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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

18 October 2009

NO.031

Treasurer's Economic Note

Welcome to the latest edition of my economic note. My travels around the country last week are a good snapshot of what the job of Treasurer is all about – getting out into our communities, talking to locals and economists about the economic challenges facing the nation, and launching exciting new projects. After speaking to the Australian Business Economists in Sydney on Monday, I travelled to Hobart for Tuesday's Community Cabinet where I spoke with local residents on issues ranging from tax reform to unpaid superannuation. I was in Canberra on Wednesday – one year to the day since we announced our Economic Security Strategy – and thanked the Treasury Department for all their hard work on the various policy responses over the past year that have kept Australia going forwards while every other advanced economy has gone backwards. On Thursday I was back in Brisbane and visited the Brisbane Housing Company's landmark project at Newstead with my colleagues Tanya Plibersek, the Minister for Housing, and local MP Arch Bevis. This project is helping to support 350 jobs, and will include 30 National Rental Affordability Scheme homes, 26 social housing dwellings funded by our economic stimulus package, and 39 privately owned units. It's a great example of how all levels of government, the private sector and the community can work together to address important issues like increasing the supply of housing. Then on Friday I launched Sky News' new Brisbane-based channel and bureau, which are being introduced as part of their ‘Sky News Local' channel initiative that's being rolled out nationally. And this afternoon I'll be flying back to Canberra, for the start of another fortnight of Parliamentary sittings.

Fiscal and Monetary Policy

My speech to the Australian Business Economists focused on the design of our economic stimulus package and our fiscal settings going forward. I discussed the fact that the stimulus was designed to reach its maximum impact quickly, before withdrawing gradually as the economy strengthens. That's why the stimulus' impact on growth has already peaked, and will gradually withdraw and subtract from growth in 2010 as the private sector recovers. In contrast, ripping out the fiscal support from the economy at once would subtract a massive 2½ per cent from growth in 2010, and risk stalling the economy before a self-sustaining recovery in private activity has taken hold. I also explained that while the stimulus is an important part of our fiscal strategy, it's only one part – and it's the total fiscal picture that the Government is focused on. Our fiscal settings are always subject to review, and we will always ensure they remain suited to changing economic circumstances as we come through this global recession.

The Reserve Bank Governor, Glenn Stevens, last week gave a speech in Perth on the conduct of monetary policy in crisis and recovery and also answered questions. Governor Stevens reiterated his previous statements that interest rates have been cut to emergency levels and that "over time, interest rates will need to be adjusted towards a more normal setting as the economy recovers." This means that monetary and fiscal policy will be working hand in hand to support a sustainable recovery.

Apprentice Kickstart

The Government is constantly monitoring the impact of our stimulus and broader fiscal settings to ensure we are providing support where the economy needs it most. This process saw Deputy Prime Minister Julia Gillard and Mark Arbib, the Minister for Employment Participation, last week announce a finetuning of our Jobs Fund stimulus measure. Some of the funding for this stimulus measure will now go towards a new $100 million Apprentice Kickstart program, to ensure Australia continues to recruit and train apprentices in traditional trades and meets the potential skills shortage head on. This announcement comes in the wake of the Keep Australia Working report's finding that the number of people starting trade apprenticeships has dropped by more than 20 per cent during the economic downturn. The Apprentice Kickstart program will support up to 21,000 15-19 year old Australians starting traditional trade apprenticeships this summer by more than tripling the first year bonus paid to employers from $1,500 to $4,850. Mark said that "this bonus will fast-forward hiring decisions to bring apprentice numbers up to levels before the global recession", as "we need to prepare now for when the Australian economy recovers."

Consumer and Business Confidence

Last week's Westpac-Melbourne Institute Survey of Consumer Sentiment found consumer sentiment rose by 1.7 per cent in October. This week's Fact of the Week is that consumer confidence has surged by 47.9 per cent since we announced our Economic Security Strategy one year ago. Westpac Chief Economist Bill Evans said that the resilience of the labour market was one factor that has been buoying sentiment.

The NAB Monthly Business Survey reported an easing in business confidence in September, after strong gains in recent months. Business conditions also edged lower in September, driven by significant falls in profitability and trading conditions. NAB Chief Economist Alan Oster said "we still see a good deal of current momentum as being brought forward by policy stimulus", and that "the recent data, other than the labour market, has been a touch on the soft side". Mr Oster's view was that "despite improved sentiment, business is still very wary of investing in current circumstances. Again while policy actions appear to have prevented substantial falls in business investment feared six months ago, with no improvement in longer run investment intentions, low capacity utilisation, and lower income levels from the terms of trade we do not expect to see much improvement in actual cash spend for investment over the forecast period. Our forecasts are for falls in underlying business investment in 2010 of around 3-5 per cent (and slightly weaker outcomes in early 2010 with the investment allowances for small business completely phasing out)."

Coming Up

This week we will receive the UK's GDP outcome for the September quarter, ABS data on international merchandise imports and sales of new motor vehicles for September, and the minutes of the RBA Board's last monetary policy meeting.

Australians are rightly proud of our country's performance during the toughest global conditions in three-quarters of a century. But in many ways the story of what we do in the next year to set Australia up for the future is just as important as the remarkable story of the year just passed. We're absolutely determined to get out Carbon Pollution Reduction Scheme through the Parliament this year, so businesses can begin making long-term investments in the low-pollution economy of the future. We'll be receiving Ken Henry's root and branch review of the tax system later this year, which you can read more about in this speech he delivered last week. There's also the Cooper review of the superannuation system, which Chris Bowen, the Minister for Financial Services, Superannuation and Corporate Law, discussed in this speech last week. We've set ourselves an extensive reform agenda, because while our number one priority over the past year has been to cushion Australian businesses and jobs from the worst impacts of the global recession, we haven't for one second lost sight of the long-term challenges facing our nation.

Wayne Swan
Treasurer of Australia
Sunday 18 October 2009

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