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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

6 December 2009

NO.038

Treasurer's Economic Note

Today's note comes to you after a week jam-packed full of economic news on the domestic front. For my part, I spent the last week criss-crossing the country. On Monday I travelled from Brisbane to Canberra to vote on our Carbon Pollution Reduction Scheme during the extended sitting of Parliament. On Wednesday I was in Melbourne to speak at a fundraising dinner for the Mick Young Scholarship Trust and Western Chances – two really important organisations providing educational opportunities for disadvantaged Australians. On Thursday I was in Sydney for the launch of the Australia Israel Leadership Forum by the Prime Minister. And on Friday I was back in Brisbane to give a speech at a fundraising lunch for the AEIOU Foundation – a fantastic not-for-profit organisation that provides early intervention therapies for children with autism. I also helped launch their new '10/40/600' corporate sponsorship program, which will harness the combined efforts of businesses, governments and families to achieve some great outcomes for kids with autism.

Climate Change

On Tuesday the Senate voted on our Carbon Pollution Reduction Scheme but failed to pass the legislation. Australian Industry Group Chief Executive Heather Ridout said that this failure "will prolong, if not compound the uncertainty for business" and "leaves this important policy issue unresolved". Ms Ridout made it clear that the Ai Group continues to support "a market-based approach to climate change as a means of reducing emissions at the lowest possible overall cost to the economy", as "departures from this principle will impose unnecessary costs on the Australian community." Business Council of Australia President Graham Bradley similarly stated that the BCA's view is that "the best way for Australia to transition to a low-emissions economy is through a market-based emissions trading scheme", and that "for business to make the necessary investments to enable this transition it must have regulatory and policy certainty."

The time has well and truly come for Australia to act on climate change. Sitting on our hands and doing nothing, continuing to delay and deny, is simply not an option. The Government has never shied away from the fact that the CPRS will come with costs – but 8.1 million of Australia's 8.8 million households will receive direct cash assistance to manage these cost increases, and it's clear that the costs of inaction far outweigh the costs of action.

Climate change was one of the topics the Prime Minister discussed with US President Barack Obama in the Oval Office on Tuesday. As the PM indicated in his press conference with US Secretary of State Hillary Clinton following the meeting, Australia is working closely with the US to secure the best possible outcome at Copenhagen – for the planet, our economies and our jobs.

Reserve Bank

On Tuesday the Reserve Bank Board took the decision to raise the official interest rate by 0.25 percentage points, to 3.75 per cent. This decision was unsurprising given the Reserve Bank has said that rates can't stay at 50-year emergency lows forever, but of course it still makes life more difficult for Australian families.

Unfortunately Westpac, ANZ and the Commonwealth Bank lifted their mortgage rates by more than the official cash rate rise. This is one reason the big banks are criticised by the Australian community. Any bank that used the RBA's official rate rise as an excuse to take families for a ride this Christmas is letting down their customers and their country. The Rudd Government understands the need to keep competitive pressure on the big banks, which is why just a few weeks ago we decided to invest an additional $8 billion in the securities of smaller lenders. This will ensure they have a flow of funds to help keep them lending and competing with the big banks, and will help put downward pressure on mortgage rates over time.

Australian Data

We received mixed data last week on how the Australian economy is faring, with evidence that the global recession is still weighing on national income. On Tuesday data from the Reserve Bank showed that commodity prices have now fallen by 42.6 per cent over the past year. That's resulted in record falls in export prices and business profits, with ABS figures showing company gross operating profits fell by 2.1 per cent in the September quarter – the fourth consecutive quarterly fall. Company profits have now fallen by 19.6 per cent over the past year, which is by far the biggest through-the-year fall since the series began in the mid-1990s. Wages on the other hand are being impacted upon by the reduction in hours worked, with wages and salaries flat in the September quarter and 1.5 per cent lower over the past 12 months – the first through-the-year fall since the series began in March 2001.

Last week's building approvals data showed that total residential building approvals fell by 0.6 per cent in October, but still remain 11.7 per cent higher than their level of October last year. This week's Fact of the Week is that approvals for private houses have increased by a staggering 25.7 per cent since we announced our First Home Owners Boost in October last year. Tanya Plibersek, the Minister for Housing, announced yesterday that more than 190,000 Australians had used the First Home Owners Boost as at the end of October.

We also received some encouraging retail trade figures last week. After several negative results in recent months, retail sales rose by 0.3 per cent in October and are now 5.4 per cent higher than their pre-stimulus level of November 2008. In contrast, retail sales have fallen across most major advanced economies over the same period, with declines of 0.1 per cent in the US, 0.9 per cent in Japan, and 3 per cent in the Euro area.

US Unemployment

On Friday night we received word that the US suffered their smallest number of job losses in November since the US recession began in December 2007. Notwithstanding the moderation in job losses, the US economy has been shedding jobs for 23 straight months, with the number of unemployed more than doubling to 15.4 million people or 10 per cent, since the US recession began. As reported in this Bloomberg article, US Treasury Secretary Timothy Geithner's view is that "the key test is when you see companies across the country starting to create jobs and add to payrolls. We're getting closer to that point – that's the important thing."

Coming Up

The most important data release to look out for in the week ahead is without a doubt Thursday's labour force figures for November, because it tells us about what's happening to jobs in our community. But also keep an eye out for balance of payments figures and the latest consumer and business confidence figures.

Australians should be really proud of the way we have pulled together over the past 12 months. In each of our own ways, we've all played a part in making Australia the best performing advanced economy during the global recession. But now, looking ahead, we've got some big challenges in front of us. Working cooperatively with the States and Territories will be central to delivering successful reforms going forward. Tomorrow the Prime Minister and I will meet with our State and Territory counterparts in Brisbane for the final COAG meeting of the year. We'll have a big agenda to get through, including tackling tough issues like health reform, improving planning in our major cities, ensuring a high-quality vocational education and training sector, lifting the quality of child care and early learning, and addressing critical issues like housing supply. These issues are central to boosting productivity and taking advantage of the recovery, so I'm really looking forward to some productive discussions with State and Territory Leaders and Treasurers.

Wayne Swan
Treasurer of Australia
Sunday 6 December 2009

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www.economicstimulusplan.gov.au