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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

23 August 2009

NO.023

Treasurer's Economic Note

Today's economic note comes to you after a very good week for Australia, with the signing of our biggest ever trade deal and news that a respected market analyst has ranked Australia the equal-safest country in the world to invest. Australians in every corner of our country should be proud of these outcomes. While there are still so many challenges presented to us by the global recession, and the job of supporting employment in our economy is far from finished, we take heart from developments like these because they say encouraging things about our economic prospects during the recovery, and beyond. We especially welcome the news because one of the biggest specific challenges we face in the short to medium term is the major fall in business investment caused by the global recession. This is one reason why the Government is helping to fill the gap with our substantial investments in infrastructure.

Gorgon LNG Project

The announced sale to China of liquefied natural gas from the Gorgon LNG project is worth an estimated $50 billion over the next 20 years. Minister for Resources and Energy, Martin Ferguson, travelled to Beijing for the historic announcement. Martin said "this unprecedented export deal confirms Australia's importance as a global energy superpower supplying vital clean energy resources and technologies to China and our other Asia-Pacific trading partners." The signing of this deal comes just a week after Australia's first ever LNG contract with India – also a multi-billion dollar agreement.

As the biggest single investment ever made in Australia, the Gorgon LNG project will provide jobs for around 6,000 Australians at the peak of its construction. The project will guarantee a significant boost to our export income, with contracts to sell around $300 billion worth of LNG to customers in the Asia-Pacific over the next 20 years. The project will also buy about $33 billion worth of Australian goods and services over the next few years, and generate around $40 billion in government revenue over the next two decades which can be reinvested in things like infrastructure and vital government services to help improve the living standards of all Australians.

Business Investment

The second piece of good news we received last week came when the Dun & Bradstreet Global Risk Indicator rated Australia one of the safest countries in the world in which to invest. The Global Risk Indicator – which assesses the economic, commercial, external and political risk of 131 countries – ranked Australia in equal first position, together with Canada, Norway and Switzerland. Dun & Bradstreet CEO Christine Christian said that "Australia's rating demonstrates that although the nation is facing some challenges, it is faring well compared to others amidst the current global economic crisis." You can read more about the global risk ratings for Australia and other countries in this article.

Business Conditions

Last week's ACCI Small Business Survey found small business conditions improved in the June quarter, reaching their highest level since November 2008. The survey also reported an improvement in expectations of economic performance for the next 12 months. However, even after these positive gains, small business conditions and expectations still remain at low levels. This led Acting ACCI Chief Executive Greg Evans to caution that "despite some improvement in the outlook, trading conditions for the small business sector remain difficult." This serves as an important reminder of the tough conditions confronting small businesses in the face of the global recession, and underlines the importance of the Government's fiscal stimulus in providing support to the economy at this difficult time.

Small businesses are receiving much needed support not only from our 50 per cent Tax Break for small business investment, but also from the boost to retail trade and construction activity generated by our other stimulus measures. To pull back on that stimulus now would be turning our backs on the thousands of small businesses relying on stimulus to stay afloat during this global recession.

Financial System

In his speech to the Retail Financial Services Forum last week, RBA Assistant Governor Malcolm Edey made an important point, which is often overlooked, about the stability of our financial system amid a global financial crisis which has been so damaging to financial systems in other countries. Dr Edey made the point that the stability of our financial system is clearly due in large part to the successful bank guarantees put in place by the Government. However he added that the stability of the financial system is also a consequence of the relatively good performance of the Australian economy itself.

I've noted many times that our economy has performed better than just about any major advanced economy, with the help of the Government's decisive policy actions to support businesses and jobs. So it's encouraging to hear Dr Edey note that this solid economic performance has also been a key factor in keeping our financial system stable. This of course means credit has generally continued to flow through the economy, allowing businesses to keep operating and employing people. It's another example of the benefits of economic stimulus being much larger than the sum of its parts.

Global Developments

I was on the phone last week to a number of my international counterparts in preparation for the G-20 Finance Ministers' Meeting to be held in London in less than two weeks time. All of them underscored the importance of fully implementing our commitments to support jobs and growth, and warned that the global economy remains too fragile to risk the premature withdrawal of support for our economies. G-20 Finance Ministers will be committed to implementing reforms to the global financial system and ensuring we support recovery in developing countries – both of which are so important for our own economy.

We received news last week that Japan's GDP rose by 0.9 per cent in the June quarter – the first time Japan has recorded positive growth in over a year. It's encouraging to see the Japanese economy growing again, albeit from a low base, with real GDP back to where it was in June 2004. Private consumption in Japan is showing surprising strength, increasing in spite of record falls in wages and rising unemployment. Consumer spending has no doubt been boosted by the Japanese Government's fiscal stimulus measures, which include cash payments, tax breaks on fuel-efficient vehicles, and incentives to buy eco-friendly products.

Coming Up

This week we will see the second estimates for US and UK GDP, while here at home we will receive data on construction work done, capital expenditure and sales of new motor vehicles.

I'll be heading to Port Macquarie for Community Cabinet on Tuesday, then I am off to Mt Isa, to talk with the local business community about the energy needs and exciting economic potential of north-western Queensland. Getting out and about into your towns and suburbs and cities is one of the best things about my job, because it gives me a better feel for how our economy is performing and how we can do better. I look forward to updating you on all this when I write next week.

Wayne Swan
Treasurer of Australia
Sunday 23 August 2009

www.treasurer.gov.au
www.economicstimulusplan.gov.au