A STRONGER ECONOMY

A STRONGER AUSTRALIA
A STRONGER ECONOMY
A STRONGER AUSTRALIA

OCTOBER 2004
PART 1 RESTORING PROSPERITY
Introduction
In eight and a half years the Coalition Government has restored Australia’s economic
prosperity and implemented measures that have ensured this prosperity is spread
throughout the community to workers, families, pensioners and self-funded retirees.

Strong and stable economic growth, low inflation and a decline in unemployment
have contributed to a significant increase in the living standards of Australians.
These strong economic conditions have opened up greater opportunities. They have
allowed more Australians to make their own decisions about participating in the
workforce.

Since March 1996 more than 1.3 million new jobs have been created and Australia’s
unemployment rate has been sustained below 6 per cent for a year – the best
outcome for more than a quarter of a century.

A steady stream of income from regular employment has provided individuals and
households with an opportunity to save, borrow and invest for their future and to
contribute to the well-being of their children. Interest rates have fallen and remained
low, and income taxes have been cut. These conditions have ensured that the take
home pay of Australian households has risen.

A frequent misconception in recent years is that the rich have got richer and the poor
have got poorer – that people are being left behind. The evidence proves otherwise.
A rise in household disposable income has occurred across the board. The rich and
poor have both got richer.

• In real terms, household disposable incomes for all Australians, on

average, increased by 12 per cent between 1994-95 and 2000-01.
• Average real household disposable incomes for low income households
grew by 8 per cent.
• Average real household disposable incomes for middle income households
grew by 11 per cent.
• Average real household disposable incomes for high income households
grew by 14 per cent

1
 INFLATION
Per cent
10.0

9.0

8.0
Labor Coalition
7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

-1.0
Mar-88 Mar-89 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04

HOME LOAN INTEREST RATES

Per cent
18.0

17.0

16.0

15.0
Labor Coalition
14.0

13.0

12.0

11.0

10.0

9.0

8.0

7.0

6.0

5.0
Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

UNEMPLOYMENT RATE
Per cent
11.0

Labor Coalition
10.0

9.0

8.0

7.0

6.0

5.0
Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

2
Since 1996, Australia’s real GDP has grown by an average of 3.6 per cent each year,
and inflation has averaged 2.4 per cent. In per capita terms, Australia’s GDP has
increased by more than 20 per cent.

Australia’s economic performance has also been amongst the best in the world.
According to the OECD, over the eight years to the end of 2003 Australia’s total
gross domestic product grew by more than any of the major seven industrialised
countries.
GROWTH IN REAL GDP

Per cent change over past eight years

40

35

30

25

20

15

10

0
Australia Canada United States Britain France Italy Japan Germany

Lower Interest Rates

In the eight and a half years since 1996, home mortgage interest rates have
averaged 7.15 per cent. This represents the best period of sustained low interest
rates since the 1960s.

HOME LOAN MORTGAGE INTEREST RATE

Per cent
18

16

14

12

10

4
Jun-59 Jun-63 Jun-67 Jun-71 Jun-75 Jun-79 Jun-83 Jun-87 Jun-91 Jun-95 Jun-99 Jun-03

3
During the 13 year period that the Labor Party was last in office, home loan interest
rates peaked at 17 per cent and averaged 12¾ per cent.
If home loan mortgage rates were to rise by just one percentage point, Australians
who have taken out an average new home mortgage of $200,000 would be paying
an extra $167 per month in higher interest payments.

The Benefits of Strong Productivity

Australia’s economic growth has been underpinned by a strong productivity
performance. Structural reforms - including to the workplace relations system and
the taxation system - have made Australia’s economy more flexible and dynamic.

In Government, the Coalition has simplified the overly prescriptive and outdated
award system. The introduction of workplace agreements has given businesses –
and most importantly their employees - greater flexibility in negotiating working
conditions and helped ensure that wage rises are underpinned by productivity
improvements.

We have introduced more effective sanctions to protect businesses from unlawful

industrial action, including through the restoration of the secondary boycotts
provisions, and we successfully legislated to protect junior rates of pay.

At a time when fewer than one in five Australian workers in the private sector are
union members, we have brought compulsory unionism to an end.

TRADE UNION MEMBERSHIP - PRIVATE SECTOR EMPLOYEES

Per cent of Workforce
40.0

35.0

30.0

25.0

20.0

15.0
1986 1988 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

The result has been fewer industrial disputes, higher real wages and restraint in the
real unit labour costs of business so necessary to encourage stronger employment
growth.

Historic reforms to Australia’s waterfront have been achieved. These reforms have
resulted in a 75 per cent improvement in the productivity performance of our ports -
with average crane rates increasing from 15.9 movements per hour in late 1995 to
27.8 movements per hour by the end of 2003. A result critics said could never be
achieved.
4
National competition policy and other microeconomic reforms have delivered
significant benefits to Australians. The Productivity Commission estimates that
Australia’s GDP is 2½ per cent higher than it would otherwise have been, and
Australian households’ annual incomes are on average around $7,000 higher, as a
result of competition policy.

Competition policy has delivered lower electricity prices, cheaper airfares and lower
communication charges. Consumers have taken advantage of the convenience
offered by extended retail trading hours. In Sydney and Melbourne, where
supermarkets can trade all weekend, about one third of all customers do their food
and grocery shopping on Sundays.

The extent of the improvement in productivity across the economy is evident from the
fact that the average worker in the market sector now produces 24 per cent more
than he or she did in 1996.

Higher productivity growth has expanded the range of policy possibilities. It has
allowed low inflation to co-exist with rising profits and wages.

Workers have been rewarded through real wage increases. Real wages in Australia
have increased by 13.3 per cent since March 1996, compared with a rise of just 2.5
per cent over the 13 years of the previous Labor Government.

More rapid increases in output per head mean faster improvements in living
standards.

The business sector is also taking advantage of Australia’s strong economic

performance and improvement in labour productivity by investing in greater
productive capacity of its own.

The more competitive business environment has led to a rapid and widespread take-
up of information and communications technology. A recent Productivity
Commission study has found that the effects of increased use of information and
communications technology on Australia’s output and productivity growth have been
amongst the highest in the world, behind only the United States, Canada and the
Netherlands.

Over the past eight years, real private business investment in Australia more
generally has almost doubled. This significant growth in productive capacity has paid
off through higher profits, with the corporate profit share currently at a record high.

Everyday Australians are sharing in these strong profits because more than seven
million of them hold shares, either directly or indirectly.

Sharing the benefits with Pensioners

Australia’s age pensioners have shared in Australia’s recent economic prosperity
through the Coalition’s decision to link the age pension to the higher of 25 per cent of
Male Total Average Weekly Earnings or the Consumer Price Index. With wages
rising on the back of the productivity improvements of Australia’s workers, it is only
fair that these benefits are spread more widely through the community.

5
The new indexation arrangements were first applied in the March Quarter 1998 when
the single age pension stood at $347.80 per fortnight. Had the link to the CPI alone
been maintained, the pension would now be $423.10 per fortnight. Instead, with the
legislated link to 25 per cent of MTAWE, the single age pension is today $470.70 per
fortnight.

In other words, the single age pension has increased over this time by $120 per
fortnight and is currently more than $40 per fortnight higher than it would otherwise
have been had the previous indexation arrangements been maintained.

This provides a good example of how the benefits of good economic management
can be spread more broadly to include the 850,000 Australians receiving the single
age pension. For someone receiving the single age pension over the entire period
from 1998 to the end of 2003, the total benefit from the improved indexation
arrangement has accumulated to more than $2,500.

Recipients of the partnered aged pension have likewise benefited from the revised
indexation arrangements. The fortnightly benefit from the improved indexation
arrangement for the one million Australians who receive the partnered aged pension
is more than $36.50, and the accumulated benefit over the period more than $2,300.

The Coalition’s disciplined approach to fiscal management has meant that we can
afford to provide additional benefits to age pensioners. This included a one-off lump
sum payment of $300 in 2001 and, as recently announced, a new utilities supplement
will be paid twice a year to help pensioners pay their gas and electricity bills.

Helping Self-Funded Retirees

Before the Coalition came into office, older Australians who had saved for their
retirement and who did not receive a pension began to pay income tax once their
income passed the tax free threshold of $5,400. They paid more income tax than
pensioners even when they had the same income.

One of the first things the Coalition Government did on coming to office was to put
self-funded retirees on an equal tax footing with pensioners. We raised the tax free
threshold for older Australians to $11,185 so that a qualifying self funded retiree did
not pay tax on their income below that amount.

As part of the 2001-02 Budget, the Government provided a substantial increase in

benefits available to senior Australians. A new Senior Australian Tax Offset was
introduced from 1 July 2001 to replace the low income aged persons rebate and
pensioner tax rebate for people of Age Pension age. The Medicare levy threshold for
older Australians was also increased, so that senior Australians would not face a
Medicare levy liability where they did not have an income tax liability.

The Senior Australians Tax Offset combined with the low-income tax offset ensures
that eligible single older Australians can have income up to $20,500 without paying
tax or the Medicare levy. Similarly, eligible couples are able to have combined
income up to $33,612 without paying tax or the Medicare levy.

6
The Senior Australians Tax Offset phases out gradually and the phase out is
complete at an income of $38,340 for single senior Australians and for couples at an
income of $59,244.

The Coalition has also substantially widened eligibility for the Commonwealth Seniors
Health Card so that singles with adjusted taxable income below $50,000 and couples
with a combined income below $80,000 now receive the card.

The range of benefits available to holders of the card has been extended to include
certain telephone allowances and concessional travel on Great Southern rail services
including the Indian Pacific, the Ghan and the Overland.

In this election campaign, the Coalition announced that it will make a new payment of
$200 per year to self funded retirees holding a Commonwealth Seniors Health Care
Card.

Self funded retirees have also benefited significantly from other tax measures
introduced by the Coalition including the introduction of refundable excess imputation
credits, the effective halving of capital gains tax and the 30 per cent private health
insurance rebate. The Coalition recently announced that it will increase the Private
Health Insurance Rebate from 30 per cent to 35 per cent for people aged from 65 to
69 years and to 40 per cent for people older than 70.

Sensible Fiscal Management: Delivering Better Social Outcomes

The Coalition’s fiscal strategy has been an integral part of the policy framework to
deliver economic growth, rising employment and higher living standards. The
Government has followed a primary objective of maintaining a balanced budget, on
average over the course of the cycle. This ensures that it is not living beyond its
means.

BUDGET BALANCE
Per cent of GDP
2.5 2.5

1.5 1.5

0.5 0.5

-0.5 -0.5

-1.5 -1.5

-2.5 -2.5

-3.5 -3.5

-4.5 -4.5
1991-92 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 2005-06 2007-08

The Coalition has a strong record on fiscal policy and fiscal sustainability. It is on
track to record its seventh budget surplus and has so far repaid $73 billion of general

7
government net debt. At just 2.9 per cent of GDP, Australia now has one of the
lowest levels of net debt in the OECD, and its lowest net debt since 1977-78.

The benefits of lower government debt are apparent in the large reduction in the
Government’s annual interest payments. Having peaked at $8.4 billion in 1996-97 to
service Labor’s record debt, net interest payments are expected to decline to $2.9
billion in 2004-05.

This represents an annual saving in interest payments of $5½ billion per year.

As a result of this sensible fiscal management, the Coalition Government has been
able to boost its spending in priority areas. Much of this spending goes directly to
improving the living standards of Australians.

LOWER INTEREST PAYMENTS, MORE SPENDING ON THE COMMUNITY

$ billion
30.0
Assistance to
Families with
Children
25.0

20.0
Hospitals
Assistance to & Schools
Families with
Children
15.0

Interest on Hospitals
Government Debt
& Schools
10.0

Interest on
Government Debt
5.0

0.0

1995-96 2004-05

Health spending, for example, has doubled since the Government came into office,
from $17 billion in 1996-97 to $35 billion in 2004-05. Greater health spending is
being reflected in better health outcomes for Australians.

• Life expectancy for males has increased from 75.5 years in 1995 to 77.4 in
2002, while life expectancy for females has increased from 81.1 years in
1995 to 82.6 in 2002.
• Infant mortality has declined from 5.7 per 1000 live births in 1995 to 5.0 per
1000 live births in 2002.
• The proportion of fully immunised infants aged 12 to 24 months has
increased from 78.6 per cent in 1998 to 91.0 per cent in 2003.
• Total health expenditure per person per year (in constant prices) has
increased from $2,183 in 1995 to $3,397 in 2002.

The Coalition has also increased spending on schools. As a result, participation in

education and training has increased substantially. Over the next four years total
Australian Government spending on schools will be a record $32 billion.

8
 • Year 12 retention rates increased from 65.9 per cent in 1996 to
70.3 per cent in 2003 for males and from 77.0 per cent to 80.7 per cent for
females.
• Vocational education and training students increased by 19 per cent from
1997 to 2003, the number of apprentices and trainees more than doubled
from 1996 to 2003 and the number of higher education students increased
by almost half from 1996 to 2003
• More than 55 per cent of Australians aged 25 to 64 now hold post-school
education qualifications, up from 48 per cent in 1996.

A more disciplined and focused approach to fiscal policy has enabled the Coalition
Government to focus on other long term economic and social objectives. This year’s
Budget provided a significant funding boost to the aged care sector.

$2.2 billion was committed to the sector to ensure that it is able to provide affordable
and quality aged care services for an ever increasing number of older Australians. A
one-off $3,500 payment was made to providers for each resident in an aged care
facility to improve fire safety and building standards.

To ensure that all of our citizens live in a safer society, more than $3 billion has been
committed on national security since September 11 2001. A total of $40 billion has
been spent by the Government on defence since 1996.

Lower Taxes and Improved Family Benefits

A key aspect of the Coalition’s approach to budget management has been to offer
personal income tax cuts. Three major tranches of income tax cuts have been
delivered to date, with a further cut coming into effect on 1 July 2005.

The New Tax System introduced on 1 July 2000 provided major income tax reform,
delivering the largest income tax cut in Australia’s history. In the 2003-04 budget
income tax thresholds were adjusted further and additional tax relief was enacted in
this year’s Budget.

These three stages of income tax reform have delivered major structural change.
The tax cuts improve the rewards from working overtime, acquiring skills or seeking
promotion. As a result of the changes, over 80 per cent of taxpayers face a top
marginal tax rate of no more than 30 per cent.

Taxpayers on average full-time weekly earnings will remain in the 30 per cent tax
bracket over the coming years, even allowing for ongoing wages growth.

The increase in the top threshold will make Australia’s personal tax system more
internationally competitive, providing incentives for skilled Australians to stay and
work in Australia.

The tax relief delivered by the Coalition over the past eight and half years has been
substantial. An Australian earning $35,000 per year is today paying $1,250 per year
(or $24 per week) less in tax than they were when Labor was last in office. Someone
of $45,000 is now paying more than $2,200 per year less ($44 per week) than in
1995.
9
INCOME TAX SCALES
Labor's Tax Scales Tax Scales 1 July 2004 Tax Scales 1 July 2005
Taxable Income Tax rate (%) Taxable Income Tax rate (%) Taxable Income Tax rate (%)

$0 - $5,400 0 $0 - $6,000 0 $0 - $6,000 0

$5,401 - $20,700 20 $6,001 - $21,600 17 $6,001 - $21,600 17
$20,701 - $38,000 34 $21,601 - $58,000 30 $21,601 - $63,000 30
$38,001 - $50,000 43 $58,001 - $70,000 42 $63,001 - $80,000 42
$50,001 + 47 $70,001 + 47 $80,001 + 47

The Coalition’s tax cuts have delivered significant benefits across all income ranges.
Taxpayers earning $20,000 have enjoyed a measured reduction in their income tax
of 23 per cent. For taxpayers on $50,000 their income tax reduction has been 21 per
cent. By 1 July 2005, a taxpayer on $90,000 will have benefited from a reduction of
18 per cent.

Assistance to Families
The Coalition has demonstrated a consistent and ongoing commitment to the role of
the family in our society. Successive policy initiatives – commencing with the Family
Tax Initiative announced in the 1996 budget – have recognised the financial
sacrifices made by parents in raising children.

The Family Tax Initiative provided a $1,000 per year increase in the tax free
threshold for each dependent child in almost two million low and middle income
families. For single income families with at least one child under the age of five,
there was an additional $2,500 per year increase in the tax free threshold.

With the introduction of the New Tax System, the Coalition further increased
assistance to families with children. From 1 July 2000, new Family Tax Benefit
arrangements took effect. A major simplification was undertaken with twelve
previous payments replaced by three new benefits. Benefits were also increased by
$2 billion per year, withdrawal rates were reduced, income test limits were increased
and the assets test abolished.

The Treasury has analysed the real disposable incomes of Australians before the
new tax system was introduced and about one year after. The analysis found that all
family types had a greater real disposable income twelve months after the
introduction of tax reform.

The increase in real disposable income was generally significantly higher for couples
with children and sole parents than for households without children.

• The analysis found that between 1999-00 and 2000-01:

- Couples with two children in the bottom income quintile received
a real increase in average weekly disposable income of $36.
- Couples with children in the second bottom quintile received a
real increase of $51 per week.

10
 - Couples with children in the top income quintile received an
average increase in real disposable income of $32.
- Sole parents across all income quintiles received an average
real increase of between $34 and $46 per week.
• Working families in the lower income quintiles saw greater proportional
increases in their disposable incomes than those in the highest income
quintiles.

In the 2004 Budget the Coalition introduced a package of further assistance to

families which delivers an additional $19 billion to help with the costs of raising
children. This included a $600 per child lump sum payment to eligible families as
well as an ongoing increase of $600 per child in the rate of Family Tax Benefit Part A.

Withdrawal rates were also reduced to improve the rewards from working –
especially for families where a second earner is in part time or casual work or where
a woman is returning to work after having a child.

The arrangements surrounding the Family Tax Benefit Part B payment – which
provides extra assistance to single income families – have been made more
generous, including through a higher ‘free’ area and a relaxation of the withdrawal
rates.

This change means that many parents who undertake part time work a few days per
week will be eligible for more of the FTB (B) payment. It will improve incentives for a
second income earner in a family to take up part time or casual work and will provide
additional assistance for those combining work and family responsibilities.

Taken together the total assistance to families has increased by more than $6 billion
per year since 1996. The base rate of family assistance has increased substantially
from less than $600 per child in January 1996 to almost $1,700 per child in July
2004. This represents a real increase of more than 100 per cent.

INCREASE IN FAMILY ASSISTANCE - MINIMUM RATE PER CHILD

$ per child
2000

Increase in FTB (A)

1500

FTB Part (A)

1000
Family Tax Initiative

Family Assistance

500

1996 1997 2000 2004

11
A family on a single income of $35,000 with two dependent children (one of whom is
aged under five) currently receives more than $10,000 per year from the Government
in family tax benefits.

In fact, for a single income family with two children the net transfers they receive
mean that they do not pay tax in net terms until their family income reaches about
$40,000. In other words, for many families all of the tax they would have paid is
rebated by the Family Tax Benefit.

An important additional element of helping families balance their work and family
responsibilities is the provision of affordable child care places. The 2004 Budget
provided an additional 40,000 outside school hours child care places and an extra
4,000 family day care places. Since 1996, more than a quarter of a million new
places have been created in child care centres, family day care and outside school
hours care – representing an increase of 85 per cent.

In this campaign, the Coalition has emphasised its approach to supporting families by
providing them with greater choices. Choices about their working arrangements,
their family payments and about child care.

New initiatives will provide extra assistance in meeting the cost of child care through
the introduction of a 30 per cent tax rebate on out of pocket costs for approved child
care. The eligibility rules for Child Care Benefit will also be relaxed to better support
grandparents who care for children. To ensure that families continue to have choice
as to the arrangements that best suit their own circumstances, the maximum rate of
Family Tax Benefit Part (B) will be increased by $300.

PART 2 PROLONGING PROSPERITY

Meeting the Challenge of an Ageing Population
Australia’s continuing record of economic strength and prosperity is the envy of the
world’s developed nations. A major source of this national wealth was the relative
youthfulness of our population providing a growing and more skilful workforce.

But birth rates in Australia have fallen since the 1970s while life expectancy has
increased. With fewer babies being born and more people living longer, Australia’s
population is ageing.

The ageing of the population will have a substantial effect on the economy. It has the
potential to drastically affect our living standards and national prosperity.

Over the next forty years the proportion of our population aged over 65 will almost
double to 25 per cent. Whereas in 2002 there were five people of working age to
support every person aged over 65, there will only be two and a half people of
working age to support each person aged over 65 by 2042.

12
It is estimated that the extra spending pressures arising from this development will
result in required Government spending outstripping the amount it raises in taxes by
5 per cent of GDP by 2042. In today’s dollars, this would mean a budget deficit of
almost $90 billion.

We must act now so we can maintain our prosperity through a cohesive society
without transferring an enormous burden on future generations. To do nothing would
condemn our children and their children to higher taxes. To put this in perspective,
personal income tax collections would need to increase by 40 per cent to increase
current revenues by 5 per cent of GDP. This is not the sort of Australia we should
leave to our children.

Planning and preparing for Australia’s demographic challenge is one of the

Coalition’s highest priorities. An Intergenerational Report was a specific requirement
included in the Charter of Budget Honesty and the first such report in Australia’s
history was delivered with the 2002 Budget.

The IGR looked ahead 40 years and concluded that with no policy change the ageing
of our population would result in:
• Slower economic growth because of a lower proportion of the
population in the workforce (in other words, diminished
workforce participation);
• Increased government spending on health as a result of
increasing demand for new technology and treatments
(especially drug subsidies under the Pharmaceutical Benefits
Scheme), and
• Increased spending on age and service pensions.

The Coalition Plan

Strong economic management has been the hallmark of the Coalition. Unless we
have a strong economy, we cannot expect to be in a position to handle the problems
that confront us as a nation.

To meet our demographic challenges, the Coalition has set out a solution to this
problem based around policies that are designed to grow the economy more quickly.
The Coalition is committed to ensuring ongoing high economic growth by increasing
productivity and improving labour force participation.

We have put in place strategies for our economy to grow through:

• Improving incentives to work and save for retirement

• Improving the capacity to work through better health and
education, and
• Supporting improved flexibility in the workplace.

13
Enhancing our Productivity Performance
To maintain Australia’s outstanding productivity performance into the future, the
Coalition will press ahead with reforms that free up economic activity, enhance labour
market flexibility, improve the skills base of our workers competition and continue to
develop a more innovative and dynamic society which embraces new technologies.

Labour Market Flexibility

The Coalition is committed to enhancing labour market flexibility. We will press

ahead with workplace relations reforms which maintain and extend the framework for
direct, co-operative relationships between employers and their employees.

We will make workplace agreement making easier and more widely accessible. We
will reduce the formality and cost of having agreements certified and we will prevent
unwarranted interference by third parties.

A new Independent Contractors Act will be legislated to protect and enhance the
freedom to contract and to encourage independent contracting as a wholly legitimate
form of work.

The Coalition’s explicit commitment to pursue a full exemption from unfair dismissals
laws for small business employers stands. The Coalition will also protect small
businesses from new redundancy obligations.

Better Skills for Our Workers

In recent years, Australians have become more educated and skilled. We have
become more flexible, adaptable and better able to use new skills and technologies.
Further increasing our skills and educational attainment will be important if we are to
improve our productivity.

The Coalition’s Higher Education reforms will deliver much needed improvements,
freeing universities to grow in areas of expertise and reducing class sizes. Combined
with measures to boost innovation – through the Backing Australia’s Future package
– this will mean that the education sector can continue to turn out high quality and
highly skilled graduates.

In addition, apprenticeship programs have nearly tripled over the last decade with
more than 400,000 trainees now, compared with 140,000 in 1995.

Participation in vocational education and training has grown significantly with ongoing
reforms designed to deliver relevant and high quality skilled employment and training
outcomes.

Nevertheless with the unemployment rate at 23 year lows, Australia is facing a

national skills shortage in many of the traditional trades. While this is in part a
product of our great economic success, it is also the legacy of bad decisions taken a
generation ago when the country turned its back on the old system of technical
trades.

14
This growing national deficiency in skilling our young will be addressed through a
number of initiatives, including the establishment of 24 new Australian Technical
Colleges and an Institute of Trade Skills Excellence.

If Australia is to maintain its strong productivity performance, we must better target

and match the skills needs of industry to job seekers through improved links between
industry, registered training organisations, the vocational education and training
system and employment services.

Science and Innovation

Science and innovation will play a crucial role in lifting Australia’s future productivity.
Developing skills, generating new ideas through research and turning them into a
commercial success is a key to Australia’s future prosperity.

A key feature of the Coalition’s approach to science and innovation has been the
Backing Australia’s Ability package and it’s $5.3 billion successor Backing Australia’s
Ability – Building Our Future through Science and Innovation.

Key elements of this approach include an ongoing commitment to high quality

research through additional funding for bodies such as the Australian research
Council, the National Health and Medical Research Council and the CSIRO’s
National Flagships Initiative.

Substantial funding has also been provided for a National Collaborative Research
Infrastructure Strategy which links Australian Government investment in research
infrastructure to national research priorities.

The Coalition has also provided additional funding for the commercialisation of
research through a new $1 billion Commercial Ready Programme. Smaller
programmes have also been funded by the Coalition that provide innovators with
advice and financial assistance to plan their commercialization, attract capital for their
project and to establish strategic partnerships to take the innovation to market.

What will happen if we succeed in maintaining our productivity performance?

If we can succeed in achieving a productivity growth rate of 2¼ per cent for the
next forty years – equal to the average achieved since the early 1990s – then
we will go some way to meeting the fiscal challenges of an ageing population.
Such an outcome would help keep the budget in surplus longer and the deficit
in 2042 would be closer to 3 per cent, rather than the deficit of 5 per cent
predicted in the Intergenerational Report, assuming no policy changes.

15
Improving Labour Force Participation
The greater supply of job options from a more flexible labour market arrangements
has encouraged more people into the workforce, especially those with family and
other responsibilities. However, we still have considerable potential to improve our
labour force participation rates.

The Coalition’s Australians Working Together package released in 2001 built on our
uniquely Australian safety net to provide more choices and opportunities to people on
income support to help them get a job wherever this is possible. Initiatives such as
the working credit and training credits improved financial incentives to ensure that
people are better rewarded when they undertake available work, even if the work is
intermittent or irregular.

Amongst the 30 OECD countries, Australia’s total participation ranked twelfth in

2002, suggesting that we have considerable potential to improve participation both in
the short and medium term. For men aged 60 to 64, Australia’s participation rate
ranked fourteenth.

Today, opportunities and expectations when it comes to workforce participation are

different. Part-time and casual work is more common. Most women now work
before and after having children. Others who worked full-time for most of their lives
(such as older men) can have problems getting back into work if they lose their jobs
when they are around 45 or 50. There is also a strong trend for skilled males to retire
early, well before age pension age.

The Coalition has set about addressing the challenge of supporting more flexible
work options for older Australians. Of the 4.8 million Australians over the age of 55,
only 860,000 - or 18 per cent - are in the workforce.

Mature aged workers are vital to our workforce and we need to support their on-going
participation. This will be more important as Australians grow older and live longer.
To further reward and encourage mature aged workers to stay in the workforce, the
Coalition has announced the introduction of the Mature Aged Worker Tax Offset.
This offset will be available to people over the age of 55 and will provide a maximum
annual rebate of $500 on their earned income.

This is an important initiative that recognises the contribution that mature age
workers make to productive workplaces but also that there is a strong trend for skilled
workers, especially males, to retire early.

The Government has already legislated to remove any age discrimination that exists
in relation to the employment of Federal Government employees. The business
community has also issued guidelines aimed at encouraging big business to keep
more older Australians in the workforce.

The Prime Minister’s Community Business Partnership has suggested a number of

practical ways to encourage the employment of more mature aged workers; change
community perceptions and improved incentives to encourage older workers to
remain in the workforce.

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The Coalition is committed to increased flexibility in the workplace relations system to
allow older workers to choose whether to remain in the workforce for longer in part
time work as they approach retirement. This approach is not about forcing people to
work longer. It is about letting people choose when they want to retire.

What will happen if we can improve participation rates in Australia?

If Australian labour force participation rates by age and by gender gradually

rise to reach the top one fifth of the current OECD experience, we will make
significant inroads into meeting the fiscal challenges of an ageing population.
This would imply an aggregate participation rate for the working age
population of 61 per cent in 2042, compared with a projected rate of 55½ per
cent on a no policy change basis and a current rate of about 63½ per cent.
Such a participation rate outcome would ensure that the budget remains in
surplus for about a decade longer and the deficit in 2042 would again be closer
to 3 per cent rather than the deficit of 5 per cent predicted in the
Intergenerational Report, assuming no policy changes.

Retirement Incomes, Superannuation and National Saving

A sound and sensible retirement income policy is essential if Australians are to enjoy
a high standard of living in retirement.

The Coalition’s three pillar approach to providing for retirement incomes is well
established and has been endorsed by both the OECD and World Bank.

These pillars are the publicly funded Age Pension; compulsory superannuation
contributions; and voluntary superannuation and other savings supported by
generous tax concessions.

This year, taxpayers will provide more than $20 billion to fund aged pensions and a
further $11 billion for superannuation through tax concessions. An additional $6
billion will be spent on income support payments to people aged 55 to 64. When
combined, these arrangements provide Australians with higher levels of retirement
incomes than before.

The Superannuation Guarantee directs some of an employee’s current wages into

superannuation accounts that will improve their standard of living in retirement. The
current rate of 9 per cent provides a balance between employees foregoing current
consumption for increases in living standards after retirement. On this basis, the
Coalition does not intend to increase the rate.

The Coalition has significantly improved the retirement income system since 1996.
As Australia’s population continues to age, it will become increasingly important for
our retirement incomes system to become more flexible and adaptable.

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The Coalition believes that individuals should be able to choose whether to make
additional voluntary contributions over and above the Superannuation Guarantee.

We support this approach by providing tax concessions for voluntary savings both
within and outside of superannuation. We have furthered the attractiveness of
making voluntary contributions to superannuation - especially by low and middle
income Australians - by introducing and expanding the superannuation co-
contribution scheme. A maximum government co-contribution of $1,500 is available
to match a personal superannuation contribution of $1,000 for those on incomes of
up to $28,000. The matching co-contribution phases out slowly and is available to
those on incomes of up to $58,000.

The Coalition also announced a number of enhancements to the system to: broaden
the availability of superannuation; provide more choices in financing retirement
income; and make superannuation more adaptable to changing work arrangements.

These initiatives include measures that remove the work test for superannuation
contributions before the age of 65 and simplify the work test for those aged over 65.
As people live longer and spend more years in retirement they will need their
superannuation to last longer. Taking superannuation benefits as an income stream
is a good way to achieve this. The Coalition has extended complying status to new
market-linked income stream products which require an orderly draw down of capital
over a person’s lifetime. A higher pension reasonable benefit limit and a 50 per cent
assets test exemption will apply to these products purchased on or after 20
September.

Previous superannuation access rules often encouraged people to retire early just so
they could access their superannuation. This rule did not adequately cater for more
flexible workplace arrangements whereby people may prefer to reduce their work
hours as they get older.

Recognising the need for older Australians to retain a connection with the workforce,
the Coalition Government announced that people who have not retired will be able to
access their superannuation as a non-commutable income stream once they have
reached their preservation age. This measure will provide people with more flexibility
in developing strategies in their transition to retirement.

The passage of the Government’s Superannuation Choice of Fund legislation is a

key component to the Coalition’s plan to deal with the challenges of an ageing
population. Over time, it is expected that superannuation choice will contribute to an
attitudinal shift, whereby Australians take a more active interest in the management
of their superannuation.

It is designed to increase competition and efficiency in the superannuation industry

and ultimately lead to improved returns on superannuation savings and downward
pressure on fund administration charges.

Improved financial literacy will play an important role in ensuring that Australians are
able to make sound decisions about their future financial well-being. The Consumer
and Financial Literacy Taskforce has been tasked to develop a national strategy for
financial literacy, targeting Australians of all ages.

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Superannuation is good for individual Australians, giving them greater control over
their own future. The Coalition also believes that superannuation is good for the
nation. A strong superannuation system will deliver long-term benefits and make
Australia financially stronger.

To further increase national savings and maximise our net national worth, the
Coalition has announced that it will establish a Future Fund.

We know from the Intergenerational Report that future Australians will face a gap
between expense pressures and revenue which will emerge over the next forty
years. If we build a Future Fund now it can be used to meet the liabilities of the
future which are being incurred today.

The Australian Government has never fully funded its superannuation schemes for
public servants and defence force personnel. Payments to superannuants are made
out of recurrent revenue so that today we are paying benefits to those whose
entitlements may have arisen thirty or forty years ago.

A Future Fund built now can be used to pay the superannuation costs that are
currently being incurred. It will reduce the call on the Budget in future years and free
up recurrent revenue for the important health pressures and pressures from an
ageing population that we know are emerging.

Now that Commonwealth net debt is under control, the Coalition believes that future
surpluses should be used to build the Future Fund to meet the liabilities which lie
ahead. If we don’t act, out children and our grandchildren will be paying the debts
left by previous generations.

PART 3 HARNESSING OPPORTUNITIES FROM THE GLOBAL

ECONOMY
Integrating Australia into the Global Economy

The pace of Australia’s integration into the world economy has increased
dramatically in recent years. A stable macroeconomic framework along with an
ambitious programme of structural reforms and the adoption of new technologies
have resulted in Australia becoming one of the most dynamic and competitive
countries in the world.

Over the past four years, Australia has moved from eleventh to fourth in the Institute
of Management and Development World Competitiveness rankings.

A deepening in our economic linkages abroad has promoted growth and instilled in
our economy a greater resilience to adverse shocks.

The Coalition’s commitment to an open and competitive economy has helped

Australia to benefit greatly from increased global economic integration. Today import
and exports represent almost 47 per cent of GDP, up from 39 per cent in 1995-96.

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 GROWTH IN AUSTRALIA'S TRADE
Per cent of GDP
50

48

46

44

42

40

38

36

34

32

30

28

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Mar-88 Mar-89 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04

Australia’s exports account for nearly a quarter of our national income and are
responsible for one in every five jobs. In rural and regional Australia, exports are
responsible for one in every four jobs. In addition, exporters pay wages which are on
average $17,400 a year higher than non-exporters, with obvious benefits to those
employed in the export sector.

Australian consumers have also benefited from increased trade – cheaper imports
directly benefit consumers in the prices they pay and by expanding the choices they
can make. The benefits also extend to our producers through lower input costs and
increased competitiveness.

As Australia’s economy has opened up, the composition of our exports has changed.
Mining has become increasingly important, accounting for about one third of all
exports - the same contribution as was made by rural exports three decades ago.
Rural exports currently contribute a little less than 20 per cent of the total.

An interesting development has been the rising contribution of manufacturing exports

- which have more than doubled in the past two decades. Trade liberalisation has
lifted performance in the traditional traded goods sectors of the economy. However,
it has also lifted performance in those sectors that might not have seen themselves
as having any connection with the outside world. A good illustration of this – and
perhaps the greatest export success story in recent times – is Australia’s automotive
sector. Where it once supplied almost exclusively to the domestic market, it now
exports successfully to many corners of the globe.

Australia has also benefited from a marked increase in trade in services. Service
exports - such as tourism, education and financial services – have grown by nearly
20 per cent since 1996 and now comprise over 20 per cent of Australia’s exports. By
way of example, the number of overseas students studying in Australia has
increased from 135,000 in 1996 to 300,000 in 2003.

With the services sector representing the largest and fastest growing sector of the
world economy – accounting for more than 60 per cent of global output – the export
opportunities are boundless.

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In recent years, Australia has enjoyed both stronger and less volatile terms of trade.
Since 1995-96, Australia’s terms of trade has increased by close to 10 per cent. A
rise in the terms of trade has allowed Australia to buy more imports for a given
quantity of exports, thereby helping to raise our real incomes. One factor behind the
rising terms of trade has been the diversification of Australia’s exports across both
products and markets.

To the extent that the rise on the terms of trade also reflects import price declines it
has put downward pressure on inflation and contributed to greater economic stability.

Australia has benefited from increased global integration in more ways than just
through trade. A liberalisation of global capital flows has seen Australia to date
attract almost one trillion dollars of foreign investment.

Despite our tradition of being a significant importer of foreign capital, in recent years
there has been a marked up-tick in the levels of Australian direct investment abroad.
As noted by the RBA, this direct investment abroad has been undertaken by
successful Australian firms that have reached the limit of their expansion
domestically, but are good enough to compete and succeed in offshore markets in
their area of expertise.

The realities of Australia’s integration into global markets has required a policy
response to better assist Australian companies competing offshore and to encourage
foreign companies to invest and establish a regional presence here.

The Coalition has always believed that Australian companies can successfully
compete globally while remaining based in Australia. Following from a previous
election commitment to review Australia’s international taxation arrangements, the
Coalition has legislated changes that better enable Australian businesses and
managed funds to compete for capital offshore. Australia’s tax treaty policies have
also been modernised.

Australia’s International Economics Agenda

Having implemented a wide range of economic reforms that have strengthened our
international competitiveness and export performance we cannot rest on our laurels.
We must continually strive for better ways to do business and constantly be on the
look out for new markets and ways to deepen and expand Australia’s existing trading
relations.

The Coalition will continue to push to open markets wherever and whenever the
opportunity presents – be it with individual countries, via regional arrangements or on
a global basis. We intend to take advantage of any opportunity that can deliver real
benefits to Australian businesses and consumers. However, the Coalition will
continue to be strategic in our trade policy choices. At the heart of any deal there
must be a clearly demonstrated benefit to Australia’s national interest.

While the World Trade Organisation will be of critical importance to Australia, multi-
lateral agreements can be lengthy and complex processes. We recognise therefore
that economic integration, especially specific market access, can often be addressed
more quickly through individual agreements with key trading partners.

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The Coalition’s focus in expanding bilateral trade links has centred on those
countries with which we have important trade and investment relationships. An
agreement has been concluded to deepen the economic linkages between Australia
and Japan and negotiations are well underway to establish a new framework
agreement between Australia and China.

Our economic relationship with China is an important one that exhibits a high degree
of complementarity. The demand for resource commodities and energy to satisfy
China’s industrialisation is already having a significant impact, as illustrated by the
signing of the $25 billion LNG contract between the North West Shelf Venture and
the Guangdong Province.

The Free Trade Agreements Australia has concluded with Singapore, Thailand and
the United States will complement rather than undermine the multilateral trade
agenda. The Agreement with the United States is especially significant linking
Australia to a powerhouse economy. It is estimated that this agreement will result in
a boost to Australia’s economy of more than $6 billion per year one decade after
coming into force. All major sectors of our economy and all states and territories are
expected to benefit and positive employment effects are envisaged (including
additional jobs and a sustained increase in real wages).

The Coalition is working hard to deepen our already extensive engagement with East
Asia and our other major trading partners. Within the region Australia contributes to
growth in many ways by sharing our experience in reforming markets, developing
sound institutions and designing effective policy. Australia’s Pacific neighbours are
being assisted in direct and practical ways to build sustainable systems of
governance. This will allow them to better reap the gains from increased economic
integration and raise their own living standards.

To prosper in the global economy requires a Government that is committed to an

open and competitive domestic economy. The Coalition is committed to doing just
that.

Printed and authorised by B Loughnane, Cnr Blackall and Macquarie Streets, Barton ACT 2600

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