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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

19 May 2013

Treasurer's economic note

This week, we laid out our plans to make our economy stronger, our nation smarter and our society fairer. Faced with the second largest revenue write-down since the Great Depression, we made some defining choices. We are a proud nation with one of the very strongest economies in the world but we needed to invest in our nation's future.

While there is much debate about the extent of the hit to revenues, no one has disputed that tax revenue as a proportion of our economy is much lower than it was before the GFC. That means while our economy has kept growing, our revenues have not kept pace. That means we don't have the same growth in revenues to meet the needs of a growing economy and a growing population. The tax-to-GDP ratio in 2013-14 is estimated to be 22.2 per cent, 1.8 percentage points lower than the average of the five years prior to the GFC. If it were not for this drop, we would have an extra $24 billion in taxes in 2013-14 and be comfortably in surplus every year of the forwards. But we are not.

So the Budget I handed down on Tuesday had to chart a balanced approach, that dealt with the revenue challenge, without starving the investments in our future. The Budget laid out a pathway to surplus while investing in big social and economic reforms that will set our country up for the future. Rushing back to surplus would have required deep cuts to basic services Australians rely on and it would have meant job losses, like we see in Europe.

The sensible decisions we took in Tuesday's Budget will return us to surplus on a more gradual timeframe while making a total of $43 billion of savings over the next four years. This means in total, we have put in place structural savings that will improve the budget bottom line by over $300 billion by the end of the decade. These savings ensure we can return the budget to surplus while investing in the future, through our children's education, critical nation building infrastructure, our world leading superannuation system and in our social fabric.

Funding the big reforms like school improvement

The most critical investment we can make is in our children and our Budget shows we can return the budget to surplus without leaving our kids an education deficit. The fact is, while Australian kids perform well on average, our standards have slipped in recent years. If we don't tackle education reform and lift the standards of our schools, no matter where they are in the country, we will miss out on the benefits of being situated in the most prosperous region in the world.

That is why in our Budget we put in place long‑term funding for the National Plan for School Improvement. This investment will deliver increased funding to every single school in Australia for better teachers, better support and better outcomes. The Budget has clearly shown how we plan to pay for these reforms for the forward estimates and beyond. I've reproduced a chart below from the budget papers that illustrates our plan to fully fund our school reforms for the long term. We similarly put in place funding for DisabilityCare Australia, another truly landmark reform, including with the passage last week of the 0.5 percentage point Medicare levy increase – a truly historic moment for our nation.

Ten year funding for the National Plan for School Improvement

Chart: Ten year funding for the  National Plan for School Improvement7

Investing in a stronger superannuation system

Another one of Labor's proudest reforms is our superannuation system, which is often remarked upon when I speak with my foreign counterparts. The Gillard Government is building on Paul Keating's proud legacy by gradually increasing the Superannuation Guarantee rate from 9 to 12 per cent from 1 July 2013 to 1 July 2019. This reform will increase future retirement incomes for 8.4 million workers, and will increase the pool of national superannuation savings by more than $500 billion by 2037.

This means Australian workers will have more money for a more secure retirement. But it also has much broader benefits, helping to keep our budget and our economy strong. An aging population will put increased pressure on our budget as more Australians are drawing on the Age Pension and require more support from our health system. As each Intergenerational Report has shown, this will put pressure on our budget over the coming 40 years. But through superannuation and reforms to make our health system more sustainable, we have been reducing these pressures. By saving a little more now through the increase in the Superannuation Guarantee we will reduce the demands on the budget in future, while providing Australian workers with a more secure retirement.

At the same time, the increase in the pool of national saving is a vital resource for our economy. Just as our existing pool of super helped our companies recapitalize and helped keep our financial system strong in the face of the global financial crisis, the additional boost to this pool from the increase in the Superannuation Guarantee will provide a vital source of funds for investments in critical infrastructure and nation building projects.

This week we heard from the Opposition, that if elected, they would defer the gradual rise in the Superannuation Guarantee rate from 9 to 12 per cent. Some may think the numbers are small and a pause for two years is not a long time, but the power of compound interest means such a change would have a very real effect on most people's retirement savings. This could cost a 30-year-old $19,000 by the time of their retirement. If the Superannuation Guarantee did not rise at all, they would be $127,000 behind. This would leave 8.4 million Australians with lower superannuation, but it would also be a hit to the long‑term sustainability of the budget and the long‑term strength of our economy.

Building Australia

I was happy to get back home to Brisbane this weekend after several weeks bunkered down preparing the Budget. It is great to be with my family and fit a Broncos game in on Friday night. I was also very pleased to confirm our support for Brisbane's Cross River Rail project at an event on Friday, an initiative that will lift the likeability and productivity of our great city. The project will build a 10 kilometre twin track tunnel between Yeerongpilly and Victoria Park including along the iconic Story Bridge. We also see new underground stations at Woolloongabba, Boggo Road, Albert Street and Roma Street and it will almost double the capacity of the suburban rail network, allowing it to carry over 17,000 extra passengers in the morning peak hours.

The $715 million Cross River Rail project is just one of the public infrastructure projects we have committed to as part of our Nation Building programs to modernise the nation's road, rail and public transport infrastructure. We have almost doubled per capita spending on infrastructure compared with the Howard Government and committed $60 billion to those projects identified by Infrastructure Australia as necessary for a prosperous country.

I am pleased to be part of a Government that has vision to deliver projects like these across the country and tackle the vital reforms to education and lifting our social safety net so no one is left behind. It is part of Labor's mission to ensure Australia can be a world-beater in the Asian Century. To become a stronger economy and a smarter and fairer nation.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia

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