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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 March 2012

Treasurer's economic note

Australians have always prided ourselves on being a nation that's more equal than most – a place where if you work hard, you can create a better life for yourself and your family. But there's never been a guarantee for the fair go. It's something we've always had to fight for. Over the decades, it has been the reforms of Labor governments that have underpinned Australia's egalitarian spirit. It was Labor that championed the age pension, superannuation and Medicare. And the Gillard Labor Government is continuing this tradition with things like Paid Parental Leave , the tripling of the tax-free threshold to benefit those on low and middle incomes, and laying the foundations for a National Disability Insurance Scheme. Labor's focus has always been on building a stronger economy to create a fairer society for all Australians.

Although there are still sizeable pockets of social disadvantage to be found in every state, Australia has done a lot better than other countries with matching strong growth with social equity over a long period. One indicator that's received a lot of attention recently is the rising share of global income going to the super rich. Shortly after the Second World War, Australia, the U.S. and the U.K. were all roughly equal in the percentage of total income going to the top 1 per cent – around 10 per cent. The latest data has Australia's richest receiving an 8.6 per cent share, around half the level of that of the U.S. and U.K. But just because Australia doesn't have the problems of inequality that we see in some parts of the world doesn't mean we can put the toolbox back in the shed. I've written an essay in the latest edition of The Monthly  to make the point that Australians will have to continue to work hard in the years ahead to retain the fair society that we have built together.

This graph compares Australia's distribution of income compared with the United States and United Kingdom.

Working Together

Central to maintaining the fair go is the opportunity for a decent job with decent pay and conditions. In Australia, this is underpinned by a fair and flexible industrial relations system. Over the past century, we've developed labour laws to balance the interests of workers and employers, providing both incentives for hard work and protections against exploitation. This has been achieved through an awards system of minimum wages and conditions, the right of union representation, a process of collective bargaining, and access to an independent umpire to resolve workplace disputes. The result has seen our economy become one of the standouts in the world and allowed workers to share in the benefits of productivity gains through higher wages. When this system was threatened by the previous government's extreme WorkChoices legislation, unsurprisingly it was comprehensively rejected by the Australian people.

By working with employers and employees, this Labor Government has kept the economy strong over the past four years and kept Australians in work. More than 700,000 extra people have gained the dignity and security of paid employment since Labor came to office. That's an extraordinary achievement for a nation of only 23 million people. Even more so when you consider that it's come at such a period of tremendous global economic volatility in which around 27 million people have joined the world's unemployment queues. Providing more people with the opportunity for employment is the best way to reduce poverty and raise living standards. This is a message that Australia has consistently been making through international forums for some time, and I was pleased that the communique from last weekend's meeting of the G20 finance ministers and central bankers  recognised this. Obviously many developed nations, particularly those in Europe, must work hard to get their budgets back on a sustainable footing in the medium term and continue reforms to promote long-term growth. But at the same time, it's critical not to lose sight of the fundamental purpose of sound economic management: creating prosperity and opportunities for more of the world's people.

Societies are stronger when more people have access to employment and every individual has the opportunity to play their full part. In many parts of the world, an unacceptably high rate of unemployment, particularly amongst the young, has lead to a loss of skills in the economy and a loss of hope in society. This was underscored during the week with the increase in Europe's unemployment rate to 10.7 per cent, the highest since the euro was established in 1999 and more than double Australia's rate of 5.1 per cent.

Investing in the Future

Although the IMF confirmed during the week that Australia walks tall amongst its peers, we know the weakness in the global economy and acute financial market turmoil towards the end of last year had an impact on our own economy, dampening confidence and making businesses more hesitant to hire. And while we've seen more encouraging signs in the global and domestic economy more recently, there's no doubt that global instability continues to have an impact here at home. We'll look back at how our own economy performed in the final three months of last year with the release of the National Accounts on Wednesday.

Despite the impact of continuing global economic uncertainty, during the week it was heartening to see companies are planning a record level of spending on buildings and equipment in the year ahead. New figures show  that planned capital expenditure is 27 per cent higher in the year ending in June compared to the same estimate for last year, and is expected to increase further to a record $173 billion in 2012-13 – that's 28 per cent higher than the same estimate for 2011‑12. Mining companies account for over half of this pipeline in 2012-13 ($120 billion) with manufacturers planning to spend $11 billion, and other industries $43 billion. Despite the fact that annual investment is going from strength to strength, it's important not to overlook the fact that there was a decline in both capital expenditure and construction activity in the December quarter, following strong increases in the previous quarter. We shouldn't be surprised to see this sort of unevenness from quarter to quarter because of the massive scale of the individual projects. The big picture, however, is that businesses are investing more to expand capacity because they have confidence in the future. This investment pipeline, along with our low unemployment, sturdy public finances and very low debt, provide a solid foundation for our economy that will help us withstand the international turbulence we're likely to see continue for some time to come.

Continuing the Conversation

I'm really pleased my essay in The Monthly has already started a bit of debate in the community about the importance of reforms to build a stronger, fairer society. Tomorrow, I'll be continuing the discussion at the National Press Club  in Canberra and also taking the conversation to Twitter with a live forum. Of course there have been the predictable reactions from the predictable quarters – I could have set my watch by the response. When you talk about building a fairer society, you're invariably accused by some of engaging in the "politics of envy". This is far too important a debate for our country and its future to dismiss with tired, old slogans. The way I see it, Australia is at a really important chapter in its economic story. We've got some big opportunities ahead of us as well as big challenges. With the right policies and decisions, we can create an Australia with a prosperous future that provides more opportunities to more people, an Australia that gives everyone a decent shot at a decent life, and an Australia where all citizens share in the benefits of the Asian Century, not just the fortunate few.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia