HON JOE HOCKEY MP SHADOW TREASURER

ADDRESS TO THE NATIONAL PRESS CLUB GREAT HALL, PARLIAMENT HOUSE

WEDNESDAY 22 MAY 2013 **CHECK AGAINST DELIVERY** Introduction After 31 years selling menswear in Chatswood, in the heart of my electorate, my cousin told me on the weekend that he has to close his doors. The business has gone broke. Gus first started work in the rag trade when he was 21. He has always been very good at what he does. Gus and his wife Karen have changed their business as times have changed on them. They have built up a loyal clientele. Repeat business is the best business. And their small business has paid for their home. Their small business has paid for their childrens education. Their small business has employed many others over the years. It would be wrong to blame the government or any single person for the shop closing. But it all adds up. A mix of higher rents, more demanding suppliers, lower margins and the development of online sales have all made life tougher. The shopping centre owner wants more flexible trading hours but employment laws offer less flexibility. And the costs of business keep going up and up and up, much of it driven by Government policies. But ultimately it is also true that customers just havent been spending the money they once were. And why is that? Well for starters customers are nervous. They are far more careful with their money. They distrust their government.

They dont know what new tax or new regulation is around the corner that will change their lives and the viability of the business they own or work in. The stability and certainty that Australians enjoyed up until 2007 has been replaced by volatility and unpredictability. Times have changed. But despite his deep despondency, Gus finished his phone call declaring that we still live in the best country in the world. Tomorrow, he said, must be better. And Ladies and Gentlemen I am here to promise you that tomorrow will be better. But we need a change of Government to make that happen. If we have the honour of being elected the Coalition will work hard, day and night, to make our country better. We will build a strong budget to build a strong economy. And we must return stable, predictable, AND honest government to Australia. Stability does not come from a Labor Government that has had five small business ministers in fifteen months. Predictability does not come when policies like tax cuts are announced in one Budget then reversed without shame or embarrassment in the next. Honesty does not come when a Prime Minister and her Treasurer promise there will be no carbon tax then introduce one as soon as they are re-elected. And honesty does not come when a government excuses its past profligacy on the promise of a surplus - but then not only fails to deliver one, but delivers a $19bn deficit with more to come. We cannot allow our country to be governed for the next decade and beyond by the legacy of a bad Labor government.

A Budget Which Lacks Integrity The Governments sixth budget fundamentally lacks integrity. Like everything else, they have over promised and under delivered. Let me give you five reasons why you cant believe the Budget promises. Firstly, they have broken the most solemn promise already. On over 500 occasions they boasted that they were delivering a surplus this year and the Prime Minister even boasted that the surplus had already been achieved.

But this budget has just delivered more deficit and debt. In fact it is a $20 billion deterioration in just six months. Next years forecast surplus of $2.2 billion has now become a deficit of $18 billion. Again a deterioration of $20 billion. Now the government expects you to believe that they will deliver a modest surplus in four years time, that is after two more elections. It would be comical if it wasnt so tragic. That means 7 straight budget deficits from Labor. That is the longest period of successive deficits by one government in more than a generation. Secondly, even if we were to believe the new numbers, the government will continue to borrow more money. The headline budget balance takes into account all of the governments spending decisions, including for those projects which are considered to be off budget such as the National Broadband Network and the Clean Energy Finance Corporation. It proves that Labor will never balance the books and will never stop borrowing money for at least the next four years. Thirdly, under Labor, gross debt, that is the money we actually have to repay, has been going up and up. The face value of Commonwealth securities on issue will pass $300 billion within the next four years. The government has already increased the debt limit on four occasions, firstly to $75 billion, then $200 billion, then $250 billion and then $300 billion. On each occasion they said they would never break the limit. Now the price we will pay is $35 million a day in interest. Thats $13 billion a year. That is more than enough to cover the full year costs of the NDIS without a levy. The budget papers indicate that the debt limit will have to be increased again at some point but the government doesnt have the courage to ask the parliament for yet another increase in the credit card limit before the election. Fourthly, in addition to the obvious deterioration in Budget outcomes, the Budget itself makes some courageous assumptions about the future. For example, net receipts from the MRRT (mining tax) are forecast to be just $200 million this year. That is less than 10% of the $3 billion forecast in last years budget. But despite this massive shortfall, and wide-spread views that the commodity price boom is fading, mining tax revenue is forecast to rise strongly over the forward estimates to $2.2 billion a year.

So the government wants you to believe that revenue will be less than 10% of the forecast this year, but things are going to improve so dramatically that the mining tax will increase tenfold to help deliver a surplus down the track. The forecasts for the carbon price also stretch credibility. The carbon pricing scheme links to the European system from July 2015. Forward prices for European carbon permits in 2016 have in recent days been below 6 Australian dollars at current exchange rates. The carbon tax revenue forecast for that year is now based on a price of $12.10 a marked reduction from the originally forecast $29 a tonne but it still looks ridiculously high compared to market expectations. But even stranger, the carbon price is projected to rise in a linear fashion, to $18.60 in 2017, and back up to the modelled price of $38 per tonne by 2020. This is essential for a forecast surplus. Absurdly, the budgeted revenue for the market traded carbon permits has nothing to do with the market. Its all about a convenient forecast for revenue. Finally, I have dealt in the Parliament with some of the more technical issues around the forecasts on nominal growth and the terms of trade. I stand by my comments that these assumptions look overly optimistic. The sum of all this is that the Government does not have a revenue collection problem it has a revenue forecasting problem, all of its own creation. You, the Australian people, are not to blame for paying too little tax. The Government is to blame for spending too much of your money. But even when it comes to expenditure the numbers are rubbery. The government wants you to believe they will pump more money into education through their Gonski reforms. Yet the budget papers show they are spending nearly $5 bn less on education over the four years to 2016 compared with last years budget. All the promised increase in education spending lies beyond the next two elections. Its all to be delivered by the Labor Government in its fourth term of office. In the meantime the Government is playing a game with the numbers to score political points. In order to achieve their claimed $16.2 billion increase in school funding, they are taking the worst numbers on the current system, the best numbers on Gonski, mixing it with heroic assumptions and then placing the funding burden on a government two elections away.

For example, after years of assuming for Budget purposes that the per head funding for government schools would increase at the ten-year rolling weighted average which had been 5.6% in the mid year update - school funding is now forecast to grow at a flat 4.7%. This abandonment of historic data is completely at odds with the use of historic data for the projected funding costs associated with asylum seeker arrivals. When it comes to boats the Government has taken a ten year average of boat arrivals as the underlying assumption for the final two years of the forward estimates. However, for half that time the Coalition was in Government and an average of three boats arrived per year. Given that 137 boats have arrived this year alone and 46 boats arrived in April, which was the worst month for boat arrivals ever, how on earth can the Government justify their claims that the costs of boat arrivals will taper off? Labors poor management of our borders has now cost taxpayers over $10 billion since they came to office and they are trying to convince people that it will be fixed just as boat arrivals reach record numbers. So, to be very clear, the Government abandons historic data when it increases costs in the Budget and then uses historic data when it decreases costs in the Budget. They have junked a long term average for education only to use a long term average for boat arrivals. These are some of the tricks that undermine the Budget and reflect poorly on this government. With little credibility around the underlying forecasts on revenue and expenditure and with a seemingly generous approach to economic parameters, the reality is that the cupboard is bare. Under Labor the Budget will never come back to surplus. The debt will keep growing. And unpredictable and unstable government will continue. And because of Labors determination to keep spending other peoples money, if we are elected on September 14, obviously we will have little fiscal room to move. Achieving positive structural economic reform often costs money. Whether its good structural reform like the phasing out of tariffs started by Hawke and Keating, or real tax reform like that under the Coalition in 2000, the starting point has to be Australians are financially better off even if the Budget is initially worse off. For example, when we introduced the New Tax System in 2000 we were collecting less revenue for the Commonwealth than under the old tax system. This was appropriate because it over compensated the economy for the cost of significant

dislocation associated with broad tax change. That is the lesson on how to do real and successful tax reform. Of course some structural reform comes without a Budget cost. For example, the floating of the dollar, the Campbell and Wallis reforms to banking, industrial relations change and even National Competition Policy were all revenue neutral or at little cost to the Budget, but they delivered significant economic benefit. By leaving the cupboard bare, Labor has made it more difficult to deliver structural reform. To build a stronger economy we must first build a stronger Budget. This is why our Commission of Audit will examine both government expenditure and better service delivery. That is why, if we are elected, Tony Abbott has made real tax reform, and COAG reform, issues for discussion in a first term. But any change will require community endorsement at the subsequent election, for delivery in a potential second term of government. We have to end the wild ride of new taxes, undelivered tax cuts, on again/off again payments, and knee jerk reactive decision making. Let me be very clear, the objective of the Coalition, over time, is to reduce the overall tax burden on business and taxpayers, not to increase it. This will be the guiding principle of any reforms we seek a mandate to implement. So my focus now is firmly on what the Coalition needs to do to restore honesty in government and sustainable prosperity for all Australians. For the good of the country we need to stop increasing Government debt as quickly as possible. The government wants you to believe that debt doesnt matter because it is lower than in many other developed countries. Well the government doesnt seem to have noticed that the countries they compare us to are struggling - and they are now deeply regretting their failure to get their houses in order when they could. In a race to the bottom there are no winners. And we should never forget that Australia had its credit rating downgraded twice under a previous Labor Government when Commonwealth debt was below the levels it is at now. All of you know that while you are borrowing more and more money to pay for everyday expenses you have not got your finances under control.

The Coalition will reduce debt in four ways. Firstly, we will balance the books, live within our means and return the budget to surplus as quickly as possible. We will do this by cutting waste and abolishing programs that are unaffordable. To repair the budget position and to pay for any new initiatives, the Coalition has already announced an extensive list of budget savings, including: A 12,000 reduction in public service headcount through natural attrition.

Abolishing the mining tax and associated spending, including the Schoolkids Bonus, the low income $500 superannuation rebate and the deferral of the increase in the superannuation guarantee levy for two years. A reduction in the humanitarian refugee intake from 20,000 back to 13,750. Stopping the asylum seeker boats.

Because of the fiscal emergency, we reserve the right to legislate any announced government savings in this Budget and unlegislated announcements from previous Budgets that Labor have already booked. We also reserve the right to not proceed with any announced new spending in this budget unless otherwise specified. Secondly, we will borrow less to fund our more affordable and more achievable NBN. Thirdly, the abolition of the Clean Energy Finance Corporation will liberate up to $10 billion of debt over the forward estimates. Fourthly, we will sell down the $10 billion of Mortgage Backed Securities on the balance sheet of AOFM as market conditions permit, and reduce the associated borrowings.

Budget Integrity Measures To ensure honesty and transparency the Coalition will initiate further reforms in the reporting of Australias fiscal position. We will task Treasury with including in the budget papers a more thorough analysis of the sensitivity of Budget forecasts to events. Also, as I announced two years ago, the Coalition will ask Treasury to publish information on the structural budget position, including both historical data and forecasts, in the annual budget papers, not on some ad hoc basis.

Finally, a Coalition government will publish full information on the current and projected face value of government securities on issue. Like every household with a mortgage you should always know how much you owe the bank.

Small Business I come from a small business family. Through my familys endeavour, that small business gave me a home. It paid my school fees and helped support me through University. It has given my parents some financial freedom in their retirement. Business is the backbone of the Australian economy. Governments do not create jobs they rely on all of you to do just that. Instead of being at war with business, government should be supportive of business. We should reward and not penalise innovation and success. We should laud achievement, investment and excellence. We should welcome job creation and hard work that is smart and constructive. Abolishing the carbon tax and providing tax cuts will benefit business, and consumers. It will directly reduce the cost of electricity and gas. People will have more money in their pockets. And whilst some consumers and some big businesses have received compensation for the pain of the carbon tax, small business did not get a zack. There was no compensation for these higher costs and many found they were unable to pass them through to consumers. Tony Abbott has already announced that small business will be a cabinet portfolio within the Treasury department. Today I confirm that the Coalition will ensure that Commonwealth departments and agencies meet their obligations to small business suppliers by adopting a pay on time or pay interest policy. Labor has made much of its promise to pay small business accounts within 30 days.

However, Labor has limited the application of this pledge to formal contractual relationships. Under the Coalition, all small businesses that provide services to the Commonwealth will get the benefit of a pay on time or pay interest approach- formal contracts or not. If an account is not paid within the 30 days, interest will be paid at the same rate as the Australian Taxation Office expects people to pay for late tax payments (currently 9.95%). Small businesses work hard for their money and should not be bankrolling government.

ATO initiatives The Coalition will also foster a more cooperative relationship between taxpayers and the Australian Taxation Office. We all have to pay our fair share of tax. But the relationship with the ATO does not have to be adversarial and should be based on mutual respect. One measure that will help change the culture of the tax office is to appoint people with business experience to senior posts. The new Commissioner, Chris Jordan, is a breath of fresh air in this regard and the Coalition welcomes his appointment. But for too long the tax office has developed an insular and inward looking culture that has put it at odds with taxpayers, particularly in relation to its overly aggressive interpretations of tax laws. Taxpayers are not the enemy. They should be respected. I have previously announced that the Coalition would expand the number of Second Commissioners of Taxation, from three to seven, with appointments of outsiders who have market place experience to the executive group, which sets the strategic direction of the tax office. A second step is to reduce the complexity and increase the certainty of tax law. In areas like self-assessment and compliance we can do better. But when dealing with tax payers the ATO has everything in its favour. When it comes to resources, this year alone, the Government has increased the size of the tax office by over 500 employees to more than 22,000 staff. And when it comes to its legislated powers it all works in favour of the tax office as well.

For example if a taxpayer is assessed for tax, the only way the amount can be disputed is if the tax is paid in full (with few exceptions). And when there is a dispute over an audit, the ATO can often seem to go through the motions, rather than objectively reconsidering the taxpayer's position. Taxpayers need to know their concerns are heard and they need to be assured that they are being treated fairly. I announce today that if elected a Coalition government will immediately establish a standing Parliamentary Committee with a singular focus the oversight of tax administration. The first task of the Oversight Committee will be to set down dates for regular semi annual public hearings with the Commissioner of Tax. They will be held in a format similar to the public hearings with the Governor of the Reserve Bank. The second task will be an enquiry into the most effective organisational structure for independently handling and resolving formal taxation disputes. As I said last November I have deep reservations about the ATO being both an administrator and a prosecutor. I recognise that the new Commissioner of Taxation, Chris Jordan, is endeavouring to put in place a more independent dispute resolution process. I welcome this initiative. So our timeframe should allow a proper evaluation of the ATO's new approach to independent review of disputes. However, if the Oversight Committee believes its necessary, then the Coalition stands ready to break up the tax office, so that its policeman functions are separate to its responsibility for administering the tax system. Fairer administration of our tax system should have bi-partisan support.

Tax Policy Legislation In addition, the Coalition believes there is much room for improvement in the process, design and delivery of taxation legislation. Quality control is crucial and requires accountability. A Coalition Government will provide greater certainty to taxpayers by requiring the Commissioner to affirm that all new taxation legislation and related explanatory memoranda accurately express the stated policy intent of the Government. The ATO will also have to affirm that it has the administrative and compliance systems in place to give practical effect to the Governments legislation.

Taxation Reforms The Coalition has already announced the package of tax reforms on which it is seeking a mandate. The Coalition will abolish the Carbon Tax as our first order of business. While most of the spending linked to the carbon tax will go, a Coalition Government will keep the tax cuts and fortnightly pension increases without the carbon tax. We do so because we believe it is essential that the community, taxpayers and pensioners, have some stability and certainty in their household budgets. And the Coalition will abolish the Mining Tax. A tax that has made life harder and more complex for a mining industry that needs long term stability for its long term capital investment. Predictability and stability is driving our commitment to produce a comprehensive white paper on tax reform. There is plenty of room for improvement in our tax system so that it is fairer, simpler and helps deliver lower taxes. Confidence in taxation policy making is at an all time low. When Paul Keating dumped his L_A_W tax cuts we thought it couldnt get worse. But when the Prime Minister introduced a carbon tax she promised would never exist, tax policy making in Australia hit rock bottom. And the Treasurer is no better. He has legislated tax cuts in the last Budget only to take them away in this Budget. So the Coalition has announced a process designed to rebuild honesty in tax policy making. It will be headed by a respected individual from outside the public service. We will then take any proposals for future tax reform to the Australian people for their approval in the 2016 election. Thats the way the Coalition does tax reformwe seek voter support at the ballot box. Like so many other things, when it comes to tax, Labor just cant be trusted. Our positive changes will not stop there. There is so much to do. We will have a Productivity Commission review of workplace relations.

We will have a financial system enquiry, a son of Wallis or granddaughter of Campbell, to lay out a roadmap for a safe, robust and efficient financial system which will continue to meet the financial needs of savers, borrowers and investors. We will task the Australian Office of Financial Management with exploring longer dated issues of Commonwealth Government securities to provide long term investments for superannuation funds, and to provide an anchor point for longer dated issues of private sector debt. We will make infrastructure a major priority and we will work with state governments and the private sector to build major projects like WestConnex in Sydney and the East/West Link in Melbourne. This list is just the start. All of these initiatives will help to lay down a base for strong economic growth, a strong business sector, more jobs and greater prosperity for all Australians. This is what the Coalition does. We will rebuild, step by step, the essential infrastructure of honest government.

Conclusion As my cousin Gus said in his darkest of moments, Australians want tomorrow to be better than today. Australians want their government to reflect their aspirations. And, Australians want their government to reflect the very best qualities of our people. It must start by building a strong Budget. This will help build a strong economy. And with a strong economy we can have a strong Australia. The Coalition has a plan to make our country better. With your support we stand ready to do the job.