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Treasurer Andrew Fraser address at Rockhampton Community Cabinet |
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| Posted by editor (editor) on Jun 10 2010 |
| 2010 >> |
Treasurer and Minister for Employment and Economic Development Address to Rockhampton and Central Queensland Chamber of Commerce Rockhampton Leagues Club 31 May 2010 Introduction
There's certainly been a fairly honest reception for the government here during the course of this Community Cabinet.
I don't think anyone has made any great attempt to sugar coat their views. Quite frankly, when you come to Rockhampton, you shouldn't expect anything less.
I don't have a problem with that, honesty is the best policy.
So this morning I wanted- in the spirit of honesty - to touch on a few topics and perhaps a few old stories, a few old articles of faith that need the cold, harsh clarity of Monday morning ... rather than the romance of Friday night.
For starters, I honestly believe that the decisions we took last June in the State Budget were the right decisions.
Faced with the same set of circumstances, I'd make them again.
For the record, I do not want to be faced with the same set of circumstances again.
And for the record, circumstances today are different.
But many things are also the same.
And that's why as a government we have been - and we remain - determined to implement the economic reform strategy that we put in place in the last Budget.
Today I don't propose to dive straight into the current issues, but first spend a little time re-calibrating some of the debate.
The Regionalised Queensland Economy
Ladies and Gentleman, budget preparation always has some things that stay the same.
Every industry starts rolling through with their submissions, and I should say upfront that these submissions provide an invaluable insight into the pressures that industry faces. On many occasions, industry budget submissions have influenced policy refinement.
But as important as they are, there are also elements of all budget submissions that never change.
Each of them puts forward their own estimate about how much they are worth to the Queensland economy. "The billions they pump in" they say, the "thousands and thousands of jobs they are responsible for".
If the data many of them presented was the gospel truth - as Mr Abbott would say - then you'd be convinced that every single industry benevolently supports the entire global economy. That none of them are really in it to make a quid. That they are in fact "civic minded benefactors", prepared to invest for the nebulous returns to the broader economy and the greater well.
Of course if you ever added up what each industry claims, you'd get a number many times the worth of the Queensland economy...
No-one is ever shy. They conflate spin-off and ripple effects. The racing industry counts the jobs in hat-making. The only problem is that the fashion industry counts them too.
The local builder supports the local pie cart operator ... or does the pie cart operator provide an important service to local builders.... You get my point.
So what is driving our prosperity these days? What makes the modern Queensland economy tick?
What are the facts of the matter at hand?
Beyond the claims ... and on to the data.
Our history is replete with our dependence on farming. Agriculture is important to our state, and not just historically. But it accounts these days for 2½% of the Queensland economy.
It comprises just 3½% of total employment ... a century and half ago that figure was 45%.
We are said now to not ride on the sheep's back but on the shoulders of the mining sector. Our resources sector is one of the power plays of our modern economy. But let's just centre the debate in facts for a moment. They did find a recovery point earlier than other industries during the height of the collapse in the global economy. But they had led off too... amongst the first to shelve investment and shelve the livelihoods of many Australians as they shed jobs.
I am, as a Treasurer, glad they found their recovery early, but I'm not from the school of thought that subscribes to the theory that the executives of Queensland mining companies - in the afterburn of the job cuts and project cancellations - sat around and thought to themselves "well for the greater good, we should lead off some investment against our own commercial interests".
Seriously, they saw demand returning. They saw China arching its back, clicking its fingers and limbering up to buy and buy up big and the resource companies responded.
As they should've.
But let's be clear - there wasn't a breakfast meeting of coal company executives in their red suits and white beards working out where their generosity was best directed. They saw a quid to be made, and they made their arrangements.
Mining is a hugely important, strategically influential part of our economy. But regardless of the romance it accounts for just 9% of the economy (last financial year.)
Its capital intensive, not job intensive: mining employs 2% of Queenslanders.
There are currently 2.265 million people employed in Queensland. In the year to March quarter this year, there were 44,000 Queenslanders employed in the mining sector. There were 250,000 in retail and 235,000 in construction in the same period.
So what then is our largest industry?
What keeps people employed?
If it’s not all the mining industry who is doing the heavy lifting?
Before the GFC, strong growth in housing construction followed by a surge in engineering and non-dwelling construction, that helped drive Queensland's unemployment rate to a generational low.
Also, over this time, a commitment to improving health care in the State has seen a similar rise in healthcare and social services.
Think about this for a moment ... a generation ago no-one had mobile phones, the internet or Pay TV. Childcare wasn't an industry. The notion that anyone could run a business by going to your house on "bin-day" and cleaning your bin before you get home was ridiculous ... its only slightly less ridiculous by the fact that it actually happens. Flying was done by people in suits for $800 a ticket, not by folk in boardshorts for $49 a throw.
Thirty years ago, 84 percent of the workforce worked full time. Today it's 71 percent. Thirty years ago two-thirds of the workforce was male. Today it's 54 percent, in a declining trend.
The world has changed. The world is changing. The world continues to change.
The modern economy is a very different beast to that which existed a generation ago.
One thing that has however remained true is the value of the regions of Queensland. One of our great economic characteristics and indeed one of our great strengths (and challenges!) is the regionalised nature of our economy.
I grew up 450km north of here, in Proserpine, and we used to have competitions at school to design "shop locally" signs. Devoid of artistry, but proud of my town I recall entering as a primary school student. Even today there's something a little furtive about those Proserpinians who drive to Mackay to go the shops now and then.
This inclination - to support your own - is a completely human inclination. It's up there with the survival instinct.
It is often said that Queensland wouldn't survive without the money generated in regional Queensland, and that all that happens in this state is money is sucked out of the regions and down to the south-east corner.
"Think of the billions in royalties ..." is usually the entry point to this line of argument.
Well, I agree with the view that Queensland wouldn't be as strong as an economy without its regions. But it also wouldn't be the same without the south-east.
Let me demonstrate.
Less than one per cent of royalty revenue is raised in the south-east corner. So the $1.5 billion in royalties for this financial year originally forecast is for all intents and purposes all from regional Queensland. In any event, royalties are often thought to support the whole Budget. Like mining is thought to support the whole economy.
In fact, royalties account for less than 5% of the entire State Budget this year. They get about 40% of the press, but they do 5% of the work...
After the GST and other Commonwealth payments, payroll tax and stamp duty are our biggest state revenue earners, amounting to $2.7 billion each in the current 2009-10 Budget. State taxes overall are $9.3 billion or about 5.5 times the amount of royalties.
Not only do royalties not underpin the whole Budget ... neither do state taxes. The GST and Commonwealth specific payments do. That's the facts of our federation - and the problem with it.
Of the 125 taxes in this nation, 1 is collected by local government, 25 are collected by the states but 99 are collected by the federal government.
Of the taxes that are raised in Queensland only about 20% of stamp duty on property and land tax is raised outside the south-east corner.
About 20%...
1 dollar out of five ...
I often hear the claim that all royalties should be spent in the regions - but rarely does suburban Brisbane demand that the stamp duty on property and land tax paid in Brisbane stays in Brisbane.
A lot of the corporate tax of Australia is paid in the Sydney CBD but there's not really a good case for it to stay there either.
What's even more interesting is how mining contributes to taxes in Australia. The EIS from a major LNG proponent points out that prior to the federal government's announcement that it wanted to introduce a Resources Super Profits Tax, about 70% of all tax (including royalties) paid by the proponent would go to the Commonwealth and only 30 % to the state through royalties, payroll and other state taxes.
Why then do we talk about mining states getting all the benefit of the boom? Shouldn't we talk about the Commonwealth getting the benefit? That's before an RSPT...
And that's before the Commonwealth Grants Commission gets involved. They are the great equalizers, the great levellers in Australian public finances. After they are said and done they effectively neuter nearly half the royalties we receive.
What? I hear you say. Well, in order to help the Australian nation function we transfer our egalitarianism to the revenue allocations of the states. Our state and WA get to collect the seed, but it gets re-planted in Victoria and the other states through adjustments to GST revenue.
When I raised the coal royalty in 2008, a substantial part of the extra revenue never touched the sides in Queensland. It immediately got docked from our GST as the Grants Commission did its best to ensure that Victorians take the benefit of the mining boom while they do squat to pay for it.
In any event, I've just spent five minutes throwing tax facts at you ...
As you are no doubt beginning to wonder - what happens with it all?
Well we get 25% of all money from states taxes, and about 25% of the Budget goes on Health alone, just over $9 billion. Education comes second at $8 billion, the coppers take a few billion ... you get the idea.
Governments exist to redistribute. That's the reason we have tax in the first place. As a society we collect the tax to provide for the public services. A free public hospital system, regardless of your income. A free state education system, regardless of your income. Police who patrol according to duty, not according to which street raised the money to pay their wages.
All of this is a bit obvious to say. But sometimes I wonder if we haven't quite forgotten.
It costs the State of Queensland more than $10 million to run Rocky North High School each year.
Put another way, we spend around $13 000 per child in the state's education system. And we spend about $7 000 per child in the non-state system.
The annual budget of the Central Queensland Health Service District is $332 million.
A hip replacement costs between $16 500 and $33 500 in the public health system. Other procedures done at Rockhampton Hospital include; Knee procedures cost between $3 000 and $6 500 each
an intensive care bed costs $250 000 to equip and about $1.85 million to run per year.
The payroll system in Queensland Health has been the subject of much reporting recently. The fortnightly wages run in Queensland Health is about $210 million. Every nine fortnights we could fund a new Gateway Bridge. In a month we could pay for another Suncorp Stadium and Robina Stadium.
Put aside the annual recurrent costs of what is funded, day in day out, year on year and look for a moment then at capital spending.
In 2009-10, the budgeted capital spending per person in the Brisbane statistical division is about $4,020. Here in the Fitzroy region its $5,260.
Pound for pound, year in year out, we spend more outside Brisbane.
We do spend a lot in Brisbane - but there are also a lot of people there.
It's a battle every year - but if it was just about dollars per person every year we wouldn't need governments would we? We wouldn't pay tax; we wouldn't think about communities or each other, we'd just look at government like an investment account... what did I put in and what did I get out?
But that's not why we walk this earth is it?
There is a bit more to life than transactions. If that's not true then we'd all banks.
I know that it’s easy to look at media reports and become an expert on what's wrong in the world. It happens every day. But today is one of those days when I want you to leave here having to decide whether you want politicians to tell the truth ... even when it's a bit confronting and a bit uncomfortable.
Why sell income-earning assets?
As a government we have been confronted by the protests over the weekend about our decision to sell some of the commercial businesses we own.
We confronted this decision after we got shirt-fronted by the GFC.
Now some people want to declare victory. All done, all good, all over. Nothing to worry about they say.
Go on, as ever. Keep borrowing to build coal tracks for BHP, Rio and Xstrata... Lord knows they need us to do it.
The argument here is that we should buy extra trains for them, but no one is suggesting we buy the trucks for them. We should apparently build the rail tracks for them but we don't need to build their roads on their mine sites.
My question here is: why?
It's not as if these companies are totally incapable of funding the construction of their own infrastructure. Like they do in Western Australia, which is currently in the midst of a mining boom.
As of last week we know that for sure: $4.85 billion they said they were willing to pay.
So if they are willing to pay for it themselves why should we. Why should you?
I didn't join the Labor Party because I wanted to spend my time as Treasurer in a Labor Government working out how to spend money to support big corporates. How does that help a working class kid get the education she deserves?
We should all pause a moment and wonder about why it is the coal companies are suddenly so panicked and so violently opposed to our proposal that they deal with a private company in the future when it comes to their tracks and trains?
Could it be that they have had it too good for too long?
Could it be that they have always had the comfort of the taxpayer?
Just what is so offensive to them - as legitimate pursuers of profit and shareholder wealth - about having to deal with another company pursuing profit for their shareholders?
Why is the prospect of a QR National earning a quid for its shareholders, the superfunds with workers retirements invested, the employees with their shares that we want to provide them ... why is the prospect that QR National shareholders might earn a quid so offensive to them? Why isn't it ok for QR National shareholders to earn a dollar when it is ok for coal company shareholders similarly to earn a dollar?
Makes you wonder doesn't it.
But, given my frankness this morning, let me be clear that I welcome their proposal. Why wouldn't I?
I'm here for the taxpayer and suddenly we've got a play above-the-odds in our back pocket. So much for the fire-sale argument! As you would've read in the Courier Mail on Friday, even the poor old shadow of an Opposition Treasury spokesman reckons it's a goer!
The biggest, best funded resource companies of Australia - all about to shut up shop because of the RSPT mind you - are desperate to bang down the door and pay above the tote for this gear.
They have some big questions to answer and it's not for sale just to the highest bidder any more than it’s never been for sale at any price.
I am resolved to get this right for Queensland ... for the future. Not for the day of any sale but for the long term development of the industry, for QR, for the workforce that has built QR and for the regions of Queensland that need us to get this right.
Now the decisions we have taken to divest some commercial businesses that are owned on the state's balance sheet have many critics and many arguments have been advanced.
A usual argument is why sell something that earns an income?
We sold Forestry Plantations Queensland earlier this month for $603 million. Last year it paid a dividend of $3 million. That's a return of 0.55% on that valuation.
Based on current interest rates, if I put that $603 million in a Dollarmite account at the Commonwealth Bank for the next year, it would earn $27 million.
I fully accept that the notion that income generating assets are intuitively attractive.
I reject totally that anyone - any individual or any government - should keep half a billion invested to earn 0.55% a year.
We have a signed deal, signed contracts for Hancocks - a world-renowned timber plantation manager - to purchase the timber business. I am here to tell you this morning, it is a cracker of a deal.
I've been invited to be ashamed of that sale ... I am not. I am proud of it.
We are determined here to get good results for the taxpayers. That's the truth of the matter.
Changing Circumstances
As you all appreciate, we took our decisions at a time when the world was gripped by the fear of the global financial crisis. The Commonwealth was forecasting the nation's economy to contract during the financial year we are about to rule a line under (thank God for small mercies).
We too in Queensland were forecasting negative growth, not just a slowdown, but an actual contraction.
They were dark days.
The revenue wipeout from base case to forecast was $15 billion.
Our reluctance to cut our building program, and add further to the constrictive pressures enveloping us, had already cost us our AAA credit rating.
Doing nothing was not an option.
So we looked at our options. We could raise taxes across the board, we could slash services, we could slash jobs or we could slash the building program.
We know those were the proposals put forward by the Opposition.
Or we could look at those things that we owned and make an assessment about whether we needed to continue to own them. We could make an assessment about what would be the true cost to continue to own them into the future.
Doing nothing was not an option. Having been downgraded by the credit ratings agencies, we needed to take action in order to be able to continue to access the funding we needed. I don't want to sugarcoat this. The challenge for us was real and clear.
So if things are different now, why do we need to continue?
Yes things have improved. I don't want to hide that fact, I want to celebrate it.
I don't want ever to be faced with what we saw last year.
I am not going to hide the fact either that things still aren't back to where they are.
The Budget due tomorrow week will be in deficit. It will record an improved position but it will still record a deficit this year, and across each of the forward estimates years.
The deficit will be lower, but we are not out of the woods yet.
I don't know that too many people here know too much about the balance sheet of South Korea. But I bet everyone has heard of the balance sheet of Greece. The fact is there is no reason why we here in Rocky this fine morning should know, let alone care, about the Greek balance sheet.
That we do tells us something about the fragile world we inhabit.
Conclusion
Facing up to the facts of the future is important. Many of you are business owners - you know that when times are tough, decisions have to be made and very few of them are ever easy.
My position is no different. We had to make tough decisions, so we made them.
Some of them are not nice, and as we have all seen, some of them make for awful politics.
For the privilege of serving in public office, you get the burden of having to make decisions ... including decisions you never thought you would.
The sort that keep you awake, that stop you cold while you're meant to be shaving. But if it was all ceremony and easy tick 'n' flicks then it wouldn't matter would it...
Good governments, governments worth their salt, are those governments that have the courage to face up and change. To look to the future and ask themselves the big, fundamental questions.
Do I oppose privatisation? Or do I believe in preparing a state for a future where education will be everything, coal companies can pay for their own gear and an ageing population will demand health services beyond our current imagination...?
I didn't enjoy making the decisions I recommended to the Cabinet one year ago tomorrow. But I didn't apply for a job handing out lollipops at the Ekka. I applied for a job that's about making decisions. One week away from Budget number 3, I'm here to tell you that someone else gets to make the easy decisions.
As my colleagues here know only too well, the ones that make it to the Cabinet table are the ones that matter. The big calls and the tough calls; the judgment calls ... the leadership calls.
The job I get to do is an enormous privilege and an enormous responsibility. Every day I wake up feeling that responsibility. Every day I am determined to do this job in a way that recognises those responsibilities. A responsibility to the future and a responsibility to do the policy hard yards, when the political easy street beckons.
Thank you for your time today and I'd be pleased to take your questions. Last changed: Jun 10 2010 at 12:25 PM
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