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

5 February 2009

NO.003

Turning Crisis into Opportunity

Address to the Business Council of Australia

Melbourne

4 February 2009

Let me start by thanking Greg [Gailey] and Katie [Lahey] for their invitation to address your dinner tonight.

It's hard to imagine a more important time to meet. There's certainly a lot of doom and gloom around and I don't intend to rehash all the facts and figures here tonight.

Like me, many of you have been overseas and seen the worst of it. There's no doubting the severity of this global recession. And we know that things are likely to get worse before they get better.

But it's important to remember tonight the strengths we have going for us here, that are not as evident elsewhere in the world.

Our banking system is stable - amongst the most stable of all advanced economies - at a time when international banks have been in serious strife.

There's room to move in fiscal policy, as you saw in yesterday's announcement.

And both the Government and the Reserve Bank have taken swift and bold action to support jobs and growth in our economy.

As you know, over the past decades all of us - Labor and the business community included - have been on a fascinating economic policy journey.

Watching and influencing economic events here and overseas unfold within a freer global world economy, we've come to recognise the importance of a number of fundamental economic reform objectives:

  1. Building a more productive economy, by investing in critical economic infrastructure;
  2. Designing a better tax regime to reward effort and enterprise and attract investment in a tax competitive world;
  3. Investing in our people to create skills and spark further innovation;
  4. Doing our best to ensure more Australians share in our national prosperity; and
  5. Building the low-pollution economy of the future, that gives us a head start on the rest of the world.

With a few exceptions, the policies of the Government and the Business Council have coalesced around these priorities.

Emphasis may differ, but all of us here tonight share the same dream and are working for the same goal of an Australia that is more innovative, competitive, sustainable and open to talent.

But as history shows - while we make our own history, we can't do so in the circumstances of our own choosing. We must also play the hand history deals us.

So tonight I want to urge you to coalesce around a new aspiration: to help us cushion our people and our businesses from the worst the world can throw at us during this global recession.

And I come here with a pretty simple message, illustrated by the announcement we made yesterday.

And the message is this: don't doubt the Government's resolve. Don't doubt our determination, or our discipline. And don't doubt your own capacity, the capacity of the Government, or the capacity of the Australian people to come through this global recession and emerge stronger on the other side.

As you know, in recent months the sunny circumstance of uninterrupted world economic growth has abruptly come to an end, to be replaced by a far darker outlook. That downturn has been severe, it has been rapid and it has created profound uncertainty. Every major advanced economy is now in recession.

Just consider this fact: the global recession is expected to result in lost output of around $4½ trillion this year - an amount equivalent to four times the size of the whole of our entire economy.

China too is slowing sharply, with growth this year expected to be just half that recorded two years ago.

The global commodities boom which has driven much of our growth over recent years is now unwinding. This means that while Australia is better placed than most we are not immune. We can't completely resist the pull of international forces.

In this new reality - this global recession - the aspirations we share for a better future for Australia will be harder to achieve.

I want to assure you tonight that the Government, like you, has not abandoned our long-term, shared aspirations. In fact, seeing the damage being inflicted on your businesses, the people you employ and the families they support, makes us even more determined that this downturn must be the catalyst for a stronger and more sustainable upturn.

That's why the package announced yesterday was carefully crafted to ensure whatever we do to support jobs now has a lasting effect on our economy - that we are building the schools and roads and homes we need for a more prosperous future.

DECISIVE ACTION

This is no time for half measures. It is a time for decisive action - for getting on with the job.

And in this spirit I want to endorse the comment of Barack Obama's new chief-of-staff, Rahm Emanuel, who said that every crisis represents an opportunity:

"Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with."

Ladies and gentlemen, this crisis, as unfortunate and unwelcome as it is, represents an opportunity to advance the national interest through bold and intelligent policy action.

It is an opportunity to do the things left undone by more complacent decision makers in easier times - setting the country up for the future while addressing the immediate challenges we face.

As you know, the Government took the first bold steps prior to Christmas:

  • Guaranteeing the bank deposits of more than 15 million people;
  • Providing the $10.4 billion Economic Security Strategy in October and the $300 million local government plan in November; and
  • Kick starting future productivity improvements through the $6.2 billion Car Plan, the December nation building package and the $15 billion COAG national reform package.

The Reserve Bank has also responded rapidly by aggressively cutting interest rates, including a very big cut in rates yesterday.

Clearly, though, circumstances now dictate that even more needs to be done. And fast.

AN ECONOMIC POWERPLAY

That's why yesterday the Government released its $42 billion Nation Building and Jobs Plan.

In the past I've used some cricketing analogies to describe the Government's economic policy predicament. As I've said, our opponents had the better of the conditions - and now we've been forced to bat on a deteriorating wicket.

Forgive me for using another cricket analogy to describe this new stimulus package. I want you to think of this package as something a bit like the batting powerplay that's been introduced to one day cricket - a short burst of intense and purposeful policy aggression to keep our eventual target within reach.

This economic powerplay has been carefully designed to help us achieve our long-term goals in education, skills, housing, infrastructure modernisation, sustainability and business competitiveness.

It does not represent a sideward step nor a barrier in the path towards our longer term plans.

Two-thirds of yesterday's package will be invested in nation building for the future. This is the urgent acceleration Australia's economy needs in the face of downward growth projections.

There will no doubt be a fair bit of debate over the coming days and months about the components of our Plan - and we expect that. But having read your Budget Submission, I think the Government and the BCA are of one mind when it comes to action required to support jobs in the face of the global recession.

We both agree that in the current environment, direct expenditure and targeted payments represent better ways to inject immediate demand into the economy than generalised tax cuts.

NATION BUILDING AND JOBS PLAN

You are all aware of the details of the Nation Building and Jobs Plan, so I'll run through some of the initiatives very quickly.

The first set of initiatives are all about delivering the Education Revolution.

I don't need to convince you of the importance of education and training for Australian businesses and the economy. A well-trained and skilled workforce will continue to provide returns long after the current crisis has passed.

That's why the Government will invest $14.7 billion to build the physical infrastructure necessary to support the Education Revolution. Every primary and secondary school in the country will benefit from more modern infrastructure in the coming years.

This new 21st century school infrastructure will help harness the significant education reforms we agreed to as part of our broad COAG reform agenda.

The Government is also responding to the need to increase direct government investment by building 20,000 new homes for the needy. This unprecedented investment won't just support the construction sector, it will also promote better social and economic outcomes for thousands of Australians in the years to come.

The Nation Building and Jobs Plan also bolsters the Government's suite of re‑forms to tackle climate change.

The Government will provide free insulation for around 2.2 million owneroccupier homes, increased rebates for landlords to provide insulation for around 500,000 rental properties, and generous assistance for households to install solar hot water systems.

Over the coming decade these measures will reduce greenhouse gas emissions by an amount equivalent to taking more than one million cars off our roads.

More immediately, they will expand existing industries and generate a new army of green workers.

AN IMMEDIATE STIMULUS

These nation building measures represent the type of forward-looking direct government investments that the BCA has called for to support the economy.

But like the Government, you also recognise that to prevent the economy from falling into a deeper hole right now we need to boost private demand as soon as possible. And like the Government, you also recognise that the most effective way to do that is to target financial assistance to those households with the highest propensity to consume.

To provide just such a stimulus to the economy, over the coming months the Government will deliver $12.7 billion in one-off bonuses to low and middle income earners, beginning in March.

This builds on the support provided by the $10.4 billion Economic Security Strategy released in November last year.

And as today's very solid retail trade figures showed, our stimulus measures had a positive impact on demand in December 2008.

BUSINESS TAX CUTS

I also want to say a couple of things briefly about the tax break we are expanding, for businesses like yours.

We announced yesterday an additional $2.7 billion tax break for small and, indeed for businesses of all sizes. This trebles the temporary investment allowance announced in December for equipment ordered before June 2009 and extends the earlier 10 per cent allowance for a further 6 month window.

As you know only too well, business investment has been hard hit by this global recession and it is vital to our recovery.

I encourage you to take advantage of the time-limited tax break which is on offer, and to make others in the Council aware of it as well. The tax break represents a unique opportunity to acquire assets which will make your business more productive - at a significantly discounted cost. We see it as the best way to create a win-win - for the national economy, and for the working Australians in your businesses.

THE IMPACT OF THE PLAN

Taken together, this is a massive package. It's a serious set of measures designed for seriously difficult times.

Our modelling tells us that it will help support and sustain up to 90,000 jobs over the next two years and add around ½ of 1 per cent to growth in 2008-09 and ¾ to 1 per cent in 2009-10.

Given its severity, we can't completely offset the impacts of the global recession. But with the Plan, growth is only expected to slow to 1 per cent in 2008-09 and ¾ of 1 per cent in 2009-10.

Inevitably, unemployment will rise as a result of the downturn, with the unemployment rate forecast to reach 7 per cent by June 2010. This is the human cost of the global recession that the Government is determined to minimise.

This package is certainly not economically timid, but in the circumstances we face, as opposed to those we would ideally want, it is certainly the economically responsible course. The alternative of doing nothing is simply not an option.

It's true, the Budget is now in a temporary deficit. No one is happy about this, particularly me, but the fact is it could only have been avoided at the cost of lower growth and even higher unemployment. And that's something no one wants, and which I won't tolerate.

The alternatives to a temporary deficit - spending cuts or tax increases measured in the tens of billions of dollars - are simply unthinkable.

The Government remains committed to delivering budget surpluses, on average, over the economic cycle.

And we remain committed to keeping taxation as a share of GDP on average below the 2007-08 level.

We have enunciated a two-stage fiscal strategy built on ensuring quality spending during the economic downturn and expenditure restraint once the economy begins to recover. And as the economy recovers and grows above trend the Government will take action to return the Budget to surplus as soon as practicable without jeopardising the recovery.

We will do this by:

  • Allowing tax receipts to recover as the economy recovers, while maintaining the commitment to keep tax as a share of GDP below the 2007-08 level on average;
  • And holding real growth in expenditure to 2 per cent a year until the Budget returns to surplus.

CONCLUSION

Tonight is certainly not a time for partisan politics. In fact increasingly the time I spend out and about in the community and with business leaders tells me partisan politics ought to be in the deep freeze throughout this crisis.

But here tonight I do need to reflect upon some of the uncertainty we now face in relation to the $42 billion Nation Building and Jobs Plan.

In particular we now face an obstructionist Opposition.

It is with a mixture of absolute bewilderment that I report to you the approach of the Opposition Leader Malcolm Turnbull so far seems to be based purely on politics. At a time when co-operation and unity is being demanded by the business community and the wider community, Mr Turnbull will vote against this decisive plan. This is cause for deep concern to me - and I'm sure to many of you.

While it would be improper for me to urge you to voice your concerns about this obstructionist approach, I'm sure many of you might see fit to do so of your own volition.

I hope you agree our Nation Building and Jobs Plan is a plan for today and for the future. It is the economic powerplay we need to keep alive the aspirations we all share for a better future for the Australian people. It finds the best balance between supporting jobs now and building the homes and schools and roads and communities we need for future growth.

It's certainly true that this package on its own won't negate the effects of the global financial crisis.

But it will help cushion the blow on Australians, and on Australian businesses.

The only guarantee here is that things will be worse if we don't act.

I believe our Plan will provide you with the right economic conditions to plan your own positive, aggressive but well thought out response to the conditions your companies face.

I also want to reassure you tonight that we are going to continue our reform agenda so that when Australia recovers from this downturn we have a stronger, more resilient, more modern economy to take advantage of the challenges and opportunities of the 21st century.

I don't need to remind you these are the most difficult economic circumstances we have faced in our lifetimes. But with our dedicated nation building program, with national unity and with purpose, we can emerge from this global recession stronger and more prosperous than before this global crisis began.

Thank you very much.