so busy trying to score political points, so focused on symbolism and so preoccupied with blaming the previous Coalition government for everything under the sun, that it has completely ignored, or misunderstood, warnings on the emerging economic threats. As a result, it has no clear and consistent medium-term economic strategy, let alone any answers on how to deal with an economic slowdown. Labor's budget even forecast lower economic growth and higher unemployment, but contained no policy measures to address these issues. And why would it? After all, every single piece of Labor rhetoric has suggested that the Government welcomes an economic slowdown. As Australians reflect on tougher economic times, they will know that this Labor Government has made tough times worse, a credit squeeze tighter and has shattered business and consumer confidence. adminWed, 06 Aug 2008 22:45:00 GMTf1397696-738c-4295-afcd-943feb885714:140