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

26 May 2013

Treasurer's economic note

We see evidence all the time that Australia's economy is currently undergoing some substantial transitions. The Budget I handed down the week before last reinforced that we have one of the healthiest economies in the world, so the challenges that come from these transitions are approached from a position of irrefutable strength. But if there's a disconnect at times between the strength of our economy and the way that many feel about it, it is in no small part due to the shifts we are experiencing, along with ongoing uncertainty and volatility in the global economy.

These challenges were underscored on various fronts last week. Not only did we see another significant bout of share market volatility at home and abroad, but we saw clear examples of the transitions underway in the real economy. Take for example the report from the Bureau of Resources and Energy Economics (BREE) which points to the transition underway in our resources sector, from the investment phase towards the production and export phase. Or the announcement from Ford on Thursday that they're closing plants in Geelong and Broadmeadows in three years' time. These are big changes that will impact on people, their families and communities in the months and years ahead.

We know these shifts are challenging, but we are equipped to go through them because our fundamental strengths have been preserved and bolstered in recent years. We've come through the biggest resource investment boom in our history with contained inflation and low interest rates, and we've come through the biggest global economic crisis in our lifetime with an economy that's more than 13 per cent bigger and an unemployment rate with a '5' in front. So we can be confident that as a nation we will emerge stronger than ever if we navigate these challenging shifts successfully. As a Government, we are putting in place wide-reaching reforms that will make our economy stronger, smarter, more productive, and better positioned to reap opportunity in the Asian century. As I recently told a CEDA audience in Brisbane, we can always be better tomorrow than we are today by making the investments we need for the future.

The manufacturing story

I know the macroeconomic picture of Australia's economic strength doesn't mean an awful lot when the place you've worked for decades suddenly announces that it will be ceasing its operations. For the manufacturing sector, a major challenge has been dealing with the sustained high dollar, which has had a profound impact on the future of many firms. As I told an ACOSS audience in Sydney just hours after Ford made their announcement, while we shouldn't lose sight of our underlying economic resilience, we must recognise the impact people feel from the economic change we're going through. So the Government is committed to ensuring affected workers and the communities of Geelong and Broadmeadows are assisted and supported through this very tough period.

We have announced a $30 million contribution to structural adjustment programs that support economic development and diversification in the affected regions. We'll also support businesses and workers in the automotive supply chain with an additional $10 million for the Automotive New Markets Program to help auto component makers win business in new markets. This fits within the broader context of our $1 billion Plan for Australian Jobs, which at its very core is preparing Australian industry and workers for the jobs of the future. The days of industry protectionism are long gone, but that doesn't mean we can't support individuals, families, and communities from the hard-edge of economic change.

The mining story

The impact on manufacturing workers is just one side of the story of transition. On the other hand, the resources story has its own cycles and complexities that we also need to understand. As BREE told us this week, while some early stage projects were significantly impacted by the sharp fall in commodity prices late last year, the value of our committed investment pipeline remains close to record high levels at $268 billion. Although the level of resource investment is near its peak, we also shouldn't forget that it is expected to remain historically high for some time yet, and this investment is already starting to generate a ramp up in non-rural commodity export volumes, as the production phase gathers pace. As the BREE report highlighted, the value of completed projects over the past six months is the second highest ever recorded at $15.3 billion, and this will contribute to greater export capacity in the near term.

We'll also be looking for non-mining industries to play a greater role driving growth as the mining boom evolves. As I've consistently said, this transition won't be seamless, and recently the high dollar has been making it harder for firms in many non-mining sectors to pursue new investment opportunities. While the dollar still remains at historically high levels, the recent dip in our exchange rate may provide relief for some firms – although it often takes time for exchange rate movements to have an impact on business decisions.

A strong public balance sheet

Against this backdrop, we assembled a Budget that supported jobs and growth, very conscious of the transitions we were experiencing. We made a very specific and deliberative choice to put jobs and growth first by not rushing to return the budget back to surplus too quickly. Nevertheless, it is critical to keep public finances on a strong and sustainable footing, and we've charted a responsible path back to surplus with that in mind. Some months ago I asked my Treasury department to update their estimates of the structural position of the budget. These estimates are highly sensitive to a range of assumptions, like the long-term level of the terms of trade. But despite these caveats, these sort of estimates, if used alongside other indicators, can help us understand trends in Australia's fiscal position.

There are a number of ways to arrive at these estimates, but they all fundamentally show two things. One, that the budget position is trending back towards surplus due to the significant structural savings we have put in place since coming to office. And two, that decisions made towards the end of the previous government put the structural budget position on a downward trajectory in the first place. Importantly, Australia still remains well placed when it comes to fiscal sustainability, made clear by a number of key fiscal indicators presented in Statement 4 of Budget Paper No. 1. One of these important indicators is net debt, which is expected to peak at less than one-eighth of the average across major advanced economies, and a very small fraction of that of the most heavily indebted countries. So any suggestion that Australia's debt is unduly large is at complete odds with the hard evidence and wildly out of kilter with the realities of our economy.

Building for the future from a position of strength

Australia has an economy we can truly be proud of with a combination of fundamental strengths that are the envy of the developed world. To even say the glass is half full sells us short. But yes, there are pretty big challenges that we're going to push up against in the future. Nothing is ever assured in this world, and you have to keep getting the big calls right. And yes, the transitions in our economy will shine a light on those challenges. No one suggests they will always be easy to navigate. That's why we have to invest in an even stronger Australia, which fundamentally means a smarter and fairer Australia too. That's what our Budget was all about with our unprecedented commitments to school improvement, delivering DisabilityCare and continuing to invest in nation building infrastructure. Delivering for the future is Labor to the bootstraps, and we're proud to be a Government that never takes its eyes off the prize of delivering a better Australia for our children and grandchildren.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia