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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

29 May 2011

NO.019

Treasurer's Economic Note

It was great having the opportunity to hit the road this month to discuss the Budget and the economy with Australians across the country. The summer's natural disasters, high Australian dollar, and cost of living pressures have certainly meant many families and businesses have had a tough start to the year. Still, I never cease to be impressed by the hard work, energy and resilience on display in our communities. Whether it was a teenager starting his apprenticeship in western Sydney, a shopkeeper in Goodna rebuilding after the Queensland floods, or a teacher in Adelaide guiding our next generation, the vast majority of people I spoke with were confident about our country and its future. It's not a cliché. In fact, a report from the OECD last week measuring the well-being of citizens across advanced economies showed Australians are on average among the most positive. Like me, most Australians believe our nation's best days lie ahead. This spirit was central to the framing of our Budget and its focus on skills, training and infrastructure. And it's a spirit that guides our plans to deliver faster broadband speeds, put a price on carbon, and convert the nation's mineral wealth into lasting gains for all Australians.

We face some big challenges - and certainly not everyone is benefiting in our patchwork economy - but we're an industrious and optimistic country. The people I spoke with in Perth, Mackay, Blacktown and Christies Downs all wanted to get on with the job, to do what was necessary to build a more prosperous future. It's a pity this drive and optimism in the community is often undermined by the relentless negativity of some in the Parliament and in parts of the media. Certainly, I don't expect everyone to be cheerleaders for the Government, and I don't expect Labor's policies to be simply waved through the Parliament. However I think increasingly our country is being short-changed by the knee-jerk negativity and a failure by some to engage constructively in the big debates. Australia faces some major challenges - managing the resources boom, the shift of global economic weight to Asia, and the transition to a low-pollution future. Only by facing up to issues through informed and responsible debate will we as a nation be able to keep getting the big economic calls right.

The Critical Decade

Nowhere is this more important than putting a price on carbon emissions. Last week, the Climate Commission's report 'The Critical Decade: Climate Science, Risks and Responses' confirmed why it is so important that we act quickly to introduce this reform. The longer we wait, the more it will cost and the harder it will be for companies and industries to adjust. The report brings together the most up-to-date science on climate change and describes what it means for Australia. One part of the report that has really stayed with me is the section highlighting the risks global warming poses to the Great Barrier Reef. Rising ocean temperatures and ocean acidity have led to up to nine mass bleaching events on the reef in the past three decades. None had been recorded previously.

I was lucky enough to be able to take a few hours out from Budget preparations over the Easter long weekend to go out snorkelling on the reef with my family. Seeing all the other tourists out there from Europe, North America and Asia, particularly the growing number of visitors coming from China, was a great reminder of just how important the reef is not only for Far North Queensland but all of Australia. There are estimates that the reef generates more than $5 billion a year for the economy and helps employ tens of thousands of people. Protecting this natural wonder is one of the reasons why the Government is absolutely committed to playing its part in global action to reduce carbon pollution.

There is an overwhelming economic consensus that the best way to achieve this is by putting a price on carbon through a market mechanism. A report released on Thursday by GE, one of the world's biggest companies, argues Australia needs to act to reduce emissions so it's not lagging behind its trading partners. "Economies that can grow while reducing their carbon emissions will be best positioned for higher prosperity in a carbon-constrained future,'' said Dr Cameron Hepburn, director of international economics consultancy Vivid Economics, one of the firms commissioned to write the report. And a separate report from the OECD last week recognised now was the time for Australia to pursue this critical reform: "The authorities must take advantage of the favourable economic situation to pursue long-term structural reforms, including those that favour output involving less CO2 emissions."

In the coming few months we'll outline details of our plan. Only the biggest polluters - less than 1,000 - will pay for the pollution they emit, and every cent raised will go to help households, support jobs and fund climate change programs. The rest of the world is moving to make polluters pay. Failing to take action will hit family budgets, jobs and our national economy much harder. We are working closely with the business community to make sure we get this right - for example through the Business Roundtable on Climate Change, which I chair with Climate Change Minister Greg Combet. This reform is the right thing to do for the economy, the right thing to do for the environment, and the right thing to do for the next generation. Next week on June 7, I'll be discussing why a carbon price is so important for our economy in a speech at the National Press Club in Canberra.

National Accounts

I spent a lot of time in the lead-up to the Budget discussing our economy's unusual mix of short-term softness and longer-term strength. We're starting to see that vividly in some of the data that's coming through. On Thursday, we got a preview of where we're headed with figures showing companies are confidently investing in growing their businesses in the years ahead. And this week, we'll look back at where we've been with the official snapshot of how the economy performed in the March quarter. Of course, we all know the heavy toll that natural disasters had on so many families, businesses and communities in the first few months of this year. Wednesday's National Accounts will show the dramatic hit on our economy from the floods and Cyclone Yasi at home, as well as the disasters in Japan, our second-biggest trading partner.

The latest estimates from Treasury are that these three events are likely to have subtracted more than 1 percentage point from growth in the quarter. The total economic impact of the disasters is likely to be around $9 billion, with the March quarter bearing the brunt of that. And more than half the predicted $6 billion impact to coal production is likely to show up in the quarter. The size of that loss isn't surprising when you consider that 85 per cent of Queensland's 57 coal mines suffered production losses in the early part of the year, according to the Minerals Council of Australia. All of this is why market economists are predicting our economy contracted by around ½ per cent in the first three months of this year. But no matter the outcome on Wednesday, the encouraging medium-term picture for our economy doesn't change our task ahead.

Our fundamentals are strong and our prospects are bright. Our economy is forecast to create about 500,000 jobs in the next couple of years, mining investment next year is expected to be eight times the level of what it was before mining boom mark I, and the nation's finances are stronger than almost any of our peers. That's why it's so vital that we return to surplus in 2012-13, that we build a bigger workforce, that we invest in infrastructure, and that we give tax assistance to Australian businesses who aren't in the mining boom fast lane.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 29 May 2011

www.treasurer.gov.au
twitter.com/SwannyDPM