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

21 November 2008

NO.045

Addtress to
Australia-Israel Chamber of Commerce

Sydney

21 November 2008

It is good to be here. I would like to thank John Simon, Managing Director, Optus Business, for that introduction. I'd like to acknowledge Anthony Hollis, CEO, Australia-Israel Chamber of Commerce, for his support over the years. I'd also like to thank Kim Jacobs, President NSW, Australia-Israel Chamber of Commerce, for putting on this event. And I'd like to acknowledge as well my colleague, Senator Michael Forshaw.

You will understand if I hold off thanking the members of the KGB until after their interrogation is complete.

It is good to have the opportunity to address this group again. I don't intend to speak for long but, before we get into the Q and A, I just want to give you my thoughts briefly about the two major international meetings on the global financial crisis which I've just attended - the G20 Finance Ministers' meeting in Sao Paulo, and the G20 Leaders' Summit in Washington.

I also want to provide some reflections on the extraordinary year that has passed in economic policy-making since I became Treasurer.

Obviously, it was a remarkable time to be in the US capital - in the middle of both a global financial crisis and the transition to a new president, especially one who has generated as much international excitement as President-elect Barack Obama.

Both G20 meetings had an incredible sense of history about them. And I imagine the participants in the Bretton Woods negotiations in 1944 had a similar feeling that history would be their judge.

The first thing to say is what a positive development it is for Australia that the G20, rather than the G7 alone, is now so firmly at the centre of the global response to the financial crisis.

Put simply, it was vital for Australia's national interest that international discussions on solutions to the global financial crisis include us, of course, but also the major developing economies that fuel so much of our growth.

The Prime Minister lobbied very hard for the G20 to be the forum for these discussions, and ultimately, with very positive results.

The Leaders' Summit, as it happens, could not have been more timely - with its call for co-ordinated monetary and fiscal policy responses; the redoubling of trade liberalisation efforts; and the establishment of a broad and inclusive process to remedy inadequate financial regulation.

I believe that Australia, with the strong economic links and understanding that comes from living among and trading with the developing world, coupled with the institutions and markets of a developed world economy, has been uniquely placed to help shape better outcomes.

What was most striking at the summit meetings was the demeanour of some of the Leaders and Finance Ministers gathered around the tables - all from very different countries, but all faced with the fallout from this crisis.

As you would expect, the bearing of the representatives of the developed countries hadn't changed that radically, which is unsurprising, because they've been feeling the real economy effects of this crisis for some time now. Virtually all of them were in or close to recession, facing a severe downturn and rising unemployment.

The difference at this meeting, compared to previous ones, was the clear realisation on the faces of the developing country Leaders and Ministers that the crisis was now affecting them.

The much-touted "decoupling" thesis of developing economies continuing to surge ahead as the developed world slows has well and truly faded from the scene.

The developing countries' concerns are easily understandable.

The long global economic upswing has literally lifted hundreds of millions of their citizens out of poverty.

So for them the consequences of the global financial crisis are potentially more serious and more tragic than for the rest of us.

As for Australia, we are quite literally straddling these two worlds.

Those of you who are obsessive readers of budget papers - and I'm sure that's everyone here - will remember the economic story we told in the May Budget: that Australia was buffeted by countervailing forces in the global economy.

On the one hand there was the huge upswing from our booming trade with the developing world and China in particular. And on the other, the dampening effect of the slowdown in the developed world; the impact of successive interest rate rises under our predecessors; and the ongoing credit crunch on the domestic economy. Steering between these two stories wasn't easy.

There was criticism from some that the May Budget cut too far; from others that it cut too little. From Malcolm Turnbull, both.

I think we got the balance right, and that is now the consensus of economists and commentators.

Our budget settings left us with a stronger budget position when fiscal stimulus became necessary, but still with the underpinnings of future growth firmly in place.

On the fiscal stimulus package more recently, again we were quick to anticipate events. We acted much earlier than most of our fellow countries at last weekend's summit, but we also maintained flexibility.

We were acutely conscious that the very welcome monetary stimulus now underway would have its major effects from the second half of calendar 2009, but that growth could slow faster than that. Frankly, the only action fast enough to cushion the fall is fiscal policy.

I invite people to look at the design: the package is timely, injecting most of the stimulus within the next month.

It is temporary, being largely expended by the end of the 2008/9 fiscal year. And it is targeted - specifically at pensioners, low-to-middle income families and the housing sector.

We did this to protect economic growth in the period ahead, but we did it for another reason as well, and that is to help shield those families and those pensioners from the worst effects of an economic crisis they did not cause.

Because of the way we designed this package, we have preserved our ability to act further, and particularly in the out-years, which are basically unaffected by these measures.

As we look forward on fiscal policy, the priority that looms large is less the need to support short-term consumption, and more to support longer-term investment in the productive capacity of our economy.

In setting up our nation-building funds, we have already signalled our intent to be infrastructure investors for the long-term. Such investment can not only have a useful counter-cyclical effect, it also helps in the quick recovery of growth off a more productive base.

For you and the businesses you represent, I would like you to see it as a rock-solid vote of confidence by the federal government in this country's economic prospects.

The international consensus last weekend absolutely supports our actions on fiscal policy.

On the financial crisis response itself, we took out some insurance earlier in the year. Back in June, I announced the expansion of the Commonwealth Government securities market, and a new mandate to the Australian Office of Financial Management to invest in financial assets.

These moves were little discussed at the time, but they were designed to give us the latitude we have since - unfortunately - needed; namely to buy residential mortgage-backed securities from financial institutions unable to access the securitisation market.

And I might add, it gives us further latitude to address other market failures as they emerge in the no doubt difficult months ahead.

There have also been the unanticipated events I discussed earlier, where the issue is not your ability to prepare, but the speed of your reflexes in responding.

Our quick action over the weekend of the 11th and 12th of October to guarantee bank deposits and wholesale funding was widely welcomed at the time and has helped to stabilise our financial system and substantially reduce money market spreads.

Many column inches have been spent in discussion of this measure, which is as it should be in a democracy.

But I'd note that everyone who comments is quick to say they accept the guarantee was necessary to maintaining the stability of our financial system.

The alternative of an unstable banking system in Australia simply doesn't bear thinking about.

It is inevitably the case that in extraordinary times, policy has to move quickly to keep up with fast-moving events.

There are no simple off-the-shelf solutions to a crisis of the magnitude we are facing - none in the past three quarters of the century at least, and self-evidently none from the past that can embrace the full complexity of modern financial markets.

In such situations, the only responsible course of action is to act quickly and decisively, and smooth over any rough edges in the process of implementation.

This is what we are doing now, for example, with our measures to price and implement the guarantees, and I pay tribute here to the calm, deliberate and diligent way in which our regulators have gone about this job.

It's been a tough and busy twelve months to have been Treasurer.

I've often compared it to coming in to bat on a fifth day pitch, with cracks like the grand canyon, uneven bounce and Warnie, standing at the other end, full of baked beans, trying out his latest technique of 'mental disintegration'.

And sure, things would have been easier if we'd got the bat in hand on the four previous days when the sun was shining, the track docile and the English spinners operating.

But you don't get to choose the timing of these things.

All you can do is focus on those fundamentals - of anticipating the play, and reacting quickly to the unexpected.

That's what we have been doing, and what we will continue to do to see us through a tough period ahead.

Thank you.