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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

28 November 2010

NO.039

Treasurer's Economic Note

This week we have seen some interesting releases on superannuation, taxation and capital expenditure; and also some developments overseas which I will update you on in today's note. It was also the last full sitting week for 2010, and almost brings to a close the first full sitting session of the 43rd Parliament, with just one more day to go. This is only the second time since Federation that the Government has not had an absolute majority in the Lower House. But that hasn't stopped us getting on with a full agenda to take our country forward. In just five short sitting weeks, the Government has passed more than 50 pieces of legislation through the Lower House with the support of the crossbenchers. Much of the legislation will be critical to setting-up our economy for the long term. Take health bills passed only this week, to improve the sustainability of health funding and ensure value for money. These reforms are a necessary part of preparing for the challenges of an ageing population. Or take the NBN legislation which will enable critical microeconomic reform and deliver a competitive and vibrant telecommunications sector. We have a full agenda for the next parliamentary session, with climate change and banking being two areas on the top of my agenda which I will also update you on in today's note. It also isn't too late to chip in and donate to our Movember efforts with a few days to go before the razors come out. I've been giving the mo' a go in a final week sprint to the Movember finish line to throw my own support behind the thousands of blokes around the country who have been doing a great job raising awareness and money for men's health. But more on that later.

Strength of Our Economy

The situation in Ireland is a reminder that the world has not escaped the effects of the global financial crisis, and the global economic recovery remains fragile and uneven. But Australia's direct exposure to what is occurring in Ireland is minimal. Our banks have practically no exposure to Ireland. Overall, we are also in a much stronger economic position. Unemployment in Ireland is almost three times higher than our own rate, and the Irish budget deficit is expected to be more than ten times larger than Australia's budget deficit this year. As the Governor of the RBA said on Friday: "I sit around the table with my counterparts from 40 or 50 countries a number of times a year, and I have not yet found one whom I would want to swap places with."

Last week's private capital expenditure figures underscore our strong economic position. The capex figures show a huge pipeline of business investment projects about to get underway. Businesses are planning to invest $123.9 billion in 2010-11. That's an increase of almost 20 per cent on the estimate made at the same time a year ago for 2009-10. Mining companies alone are planning for $55 billion in investment this year, up 46.6 per cent on the corresponding estimate from last year. Overall, mining companies are planning to invest a staggering five times more than they were in the years preceding the mining boom. According to the Reserve Bank, we are about to go through the largest mining investment boom in a century. But it's not just mining, investment plans are also picking up in other sectors like manufacturing.

Superannuation

We want Australia to continue down this path, that's why we're preparing our economy for further economic growth and for Mining Boom Mark II, with key reforms in areas like superannuation and taxation. Last week, we received two important reports on the Government's superannuation reforms. The first report, from the Industry Super Network, "Bang for your Buck", shows the Government's proposed super reforms will cost half as much as the super measures recommended by the Henry Review and can be implemented far more smoothly. The Network's CEO, David Whiteley, concluded, "The Government's proposed measures are a realistic and affordable reform to set our superannuation system up for the future – they deserve broad based support when they are introduced into the Parliament in the New Year."

The second report, by the Financial Services Council, "Urgent action needed to address savings gaps", shows Australia's retirement savings gap blew out to $897 billion in 2009, from $695 billion in 2008. The gap is the difference between what is actually being saved through superannuation and what is needed to ensure Australians achieve a comfortable lifestyle after ceasing work. The Council's CEO said: "The research shows the longer we delay the move to 12 per cent superannuation, the greater the cost for working Australians".

Banking Competition

Next month, I'll announce a new package of reforms to further promote competition in the banking sector and build on the action we've already taken. I'm determined to see another pillar in our banking system built from the combined competitive power of our mutuals, credit unions and building societies, because I've always been a big believer in their capacity to be a strong force for competition in the banking sector. Australia has 104 credit unions and 9 building societies, with around 4.5 million members, who, collectively, are the fifth largest holder of household deposits in the country. Some mutuals offer mortgage rates as much as 1 percentage point cheaper than the big banks, with independent analysis by InfoChoice showing that borrowers could save over $30,000 over the life of their loan if they switch to a credit union or building society. But most importantly, mutuals are not-for-profit lenders - so unlike the banks they make it all about their customers and not about grabbing profits - they put their profits back into cheaper rates, lower fees, and better customer service – and their higher customer satisfaction ratings are the proof of the pudding.

We've been working hard to support our mutuals and other smaller lenders through our $16 billion investment in the residential mortgage-backed securities market. Not one single dollar of this money has gone to supporting the big banks - because every cent is helping our regional banks, credit unions, building societies and wholesale lenders to compete. So it was really encouraging when smaller bank AMP's Chief Executive Craig Dunn wrote to me last week to say that there is '…little doubt that without the Government's support of the RMBS program, AMP would not have been able to continue to offer competitive mortgage and deposit products and so improve the level of competition in banking'. Mr Dunn said '…the Government's support of non-major bank mortgage lenders through the…RMBS investment program has been vital to the sector' and is giving AMP 'confidence in the availability of future funding'. It's great to see our support for the RMBS market helping smaller lenders like AMP, Bendigo and Adelaide Banks, Liberty Financial, and Australian Central Credit Union put competitive pressure on the big banks over time.

Business Roundtable on Climate Change

On top of our plans for the banking system, we're also building consensus for a price on carbon – another crucial economic reform. On Friday, we had a really encouraging meeting with some of Australia's key business leaders, to discuss the challenge of climate change. There was a real sense of shared responsibility in the room. We have a massive challenge ahead of us transforming our economy to reduce emissions, and our business leaders understand that. A key focus of the first meeting of the Business Roundtable was the need for a carbon price to support long-term investment in the low-emissions infrastructure the nation needs for the future. Members discussed a range of issues, including the need to engage business and the broader community, the need to draw on the experiences of previous policy development process, and the fact that achieving even a 5 per cent emissions reduction against 2000 levels will involve a significant restructuring of the economy.

Coming Up

This week we will receive some important news on our economy with the national account figures for the September quarter. Whatever the outcome, Australians can be confident that our strong fundamentals mean we're in good shape to meet the challenges and make the most of the opportunities that will flow from Mining Boom Mark II. To wrap it all up on a lighter note though, today I'll be heading out to the Gabba for day 4 of the first Ashes test. Obviously, I'm keen to see our boys build on their solid first innings lead over the Poms. But I'm also going to help raise awareness for an issue that's very important to me – prostate cancer. Cricket Australia has been a tremendous supporter of Movember, which helps raise funds and shine a light on this disease. It's been great to see some of the team, like hat-trick hero Pete Siddle, growing a mo to support the cause; and the lads in my office have also been getting into the spirit again.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 28 November 2010
www.treasurer.gov.au