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

16 September 2012

Treasurer's economic note

The management of government finances should be about much more than satisfying some belief in the ideal size or role of the public sector in society. What matters most is putting in place the right policies and programs that reward hard work, promote entrepreneurship, raise living standards, and build a stronger community . This government believes in managing the economy in the interests of working Australians and those most in need of support. This straightforward ambition has guided us over the past five years and it continues to guide us as we look ahead. Making huge and indiscriminate cuts to schools and hospitals, tearing away vital frontline services that people rely on and undermining the pay and conditions of workers are the very definitions of a false economy. They are no way to deliver lasting prosperity.

Making room for priorities

Australia's experience over the past few years demonstrates that strict budget discipline doesn't need to come at the expense of critical investments in our infrastructure, in our institutions and in our people. Our economy is 11 per cent larger and around an extra 800,000 Australians are in work today compared to when we came to office. By comparison over the same period, many of our peers have seen their economies slide backwards with the losses of millions of jobs. This is because we acted to keep the doors of business open and support employment and economic growth in the face of the biggest global downturn in 80 years. By avoiding recession, we avoided the downward spiral of business closures, skills destruction and social dislocation that's afflicted so many other developed economies.

At the same time as we put in place the stimulus package and set the course back to surplus, we also ensured that we continued making room for the reforms needed to build a stronger economy as well as a fairer society. I'm talking here about things like doubling the investment in education  to more than $65 billion over four years, uncapping university places, delivering the biggest increase in the pension in our nation's history, building a superfast broadband network , putting in place a paid parental leave scheme, and increasing investment in skills and training. We've delivered on priorities like these despite the global financial crisis and continuing turbulence ripping away billions of dollars in revenue.

Finding responsible savings

Governments at all levels have had to adjust to lower tax receipts in recent years. For the Federal Government, we've responded by putting in place responsible and measured savings to target resources to where they are most needed. We've delivered more than $130 billion in savings over five budgets and we'll need to continue to find savings to deliver on our priorities in areas like education and disability reform. This is always a tough process and it gets tougher with each budget. But we will keep going about this task in a way that does everything possible to protect jobs, and the interests of low and middle income households and our community's most vulnerable.

We've found savings through measures ranging from means testing the private health insurance rebate to reducing super concessions for individuals on very high incomes. But of course governments need to tighten their own belts as well. That's why we've taken a methodical approach to finding savings across the public service. By finding smarter and more efficient ways of delivering services, we've kept public service growth in check, with average annual growth of just 0.8 per cent over five years. While doing this, we have continued to invest where it is most needed to ensure all Australians can get the services they need. Our approach has been to responsibly identify savings, not indiscriminately slash vital services and the jobs of teachers, doctors and nurses.

Our spending discipline is well demonstrated by the fact that we've been able to make room for our priorities and put the budget on track for surplus this year, while also keeping taxes low. In fact Commonwealth taxes are estimated to make up 22.1 per cent of GDP this year, down from the record high of 24.2 per cent set in the middle of last decade under the previous government. It's worth noting that if we had maintained taxes at the same high level that we inherited, tax collections would be over $24 billion higher this year. That would put the surplus at above $25 billion based on the outcome of the May Budget.

Tax as a proportion of the economy
(Red = current government, blue = previous government)

Tax as a proportion of the economy - (Red = current government, blue = previous government)

Meeting global challenges

We saw encouraging news during the week with the Federal Reserve  unveiling a plan to support growth and jobs in the US. And in Germany, a constitutional court backed Europe's bailout fund to combat the region's debt crisis. There's still a long road ahead to deal with challenges on both sides of the Atlantic, but the announcements this month should provide much-needed support to confidence in the near term. Given the level of international uncertainty we've seen in recent times, it's not surprising that some people feel anxious about the future. We also know many parts of our own economy are feeling the pressures from lower commodity prices, the sustained high dollar, new technology and other structural changes. It's important, however, not to lose sight of the fact that we're in a stronger position than just about any other developed economy in the world. We've got the best combination of solid growth, low unemployment, healthy consumption, contained inflation, a huge pipeline of investment and lower interest rates.

With so much going for us, now is not the time to turn our backs on the kinds of investment that have helped build our strong fundamentals. As I said in a speech on Friday, Australia must continue building on its strengths to take advantage of the opportunities coming our way in the Asian Century. We need to invest more in education and skills, to promote innovation, to keep improving our infrastructure, and to continue our work on tax and regulatory reform. Demand for our mineral resources is just the first taste of the economic transformation that's underway in our region. Australia's tourism operators, education industry and other service providers, as well as manufacturers of high-end goods and makers of fine wine and food all stand to gain from the growing ranks of Asia's middle class in the years and decades ahead. We need to prepare now to take full advantage of what will be a long period of transition for our entire region. This is exactly what the coming Asian Century White Paper  is designed to do – set out a roadmap for the decades ahead so that we can make the most of these huge opportunities.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia