The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

10 March 2013

Treasurer's economic note

Putting a Budget together is always about priorities. For the Gillard Government, our number one priority will always be putting in place the right strategies to support jobs and growth to keep our economy one of the best performing in the developed world. To keep Australia at this apex, there's no doubt we must bed down the big reforms to secure our future prosperity. As a country, we're kidding ourselves if we think we can stroll complacently into the Asian Century assuming we'll enjoy economic wealth without developing the skills we need to harness its opportunities. Our Gonski school reforms are central to this and we will put in place the savings to ensure it's a key part of this year's Budget. We'll do this because we firmly believe that by giving our kids the best education, we will ensure they're in the box seat to use these skills and knowledge to create prosperity and wealth for our country in the years to come.

Budgets are also a vital part of our democracy, ensuring governments are open and accountable to the community that elected them. This transparency on costings is critical for people to make up their minds about policies and the benefits to the public of pursuing them. Transparency on costings should apply to both governments and those who seek to govern, so the community has the proper opportunity to scrutinise and assess policies and their impact on the budget. There have been too many instances where costings have been either deliberately misused or compiled with a total disregard for basic accounting standards. To promote greater scrutiny on costings, the Gillard Government established the Parliamentary Budget Office (PBO) to ensure budget transparency from all sides of politics. Late last month, I announced we will enhance the PBO by providing additional funding to ensure it's in the best possible position to rigorously cost policies in the lead up to the election on September 14. Under these changes, the PBO will also prepare a post-election audit of all political parties, publishing full costings of their election commitments and their budget bottom line 30 days after an election. The Government will introduce legislation during the next fortnight to ensure these arrangements are put in place as soon as possible. With the support of the Parliament, these reforms will remove the capacity of any political party to try to mislead the Australian people and punish those that do.

National Accounts

The December quarter National Accounts released on Wednesday again illustrated the enduring resilience of our economy, and highlighted encouraging early signs of improvement in some non-mining sectors, particularly housing. The Australian economy continues to expand at a solid pace, outperforming the vast bulk of the developed world as the chart below indicates. Real GDP grew by 0.6 per cent in the December quarter 2012 and 3.1 per cent over the past year. This solid quarterly result was achieved at a time when around half of all advanced economies contracted, including the majority of major advanced economies, with our around-trend growth rate over the past year more than four times the OECD average.

Through-the-year real GDP growth (December quarter)

Chart: Through-the-year real GDP growth (December quarter)

Solid growth in the quarter was underpinned by strong growth in exports, with positive contributions also coming from new business investment, consumption and dwelling investment. Exports grew by a strong 3.3 per cent in the quarter, which the ABS tells us is the second fastest quarterly growth in almost a decade. This result was driven by sharp increases in coal and iron ore export volumes, consistent with the emerging upswing of the mining boom's production phase. Of course, quarterly growth in exports will be volatile going forward, and we expect to see some disruption to coal exports as a result of the recent flooding on the east coast. Nonetheless, export volumes will continue to ramp up over the next couple of years and will be a key driver of growth and productivity.

The recent improvement in productivity growth was an important story that received little attention in coverage of the National Accounts. Productivity growth drives growth in living standards and the December quarter figures continued to highlight the emerging pick-up in labour productivity. In fact, labour productivity in the market sector grew by 3.3 per cent over the year to December, which is well above the 1.5 per cent average annual growth over the past ten years.

Jobs and participation

Australia's impressive growth record over the past five years is much more than just a set of numbers – it also explains why Australia has one of the lowest rates of unemployment in the developed world. In stark contrast to Australia, many advanced economies are struggling with stubbornly high jobless rates, breaking all the wrong kinds of records. Last week, the euro area's jobless rate rose to a new record high of 11.9 per cent, while countries like Spain have an unfathomable jobless rate of more than 25 per cent. While recent news of job creation in the US is encouraging, the US unemployment rate remains too high at 7.7 per cent. The social and economic effect of such widespread joblessness cannot be understated – it affects society at every level, from the immediate poverty and unrest it can cause, through to eroding education opportunities, mental health and social participation.

While Australia's labour market remains one of the most resilient in the developed world, we know that ongoing global uncertainty, the sustained high dollar and changing consumer patterns have made some businesses more cautious in their hiring. We've also seen the participation rate decline over the past couple of years, although it remains high by historical standards.  A number of factors have impacted on workforce participation, but new Treasury analysis shows that around 80 per cent of the decline in the participation rate over the past two years has been due to the changing age profile of the population. While the participation rate for older workers has actually increased in recent years, their participation rate is still far lower than other age cohorts. This means that Australia's overall participation rate has fallen as a higher proportion of workers reach retirement age.

G20

Just as we remain committed to jobs and growth here at home, Australia will ensure jobs and growth will be at the heart of our G20 Presidency in 2014. The G20's work on its Framework for Strong, Sustainable and Balanced Growth is critical to getting the global economy back on a sustainable growth path. Without improved growth, we will continue to see the kinds of devastating unemployment that is crippling much of the developed world. We've all got a stake in this, because while our economy has shown world-beating resilience amongst some of the worst global economic conditions in 80 years, our future prosperity cannot be realised in isolation from the global economy. On Monday I talked to business people, academics and representatives from media and civil society at the Lowy Institute's first G20 Studies Centre Roundtable. Mike Callaghan, Director of the G20 Studies Centre, pulled together a group of eminent leaders with a range of experiences to discuss the opportunities for Australia as we get closer to our host year. This diverse group brought some important insights about how we can maximise the benefits of hosting the G20 in 2014 and the importance of maintaining the shared jobs/growth agenda of the G20 and the Gillard Government.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia

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