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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

17 March 2013

Treasurer's economic note

This week marks the 20th anniversary of the historic 1993 election victory of the Keating Labor Government which is also when my good friend Stephen Smith and I entered the Parliament. Australia has achieved so much since 1993, but I think the achievement I'm proudest of is that the Australian economy has grown in every one of the 20 years since. That's something that no other developed economy has even come close to. Over the past five years, our economy has demonstrated remarkable resilience through some of the most difficult global economic conditions in living memory. Australian households, businesses and the government worked together in the face of the worst global recession in 80 years to keep our economy growing, which is one of the reasons why our economy has leapfrogged three places under this Labor Government to be the world's 12th largest.

Jobs growth

Our economy's remarkable performance over the past 21 years, in particular avoiding recession during the global financial crisis, is why we have one of the lowest unemployment rates in the developed world. By keeping our economy going we were able to avoid the skills destruction and family hardships that we've seen in so many other countries. When I entered the Parliament in 1993, Australia's unemployment rate was around 11 per cent. Almost exactly twenty years later, ABS data shows the unemployment rate sits at a very low 5.4 per cent. Last week's release also showed that our economy generated 71,500 jobs in February - the largest monthly increase in more than a decade. While monthly figures can be volatile, the nearly 200,000 jobs created in the past year underscore the resilience of our economy. More than 900,000 jobs have been created over the past five years since Labor came to Government, while millions have been added to global unemployment queues over the same period. As you can see in the chart below, this means that jobs growth in Australia has been at least twice as fast as any of the major advanced economies over the past five years.

Australia outperforms on jobs
Cumulative employment growth since December 2007

Cumulative employment growth since December 2007

This week's release also saw a pickup in the participation rate, from 65.0 per cent to 65.3 per cent in February. Despite this monthly increase, the participation rate has been trending down over the past couple of years. A key driver of this has been the ageing of the population, with a growing proportion of the workforce now 65 years of age or older. As I noted last week, Treasury analysis shows that this has accounted for around 80 per cent of the reduction in the participation rate over the past two years.

Budget update

While Australia's economy walks tall in the world with solid growth, contained inflation, low interest rates, enviable public finances and unemployment with a '5' in front of it, we are not without our challenges when it comes to securing our future. Not only does the global economic outlook remain highly uncertain, but there are some big transitions underway in our own economy.

One of the big challenges we face is a massive hit to government revenues. We've seen our terms of trade - the price we receive for exports compared to the price we pay for our imports - fall in large part because of declines in commodity prices. Historically, a decline in our terms of trade has been accompanied by a fall in the dollar which has provided support for the economy and revenues, but this time the currency has stayed persistently high. This has contributed to subdued prices pressures and weaker profitability across the economy, which means that nominal GDP - the value of the goods and services we produce - has grown more slowly than real GDP for three straight quarters. This run is unprecedented since records began.

We saw the consequence of this for the Budget in the January monthly financial statements released by the Finance Minister on Friday. In just the first seven months of the financial year we have seen around $6 billion less revenue than forecast at MYEFO, primarily due to the impact of lower corporate profits on the revenue base. As I have said a number of times, these downgrades will inevitably continue to impact beyond the current year.

While revenue has taken a big hit, the monthly financial statements also show that government expenditure is running slightly below our forecasts. This further highlights that the dramatic hit to the budget bottom line is being driven entirely by lower than expected revenues while the government continues to exercise spending restraint.

But we will not put growth and jobs in our economy at risk by cutting further and deeper in the near term to fill in a hole in revenues. Because it is only through supporting jobs and growth over the past five years that we have been able to keep our nation's impressive run of economic growth going, while virtually every single developed economy fell into recession - with many still struggling to recoup lost output.

Global tax reform

While work has been underway for the Budget, we are also looking ahead to the G20 meeting in Washington in April. My fellow finance ministers will continue our global efforts to promote jobs and growth, and our focus on global tax issues like how we can combat the behaviour of some multinationals that move their profits around the world to avoid tax.

This week I was encouraged to hear both the Secretary-General of the OECD Angel Gurria and the UK's Chancellor of the Exchequer George Osborne reaffirm their support for co-ordinated global action on profiting shifting - this will be a key part of Australia's focus when we host the G20 in Brisbane next year. The OECD will present a comprehensive plan to tackle the issue at the Washington meeting, and I'm confident we can progress meaningful reform in this area given the support of leaders like Mr Osborne and Mr Gurria.

Closer to home this week, Assistant Treasurer David Bradbury and ATO Commissioner Chris Jordan both spoke about how some international companies based in Australia are not paying their fair share of tax. I know by and large the general business community in Australia are doing the right thing, but one example from David's speech really highlights the unacceptable behaviour of a small minority.

An e-mail used as evidence in a case the ATO was actioning through the Federal Court had the subject heading "unbelievable improvements to the Australian structure" and went on to describe how a financing restructure allowed for dividends to be claimed tax-free while interest deductions could be claimed in Australia. In the email, a tax adviser had described the arrangements as "new magic" involving a "sleight of hand" and where they had "several secret and cool arguments" that could be used to counter Australia's thin capitalisation tax laws.

Of course, this kind of behaviour runs counter to the kind of good faith that the vast bulk of the business community has brought to the table in helping to deliver our nation's unrivalled 21 years of continuous economic growth. It is only through the government, workers and business working together that we have been able to achieve this economic record unrivalled by any other developed economy.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia