Speech

Speech to the Sydney Institute

Senator The Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia

Wednesday, 23 August 2017

Policies for Opportunity vs. Politics of Envy

As a government our job is to ensure Australians today and into the future have the best possible opportunity to succeed, get ahead and have the best possible quality of life.

That sounds straight forward enough, but none of that is possible without a strong economy. It is a strong economy which underpins our living standards, safeguards our future and enables us to be the free, democratic, peaceful country that we want to be.

Continued economic success is also critical to the government’s capacity to provide an appropriately generous and well targeted social safety net, which is affordable and sustainable over the very long term.

In Australia we have perfected the art of walking and chewing gum at the same time. We have promoted economic prosperity while also pursuing social cohesion and fairness.

It is a clear compact. One objective is indispensable to the other. We need a robust economy and growth to improve the opportunity for everyone to succeed and to ensure our social safety net and commitment to a fair go can be sustained.

You don’t get a strong and successful economy by taxing the life out of it, or by putting limits on people’s ambition.

By any international standard, modern Australia has kept faith with the spirit of the fair go while at the same time becoming the envy of the world when it comes to economic growth.

Australia has achieved 26 years of continuous economic growth and gross household income per capita has grown at an average annual rate of 1.5 per cent above inflation over the past 30 years.

While it is still too high, at 5.6 percent our unemployment rate remains low by international standards.

Despite the slowdown of wages growth in recent years, according to the OECD, Australia has the highest hourly minimum wage rate in the world – ahead of Luxembourg and Belgium respectively in second and third position globally.

Now, Bill Shorten recently said in a speech that “the wealth of your parents is becoming the defining feature and source of your future...your success in life is pre-determined by your parents’ income.”

This statement, like many he has made before, is patently false. 

A key aspiration for all parents is that we want our kids to do well. We want them to have the best possible opportunity of a bright future.

In that context intergenerational income mobility is an important measure of equal opportunity to succeed, in that it measures the linkages between the socio economic status of parents and the economic performance and success of their adult children.

And Australia performs very well internationally when it comes to ‘intergenerational income mobility’.

Some dismiss these sorts of measures and indicators as too complicated and hard to communicate – and clearly for Bill Shorten it is just an inconvenient truth which he chose to ignore.

Indeed, according to the 2016 Stanford Poverty and Inequality Report, Australia was ranked sixth out of 24 middle and high income countries when it comes to providing opportunity to succeed in life through effort and hard work, rather than relying on the socio-economic status of their parents.

On this important measure, Australia ranks ahead of other significant countries including the UK, the US, Switzerland, France, Germany, Japan, New Zealand and Sweden.

Our future prosperity is not guaranteed.

To secure continued economic growth and success, we rely on individual Australians – we rely on their aspiration and their accomplishments, achieved on the back of their initiative, their enterprise and their hard work.

For our continued success as a nation, all of us individually and together need every individual Australian to give it their best.

That requires policy settings which encourage Australians to work hard, while making sure all the appropriate social safety net arrangements are in place.

If we want to continue to maximise our living standards;

If we want to continue to maximise the opportunity for Australians today and in the future to get ahead, to have the best possible quality of life;

If we want a solid economic foundation on which to build and maintain a generous and sustainable social safety net;

Then we need to support aspiration not flatten it.

We need to support business and free enterprise and recognise that their success is what underpins Australia’s success; and

We need to accept that policies which seek to achieve equality of outcomes by tearing down certain groups – rather than pursuing equality of opportunity for everyone - lead to inferior outcomes for all.

Dragging down one group of Australians won’t lift other Australians up. To the contrary – it would actually achieve the opposite of what Labor claims. 

Nobody would disagree with the proposition that the best form of welfare is a job.

OECD research has found that employment growth has put substantial downward pressure on the dispersion of earnings in Australia. 

Low and middle-income earners are particularly sensitive to changes in GDP growth, because they have a higher chance of losing their jobs during downturns. 

The Productivity Commission has found that for these groups, workforce participation and the number of hours worked are the most important drivers of income growth. 

And analysis from the RBA shows that for these groups, a 1 percentage point increase in the growth rate of GDP is associated on average with a 5 percentage point increase in personal income growth.

Stifling equality of opportunity would actually worsen inequality.

You might say this is all common sense.

That to encourage aspiration and the pursuit of success is the proven Australian way;

That we celebrate rather than envy success because when our entrepreneurs succeed, we all succeed.

When our businesses are robust and profitable, our economy is better able to provide the services we need in education, health, social welfare and fund our national security requirements.

Who in their right mind would contest this?

Well, Bill Shorten is contesting it and he is contesting it hard.

As he looks ahead to the next election, he has made the deliberate and cynical political judgement that enough Australians have forgotten the historical failure of socialism.

The Berlin Wall came down 28 years ago, which means roughly 18 per cent of Australians enrolled to vote were born after the fall of the Berlin Wall and the failure of a system of Government that destroyed the economies of Eastern Europe.

Bill Shorten now believes the politics of envy will work for him politically if not economically.

That people will believe him when he pretends that the path to a better life for them is to tax their neighbours, their friends and their family members harder; to demonise aspiration and go after hard working Australians and successful businesses.

Bill Shorten believes that by denigrating successful people as the undeserving rich he will generate enough popular support to win the next election;

His rhetoric is the divisive language of haves and have nots. It is socialist revisionism at its worst.

But Australians see through this.

They know that our high intergenerational mobility means that many of today’s low and middle income earners are the high income earners of tomorrow. 

And they know that by attacking the “rich” of today, what Bill Shorten is really doing is attacking those who want to be the rich of tomorrow, millions of aspirational middle class Australians and their families. 

If we make it harder for people to be successful there will be fewer successful people. Nothing is surer.

Some will leave Australia and go where hard work, risk taking and success are more highly valued and rewarded.

We will be waving them goodbye at airports around the country - because they won’t be calling Australia home for a while.

Others will try less hard and over time achieve less.

The overall outcome would be a less successful, less prosperous economy, with fewer jobs and lower wages.

Australia under Bill Shorten would be both duller, poorer – and less equal.

Not only will there be fewer jobs and lower earnings, a less prosperous economy with less opportunity for all ultimately means less revenue for government to fund the important and necessary services provided by government, including our generous social safety net.

Some people will say the very rich can afford to pay more – why not permanently increase the level of income tax paid by millionaires to better look after those Australians doing it tough.

Because demonstrably it does not work that way.

Firstly, because while Bill Shorten is targeting so called ‘millionaires’ in his political rhetoric, he is actually proposing to go after the Australian middle class.  He is going after the workers, the savers, the home owners, professionals and the small business owners of Australia.

Just look at Labor’s policies. 

  • A permanently higher top marginal tax rate, which takes just about half of every dollar earned above an income level that is now just over twice average weekly earnings – a wage which many middle income Australians aspire to earn. 

  • A negative gearing tax grab on the wage earners in middle Australia: for example, a nurse on a wage of $50,000, who invests in property with $7,000 in annual net rental losses would, under Labor, face a whopping tax increase of 41 per cent.

  • An attack on self-funded retirees with its planned ban on limited recourse borrowing arrangements; 

  • A reversal of our Enterprise Tax Plan, increasing taxes on 3.2 million small businesses that employ 6.5 million Australians – most of them by definition low or middle income earners.  Never mind that in 2011 Bill Shorten lauded the virtues of company tax cuts, saying that they would create “jobs right up and down the income ladder”.

  • And a tax policy on trusts which is a naked attack on small business.  The policy singles out as Labor enemies stay-at-home mums, students, doctors and accountants - hitting beneficiaries on $37,000 the hardest.      

But even if Bill Shorten was only targeting the genuinely rich – it is clear that for a very meagre fiscal upside, if going after millionaires was all he did, the economic outcomes are bad all around.

As recently as 2012, France’s then incoming socialist President Francois Hollande imposed a 75% income tax on earnings above one million Euros.

They can afford it he said.

Except that it didn’t work that way.

Predictably and indeed predicted by many, there was an immediate exodus of any French taxpayer in that income category.

French millionaires simply left France.

Some famously left for Belgium and irony of ironies, Russia.

The tax barely raised any additional revenue – 260 million Euros in 2013 and even less, 160 million Euros in 2014, while the budget deficit increased to 84.7 billion Euros.

The French socialist tax on millionaires was dropped by the French socialists themselves after just two years.

Slower global growth in recent years, the transition in our own economy on the back of lower prices for our key commodity exports, lower wages growth, disruptive economic change on the back of rapid technological innovation, troubling geopolitical factors have all combined to cause anxieties across parts of our community.

Many Australians are doing it tough and are worried about the future.

Bill Shorten is telling them the solution to their worries and concerns is to go after successful people who are so much better off than they are, when that would be precisely the wrong way to go.

He is framing the success of enterprises (large and small) as inconsistent, even hostile to the opportunity for working Australians to be successful and prosperous. 

This is dangerously wrong and a deliberate flirtation with the playbook of Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom.

There is a well-established, well-worn pattern to Shorten-speak. 

He starts most speeches by saying what a great country Australia is, before proceeding to take his audience on a frightening journey where the rules are rigged against working Australians by some fictitious ruling class.

He says he doesn’t begrudge people becoming well-off, before systematically painting those same Australians as rorting the system and not giving back to their country and their fellow citizens.

He says he wants an economy that supports jobs and economic growth. Yet in the very next breath he will look to undermine confidence in the market-driven reformist model pioneered by Hawke and Keating and which has helped deliver 26 consecutive years of economic growth.

This record run of uninterrupted growth means that a generation of Australians have grown up without ever knowing a recession, and over the past 30 years gross household income per capita has grown at an average annual rate of 1.5 per cent above inflation. That is a 56 per cent improvement in real terms.

Today, Australians are presented with a clear choice. It is a fundamental choice. 

It is a choice between the politics of grievance and envy and the policies of opportunity and aspiration.

The Turnbull Government will continue to promote the economics of opportunity and aspiration.

We will build on the pro-market reforms of decades past that have served Australia and Australians well.

We will continue to promote policies that lead to higher growth, to more jobs and to better-paid jobs.

LABOR’S 2016 TAX AND SPEND ELECTION PLATFORM

At last year’s election, the Shadow Treasurer presented a fiscal plan for Australia that would increase the budget deficit by $16.5 billion over four years and delay a return to surplus until 2023-24.

This $16.5 billion in extra deficits was made up of higher spending of $29 billion only partly offset by higher taxes of $12.5 billion over the then forward estimates.

Over the medium term, Labor’s plan was to increase taxes by more than $100 billion to pay for its spending binge.

It is worth noting that they are happy to spend this revenue as though it is guaranteed to come in over the next 10 years, not having learnt from their own mistakes with respect to their disastrous Mining Tax.  

LABOR’S $150 BILLION PLUS ADDITIONAL TAX BURDEN

In the 13 months since the last Federal election Labor has not deviated from its tax and spend approach to the Budget and the economy.

The Shadow Treasurer has spent the entire time coming up with more ways to raise taxes.

At last count, Labor has committed to imposing more than $150 billion worth of additional taxes on the Australian economy. As the Treasurer has said, Bill Shorten’s tax winter is coming and they are only one year into a three year term in Opposition.

  • Labor would leave businesses worse off by more than $60 billion by rolling back the business tax cuts we have legislated and refusing to support the remaining tax cuts for businesses that we have set out in our Enterprise Tax Plan.

  • Labor would punish mum and dad investors and hurt housing markets outside of Sydney and Melbourne with a $45 billion new tax which would scrap negative gearing and halve the capital gains tax discount.

  • Labor would raise $22 billion by increasing the top marginal income tax rate to 49.5 per cent on an ongoing basis – an incentive killer if ever I saw one.
  • Labor is particularly envious of self-funded retirees who have worked hard within the rules all their lives to provide for their golden years and would rip $20 billion out of their savings through a secret super tax, despite promising at the last election they would not raise any more revenue from superannuation than the reforms we outlined in the 2016-17 Budget.

  • Labor would hurt small business owners by raiding family trusts for $15 billion.

Everyone is in the sights of Labor’s unprecedented tax grab - families, singles, retirees and small business owners.

THE COALITION’S FISCAL AND ECONOMIC STRATEGY

By contrast, the Turnbull Government believes in the economics of opportunity, and the importance of sound Budget management.

We believe that Australians should be rewarded for working hard, for stretching themselves to be as successful as they can possibly be, and for taking risks that ultimately benefit all of us.

Economic growth relies on Australians working harder, working smarter, investing more and putting capital at risk.

Economic growth is earned and must never be assumed.

We have delivered tax cuts to 3.2 million Australian businesses employing over 6.5 million workers, giving them an opportunity to grow, lift the wages of their workers and create more jobs.

That is why we are committed to staying the course on our Enterprise Tax Plan by reducing the company tax rate to 25 per cent for all businesses.

We delivered tax relief to Australian workers last year.

The Turnbull Government has put a speed limit on taxes.

We won’t allow our tax revenue to rise any higher than 23.9 per cent of our economy over the next ten years.

That is a firm commitment to keep our overall tax burden low, to protect our international competitiveness and to keep the right incentives for hard work, savings and investment in place.

Consider the contest at the last election. We ran on jobs and growth, while Labor cooked up MediScare.

Scare campaigns and politics of envy are much easier to prosecute of course, while staying the course on a genuine economic growth agenda is more challenging, especially without having the numbers in the Senate.

But we are in government to do what is right and we will stay the course. 

INTERGENERATIONAL EQUITY

The other foundation of the Turnbull Government’s fiscal and economic strategy goes to intergenerational equity.

This requires that Government lives within its means by returning the Budget to balance and ensuring today’s services are not being paid for by tomorrow's taxpayers.

As a result of the Government’s consistent and determined efforts, the Commonwealth Budget is still projected to return to balance in 2020-21.

This has not been easy, as we inherited a Budget where Labor had simply assumed that real growth in spending would only be 2 per cent per year in their fiscal strategy, when instead spending was actually growing at 3.7 per cent. This assumption masked just how bad the Budget really was when the Coalition won Government in 2013.

Since the Coalition has been in Government we have managed to legislate more than $300 billion in budget repair measures over the medium term to 2027-28. Many of our savings are structural savings measures, which improve our spending growth trajectory over time – starting low and slow in their impact and building over time.

All new spending has been fully offset (excluding Senate negotiations) and the average real growth in payments over the forward estimates remains below 2 per cent per year, consistent with the last Budget and down from the 3.7 per cent spending growth we inherited when we came to government.

Imposing the burden of our spending today on future generations of Australians is unfair, and we are determined to bring the Budget back to surplus

Bill Shorten’s alternative is simply to keep spending and pay for it by increasing taxes on the Australian middle-class and in the process flattening the economy.

But, while it hasn’t been easy, the Turnbull Government has shown that through prudent management you can keep spending down and still fund, protect and deliver the key services that Australians need.

We have legislated to protect Medicare to ensure it is available both now and into the future.

We have established the Medicare Guarantee Fund to pay for all expenses on the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme from July 1 this year, and already $33.8 billion has been credited to the fund for the sole purpose of meeting the cost of essential health care.

We have legislated record funding for our hospitals and schools.

Our $23.5 billion package to fund needs-based schooling for every student in every state, in every school, gives parents the confidence that when they drop their kids off at the school gate, their child is getting the funding based on what they need - not being left out by special deals other schools receive.

We’re increasing Australia’s investment in early childhood education and care by $2.5 billion over the next four years. Around one million Australian families balancing working and parenting will benefit. Low and middle-income families will be the greatest beneficiaries from the package.

An activity test will ensure that taxpayer’s support for childcare is targeted to those who depend on it in order to work, and helps them when they work additional hours. Our reforms will encourage more than 230,000 families to increase their workforce participation.

The package provides the highest rate of subsidy to those on the lowest income levels and more hours of subsidy to those who work the most. We’re increasing the base subsidy from around 72 per cent to 85 per cent for the more than 370,000 families earning around $65,000 or less a year.

And yes we are filling the $55.7 billion NDIS funding shortfall with a 0.5 percentage point increase to the Medicare Levy.

We chose the Medicare Levy - asking all Australians to contribute according to their means - because this is a responsibility that falls on all of us.

Those who earn more will pay more, but all of us above the thresholds that have already been set to protect the vulnerable have a role to play.

SUMMARY OF OUR ECONOMIC PLAN

The Government is committed to growing the economy and helping to fund the services Australian’s rely on now and into the future.  To do this, our economic plan puts in place incentives to reward success by:

  • Committing not to increase the overall tax burden in the economy beyond 23.9 per cent of GDP;

  • Having an economic-growth  friendly tax system;

  • Pursuing an ambitious free trade agenda to give our exporting businesses better access to key markets around the world and our consumers access to the best possible products and services at the most competitive prices.

  • Investing in productivity enhancing economic infrastructure to help secure our future international competitiveness and economic success.

  • Securing affordable and reliable energy supplies for families and business in a way that helps ensure we can meet our international emissions reduction commitments;

  • And continuing Budget repair, to put our nation’s finances on a sustainable footing.

CONCLUSION

The next election will be an incredibly important choice for people across Australia.

Bill Shorten believes he has already won the next federal election.

He is getting increasingly cocky.

He believes that his divisive politics of envy will propel him into The Lodge.

And in his pursuit of his personal ambition he has even been prepared to trash the legacy of Hawke and Keating, taking Labor back to its failed socialist roots.

I find it hard to believe that Australians really want the sort of Australia that Bill Shorten is promoting.

Do we really prefer the politics of envy and the lowest common denominator to policies designed to secure better opportunities?

Bill Shorten wants to stoke grievance and resentment with sneering attacks on millionaires.

He wants to pretend that higher taxes, more government spending, more debt and greater regulation offer economic salvation when ultimately he wants nothing more than to channel peoples’ anxieties to his own political advantage. 

He wants to slide into office with the politics of envy and the economics of snake-oil.

Our clear message to Australia is that Shortenomics is not in the best interest of Australians today, nor is it in the best interest of our children and grandchildren.

Because it would make us poorer as a country than we should be;

Because it would lead to lower growth, fewer jobs, lower productivity and wage growth and a lower capacity for government to fund the important public services Australians expect.

‘Shortenomics’ is a recipe for economic decline and social division.

Bill Shorten has overreached in his shift to the left.

I believe he is misreading not only what is in the best interest of Australians today and into the future, but also the great aspirational spirit of the Australian people.

Labor has no strategy for growth, they just assume it will be there. But it won’t just be there.

There was a reason for the historical failure of socialism.

If, as a government, you want to pursue equality of outcome instead of equality of opportunity, the people in our community that are best able to contribute to our success as a nation will either lose the incentive to work hard to be successful, or they will leave and go to work hard and be successful somewhere else.

Pursuing the socialist ideal of equality of outcome leads to mediocrity and stagnation.

If you make it harder for aspirational Australians to get ahead, there will be less prosperity which would be bad for everyone.

I am very confident that Australians are better, fairer people than Bill Shorten makes out.

Australians get aspiration and the pursuit of opportunity and success.

That is why I believe Bill Shorten’s approach will ultimately fail and that the Australian people will vote against it at the next election.