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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

23 September 2012

Treasurer's economic note

In the age of Twitter, blogging and the 24-hour news cycle, assertions are everywhere. Facts can be a lot harder to come by. That's one of the reasons why I started writing these weekly economic notes three and a half years ago. I wanted to help strip away the many claims and counterclaims, and get back to the simple facts about what was really going on in our economy. Only with a firm foundation of facts can we have a considered and responsible debate about the economic opportunities and challenges we face as a nation. This is the best way to ensure we keep getting the big policy calls right for the benefit of all Australians.

The facts about our economy

Over the past week there has been evidence from a wide variety of independent sources confirming Australia's strong fundamentals and bright outlook. On Thursday, the International Monetary Fund highlighted our impressive growth , low unemployment, contained inflation, healthy consumption and strong growth in business investment. While we're not immune from global turbulence, the IMF's assessment shows we stand in stark contrast to most developed economies which are grappling with anaemic or negative growth and stubbornly high levels of unemployment. In fact, the IMF expects our economy to grow 3¼ per cent this year, faster than every single major advanced economy. The IMF also clearly backed Australia's fiscal strategy and commitment to return the budget to surplus in 2012-13:

"The authorities' fiscal consolidation path strikes a balance between the need to limit both public and external debt increases while containing any adverse impact on economic growth."

We saw the benefits of our budget discipline during the week when S&P reaffirmed Australia's gold-plated AAA credit rating. This is an endorsement that's increasingly rare in this day and age. In fact, we are now one of only seven nations rated AAA with a stable outlook by all three major international agencies – something never achieved under any previous Australian government. S&P said our AAA rating is "underpinned by low public debt and strong fiscal discipline". The AAA rating is important because it reflects our nation's status as a safe and reliable place to invest in these uncertain global times. Ultimately, that is a benefit to every household with a mortgage or credit card and every business seeking to borrow or raise capital.

As well as sending a clear message about the resilience of our economy and our public finances, the return to surplus is also delivering immediate benefits to millions of households and small businesses. The Government's strict budget discipline has helped make room for the equivalent of five interest rate cuts since late last year. The official cash rate  is now lower than at any time under the previous government, and a family on a $300,000 variable mortgage is now paying around $4,000 a year less in repayments than when we came to office. Our fiscal discipline continues to give the Reserve Bank the maximum possible flexibility to cut interest rates further if it thinks that's appropriate.

While we have long budgeted for a decline in our terms of trade, commodity prices have remained lower than what we factored into the budget forecasts after declining in recent months. This of course hits government revenues, which obviously makes it harder to deliver the surplus. But the fact is we have a proven record of delivering responsible savings – and we are ready, willing and able to do it again.

Despite the lower commodity prices, the mining boom still has a long way to run. As Reserve Bank Assistant Governor Christopher Kent reminded us in a speech during the week, the mining boom really consists of three overlapping phases : first a boom in prices, then a boom in investment, and then a boom in exports. And while we've passed the peak in prices, the second and third phases still have a way to run. In the June quarter, business investment as a per cent of GDP reached its highest point in 40 years, and we expect it to rise further over the next year or so. We've got a half-trillion-dollar pipeline in the resources sector alone, with more than $260 billion at an advanced stage, which are projects already largely locked in. As the Bureau of Resources and Energy Economics  said in a report during the week:

"High levels of mining investment are expected to continue for some time to come. Significant expansions to iron ore and coal production capacity are also underway, and will contribute to solid growth in resource export volumes over the foreseeable future"

A debate based on facts

Given our strong economic fundamentals are highlighted by the likes of the IMF, the RBA and S&P on an almost weekly basis, it's disappointing that there are those in our community that continue to talk down our nation's prospects. We hear absurd claims that there is rising sovereign risk in Australia, that the investment pipeline has suddenly run dry and that our economy has stopped growing. Such claims are not just plain wrong, they are an insult to the hard work and determination of our workers and our businesses. What's more, such claims have the potential to undermine confidence in our economy.

Of course we must always be realistic about the challenges. The problem is many of the challenges we hear about bear no relationship to reality. Sometimes there is a flawed belief that unbiased reporting requires that equal weight be given to both sides of a debate, regardless of the truth. The news is reduced to "he said, she said" and the public is left none the wiser to what's really going on. The idea that the truth lies somewhere in the middle sounds appealing, but this is rarely the case.

One of the encouraging trends in recent years, particularly in the U.S., has been the rise of fact checking organisations like FactCheck.Org  and Politifact.com. These groups test the accuracy of claims made in the public debate, whether in interviews, press releases or TV ads. We saw them in action during the recent Republican and Democratic conventions, going through speeches with a fine-tooth comb and helping people sort out what was true and what wasn't. Here in Australia, the website Crikey has started its own version, testing statements made by a range of public figures, including myself.

Encouraging a fact-based debate was the reason behind the #EcoFact hash tag I started using on Twitter several months ago. So to finish off today, I'll share a few more interesting facts:

  • Australia's economy has expanded for the past 21 consecutive years, more than any other advanced economy over the period.
  • Australia's economy grew faster than every single major advanced economy over the year to June.
  • Since late 2007, our GDP has expanded 11.2 per cent. That puts us streets ahead of other advanced economies like Canada (4.4 per cent), Germany (2.7 per cent), the U.S. (1.8 per cent), France (-0.5 per cent), Japan (-1.0 per cent), the U.K. (-4.2 per cent) and Italy (-6.3 per cent).
  • On average, around 450 jobs have been created every day since this Government came to office. Over the same period, job losses have averaged around 4,300 per day in the U.S. and Europe combined.

And a new fact to end on:

  • There has been nearly $983 billion in private investment in Australia since this Government came to office.

Wayne Swan
Acting Prime Minister and Treasurer of Australia

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