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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

25 March 2012

Treasurer's economic note

Despite the impact of continuing global turbulence and a high dollar on our economy and our budget bottom line, there's good reason to be confident about our nation's future. We have an economy that is growing solidly, low unemployment, very low debt, sturdy public finances, and contained inflation. These factors mean Australia is very well positioned to deal with any further deterioration in the global economy. What's more we have a resources sector that's going from strength to strength. New investment in the resources sector has risen from $47 billion in 2010-11 to $95 billion this year and will rise again to an expected $120 billion in 2012-13.

Investing in the future

The boom in investment isn't surprising given the boom in exports. New figures out during the week show Australia's mineral and energy exports  are likely to reach nearly $200 billion this financial year, and climb to around $258 billion in five years. Even though commodity prices are expected to drift lower in the medium term, the Bureau of Resource and Energy Economics still forecasts earnings from LNG, iron ore and thermal coal will all increase because of higher export volumes.

It was timely these numbers came out in the same week that the Government secured passage for its historic resource taxation reforms . Despite some of the scare mongering and baseless claims we've heard, the facts show that Australia's resources sector has a fantastic future. Mining companies have continued to invest in new projects, expand production and hire more workers in full knowledge that the Minerals Resource Rent Tax will apply from July 1. Obviously no one likes paying more tax, but the vast majority of mining companies understand that the package maintains incentives to invest, while also providing a more appropriate return to the Australian community for the resources they own 100 per cent.

The MRRT was designed after close and exhaustive consultations with the industry over more than 18 months and reflects company information, including commercially sensitive data, to ensure sufficient revenue to meet the Government's objectives. Revenue from the MRRT will be used to increase competitiveness across the entire economy through:

  • A major new tax break for 2.7 million small businesses – encouraging them to invest and grow;
  • Critical investments in roads, bridges and other infrastructure, particularly in our mining regions;
  • An increase in the superannuation guarantee for 8.4 million Australian workers – that's projected to provide a 30 year old on average full-time earnings over $100,000 more at retirement; and
  • An extra super contribution for 3.6 million low income workers.

The MRRT will also help support businesses outside the mining boom fast lane through a cut to the corporate tax rate from 2013-14, with a one-year head start for Australia's 720,000 small business companies. Cutting the company tax rate will increase productivity, promote broad-based economic growth and encourage more investment and job creation across the entire economy. It's really important that everyone support this reform so we can provide some relief to the many businesses doing it tough in our patchwork economy, particularly those which aren't in the mining boom fast lane and which face challenges like the high Australian dollar.

Skills for all Australians

Like the MRRT, the Government's focus on skills and training is about preparing our nation for the future and helping more Australians benefit from the opportunities of a changing economy. I'm really proud of the fact that today there are more Australians studying a trade than ever before in our nation's history – some 460,000 people are doing a trade apprenticeship or a traineeship. Despite this, too many Australians remain locked out of the workforce because they don't have the skills they need. That's why during the week the Prime Minister announced a reform package  that aims to help an additional 375,000 students to complete qualifications over the next five years. Under the plan, all Australians will for the first time have access to a government-subsidised training place up to their first Certificate III, and interest-free loans will be expanded in the vocational education and training system, enabling up to 60,000 students per year to defer the upfront cost of tuition. Lifting skills helps lift productivity in our economy and it helps people lift their wages and access more rewarding jobs. In fact, gaining a Certificate III qualification or higher could increase an individual's income by around $400,000 over the course of a working life.

Opportunities in the Asian Century

Increasing the skills of our workforce and reforming our tax system are both important reforms that will help Australia make the most of the opportunities in our region. Australia is now closer to the centre of global economic activity than it has been at any time in its modern history. In the 1950s, only 15 per cent of global GDP was within 10,000 km of Australia. Today, that share has doubled to around 30 per cent and it could surge to almost two-thirds by 2050. Of course, much of that growth has come from Asia – and in particular China. By the end of this year, China's GDP will have increased almost 20-fold since 1980. During the week, we saw another indication of our deepening economic ties with China with a currency swap agreement. The deal between our central banks will support trade and investment between our countries, and is another important step toward the internationalisation of China's Renminbi. I'll be talking more about the importance of our economic relationship with China, and Asia more broadly, on Wednesday in a speech to the Australia China Business Council in Melbourne.

Countdown to Budget

With the Budget to be handed down in less than six weeks, I'll also be delivering a really important speech to the Australian Business Economists breakfast on Thursday about why returning to surplus in 2012-13 is the right strategy for the economy. Certainly the $140 billion write-down in government revenues since the global financial crisis and the structural changes to the revenue base make this task a lot tougher. But the lessons of Europe's sovereign debt turmoil show all too clearly that maintaining fiscal discipline and returning the budget to surplus is absolutely critical to supporting confidence, jobs and sustainable growth in Australia at a time of great change and uncertainty in the global economy. Further revenue write-downs beyond the $140 billion of revenue already lost due to global turmoil means we will have to continue to find substantial savings in the Budget. So this speech on Thursday will lay out the economic and fiscal circumstances in which we're putting together my fifth budget and will discuss some of the longer term changes we're seeing affect our revenue base.

While savings will need to be found, our determination to return to surplus doesn't come at the expense of helping those most in need. At the annual conference of the Australian Council of Social Service on Thursday, I'll be explaining it's only through strict fiscal management and keeping the economy strong that we can build a fairer society. I'll also continue the conversation I started this month with my essay in The Monthly  about how a strong economy and a strong community go hand in hand. That has been the guiding principle of this Government since day one and it will remain so as we head towards Budget night on May 8.

And lastly, I want to pay tribute to Queensland Premier Anna Bligh, Treasurer Andrew Fraser and the rest of their team who showed tremendous leadership for the state during the global financial crisis as well as through the really tough times during last summer's natural disasters and the massive recovery and reconstruction job that followed. I'd also like to congratulate Premier-elect Campbell Newman. I look forward to working constructively with him and Tim Nicholls, the incoming state treasurer.

Wayne Swan
Acting Prime Minister and Treasurer of Australia