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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

6 May 2012

Treasurer's economic note

The budget is a lot more than an exercise in number crunching. It's a statement of values, beliefs and priorities. It reflects our journey as a nation and sets out the roadmap for where we want to go in the years to come. What you'll see on Tuesday night is the fifth chapter in this Labor Government's ongoing commitment to building a stronger economy in the interests of all Australians. Through the most tumultuous period for the global economy since the Great Depression, our economy has kept growing, with more than three-quarters of a million Australians having gained the dignity and security of a job since late 2007. By keeping our economy strong, we've been able to create a fairer nation as well. The Gillard Government will keep working to ensure that our kids can get a good education, that the sick can access quality health care, that the shop floor delivers fair outcomes for workers as well as their bosses, that hard work and entrepreneurship is properly rewarded, and that older Australians are valued and respected. As part of this mission, we will return the budget to surplus in 2012-13. This is the right thing for our economy, for confidence, for interest rates and for the long-term interests of all Australians.

The benefits of a surplus

A surplus is Australia's best defence against an uncertain global outlook. During the week, we saw the extent of the challenges facing Europe with the unemployment rate edging up to a record 10.9 per cent, with about 17.4 million men and women in the Euro area looking for work - that's more than Australia's entire adult population. Against the uncertain international backdrop, Australia's fiscal discipline sends a strong message of confidence to the world - demonstrated in our AAA credit rating from all three major international ratings agencies, something never before achieved in our nation's history. Returning to surplus also ensures we're not generating price pressures in the economy. This is important because - as the Reserve Bank highlighted in its Statement on Monetary Policy on Friday - economic growth is returning to around trend over the next couple of years and the outlook for mining investment remains very strong.

During the week, we saw more organisations and economists support the Government's budget strategy. AMP Chief Economist Shane Oliver said:

A return to surplus will add to the scope for the RBA to cut interest rates further [and] a surplus will add to confidence in the minds of foreign investors regarding Australia's underlying economic strength at a time when most other countries are still struggling to bring deficits under control.

And the Chief Executive of the Business Council of Australia Jennifer Westacott said:

Now is the time we should be building surpluses and preparing for the challenges that we're going to face as an economy, particularly those from an ageing population. We've got high terms of trade, we've got low unemployment, we've got reasonable economic growth.

On Tuesday, we saw the clear dividends of our disciplined approach to budget management. The Reserve Bank's decision to cut interest rates by 50 basis points was a godsend for millions of households and small businesses. The official cash rate is now lower than at any time under the previous government, and a family on a $300,000 mortgage is now paying over $3,000 a year less in repayments than when we came to office. Our fiscal discipline continues to give the Reserve Bank the maximum possible flexibility to cut interest rates further if it thinks that's appropriate.

Supporting businesses outside the fast lane

As we all know many parts of the economy are missing out on the benefits of the mining boom, and are struggling because of a high Australian dollar and cautious consumer spending. To help these companies to compete, I've announced today a major new tax initiative called the Loss Carry-back to drive investment and innovation in the economy. This will allow companies to claim current losses against tax paid in previous years, allowing them to receive a refund. It means companies will be able to use their tax losses when they need to rather than in the future when their businesses are performing better and creating tax liabilities. The extra cash flow will help them ride out difficult times and take advantage of new opportunities through investment. Over 110,000 companies are expected to benefit from this reform in its first four years.

We're also giving a much-needed helping hand to millions of businesses that aren't companies by using some of the proceeds from the Minerals Resource Rent Tax to fund a new tax break that will allow the nation's 2.7 million small businesses to immediately write off each and every asset they buy that's worth up to $6,500 as well as the first $5,000 of a car or ute.

Helping families make ends meet

As well as delivering a surplus to give the Reserve Bank maximum flexibility to cut interest rates, the Budget will build on this Government's impressive record of helping low and middle income families make ends meet. The Prime Minister and Families and Community Services Minister Jenny Macklin have today announced a new Schoolkids Bonus that will help 1.3 million eligible Australian families with cost of living expenses, such as uniforms, books, school excursions, stationery and other education costs such as music lessons and sports registration fees. The new bonus will be $410 for each primary student and $820 for each high school student, paid in equal instalments twice a year. It's a big improvement on the existing Education Tax Refund that required parents to keep receipts to claim at tax time, and meant many families missed out on the full benefit.

Also today Health Minister Tanya Plibersek has announced increased funding to provide vital dental services to 400,000 people on low incomes over the next four years, including a blitz on dental waiting lists. These are the types of measures that will make a real difference to families right around the country and I'm really proud that our Labor Government is able to deliver them, whilst still delivering a surplus. Measures like these and other big reforms like laying the foundations for the National Disability Insurance Scheme are only possible because of the Government's strong fiscal management.

Lastly, together with Finance Minister Penny Wong, I'd like to thank the hundreds of people in our departments, as well as across the entire government, for their tireless efforts in putting together the Budget. I've seen their incredible dedication over the past week, working alongside many of them in the Treasury building as we put the finishing touches on the budget documents. Our officials are among the most highly regarded in the world, and I pay tribute to their important contribution in helping build one of the strongest economies and fairest societies in the world.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia