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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 June 2012

Treasurer's economic note

We are witnessing one of the greatest economic transformations in history. The rapid development of economies across Asia is lifting hundreds of millions of people out of poverty. This change has profound implications for Australia. As I noted in a speech at the Prime Minister's Economic Forum during the week, the proportion of world GDP within 10,000 kilometres of our shores has doubled in the last 50 years to over a third. That share is likely to rise to around half of global output by 2030.

Australia's Century in Asia

Asia's re-emergence is writ large in the gathering pace of investment in our resources sector, with the value of projects underway or on the drawing board worth a staggering half a trillion dollars. On Wednesday, we received more evidence of the bright future for our resources sector. Spending on mineral exploration increased by 12.3 per cent in the March quarter to reach a record $1.086 billion – the first time more than a billion dollars had been spent on exploration in a single quarter. In fact, exploration expenditure has risen by about 35 per cent since a price on carbon pollution was announced, and nearly 80 per cent since the Minerals Resource Rent Tax was announced. It's yet another reality check for those who try to talk down the outlook for our resources sector or make ridiculous claims that important economic reforms are hurting investment.

What's often not appreciated is that Asia's rise will create demand for a lot more than just our iron ore and coal. As incomes grow, Asia's middle classes will also grow. This means there will be opportunities for more than just our resources sector. Demand across the region will increase for our fine wine and food, our high-end manufactured goods, and our services like finance, education and tourism. By the end of this decade, Asia could have an additional 1.2 billion consumers. We're already seeing the benefits from Asia's growing middle class – China became Australia's biggest market for services two years ago. You may also be surprised to learn that Australia earned more from China by providing tourism, education and other services last year than it did from selling coal. Next month I'll be leading a delegation of business leaders to Hong Kong and Beijing as part of Australia's efforts to further deepen its ties with the region.

Help for Business Outside the Fast Lane

As we know not all parts of our economy are sharing in the benefits of Asia's tremendous growth. From the start of next month, two major reforms to our tax system will provide important relief to businesses that aren't in the fast lane of the mining boom. The loss carry-back initiative will allow companies to claim current losses against tax paid in previous years, providing cash flow to ride out difficult times and take advantage of new opportunities through investment. Over 110,000 companies are expected to benefit from this reform in the first four years. The other change beginning on July 1 is 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, ute or van. As the Prime Minister said during the week, we see cutting the rate of company tax as the next step on the reform road. That's why we've made it the top priority of the Business Tax Working Group. Given the tight fiscal circumstances, any change has to be affordable and funded by other changes in the business tax system. But as we've demonstrated with the instant asset write-off and loss carry-back, this Government is committed to business tax reform.

While it's clear not everybody's in the fast lane, it's equally clear that the fundamentals of our economy are rock-solid – really impressive growth, strong job creation, low interest rates, healthy public finances and a triple A-credit rating that was reaffirmed yet again during the week. These healthy fundamentals should be cause for optimism and for seeing the glass as half full, as I've been saying for some time now. That said, unfortunately images of riots on the streets of European capitals and turmoil on international financial markets have become a familiar part of nightly news bulletins over the past few years. With a seemingly endless stream of bleak economic news from overseas, Australians could be tempted at times to feel like putting up the shutters to the outside world. Of course protectionism is never the answer. Australia is a great trading nation. Our country has been built on the exchange of goods, services, capital and ideas with the rest of the world.

An open and competitive economy continues to deliver huge benefits to our people, creating jobs, growing businesses and increasing prosperity. This was one of the big themes discussed at the Prime Minister's Economic Forum during the week. Business and union leaders and representatives from across the community discussed the importance of Australia deepening its engagement in international markets, particularly those in our region, while at the same time continuing to address the challenges at home caused by a high dollar and uneven economic growth. Rather than retreat from the world, we need to continue pursuing reforms that boost our productivity and competitiveness. That's the best way to ensure more Australians share in the benefits of the Asian Century.

A Shadow Over the Global Outlook

Attention will again turn to Europe today and the outcome of the Greek elections in particular. Whatever the result, Europe's challenges remain profound. The region's policymakers must continue with their reforms to boost growth and reduce debt, as well as reinforcing their financial firewalls. Determined, consistent and sustainable action will be required – something the Prime Minister will stress when she attends the G20 Leaders Summit in Mexico this week. The situation in Europe continues to cast a shadow over the global outlook. The Federal Budget last month took a cautious and conservative view of Europe's outlook, with a forecast for output to contract by ¾ of a per cent this year. 

As the Prime Minister said this week, it's important to keep in mind the facts of our economic achievements. Australia's economy has grown 10.3 per cent since Labor came to office, while many advanced economies are yet to return to their pre-GFC levels. And while around 836,000 more Australians have gained a job over the period, around 27 million people have joined the world's unemployment queues. In times like these, and regardless of the outcome of the Greek election, we should never lose sight of the fact that we face the challenges in the global economy from a position of unrivalled strength.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia

www.treasurer.gov.au
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