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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

27 February 2011

NO.006

Treasurer's Economic Note

Last week, we saw this terrible summer of natural disasters continue across the Tasman, this time in the form of earthquakes in Christchurch. As our Prime Minister expressed so poignantly in her speech to the House of Representatives, New Zealanders are more than allies and more than friends – they're family – and it was awful to see family go through such hardship. We immediately provided financial and other assistance to New Zealand, and yesterday I announced additional assistance for local councils here in Queensland. At the same time as we rebuild our cities and communities affected by natural disasters, and rebuild local economies, we're keeping the reform wheels turning in our national economy as well. In that context, putting a price on carbon is absolutely critical to cutting pollution, driving investment in renewable energy, and giving business the certainty they need to build the economy of the future. The carbon price principles we announced on Thursday were an important step towards this crucial economic reform.

Rebuilding our Local Communities

We stand ready to do what's necessary to get our communities back on their feet again. As part of that commitment, yesterday I announced a $315 million Queensland Local Council Package with Minister Joe Ludwig and Queensland Treasurer Andrew Fraser. This package builds on the $5.6 billion flood package announced by the Prime Minister last month. The new measures will help ensure that disaster-affected communities have the water and sewerage facilities, transport infrastructure and employment support they need to get back on their feet as quickly as possible.

The Queensland Local Council Package has two components. Under the first component, the Commonwealth and Queensland Governments will provide up to $265 million to the Queensland Reconstruction Authority to fast-track the repair of damaged infrastructure across Queensland. In addition to prioritising severely damaged water and sewerage infrastructure owned by local government, this component will also provide up to $145 million to fast-track reconstruction of the Brisbane ferry terminals and the Brisbane Riverwalk.

Under the second component of our package, the Commonwealth and Queensland Governments will make $50 million available to help regional and remote councils employ people to perform important clean-up and repair work, with more funding for employment to be provided if required. This payment recognises the unique circumstances of many rural and regional councils in Queensland, which face difficulty in accessing contract labour due to their distance from major centres and competition with the mining industry.

These announcements go well beyond our obligations under the Natural Disaster Relief and Recovery Arrangements, in recognition of the unprecedented scale of the damage caused to communities across Queensland in recent months. We know councils have a very big task ahead of them, and we're with them every step of the way.

In my speech to the Queensland Young Labor state conference shortly after announcing yesterday's package, I paid tribute to the role that young people played in the aftermath of the tragic floods and Cyclone Yasi. They did a tremendous job in helping with the rescue, relief, recovery and clean-up effort, and also had a unique role in the way they harnessed the power of social media to help deal with the disasters.

Carbon Price

While our focus remains on getting disaster-hit communities back on their feet, we're also putting in place the essential reforms our national economy needs to prosper into the future. That's why we announced details of our plan to put a price on carbon, so we can cut pollution and drive investment in clean energy. This transformation will be as important to our national economy as the key reforms achieved by the Hawke and Keating Governments that helped deliver the prosperity we enjoy today.

As I have said many times before, putting a price on carbon is the cheapest, most efficient way to reduce carbon emissions as it leaves decisions to the market – rather than leaving it to government to pick winners. We will use every cent raised through a carbon price to assist families with household bills and support jobs in important industries.

As outlined by the Prime Minister and Climate Change Minister Greg Combet, we intend to price carbon through a two-stage mechanism. First, we'll put in place a fixed price on carbon for a period of three to five years, to provide businesses with a stable and predictable platform. We'll then transition to a 'cap and trade' emissions trading scheme that will be linked to international carbon markets. This will give business time to understand their carbon liability and begin the transformation in a steady and purposeful way. The new arrangements could be in place as early as 1 July 2012, depending on the pace of negotiations and subsequent legislation.

Putting a price on carbon will provide business certainty in important parts of the economy like the energy sector. Just last week a report from the Australian Industry Group reinforced that energy prices are set to rise even in the absence of a carbon price, and that putting a price on carbon could in fact help reduce the impact of these rises. The report explained that without the certainty delivered by a carbon price, we are likely to see electricity prices that are higher than they need to be due to poor investments being made in the electricity sector. We've already seen 5-year investment forecasts in energy generation fall from $18 billion in 2009 to $8 billion in 2010.

We anticipate a robust debate on these issues, but we're absolutely confident that now's the time to price carbon and give Australian businesses the certainty they need to invest with confidence in the low-pollution economy of the future.

Apprenticeships Report

Another area where we're keen to keep the reform wheels turning is in skills and training. The Government's investment in training has produced outstanding results in recent years and we now have record numbers of Australians in traineeships and apprenticeships, but we know we need to keep improving our system to stay ahead of the game.

On Monday, Skills and Jobs Minister Chris Evans released A Shared Responsibility – Apprenticeships for the 21st Century – an independent report looking at reform options for the national apprenticeships system. Minister Evans made it clear that the Government wants to work in partnership with industry, training providers and the states and territories to explore options to simplify, streamline and better target our apprentice system to meet the critical skills needs of the Australian economy. Some of the report's recommendations include improving targeted incentive payments, work-based training initiatives and allowing competency-based progression. It's vital that we maintain the momentum from our investment in apprenticeships because working smarter, through a more skilled and adaptable workforce, is critical to Australia's long-term economic success.

Coming Up

On Wednesday we'll receive important news on our economy, with the release of the December quarter National Accounts. Despite the fact our economy has outperformed many of our peers in recent times, we know there are still soft spots in the economy. Consumers remain cautious and are saving more of their income, and last week's construction figures showed that the non-residential construction sector is still under pressure. We continue to face a patchy global recovery and recent developments in the Middle East are weighing on global markets. We also can't downplay the devastating impacts of the recent natural disasters, although the biggest impacts of these events will be seen in the March quarter figures.

Whatever the outcome on Wednesday, Australians can be confident that our fundamentals remain strong – we've got low unemployment, strong public finances and a massive pipeline of business investment. That pipeline was confirmed last week, with new capital expenditure figures showing that businesses plan to invest a record $133 billion in 2011-12. As part of this, mining companies are planning to invest a staggering $76 billion, which is 37 per cent higher than the $55.5 billion already underway for 2010-11. The Government has long understood the opportunities and challenges that will come along with this unprecedented boom, which is exactly why we're working to boost our economy's capacity and productivity, while sticking to our strict fiscal objectives.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 27 February 2011

www.treasurer.gov.au