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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

12 June 2011

NO.021

Treasurer's Economic Note

This morning, I attended an event in Brisbane to honour some of the many, many people whose bravery, self sacrifice and hard work helped us overcome the worst nature could throw at us this summer. Dealing with the economic toll of the natural disasters and putting together the recovery package has obviously been a central focus of mine over the past five months. But like every Australian, I've been struck by the incredible spirit on display in communities across the country. I've been lucky enough to meet literally hundreds of unsung heroes: SES workers that fearlessly entered raging torrents in Toowoomba, helicopter pilots that winched people to safety from rooftops in the Lockyer Valley, and defence personnel that worked round the clock to clear roads in Far North Queensland. But there's been plenty of other, less conventional heroes: the woman who turned her home in Rocklea into a community drop-in centre to provide food, cleaning equipment or just a chat for those that needed it; the couple who drove 1,000 kilometres to Goodna to shovel mud out of the kitchens and lounge rooms of people they didn't know; and the hundreds of volunteers in Zillmere who turned up to fill more than 40,000 sandbags to help out other Brisbane suburbs threatened by the rising waters. The collective effort is perhaps best summed up by the simple fact that the state ran out of gumboots because so many people wanted to help. The stories of generosity resonated not just locally, but globally.

We're also seeing a lot of community participation in the current debate around climate change. People are standing up and getting involved. They're acting not out of self interest, but because they passionately believe in the importance of reducing pollution and creating a sustainable economy. Certainly, it's encouraging that more and more organisations and business groups are backing the call for a price on carbon pollution. But what's been really pleasing is that so many members of the public are as well, like the thousands of Australians who joined rallies across the country last weekend as part of the 'Say Yes' campaign. And as with the gumboot army during the recovery efforts, it's been fantastic that so many young people have been getting involved. One of the many is Gene Raciti, a young man from my electorate who is taking an active role in the debate through the Australian Youth Climate Coalition. Like a lot of people I met at the Brisbane rally last Sunday, Gene is eager for Australia to get on with the job of preparing for a clean-energy future.

Global Action on Climate Change

The release last week of the Productivity Commission's report, 'Carbon Emission Policies in Key Economies', was a really important contribution to the national debate. There are two key messages in the report. First, countries around the globe are putting in place policies to reduce their emissions and transform their economies. The Commission looked at seven of our top ten trading partners, and found every single one had adopted policies of one form or another to reduce emissions. In fact, more than 1,000 policies were identified, making it overwhelmingly clear that global action is taking place. The report's second key message is that a price on carbon pollution is the cheapest and most effective way to act. This demolishes the scare campaign that a carbon price will make life much more expensive. In fact, what the Commission's analysis shows is that 'direct action' policies - like regulation or subsidies - involve higher costs to the Budget, greater impacts on prices, and higher taxes over time. A carbon price is more efficient and provides revenue to pay for generous household assistance.

The report notes that a number of countries have introduced a carbon price, though the extent of the coverage varies. Each country needs to consider the design of a carbon price having regard to its own economic circumstances. For example in Australia, we've made it clear that we will have broad coverage but not include agriculture, in part because of the difficulties in measuring emissions and the large number of small businesses in this sector. We've also said that our scheme will cover the resource sector. Given that much of our emissions growth in the years ahead is expected to come from our booming coal and LNG sectors, it's important that we include these sectors from the outset. Failure to do so would put more pressure on other sectors like manufacturing, which are already doing it tough.

Bright Future for Clean Coal

Turning to the coal industry specifically, I made it clear in my speech at the National Press Club last week that I see a bright future ahead. The challenge for us is not just to export cheaper, cleaner coal, but also to develop and export the innovation and invention that will allow coal to be used sustainably for years to come. This innovation simply will not occur without a price on carbon. And it's a great time for the coal industry to start the transition with prices at about double the level they were a few years ago: thermal coal is selling for more than $120 a tonne and coking coal for more than $320 a tonne.

With the highest level of carbon pollution per capita in the developed world, Australia needs a carbon price to remain competitive as the world moves to cut pollution. As I explained in my speech, we shouldn't forget that there are also massive economic benefits from putting a price on carbon - like driving the clean-energy jobs of the future. Treasury modelling shows total employment growth to 2020 will be the same under a carbon price starting at $20 per tonne as it would be without a carbon price. Either way, national employment is forecast to rise by 1.6 million jobs by the end of the decade. For a Government that's overseen an increase in employment of more than 700,000 since it came to office, this outcome is critical. The modelling also shows national income per person will be 16 per cent higher than current levels by 2020 with a carbon price, which is an average increase of more than $8,000 in today's dollars for every Australian. This shows incomes will rise even as we tackle dangerous climate change.

Tax Reform

On Friday, the Government took the next important step to provide Australians with a fairer return on their mineral wealth by releasing draft legislation for the Minerals Resource Rent Tax. We're continuing to work closely with the industry on the detail of the legislation that will deliver a boost to national savings, tax cuts for small businesses, and investment in new and better infrastructure. While it's been getting plenty of attention in the media, it's important to remember it's not the only area of tax reform we're pursuing. We have now announced 12 measures since May last year that deliver on reform directions identified by the tax review.

These include phasing out the tax offset for dependent spouses without children, to help encourage more Australians into paid employment. This tax break dates back to 1936 when there were limited employment opportunities for women and a breadwinner was expected to 'maintain' a spouse even when they didn't have any children. This offset no longer reflects today's modern economy, particularly when we have an unemployment rate of 4.9 per cent. Another important tax reform announced in the Budget was changing the fringe benefit treatment of cars. We're replacing the sliding scale that gives bigger tax concessions to those that drive further, with a simple flat rate. This gets rid of the crazy situation that led some people to drive their vehicles further than they needed to, just to get a bigger tax concession. This was bad for the tax system and bad for the environment. People who use their vehicle a lot for work will still be able to use the log book method, which ensures all their work use is tax exempt. I look forward to continuing the debate about further options for reform in the years ahead at October's Tax Forum.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 12 June 2011

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