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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

3 July 2011

NO.024

Treasurer's Economic Note

Introducing a major reform is never easy. We tend to forget that the big changes made to our economy in the 1980s and early '90s were all met with fierce resistance from some quarters. The floating of the dollar, the tearing down of the tariff wall and the introduction of superannuation were all described at some stage as a threat to the future of our economy and our way of life. Today, you would be hard pressed to find anyone to argue against these important changes, which have made our nation stronger and underpinned the last two decades of economic growth. Unfortunately, there will always be those who warn the sky will fall in, and those who talk down the nation's future and our ability to deal with the challenges we face. I didn't get into politics to shirk the tough reforms. Like most Australians, I want to get on with the job and do what's necessary to build a better future.

Putting a Price on Carbon

One of the biggest reforms our nation must now address is breaking the link between economic growth and emissions growth by putting a price on carbon pollution. Like the big reforms of the past, vested interests are at it again with their Chicken Little routines. The Prime Minister today debunked a major part of the scare campaign by announcing that fuel used by ordinary Australian motorists will not be subject to a carbon price. That means millions of families won't pay a cent more at the fuel pump because of the carbon price. As I've said, we'll be announcing the final design of the scheme and the generous assistance package in the very near future. About nine out of ten households will receive some form of help for their household budgets, and the vast majority of those 7 million households won't be a single cent worse off because of the carbon price.

Those on low and middle incomes and pensioners will obviously be a focus of the assistance package as these Australians are the most exposed to cost of living pressures. The Government also recognises that self-funded retirees, who've had a tough time in recent years with the global financial crisis hitting their retirement savings, will also need support. So we'll be providing financial help for around 280,000 self-funded retirees equal to the extra payments that we'll provide to over 3 million pensioners, part-pensioners and carers. This cost of living help for self-funded retirees will be provided quarterly through the Seniors' Supplement. The self-funded retirees I chat to in my local community are really concerned about protecting our unique environment for their grandkids, so this extra help means retirees will be able to do their bit to tackle climate change while still looking after their budgets.

Our Changing Economy

Those that argue against reform like to pretend that we can keep doing things the way we always have. The fact is our economy is always changing and will continue to change – the role of government is to get the policy settings right and make the necessary reforms to increase prosperity and ensure strong, secure and sustainable growth. Analysis by my department provides a fascinating insight into how the structure of our economy will change over the next decade, due largely to the rapid development of Asia and the growth of its middle class. These hundreds of millions of new consumers will result in growing demand for services from industries like education, tourism, finance, recreation, health and retail. As I pointed out in an important speech on Thursday, output from these and other service industries in Australia are projected to increase by an average of about 35 per cent by the end of the decade. Unsurprisingly, given the current mining boom and record levels of investment, resources output is expected to increase by around 65 per cent by 2020, and construction output by roughly half. Of course, the growth of these sectors means that workers and capital will be drawn from other parts of the economy, which will grow more slowly. The manufacturing sector, for example, is expected to grow by around 6 per cent over the period to 2020, with a move towards higher-value products.

I'd make the point that this modelling doesn't assume the introduction of a carbon price. But putting a price on carbon doesn't change these trends. What it will change obviously is the amount of carbon pollution our economy produces. Without a price on pollution, Australia's emissions are forecast to nearly double to more than 1,000 million tonnes by 2050 from about 580 million tonnes last year. Clearly this is not sustainable. As last month's Productivity Commission report showed, the rest of the world is acting to reduce their emissions and transform their economies. Our economy and our exports will be at a competitive disadvantage if we don't make the critical transition to a clean-energy future.

International Outlook

I welcome the vote by Greece's Parliament last week to approve budget austerity measures that pave the way for further financial assistance from the European Union and the International Monetary Fund. It's a positive step, although we shouldn't underestimate the challenges facing Greece at this time. Excessive sovereign debt levels in Greece and elsewhere in Europe continue to spook financial markets and threaten the global economic recovery. This comes on top of the horrific events that hit Japan not long ago, and the continuing softness in the US economy. Despite the global uncertainty, Australia's economic fundamentals remain strong. We have low unemployment, a strong budget position with very low debt, and a record pipeline of business investment. We're also located in the right part of the world at the right time – the prospects for our region remain much stronger as the weight of global activity continues to shift from West to East.

Another important factor that positions our economy well for the future is our resilient financial system. Australia's banks are well capitalised, prudently managed, and among the highest-rated in the world. Our banks are well funded for the period ahead, and have significantly reduced the amount of funds they borrow offshore while they transition to even more stable, longer-term funding profiles. We're already putting in place a range of important reforms to ensure our banking system can continue to sustainably access funding, and keep lending to households and small businesses across Australia.

A Better Deal on Credit Cards

Ensuring our financial system remains secure and stable was one important goal of the Government's banking reforms that I announced in December. Another was to increase competition so that Australian consumers get a fairer go in the banking system. We saw some of the progress on Friday with the introduction of the ban on mortgage exit fees on new home loans. I'm hopeful there'll be another win this week with legislation before Parliament to give consumers more control over their credit card debts. There are over 15 million credit card accounts in Australia – many families have two or three cards – so nearly everyone stands to benefit if these reforms are passed. The proposed changes are to:

  • Require credit card lenders to clear higher-interest debts first;
  • Stop lenders from bombarding consumers with pre-approved, tick 'n flick offers to increase their credit limits;
  • Prevent lenders charging fees to customers who go over their credit limit unless they've expressly asked for this service;
  • Make it mandatory for credit card application forms to include a clear summary of key account features; and
  • Require all lenders to clearly warn consumers on their monthly credit statement of the consequences of only making minimum repayments.

The proposed legislation will also make it easier for people to compare home loans by requiring lenders to provide one-page key fact sheets to new customers from January 1 next year. This will allow consumers to place mortgage deals from banks, credit unions and building societies side by side to see which one best suits their needs. It's all part of the Government's commitment to ensure our banking system remains competitive and sustainable, and works for families not against them.

Coming Up

It's back to Canberra tomorrow and there'll be some new faces with 12 Senators from a range of parties joining the Parliament. I welcome them and look forward to working constructively with them in the months and years ahead. The progress being made through the Multi-Party Committee on Climate Change shows what can be achieved when we work together on big reforms that are critical for our country and for our living standards.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 3 July 2011

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