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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

8 July 2012

Treasurer's economic note

The big changes in our society never come easy. They are always hard fought. They always meet with fierce resistance. And it has always taken time for their importance to be accepted by everyone. It's easy to forget that things like Medicare and compulsory superannuation were hotly contested when they were first introduced. Today you would be hard pressed to find many people who would argue against these critical reforms, and in the years to come you'll be hard pressed to find many people to argue against the importance of reforms like the pricing of carbon pollution.

The Right Side of History

From this week, Australians can now begin judging the price on carbon pollution  for themselves. We've moved from rhetoric to reality. Certainly the prices down at my local supermarket in Brisbane were pretty much the same after the introduction last Sunday. There were no "unimaginable" price hikes. Breakfast cereal was still affordable. And there wasn't a $100 lamb roast in sight. As I've said many times before, the price impact will be modest. Treasury's modelling shows that overall the carbon price is expected to increase the Consumer Price Index by only 0.7 per cent over the next 12 months – less than a cent in the dollar. And the impact on most food and other groceries will be a lot less than that. By comparison, the introduction of the GST added 2.5 per cent to CPI – an impact more than three times as large as the carbon price.

During the week, we saw the ACCC is ready to take action against any business that tries to use the carbon price as an excuse to unfairly jack up prices. Of course the vast majority of businesses are doing the right thing as they always do. But any business that tries to take their customers for a ride should stop and think again. They could face penalties of up to $1.1 million for making misleading claims. If you think a business is trying to take advantage of the carbon price, give the ACCC a call on their dedicated hotline on 1300 303 609. 

Living Greener

We all know that power bills have increased a lot in recent years – long before the price on carbon. This is mainly because billions of dollars have been spent upgrading the towers, poles and wires that get the power to your home. Treasury modelling estimated the carbon price would increase electricity prices by 10 per cent this financial year – and that's been confirmed with recent rulings by state regulators. On average, power prices will go up by around $3.30 a week per household because of the carbon price. It's important to remember that the Government is offsetting this with average assistance to households of $10.10 a week being delivered through tax cuts and increases in family payments, pensions and benefits. Almost 6 million households will be assisted to meet their entire average price impact of the carbon price, and over 4 million households will be better off with a buffer of at least 20 per cent over their average price impact.

By taking simple steps to reduce energy use, households can pocket the additional assistance they receive and end up further in front. I'd encourage you to check out the www.livinggreener.gov.au  website. It's filled with great tips about using energy better around the home, which could save you money. Obviously, a lot will depend on your particular circumstances, but here's a rough idea of the sort of savings that are possible over the course of a year by making a few simple changes:

  • Washing clothes in cold rather than hot water could save you around $115;
  • Getting rid of the second fridge could save you around $140;
  • Using a clothesline instead of an electric dryer once a week could save you around $63; and
  • Switching off gaming consoles at the power point could save you up to $150.

This shows you can do your bit to help the environment and help your family budget at the same time.

Powering Ahead

In the week that the carbon price and resource tax arrangements were introduced, it was fitting to see more evidence of our mining sector powering ahead. On Wednesday, Origin Energy and its partners announced they were proceeding with the next stage of a $23 billion liquefied natural gas project in Gladstone – a place that some claimed would turn into a "ghost town" because of the carbon price and the Minerals Resource Rent Tax . Far from sounding the death knell of the resource sector, investment has skyrocketed since both policies were announced. In fact, there is half a trillion dollars worth of investment on the drawing boards or currently underway.

But we also know that the strength and resilience of our economy extends well beyond investment in resources. We saw a clear sign of this in the latest National Accounts, which revealed above-trend growth in consumption over the past year. And while you can't read too much into monthly figures, we've seen more encouraging data outside of mining over the past week or so:

  • Record monthly growth in dwelling approvals, which included a broad-based lift in private house approvals;
  • A pick-up in retail sales, with a solid and broad-based gain in May;
  • An improvement in services activity; and
  • Stronger growth in business credit, which builds on an upward trend in recent months.

All this comes on top of impressive growth, low unemployment, contained inflation and low interest rates. Of course parts of our economy are still under pressure from global turbulence, the high dollar and structural change, but the fact remains we are the standout performer in the developed world.

Australia in the Asian Century

Like the carbon price and MRRT today, a far-sighted decision 40 years ago helped lay the foundations for our current prosperity. The Whitlam Government's decision to engage with Beijing showed great foresight when you consider that since then China has undergone perhaps the most remarkable economic transformation in modern history. Trade between our two countries is today worth well over $100 billion a year – more than 1000 times larger than what it was when we established diplomatic relations in 1972. While China's rapid growth has fuelled our mining boom, the opportunities extend well beyond resources. Rising incomes mean the middle class is growing not just in China, but across the region. By the end of this decade, Asia is set to have an additional 1.2 billion consumers and China is likely to be the biggest consumer market in the world in dollar terms. That presents fantastic opportunities for Australian manufacturers of high-end goods, providers of services like finance, education and tourism, and producers of wine and food.

This week I'll be leading a delegation of business leaders  to Hong Kong and Beijing as part of our efforts to keep building our engagement with the region and positioning our country to make the most of the huge opportunities ahead in the Asian Century. This will be my seventh visit to China in my time as Treasurer – a period which has spanned the biggest economic meltdown since the Great Depression. But it's fair to say amid this turbulence, our economic ties have continued to strengthen and expand to meet the huge opportunities opening up in Asia. At the same time, over these seven visits, it's been great to see the people-to-people links between our two countries really flourish, not just in the commercial world, but right across our communities. It will be great to continue to build on this friendship following in the footsteps of Gough Whitlam four decades ago.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia

www.treasurer.gov.au
twitter.com/SwannyDPM