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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

5 February 2012

Treasurer's economic note

Talking to people around our great country, I'm always quick to point out that the fundamentals of our economy are strong: low unemployment, solid growth, very low debt, contained inflation and a huge investment pipeline. But that doesn't mean every Australian is living on easy street. Many families and individuals face a weekly struggle to make ends meet. Paying the electricity bill, filling the car with petrol, and putting food on the table aren't just chores, they're financial challenges. That's why this Labor Government has been focused on putting in place measures to support those who need help the most. We have cut taxes for families on low and middle incomes; we have increased the Child Care Rebate ; we have introduced a Paid Parental Leave scheme  and the Education Tax Refund ; and we have delivered the largest ever increase to the pension. It's only by keeping the economy strong and secure that we've been able to deliver real benefits like these. As a Labor Treasurer, last week it was really great to see some of our hardest working but lowest paid workers getting some well-deserved recognition  of their huge contribution through better pay.

Money in the pocket

As we all know, mortgage repayments are the biggest strain on many household budgets. That's why the reductions in interest rates since Labor came to government have delivered so much relief. Based on standard variable interest rates, a family with a $300,000 mortgage is now paying around $250 a month or $3,000 a year less in mortgage repayments than they were four years ago. For one family, that extra cash in the pocket is obviously a big help. When you look at it on a wider scale, you also see the benefits that flow across the entire economy. For instance, Treasury estimates the decline in interest rates since Labor came to government means the total mortgage repayment bill for Australian households has been cut by around half a billion dollars a month. Think about that – that's half a billion dollars more in the pockets of Australians each month. That's more money that can be spent in Australian businesses, which in turn supports jobs.

The official cash rate, the main benchmark off which most interest rates in our economy are set, is determined by the Reserve Bank . After back-to-back cuts in November and December, the cash rate is now at 4.25 per cent, down from 6.75 per cent when the previous government left office. As always, there'll be plenty of attention when the Reserve Bank Board meets this week. Its decisions are independent of government, as they should be. I don't speculate on them – the Board will release a statement on Tuesday with the reasons for its decision. What the Government can do, however, is continue our disciplined budget policy to make sure we're not putting extra price pressures into the economy. Our strong fiscal credentials are critical in these uncertain times and for the first time in Australia's history we've received the gold-plated AAA-rating from all three global ratings agencies – something never achieved by the previous government. The Reserve Bank has recognised our strict budget policy on many occasions and said it has room to cut interest rates further if it thinks that's necessary.

In the longer term, the Government can also relieve price pressures by putting in place vital investments to expand the capacity of our economy. That's why we've put such a big emphasis on education and training – for example, the centrepiece of last year's Budget was a $3 billion skills package. It's also why we've doubled investments in roads, railways and ports and are rolling out major productivity-boosting infrastructure like the National Broadband Network. All of these investments are crucial to having strong growth with low inflation for the long run.

A stronger and more competitive banking system

There's no doubt Australia's major banks are hugely profitable. Despite the current global volatility, their net interest margins are still around pre-crisis levels and are around their average over the past decade. Their return on equity is much higher than most of their global peers. Customers would have every right to be angered if their bank decided to hang on to part of a rate cut to boost their profits. That's why this Government has been so focused on making it easier for customers to walk down the road and get a better deal  if their existing bank doesn't look after them. We have already:

  • Banned mortgage exit fees on new loans from 1 July last year.
  • Invested some $20 billion in residential mortgage-backed securities to keep smaller lenders in the market during the worst of the GFC so they can now put more competitive pressure on the big banks.
  • Introduced new mandatory one-page fact sheets for home loans from 1 January this year so consumers can compare apples with apples, making it easier to figure out who's offering the best deal.
  • Passed historic credit card reforms through Parliament to crack down on unfair treatment of Australians with credit cards – starting from 1 July this year.
  • Announced a new 'tick and flick' service to give Australians the freedom to switch deposit accounts with the stroke of a pen, starting from 1 July this year.

Reforms like these have clearly turned up the heat on competition in the banking sector. Treasury analysis of the latest APRA data confirms that smaller banks increased their share of the nation's mortgage business by $9.7 billion in the year since our reforms were announced. They've done this by offering competitive rates and services.

With the ban of exit fees on new home loans, the big banks can no longer assume that once a customer signs on the dotted line, they'll just stick with them. In the first five months since we introduced the ban, an extra 320,000 Australian households have benefited by taking out a loan completely free of exit fees. Treasury estimates that by the end of this year, this will have grown to 1.1 million households and nearly 2 million by the end of next year. This means banks increasingly have to earn the loyalty of their customers. So if you're not happy with your current bank, I'd encourage you to look around at what else is on offer.

Working Australia

In the past few weeks, we've seen disappointing announcements about job losses at a number of companies. There's no doubt many sectors are doing it tough at the moment, particularly with the high Australian dollar. The Government's first concern is obviously for the affected workers and their families – we'll offer them all the help we can to get them back into the workforce as soon as possible. Every job that's lost is obviously a huge blow, but we need to keep in mind this country's outstanding track record of job creation: over 700,000 Australians have gained jobs over the past four years. That's over 700,000 more Australians coming home with a pay check to pay the bills and look after their families. And despite the uncertain global outlook, our economic fundamentals remain strong – our unemployment rate remains lower than every major advanced economy except one. We should always strive to get unemployment lower than its current rate of 5.2 per cent, but we should remember it compares very favourably to other developed countries. During the week, figures showed the euro area's unemployment rate at 10.4 per cent and 8.3 per cent in the United States. As the Prime Minister said during a major economic speech  on Wednesday, this Government will keep managing the economy to protect and create jobs, and ensure we have the skilled workers our country needs into the future.

Keeping our economy strong

With Parliament resuming, I'm looking forward to getting stuck back in and passing more of our important reforms. Last year, we passed more than 200 bills, including the Budget in record time and the Clean Energy Future  package. This week, legislation for the Minerals Resource Rent Tax will enter the Senate although debate won't start until next month at the earliest. It's a critical reform that will lock in the benefits of the mining boom. Labor believes 2.7 million small businesses deserve a tax break. Labor believes that 8.4 million Australians deserve a more secure retirement. And Labor believes we need to invest in new infrastructure, particularly in our great mining regions. We need to use the strength of the mining boom to strengthen the entire economy for all Australians.

Wayne Swan
Deputy Prime Minister and Treasurer