The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

1 July 2012

Treasurer's economic note

Governments have always been responsible for the here and now: from running schools and hospitals, to maintaining roads and highways, to emptying the rubbish bins off the front curb each week. But to be effective, governments also need to have an eye on tomorrow. They need to invest in the skills and education of future workers. They need to build the infrastructure  that the future economy will require. They need to protect the environment for future generations. They need to put in place the settings to ensure industries continue to flourish, jobs continue to be created, and prosperity continues to be built. The ultimate goal is to ensure children inherit a society with the same or even greater opportunities as those enjoyed by their parents. Today, Australia has taken some hugely important steps towards this goal, steps to build a stronger, fairer and more sustainable nation.

The Shift to Clean Energy

Australia generates more pollution per person than any developed country in the world – more even than the United States. Our emissions per capita  are more than twice that of the United Kingdom, around five times that of China and ten times that of Indonesia. And Australia's pollution is continuing to rise at a rapid rate. Without action, it's expected to rise by almost 2 per cent a year to 2020. As other countries continue taking steps to curb emissions, Australia must also act so that our industries and our economy remain competitive. From today, we begin to break the link between emissions growth and economic growth by putting a price on carbon pollution. This is the most effective and efficient way to drive innovation to find better, less-polluting ways of producing power, goods and services. It will help reduce Australia's annual emissions by at least 159 million tonnes per annum by 2020 – equivalent to taking 45 million cars off the road.

As well as the market signal of the carbon price, the Government will help expand the clean-energy sector  through targeted investments. Today marks the start of the Australian Renewable Energy Agency . It will manage $3.2 billion in grants and financial assistance to help develop and commercialise renewable energy and energy efficiency technologies. It will work alongside the $10 billion Clean Energy Finance Corporation, which was established by legislation passed by the Parliament during the week. This independent body, chaired by Jillian Broadbent, will work with the private sector to invest in businesses seeking funds to get innovative clean-energy proposals and technologies off the ground. This funding, combined with the carbon price, will kickstart about $100 billion in investment in the renewables sector over the next 40 years. Treasury modelling shows energy from the renewables sector is projected to account for around 40 per cent of our electricity generation by 2050 – a significant increase from the current level of around 10 per cent.

Over the past few economic notes, I've discussed the household assistance  that will be provided to help with the modest cost of living impact of the carbon price. Central to this are the tax cuts that start from today. Every worker earning up to $80,000 a year – more than 7 million Australians – will receive a tax cut, with most getting at least $300 a year. A second round of tax cuts will apply from 1 July 2015, increasing this annual saving to at least $380. What's particularly pleasing for me is that this tax relief is being delivered through an important reform: the tripling of the tax‑free threshold. From today, the threshold will increase from $6,000 to $18,200 – the largest increase in the threshold ever and the first increase in more than a decade. From 1 July 2015, the threshold will increase again to $19,400. Importantly, the higher threshold reduces the complexity of the tax system and encourages workforce participation. Up to 1 million Australians will no longer have to lodge a tax return and around 630,000 additional people will no longer have to pay any income tax.

Spreading the Benefits of the Mining Boom

Figures out during the week forecast Australia's resource and energy export earnings will increase by 8 per cent to a record high of $209 billion this financial year. While this demand for our commodities is clearly a major benefit for our economy, it's also accompanied by a higher dollar that's making life tougher for manufacturers, tourism operators and other businesses that compete in international markets. From today, the Minerals Resource Rent Tax  (MRRT) will begin to spread the benefits of the boom across the entire economy. Along with investments in infrastructure, revenue from the MRRT will begin funding two important reforms to help businesses that aren't in the fast lane of the mining boom.

The loss carry-back initiative will improve cash flow to help companies ride out difficult times and take advantage of new opportunities through investment. Companies that report a loss from this financial year will be able to carry back up to $1 million of losses to offset them against previous tax paid. This will provide a tax refund of up to $300,000 per year, helping an estimated 110,000 companies over the next four years. The other change beginning today 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 less than $6,500 as well as the first $5,000 of a car, ute or van.

A Better Deal on Credit Cards

There are over 15 million credit card accounts in Australia – many families have two or three cards – so nearly everyone stands to benefit from another important package of reforms  that begins today. The changes are all about giving Australians more control over how they use their credit cards, because we know a lot of households use them to help manage their monthly budget. Our reforms will:

  • Require credit card lenders to clear higher-interest debts first;
  • Stop lenders from bombarding consumers with pre-approved, tick 'n flick offers to increase their credit limits;
  • Prevent lenders charging fees to customers who go over their credit limit unless they've expressly asked for this service;
  • Make it mandatory for credit card application forms to include a clear summary of key account features; and
  • Require all lenders to clearly warn consumers on their monthly credit statement of the consequences of only making minimum repayments.

Also from today, we're giving Australians the freedom to switch bank accounts with the stroke of a pen. The new ‘tick and flick' service will free consumers from the burden of having to change the details of automatic direct debits and credits if they want to move deposit accounts – things like salary payments, electricity and gas bills, and rent. Customers will sign just one form that authorises their new financial institution to do all the heavy lifting for them. By taking away a lot of the hassle and headache, Australians will more easily be able to walk down the road if there's a better deal on offer for their hard-earned savings, putting more competitive pressure on financial institutions to provide better service and better value.

Getting on with the Job

During the week, renowned economists Paul Krugman and Richard Layard wrote about how strategies adopted in some nations since the GFC had only exacerbated the problems facing the global economy. What is needed, they argued, is for more economists to speak up on behalf of good public policy . "The whole world suffers when men and women are silent about what they know is wrong," they wrote. The strength of our economy means we're in a very different situation to most other developed nations, but this call is still relevant for Australia. While there are very few economists who would argue against the importance of policies like a price on carbon or a resource rent tax, unfortunately this has not been reflected in a lot of the public debate over the past few years.

The measures being introduced today – along with the Government's other reforms like building the National Broadband Network, increasing the superannuation guarantee, and taking the first steps towards a National Disability Insurance Scheme  – are all based on sound economic policy. These policies position our nation for the long term while also looking after the interests of Australians on low and middle incomes and those most in need. Some who argue against reform like to pretend that we can keep doing things the way we always have. But our nation's prosperity will never be secured by sitting on our hands. Doing nothing won't make our economy sustainable beyond the mining boom or ensure the benefits are more fairly shared. It won't deliver an adequate retirement income for our ageing population. It won't provide faster broadband speeds to Australians no matter where they live. And it won't address the challenge of climate change or help build the clean-energy industries of the future. Pursuing policies that manage change and bend it to our advantage are the best way to build prosperity and deliver opportunities to more Australians.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia