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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

13 November 2011

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Treasurer's Economic Note

The Government's pursuit of reform is about much more than satisfying financial markets or realising economic theory. Above all else, it's about creating and protecting jobs, supporting families, and lifting the living standards of all Australians. This is what drives our reform agenda. It underpins initiatives from the introduction of Paid Parental Leave to the historic increase in the pension, from the tripling of the tax free threshold to the boost in the superannuation guarantee, from the setting up of the Education Tax Refund to investments in training and apprenticeships, and from the building of a superfast broadband networkto securing a fairer return from the nation's mineral wealth. During the week, we saw two more critical steps on Australia's reform journey: Parliament passed legislation to put a price on carbon pollution and drive investment in renewable energy, and the Prime Minister announced the Government's support for a pay rise for 150,000 of the nation's lowest paid workers. Reforms like these aren't easy, but I think most Australians appreciate the importance of putting in place the right policy settings that reward hard work, encourage wealth creation, and spread opportunity to make a fairer and more prosperous society.

The Price of Inaction

The sovereign debt crisis that's gripping Europe has shown there's a very high price to be paid for countries that put reform in the too hard basket. Many European nations have been slow to face up to the tough decisions not just for the past 18 months, but for the past few decades. There's been a failure to undertake the structural adjustments necessary to drive growth and increase competitiveness. Instead budgets in many countries have been allowed to blow out and become unsustainable. As is often the case, the highest price for this policy inaction is being paid by the most vulnerable in society. We see this in unemployment rates in Europe that are two, three and even four times our own. What's most troubling is the high rate of youth and long-term unemployment in Europe that is leading to a loss of skills in the economy and a loss of hope in society.

During the week, I met with APEC finance ministers in Honolulu and there was a pretty clear sense of frustration about Europe's slow progress to detail and implement a recovery plan. Certainly, we've seen Europe begin to face up to its challenges in the past month, but a lot more needs to be done by countries like Greece and Italy to strengthen their economies and budgets, and to regain the confidence of financial markets. While APEC was united in urging swift action, there are also lessons that the region can learn from the mistakes made in Europe.

As the International Monetary Fund has highlighted, the weaker and more uncertain global economic outlook means Asian economies need to redouble their efforts toward economic rebalancing and strengthening sources of growth. Asia can no longer rely on demand far beyond its borders to keep fuelling the region's economies. Governments need to do more to lift domestic demand and put in place structural reforms, including shifting to more market-based exchange rates. Through APEC, we're making progress on initiatives to promote reform in the region, such as measures to increase investment in infrastructure, which is critical to building future capacity, and creating cross-border markets for managed funds. Europe's sovereign debt crisis highlights the speed with which events can unfold when fundamental reforms are ignored. Markets can move quickly, leaving policymakers struggling to catch up. The lesson here is that governments can waste no time in implementing the necessary policies to keep their economies competitive.

The Importance of Budget Discipline

While the long-term outlook for Asia remains positive, the clear message from my APEC meetings was that every economy in our region is feeling the impact of events in Europe. It's hitting the region's financial markets, unsettling businesses and consumers, and dampening trade. Obviously, this flows through to government revenues, and will add to the $130 billion in revenue write-downs we've seen since the global financial crisis first struck. It will make the task of returning the budget to surplus in 2012-13 a lot tougher, but we're determined to get there. The hit to government revenues caused by the global turbulence means we'll have to continue making tough budget decisions.

Maintaining our fiscal rigour is absolutely critical at a time when global financial markets are punishing those without discipline. One of Australia's great strengths is our very low level of public debt – it's less than a tenth of the average across major advanced economies. Our record of fiscal discipline helps underpin confidence in our economy and supports job creation. It also gives the Reserve Bank room to move on interest rates, as we saw earlier this month.

Cutting Carbon Pollution

Europe faces some tough decisions to get its fiscal house in order. Implementing the necessary economic reforms is never easy. Our own experience with putting a price on carbon pollution shows how difficult it can be. As one of the top 20 polluters in absolute terms, Australia needs a carbon price to remain competitive as the world moves to cut pollution. We generate more pollution per person than any developed country in the world – more even than the United States. In fact, our emissions per capita are about five times that of China's and ten times that of Indonesia's. About 90 countries have already pledged action to reduce carbon pollution, with our five top trading partners – China, Japan, the United States, South Korea and India – either implementing or piloting carbon trading or taxation schemes. A total of ten US states have trading schemes, with California – the world's fifth largest economy – planning to introduce one next year.

Putting a price on pollution will drive innovation to find better, less polluting ways of producing power, goods and services. Dirty energy will become more expensive and clean energy cheaper, tilting the balance towards investment in renewable energy and forms of power generation that produce lower emissions. As well as helping create a cleaner environment, putting a price on carbon pollution will ultimately deliver a stronger, more secure economy. It is not a choice between the economy and the environment. Jobs will be created, industries will prosper, and our economy will continue to grow strongly with a carbon price. Treasury modelling shows an extra 1.6 million jobs will be created by the end of the decade with a price on carbon pollution, and average incomes will rise by $9,000 per person in real terms. For a Government that's focused on job creation – and has overseen an increase in employment of about 750,000 jobs since it came to office – this outcome is critical.

Recognising Hard Work

Some of the toughest jobs in our society are also amongst the most underpaid. These include what are often described as "caring" professions. That is, people who work with the homeless, victims of violence and sexual assault, and people with disabilities. Workers in these areas – the vast majority of them women – have struggled on in silence for many years. They make a big contribution to our society and deserve to be properly rewarded for their efforts. On Thursday, the Prime Minister announced the Government was prepared to provide over $2 billion over six years to increase the pay of 150,000 workers in the social and community services sector as part of a joint submission to Fair Work Australia. Obviously, decisions like this will require savings in other areas, but the Government is committed to doing what's necessary to ensure workers in this area receive a fair go.

Lastly, I welcome yesterday's announcement that the Gold Coast will host the Commonwealth Games. It will be a big shot in the arm for the local economy, generating jobs and increasing tourism. I'm looking forward to seeing Australia's next generation of athletes going for gold in 2018.

Wayne Swan
Acting Prime Minister and Treasurer of Australia
Sunday 13 November 2011