Business leaders give Government pre-budget critique


Australian Broadcasting Corporation

Broadcast: 13/05/2013

Reporter: Chris Uhlmann

Three leading Australian economic minds, Dick Warburton, David Murray, and Saul Eslake, give their assessment of the Government's economic management ahead of the federal budget.


LEIGH SALES, PRESENTER: "Show me the money" - that's the demand of both voters and business leaders ahead of tomorrow night's Federal Budget.

The Government will need to pull off a deft juggling act to fund its costly election promises and steer Australia's finances back into the black.

There are forecasts of an $11 billion deficit and today the Prime Minister again pointed to collapsing revenue as the main problem.

But the Government is also committed to big spending initiatives in disability care and education and that will put more pressure on every budget from now on.

As political editor Chris Uhlmann reports, the state of the nation's finances troubles some of the leading lights of business.

CHRIS UHLMANN, REPORTER: The lights were burning in the wee hours at Treasury this morning as the national capital awoke to the first real chill of winter. All signs that it's budget season. And of course, the seasonal prediction of a surplus somewhere on the horizon.

WAYNE SWAN, TREASURER: We'll set out our plan to get back into surplus, a pathway back to surplus and all of the detail will be there on budget night.

LAURIE OAKES, JOURNALIST: Why is anyone gonna believe you after the fiasco of last year's budget?

WAYNE SWAN: Because responsible governments have to respond to changed circumstances.

CHRIS UHLMANN: Wayne Swan has been predicting future surpluses since 2009. Last year, he saw lots of them.

WAYNE SWAN (May 8, 2012): The four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, ...

(Laughter from Opposition benches)

... resilience of our people and the success of our policies.

CHRIS UHLMANN: Tomorrow night, the Treasurer will deliver his fifth deficit and project a couple more. There's no doubt that the Global Financial Crisis meant Wayne Swan has managed national finances in difficult times and that the tax take hasn't kept pace with forecasts, but that's not the whole story.

SAUL ESLAKE, CHIEF ECONOMIST, BANK OF AMERICA MERRILL LYNCH: It's certainly true that revenue, although it's rising, has risen less than one might've expected given what the economy has been doing, but it's also true that spending, having been pushed up during the financial crisis for reasons that I would defend even in retrospect, hasn't come down in response to the improvement in the economy since then. So I think we have problems on both the revenue and expenditure side and this government has struggled to bring the two of them into a sustainable balance.

CHRIS UHLMANN: Saul Eslake is chief economist with Bank of America Merrill Lynch. He believes a gradual return to surplus is important.

SAUL ESLAKE: Given Australia's relatively low level of government net debt, and that's even including the states in that calculation, we're not at any immediate risk of losing our triple A rating provided that there is a credible path back to surplus in a reasonable period of time. And I think that can still be achieved without what the Treasurer would describe as mindless austerity, although I think it will probably require more by way of spending cuts or revenue increases than the Treasurer will announce tomorrow night.

CHRIS UHLMANN: At 10 per cent of gross domestic product, Australia's debt looks tiny compared with other developed nations, but some argue that's misleading.

DAVID MURRAY, FORMER CHAIRMAN, FUTURE FUND: The point is that with the shape of our economy, we cannot afford nearly the level of debt of most countries, and as a consequence now I believe with our high foreign indebtedness, particularly in the private sector, that the triple A rating we have will eventually be lost.

CHRIS UHLMANN: David Murray ran the Commonwealth Bank and then Future Fund. He says Australia's economic structure creates particular problems. It's large and blessed with lots of natural resources, but constrained by a small workforce, so when the terms of trade turn Australia's way, the pressure on its economy builds rapidly and the Reserve Bank has to manage it down.

DAVID MURRAY: At the same time, we are dependent upon commodity prices where we're a price taker, whether the prices are good or bad, so we have a highly variable revenue line in our country, but successive governments have increased the welfare or fixed cost line in the government budget for health, welfare and education to an enormous level which we find it very difficult to pare back.

CHRIS UHLMANN: Former Reserve Bank board member and chair of retail giant Westfield Dick Warburton is blunt in his assessment of the Government's recent performance.

DICK WARBURTON, CHAIRMAN, WESTFIELD RETAIL TRUST & CITIGROUP: Chris, I think one of the biggest things that business will be looking for is to get some reality and honesty into the budget process. We've had some very, very poor judgments on what the revenue items would be, generally overestimating 'em, and then particularly then spending the money before they've even gathered it. So what we'll be looking for tomorrow is much more reality, honesty and credibility in what comes into the Budget speech.

CHRIS UHLMANN: He believes minority government has added to uncertainty.

DICK WARBURTON: And so, business has been quite unsettled through this process. I think you could say we've done the best of a bad lot, but it's been a very unsettling three years.

CHRIS UHLMANN: The full ministry settled into a meeting this afternoon and the Budget sales pitch was given a test run.

JULIA GILLARD, PRIME MINISTER: This week we'll be delivering a Labor budget which will be about keeping the economy strong, making the smart investments we need to for the future, as well as extending fairness to Australians.

CHRIS UHLMANN: The Shadow Treasurer's lines are simply a variation on a well-worn theme.

JOE HOCKEY, SHADOW TREASURER: Wayne Swan said he would have a surplus over the cycle. Well, I suggest that that cycle's now a millennium.

CHRIS UHLMANN: And four months out from the election, the Opposition Leader is already mapping out a prime ministerial work plan.

TONY ABBOTT, OPPOSITION LEADER: The number one priority for an incoming Coalition government has got to be to restore the nation's finances.

CHRIS UHLMANN: The leaders in economics and business who spoke to 7.30 agreed that returning to surplus too fast is risky.

SAUL ELSAKE: To try and get one in the current fiscal year would require increases in revenue, that is, tax increases and/or cuts in government spending that would impact the economy at a time when it is actually rather fragile.

DAVID MURRAY: Total expenditure in Australia by government has to be pared back gently over a period of time.

DICK WARBURTON: By the same token, though, you can't go too slowly. But I certainly wouldn't want to see a precipitous change or the mindless austerity, as the Treasurer keeps talking about.

CHRIS UHLMANN: David Murray thinks future governments will have to revisit industrial relations if the economy is to generate more wealth and tax revenue and public sector spending has to be cut.

DAVID MURRAY: The area of intense focus must be productivity and it should have all those elements of the industrial relations system, competition, willingness to be at work, and on the expenditure side, we have to deal with health, welfare and education in a sensible way.

CHRIS UHLMANN: Dick Warburton also believes the current industrial relations system is a drag on the economy.

DICK WARBURTON: I think there is more areas to be moved on in workplace relations to allow us to be more flexible, to allow us to gain greater productivity. So there's much more work to be done in that area yet, without again being precipitous and without again going back to WorkChoices.

CHRIS UHLMANN: And he's reserving judgment on whether an Abbott government would be well equipped for the tasks ahead.

DICK WARBURTON: You never really know how a government's going to perform until they actually get into government. I mean, who would've thought in the early days of the Howard Government that he would turn out to be the second longest-serving Prime Minister? And I think that's the same with any government coming in. You can only really test them when they're in power.

CHRIS UHLMANN: But as we've learned, forecasting the future is fraught. Right now, selling the budget falls to this Treasurer. And his party's future is riding on it.

LEIGH SALES: Political editor Chris Uhlmann.