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

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 April 2011

NO.013

Treasurer's Economic Note

Today's economic note comes to you from Washington DC, where I've just wrapped up a series of meetings with my international colleagues in the G20, IMF and World Bank. We made steady progress on a range of measures to help make sure we don't see a repeat of the global financial crisis with all the destruction of jobs and businesses that went with it. Earlier in the week I met with key investors and business leaders in New York. During my time as Treasurer, these international meetings have provided a really important opportunity to take the temperature of the global economy and help make sure we've got the right policy settings at home. This is particularly important at this time of year, less than four weeks out from Budget night.

Job Creation

Australia should be proud of the role our nation has played in the work of the G20 through the depths of the global financial crisis and now as we move through the recovery phase. Our seat at the table of this key economic forum has given us an important voice on the international stage. At Friday's meeting we laid important groundwork in preparation for the Leaders' Summit that will be held in France in November. We also made progress on establishing a way to assess global imbalances between economies.

At the meeting, Australia stressed it was important for the G20 to focus on job creation and employment opportunities given the stubbornly high levels of unemployment in some countries. Our successful response to the global financial crisis, and nearly three decades of economic reform, has helped Australia bring down its unemployment rate to 4.9 per cent. In stark contrast, the rate in the US is 8.8 per cent and in the Euro area it's 9.9 per cent. Since we came to Government, Australia has created more than 750,000 jobs, while the rest of the world has shed around 30 million jobs. And in the past year alone, we've gained over 300,000 jobs, 98 per cent of which have been full-time positions. Getting the economic settings right to create employment and making sure people have the opportunities to get the skills they need should be a central focus of all governments. For international meetings like the G20, it's crucial we always remember that having a healthy global economy is really about providing all people with the purpose, dignity and security of a job.

Global Outlook

The big takeout message from my conversations in Washington and New York is that while the global economic recovery is continuing, it remains fragile. The risks are on the downside and new risks have emerged in recent months. Political turmoil in North Africa and the Middle East, Japan's tragic disasters, and continuing sovereign debt issues in Europe have increased the level of uncertainty. Given Japan is our second largest trading partner, Australia, in particular, will feel the effects of the earthquake, tsunami and nuclear crisis. I met with Japanese Finance Minister Yoshihiko Noda during the week and reaffirmed Australia's commitment to help his nation's recovery.

Of course the events in Japan, on top of the summer's floods and cyclone at home, have had a substantial impact on our own economy and government revenues in the short term. Growth will take a hit this year with these events knocking up to ¾ of a percentage point off GDP in 2010-11. This will have an impact on government revenues and hit the budget bottom line in the short term.

Despite the short-term challenges, my view that longer-term growth prospects, particularly in our region, are strong has been confirmed by my meetings during the week. On Tuesday, the IMF said emerging economies will continue to underpin global growth, forecast at 4.4 per cent this year and 4.5 per cent in 2012. As we all know, the rapid expansion of many of our Asian trading partners is fuelling an unprecedented pipeline of investment in Australia.  As the PM said in a speech to the Sydney Institute on Wednesday, “if government doesn't step back when the private sector employs more people, spends more money and builds more projects, we will be chasing the same scarce resources, driving up prices”. That's why we need to restrain spending and build a surplus in the years ahead – so we won't be adding to those price pressures.  This investment boom will also stretch the capacity of our workforce, which is why we need to encourage as many Australians as possible to participate in the workforce. This will help tackle skills shortages, but it will also help to spread the opportunities of mining boom mark II to more Australians.

Responding to the GFC

A visit to the US three years ago this month provided me with a vivid warning of the potential magnitude of the global crisis that was heading our way. I recounted that visit and the role it played in Australia's response to the GFC in a speech I delivered in Washington on Thursday. The occasion was the launch of an academic paper by Chris Barrett, Australia Scholar at the Woodrow Wilson International Centre for Scholars, on the key factors that made Australia's policy response so successful and resulted in Australia avoiding the recession that hit virtually every single advanced economy in the world. As a result, Australia now has a much stronger fiscal position than nearly all comparable economies, with our net debt peaking at just 6.4 per cent of GDP in 2011-12, compared to US net debt which will peak around 86 per cent of GDP in 2016. Similarly, while we will return to surplus in 2012-13, the US will be struggling to halve its deficits by that time.

Moving to a Clean-Energy Economy

Back home, Greg Combet gave a really important speech on climate change last week, explaining the need for action and outlining some key elements of the Government's approach to putting a price on carbon. As Greg said in his speech, the Government will allocate more than half of the revenue raised under a carbon price to assist households.  Millions of households will be better off under a carbon price, and assistance will be permanent.

I'm sometimes asked: why are we raising revenue through a carbon tax just to hand it back again? It's an important question. A carbon price will change prices, making carbon-intensive goods relatively more expensive. At the same time, generous household assistance will ensure that consumers have more money in their pockets when they walk into a shop. If they want to buy the more expensive carbon-intensive item they will have the cash to do that. But if they buy the goods made with less carbon emissions at the cheaper price, they will be able to pocket some of that household assistance. By choosing the cheaper item, consumers effectively reward those companies that invest in clean energy and energy efficient technologies.

Of course, the main impact of the scheme is on the biggest polluters who will start to pay a price for every tonne of carbon pollution. Greg made the point in his speech that 50 companies will be liable for almost two-thirds of the emissions covered under the scheme. Another thing I sometimes hear is that we will damage our industry by acting alone. Here in the US, I can tell you that they are taking serious action to tackle climate change. For example, California – the world's eighth largest economy, with a population almost twice that of Australia – has legislated to commence emissions trading on 1 January 2012. President Obama has also announced a new Clean Energy Standard, which will double the share of clean energy sources in the electricity supply mix to 80 per cent by 2035.

Coming up

This week I'll be back in my home state to deliver a really important speech previewing the upcoming Budget at the Queensland Media Club on Wednesday, following on from the PM's speech last week. In this speech I'm going to talk about the gathering pace of the mining boom – a driver of huge investment and activity in the private sector. More specifically, I'm going to address those features of mining boom mark II that are very different to mining boom mark I, which have implications for future Budgets, and which are not well understood in the current economic debate.

Later in the week I'll be heading up to Far North Queensland with my family for the Easter weekend. It's one of my favourite spots in the country, but one where plenty of people have been doing it tough in recent times – particularly in the tourism sector which has faced a savage global recession and now faces a high Australian dollar making things even tougher. So I'll be talking to local families and business people – particularly in and around Cairns – that depend on tourism and will be lending my support to this really important industry.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 17 April 2011

www.treasurer.gov.au