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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

5 July 2009


Treasurer's Economic Note

Welcome to the latest edition of my economic note. I spent most of last week on the road, travelling south of Brisbane to Beenleigh and Logan for one of our regular Community Cabinets, before heading over to Darwin with the PM and other Ministers for our COAG meetings with State and Territory Government Leaders. We had some really important meetings and agreed on some really important reforms, but the thing I'll most take away from these trips was the discussions I had with locals, and their willingness to do whatever they could to help Australia pull through this global recession.

BIS Report

The Bank for International Settlements (BIS) released its Annual Report last week. The report says that fiscal stimulus is necessary to help cushion economies from the global recession, and that this stimulus should be timely, temporary and targeted. It also says that there should be a clear exit strategy from fiscal stimulus measures. As the IMF report discussed in last week's economic note specifically points out, Australia ticks all these boxes.

Retail Sales

Last week's retail trade figures provided further evidence that our cash stimulus payments are working to support activity and jobs in the all important retail sector, with the value of Australian retail sales rising by 1.0 per cent in May. The value of retail sales is now 5.9 per cent higher than in November last year, the month before the first of our cash payments started to flow to cash-constrained households and pensioners. This is really good news for jobs in a sector that employs so many Australians.

Trade Result

The impact of the unwinding of the commodity boom was clearly visible in trade figures released last week, which showed that Australia recorded a $0.6 billion trade deficit in May. This was driven by a 5.2 per cent decrease in export earnings, caused by falling commodity prices.

The Reserve Bank's Commodity Price Index showed the extent of the unravelling in commodity prices, with the index falling by 4.9 per cent in Australian dollar terms in June. This week's Fact of the Week is that the Commodity Price Index has fallen 19.9 per cent in the past 12 months, demonstrating just what tough conditions we're up against. You can read more about our May trade deficit and recent falls in contract prices for key commodities in this Bloomberg article.

Financial System

Last week Standard & Poor's reaffirmed the AA credit rating of Australia's four major banks. Our four major banks are now among only eight of the world's 100 largest banking groups that are rated AA or above by Standard & Poor's. This highlights the resilience of the Australian banking system, and the importance of the Government's bank guarantee in ensuring the stability of the Australian financial system in the face of the worst global financial crisis since the Great Depression.

COAG Meeting

We're determined to do all we can for those Australians who lose their jobs to this global recession, through no fault of their own. That's why, at last week's Council of Australian Governments (COAG) meeting in Darwin, the Rudd Government together with State and Territory Governments agreed to establish a Compact with Retrenched Workers. The Compact will mean retrenched workers aged 25 years and over are entitled to a training place for a government-subsidised Vocational Education and Training qualification. It will complement the Compact with Young Australians, established at COAG's April meeting, under which people aged under 20 years are guaranteed an education or training place and 20-24 year olds are guaranteed a place to upskill.

COAG also agreed to a package of microeconomic reforms that include faster approvals of major infrastructure projects and housing developments to accelerate construction and encourage private sector activity, and the streamlining of regulations applying to the nation's transport sector to lift national productivity and allow transport operators to get products onto supermarket shelves and our exports to market at the lowest cost. COAG also signed up to a National Strategy on Energy Efficiency, which will help Australian households and businesses cut their energy and fuel bills while reducing their carbon footprint.

New Financial Year

The start of a new financial year last week also marked the start of new tax relief that will boost incentives for hard work. The new tax relief builds on both last year's tax cuts and our cash stimulus payments, which have overwhelmingly benefitted low- and middle-income Australians.

One of the new tax changes is a significant increase in the Low Income Tax Offset, which will lift the effective tax-free threshold for low-income workers. Compared with their income tax liability for 2007-08 (and excluding the Medicare levy), the Rudd Government will have delivered an income tax cut by 2010-11 of around 56 per cent for a person earning $20,000, 18 per cent for a person earning $50,000, and 8 per cent for a person earning $80,000.

The new financial year also brought with it indexation increases in the Child Care Benefit, the Child Care Rebate and the Baby Bonus. And for the first time, eligible families will be able to claim our 50 per cent Education Tax Refund in their 2008-09 tax return.

Coming Up

In the coming week we will receive housing finance figures for May and consumer sentiment data for July, and will learn of the Reserve Bank's decision on official interest rates.

But, without a doubt, the most important release next week will be the Australian labour force figures for June. We know that the global recession is continuing to savage jobs around the world, with the US reporting an increase in its unemployment rate to 9.5 per cent in June. That's why the Rudd Government is doing everything it responsibly can to stimulate the economy and support jobs in the face of the global recession. And those people who do lose their jobs to the global recession won't be forgotten. Our Compact with Retrenched Workers is all about helping those people who lose their jobs through no fault of their own, to get the skills and training they need to re-enter the workforce and contribute to the recovery.

Wayne Swan
Treasurer of Australia
Sunday 5 July 2009