The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

3 May 2009


Treasurer's Economic Note

My latest economic note comes to you just nine days out from this year’s Budget. I’m about to move into the Treasury building, to work alongside the very talented people who are working around the clock to finalise what is the most important Budget in generations, given the scale of the global recession we are facing.

Global Recession

Making the framing of this Budget so difficult is that the final months of last year saw dramatic falls in global activity, which is being repeated in many advanced economies in the first three months of this year.

This past week we learnt that the extraordinary decline in economic activity in the US has continued, with output falling 1.6 per cent in the March quarter. This result was worse than expected courtesy of a surprisingly sharp fall in business investment. In the March quarter alone, business investment fell by 11 per cent, making it the biggest fall in US business investment since the data series began in 1947.

These figures come on the back of earlier news that the UK economy contracted by 1.9 per cent in the first three months of the year, their worst outcome in 30 years. On top of all that, unemployment in the Euro area rose to 8.9 per cent in March. In the last 12 months, the global recession has seen 2.82 million more people become unemployed in the Euro countries.

Australian Outlook

There’s no doubt that the further deterioration in the global economy will have very big consequences here. I’ll detail the full extent of the impact on Budget night, but there’s no question that our forecasts for jobs, growth and revenue will be substantially worse than those published in the Updated Economic and Fiscal Outlook (UEFO) in February.

Access Economics released its own outlook for the Australian economy last week, which confirmed the brutal impact of the global recession on our economy. In this week’s Fact of the Week, Access predicted that falling global commodity prices and the unwinding of the mining boom would wipe around $40 billion a year from national income.

Access also highlighted how the global recession has decimated government revenues, which of course means we face some very tough calls in this year’s Budget. The global recession has already stripped $115 billion from government revenues since the last Budget, and that figure is certain to be revised upwards on Budget night.

Despite these challenges, Access Economics stresses that “Australia’s economy remains close to the best performing of any rich nation.” A big part of that is because of the early and decisive action the Rudd Government is taking to stimulate economic activity and support jobs.

In another report Access talked about how the difficult global environment has resulted in fewer and fewer investments being added to the pipeline of projects. In the March Investment Monitor Access pointed to the importance of the Government’s $14.7 billion Building the Education Revolution stimulus, noting that it accounted for more than two-thirds of the total value of new projects added in the March quarter. Without the Government’s unprecedented schools modernisation program, the amount of investment in new projects would have hit its lowest level in two years. You can find further analysis of the Access Economics report in this article by Colin Brinsden.

Coming Up

This coming week we will get an update on the US unemployment situation in the wake of their weak GDP result. We will also get a further indication of how the global recession is affecting Australian jobs, and will receive new figures on house prices, building approvals and retail trade.

The Reserve Bank Board will hold its monthly meeting next Tuesday. The RBA will also release its quarterly Statement on Monetary Policy next week, providing a detailed assessment of current economic conditions.

We’re now in the home stretch of putting together a Budget that will support jobs and invest in the future in a responsible and sustainable way. When you face the type of deficit that the global recession has given us, our only option is to make room for jobs and investment by shaving back other areas and we make no apology for taking the tough choices where necessary. Nobody likes having to make difficult decisions, but we are fully prepared to do what’s necessary to promote and protect the economic interests of Australians.

Wayne Swan
Treasurer of Australia
Sunday 3 May 2009