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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

11 November 2012

Treasurer's economic note

Very few people would disagree with one of the main points U.S. President Barack Obama made in his re-election speech during the week: that societies are at their best when they are working together for the common good, sharing the benefits of prosperity and giving everyone a decent shot at a decent life. Whatever you believe or whoever you support, we all know it's what we do together that makes us strong. In Australia, we've demonstrated this time and time again, particularly over the past five years. We saw it when our workers and businesses stood together to withstand the most severe global economic downturn in generations. We saw it when our communities stood together to recover and rebuild from the worst natural disasters in our nation's history. And we see it today as our nation stands together to build better schools , better hospitals and a better chance in life for those who need it most.

What societies can and do achieve by working together is too often overlooked. As President Obama told the American people, “we can seize this future together because we are not as divided as our politics suggests, we're not as cynical as the pundits believe”. Although our challenges are very different to those of the U.S., the same applies here in Australia. We sometimes lose sight of the fact that, working together, Australians have built and continue to build one of the strongest economies and fairest societies in the world.

Working Together

Even before the concession and victory speeches, you could sense that attention on both sides of U.S. politics was shifting to the daunting task of avoiding the 'fiscal cliff' – the combination of automatic tax increases and severe spending cuts scheduled to apply from January 1.  Without action by Congress, the consequences would be very grave. The independent Congressional Budget Office  estimates that there could be an annualised hit of 2.9 per cent to the U.S. economy in the first half of next year, which would likely push it into recession, and the U.S. unemployment rate could shoot up to more than 9 per cent by the end of 2013, meaning almost 2 million fewer jobs than would have otherwise existed. And the impact could stretch far beyond the U.S., striking a severe blow to the fragile global recovery. No-one should underestimate the urgency of averting this kind of dire scenario.

The impending fiscal cliff and the ongoing European sovereign debt crisis were front and centre of my meetings during the week with G20 Finance Ministers in Mexico  and my discussions with Federal Reserve Chair Ben Bernanke, my U.S. counterpart Treasury Secretary Tim Geithner and IMF head Christine Lagarde in Washington DC. In respect of the fiscal cliff, we've seen plenty of comments from members of Congress over the past few days, interpreting what the election results mean and the extent of each party's mandate. What is clear is that the world cannot afford to see a continuation of the gridlock that has bedevilled the U.S. political system in recent years. Congress must heed President Obama's call to work together to find common ground and get the U.S. budget back on a sustainable long-term track while also continuing to support jobs and economic growth.

Strong, Sustainable and Balanced Growth

Asia has been doing the lion's share to drive global growth for the past few years, but our region alone can't do all the heavy lifting. Global growth with a 3 in front of it simply isn't enough if we want to get more people into work and alleviate poverty. The ranks of the world's unemployed  have surged by 30 million since the global financial crisis struck and a further 7 million are forecast to join them next year without concerted action. Of course, to maintain market confidence, the world's major economies need a credible plan to deal with their long-term fiscal challenges while implementing structural reforms to boost their competitiveness. But right now, with so many millions out of work around the world, political leaders must act swiftly and decisively to support growth and create jobs.

Making huge and indiscriminate cuts to government payments, programs and services won't deliver sound budget outcomes in the long run. As we've shown in Australia, it is possible to maintain sound fiscal policy while supporting jobs and growth and also protecting the most vulnerable. Our track record over the past five years proves this. While other advanced economies have shed jobs and struggled to grow, our economy has expanded over 11 per cent and created more than 820,000 jobs. And during the week we learnt more Australians than ever before are in paid employment . In last month's budget update, we built on our record of putting in place responsible savings that improve the underlying position of government finances over time. Without some of our savings measures, the budget bottom line would be around $14 billion worse off this year. And in just a decade that would blow out to a shortfall of more than $50 billion or 2 per cent of GDP. That means that rather than achieving our projection of eliminating net debt by 2020-21, debt would be over $250 billion by then.  Credible fiscal policy like ours is all about charting a course that improves the budget over time, balancing growth with long-term fiscal sustainability. It also means we can make room for the important investments we need to make in our economy and community, like school funding reform.

Meeting Future Challenges

As many of my G20 colleagues know, maintaining fiscal discipline and pursuing structural reform is not easy. Changes are often difficult and can frequently be opposed by vested interests. But our ability to deliver on the big reforms is ultimately a question of political resolve. In Australia, the tough decisions of the 1980s and early 1990s – things like floating the dollar and introducing the Superannuation Guarantee – have helped underpin more than two decades of uninterrupted economic growth. We protected our strong economic foundations during the GFC and today we are building on them with the next wave of reforms – like pricing carbon pollution, introducing the nation's first paid parental leave scheme and launching the first stage of a National Disability Insurance Scheme .  Despite the challenges in the global economy, by working together we can continue to build a stronger economy and fairer society for all Australians.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia