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

6 November 2011

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Treasurer's Economic Note

Change is an inevitable part of life. That's the case today more than ever given the pace of social, economic and technological development we're seeing around the world. The role of government is to recognise the changes underway and position the country to benefit. There will always be the vested interests who pretend we can keep doing things the way we always have and who claim reform is a threat to our economy and our way of life. But the nation's prosperity will never be secured by sitting on our hands. We need to have the courage to look beyond the headlines, stunts and scare campaigns, and act in the long-term interests of the country.

The Gillard Government is committed to policies that prepare our nation for change, like the shift of global economic weight from West to East, the ageing of the population, and the transition to a clean energy future. That's why we're investing more in education and training, and taking steps to improve workforce participation. That's why we're rolling out a superfast broadband network to link our households, hospitals, universities and businesses. And that's why we're reforming the tax system to provide more reward for effort, better incentives to invest, and a fairer return on the nation's mineral wealth. Pursuing policies that manage change and turn it to our advantage is the best way to build a more prosperous economy that delivers opportunities for more Australians.

Europe's Difficult Road Ahead

In many ways, the problems we're seeing in the global economy are the result of a failure to deal with change. Many European nations have ignored the necessary structural reforms over a long period and allowed their budget positions to gradually deteriorate to an unsustainable position. When the European sovereign debt crisis began 18 months ago, the region's leaders dithered. It's only in the past month that Europe has really faced up to the enormity of the challenge. The announcement of a framework late last month to deal with the crisis was a significant first step, and on Friday, European leaders at the G20 summit in Cannes showed their commitment to detail and implement that plan in the weeks ahead. This includes delivering a durable solution to address Greece's excessive levels of sovereign debt, recapitalising European banks, and building a war chest large enough to end fears of the sovereign debt contagion spreading to other countries. Europe still faces a difficult road ahead and that means we shouldn't be surprised to see global volatility continue for some time to come. Determined, consistent and continuing action is required by the Europeans to deal with the debt crisis and restore growth. This will be a marathon, not a sprint. Besides this renewed pledge of action from European leaders, the G20 meeting also brought increased international efforts to support jobs and growth, commitments to ensure the International Monetary Fund is sufficiently financed, and a reinvigorated push for global trade liberalisation – an issue the Prime Minister has been a leader on.

The Prime Minister has been clear that Europe needs to get its own house in order. European solutions are needed for European problems. The Australian Government has also been clear that it's critical for the International Monetary Fund to have sufficient resources so that it can continue to address any potential vulnerability facing the global economy, whether that be in Europe, Africa, the Americas or indeed our own region. Over many years, Australian governments of both political persuasions have worked with the IMF to support global economic stability. The IMF works as a kind of bank for countries that need cash flow to get their economies back on track. Like all the 187 IMF member countries, Australia contributes some of the funds that are loaned – in our case, we provide a little over 1 per cent, which is in line with our global economic weight. Any money that Australia provides is as a loan and is repaid in full with interest. That means it doesn't affect the budget bottom line and it doesn't affect our ability to provide the services that Australians need like hospitals and schools. It's clearly in our interests to support the work of the IMF: a stable global economy is obviously good for the Australian economy and good for Australian jobs. That's why it was great to see that the G20 has agreed to look at the issue of increasing resources to the IMF.

A Focus on Jobs

Another really pleasing result out of the G20 meeting was the agreement for an action plan on job creation. This was another significant outcome as the Prime Minister and I have been advocating for some time how critical it is to put employment at the centre of the global economic agenda. Getting more people into work is not only essential for reducing poverty and increasing living standards, but also for ensuring long-term, sustainable global growth. While Europe and the United States must focus on getting their budgets back on a sustainable footing, they also must balance this with the need to create and protect jobs. Many Australians don't realise that while our economy has created 750,000 jobs over the past four years, jobless queues have lengthened in other developed economies. In fact, the International Labour Organization has warned that millions more could join the 200 million people already unemployed without a concerted global effort in the years ahead. It's easy to forget that before the global financial crisis, Australia's jobless rate was the same as that of the United States. Today, our rate is 5.2 per cent, compared with 9 per cent in the US. The commitment from G20 nations to work together on policies that create employment opportunities is a positive step.

Most people recognise Australia has punched well above its weight on the global stage in recent years. We played an important role in the international response to the GFC and in reforms to the international financial system in its aftermath. It's therefore fitting that the Prime Minister yesterday announced Australia would host the G20 in 2014. The 20 member economies account for about 85 per cent of global GDP, and include all of our major trading and investment partners. Hosting the G20 will give us an even greater role in shaping the international economic agenda. The Prime Minister will talk with the state premiers about where the meeting will take place and a decision will be made in due course. As a Brisbane local, I'd love to see the G20 in my home town, but whatever city is selected it will be a great opportunity for the entire country, showcasing Australia's economic and business strengths to the world. While significant progress was made at Cannes, there is still much more to be done. That's why this week's APEC meetings of finance ministers and leaders will be so important. APEC brings together nearly half of the G20 nations as well as other countries from the strongest growing region of the world.

The instability in Europe, as well as a sluggish US recovery, is clearly having an impact on Australia. We've seen a decline in financial markets, households become more cautious in their spending, and businesses a little more hesitant in their hiring decisions. This is adding to the existing stresses in parts of the economy, which are already under pressure from a high dollar. The Reserve Bank confirmed this on Friday when it downgraded its growth forecast for Australia to 3¼ per cent in 2011-12 from 4 per cent. It's obvious to anyone that global instability will have an impact on the budget. We shouldn't forget the GFC wiped $130 billion from estimated government revenues. While the turbulence in the global economy makes our task harder, we're determined to bring the budget back to surplus in 2012-13 as planned. Sticking to our strict fiscal strategy is absolutely critical at a time when global financial markets are punishing those without discipline. Our fiscal discipline has created space for the economy to grow and helped give the Reserve Bank the room to cut interest rates during the week.

Building a Stronger Economy

Although global instability will inevitably have an impact on growth, we shouldn't lose sight of the fact that we're in a stronger position than just about any other developed economy. We have low unemployment, moderating inflation, sturdy public finances and a huge pipeline of investment. And, although many people are doing it tough, a report released last month showed Australians are the wealthiest people in the world. Critically, wealth is more evenly distributed in Australia than many other countries, which is an important factor in creating a cohesive society.

With so much going for us, now is not the time to shirk the types of reform that have helped secure our strong fundamentals. We're getting on with the job of positioning our economy to benefit from the changes in our region and around the world. We saw that with the introduction of the Minerals Resource Rent Tax legislation to Parliament during the week – legislation that will lock in the gains of the mining boom and help strengthen the entire economy. And we'll see it again on Tuesday when the Senate votes on the Clean Energy Future package. Passing this legislation will be a historic day for Australia. Putting a price on carbon will break the link between emissions growth and economic growth, driving innovation to find better, less-polluting ways of producing power, goods and services. As well as a cleaner environment, it will deliver better jobs for our children and grandchildren and a more secure economic future. It's not an easy reform, but it's the type of responsible, forward-looking policy that this Government is committed to delivering.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia
Sunday 6 November 2011