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

1 May 2011

NO.015

Treasurer's Economic Note

With nine days to go, the preparations for this year's Budget are entering the home straight. From tomorrow I'll move down the hill from my office in Parliament House to work at the Treasury building. Paul Keating was known for making this switch as budget night drew near, and for each of my four Budgets, I've found it a necessity to do the same. Being able to work directly alongside Treasury officials and draw on their advice and knowledge is critical as the finishing touches are put on the budget papers. The office in the Treasury building isn't the airless bunker with a naked light bulb hanging from the roof as some people have described it, but that image certainly conveys a sense of the intensity of the final days before the Budget is handed down. The nights get even later than usual and dinners start consisting mainly of pizzas and take-away Indian curries as we pore over the final details. The Commonwealth's first treasurer, George Turner, spoke of working night and day with his staff for four weeks on Budgets. More than a century later, it seems some things haven't changed all that much.

Back in the Black

A lot of people think putting together the Budget is an accounting exercise – lots of ledgers and number crunching. But it's more than that – it's really a document that reflects our values as a nation and the direction we want to take the country in the years to come. It's not just about numbers, it's about people. There are always difficult decisions, and with each Budget, making those decisions doesn't get any easier. I was asked in an interview last week whether my top priority in the Budget was getting back to surplus or helping households that are doing it tough. For me, these aren't separate issues. The Government's commitment to return to surplus in 2012-13 isn't about meeting some arbitrary financial yardstick – it's about getting the economic settings right for our nation so all Australians can enjoy the benefits. A strong, sustainable and secure economy is the best way to spread opportunity and prosperity.

During the global financial crisis, we did what we had to do to save tens of thousands of jobs, prevent countless small businesses closing their doors, and protect our economy from the worst global recession in 75 years. The Government's stimulus package helped Australia emerge in better shape than almost any of our peers. Just as we had to increase spending to support the economy when the private sector was in retreat, we now have to step back as the private sector recovers. As highlighted by the Prime Minister's overseas trip, the rapid expansion of many of our Asian trading partners is fuelling an unprecedented pipeline of investment in Australia's resources sector. As this investment hits top gear, we don't want the Government and private sector chasing the same resources – that would just push prices up. This means we need to restrain budget spending and build surpluses as the economy strengthens. We need to make tough decisions now to avoid much tougher decisions in the future.

Our Patchwork Economy

Talk of an investment pipeline and a strengthening economy will seem out of place for many people, particularly those rebuilding their lives after the devastation of the floods and Cyclone Yasi. Certainly the benefits of the mining boom haven't reached everyone. Some commentators talk of a two-speed or a multi-speed economy that has emerged over the past 15 years in Australia. The PM and I prefer to describe it as a 'patchwork' economy because the differences aren't just between states or towns or industries. Businesses, households and individuals are all being affected in various ways and to varying degrees by the fundamental economic changes caused by the mining boom. This Budget, and Labor's mission generally, is to spread the benefits of a stronger economy so the opportunities are shared by all Australians.

Central to this ambition is our focus on employment. Since we came to office, an extra 750,000 Australians have joined the workforce. This is in stark contrast to most other advanced economies. The US, for instance, has lost about 7 million jobs in the same period. And next week's Budget will forecast Australia's employment growth to continue, with a further 500,000 jobs expected to be created by June 2013. I've always believed in the dignity that comes with having a job, and earning a decent wage so you can look after your family. A job provides more than just a pay packet – it gives purpose, provides security for the future, and connects people to their community. And with a growing economy, we need to harness the talents of more Australians and ensure they have the training and skills they need, recognising employment has always been the path to a better life.

The Carbon Scare Campaign

Today I want to share with you some new information about the potential impact of a carbon price on some of our most important industries. Like a lot of Australians, I've been disappointed by some of the more outrageous claims made over the past few weeks. There needs to be a calm and rational discussion about this critical economic reform. Talk of communities being wiped off the map and industries closing down is not only false, it's irresponsible. The fact is the impact of a carbon price on sectors such as coal, steel and aluminium will be negligible compared to fluctuations in commodity prices and exchange rates.

As I've said, the Government hasn't yet finalised the details of the carbon price, but I want to raise a hypothetical using the previous CPRS assistance model to put the debate in some perspective. A carbon price of $20 a tonne would have about one-twentieth of the impact on the steel industry of that caused by the increase in the Australian dollar over the past four months. New analysis by Treasury shows that currency appreciation has cut the price that Australian steelmakers receive by about $50 a tonne this year, compared with the $2.60 a tonne impact on their core activity of a $20 carbon price. When you consider that steel traded between $600 and $1,200 a tonne from 2005 to 2010, it shows the effect of the introduction of a carbon price will be relatively small.

Under the carbon price, the Government will provide assistance to trade-exposed, emissions-intensive industries, including steel, to support jobs and competitiveness. This assistance, which is the subject of continuing discussions with the steel industry and other sectors, will be designed to stop jobs moving overseas and help businesses prepare for the low-carbon future. The Government doesn't underestimate the competitive pressures faced by industries such as steelmaking caused by the high dollar, high commodity prices and the fallout from the GFC. But let me be clear, the carbon price is not driving these pressures.

Coming Up

Next week's Budget will be about getting us back in the black, getting more Australians in jobs, and spreading the opportunities of the mining boom. It will also juggle the two very different challenges. Firstly, the short-term challenge of lower tax revenues due to natural disasters and a patchwork economy where some sectors are still weak. Secondly the longer-term challenge of price pressures caused by the massive mining boom that is gearing up again.

As I explained in my speech to the Queensland Media Club a couple of weeks ago, mining boom mark II won't be a carbon copy of the first boom. Yes, there will be very welcome government revenue from the resources sector, but we simply won't see the massive upgrades that occurred in the last boom for a variety of reasons, including a higher dollar, terms of trade which are already high and likely to taper off, and higher levels of investment. While mining boom mark II will clearly be very beneficial for Australia, it's only through the right policy settings that we can take advantage of the tremendous opportunities presented by the Asian Century. As with our response to the GFC, Australia will succeed by choice, not by chance.

There'll be lots of speculation about the Budget over the next nine days, some of it true and some not true. The details of course will all be revealed when I deliver the Budget in Parliament House at 7:30pm Tuesday week. That, at least, is one thing that has changed since Treasurer Turner delivered the Commonwealth's first Budget. To guard against leaks, nobody – not even Prime Minister Edmund Barton – supposedly knew when it would be delivered.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 1 May 2011

www.treasurer.gov.au