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

9 December 2012

Treasurer's economic note

Australians have always been known for their resilience. Throughout our history, we've shown an ability to get things done in the face of great adversity. Resilience is a quality we've seen in spades over the past few years as communities recover from floods, cyclones and bushfires. Towns from Cardwell to Marysville have got back on their feet after being hit with the worst that nature could throw at them. Schools and businesses have reopened their doors, homes have been rebuilt, farms are back up and running, and hundreds of kilometres of roads and railways have been repaired. There's been a similar sort of resilience on display in all parts of the nation over the past five years. Despite the most severe global downturn in generations, we've managed to keep the Australian economy growing solidly, keep the doors of Australian business open and keep Australian workers in jobs. During the week, we saw more evidence of this resilience with the release of the National Accounts.

A resilient economy

In the face of continuing global headwinds, the economy expanded by 0.5 per cent last quarter. That takes the growth performance through the year to around trend at 3.1 per cent, which is faster than every single major advanced economy in the world. Certainly, growth moderated in the quarter and incomes took a big hit. That's not at all surprising given the circumstances. The period saw sharp falls in commodity prices, Europe slip back into recession and Japan - our second biggest trading partner - experience a sharp contraction. And there was continued pressure from a high dollar and cautious consumer behaviour. Yet despite these challenges, there were plenty of signs of our economy's resilience in the National Accounts:

  • Business investment as a percentage of the economy surged to a 50-year high as companies bought new machinery and equipment and built new plants and other infrastructure;
  • This means more than $1 trillion has been invested by business since the Government came to office - a remarkable milestone, particularly given the collapse in investment that has occurred elsewhere in the world;
  • Household consumption rose 0.3 per cent in the quarter to be 3.3 per cent higher through the year, at around its trend pace;
  • All types of exports increased in the quarter - mining commodities, agriculture, manufactured goods and services - despite the high dollar and weak global demand;
  • And there were encouraging signs in the housing sector, with dwelling investment recording its first increase in over a year and investment in detached housing recording its largest quarterly increase since June 2010.

An aspect of the National Accounts that didn't get much attention was the encouraging signs on productivity. While we already have a highly productive economy - among the world's top dozen - there's no doubt we have to keep working to reverse a decline in productivity growth that started a decade ago if we are to make the most of the opportunities that will come our way in the Asian Century. So it was pleasing to see productivity in the market sector rose at an above-trend rate of 2.9 per cent over the year. Obviously we can't get carried away with one quarter's figures, and we'll need to keep doing the hard yards to boost our productivity for the future through big reforms like the National Broadband Network  and the skills and training package that was announced in last year's Budget.

Ahead of the world

On top of the solid growth, strong investment, healthy consumption and rising exports that were highlighted in the National Accounts, we also have low unemployment, sturdy public finances, a budget returning to surplus in 2012-13, contained inflation and low interest rates. It's the combination of these factors that puts Australia truly in a league of its own. Australia's economy is now nearly 13 per cent bigger than when the Government came to office, while major economies like the U.K., Japan, France and Italy haven't even made up the ground they lost during the GFC. The benefits of this growth were clear on Thursday with the release of labour force figures  showing more than 840,000 jobs have been created in Australia over the past five years with the unemployment rate edging down to 5.2 per cent in November. While the figures move around from month to month, the big picture shows that Australia's unemployment rate is amongst the lowest in the industrialised world. The contrast with Greece's unemployment rate hitting a record 26 per cent on the same day was stark to say the least.

While much of the advanced world is still facing very tough times, the shift in economic gravity from west to east means the long-term prospects for our own region remain bright. India is of course critical to those prospects and I'll be visiting the nation this week for a series of meetings with government and business leaders As set out in the Australia in the Asian Century White Paper , we expect the Indian economy to grow at an average rate of 6¾ per cent to 2025. India is now Australia's fourth-largest export destination, and the fifth-largest source of foreign investment in our country. Education is a key pillar of our relationship and something that Australia is investing in strongly. More than 48,000 Indian students studied in Australia this year and we want to see that number grow. But we also want to see our own students learn more about the region and gain the skills they need to make the most of the opportunities that will flow as the middle-classes in countries like India grow rapidly.

Lower interest rates

The Reserve Bank's decision on Tuesday means we've now had the equivalent of seven rate cuts over the last year. The official interest rate now at 3 per cent is less than half the level it was when Labor came to office and is lower than at any time under the previous government. A family with a $300,000 mortgage is now paying $100 a week - or around $5,000 a year - less in repayments than when we first came to office. To put it another way, if that same family kept their repayments at the same level, they would be able to pay their mortgage off around 8 years faster. That's very real relief for the budgets of millions of Aussie families.

The rate cut this week is a good opportunity to review your home loan to make sure you're getting a good deal. Over the past few years, the Government has been focused on putting more power in the hands of consumers . The ban on exit fees on new home loans means that if Australians don't like a decision their bank makes, it's now much easier to walk down the road to a competitor offering a better deal. Around 1 million home loans are now completely free of mortgage exit fees and that number is set to jump to 2 million by the end of next year. Reforms like this have helped smaller banks grab nearly $20 billion in home-lending business from the big banks over the past two years. In the year to September, non-major banks grew their home-lending at almost three times the rate of the major banks. The big banks can no longer afford to take their customers for granted. So if you're not happy with your current lender, I'd encourage you to look around at what else is on offer.

Working together

Our economic achievements over the past five years demonstrate what can be achieved by working together for the common good. The same applies to our efforts to build a fairer community. During the week, we saw what could be achieved by different levels of government working together with the agreement for the full roll-out of the National Disability Insurance Scheme  in New South Wales by July 2018. As the Prime Minister said during the week, it will require some difficult choices to be made by all governments. But it's only through responsible management that we can put in place long-lasting reforms to build a fairer, stronger and more resilient economy to benefit all Australians.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia