2016-06-15
I acknowledge the elders past and present of the Gadigal people of the Eora Nation as traditional owners of this beautiful harbour on which we meet.
Let me start with a statement that you won't hear from any politician during this election campaign. The fortunes and failures of Australia's economy are largely hitched to the whims of the global marketplace and we politicians have limited control over Australia's economic future.
Your will hear commitments from both the old parties about how they will achieve a surplus. They will lay out their timetable for achieving it and how their policy prescriptions are the only ones that will help us get there.
But just as the Labor and Liberal party promised surpluses in the lead up to recent elections and those commitments have proven to be false, so too will the promises that you hear over the coming weeks.
That is because thirty years ago, we made a decision that we would link our economy to the global marketplace through a range of economic reforms. We reduced tariffs, floated the dollar and no longer propped up the industries that would employ people in particular regions.
We reaped some benefits from those changes but we also lost a great deal of control over our economic destiny. The old command and control model of the economy was transformed into a complex network of transactions characterised by uncertainty, unpredictability and unintended consequences. In this new world, tipping points abound and small interventions can have profound and far reaching effects.
Governments are no longer in the driver's seat. Rather their role is to ensure the air bag is able to cushion the impact on passengers when a crash occurs.
The theory behind opening ourselves up to global competition and scaling back protections is that it keeps us sharp so we can seize emerging opportunities and keep us on our toes in a competitive global market place. We are told that we have to create our prosperity from things that we are good at and leave behind those things that other nations do better.
Of course the theory falls down when dominant global traders preach liberalisation for everyone else while protecting politically sensitive industries like agriculture. It also ignores that for some nations, cost advantages can come from reducing labour standards and environmental protection laws.
That doesn't mean that governments are powerless. We may not control the economy, but we do influence it.
Governments have a role in addressing market failure and there is no greater example of market failure than dangerous global warming. The entire point of putting a price on greenhouse pollution is to internalize the externality of carbon pollution and to point us towards our inevitable economic future, with minimal economic disruption.
The laws that Parliament passes also impact on how local and international investors see Australia. These laws put in place those structures that encourage economic activities in some areas and dissuade investment in others. One only needs to see the millions of dollars of international investment that left our shores when both the Labor and Liberal parties slashed the renewable energy target to know that what we do matters.
And while those of us who sit in Parliament are not in control of the economy, we are the only ones that can ensure that the economy works for all of us and not just those already with wealth. Never before has the quip that “It takes money to make money” been truer.
Given that wealth grows at 6-8 per cent and wages grow at 2-4 per cent, rising inequality is no freak occurrence. It is built into our system and it compounds over time. We legislators are the only ones who can actively mediate between wealth, opportunity, distribution and of course sustainability.
This is not just a decision that affects us. We also decide which generation will wear the impacts of our decisions on global warming, housing affordability, habitat loss, the accumulation of wealth and the depletion of resources.
Genuine Repair of the Budget
One of the most important ways that parliaments are able to shepherd the direction of our economy is through the tax system.
The profit-motive seeks opportunity, but just as water flows to the lowest point investment will flow towards locations where tax incentives are greatest – irrespective of the impacts on our economic resilience, our environment and inter-generational equity.
So where in the Australian economy do we shelter tax thereby encouraging capital to flow?
The answer is in three main areas. Housing, superannuation and mining.
The revenue measures in the Greens fully costed policy platform that address these sectors have been developed for complimentary reasons.
Firstly, they are measures that will raise revenue – which we need to do in order to both reduce the structural deficit and to fund those services such as healthcare and education that are best funded collectively.
Secondly, they will address the distorting impact of our concessional tax arrangements so that capital flows into more productive areas of the economy.
And finally because these measures address growing income inequality in Australia, which the IMF has said is a drag on growth.
Take housing, the main lending activity of our banks. ABS data shows in 2014-15 Australians invested a staggering $283 billion into existing housing.[1] That's not lending to build the business of our future, powered by clean energy. It's simply our banks borrowing from overseas wholesale markets, pumping up household debt that has this year reached the highest levels in the world, paying prices driven up by tax breaks in order to buy assets that Australia already owns.
In fact, for every $9 of private debt, we are only generating $1 of economic growth, compared with the US at $3 and Asia at $2 per dollar of growth. [2] The willingness to lock up debt in unproductive property investment is not a sustainable path for longer-term prosperity. We need to be attracting long term, patient capital, in a range of areas that will build our country's future
In addition to this inefficient allocation of capital, massive intergenerational inequalities are being entrenched. Younger generations are deprived of the dream of owning their own home and they are mad as hell about it.
I say with some pride that we are at the forefront of the economic debate in Australia.
The Greens were the first out of the blocks to make negative gearing a national policy reform issue. We want to abolish negative gearing for all future purchases and to restore the system that Keating created – where real-adjusted capital gains are not taxed more favourably than tax on income.
Capital gains are overwhelmingly enjoyed by the highest income earners, so keeping the discount undermines the progressivity of our tax system and is adding to our growing income inequality. Removing the discount would not deter foreign investment because foreign investors are not able to access capital gains discounts currently.
I am pleased that Labor has adopted, our policy, at least in part.
Next is superannuation which provides tax breaks that are enjoyed overwhelmingly by the wealthy who might otherwise invest their money elsewhere in the economy. Someone on $249,000 a year gets double the tax benefit of someone on $60,000 while a mother working part time earning under $18,000 a year gets no tax benefit whatsoever for saving for their retirement. While super is of course invested, it is the very wealthy who have an incentive to divert earnings into super.
Again, the Greens opened up public debate on ending this wasteful superannuation tax regime that in just a few short years, will cost the government more in tax breaks than it pays out in aged pensions, which itself is the single largest expenditure item of the Australian government.
The Greens plan is to make super contributions more progressive, like our income tax system. Both Labor and the government's changes fail to address the core structural inequity of the super systems in which contributions are taxed at a flat rate.
Finally, at time when our export base is as concentrated as it was during the Korean War Wool Boom,[3] it is absurd that we continue to provide huge tax concessions for the mining industry. Let's end the extravagant accelerated depreciation concessions for both mining infrastructure and exploration, which in the case of gas will mean the public doesn't collect a cent until the boom it is over.
Just as we helped super and negative gearing become national issues, I am confident that one of the other two parties will soon support us in removing the tax-free, subsidised fuel for mining operations. We all pay 40 cents a litre in fuel excise at the bowser – BHP, Rio Tinto and Gina Reinhart get it tax free.
Clamping down on these three crucial areas of housing, raising $14 billion, superannuation raising $11 billion, and mining subsidies raising $24 billion over the estimates will repair our budget, address income inequality and get money moving away from speculative, lazy tax sheltered locations into the productive areas of the economy that will set us up for the 21st century.
Where will our productive future lie?
So if the tax tap is turned off to reduce money flowing into less-productive areas, the next major question is: what are the productive areas of our economy? Where will our future prosperity be derived from?
When asked 'where will the growth come from' Reserve Bank Governor Glenn Stevens has said that much of it will come from new things, often things of which we are only dimly aware. [1]
The rise of the sharing economy is the most recent example. No one expected middle-men to be so quickly cut out of the deal whether it be the trading post, hotel chains or taxi license plate owners.
Right now the CSIRO is piloting projects to create hydrogen through electrolysis from solar thermal power.[2] Gas and liquid fossil fuels could one day soon be replaced with pollution-free hydrogen in the use of energy, chemical feedstocks and vehicle fuels. We have the competitive advantages of sunlight, space and ingenuity, but we haven't yet shown the political foresight to prepare.
Imagine Australia as a clean energy superpower, exporting bottled sunlight to power the vehicles and industries of Europe and Asia.
This economic future won't happen overnight, but it won't happen at all if our leaders don't invest in those long-run prospects that might take a decade or two to pay off. It certainly won't happen while CSIRO funding has dropped to a level to barely keep the lights on and R&D funding is gutted.
We hear a lot about innovation from this government, but scratch beneath the rhetorical surface and we have public funded research cut to the lowest levels ever recorded.[3] The government, now supported by Labor has banked $800 million by reducing R&D tax credits for the private sector. Any innovation in Australia's regional areas will be hindered by substandard broadband infrastructure. Transformative innovation cannot happen under these policy settings.
The Greens policy platform recognises that government has a role to play in supporting innovation. That we can't rely on the invisible hand of the market, which too often focuses on capturing economic rents at the expense of creating value. We need an enabling state to create an entrepreneurial nation.
That's why our budget invests $7 billion into research and development. More would be invested over time by requiring the Future Fund to establish a new division where 3% of its asset holdings would be in R&D activities and highly innovative projects.
Driving the next wave of productivity comes from our commitment of $20 billion in a lifetime of learning funding program that starts with robust childhood education, through to needs-based funding under Gonski, into stronger TAFE and university base funding.
One only needs to look at the success of the Australian Renewable Energy Agency and the Clean Energy Finance Corporation, negotiated by the Greens as part of the carbon price package. Both have been a massive success, but ARENA faces losing $1 billion in grant funding after the election from both Labor and Liberal governments. Only offering debt finance and no longer investing seed funding for potential clean-tech breakthroughs will have knock-on effects for decades if these changes go ahead.
Another major comparative global strength is agriculture. I met with a young Nuffield scholar on the Liverpool plains a few weeks ago who has been touring the world seeing how farmers ply their trade in tough conditions. He told me just how well Australian farmers are able to do with so little – especially with water.
For those economic theorists who believe that regulation only strangles business, I point them towards how a tight regulatory framework for water has encouraged our farmers to innovate and innovate well. We need to do the same to better manage agricultural chemical run-off from the Great Barrier Reef catchments if we are to relieve some of the pressures on this iconic natural wonder. Innovation will break out as carbon prices and regulatory instruments provoke our broader economy to perform more efficiently than it does today, with much less pollution and much less waste.
A small farm in Port Augusta on the fringe of the desert offers a fantastic example of Australia's innovative agricultural ability. The Clean Energy Finance Corporation, partnered with Sundrop Farms are using salt water and clean energy to grow tomatoes in greenhouses. They desalinate the water to produce higher yields - all from solar energy.[4]
We are growing produce in the desert – think about the implications of that for a moment. Now Sundrop want to take their technologies into the Middle East. We might be on the cusp of a revolution in farming on land previously thought as worthless. Australia will have helped make this happen.
Recent trends show that further gains in living standards cannot be delivered by productivity alone.
We've witnessed a worrying trend in recent years where productivity gains are rising while wages are not.[5] The last year of the national accounts released a fortnight ago paint a picture of Australians working harder, more productively, but getting paid less for it.
This trend puts the lie to the conservative's holy writ that it is all about growing the pie, not how it is carved up. “A rising tide lifts all boats” is easier to believe when you are one of the few enjoying the view from a luxury yacht. For 25 straight years our economy has been getting bigger as the gap between income groups slowly, but surely expands.
Technology driven productivity gains - as beneficial as they are - will only help workers if those benefits are shared. If those with capital no longer need labour to earn profits, the bargaining power of workers disappears. The technological revolution we are witnessing has the potential to snap the taught ropes that have pulled in opposite directions and held our political system and our society together since the industrial revolution.
The Committee for Economic Development of Australia last year released modelling that 40 per cent of the Australian workforce faces the high probability of being replaced by automated technologies in the next fifteen years.[6] It scares me that there are people studying at TAFE or university right now, racking up a pile of debt for a job that may not be there when they need it.
Driverless vehicles coupled with a shift of freight from road to emissions-free electrified rail to reduce emissions and ease congestion is an exciting proposition. But contemplate the effects on truck drivers and couriers of those workforces potentially disappearing.
White collar jobs are also at risk. The rise of computer programs that are able to diagnose complex health problems and potentially treat people will transform my former profession of medicine.
Technology replacing jobs has been a process playing out for centuries. After all, barely any of us are farmers these days, when just a few centuries ago, many of us would have been. The cyclical process is that we find better ways to do what are considered physically intensive or mundane jobs and replace them with jobs to service our increased wealth. Whether it be travel agents, financial planners or health insurers, new jobs are created.
The challenge is that those individuals who are affected can't just transfer from one job to a different one. A displaced motor technician doesn't become a solar specialist overnight, but as Geelong and Adelaide car-parts manufacturer turned solar bracket company IXL shows, with a little planning and foresight that change can happen.
What appears to be different this time is the rapid pace of change and the lack of planning from governments to provide that air-bag, cushioning the impact so we minimise the negative impacts of the inevitable transition. The Greens, for example, have been the only party wanting to actively support coal-dependent communities to adapt as their local economy changes while the old parties watch the gradual but inevitable demise from a distance.
This transition that lies ahead of us takes us to deeper matters of personal meaning and fulfilment and the adequacy of the way our society measures progress. Simply because GDP is easy to measure, it has become the proxy for national progress. This is in spite of Bobby Kennedy's 1968 plea that “it measures everything … except that which makes life worthwhile.”[7]
The Greens plan for a new, clean economy would see GDP rise significantly, but that is not the only marker of progress. The world we leave our children means nothing in terms of GDP. Perversely, recovering from climate disasters like last week's floods in Tasmania and storm surges in Sydney boosts GDP, while volunteers, new parents and adults taking time off work to care for the elderly are either invisible to GDP or, worse, a 'drag on growth'.
Contentment, mental and physical health, closing the gap with First Australians, flourishing environments that protect biodiversity, cultural expression, personal security and kindness to our neighbours are some of the true measures of social progress, but these are all subordinated to measuring economic transactions.
The Greens welcome developments like the Index of Australia's Well-Being from Lateral Economics and the coalition of academics and public institutions working on the Australian National Development Index.[8] We need a new measurement of progress to remind us that simply producing, consuming and trading is not the only measure of a civilized society.
How the Greens view the economy
The Economic Principles of the Greens differs from other parties because our starting point - the meta-principle, if you like - is that the economy has to work for society. The daily columns written about the economic skirmishes between Labor and Liberal are a distraction from the entire point of a successful economy - to ensure a quality of living.
If any party won't miss the forest for the trees, it is us.
So let me come back to where I started.
One of the most dominant of distractions is the notion that achieving a budget surplus has become synonymous with good economic management. The federal government has been in deficit for 84 years of its 114 year existence. How could Australians enjoy such a fantastic standard of living if a surplus symbolises everything our polity thinks it does?
Howard and Costello could not have delivered a surplus without a China-driven mining boom. After all the tax cuts, superannuation giveaways and return to taxing Capital Gains more lightly than income, the nation was in a structural deficit that was disguised by the rivers of gold flowing over it.[9] These are some of the financial problems our Parliament is trying to reconcile now.
The Greens believe it is crucially important to have a budget in structural surplus, where Treasury's expectations are to close the gap between spending and revenue over an economic cycle. It is the sustainability of the budget position that matters and that all depends on the context of surrounding global and domestic events.
We believe that budget deficits should be kept to a limit of 3 per cent of GDP, but it should move counter to business cycles. Especially in times like now when the impact of monetary policy is far less potent than fiscal policy.
The closely related distraction of deficits is of course debt. The last twenty years of political scaremongering about debt has cost this country so much in lost opportunities. Of course there is bad debt, used to cover recurring expenditure. But there is also good debt; debt that is used to invest in our future, like infrastructure that transforms our economy.
This budget could have chosen to put the $4 billion of income tax cuts lost to the budget bottom line into infrastructure. Given the current structure of the budget we are essentially drawing down debt to pay for the tax cut for the top 25% of taxpayers – a poor economic strategy that the Greens will oppose.
Income tax cuts for people earning above $80,000 won't bring a fraction of the economy-wide benefits that investment in productivity-enhancing infrastructure would bring. Keeping a AAA credit rating is important to the Greens because we see the important role of debt to invest in the future, while conservative forces want to keep a AAA rating, but never use the cheaper debt that it brings.
To make this task easier and for the improvements in the transparency of government, the Greens believe that government borrowings for productivity enhancing capital works should be in a set of accounts separate to any borrowings to service recurrent spending.
In this new economy that is coming, we need public and private innovation to help us ride the wave of prosperity. But there is simply no avoiding the fact that the Parliament will have a significant role to play. We need the state to invest in clean public infrastructure to create new opportunities.
As an Australian thinker on these issues, Mike Dowson said, “Capital, like technology is largely blind to human need. Capital goes where the profit is. If there was profit in healing minds and saving species, some of it would go there. While there is more profit in alcohol, gambling and deforestation, more of it will go there. But the factors that most affect our destiny are not options in the supermarket. If a healthy society is something we want, we have to act collectively.”[10]
Conclusion
There is no escaping the role of Parliament in securing a prosperous future in all of these areas I have discussed tonight: productive investment, ingenuity, technological change, productivity, the future labour market and the preservation of our planet.
The Greens are a long-term party, putting a long-term vision into action which is why we will be around for a long time.
As political leaders, we can either use an election to scare people about budget black-holes and boat arrivals or we can reassure them by letting people know that we are thinking about their future; that we are planning for it and that we will make sure that whatever turbulent changes affect our country and our economy, we will look after people and the natural world that sustains us.
That we will share in this prosperous future together. Thank you.
[1] ABS 5609.0 - Housing Finance, Australia, Nov 2015
[2] http://abc.net.au/news/2016-05-31/think-china-debt-is-inefficient-ours-is-worse/7464404?section=business
[3] http://media.wix.com/ugd/f01257_f43d3228e26f4d8a84769be554560ec6.pdf
[1] Address to the Economic Society Business Luncheon 3 July 2013.
[2] https://csirosolarblog.com/2011/09/29/solargas-part-1-what-its-all-about/
[3] http://www.abc.net.au/news/2014-10-07/adam-bandt-research-development-spending-claim-checks-out/5789134
[4] https://www.cleanenergyfinancecorp.com.au/investments/case-studies/tomato-farm-a-solar-innovator.aspx
[5] http://www.rba.gov.au/publications/bulletin/2015/jun/pdf/bu-0615-2.pdf
[6] CEDA Australia's Future Workforce June 2015 page
[7] http://www.theguardian.com/news/datablog/2012/may/24/robert-kennedy-gdp
[8] https://www.deakin.edu.au/research/story?story_id=2013/08/27/andi-guide-to-australias-future
[9] http://www.tai.org.au/content/peter-costellos-five-most-profligate-decisions-treasurer-cost-budget-56bn-year
[10] https://newmatilda.com/2016/01/07/why-are-we-still-working/