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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

21 April 2013

Treasurer's economic note

It's been a very sobering few days to be in the United States. While Finance Ministers from around the world gathered in Washington for meetings of the G20, IMF and the World Bank, most people have been focused on the terrible events we've seen in Boston and Waco, Texas. When I met Treasury Secretary Jack Lew yesterday, I passed on Australia's sympathies for what has been a very difficult week for the United States.

While authorities were dealing with the fallout from these terrible events, G20 Finance Ministers met to discuss the challenges that continue to beset the global economy. Many advanced economies need to consolidate their public finances in a responsible way that takes the handbrake off growth in the short term, while ensuring sustainability in the medium term. Europe in particular needs to make further progress towards addressing the underlying cause of its recent crisis - such as progressing towards a fiscal and banking union. The clear message from these meetings was that there's no room for complacency while these global threats remain - it's critical leaders act to support growth and reduce some of the highest unemployment queues that some countries have seen in generations.

When I come to Washington it's clearer than ever the Australian economy is more than a few lengths ahead of the pack. Many of my colleagues I have spoken with over the past few days would do anything for the economic indicators we have in Australia - solid growth, low unemployment, an exceptional record of job creation, contained inflation, record levels of investment and very low debt. Australia is one of only eight countries with the gold-plated AAA rating with a stable outlook from all three major global ratings agencies.

Despite our enviable position, the sustained high dollar, global headwinds and subdued price pressures across the board have contributed to weaker than expected nominal GDP growth and substantial revenue write-downs. These are very significant factors shaping the Budget that I'll hand down in a little over three weeks. This will be my sixth Budget and there's no doubt it's going to be brought down in the most challenging circumstances we have seen in decades. The dramatic write-down in revenue means we are going to have to make some very difficult choices. Both at home and abroad, there are very different views about how to deal with fiscal challenges. While some advocate harsh cuts to offset revenue downgrades - at the expense of jobs and growth - this Government would never support such a savage approach. It's also important to remember that a healthy economy is crucial to the fiscal sustainability of the country. This is why mindless austerity can be so self-defeating, because undermining jobs and growth ultimately undermines budget revenues. As a Labor Government, we're getting the balance right by supporting jobs and growth in the face of a weaker revenue outlook, while making the smart investments Australia needs for the future in a fiscally sustainable way.

Smart Investments for our Future

Our economic management during some of the most tumultuous times in decades has meant that we are in a position to put in place reforms to set us up for a smarter, fairer and stronger future. These smart investments - like our National Plan for School Improvement - are not an option for our future prosperity, they're a must. The power and promise of education is something that can never be underestimated. Like never before, it has the power to change people's lives and make the country stronger. From time to time in public life there is a policy debate that crystallises these values in a persuasive and irrefutable way, like we've seen with the National Plan for School Improvement. Our plan isn't just about the extra money. It's about making sure all money spent on schools is allocated according to need, and meets the extra costs of disadvantaged schools and students.

Our plan isn't just about our kids and grandkids, it's about our economy and setting our country up for the future. If states and territories don't have the willpower to see this reform through, we would be doing our economy a serious disservice. Consider the economic analysis from PwC that spelt out the cost of inaction very bluntly. That report concluded that if we do nothing - if we accept the current declining trend in education performance - GDP levels would be dragged down by $1.5 trillion over the life of a child born today between 2012 and 2092. On the other hand, it found that if we increase the Year 12 completion rates to the national target of 90 per cent, we'll increase our workforce productivity by 0.6 per cent per year between now and 2040 and lift out GDP in the process by 0.65 per cent. It also established if we improve our schools to be competitive with those of a country like Finland, over the life of a child born in 2012 our plan will generate an extra $3.6 trillion for the national economy. This is an unprecedented investment in our children's future and in Australia's productive future - we can't afford to let it pass us by.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia