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

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

29 November 2009

NO.037

Treasurer's Economic Note

Today's note comes to you after another week of intense efforts by the Government to get our Carbon Pollution Reduction Scheme through the Parliament. Like the big economic reforms that have come before it – floating the dollar, pulling down the tariff wall, opening up our financial markets and setting up compulsory super – the Carbon Pollution Reduction Scheme will begin a gradual transformation of the Australian economy. It will put the economy on the right path for the future – a path that delivers continued economic growth, continued increases in employment and continued increases in average income, while reducing carbon pollution.

The CPRS is absolutely critical to give business the certainty it needs to invest in new green technologies and industries. It will drive a new wave of innovation – with output in the renewable energy sector expected to grow to 30 times its current size. That's why I agree with Business Council of Australia President Graham Bradley, who said "when passed, the legislation will enable Australian businesses to plan for and make the required decisions about investments to transition Australia to a low-emissions economy."

As one of the hottest and driest continents on the planet, Australia will be hit hardest and fastest by climate change. Australian Industry Group Chief Executive Heather Ridout asked just last week, "if we don't put something on the table, why should the rest of the world come in and help reduce emissions which will inevitably flow to Australia?"

Tackling dangerous climate change will be tough – there's no two ways about it. But governments aren't elected to squib the tough decisions and take the easy way out. When governments are called upon to make the hard choices, ‘hauling up the white flag' is simply not an option. We were elected by the Australian people to get the big calls right, in the long-term national interest – and that's what we're intent on doing.

Global Economy

IMF Managing Director Dominique Strauss-Kahn reflected on the events of the past year and the current state of the global economy in a speech in London last week. His view is that "we certainly have come a long way over the past year. We all remember the tsunami that was unleashed by the collapse of Lehman Brothers. Uncertainty turned to outright panic, and in the frenzied fallout, economic activity all over the world began to collapse at rates not seen since the Great Depression. Today, the storm has passed. The worst has been averted. Thanks to a bold and rapid policy response, delivered in an atmosphere of unprecedented policy cooperation, global economic activity is rising again." Mr Strauss-Kahn also went on to warn that "the global economy remains very much in a holding pattern – stable, and getting better, but still highly vulnerable."

Public and Private Investment

In the week just gone, construction figures gave us another important insight into the critical role being played by the Government's economic stimulus. They revealed that the total amount of construction work done increased by 2.2 per cent in the September quarter. This week's Fact of the Week is that this outcome was driven substantially by our infrastructure stimulus, which saw public sector construction activity rise by 17.6 per cent in the quarter, including a record 29.4 per cent increase in public building work done. In stark contrast, construction activity in the private sector fell by 3 per cent in the quarter. ANZ Economist Dr Alex Joiner said that "this result goes to show that the Federal Government's fiscal stimulus package aimed at construction of infrastructure is bearing fruit – offsetting the downturn in private sector construction."
Capital expenditure data told us a similar story, with private sector capital expenditure falling by 3.9 per cent in the September quarter. This weakness was broad-based, with expenditure on equipment, plant and machinery down 2.9 per cent and expenditure on buildings and structures down 4.8 per cent. We witnessed a particularly sharp decline in capital expenditure in the manufacturing sector, which suffered the largest quarterly decrease since records began in 1987, falling 13.4 per cent. Business investment plans for 2009-10 improved somewhat, however they still remain 7.7 per cent lower than the same estimate for 2008-09 and imply that business investment will contract in 2009-10 for the first time since 2000-01. This confirms that businesses remain cautious and the near-term outlook for private investment remains weak.

These construction and capital expenditure numbers underscore the continued importance of our infrastructure stimulus, which is working to support investment in our economy and activity and jobs in the construction sector at a time when the private sector is still in retreat. But it's also worth remembering that our program of infrastructure investment is not only supporting a pipeline of work for businesses today – it's also building productive capacity for the future. It's temporary spending with lasting gains, and will provide a stronger platform for sustainable growth into the future.

The capital expenditure figures also highlight the importance of our Small Business and General Business Tax Break in providing much-needed support for private investment. The impact of the tax break is most clearly seen in last week's motor vehicle sales figures, which showed that sales of new motor vehicles not only rose by 3.7 per cent in October, but also registered positive through-the-year growth for the first time since June 2008. At its lowest point, new motor vehicle sales had fallen by a staggering 22.4 per cent through-the-year to March 2009. Notwithstanding a fall in sales in July following the stepping down of the tax break for medium and large businesses from 30 per cent to 10 per cent, new motor vehicle sales have now recorded positive growth of 3.3 per cent through-the-year to October – a stunning turnaround in the space of just seven months.

This week we'll get some new figures which will provide more insight into how our economic recovery is progressing, including building approvals and retail trade figures. The Reserve Bank is also set to meet on Tuesday for its monthly consideration of official interest rate policy.

2010-11 Budget

It's now clear that Australia has come through the global recession in a stronger position than any other advanced economy. Economic stimulus has kept Australia out of recession, and avoided the large-scale destruction to jobs, businesses, skills, confidence and families that go with it. But I can assure you that the Government's thoughts are firmly focused on the challenges for 2010 rather than the successes of 2009 – challenges that will be just as difficult as the ones we have faced over the past year.

In designing policies to reform the tax and health systems, manage the ageing of the population, and deliver a world-class education system, it's vital that we receive as wide a range of views as possible. That's why on Friday I invited you, your businesses and your community groups to submit your ideas for the 2010-11 Budget. You can read more about the process for lodging submissions here, but I particularly want to emphasise that we need to receive ideas by 29 January 2010 at the latest, so we've got plenty of time to consider each and every submission and examine potential policy responses. So if you've ever thought to yourself ‘the Government should do x', now's the time to put it in writing and send it in, so we can take it into consideration for next year's Budget – a vitally important one for our economic future as a nation.

Wayne Swan
Treasurer of Australia
Sunday 29 November 2009

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