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The budget speech Wayne Swan wanted to give

Madam Deputy Speaker, I move that the Bill now be read a second time. And do you mind if I keep this short? The less said about this effort the better.

I could bang on about the four years of surpluses we have pencilled in being a powerful endorsement of the strength of our economy and drop a few sound bites like "we walk tall", but my heart just isn't in it this year. These numbers have more rubber in them than Gumby.

There's some real stuff in there. Most government agencies have had their budgets trimmed (ASIO is an exception) and we've re-banked $4.6 billion by calling off the corporate tax cuts you on the other side of the House were refusing to pass anyway: explain that to your masters.

We are, however, only able to announce our $1.5 billion cash surplus for 2012-2013 by pulling some big payments forward into 2012-2013, and pushing some equally large ones out beyond 2013.

What some would call sleight of hand and I call sensible household management began with our mid-year economic statement, when we shifted $2.3 billion of carbon tax offset payments to households and companies from forward into May and June of this year, for example.

It has continued in this budget, for example with our decision to begin paying $1.8 billion to families in July next year, after 2012-2013 has been ruled off, and as we are moving into election mode, assuming we get that far.


The latex-infused surplus projections also rely on the fact that one of our biggest single expenses isn't even visible. The Budget I am presenting tonight says that the National Broadband Network's slow-motion launch has cut the government's funding contribution from $3.4 billion to $2.1 billion in the year to June 2012 — but it also states that we need to find another $20.1 billion in the four years from 2012-2013. None of it is budgeted as an expense: we treat it as "equity" — an investment.

I am not prepared to take the blame for all this by the way. Those on the other side of the House were also committed to the entirely artificial target of a surplus in 2013, and neither of us could have delivered a genuine surplus without staging a fiscal retreat roughly twice as large as the one occurring in Europe. They are rioting in the streets over there.

Treasury's growth forecasts are also Panglossian, again. Last year's Budget predicted growth of per cent in 2011-2012. It is going to come in at 3 per cent, perhaps less. Last year we predicted 3.75 per cent growth in 2012-2013. This Budget predicts 3.25 per cent, and that is also a stretch.

For this economy to accelerate from its annual run rate of 2.3 per cent in the December quarter last year to 3.25 per cent in 2012-2013 the following things need to happen.

First, China needs to consolidate its growth, and its demand for our commodities. Beijing rationed bank lending last year to get inflation under control, and slowed growth a touch too aggressively. It also seems to have stopped stockpiling commodities, and softer Chinese demand is the main reason the resources boom has cooled since mid 2011.

Our dollar is an automatic stabiliser, of course. It is 10 per cent below its mid-2011 high of $US1.10, boosting our export competitiveness and easing the pressure from imports.

But China's demand is the key, and if commodity prices fall further, say by another 15 per cent, Australia's resources investment boom will be in trouble. Top-tier low-cost producers like BHP and Rio Tinto would continue expanding, but more slowly. More marginal, higher-cost projects would be mothballed - and most of the casualties would be in the coal and iron ore provinces that are meant to swing $9.7 billion to the government over the next three years through the new Minerals Resource Rent Tax.

There are three main components to China's demand. Infrastructure construction, which will continue spreading from the coast inland. Domestic demand, which Beijing can manipulate fairly easily: and export revenue, which is a product of demand strength in the west.

That brings me to The Budget's second growth requirement: The west's economic recovery simply must continue.

Growth must return to pull the price of carbon up, for one thing. Treasury's assumption is that the price will double between now and 2015-2016, when our carbon tax morphs into a market price carbon trading scheme. We will be several billion dollars shy if it stays where it is — and the outlook is clouded.

Jobs growth in the United States is slowing again, and you saw how the markets tanked this week after the Socialists took power in France, and Greek elections served up the prospect of a barely functional anti-austerity, anti-European Union coalition government. That's just a taste of what would happen if the Euro-crisis gets out of control — and it still could. Citigroup said this week that Greece was now more likely than not to quit the EU.

Here in Australia, job cuts that have been already announced are still to turn up in the unemployment numbers, the $A is still high enough to give retailers and manufacturers grief, the markets are noisily going nowhere, and households and non-mining companies are reluctant to spend. We really, really need the Reserve Bank to continue cutting its cash rate.

In conclusion, I would like to direct you to Statement Three, and its discussion of what happens if the growth forecast is wrong. If the economy grows by one percentage point less than predicted in 2012-2013 — at its growth rate in the December quarter, in other words — the budget balance will be $3.4 billion weaker. In 2013-14 a miss by the same margin will cost the Budget $7.1 billion. Both surpluses are a hostage to fortune, in other words.

I commend the bill to the House.