Hon. J.B.

HOCKEY
Treasurer
TRANSCRIPT
THE GOVERNMENTS BUDGET STRATEGY
ADDRESS TO THE AUSTRALIA-ISREAL CHAMBER OF COMMERCE
GRAND HYATT, MELBOURNE
FRIDAY, 2 MAY 2014
E&OE.
Well thank you so much Mark. You gave me a whole new angle on the low value threshold I
must say and I hear you about workplace relations. There is only so many mountains you can
climb at any one moment, so I look forward to you helping me to climb the mountain that I
have before me in the next few days and after that, we will get on with further work to make
the economy stronger and more efficient.
Can I also particularly thank Leon who is without doubt, the pre-eminent, the pre-eminent
function organiser in Australia and there is no-one in his (inaudible). To my colleagues,
Michael Ronaldson who is here, Mitch Fifield who is doing the hard yards making sure that
the NDIS is deliverable, Senator Scott Ryan who is here as well, Tony Smith, who is doing a
great job with me and also Kelly ODwyer who is also doing a terrific job and is also an
excellent writer as I have noticed in the Financial Review. To all of you friends thank you so
much for inviting me here. I'm very pleased to be here.
Over the past few days, believe it or not, I have thought a lot about what I am going to say
today.
One reason is because it's my final major speech before government's first Budget. That's not
the only reason, nor is it the main reason.

I wanted to be here today because I want to express my immense admiration for the Jewish
community in Australia. In general terms I can think of no other single community that has a
greater love and affection for its children and no other community that has a greater devotion
to its future, no matter how great the sacrifices of the past.
Your love and protection of family and your focus on legacy and prosperity, are what I strive
for daily with my own family and they are firmly among the principles that brought me into
public life. So I really wanted to properly, for the first time, at a public forum like this,
acknowledge and thank you for your leadership in the community.
It is also rather poignant to be giving my final pre-Budget speech here in Victoria. Of course,
your State has suffered many ups and downs over the last 150 years in particular. Victorians
have seen, both the very best of times and the very worst. From the wealth surges of the
Industrial Revolution and the prosperity of the gold rush to the depths of the depression, the
failure of the State Bank, which we witnessed from New South Wales but thankfully never
experienced and the massive shifts in manufacturing that you're still seeing today. Victorians
have time and time again overcome adversity and prospered.
Through sensible reform in recent years, in my view initiated by the Kennett Government,
and continued by others, Victoria's economy has proven more robust and flexible than almost
all other States. And dont forget, the Napthine Government is now the only Australian
Government forecasting consistent Budget surpluses over the next four years; the only
government in Australia. It's a great achievement. Victorians know how to live within their
means and like so many in the Jewish community here, Victorians generally have proved the
argument that you must earn prosperity.
In just 11 says I will deliver the first Budget of the Abbott Government. It will be the Budget
we were elected to deliver. It will represent the first words of our economic action strategy to
repair the damage of the previous government and to get the nations finances back onto a
sustainable footing. It will be a Budget that facilitates stronger economic growth and
therefore helps to deliver greater job security. This Government understands that our quality
of life in Australia cannot be taken for granted.
As my dad always says to me, prosperity is not a gift, it has to be earned. The Budget will be
a down payment on our future. It will be a Budget that underpins and strengthens the
productive potential of our economy and this Budget will not leave our children with a legacy

of debt that they can never repay. We will not ask future Australians to pay for the
government entitlements we receive and they will never get.
Some of you may recall that two years ago I gave an address in London, titled, The End of
The Age of Entitlement. This Budget will seek to replace the culture of entitlement with a
culture of enterprise. It means that a government should only do for people what they cannot
do for themselves and no more.
Payments must be sustainable and fair and targeted only to those who really need them.
Where appropriate, that support should be temporary until people can once again take charge
of their own destiny. The end of the age of entitlement will facilitate greater personal
responsibility, where individuals with their own financial capacity can no longer expect other
Australians to be responsible for all the bills. This means redefining the role of government in
society.
For instance, companies cannot expect to rely on taxpayer handouts as a substitute for
making hard commercial decisions in a competitive market. Our decisions on SPC Ardmona,
Qantas and the automotive industry illustrate our approach to industry assistance. We believe
that private enterprise is usually the most efficient mechanism for providing goods and
services.
We also believe that a government should only provide services where the private sector can't
provide enough of them at an affordable price. In the private sector, no-one questions the
concept of user pays - you get what you pay for. And yet over the years, we seem to have
developed an attitude that this principle should not apply to government services.
Government services are somehow deemed to be magically free but of course they're not free.
They are paid for by the taxpayer. And so asking those who use government services to at
least make some contribution to their delivery, seems a logical and equitable step.
There is no such thing as a free visit to a doctor.
There's no such thing as free welfare.
Sooner or later, everyone that receives a benefit or a payment pays a price through the tax
system.
Every Australian is, in one form or another, a taxpayer.

Therefore, where appropriate, we need to send price signals to the users and beneficiaries of
those services, so that everyone understands that everything we use in our community comes
at a cost.
The Commission of Audit report released yesterday highlights the Budget challenges we
face. It makes major recommendations for spending reform by the government.
Without action, the Budget outlook is deficits and rising debt for at least another 10 years, but
in reality, as far as you can see. After five years of deficits, many of them are the largest
recorded ever in Australia. Further consecutive deficits totalling $123 billion are expected
over the next four years and Budget deficits are projected in each and every year out to 2024.
If we got to that point, Australia would've been in deficit for 16 consecutive years, the longest
period on record.
My 8-year-old son would be asking to borrow the keys to my car by the time he saw his first
surplus. He would be facing a massive government debt burden of $667 billion and the
problem at the heart of Labor's legacy was excessive spending. Real spending growth over
the last five years was around 3.5 per cent per year, so that's an increase of 3.5 per cent above
the rate of inflation.
That's more than twice the speed of the economy. So government's getting bigger and bigger
and bigger compared to the economy, but the worst part of it was, it kept going. It kept
increasing. And government expenditure is currently on track to continue to grow much faster
than the growth in the economy which means the government gets bigger and all of you and
your families get smaller and smaller as a part of the general economy.
And the previous government booby-trapped much of the spending beyond the four years
published in the Budget, so they locked in programs that had a massive growth potential in
expenditure. Beyond the four years, we see spending growth in 2017 of nearly 8 per cent - an
annual average growth in spending of around 4 per cent per year after that.
As well as rebuilding the balance sheet, the Commission of Audit also identified a need to
rebuild the institutions and infrastructure of government. Programs like the $4.5 billion
National Rental Affordability Scheme - poorly designed and poorly implemented and led to a
massive waste of taxpayers' money. Now some of us always suspected that many government
bodies are established simply to create the appearance of action. Well, turns out we were

right. In fact the biggest surprise of coming into government is it's as bad as I thought it was
going to be.
The Commission of Audit found that of the nearly 700 government bodies in existence at a
federal level, 93 non-principal bodies exist to provide advice to 194 principal bodies. 238
bodies exist to facilitate discussions between the State and the Commonwealth and a further
314 bodies exist to provide government to us, to government. In other words 45 per cent of
government bodies exist to do what departments should be doing on a day-to-day basis.
The Commission of Audit laid out 86 recommendations. Its recommendations, not all
government policy, in fact, they're not government policy. It was a report to the government,
not from the government. But its ideas have been considered by us in a methodical manner.
Some things we can do now, some things may not be actioned at all and some
recommendations will be assessed in light of our reviews in key policy areas such as, the
Taxation White Paper, the Intergenerational Report at the end of this year, and the Financial
System Inquiry and so on.
Major structural reform is a long-term and challenging process. That's why any changes in
these areas would only be made after careful deliberation. Let me spend a little bit of time
talking about our strategy both for this Budget and more broadly.
First of all, the Budget strategy will be realistic for the medium term and will have achievable
Budget rules. In the longer term, it will lay down a path to deliver our election commitment
of achieving a Budget surplus of at least 1 per cent of GDP by 2024.
So you will see some solid, realistic economic assumptions in the Budget.
You're not going to see any accounting tricks. All commitments will be fully funded over
both the next four years and the medium term. We are going to keep our promises; we are
going to keep our promises. I can tell you now, it will take time to restore the Budget to
sound health.
In the 1980s, Budget consolidation was supported by high inflation pushing up incomes and
tax collections. So the government got the revenue in because there was high inflation, people
earnt more, paid more tax.

In the 1990s, the proceeds of large-scale asset sales were used to pay down debt and the
cost of servicing that debt and in both the 1980s and 1990s, strong economic growth
also assisted Budget repair.
This time around, we have inherited a bad Budget with lower inflation and slower
economic growth. This time around, most assets suitable for sale like Telstra and the
Commonwealth Bank have already been sold.
Clearly, we cant hope for Budget consolidation to just happen, merely through good
fortune or by relying on stronger economic growth. The bottom line is, the line shell
be right is just no answer, no answer for the modern Budget.
If we are going to put it back on to a sustainable path to surplus, we have to act now.
We will maintain discipline to reduce the Governments share of the economy over time, to
free up resources for the private sector to drive jobs and economic growth. I have given
instructions to my colleagues; any new proposals to spend money must be more than funded
through offsetting savings. Dont come to me with a spending proposal, unless you have
bigger saving proposal and we will bank rather than spend any variations the Budget might
deliver though higher revenue or lower spending. That means that windfall gains will be
directed towards a Budget surplus and paying down debt.
While returning the Budget to a sustainable surplus will be achieved progressively over
time, because we want the economy to continue to improve its growth trajectory. I want
to stress that I am not committing to achieve a surplus in the near term as the benchmark
of my Budget strategy.
Stabilising and then repaying the massive government debt will be central to our
strategy.
It is critical for the long-term sustainability of the Budget and it is critical to ensure our
children are not left with the burden of servicing and repaying the debt that supported
our standard of living. Just think about that, we are borrowing from our children to

sustain our standard of living. I dont think there is a person in the room that would
accept that as something that is sustainable.
Servicing the interest on debt, interest on debt alone is already a significant drain.
The last Budget update projected that gross debt for every Australian will increase from
$13,000 per person to $25,000 per person by June of 2024. So that means, for mum, dad
and two children, $100 000 of debt, from the Federal Government alone.
The interest costs on this debt by 2024 will be $34 billion; greater than our annual
spending on aged care, or the pharmaceutical benefits scheme, or income support for
carers, or child care.
There is much work to do to and our goal wont be achieved overnight. This is not
going to be an austerity Budget but it is going to be a prudent Budget.
The Budget is preparing us for some of the demographic challenges that lay before us
including the ageing of the population of Australia. Dont get me wrong, we should celebrate
that we are all living longer; I think thats a good thing, I encourage it, as I say to my parents.
And effectively of every little child born today, one in three are going to live to 100. What we
have got to do is make sure that they have a good quality of life. Just to have the same quality
of life that we have today is, under the current framework, a huge achievement and it
shouldnt be. We should hope that our children have a better quality of life than we do, thats
what we should all hope for but there is so much to be done to rebuild the economy,
including some of the suggestions that Mark talked about earlier.
Every aspect of the economy is going to have to undertake some of the heavy lifting and that
in turn will deliver us enough budgetary space to ensure what we do today is sustainable into
the future. Its hugely important. So the Budget will be careful and considered and we are not
going to be in the business of shocking people.
We are focused on what is deliverable and achievable over the medium and long term and
one area that needs to be properly addressed is the eligibility for the Age Pension. If you are
65 today you are not going to lose your pension.

What we are going to do is to deliver a fairer system for the Age pension that is going to
focus on the sustainability of the system with a reasonable quality of life. The age pension
expenditure today is currently more than what we spend on defence. We spend $39 billion a
year on the Age Pension. Its rising to $72 billion rapidly and thats faster growth, over 6 per
cent growth and one of the reasons why is because we are ageing as a demographic. But the
pension kicks in at 65, when Labor increased it to 67 by 2023, we gave them bi-partisan
support. So when we introduce legislation to increase it to 70 by July 2035, 2035 thats when
it will go to 70, we expect that there will be bi-partisan support. I want you to understand and some of you wont be around then, probably me, but I want you to understand this is
what long-term planning is about. This about the long term sustainability of our system and
by the way, qualifying for the pension at 65, 67 or 70 is not the end of your working life, can
we move away from that language? We actually want people and want to encourage people
to work longer.

We want them to participate for as long as possible. But theres going to have to be heavy
lifting and heavy lifting form the business community.
I know there are many business leaders here today, and Im going to say to you and
repeatedly say to you, over the months and years ahead, weve got to embrace senior
Australians participating in work. Weve got to work to be flexible, to ensure that they can
participate in work and weve got to change the culture of business to encourage them to
work and if we do that, we lift the tide for all Australians. The participation agenda that I
will announce on Budget night is about improving the productivity of the nation, ensuring
that as a nation we are rich enough to be able to do what needs to be done. Our Budget is not
just about fixing some of the problems we inherited, it also about ensuring that so much of
what we do is sustainable. There will be a significant growth package associated with the
Budget. The growth package is not just about the abolition of the Carbon Tax or the Mining
tax, as well our continued winding back of excessive regulation, it will be about proper
investment in infrastructure and also about providing incentives for major new infrastructure.
Now just a couple of hours ago the Prime Minister signed with the Premiers and historic
National Partnership Agreement in relation to asset recycling. I negotiated with the State
Treasurers the pool of money that the Federal Government will make available to make to

them and if they recycle asset values, make their capital work for them, taking it from
existing infrastructure. Be it ports, which is quite topical here in Victoria, or railways, or be
it in electricity, or any other area. Sell it to the private sector and recycle the capital back into
new, productive infrastructure. And for the first time, the Commonwealth Government is
going to put on the table a pool of money, billions of dollars, that is going to be incentive for
the State Governments to move on that significant reform, and start building the new
infrastructure that is essential to build the new economy for the 21st century. We want cranes
over our cities we must have cranes over our cities and we are putting money on the table
with our State colleagues to make that happen.
And I applaud the efforts of the Government here in Victoria, in working with us to deliver
the East-West link. How important that is for Melbourne; but how important that business
activity is going to be for Victoria over the next few months and years.
And in other areas, our colleagues are working damn hard, and particularly I want to praise
Andrew Robb for the work he has done in landing Free Trade Agreements with South Korea
and Japan. Its not just about being at our best, weve got to find new markets. Weve got to
expand the marketplace, and these new Free Trade Agreements with South Korea and Japan,
are going to expand our capacity to become more involved in the Asian region. They are a
signal that Australian is open for business.
So I say to you, ladies and gentleman, the Budget that I will deliver in a few days time is just
the start of the process. Its not the final work; its the beginning. Its not aimed at cookingup some sort of particular outcome for the Budget bottom-line. Rather, its designed to make
long-lasting, structural improvements to the nations finances. Its about improving our
quality of life. Its about helping to facilitate the creation of jobs. There will be heavy
lifting. All of us; all of us have to contribute to that heavy lifting in one form or another,
because everyone will benefit from the effort. Everyone will benefit from the effort we all
put in. Were building a new Australia. Thats incredibly exciting. This nation is blessed
with incredible resources, and incredible people. But we all need to earn prosperity, and that
great journey will start on Budget night. Thank you very much.
PRESENTER:

Minister I want to thank you so much and I want to say that the Minister has agreed to answer
questions. We have microphones strategically placed, so can you give us your name and the
company you represent. Any questions at all.
QUESTION:
First of all, welcome Minister. Peter (inaudible) were an investor. We manufacture small
goods in Victoria and nationally. And wouldnt it be a good idea that wouldnt cause any
pain to anybody, to increase growth by increasing cash flows in companies whereby we dont
have to pay provisional tax and re-invest that money back into the economy from a capital
expenditure and so forth. What would you say to that Sir?
TREASURER:
Its a great idea. Were not seeking to fix the Tax System in this Budget. In fact the head of
the Tax Policy Division of Treasury said to me in confidence, and Im just sharing it with
you, that its been the most boring Budget hes been involved in for years. So thats probably
a good sign because were not engaging in a whole lot of restructuring of Tax Policy because
we are going to have a proper process a Tax White Paper and what comes out of that we
will take to the Australian people at the next election.
PRESENTER:
Ill ask the next question. How different is it coming to government when youve already
been in government prior to 2007? A lot more experience, and you just actually know how
everything works. Has it made your job a lot easier with the amount of experience you have
in the Cabinet and in the broader Government?
TREASURER:
Its made a massive difference. I sat on the Expenditure Review Committee of Cabinet in the
last year of the Howard Government as a Minister for 9 years. It means that you can hit the
ground running and particularly given that we are chairing the G20, and that has been an
enormous work load which I didnt fully appreciate when I was made Treasurer. So
delivering a first Budget in these sorts of circumstances and chairing the G20 is quite a work
load and having an experienced team, a Prime Minister who is deeply engaged in the Budget
process, which we really wanted and we agreed was absolutely necessary and having
members of the Expenditure Review Committee, Warren Truss, Peter Dutton, who have both

been Ministers previously, has made a big difference. What has stunned me is that the
infrastructure of Government is broken and Centrelink and Medicare have structural
problems. Their infrastructure, their mainframes are under enormous pressure. Even just the
call centre at Centrelink. When I was there the waiting time was about 6.5 minutes, bear in
mind they had millions of customers, now it is funded under the previous Government at 17.5
minutes. Neil Mitchell told me the other day that he had to wait 82 minutes to get through.
Now, if youre going to have structural reform you have got to take the community with you
and if you take 82 minutes to respond to a telephone call it makes reform incredibly hard, let
alone the structure of the mainframe. So, were looking at ways to totally change and
improve the delivery of Government services as well.
QUESTION:
One area you talked about was services but you also spoke about infrastructure and it is
interesting that the Prime Minister wants to be remembered as the Prime Minister who
delivered infrastructure to Australia. Can you expand a little bit more about how big he is
talking?
TREASURER:
Hes talking big. Ive just had to find the money, thats all, but hes talking big. Why?
Because, and Andrew MacKenzie, I hope Im wrong here sir from a BHP perspective, but the
fact is that we have had a massive investment in mining and resources construction over the
last few years and that has helped to deliver some economic growth. But now we are going
into a production phase in mining and resources. So the resources in that industry are coming
off. What weve got to do is strengthen the other side of the economy, to lift the services
sector in the cities. We have got to lift that side of the economy, and driving productive
infrastructure quickly is going to help to lift that other side of the economy. Combine that
with the re-allocation of lazy Government capital into new greenfields infrastructure, like the
East-West program and a few others that are coming and youre going to start to get some
momentum in the cities that more than compensates for a change in the profile in the mining
and resources sector.
QUESTION:
Question in respect to education, you have acknowledged the commitment to family and
education sacrifices that our community of [inaudible] may continue to provide an education

for their kids. Respect to Gonski or what remains of it, it appears to the press that the ongoing
independent education funding is either at risk or is going to be changed. [inaudible] our
community independent sector some comfort that the level of funding that the schools receive
will not be diminished in any way?
TREASURER:
Im not going to get into a guessing game about the Budget. But we committed to the four
years of Gonski and were remaining committed to the four year funding profile of Gonski. In
fact, we ended up putting in more than $1 billion more into Gonski. Poor David Gonski, his
names used in vein everywhere. But, the previous Government, on the eve of the election,
ripped out money from Western Australia, Queensland and the Northern Territory.
Immediately after the election I had to go and find more than $1 billion to put in, to make up
for the short fall in those states. So if you like, we are doing Gonski plus over the four
years. But fundamentally, schools have to be run by the states. The Commonwealth
Government does not run one school. It does not employ one teacher. And as such we have
got to come to a proper agreement with the states and we will be doing that.
QUESTION:
Thank you for a very informative speech, Mr Treasurer. Whenever I travel around the world I
am always very proud to say that I am from Australia, from Melbourne, from the worlds
most liveable city. We get voted that every second year or first year, it is fantastic. What is
your Budget doing, or going to do, to keep our reputation up as a great country to live and
Melbourne being the worlds most liveable city, keep it where it is? Specifically, I suppose,
what Im asking is, Im proud of the fact that people who need to see a doctor can see one
and afford to see one, people who need to go to a hospital can do that and afford to do that if
they havent got any money. Education is affordable to people who dont have any money.
So what is the Government doing to keep us as a liveable and the worlds most liveable city?
TREASURER:
Well, we are going to build the infrastructure that is going to make us an even more liveable
place. And we are going to build the infrastructure that, in fact, delivers a sustainable quality
of life and, gee I hope, a better quality of life. But it is not going to be easy. Now, Chairing
the G20 gives me the opportunity, I Chair the G20 Finance Ministers and the Central Bank
Governors, five times this year. My opening thought was in relation to all these people, the

head of the Federal Reserve in the US or the Chancellor of the Exchequer was, how are you
going to treat these people? I thought, youve just got to be yourself, a straight talking
Australian and their relief at the straight talk is palpable. It is the fact that when we say that
we cant regulate our way to prosperity, that we have got to get away from the concept of
more regulation and more taxes, they actually give a cheer. They give a cheer and that is seen
as the Australian way, to let people get on with their lives. So, the perception now, in the
G20, where I was at first warned that you might not get these leaders of the global economy
to come to Australia for the meetings, its so far to go, they are all coming and they are
coming three times this year, because they now recognise that we do as we say and we are
prepared to be at the forefront of the argument for freedom and enterprise. And the first
phone call I received after election night, the first phone call, 6am in the morning, was from
George Osborne the Chancellor of the Exchequer. And he said to me, thank God Ive got a
fellow traveller, Joe, you know, around the table. I said, we need to prosecute the values we
prosecute in our own countries, we need to take to the world and that will be the very best
advertisement for my country and that is what we are doing. Now I have got to deliver and
Budget night is the start of the delivery.
QUESTION:
Hello, thankyou for your speech, given the Audit Commissions recommendations for the
closure of the commercialisation of Australia [inaudible] wants to know what you view the
role of Government in encouraging companies and innovation, given its importance in
providing jobs in a high cost economy and the structural issues that that is to address going
forward for Australia.
TREASURER:
Well of course we want to facilitate innovation. Governments dont particularly innovate.
Individuals and businesses do and what we have got to do is facilitate that. Now, when we
say that the end of the age of entitlement applies in Australia we mean as much to business as
it does to individuals. So were prepared to help to lay down a road map for businesses to be
successful. We are going to have an innovation statement in the middle of the year, and work
has already started on that. There is no Government subsidy that is going to get a subsidy
from the basement to the thirtieth floor. Youve got to do it.
QUESTION:

Treasurer, youve talked so much about the Budget emergency, youve talked about the
pension issue in particular in recent weeks. Im interested in why you have decided to wait
until 2035 to lift the pension age to 70 and why you havent decided to do it earlier?
TREASURER:
Well, because you need to have a trajectory that is linked to retirements. Now it was the early
20th century when the Government first introduced a pension for people aged 65 - men, they
didnt worry about women, they just did it for men aged 65. Life expectancy was 55. So you
didnt have a lot of takers. That Budget methodology hasnt lasted too well over such a long
period of time. The previous Government said, look, we recognise people are living longer.
Some actuaries will tell you that life expectancy now, in Australia, is well into the 90s. But
we have got to allow people to have certainty that allows them to start saving and planning
for retirement and if you start dealing with issues now, that affect peoples lives 2035-2050,
then they can start to save and plan for that framework. Thats what were focussed on. The
Age Pension needs to be a safety net by 2035, not a cargo net. It needs to be something that is
going to ensure that no one is left behind and of course it will be ongoing increases in costs
associated with aged care and health care and we have got to have the money to meet those
challenges.
QUESTION:
Mr Hockey, learning our situation with the United Nations and our position in the Australian
Government in the area of the United Nations on the Security Council, what sort of support is
the Australian Government going to give Israel in issues related to Iran, and those types of
things.
TREASURER:
Did you organise the questions Leon? Australias support for Israel has been very strong.
You might have noticed there has been a strengthening of support for Israel since the change
of Government. There is nothing that will diminish that, nothing at all that will diminish that.
So, unless you see something I dont we will continue to provide support for Israel, the UN
and in other places, in other jurisdictions and I think that will be well reflected if Benjamin
Netanyahu- actually does come to Australia, I hope he does, in the middle of this year. We
will see how it goes, because the balls in his court, but I think youll see the closeness of the
relationship reflected in that visit in the middle of this year.

Thank you very much.