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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

19 August 2012

Treasurer's economic note

An investment demonstrates faith in the future. It requires a belief that spending time, energy and money today can deliver greater gains tomorrow. That's the case whether a restaurant buys a new oven, a carpenter takes on an apprentice or a resource company builds a mine. Australia has always relied on this kind of optimism. Investment in our businesses, in our infrastructure and in our people has built our nation's wealth over many generations. In recent years, investment has only increased, even in the face of the most turbulent global conditions in around 80 years. The level of investment we see in Australia today is a resounding vote of confidence in our strong fundamentals and in the future of our economy.

Investing in the future

Since late 2007, there has been $919 billion of private business investment in Australia. That's an astonishing figure - equivalent to almost two-thirds of our annual gross domestic product, as I noted in a speech on Wednesday. It's even more impressive when you consider it's come during a time when the private sectors of other nations have been in retreat, reluctant to expand production, invest in equipment or build new plants. And while investment is lumpy quarter on quarter due to the large scale of individual projects, new private business investment in Australia has been growing by more than 20 per cent over the year since last September - its fastest rate in a decade. And in the March quarter of this year, private business investment as a per cent of GDP reached its highest level in the past 40 years.

Even with this huge amount of investment, there's still more to come - most evident in the half a trillion dollars  worth of resource projects either underway or on the drawing board. The total value of the investment pipeline moves around as new projects are added and others are completed. And of course not every project goes ahead or proceeds as quickly as originally planned. But what many people don't realise is how much of the investment pipeline is already largely locked in with funds committed, contracts signed or construction underway. Projects at this so-called advanced stage are currently at a record $260 billion. This is up by around $200 billion - or 350 per cent - since the Government came to office. Stunningly, it has increased by nearly $90 billion in the past year alone. While there has been no end to the irresponsible claims made about the impact of both a price on carbon pollution  and the new resource tax arrangements, the investment figures tell the real story. Far from putting a wrecking ball through the economy, investment has actually skyrocketed since these policies were announced.

Mining investment pipeline - advanced projects

Mining investment pipeline - advanced projects

This record pipeline of investment - along with our solid growth, low unemployment, healthy consumption, contained inflation and lower interest rates - provides a rock-solid foundation for our economy in the face of continuing global turbulence. During the week, we received another reminder of just how challenging conditions are in Europe, with figures showing GDP in the euro area contracted by 0.2 per cent last quarter.

While the mining boom has underpinned Australia's investment boom, that's only part of the story. Our strong economic fundamentals and sturdy public finances mean Australia is increasingly being viewed as a "new safe haven". This was a point made by the Wall Street Journal  during the week: "Many investors are lured by the country's triple-A credit rating, one of a handful remaining, which Australia has kept thanks to robust tax revenues from a decade-long mining boom and restrained government spending." As a capital-hungry nation, our reputation as an attractive investment destination is critical. Every business that seeks to borrow or raise capital and every household with a mortgage ultimately benefits from Australia's status as a safe and reliable place to invest.

The productivity pay-off

While investment helps to increase the capacity of our economy, it tends to drag on productivity in the short term. It takes time to train a new worker, time to install a new production line and time to build a new plant. The same applies to seeing the results of productivity-enhancing reforms. Although Australia is still ranked within the top dozen countries in the world in terms of labour productivity levels, productivity growth started slowing around a decade ago, partly due to neglect of the productive base of the economy. Since this Government came to office we've been focused on reversing this with measures like investing in better transport infrastructure and the National Broadband Network , improving the skills and training of our workforce, and reforming our tax system to increase investment, workforce participation and competitiveness.

Of course, we all have a role to play in addressing productivity -all levels of government as well as business and workers. That's why this Government has always supported a cooperative industrial relations environment, not a confrontational one. But it's wrong to view productivity as simply an industrial relations issue - the debate has to be much broader and better informed than this. The Prime Minister will be talking more about Australia's productivity challenge in a speech tomorrow.

There have been some positive signs recently, with labour productivity in the market sector growing by 5.3 per cent over the past year. This is not only the largest annual increase seen in a decade, but it is well above the 10-year annual average growth of 1.5 per cent. Of course, figures move around from quarter to quarter and it's still too early to know if the recent increase is the beginning of a more enduring upturn. Productivity performance needs to be measured over cycles, not quarters or years. We know it took time for the benefits of the big reforms of the 1980s and the first half of the 1990s - things like reducing tariffs and deregulating the financial sector - to flow through the economy. There's always a lag between putting reforms and investments in place and seeing the productivity pay-off.

Greater productivity is essential to help businesses in many industries adjust to the pressures of a high dollar and structural change - a point that was highlighted during the week by the Prime Minister's Manufacturing Taskforce . As the taskforce's report makes clear, Asia's growing middle class presents great opportunities for Australian business. By the end of next decade, the region is predicted to have 3.2 billion middle-class consumers. They will demand more high-end manufactured goods, more high-quality food and more services - ranging from financial advice and health care to tourism and education. On Wednesday, we got another hint of the growing potential of this market with China's biggest airline  announcing plans to begin services to Cairns.

But the opportunities in our region won't just fall in our laps. We will need to do more to adapt, to spot new opportunities, to find new markets, and to design new products. Central to this task will be ensuring sustained improvement in our productivity growth at home, because we can't anticipate the full spectrum of opportunities that will emerge as the Asian Century unfolds.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia

www.treasurer.gov.au
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