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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

30 October 2011

NO.041
[PDF 289KB

Treasurer's Economic Note

Our country has an enormous amount going for it. We're blessed by sunshine, industrious people, and a wealth of natural resources. But good fortune has never been a guarantee of success. History is littered with examples of societies that have squandered their opportunities and failed to convert windfalls into lasting gains. We all know Australia's mining boom won't last forever. The resources can be dug up and sold only once. That's why the Labor Government is so determined to make the most of the tremendous opportunities that are now before our nation. We're committed to putting in place policies that ensure all Australians share the benefits of the mining boom and that those benefits are locked in for generations to come.

A Fair Share

The economic transformation of Asia has sent Australia's terms of trade to 140-year highs. Prices of coal and iron ore have skyrocketed over the past decade, and with them the profits of many mining companies. Increasing profits are of course a great thing for our economy, bringing new investment and new jobs. But resource taxes have failed to keep pace with the boom and have declined as a share of profits. That's why we need the Minerals Resource Rent Tax (MRRT). It's often not appreciated that the coal and iron ore in the ground are owned by the Australian people, not by the mining companies. The MRRT is about delivering a fair return of these higher profits to the Australian community. The dividends of the boom will be directed to where they can make the greatest contribution to jobs, to infrastructure, to national savings and to sustainable economic growth.

Growth in mining company gross operating profits 2003-04 to 2010-11

Chart 1

The demand for our resources has been a key driver of demand for our currency. That's making life tough for many parts of our economy. As I move around the country, I see the difficulties facing our tourism industry, our education providers, and our manufacturers. The higher Australian dollar makes our exports more expensive in overseas markets and competing imports cheaper at home. Unfortunately, the success of one part of the economy makes life much tougher for other parts. But the MRRT isn't about slowing the fast lane of the resources sector. It's about ensuring all sectors benefit, using the strength of the mining boom to strengthen the entire economy.

Investing in the Future

One of the ways the MRRT does this is through funding a new tax break for Australia's 2.7 million small businesses, worth over a billion dollars in its first year, as well as through a cut in the company tax rate. From 1 July 2012, small businesses – whether they are run by sole traders or through companies, partnerships or trusts – will be able to immediately write-off any asset they buy worth up to $6,500. So a small business that purchases a computer system, a refrigerator and office furniture will be able to deduct the full cost of each and every item straight off their taxable income. Besides encouraging small businesses to invest in new equipment to grow their operations, this measure makes book-keeping a lot simpler by removing the need to track the depreciation of assets over a number of years.

As well as funding critical investment in roads, bridges and other infrastructure, the MRRT also locks in the gains of the mining boom through a boost to national savings. The super guarantee will be progressively increased from 9 per cent to 12 per cent for the nation's 8.4 million workers. This is expected to increase Australia's savings pool by $500 billion by 2035. It's worth looking at what this important reform will mean for an individual's superannuation account:

  • An average worker aged 18 will see a 25 per cent increase in retirement savings or an extra $205,000
  • An average worker aged 30 will see a 24 per cent increase in retirement savings or an extra $108,000
  • An average worker aged 40 will see a 15 per cent increase in retirement savings or an extra $56,000

On top of this, the MRRT will also deliver fairer super concessions for 3.6 million low-income earners, who currently get little or no concession on their employer superannuation contributions. Boosting super and making it fairer is an important part of the Government's response to the challenges of an ageing population.

Strengthening the Entire Economy

Mining is a great Australian industry that's much more sophisticated and innovative than many people realise. More than half the jobs created in the industry in recent years have been for highly-skilled technicians, tradespeople, professionals and managers. And our resources industry exports a lot more than just bulk commodities. Our mining technology, equipment and services sector has become a world leader. In 2008‑09, it employed over 30,000 people and generated $8.7 billion in revenue, with about 30 per cent of this coming from exports. Firms in this area have a wide range of capabilities from software design to technical consulting to making highly-specialised equipment and machinery. It's an example of how the mining boom is stimulating and driving opportunities in other areas of the economy.

The MRRT legislation is being finalised and I hope to soon introduce it to Parliament after 18 months of pretty intense public debate and consultations with the industry and other stakeholders. Obviously no one likes paying more tax, but most mining companies understand that the package maintains incentives to invest in mining, while also providing a more appropriate return to the community. Of course there will always be a few who put vested interests before the interests of all Australians and we're still hearing some scare mongering and outrageous claims about how the mining tax will destroy the industry. Of course by following the money you see the real story. There's $430 billion in spending already committed or on the drawing boards, with $82 billion in investment in this year alone. Companies are confidently investing in the future in the full knowledge that the MRRT will apply from July 1 next year.

Growth in mining capital expenditure 2000-01 to 2011-12

Chart 2

Consumer Prices

During the week, we saw a welcome moderation in inflation for the September quarter, although many households are still doing it tough with cost of living pressures. The figures shine another light on the very strong fundamentals of our economy, which set us apart from the rest of the developed world. Most advanced economies are facing the worst possible combination of economic conditions – slowing growth, high unemployment and rising inflation. By contrast, Australia has solid growth, low unemployment – around half the levels in the US and Europe, with around 750,000 jobs created since this Labor Government came to office – and underlying inflation in the middle of the Reserve Bank's target band.

No doubt there'll be plenty of Australians under cost of living pressures watching carefully when the Reserve Bank takes its decision on interest rates on Melbourne Cup Day. Of course the Reserve Bank takes these decisions independently, but what the Government can do is maintain a disciplined budget policy to make sure we're not putting extra price pressures in the economy. That's why we're putting in place the fastest budget turnaround on record. The Reserve Bank has acknowledged our strict budget policy on several occasions and has said it has room to cut interest rates if it thinks that's necessary. What the Government can also do for the longer term is put in place the vital investments to expand the capacity of our economy. That's why the Gillard Government has put such a big emphasis on education and training – for example, the centrepiece of this year's Budget was a $3 billion skills package. It's also why we're rolling out major productivity-boosting infrastructure like the National Broadband Network. All of these investments are crucial if we're to have strong growth with low inflation for the long run.

While the CPI data showed that Australian prices for computing-related equipment declined in the quarter, we're still paying more for some products than consumers in countries like the United States. That's why the Government has asked the Productivity Commission to review the extent of IT price discrimination in Australia. The Government expects to receive this report next month which will be one small step on the road to providing a better deal for consumers of IT-related products. The Productivity Commission would welcome the views of consumers and businesses via retail@pc.gov.au.

Lastly, we saw a dramatic escalation of the industrial dispute at Qantas yesterday. The decision to ground the fleet obviously is a serious disruption to the national economy. That's why the Government stepped in and has asked Fair Work Australia to urgently deal with the dispute. The hearings began last night and will continue this afternoon. I urge Qantas, employees and unions to quickly resolve their differences for the sake of the Australian flying public and the Australian economy.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 30 October 2011

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