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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

22 November 2009


Treasurer's Economic Note

Today's note comes to you from Brisbane, just a couple of days out from the Rudd Government's two-year anniversary. The anniversary, and a useful assessment from the OECD last week, provide a really good opportunity to take stock of our first two years in government – what we've confronted, what we've achieved, and what challenges we'll face going forward, as a government and as a nation.

Two-Year Anniversary

A lot has happened in those two years since we were given the privilege of governing for Australians in November 2007. There's been a great deal of reform already achieved, but even more in train. For my part, I've done two budgets, two mid-year updates, and three waves of economic stimulus that helped Australians withstand the worst the world could throw at us.

The key event of the last two years was, of course, the global recession that reached our shores and threatened jobs and prosperity here in Australia. In September 2008, Lehman Brothers – the fourth largest US investment bank – collapsed. In the six months that followed, the global economy fell off a cliff. Share markets around the world suffered their biggest declines since the 1927 stock market collapse, and the global economy suffered the sharpest synchronised downturn since the Great Depression. Virtually every major advanced economy fell into deep recession, with more than 12 million workers losing their jobs in advanced economies alone.

But throughout these past two years we've tried not to take our eye off the big long-term challenges and the policy platform we were elected on. Our first official act as a government was to ratify the Kyoto Protocol in December 2007. We backed this up by immediately starting the groundwork for the design of our Carbon Pollution Reduction Scheme and the hard yards of getting it passed. We are investing in the Education Revolution and critical economic infrastructure, and have taken initial steps toward health reform. Back in that first Budget I also commissioned the Australia's Future Tax System Review – the most comprehensive root-and-branch review of Australia's tax system in the last 50 years – and I'll be getting that report next month before releasing it with an initial response early in 2010.

OECD Report

Faced with all the pressures of the last two years, Australians should be really proud of what we have achieved as a country by pulling together. The OECD's Economic Outlook provides further evidence that we are outperforming the rest of the advanced world, with stronger growth, lower debt and lower deficits than the major advanced economies. The OECD notes that Australia is one of only three OECD economies forecast to grow in 2009, with fiscal and monetary stimulus supporting activity through the worst of the global recession.

The OECD also examined the impact of the global recession on growth prospects for member countries. It found that the near-term adverse impact on Australia's potential output is among the lowest in the OECD. Stimulus, both fiscal and monetary, has meant Australia has avoided the permanent skills and capital destruction that generally accompanies deep downturns and that has meant less permanent damage to our economy.

The OECD cautioned that withdrawing stimulus too rapidly could undermine the recovery. It states "with considerable uncertainty remaining about the strength of the recovery and signals about economic developments likely to be noisy for some time, there is a risk that policy mistakes could be made. In particular, a premature withdrawal of the current monetary and fiscal policy stimulus could disrupt the recovery, raise job losses and intensify balance sheet pressures on the private sector." The OECD endorsed our staged withdrawal of stimulus, saying that "the planned reduction of the federal budgetary stimulus seems to be an appropriate response to the needs of the economy." A more rapid withdrawal of stimulus would risk stalling the economy before a self-sustaining recovery in private activity has taken hold – with devastating consequences for small businesses and jobs.

Skills and the Recovery

On Wednesday I delivered the 2009 Mick Young Oration. Mick Young was a very good friend of mine so it was a real honour to be invited to give this year's speech. I talked about our response to the global recession and how proud I am that our country has fought the permanent destruction of skills that usually comes with a sharp downturn. To build sturdier foundations for prosperity, we don't have a single person's talents to waste.

The lesson of previous recessions is clear – unemployment takes a lot longer to go down than to go up, and nothing is more debilitating to a country and to an economy than prolonged and high unemployment. We'd learnt that lesson from earlier downturns and weren't about to let history repeat itself this time around. Fiscal stimulus measures not only kept an extra 200,000 Australians in work, but also improved the skills of Australians in vulnerable communities. Avoiding the destruction of the skills base means we are now better placed than any other country to take advantage of the recovery. We still have a long way to go to build the human capital we need for the future, but we don't start as far behind as we could have.

Coming Up

This week we'll be keeping an eye out for capital expenditure figures for the September quarter and new motor vehicle sales for October.

While Australia has come through the worst of the global recession in a stronger position than other advanced economies, we know the job is far from finished. We're determined to get the legislation for our Carbon Pollution Reduction Scheme through the Parliament this week – the last sitting week of the year. If the Parliament fails to pass this vital legislation it will be a setback for national economic and environmental reform at exactly the wrong time. One potential impact of the global recession is that governments retreat to a position of timidity, that we can ill afford. Alternatively if the legislation passes we will send a strong message to all nations that the Australian Government's reformist zeal has come through the global recession intact. We remain committed to a broad productivity agenda, including our Education Revolution and big investments in infrastructure like roads, rail, ports and broadband. We know how critical it is that we reform the tax system to make it simpler, fairer and more competitive, and are eagerly awaiting the report from the Review team. Big, important, long-term reforms like these are never easy. But we did the hard yards to position us as the best-performing advanced economy during the global recession and we'll do the hard yards to turn this into something more enduring as well. Thanks again for reading the note and I look forward to writing to you again soon.

Wayne Swan
Treasurer of Australia
Sunday 22 November 2009