Tonight’s budget reply speech is a big test for Opposition Leader Bill Shorten and the Labor Party.

Tonight’s budget reply speech is a big test for Opposition Leader Bill Shorten and the Labor Party. 

For eighteen months we’ve heard very few specifics from Shorten – just airy generalities about fairness and the future. It’s been much the same in the last two days – saying the budget ‘wasn’t a plan for the future’ and ‘it still retains some of the unfairness of last year.’

We are now closer to the next election than the last.  Bill Shorten wants to be Prime Minister.  The Australian people deserve to know what he would do if he got the job.  Tonight’s speech offers Shorten the chance to answer three big questions.  If he is serious he will have detailed answers to all of them.

Question 1: Where does Labor stand on debt and deficit – and what is their plan to achieve a credible path back to surplus?

For the last year a half Labor and Bill Shorten have walked two sides of the street when it comes to debt and deficit.

They claim to be concerned about it – but so far we have seen nothing to suggest that Labor is serious about budget repair.

Labor’s track record in government suggests they have little appetite or capacity for budget discipline. The six years of the Rudd-Gillard-Rudd Government saw a grim and growing run of deficits reaching almost a quarter of a trillion dollars in total: - $27 billion, - $54 billion, - $48 billion, - $43 billion, - $18 billion and - $50 billion.

In Opposition Labor has been grossly irresponsible – walking away from measures it announced when in government and included in the costings it took to the 2013 election, representing combined savings of $5 billion over the forward estimates. 

Although it claims to care about budget repair, Labor has refused to use its numbers in the Senate to support key Coalition measures designed to repair the budget.  It should have either done this, or come forward with its own measures – to allow a serious dialogue, as befits serious national political parties, about how to achieve the budget repair task.

Instead we have Labor claiming to be concerned about the budget deficit – but failing to engage on measures that would do something about it.

In the budget delivered this week, Treasurer Joe Hockey has laid out a credible path back to surplus. Bill Shorten needs to indicate if he supports it – and if not to suggest alternative measures to achieve the same outcome.

Question 2: What does fairness actually mean in practical terms

We hear a lot from Labor about “fairness” – its catch-all objection to any measure advanced by the Coalition which it decides not to support.  But while we can all appreciate the importance of fairness as an ethical principle, it is a long way from being an adequate practical guide to policy making.

In tax policy, for example, it has long been accepted that there are several policy objectives which any proposed measure needs to be assessed against: equity (or fairness); efficiency (the extent to which the tax distorts economic activity from what would otherwise occur) and simplicity.  Critically, a measure which performs well on one of these criteria might perform poorly on other criteria.

Let’s take the example of pensions and superannuation.  Labor has said it supports new taxes being imposed on the retirement balances of people in retirement.  Why does this meet a principle of fairness?  Is it fair to people who have saved within the superannuation system in the expectation of a certain tax treatment once in retirement, that the treatment should change after they have made the decision to save?

Similarly, Labor has objected to the Coalition’s budget announcement that the maximum value of assets you can own, outside of your family home, and still receive a part or whole pension, will be reduced from the current level of $1.15 million (for couples) to $823,000. 

The principle behind this decision is to require those pensioners with substantial means to draw on slightly more of their assets to maintain their current levels in retirement, while the Government continues to support those who need it most.  This is very much in line with a principle of fairness – particularly when we recognise that the age pension will cost $44 billion in 2015-16, and like every other government expenditure has to be funded through money raised from taxpayers. 

Tonight in his budget reply speech Bill Shorten needs to tell us how he would actually use the principle of fairness to make practical decisions – and stop using it as the catch-all excuse to oppose any measure he thinks may be politically unpopular.

Question 3: What is Labor’s plan to stimulate innovation and private sector risk taking – the have a go mentality that is so key to future growth?

The budget that Joe Hockey delivered on Tuesday night contains a powerful package of measures designed to encourage Australians to ‘have a go’ – with a particular focus on encouraging Australians to start, or to grow, a small business. 

Some of the world’s biggest businesses were start ups only a few years ago. Google began only seventeen years ago – and is now the third largest listed company in the world by market capitalisation.

The budget package includes:

- streamlining business registration processes to make it quicker and simpler to set up a new business;

- expanded tax concessions for employee share schemes – to make it easier for small start up companies to attract and retain the talent they need to grow.

- allowing start up companies to immediately deduct professional expenses incurred when they begin a business, such as legal expenses on establishing a company, trust or partnership, rather than writing them off over five years.

- for companies with annual turnover under $2 million, the company tax rate will be cut by 1.5 percentage points to 28.5 per cent. 

- stimulus for businesses with annual turnover below $2 million: between now and the end of 2017, any asset worth up to $20,000 purchased by a small business will be deductible in full immediately.

In my discussions with small business people over the last couple of days, there is great enthusiasm for these measures, with many talking about plans to bring forward investments in key assets for their business. 

Yet Bill Shorten says that ‘we all recognise that you need to grow the economy’ and the budget failed that test.  If there was ever proof required that former union bosses like Shorten simply do not understand the dynamism of small businesses – and the importance of encouraging start up businesses which can grow into larger businesses – then this comment gives that proof.

The measures in our budget will give a big stimulus to the millions of Australian small businesses – and help some of them at least along the road to becoming big businesses.

The third big test for Bill Shorten in this budget, then, is to tell us what he will do differently to stimulate private sector growth, innovation and risk taking.  What is his 'big plan for the future’ as he put it in an interview on ABC AM yesterday?

Tonight’s budget reply speech is an important test for the Opposition Leader.  Let’s see whether he can rise to the challenge.