Scott Morrison will today launch a strident defence of the government’s fiscal strategy, warning that an earlier than planned return to budget surplus risks dampening an economy that is gathering momentum for the first time in almost a decade. The Treasurer will tell the Melbourne Institute/The Australian Economic and Social Outlook Conference that the turnaround in economic momentum is evident in published financial data and in the increasing optimism about the outlook from the Reserve Bank and the International Monetary Fund. “This is not some pipe dream or mirage on the horizon, but an emerging picture that can give us confidence,” he says.
An advance copy of Mr Morrison’s speech says the last two sets of quarterly national accounts show that a three-year decline in company profits has been reversed, while business surveys show trading conditions are at their best since before the global financial crisis. “There is clear momentum starting to build again within our economy; a sign that confidence is rising within boardrooms, on shop floors and around kitchen tables across the country,” he says. However, Mr Morrison says the budget still needs to be managed carefully to control spending without compromising growth. “You don’t want the medicine or the treatment to kill the patient,” he says, noting that the economy has been coming off a huge investment boom, plunging export prices, flat wages growth and weak global growth. He is using the speech to push back against critics, including some within the Coalition, who believe the May budget did not do enough to speed the return to surplus.
“We have copped some flack based on the false notion that the budget I delivered in May was excessive in its spending and missing the budget repair measures required to rein in debt.” Mr Morrison expects growing confidence in the economy will result in higher business investment and says it is already generating greater hiring. “Job ads now stand at 175,000, the highest level in six years.” He says the Reserve Bank shares his view that the economy is picking up pace, noting that it used the word “positive” eight times in the minutes of its July board meeting, which were released on Tuesday. However, Mr Morrison says people should not assume that the Reserve Bank is about to start tightening monetary policy, as have the central banks in the US and Canada. “Our bank was far more conservative on the way down. Economies like the US, UK and Europe have a fair bit of catching up to do before they return to the levels where we have now rested for the past 11 months.” Mr Morrison says it is not just the domestic outlook that is more encouraging. “Global economic activity is on a firmer footing courtesy of a faster growth in industrial production and trade,” he says. Mr Morrison highlights the government’s success in pushing budget repair measures through the Senate that will improve the outlook over the next four years by $34 billion. “These are not paper savings or good intentions that previously sat on the budget books, but legislated budget repair measures.”
He defends the decision to abandon measures from the first two budgets of the Abbott government, saying every effort had been made to legislate $14.7bn in savings measures but these were blocked by the Senate. “We were faced with a clear choice — accept the reality and find another way to deal with the budget repair task — or deny the reality, whinge about the Senate and lose our AAA credit rating. “That budget is now passing the Senate and we continue to retain our AAA credit rating from all three major agencies.” Mr Morrison says the Coalition is achieving the lowest spending growth of any government in at least the past 50 years. “Since we were first elected, and over the budget and forward estimates, our annual average spending growth is less than 2 per cent (after allowing for inflation).
“Under Rudd-Gillard-Rudd, spending growth ran at an average of 4 per cent.” Mr Morrison says the spending restraint since 2013-14 compares favourably to the Howard government years, when spending growth was an average of 3.3 per cent. The Howard government had cut public service growth by 2.5 per cent. “For those who think we are a big-spending government by comparison … we have cut growth in general public service by 7.8 per cent,” the Treasurer said. Mr Morrison says the budget needs to respond to a growing population, investing in economic infrastructure and maintaining essential services. He says it must also “rebuild our national security and defence capabilities in a dangerous world after six years of neglect”. “We have adopted a pace of fiscal consolidation that the OECD has classed as ‘appropriate’ and the IMF has supported and deemed ‘appropriately prudent under the current circumstances’,” he says. Mr Morrison says the pace of budget repair has brought down the rate at which gross government debt was growing by two-thirds. “It is true that gross debt has now passed the $500bn mark, you cannot turn this debt tanker around quickly or painlessly.” However, he claims that under the budget settings of the former Labor government, that mark would have been passed 18 months ago and debt would now be approaching $1 trillion. Mr Morrison is giving the keynote dinner address at the conference, which includes presentations from Malcolm Turnbull, Bill Shorten and Labor Treasury spokesman Chris Bowen.
By – DAVID UREN
Article Source – www.theaustralian.com.au