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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

13 February 2011

NO.004

Treasurer's Economic Note

Yesterday I visited Ingham, Cardwell, Tully and Innisfail – my second visit to the region in nine days – to meet with communities recovering after the onslaught of Cyclone Yasi. Along with local member Bob Katter, Agriculture Minister Joe Ludwig and Queensland Senator Jan McLucas, I spoke to business operators, farmers and other residents about the challenges they face in rebuilding and getting back up on their feet. There were some frustrations expressed about the pace of recovery, but what struck me most was the determination of the locals to get on with the job. According to new estimates from Treasury, Yasi may have wiped out around $700 million in rural production, $200 million in non-rural exports due to temporary coal terminal closures, and about $100 million in tourism activity. The Federal Government has already contributed more than $148 million in disaster recovery payments to people affected by the cyclone, and provided more than 1,000 ADF personnel to clear roads, transport supplies and help with the clean-up. Given the scale of the disaster and North Queensland's reliance on a few key industries, we'll be looking at further assistance measures in the days ahead. We've come under a lot of pressure, but our economy, like the Australian people, will bounce back strongly after the devastation of recent natural disasters, and that's why we haven't taken our eye off fiscal responsibility and our economic reform agenda.

Rebuilding our Communities and our Infrastructure

The Prime Minister gave a moving speech in the House of Representatives on Tuesday, when she spoke on the condolence motion on the unprecedented floods, cyclone and bushfires we have witnessed this summer. I also had the honour of paying tribute to the way Australians have pulled together in response to recent natural disasters in my speech to the House. On Thursday the Prime Minister introduced the legislation necessary to implement the flood recovery levy. It's going to cost a lot to rebuild public infrastructure around the country, and the federal government is responsible for meeting up to 75 per cent of that cost under the Natural Disaster Relief and Recovery Arrangements. The flood levy will only apply to income over $50,000, so people below that threshold won't pay anything. And a person on average full-time wages of $68,125 will pay only $1.74 per week – less than 10 per cent of the $20 in weekly tax cuts they have benefitted from compared to three years ago. As I said in my opinion piece in The Australian during the week, by paying as we go through a combination of spending cuts and a temporary levy, we can rebuild our devastated communities without compounding the pressures on our growing economy.

There is a massive rebuilding effort ahead of us, and on Monday the Prime Minister announced strict new oversight and accountability measures to make sure there is value for money. They include a new Reconstruction Inspectorate which will be chaired by former federal Finance Minister John Fahey, and include members like Martin Albrecht, the former managing director of Thiess. The Reconstruction Inspectorate will increase scrutiny and accountability by scrutinising rebuilding contracts, examining high value or complex projects before they commence, directly inspecting projects, and investigating complaints from the public. States will also be required to provide independently-audited financial statements to support any claim for infrastructure rebuilding.

Australian Jobs

Jobs numbers released last week provide further encouraging evidence of the strength of our economy, especially in the face of the worst set of natural disasters in our history. Last week's labour force figures showed that our economy managed to create 24,000 jobs in the month of January. This outcome was much stronger than market expectations, and really was a remarkable result at a time when our economy was getting hit by floods, fires and cyclones. We also saw the unemployment rate remain stable at 5.0 per cent, and the participation rate tick up slightly to 65.9 per cent. With more people in work and more people looking for work, this is a really encouraging start to the year.

Australia's labour force figures are in stark contrast to some of the recent jobs numbers we've seen abroad. While we saw the US unemployment rate fall from 9.4 per cent to 9.0 per cent in January, this was largely due to lower labour force participation – with actual jobs growth being relatively subdued. The Euro area is also struggling to make inroads into its double-digit rate of unemployment, which remained stable at 10.0 per cent in December. Other developed countries have experienced recent increases in unemployment, including New Zealand, where the unemployment rate increased by 0.4 percentage points to 6.8 per cent in the December quarter. Canada's unemployment rate also increased by 0.2 percentage points to 7.8 per cent in January, although this was mostly due to more people entering the workforce.

With the cyclone, floods and bushfires all featuring prominently in international media, someone living overseas could be forgiven for thinking the whole country was a disaster zone and the economy had ground to a halt. As part of an effort to combat any false impressions, I wrote an opinion piece published in Singapore's Straits Times on Friday to remind people that Australia remains open for business and open for tourists. We know the fundamentals of our economy are strong, with job creation that's the envy of the developed world, a huge pipeline of private investment, and an envied budget position – getting Australia back in the black well before our peers. Our economy will bounce back strongly from recent natural disasters, and that's why we haven't been diverted from important economic reforms like putting a price on carbon and reforming the health system.

Health Reform

One of our top priorities is getting a better deal for patients. The Prime Minister will today discuss a revised health funding deal with state and territory Premiers at the Council of Australian Governments (COAG) meeting in Canberra. Disagreements over the previous funding arrangements were putting the delivery of health reform at risk. That wasn't in the interests of patients, and it wasn't in the interests of our economy given the pressure that growing hospital costs will place on state and territory budgets.

The Prime Minister will today offer a permanent step-up in federal government funding to 50 per cent of the growth in hospital costs. This funding is not a blank cheque, and in return we will be demanding significant reforms. First and foremost, we will require greater local control of hospitals. To drive efficiency and reduce waste, hospital services will need to be funded through activity-based funding, with block funding generally only available for small regional hospitals delivering important community services. We are also determined to see patients benefit from strict national standards, including a four-hour target for emergency waiting times, a National Access Guarantee to ensure no Australian experiences extremely long waits for elective surgery, and more transparency through strict reporting at the MyHospital website.

Climate Change

We are also pushing forward with our work to build a low-pollution economy for the future. On Friday we held the second meeting of the Business Roundtable on Climate Change. The meeting discussed the economic benefits of a carbon price over other forms of government action, and how a carbon price allows the market to select the lowest cost methods to reduce pollution. Climate Change Minister Greg Combet led a discussion on the design options for a carbon price and the need for early action. I was really heartened to see the positive reaction from business leaders around the table, and their strong message that they want to roll up their sleeves and get involved in implementing this reform. Resources and Energy Minister Martin Ferguson led a discussion on the energy sector and issues around energy security. My visit to the cyclone-affected regions of North Queensland the next day only underscored the importance of these issues – a reliable energy supply really is the backbone of our economy and our communities.

Coming Up

On Wednesday I will be heading to Europe to attend this year's first G20 Finance Ministers' meeting, hosted by my French counterpart, Christine Lagarde. The achievements of the G20 in 2010 were substantial and proved that it can operate with unity of purpose as the world's premier international economic forum. Last year the G20 achieved historic reform of the IMF and agreed to a range of measures to help reduce excessive imbalances in the global economy. This year my G20 colleagues and I are working hard to ensure we build on this success, and I will be meeting with a range of G20 Finance Ministers in Europe including the UK's Chancellor of the Exchequer, George Osborne, to this end. We will continue to work hard towards delivering our objective of strong, sustainable and balanced growth, because a strong and stable global economy is in every country's interest.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 13 February 2011

www.treasurer.gov.au