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

24 July 2011


Treasurer's Economic Note

A town like Gladstone really is a reality check for the carbon price scare campaign. Far from being at risk of being wiped off the map, Gladstone is continuing to power ahead. Each time I visit, I'm struck by the incredible energy of the place and last week was no different. Businesses are expanding, jobs are being created, and opportunities are booming. Coal exports from the local port are set to double over the next five years and there's $32 billion worth of investment going into the development of liquefied natural gas. Despite the reality on the ground, the well-funded vested interests are still out there trying to talk down the future of our economy, of our great industries like coal and LNG and of great towns like Gladstone. But the warnings of doom and gloom are ringing more and more hollow by the day. The truth is the economy in Gladstone, like the rest of Australia, will continue to grow strongly under a carbon price.

Follow the Money

Despite some of the claims we hear about the impact of the carbon price on mining, the investment pipeline tells the real story. A staggering $70 billion in coal-related projects was either underway or on the drawing boards as of April – more than four times the level of just four years earlier, according to ABARES. For iron ore, the investment plans have risen 188 per cent to $80 billion since 2007, and 257 per cent to $215 billion for oil and gas. And companies are continuing to ramp up their spending intentions over the next 12 months as last week's release of the National Australia Bank's Quarterly Business Survey showed. Activity on the share market over the past few weeks has also shown investors clearly believe there's a bright future for Australia's coal industry in particular. We've seen a $5 billion takeover offer for Queensland's Macarthur Coal and a $730 million bid for coal-seam gas explorer Eastern Star Gas. As NAB's Chief Economist Alan Oster said: "Is the mining industry going to stop investment because of a carbon tax? The answer is no. We just don't see that happening."

We've also seen the Chicken Littles out warning about the future of our cement, steel and aluminium industries. The fact is that each of these industries will continue to grow under a carbon price as Treasury modelling shows. We saw the day after the announcement of the Government's clean energy future package, Boulder Steel reaffirm plans for a new $4 billion steel plant in Gladstone. The company said it had been factoring the announcement of a carbon price into its investment decision all along. Boulder Steel predicts the plant will create 1,800 permanent jobs and add $175 billion to the Australian economy over the next 50 years.

Supporting Jobs

Heavy industries making products like cement, glass and aluminium will of course remain essential in the clean energy economy of tomorrow. Cement slabs make houses more energy efficient, glass is needed for double glazing, and aluminium makes lighter, more-efficient products. We've been careful to make sure heavy industries don't shift offshore because of a carbon price. That wouldn't be in Australia's interests from either an environmental or economic point of view. The $9.2 billion Jobs and Competitiveness Program is designed to support local jobs and production, and encourage industries to invest in cleaner technologies. It's targeted at around 50 'emissions-intensive, trade-exposed' industries that produce a lot of carbon pollution but have a limited ability to pass through costs because they are competing with businesses overseas.

Industries such as steel, aluminium, cement and zinc manufacturing will be eligible for free permits representing up to 94.5 per cent of industry average carbon costs. This assistance will be reduced by 1.3 per cent each year to encourage companies to cut their pollution. Making products like steel, glass and chemicals in a cleaner and more-efficient way is good for the environment, supports jobs and will ensure our industries remain competitive. The Government is also providing specific packages to support the needs of food processors, metal foundries, steel manufacturers and coal mining to transition to a low-emissions future.

Clean Energy by Numbers

I thought I'd share with you a few figures about the clean energy future and the Government's plan to put a price on carbon:

About 159 million tonnes – the amount Australia's annual emissions will be reduced by in 2020 under a carbon price. That's equivalent to taking 45 million cars off the road.

  • Around 500 – the number of polluters that will have to pay the carbon price on every tonne of carbon pollution they produce.
  • $100 billion – the amount to be invested in renewable energy, such as solar, wind and geothermal, by 2050.
  • 89 – the number of countries, representing 80 per cent of global emissions, that have already pledged to take action on climate change.
  • 9 in 10 – the proportion of households that will receive assistance through tax cuts or payment increases.
  • 0.7 per cent – the impact the carbon price will have on consumer prices in 2012-13.
  • 1 million – the number of Australians that will no longer need to lodge a tax return as a result of tax reform under the package.

International Outlook

Last week European leaders agreed on a new deal to help manage the sovereign debt situation, including a further rescue package for Greece. This is an important step at a time of fragile global sentiment, but we should be under no illusions about the difficult challenges that still lie ahead. As I noted in a statement to Parliament recently, Australia is obviously not immune from heightened global uncertainty, but we have a strong pipeline of business investment, very low public debt, low unemployment and a strong and resilient financial system. We're also located in a region of much stronger growth as the weight of global activity shifts from West to East.

Coming Up

This week we receive the inflation outcome for the June quarter. We saw the headline consumer price index spike earlier this year as the summer floods and cyclones caused massive destruction to crops in some of our most important farming regions. This lead to some steep price rises for fruit and vegetables. It's obvious to anyone doing the weekly shopping that prices for a lot of fruit and veg, like bananas, remain high. These price increases are expected to unwind as crops grow and agricultural production continues to recover.

On Tuesday, I'll be speaking at the National Small Business Summit in Sydney about the central role of small business in our economy. With the headlines often focused on the mining boom, what's often overlooked is the fact that small business creates almost half the jobs in Australia. And certainly many have been doing it tough in recent times with the high dollar and cautious consumer spending. I'll be talking about some of the Government's policies to assist small business, such as the instant asset write-off that will deliver cash flow benefits for assets bought and our plan to cut the company tax rate. Helping businesses that aren't in the mining boom fast lane is all part of the Government's plan to strengthen and broaden our economy.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 24 July 2011