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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

29 January 2012

Treasurer's economic note

Welcome back to my weekly economic note for another year. I hope everyone had a chance for some relaxation with friends and family over the holiday period ahead of what will no doubt be another hectic year. Given it's a time when newspapers and TV bulletins are more likely to be dominated by the cricket or tennis, there's been a fair bit of attention on the state of the global economy in recent weeks. My message today is that we need to keep all these developments in perspective. We've seen plenty of bleak headlines about the sovereign debt crisis and the situation in Europe. And during the week, the International Monetary Fund cut its global growth forecast for this year and next. There's no doubt 2012 is shaping up to be at least as difficult a year as 2011, if not more difficult. The global instability we're seeing is impacting on our economy and our budget. It's also adding to the stresses being felt by manufacturing, tourism and other industries. But as I've been saying for some time, it's important sometimes to take a bit of a reality check, and not lose sight of our economy's rock-solid fundamentals.

Standing tall

Australia really is in a different economic league to the rest of the developed world.

  • We have solid growth with our economy forecast to expand at around trend this year. Our economy is now 7 per cent larger than it was before the global financial crisis, while many other advanced economies are yet to make up the ground they lost.
  • We have very low debt and a budget in excellent nick - reflected in Australia being awarded the coveted AAA credit rating from all three global ratings agencies for the first time in our history.
  • Our unemployment rate is low at 5.2 per cent, compared to the stubbornly high rates in the United States (8.5 per cent) and Europe (10.3 per cent).
  • The value of resource sector projects underway or on the drawing board is a staggering $455 billion.
  • Underlying inflation  - as we saw on Thursday - remains squarely in the Reserve Bank's target band, which created room for two consecutive interest rate cuts at the end of last year.

These key pillars of economic strength, combined with our proven track record of dealing with global instability, mean we're uniquely placed to deal with the worst the world can throw at us. Although it was the IMF's forecasts that generated the headlines during the week, it's worth taking a moment to look at what the IMF actually said specifically about Australia's outlook. Here's what the IMF's Jorg Decressin told ABC Radio National :

There is no advanced economy - or maybe there are one or two - that is as well placed as Australia in order to combat a deeper slowdown, were such a slowdown to materialise. And that's because, well, you still have room to cut interest rates if that was necessary and you also have a very strong fiscal position.

The IMF's outlook is broadly in line with the Government's forecasts announced two months ago in the Mid-Year Economic and Fiscal Outlook, which factored in a recession in Europe and slowdown in the global economy as a result. But we should remember that the IMF still expects Australia will grow faster than all major advanced economies this year. There's been a tendency among some in the public debate to focus far too heavily on all the risks to the downside. Of course we must always be realistic about the risks we face - just as we were when we responded so successfully to the global financial crisis and fought off recession. But we must also be realistic about our rock-solid fundamentals. Now more than ever, we need to have a constructive debate about our economy and its potential, rather than talking down our nation's prospects, which is damaging to confidence, jobs and business prospects.

A stronger economy for all Australians

I wrote in the Courier Mail  on Australia Day that we've a lot to be proud of as a country. More than 700,000 jobs have been created over the past four years, the decline in interest rates means that a family with a $300,000 mortgage is now paying around $3,000 a year less in monthly repayments than under the previous government, and we're bringing the budget back to surplus when most other advanced economies are drowning in red ink. We came through the global financial crisis in better shape than almost everyone else and that leaves us better prepared for whatever comes next. It allows us to spread the opportunities flowing from our strong fundamentals so that everyone benefits, not just the wealthy few. We're providing extra help for families with childcare costs and school expenses, as well as a more secure retirement and tax relief for workers and all businesses, large and small.

In fact only this month, the Government has increased Family Tax Benefit Part A for families with teenagers  aged 16 to 19 years by up to $4,200 a year to help with the higher costs of older children and encourage more teenagers to stay at school. We've also just started providing new wage subsidies of around $5,700 to encourage employers to hire the very long-term unemployed because as a country with a strong economy and such a bright future, we need all hands on deck. Initiatives like these are all part of our efforts to build a stronger, fairer nation. It's important to remember these benefits are only possible because we've kept our economy strong and secure through the worst global downturn since the Great Depression.

A secure retirement

Since coming to office, the Government has been focused on reforms to provide Australians with a more secure retirement. Our reforms to superannuation include:

  • progressively increasing the superannuation guarantee rate from 9 per cent to 12 per cent, made possible by the Minerals Resource Rent Tax;
  • introducing a new superannuation contribution worth up to $500 a year from 1 July for people on low incomes;
  • introducing a $50,000 concessional contributions cap for individuals aged 50 and over who have less than $500,000 in superannuation from 1 July, which is $25,000 more generous than the general cap of $25,000; and
  • abolishing the 70 year age limit on the superannuation guarantee from 1 July 2013.

Building on these reforms, I'm pleased today to announce a new Superannuation Roundtable to consider further improvements. There were many great ideas raised at last year's Tax Forum, including giving retirees more options in the drawdown (or 'post-retirement') phase and also looking at better ways to target and deliver superannuation concessions. The Roundtable will be chaired by Minister for Financial Services and Superannuation Bill Shorten and will bring together representatives of the superannuation industry, small business, employees and the community sector, as well as technical experts and academics.

One year on

Some parts of the country had a pretty wet and soggy Australia Day this year. Over the past week, there were heavy rainfalls in southern Queensland and thousands of people were evacuated from their homes in New South Wales because of rising floodwaters. We all pray that the rains ease in affected areas over the coming days. On Thursday, I'm heading up to Tully for a service to mark the one-year anniversary of Cyclone Yasi. I'll never forget the scene of devastation I saw arriving there the morning after the eye of the storm had passed and as the winds still howled. While there's still more work to be done, the recovery in Far North Queensland demonstrates the incredible resilience of our communities. It's a great reminder of how our nation has risen to the biggest challenges thrown at us when we've banded together and stood shoulder to shoulder.

Wayne Swan
Deputy Prime Minister and Treasurer