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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

13 September 2009

NO.026

Treasurer's Economic Note

Welcome to the latest edition of my economic note. After the G20 Finance Ministers' meeting last week I travelled to India to meet with my Indian counterpart, His Excellency Pranab Mukherjee, to discuss the growing bilateral relationship between our two countries. Australia's trade and investment with India has grown quickly in recent years, making India our fifth largest export destination and one of our most important sources of international students. I spoke about the opportunities for our two countries to work together and learn from one another in the speech I delivered to the National Council for Applied Economic Research in New Delhi. If we are to take full advantage of the future growth prospects of India and Asia more generally, it is critical that we invest in the skills and infrastructure that will lift our productive capacity.

Australian Jobs

Thursday's labour force figures showed the unemployment rate remained unchanged at 5.8 per cent in August, although employment fell by 27,100 people. Australia's unemployment rate remains lower than any of the major advanced economies except Japan. Around the world, we see unemployment rates of 7.8 per cent in the UK, 8.7 per cent in Canada, 9.5 per cent in the Euro area, and 9.7 per cent in the US.

This article by Alan Kohler from a couple of weeks back discusses the role our economic stimulus and other policy responses have played in supporting Australian jobs throughout the global recession. He said that "in some ways the most important reason for Australia's escape from recession has been the fact that there was not the same wave of retrenchments that hit the labour market in 1990. Talking to CEOs, it's clear there was a sense that they were not alone in the crisis – that the Government was clearly prepared to do whatever it took to prevent a big increase in unemployment … It was a huge psychological boost, and it meant that Australian CEOs held off on sackings that their counterparts in the US were forced into …"

While Australia has performed much better than the rest of the world, we still face a big jobs challenge ahead. Unfortunately unemployment will continue to rise as the effects of the global recession wash through our economy. But we know that the Government's action, and the combined efforts of employers and employees, have helped cushion the impact of the global recession on jobs. Ripping the stimulus out prematurely would only pull the rug out from under the recovery, undermine confidence and threaten jobs.

Confidence

It is clear that what makes the stimulus greater than the sum of its parts is the positive impact it has had on confidence in the economy.

Last week the Westpac-Melbourne Institute Survey of Consumer Sentiment reported a 5.2 per cent increase in consumer sentiment in September. Consumer confidence has now risen 34.4 per cent over the last four months – the biggest four month increase in the 35 year history of the series. Westpac Chief Economist Bill Evans commented that "the standout story is the 'relief rally' for consumers – relief that the economy has avoided recession and that expected job losses have not materialised. This is clear from the survey detail. The biggest shift over the last four months has been in components that capture expectations (+49.6 per cent). In contrast, components measuring views on current conditions have risen by a more moderate 14.4 per cent over this period."

The NAB Monthly Business Survey reported a strong surge in business confidence in August and a modest improvement in business conditions. NAB Chief Economist Alan Oster commented that "there is evidence that non-residential building has … improved on the back of the Government's school initiatives" and "the level of capacity utilisation in manufacturing has started to lift from extremely low levels – as the Government's infrastructure programs come on line."

Retail and Housing Data

Last week's retail sales figures showed the value of retail sales fell by 1 per cent in July. Retail sales remain 4.8 per cent higher than what they were in November last year, before the first of the cash stimulus payments were made to households. Housing finance figures showed that after rising for nine straight months, the number of owner-occupied housing finance commitments fell by 2 per cent in July. These figures are a sobering reminder that we've got a long way to go.

Business Innovation

On Thursday, my colleague Kim Carr, the Minister for Innovation, Industry, Science and Research, and I announced a significant first step towards the biggest reform to business innovation support for more than a decade. More specifically the Government has doubled from $1 million to $2 million the maximum amount that a firm can currently spend on research and development (R&D) and still be eligible for the existing Tax Offset. This paves the way for the new R&D Tax Credit, which will boost investment, support jobs and help position Australian businesses for economic recovery by providing more effective and predictable incentives for R&D.

Coming Up

In the coming week, we will receive lending finance figures for July and international merchandise imports data for August, as well as the minutes of the Reserve Bank board's last meeting.

This Tuesday will mark one year since the collapse of Lehman Brothers. It was the collapse of this US investment bank which triggered the global financial crisis – a negative spiral of financial market instability, reduced confidence and lower economic activity feeding off one another – that would go on to become the worst global recession in 75 years. Australia has not been immune from the recession – unemployment has risen and will continue to rise as the global recession plays out. But people have pulled together in Australia's hour of need, and thanks to the Government, Reserve Bank, employers and employees all doing their bit, Australia has weathered the storm better than any other advanced economy – with a strong financial sector, improving consumer and business confidence and positive economic growth working to reinforce one another.

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Wayne Swan
Treasurer of Australia
Sunday 13 September 2009

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