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

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

29 July 2012

Treasurer's economic note

Labor great John Button understood a strong economy and a strong community go hand in hand. As industry minister in the 1980s and early 1990s, he helped carry many of the important reforms that have been so critical to building our nation's prosperity over the past two decades. John believed passionately in the importance of a society where everyone has a decent shot at a decent life and can make a worthwhile contribution to their community and their nation. On Wednesday, I'm honoured to be delivering this year's John Button Lecture in Melbourne. It's an opportunity to talk in a quite personal way about some of the beliefs that first drew me into politics and some perhaps less well-known influences that shaped those beliefs. It's also a chance to talk a little more about the ideas in my essay on the fair go published in The Monthly earlier this year and what's happened since.

Sharing a Stake in Our Success

The truth that's always been at the centre of the Labor movement – and something John Button understood to his core – is that wealth is created by all Australians. You create wealth by owning a business, but you also create wealth by working for a business. You create wealth by working on the top floor of an office tower, but you also create wealth working down a mine, in a factory, in a shop, in a hospital and in a school. This is why you can't treat the creation and the distribution of wealth as two separate matters. Of course effort, enterprise and risk-taking should always be rewarded, but – as U.S. Democrat Elizabeth Warren has argued – nobody in this world gets rich on their own. We have a responsibility to ensure that prosperity is fairly shared. All Australians – rich and poor, young and old, owners of businesses large and small, the ill and the healthy – deserve a say in the debate and a stake in our economic success.

This is why Labor's mission over the decades has been to grow our economy so we can provide opportunity to more Australians so they in turn can make a contribution to the nation's prosperity. Big reforms like Medicare, superannuation and other changes in the 1980s and 1990s delivered on this ideal. And the Gillard Labor Government is continuing this tradition with things like Paid Parental Leave, pricing carbon pollution and assisting families with the cost impacts, the tripling of the tax-free threshold to benefit those on low and middle incomes, and laying the foundations for a National Disability Insurance Scheme. I was very proud of the Prime Minister's success during the week in ensuring that the first stage of the NDIS will begin in New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory, with launch sites kicking off on 1 July 2013.

Societies are stronger when more people have an opportunity to play their full part. In many parts of the world, a stubbornly high rate of unemployment, particularly amongst the young, has led to a loss of skills in the economy and a loss of hope in society. When vast inequalities of wealth and opportunity exist, fewer people are able to gain the skills, knowledge and encouragement they need to succeed. There is less ambition and achievement, less wealth creation, and less prosperity for everyone to enjoy. Instead of a rigid and widely divided society, we need to ensure our society retains a vast middle class and a high degree of social mobility.

In The Monthly essay, I detailed many of the indicators that show how well Australia stacks up compared to the rest of the world. Like the fact that incomes for the poorest 10 per cent of Australians have grown at more than double the average for developed economies in recent decades. Like the fact that shortly after the Second World War, Australia and the U.S. were roughly equal in the percentage of total income going to the top 1 per cent, while today the gap in Australia between the richest and the rest is less than half that of the U.S. And like the fact that Australia has done a better job than most other countries in making sure that success is determined by hard work and effort and not simply where you were born or who your parents are. The income of a father is twice as important in determining what their son will eventually earn in the U.S. as it is in Australia. This economic mobility is one of the main reasons we have such a cohesive society in Australia.

Of course Australia has not been immune from the impact of global turbulence in recent years – no country has. This was clear in the Budget papers in May, which showed $150 billion wiped from government revenues since the onset of the global financial crisis. Australians have also seen the impact on their household wealth. This is obvious not only in the performance of people's superannuation accounts in recent years, but the more cautious attitudes towards debt that have contributed to the softness in house prices. Despite this, the situation in Australia is nothing like what has occurred in the U.S. While median household wealth in the U.S. declined by more than 30 per cent between 2004 and 2010, here in Australia it increased by more than 20 per cent over the same period. Contributing to this was our stimulus response to the GFC, which protected hundreds of thousands of jobs, as well as our decent social safety net and government policies that spread opportunity. Australia's success was confirmed by a Reserve Bank study in March that showed wealth inequality in Australia has lessened in recent years. Not only did we avoid recession during the GFC but we came out of it a more equal society than we went in. When you look around other parts of the world and see rising inequality and widespread social disharmony, you realise all Australians can rightfully be proud of what we have achieved together.

Recognising Our Strengths

Australians can also be proud of our other economic achievements. On Wednesday, we received news that inflation over the year had fallen to its lowest level in 13 years, with the underlying rate over the year at the bottom of the Reserve Bank's target band. In itself, this is welcome news for households trying to make ends meet. And we've also seen the benefits in cuts to interest rates in recent times. Australians on a $300,000 mortgage are now paying around $4,000 less repayments per year than they were when Labor came to office. One factor behind this contained rate of inflation – and hence the recent interest rate cuts – is the Government's strict budget discipline. Not only is the Government consolidating its fiscal position, but payments as a proportion of GDP are set to remain below 24 per cent over the forward estimates – something that has not been achieved in over 30 years.

While the inflation numbers are themselves great news, what I'm most proud of is their interaction with our other economic fundamentals. We have an economy that's growing solidly, an investment pipeline in resources worth half a trillion dollars, healthy consumption growth, low unemployment plus contained inflation. Certainly our nation has its challenges and we can never be complacent, but Australians can deservedly be proud of the strong economy their hard work and resilience have helped create. As the Governor of the Reserve Bank observed during the week in a speech entitled 'The Lucky Country', our economic achievements are due to more than just good fortune:

It is fair to conclude that, given the circumstances internationally, the Australian economy has exhibited more than acceptable performance over recent years. This conclusion would stand whether comparisons were made either against most other countries, or against our own historical experiences.

As we showed during the GFC, through the determination of businesses and workers and good policy decisions, Australia has made its own luck. Our proven track record and our healthy fundamentals should be cause for optimism and for seeing the glass as half full, as I've been saying for some time now. Now more than ever, it's important that we have a constructive debate about our economy, rather than descending into damaging rhetoric that talks down our prospects and sells our country short. With the right policies and decisions, we can create an Australia where all citizens share in the benefits of our prosperity, not just the fortunate few.

Wayne Swan
Acting Prime Minister and Treasurer of Australia