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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

13 December 2009

NO.039

Treasurer's Economic Note

Welcome to the latest edition of my economic note. Another busy week kicked off in Brisbane where the Prime Minister and I met with our State and Territory counterparts for the last COAG meeting of the year. The PM and I then joined with our ministerial colleagues in Townsville on Tuesday for one of our regular Community Cabinets. By Wednesday I was back in Brisbane to attend a fundraising BBQ in support of the Prince Charles Hospital Foundation and the Prostate Cancer Foundation of Australia. I've been a passionate advocate of prostate cancer research and awareness ever since my own battle with the disease in 2001, which is why I was so proud that the blokes in my office managed to raise something like $12,180 for Movember. On Thursday I spoke to the Global Foundation about foreign investment in Australia and our Foreign Investment Review Board, which I'll talk more about below. On Friday I toured the Seahorse Spirit as it prepared to embark on its mission to find the Australian hospital ship Centaur, before giving a speech later that day at the launch of the Endeavour Foundation Endowment Challenge Fund. Then yesterday I was up at Coolum Beach on Queensland's Sunshine Coast to open their newly renovated Surf Life Saving Club building – something I was particularly proud to be a part of as a vice-patron of Surf Life Saving Queensland and a former surf life saver at nearby Alexandra Headland.

Australian Jobs

We received some encouraging labour force figures on Thursday, with unemployment falling by 0.1 of a percentage point in November, to 5.7 per cent. The Fact of the Week is that the number of employed persons increased by 31,200, which means that more Australian families will have a breadwinner this Christmas. We don't get too carried away with monthly figures, but they do give us more evidence of the impacts of stimulus on our economy, which has kept Australia out of recession and more Australians in jobs. However, we can't lose sight of the fact that some 650,000 Australians still remain out of work, and many Australians are working fewer hours than they would like.

Sustaining favourable jobs outcomes like the one we saw on Thursday relies very heavily on the pipeline of activity and certainty that's being provided by the infrastructure projects at the core of our fiscal stimulus program. That pipeline of construction activity is absolutely critical to filling the hole in business investment caused by the global recession and keeping people in work until the private sector recovers. This was reinforced by an International Labour Organization (ILO) report released last week which singled out our fiscal stimulus response as a successful case study. It warned against the premature withdrawal of our stimulus, stating that "Australia's recovery remains susceptible to a fall-off in trade volumes" and "premature removal of the stimulus package could dampen growth and weaken labour market prospects". Raymond Torres, director of the ILO's International Institute for Labour Studies, said generally that it is "crucial to avoid premature or ill-conceived exit strategies", as "badly shaped spending cuts now would hit many existing jobs which were saved thanks to earlier stimulus measures but are still at risk."

Australian Data

Other economic data that came out last week confirms that while the full impacts of the global recession continue to wash through our economy, Australia has outperformed other advanced countries. The Annual National Accounts showed that the Australian economy continued to grow in 2008-09 at a time when every other major advanced economy experienced deep recession. Real GDP grew by 1.1 per cent in year-average terms in 2008-09, confirming that the economy would not have grown throughout the global financial crisis without our fiscal stimulus. In stark contrast, the major advanced economies contracted by 2.9 per cent in year-average terms over the same period, including historic contractions of 2.2 per cent in the US, 3 per cent in the UK and 5.1 per cent in Japan.

Balance of payments figures reflected the continuing effects of the global recession, with export prices falling by a further 1.8 per cent in the September quarter. This takes the through-the-year fall in export prices to 19.5 per cent, which is the biggest decline in the history of the series dating back to 1959. The Australian Bureau of Statistics estimates that net exports will detract around 1.8 percentage points from the September quarter GDP outcome to be released this Wednesday, due to a 2.3 per cent decrease in export volumes and a 5.8 per cent increase in import volumes.

The Westpac-Melbourne Institute Survey of Consumer Sentiment found that consumer confidence fell by 3.8 per cent in December, but still remains 38.8 per cent higher than its pre-stimulus level of October 2008. The NAB Monthly Business Survey reported that business confidence edged higher in November, while business conditions slipped back marginally after strong gains the previous month. NAB Chief Economist Alan Oster said that "while business is more confident there is an usual disconnect between confidence and willingness to invest". He reported that "the index for capital spending went marginally backwards in November and remains at relatively depressed levels", and expects "little real growth over the next year in capital spending – with a return to only modest real growth from mid-2010".

COAG Meeting

At our meeting on Monday, Leaders and Treasurers from the Commonwealth, States and Territories agreed to further coordinate our efforts on several important productivity-driving reforms. One of our key decisions was to make housing a priority for microeconomic reform for 2010, with Treasurers to lead the development of a housing reform agenda with Housing and Planning Ministers. State and Territory Treasurers were tasked with the job of developing a reform agenda to tackle housing supply and affordability issues that builds on important policies already in place. States and Territories also agreed to have capital city strategic plans by 2012 that will be independently assessed by the COAG Reform Council. Importantly, we also agreed to create a new, independent national regulator for the vocational education and training sector, and new compulsory national standards for child care and early childhood education services.

Foreign Investment

My speech to the Global Foundation on Thursday discussed the fact that without current levels of foreign investment, Treasury estimates business investment would initially be about 25 per cent lower and output about 3 per cent lower, resulting in around 200,000 fewer jobs. This is why successive Australian governments have welcomed foreign investment, while rightly examining each application on a case-by-case basis against Australia's national interest. I also announced that Assistant Treasurer Nick Sherry and I have decided to increase the size of the Foreign Investment Review Board from three members to four, to broaden the expertise and experience of the Board. The first task for the expanded Board will be to improve the communication of Australia's foreign investment policy with the global investment community.

Copenhagen

The UN Climate Change Conference in Copenhagen has started and will wrap up this coming Friday. We received more evidence of the threat posed by climate change just last week with the release of the Annual Climate Statement by the World Meteorological Organization. It showed that the 2000-09 decade was the warmest on record across the globe, and Australia experienced the third warmest year on record. As one of the hottest and driest continents in the world, Australia will be hit hardest and fastest by climate change. The Prime Minister and Minister for Climate Change, Penny Wong, will therefore be pushing hard for an ambitious agreement at Copenhagen, and I look forward to updating you on the outcome in next week's note.

Wayne Swan
Treasurer of Australia
Sunday 13 December 2009

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