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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

9 June 2013

Treasurer's economic note

This week's Economic Note is a really good opportunity to delve into the National Accounts. Every quarter when we get this snapshot of the Australian economy it is interesting to think about the way these figures might be reported and how the commentariat might portray them. This week I suspected that sections of the media would offer up the worst possible interpretation of what it means for our economy, or would seek to make them into an opportunity to prosecute a predetermined case about the Government's stewardship of the economy. There is a legitimate case for debating what the figures mean and we welcome the opportunity to lead the discussion, but even I wasn't fully expecting some of the misleading statements made over the past week. For the record, the figures showed that our economy continues to perform solidly. Indeed, the Australian economy continues to do much better than most of the developed world. Notwithstanding this, there still remains a lot of global economic uncertainty. Over the years I have come to expect that there will always be those that seek to leverage the release of any kind of economic data as an opening to talk down the economy. But, the kind of negative commentary this quarter's data release presaged, even surprised me. Using words like 'recession' when the facts simply do not support it is not only incorrect; it's also deeply irresponsible. It poses a real danger to the economy because it has the potential to damage confidence. That is why it must be rebutted immediately and forcefully with the facts. I am always in the cart for scrutiny and discussion but I simply cannot abide inaccurate commentary that damages confidence, and puts jobs and growth at risk. In response, I am devoting a sizeable part of this week's note to unpacking the National Accounts in a lengthy discussion of how the economy is currently tracking. Instead of talking down our world-beating economy, we should be talking responsibly about the investment opportunities that lie ahead.

Our economy outperforms the world

Let's start with some facts. The March quarter National Accounts show Australia continues to perform better than most of our developed world peers. GDP grew by a solid 0.6 per cent in the quarter and by 2.5 per cent through the year. This means the Australian economy grew faster than almost every other advanced economy over the year, and three times faster than the OECD average. Australia has also managed solid growth despite the fact that around half of all advanced countries that have reported March quarter results contracted over the year. While so much of the developed world still struggles to overcome stagnant or sluggish growth, Australia's economy is 14 per cent bigger than it was in 2007 when the Government came to office. We should not ever dismiss the fact that less than a year after taking office, the GFC crashed through the global economy, destroying growth and wiping out millions of jobs. In the face of this, Australia has performed with remarkable resilience. We have an unemployment rate of 5.5 per cent, low by historical standards and one of the lowest in the developed world. In fact, the average unemployment rate across the OECD has remained stubbornly high at around 8 per cent. Australia's unemployment rate is less than half that of the euro area, which recently reached a new euro-era high last month of 12.2 per cent, and our rate also remains much lower than the 7.6 per cent unemployment seen in the US. We've also got a budget on track to return to surplus before most of the developed world. Our net debt is very low, expected to peak at less than one-eighth of the major advanced economies. To make that even clearer, our debt is expected to peak at 11.4 per cent of GDP in 2014-15. The average peak for the advanced economies will be over 90 per cent of GDP. Nobody takes joy from the ongoing difficulties in the global economy, least of all me. Over the past five years I have sat around the table with my fellow finance ministers on a regular basis and heard their first-hand accounts of the deeply destructive ramifications these types of economic outcomes have for their citizens. But frankly, there's a world of difference between our debt position and much of the developed world, and scaremongering about our debt, like talking down our economy, is both incorrect and irresponsible.

An economy in transition

While our economy continues to outperform, it is also undergoing two large and important transitions. Firstly, our resources sector is transitioning from the largest surge of investment in Australia's history to exceptional growth in production and exports. More broadly, the economy is transitioning to non-mining drivers of growth. The National Accounts also provided a snapshot of these transitions that are currently underway. This week we saw export volumes continue to make a substantial contribution to growth, led by non-rural commodity export volumes – which are 13.2 per cent higher over the year. This provides further evidence that the production phase of the resources boom is ramping up, while the investment phase starts to plateau. New private business investment declined by 4.3 per cent in the quarter, which is broadly consistent with the slowdown in mining investment. However we should also remember resource investment is generally quite lumpy quarter on quarter, reflecting the large size of individual projects. We also saw some encouraging signs that the transition towards non-mining sources of growth is gradually occurring. While consumers are still somewhat cautious, consumption growth was solid in the quarter. New dwelling investment also grew by 2.2 per cent to be 10.2 per cent higher over the year – the fastest annual growth in a decade. Forward indicators also suggest a further recovery in housing construction, and last week's capital expenditure figures point to a tentative improvement in non-mining business investment in 2013-14 – with mining investment set to stay at very high levels for some time.

While these shifts are underway, it is important to reflect on how we've already managed big transitions in our economy in recent years. Since December 2007, mining capital expenditure has more than tripled. In Western Australia alone, private business investment has increased by nearly 80 per cent over this period – and there's still a committed resource investment pipeline of $142 billion. We've come through the largest terms of trade boom in our history not only with record high levels of business investment and a permanent increase in our export capacity, but also contained inflation and low interest rates. This is a remarkable combination that is in stark contrast to past booms. This massive structural change in our economy has been overlayed by the worst global economic conditions in 80 years. Throughout all this, our economy has emerged as one of the strongest in the world. Our economy has grown faster than all major advanced economies, and has created around 950,000 jobs. We also have a strong and stable financial system, a high rate of national savings and we've recently seen evidence of an upturn in labour productivity growth, after a decade of structural decline.

However, big economic transitions never happen seamlessly. I know some industries and some communities have faced tough times, and some face tough times ahead. But these big transitions, and the hard circumstances they create for some, are happening in the context of a solidly performing economy. In other words this period of transition begins with Australia in a position of strength and an economy with enormous opportunities across all of our sectors. There are opportunities in new Asian markets, opportunities from new technologies and new industries, and opportunities in a new clean energy economy. Reasons for optimism are not hard to find. In that context, it's all the more deplorable for irresponsible commentators to talk down our economy. It's not a simple difference of opinion: it's a disrespect for the facts of our remarkable performance. And let's not forget that our performance is a result and a reflection of the hard work of Australia's industries, businesses and families. It cheapens their efforts when we devalue its results.

One year of the carbon price

The speech given by my colleague Greg Combet at the National Press Club on Wednesday was particularly interesting. It was a comprehensive assessment of carbon pricing's role in our plans to modernise and build a stronger, clean energy future. Greg cited some very interesting facts including that emissions in the National Electricity Market are down 7.4 per cent, renewable energy generation is up almost 30 per cent and more than 150,000 new jobs have been created. You can read more of the speech here.

Investing in a stronger, smarter and fairer Australia

Our economy is stronger, but we need to keep investing in it to ensure a stronger future. That's why I could not have been prouder this week to vote for the Gonski bills in Parliament. This legislation is the beginning of a transformation in our schools, and a better future for all our kids. It's putting in place a smarter funding model, and a smarter approach to helping kids get the absolute most out of their education. It will mean better schools and better outcomes for kids across the spectrum of socio-economic backgrounds. And ultimately it will mean future generations of Australians are ready to grasp the best jobs in a new, high-tech, low-carbon, Asian-facing economy.

In 20 years as a member of parliament, I have voted for thousands of bills. For me amongst the most important were the stimulus bills, to keep Australian workers in their jobs when the GFC was ravaging the global economy. It felt right at the time, and history has proved it was definitely the right thing to do. Voting for Gonski this week, I had the same sense of certainty that we were doing the right thing by our kids, and the right thing for the future of our nation.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia