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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

22 May 2011

NO.018

Treasurer's Economic Note

Welcome to my 100th economic note. It's an appropriate time to reach this milestone as I've spent the past week in communities across Australia talking about the economy and how the Budget will help prepare our nation for the challenges we face in the years ahead. I started writing these weekly notes in early 2009 in the middle of the global financial crisis. My aim was to help make sense of the turmoil we were seeing in the international economy and financial markets, and explain what the Government was doing to protect Australian jobs and businesses.

Certainly, much has changed since then and Australians can rightfully be proud of what our nation has achieved in the past few years: we have hundreds of thousands more people in work, our nation's finances and economic fundamentals are stronger than almost any of our peers, and in recent months Australians have demonstrated their resilience and generosity in recovering from the worst natural disasters in our history. Of course, there's plenty of hard work left to be done and we can't afford to rest on our achievements. The world continues to change and we must change with it. This Budget and the Government's reform agenda is all about getting the economic settings right so we make the most of the opportunities in the years to come.

Budget Roadshow

It was pleasing to see the positive response to this year's Budget not just from economists, business groups, and community organisations, but also the hundreds of people I spoke to around the country this week. There was a lot of interest in particular Budget measures, such as those to improve the skills and training of our workforce, the mental health care reforms, tax changes to support small businesses and low-income earners, and the investments in regional Australia. There was also a lot of engagement in the bigger picture for our economy, which I explored in a series of five speeches. In Brisbane, I spoke about the importance of getting back to surplus so we don't compound the price pressures that will come with a strengthening economy. In Sydney, I talked about what we're doing to invest in the skills and training that our nation needs. In Melbourne and Adelaide, I spoke about how we spread opportunity to all corners of our patchwork economy. And in Perth, I spoke about the mining boom and our broader reform agenda.

One of these important reforms is the Government's investment in the National Broadband Network that will deliver new opportunities to businesses and households. We saw an important development in the rollout last week with the Prime Minister and Communications Minister switching on the network's first mainland site in Armidale, New South Wales. The network will create jobs, provide greater training options, support regional growth and improve health and education services across rural and regional Australia. I saw first hand the opportunities that faster and faster data speeds will open up when I visited the Rio Tinto operations centre in Perth on Thursday. From this one point, the company can oversee the operations of 14 mines, three port terminals, and their rail and logistics network that's over 1,500 kilometres away. Hundreds of images are fed back to the control centre that looks like it's straight out of NASA. With the faster speeds that will be provided by the NBN, you start to get an appreciation of the potential productivity benefits that will be delivered to businesses across the country.

Sharing the Benefits of the Mining Boom

A lot has been said over the past few days about the taxation of the mining industry. Rather than reheat the arguments, I thought it would be interesting to simply compare the exchange-rate assumptions in the Commonwealth and West Australian budgets.

$US/$A exchange rate assumptions

2011-12

2012-13

2013-14

2014-15

Commonwealth Budget

$1.07

$1.07

$1.06

$1.05

WA budget

0.98

0.91

0.84

0.77

* One Australian dollar is currently worth about US$1.07

As you can see, there's a stark difference. A whole range of factors influence tax revenues and government budgets more broadly. Exchange rates are an important factor for example in influencing WA's estimates of resource revenues. As contracts for natural gas, iron ore and other commodities are set in US dollars, a lower exchange rate increases forecasts for tax revenue as well as the budget bottom line. WA's own budget papers reveal that adopting more prudent exchange rate assumptions would significantly reduce their revenue and could see the State's budget in deficit rather than surplus through their entire forward estimates.

International Cooperation

Over the past few years, Australia has played an important role in encouraging an international policy response to address the GFC and improving the world's financial architecture. One particular focus of mine has been the reform of the International Monetary Fund. I've worked closely with my South African counterpart, Pravin Gordhan, through the G20 on reforms to improve the governance of the IMF and help give better representation to emerging and developing economies. With the resignation of Dominique Strauss-Kahn as managing director of the IMF, it's important the selection of a replacement be open and transparent. The tradition of automatically appointing a European to the role is one that's long past its use-by-date given the shift of global economic weight to emerging economies, particularly in Asia, over the past few decades. The most suitable candidate may well come from Europe, but I think it's essential that the appointment not be limited to any one nation or continent. This is why I'll be working with my international colleagues to ensure that the appointment to this most important of global institutions is based on merit.

Putting a Price on Carbon

Last week saw the release of two significant new reports that demonstrate why the electricity sector is crying out for certainty on a carbon price. The reports from the Investment Reference Group and an independent review carried out by Deloitte for the Resources and Energy Minister Martin Ferguson show that policy uncertainty around a carbon price is making it even harder to meet the significant investment challenge in our energy sector - estimated at around $240 billion by 2030 - to ensure all Australian households and businesses continue to enjoy the reliable and secure electricity supply they have come to depend on. Already this uncertainty is driving up costs to consumers and Deloitte's modelling shows delaying the introduction of a carbon price will cost Australian electricity users between $1 billion and $2 billion annually, rising to as much as $5 billion a year by 2025. And obviously any delay to putting in place a price on carbon also means a delay to delivering the assistance the Government will provide to households. The focus in this debate is predominantly on the environmental benefits but what these reports underscore are the economic reasons for quickly putting a price on carbon.

Coming Up

The discussion about Australia preparing for a low-pollution future will continue on Tuesday with the independent Climate Commission, headed by Professor Tim Flannery, holding a national forum at Parliament House. I'm looking forward to the event, which is part of the Commission's ongoing dialogue with the community about the need for action on climate change. With parliament resuming tomorrow, the Government will continue work on its reform agenda and implementing the Budget to get us back in the black by 2012-13, getting more Australians in jobs and spreading the opportunities of the mining boom.

Given the amount of time I have to spend away from my home in Brisbane, it was great my family were able to make it down to Canberra for Budget day this year. For those interested in a behind-the-scenes look, check out this video made by my daughter Erinn. It's a slightly different view (and soundtrack) to what you get on the nightly news bulletins.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 22 May 2011

www.treasurer.gov.au
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