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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

10 April 2011

NO.012

Treasurer's Economic Note

Today's economic note comes after a week of progress on important reforms from federal-state relations to climate change. On Tuesday, the Prime Minister and I met with the Queensland Business Taskforce in Brisbane to discuss ways to marshal further business involvement in the rebuilding effort. While much has been achieved, there's still a whole lot more that has to be done - and it's great to see the commitment from businesses, government and individual Australians is as strong as ever. One example of this commitment was the fundraising dinner, organised by businessman Lindsay Fox, which I attended on Friday in Brisbane. It's great to see people are still pitching in to help communities in need.

The Fiscal Challenge

Besides the terrible hit to our communities, the floods and cyclone have had a substantial impact on our economy and government tax receipts. Obviously, this presents a big challenge in putting together the Budget, which is just one month away. I decided to write in detail about why we're so determined to bring the Budget back to surplus in 2012-13. The essay, published by the Australian Fabians, discusses the influence of economist John Maynard Keynes on Labor's economic policies during both the global financial crisis and recovery. It aims to provide an understanding of the 'Keynesian' basis for the decisions we made in our first term to ward off recession, and how these same principles remain at the forefront of our minds in the lead-up to the Budget. To sum up in a sentence, the essay argues that: if we are going to be Keynesians in the downturn, we have to be Keynesians on the way up again - and that means a speedy return to surplus.

The summer's natural disasters, continued consumer caution, the subdued recovery in household wealth, and the higher dollar are all weighing heavily on government revenues. These factors mean that tax receipts from businesses and wage earners are lower than was expected when we put together the mid-year budget update late last year. Today I can provide new figures showing Commonwealth tax collections over the first eight months of this financial year are down around $4.5 billion against where we had forecast to be at this time of year. Personal income tax collections are about $1 billion lower while business tax collections are down around $3 billion. These weaker collections in large part reflect softer capital gains because the share market has not recovered to pre-GFC levels. Losing big slabs of revenue like this of course makes it even tougher to get back to surplus as planned, but we're determined to make the difficult decisions to meet that commitment.

Employment in Australia and Overseas

Weaker international share markets are one of the many lasting effects from the global downturn. Another is the higher rates of unemployment seen in many developed economies. Fortunately, it's a very different story here in Australia. Last week's labour force figures showed that our economy created 37,800 jobs in March, including 32,100 full-time positions, with our unemployment rate ticking down to 4.9 per cent. The figures also pointed to a welcome recovery in Queensland in the wake of the recent natural disasters, with solid growth in employment and the state's jobless rate falling to 5.5 per cent.

To have an unemployment rate with a '4' in front of it is a terrific achievement and shows again the resilience of Australians in tough circumstances. Although many advanced economies are still struggling to reduce stubbornly high levels of unemployment, there have been some encouraging signs. In the US, strong job creation reduced the unemployment rate to 8.8 per cent in March - the lowest rate recorded in about two years. And, in the Euro area, the jobless rate decreased slightly to 9.9 per cent in February.

Meeting of Treasurers

The jobs figures highlight the solid fundamentals of our economy, but as I've said there are also soft patches. I discussed the challenges of our patchwork economy with my state and territory counterparts on Thursday in Canberra. There were five new faces around the table since we met a year ago, and I look forward to working with all the Treasurers on a variety of reforms that are essential to boost the competitiveness of our economy. There was broad agreement about the importance of finding a simpler, fairer, and more predictable way to determine GST payments to the states, which is the aim of a review I announced last month. We recognised the importance of everyone receiving their fair share so that all states and territories can fund similar levels of health, education and other services to Australians no matter where they live. We also discussed the Tax Forum, and I told the Treasurers I looked forward to their input at the event in October to further the debate about the future challenges and priorities for the reform of the nation's tax system.

Putting a Price on Carbon

Yesterday I attended the Brisbane climate rally at King George Square. It was great to see so many Queenslanders - young and old - taking time out to support putting a price on carbon. It's a big challenge, but more and more people are realising it's a fundamental economic reform we must tackle.

As part of the Government's efforts to build a broad community consensus, Climate Change Minister Greg Combet and I met with the Business Roundtable on Climate Change on Friday. The overwhelming majority of business leaders at the meeting agreed that we need to put a price on carbon. We talked about a range of issues, like the mechanism for transitioning from a fixed price to a floating price, and how the scheme would link up to schemes in other countries. We also heard reports back from the working groups that have been established to look in more detail at the types of transitional assistance that are needed for industry and the impacts of the scheme on the energy sector. While we haven't yet made any decisions on the approach to these issues, the Government is committed to delivering a package that maintains the competitiveness of Australian business, supports jobs and helps industry move to a clean energy future.

After the meeting we had a joint lunch with the members of the Non-Government Organisation Roundtable, which comprises leaders from across the community sector, including unions, social services, environment groups and local government. One of the clear messages I consistently heard from both business and community leaders is that we need serious action on climate change and they are pulling together with us to achieve this goal.

Australian Securities Exchange

My decision last week to block the acquisition of ASX Limited came after long and careful consideration of the likely effect of the takeover on the Australian economy, and on our businesses, investors and wider community. It was clear to me this deal wasn't in the national interest. I have provided a full public statement on the reasons behind my decision, which was based on clear advice from the Foreign Investment Review Board (FIRB). It followed a lengthy consultation process with various stakeholders - both on my part and that of FIRB - since the proposal was first publicly announced five months ago. The Reserve Bank of Australia and the Australian Securities and Investments Commission also undertook their own due diligence and were actively engaged in the process from the start.

It's important to emphasise this decision doesn't change Australia's policy towards foreign investment. We've always been a capital-hungry nation that relies heavily on funds from overseas to help develop our industries, and to take advantage of our vast endowment of natural resources, all of which creates new jobs for Australians. This is reflected in the Government's attitude, and the numbers here speak for themselves. My decision last week represents the first business proposal to be formally rejected in the last ten years, and over 99 per cent of business applications have been approved without any conditions since I've been in my role as Treasurer.

Of course any decision not to approve a foreign investment proposal naturally attracts widespread attention - both at home and abroad - largely because it's so exceedingly rare. This doesn't change the fact that foreign investment is vitally important to Australia due to the substantial economic benefits it delivers. The bottom line is that Australia has always welcomed foreign investment and we will continue to do so, but we need to ensure it is in our national interest.

Coming Up

This week I'll be travelling to the US to talk with a number of my international colleagues at the Spring Meetings of the IMF and World Bank, and the G20 Finance Ministers' Meeting in Washington. I'll also visit New York to meet with senior executives in the financial sector. These meetings provide an opportunity to take the global economy's temperature and provide valuable insight as we formulate the Budget at home. I'll update you all about the outcomes in next week's economic note.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 10 April 2011

www.treasurer.gov.au