An Australian story - from fading uncle to economic success

The Australian economic revival has led to the revival of confidence and respect. And we can measure the economic revival against other developed nations. Through the ’80s and ’90s we fell below the average GDP per capita of the OECD countries. From the beginning of this decade we turned positive in the rankings.

Since 1996 we have had eight surplus budgets, and are on the verge of eliminating Commonwealth debt, inflation has been stable notwithstanding huge pressures from what in truth has amounted to the third oil shock.

A number of steps have been important in getting us to where we are.

The March 1996 election was fought on the basis that the Commonwealth Budget was in surplus. Kim Beazley, then Finance Minister, repeatedly affirmed in the campaign that the budget was in surplus, for example, saying on February 1, 1996: “… we’re operating in surplus, and our projections are for surpluses in the future.”

However, the day after the election on March 2, 1996 the Treasury estimated the deficit at $9.0 billion (1.9 per cent of GDP). The outcome was in fact a deficit of $10.1 billion (2.1 per cent of GDP).

Immediately after the election the Coalition Government announced that it would legislate to prevent such deception ever occurring again.

We introduced the Charter of Budget Honesty Act 1998 which provides mandatory reporting standards and the preparation of a pre-election statement by the Secretaries of Treasury and Finance. Now the public is told the actual state of the budget before the election campaign and is able to assess policy against agreed facts before they vote.

The new government also announced an immediate Commission of Audit to identify all assets and liabilities of the Commonwealth including all contingent liabilities and unfunded superannuation to get a true picture of Commonwealth finances.

On August 14, 1996, upon the appointment of a new Governor of the Reserve Bank, the governor and I entered an agreement to set inflation targets, to direct monetary policy at those targets, and to guarantee the independence of the Central Bank. This was the origin of a medium-term framework for monetary policy.

In our first budget the Government laid down a medium-term framework for fiscal policy. The objective was “maintaining an underlying balance on average over the course of the economic cycle. This approach will ensure that over time the Commonwealth Budget makes no overall call on private sector saving and therefore does not detract from national saving.”

In ten budgets since 1996-97 there have been eight surpluses cumulating to an estimated $59 billion over 10 years. Commonwealth net debt will this year be eliminated.

Net interest payments which were $8.4 billion (1.5 per cent of GDP in 1996-97) will fall to $0.3 billion in 2006-07 (0.0 per cent of GDP). And thereafter net interest payments will be negative. In 2006-07 1.5 per cent of GDP represents a saving of around $15 billion - this shows the value of our debt reduction strategy.