Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Treasurer's economic note
This week I'll meet with G20 Finance Ministers and Central Bank Governors in Washington DC, as well as attend meetings of the IMF and World Bank. I'll also talk to key investors and business leaders in New York about the strong fundamentals of Australia's economy – our low unemployment, contained inflation, very low public debt and record pipeline of investment. Although they come at a busy time, less than four weeks out from Budget night, I've always found these meetings provide a really valuable insight into the state of the international economy and help ensure we've got the policy settings right at home.
While global challenges still loom large, there have been signs of stabilisation over the past few months: European leaders have taken the steps to address the sovereign debt crisis and economic conditions in the U.S. have been more positive. Still, there is a long, difficult road ahead for many advanced economies and we shouldn't be surprised to see bouts of instability continue for some time to come. That's why, as I've said many times before, it's so critical that European nations put in place the reforms needed to lift growth and get their budgets in order, while we must all ensure that the IMF has sufficient resources to address any potential contagion in the global economy, including in our own region. Over many years, Australian governments of both political persuasions have worked with the IMF to support global economic stability, and that's something I'll continue to work towards this week with my fellow G20 finance ministers.
A Focus on Jobs
At the G20 meeting, I'll also emphasise the importance of putting job creation and skills investment at the centre of the global economic agenda. While the world's finance ministers and central bank governors must continue addressing the vulnerabilities facing the international economy, we must remember the ultimate objective of these efforts is to provide more people with the opportunity to gain a decent job with fair pay and conditions. This is not only essential for reducing global poverty and increasing living standards, but also for ensuring long-term, sustainable growth. As I argued recently in my essay in The Monthly, societies are stronger when more of their people have the opportunity to make a contribution and share in the benefits of employment. Many Australians don't realise that while our economy has created almost 790,000 jobs over the past four and a half years, jobless queues have lengthened in other developed economies. In fact, around 27 million people have lost their jobs since the global financial crisis struck and the International Labour Organization has warned that millions more could join them in the years ahead. This means employment must be a top priority for international policy makers and that's something I'll continue to advocate as Australia prepares to host the G20 meetings in 2014.
As a nation, we have every right to be proud of the fact that more Australians have a job today than ever before in our history. Figures out on Thursday showed around 44,000 jobs were created last month taking the number of people in paid employment to 11,491,200 – a record high. That's more Australians than ever bringing home a pay packet to their families. For our economy, it's another indication of its resilience despite the pressures of the high dollar, cautious consumer spending and ongoing global uncertainty that are all weighing on some sectors. While we shouldn't be surprised if the unemployment rate ticks up slightly in the period ahead, we need to keep our nation's tremendous achievements in perspective. Our unemployment rate of 5.2 per cent is among the lowest in the industrialised world, and less than half the 10.8 per cent rate of the Euro area. It's worth keeping in mind that if our rate matched that of Europe, 680,000 more Australians would be out of a job today.
Australia's low rate of unemployment is a key sign of our strong economic fundamentals. And with our economy returning towards trend growth, it helps underscore what I've been saying about the importance of bringing the budget back to surplus. Returning to surplus will also ensure the Reserve Bank has the flexibility for further interest rate cuts if it thinks that's necessary.
Building a More Productive Workforce
Since coming to office, the Government has been focused on ensuring more Australians have the skills they need to get a job. That's why the centrepiece of last year's Budget was a $3 billion skills package that placed industry at the heart of the training effort. Building on this, we saw the Prime Minister on Friday announce a skills agreement with the states and territories that aims to help an additional 375,000 students complete training qualifications over the next five years, supported by subsidised training places and student loans. Measures like these are critical to building the long-term productive capacity of our economy. Boosting productivity doesn't mean making Australians work harder or longer, or removing their working conditions. It's about providing workers with the skills and resources they need to do their jobs more effectively. This is the best way in the long term to boost business profitability and ensure real increases in workers' wages.
Another important way we're working to increase productivity and competitiveness is through tax reform. As I explained in a speech to the Business Council of Australia on Friday, the Government is committed to providing tax relief for businesses, particularly those that are outside the fast lane of the mining boom. That's why we're using the proceeds from the Minerals Resource Rent Tax to help fund a major new tax break for 2.7 million small businesses from July 1 – the $6,500 instant asset write-off. It's also why the Government will seek support in the next period of parliamentary sittings for a cut in the company tax rate to 29 per cent from 30 per cent in 2013-14, including a one-year head start for small business companies. On Friday, I received an important report from the Business Tax Working Group on further potential reforms, specifically to do with the treatment of tax losses. This may be one way of providing struggling businesses with some much needed assistance during these tough times, increasing cash flows and encouraging new investment and sensible risk‑taking. The working group also identified savings options to fund the reforms from within the business tax system. I look forward to further public debate about the ideas in the report and the critical role the tax system has to play in helping businesses adjust to the changes in our economy.
A Balanced Budget
The Government's substantial record of tax reform has been achieved despite really difficult fiscal circumstances. As I've discussed, the ongoing global instability has had a big impact on our economy and our budget bottom line. Since the global financial crisis struck, we've been forced to write-down government tax revenues by $140 billion, and as I've indicated there will be more write-downs in next month's Budget. On Friday, the monthly financial statements showed tax collections were running a further $2 billion behind estimates at the end of February, indicating the full-year shortfall is likely to be much larger. Lower revenue means we will have to work much harder to find extra savings in the Budget. The savings will be significant, but they will be targeted and responsible and reflect our most important Labor values – like protecting low- and middle-income individuals and families and the community's most vulnerable. This will be a balanced Budget – balanced in that it charts a responsible middle course and balanced in that it gets us back in the black well before our peers. Most importantly it's a Budget right for the challenges we face today and right for building on our unique strengths for a future in the most dynamic region in the world.
Deputy Prime Minister and Treasurer of Australia