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

23 March 2009

NO.006

A Future of Promise

Address to the Sydney Institute

Sydney

23 March 2009

Thank you, and let me start by expressing my appreciation to Gerard and Anne and the team at the Sydney Institute for once again being superb hosts and giving me a chance to bring you up to date with rapidly unfolding global economic events, their impact on Australia, and what the Government is doing to support growth and jobs in really difficult circumstances.

A lot of people have remarked to me since we all heard that sickening sound that accompanied the collapse of Lehman Brothers last year that it must be frustrating, having sat in opposition during the boom years, developing a plan for the future, only now to have to chart a way through such an extraordinary international economic collapse.

It would be dishonest of me to say I wouldn't have preferred to have spent my time ticking off items on our 'to do' list, knowing the world economy was working with us, not against us, and the revenue was rolling in.

But of course the real world doesn't work that way. Economic management is seldom easy, the last decade excepted. Good economic managers don't live in a dream world or roll up into a little ball. They make the most of the cards they've been dealt.

And in this situation we're in I'm reminded of Ronald Reagan's advice that no matter how frustrating it gets, "always throw your golf club in the direction you're going." It's good advice that means even bad situations can get you closer to your goal, if you're smart.

If I could encapsulate what I have to say here tonight in a single sentence it is this: while the short-term is full of challenges, the long-term is full of promise. I believe that sums up our economic position very well. It sums up the national mood, I think. And I want to reflect on this quite a bit tonight.

Australia has a great future ahead of it, no matter what the present day troubles we face. We possess advantages that benefit us greatly. Advantages which are the envy of other countries. Not just the quality of our banks or the quality of our balance sheet but, most importantly, the quality and resilience of our people. The quality and resilience and common sense of our families and our communities, that gives us the capacity for greatness. This is the long-term promise we can't lose sight of. And to get there we mustn't freeze in the face of immediate challenges, or use them as an excuse to retrench and retreat.

The Worst the World can Throw at Us

I often describe what's happening with this global recession as the worst the world can throw at us. It is, truly, the sharpest synchronised global downturn in living memory, as the almost daily flow of awful global data reminds us. And it's being inflicted on good Australians through no fault of their own.

The deterioration in the global economy has been severe, it has been rapid and it has created profound uncertainty.

Share markets have tumbled, world trade has collapsed, and global output is falling for the first time in 60 years.

While the world economy had been slowing for some time now, that downturn shifted gears in the fourth quarter of last year. In most places, consumers stopped spending, banks cut back lending and businesses cut back on production. This drove an unprecedented decline in global activity in the December quarter – advanced economies contracted by a massive 7 per cent on an annualised basis.

And growth in the key emerging economies of China and India – the engine room of the global economy in recent years – came to an abrupt halt by the end of 2008 as well.

Some of our other regional neighbours suffered falls in output of a larger scale than they did during the Asian financial crisis. In Japan, for example, the fall in output was the biggest since 1974.

This global deterioration has played out with a speed and force that we have not seen before. Just last week, the IMF slashed its global growth forecasts for the fourth time in just six months. It now believes global output could fall by as much as 1 per cent this year, in what would be the first global contraction in the post-war era.

Advanced economies are in deep recession and are expected to contract by more than 3 per cent this year.

The cost of this global recession in terms of lost global output is likely to be in the order of $6 trillion this year alone – nearly six times the size of our entire economy.

The human cost in terms of jobs lost will be even more devastating. The International Labor Organisation has said that more than 50 million jobs could be lost worldwide because of this global recession.

No country in the world can hope to escape unscathed, including us.

The global recession has already had a big impact here at home. Demand for our exports is falling, as are global commodity prices. The downturn has already wiped one-quarter from expected export earnings this year alone, with the possibility of further losses to come.

And with this global recession now expected to be even more severe than published in the last official forecasts, with a global tide that is continuously building in its intensity and ferocity, it will be virtually impossible for Australia to avoid a period of negative growth.

But despite being hit hard by this global recession, we're still faring better than almost all other developed nations. Growth over 2008 was stronger than any of the G-7 economies and our unemployment rate is lower than all but one. Our banking system is amongst the most stable of all advanced economies, at a time when banks internationally have been in serious strife. And our budget position is much stronger than all other advanced economies.

The community knows that we're living through momentous times. But we have kept our calm. Ultimately, Australians understand that the downturn is a global event and that we must remain resourceful and positive in the face of it.

The international community, large and small Australian businesses, employees, mums and dads, international bodies, and even that usually fractious bunch – professional economic experts – have formed a remarkable consensus that has sustained broad support for three sets of initiatives I want to talk about tonight.

The first is stabilising the financial system through regulatory action in Australia, and globally. The second is cushioning the blow through policies that keep unemployment lower than it would otherwise be and support those who lose their jobs. The third is setting Australia up for the recovery by building the educated, skilled, low-pollution economy we need for the future.

Financial Markets

Our efforts in the international community and our actions at home are geared towards a necessary stabilisation of financial markets.

As many of you would know, I have just returned from the UK, where I attended the G-20 Finance Ministers' meeting; a prelude to the Leaders' meeting that the Prime Minister will attend early April in London.

Clearly it's a very tough task facing the Leaders in London – as they try to hammer out a consensus amongst the world's biggest economies.

Amongst these economies there are of course vast structural differences and a vast range of domestic considerations to take into account.

But if there was one overriding message coming out of the Finance Ministers' meeting two weeks ago it is this:

Amidst this awful recession, there is a growing unity of purpose among nations and a determination to find a workable pathway forward.

I think this is reflected in just how much progress we have already made. Let me recap:

There was a clear commitment from the world's 20 largest economies to substantial fiscal stimulus, because Finance Ministers from across the political divide understand the importance of boosting demand to avoid a damaging loss in output and much higher unemployment.

We now have a consensus around fundamental reform of international financial institutions (especially the IMF). Resources of the IMF to deal with the global financial crisis will at least be doubled, and the representation of the developing world will be significantly increased. More than one experienced IMF hand I have spoken to said we have leapfrogged about 20 years of debate around IMF reform in one communiqué.

And we now also have the attention of all G-20 governments focused on dealing with the problem of toxic assets, and fixing the regulatory lapses that allowed them to arise in the first place. And we will need it, because the job ahead is massive.

Without cleaning up toxic assets on the balance sheets of the world's largest banks, fiscal stimulus will be far less effective. It matters not how much petrol you put in the tank if your fuel lines (in credit markets) are clogged.

And fixing global financial regulation is equally vital, because in view of the millions hurt and impoverished by this global financial crisis, it would simply be obscene neglect of future generations not to learn the lessons of this crisis, and resolve that it will never happen again.

I might add that these are especially gratifying developments from an Australian point of view. As you may know, the PM and I have been deeply engaged with our counterparts around the world in pushing action on toxic assets, and Australia co-chaired the working group on IMF reform.

Our points of engagement with this process have been precisely those which have shown such good progress.

What underlies all of this, and must not be underestimated, is the new prominence of the G-20 itself. Put simply, it has become the indispensable international organisation for managing this crisis.

That's important, from an Australian point of view, in the sense that through the efforts of senior ministers, our diplomats and particularly the PM, we have really dealt Australia into the main global equation at a crucial time.

But it's also important from a global point of view as well. As I've said before, a discussion about solutions only among developed economies would have failed the test of legitimacy in the eyes of the many billions in developing countries now endangered by this crisis.

This most recent meeting was the sixth time I have met my G-20 counterparts in one forum or another during my time as Treasurer. These have been meetings that have chronicled the deepening crisis almost like a stop-motion film. And they have had a personal edge as well.

When you meet counterparts six times in a year (which in times like these, in jobs like these, can be more frequently than we see some family members) you come to know their challenges and fears.

What I think is not well understood in Australia is how important these meetings have been to us in staying ahead of the curve in confronting the global financial crisis and the global recession.

Fine publications though they are, you can't in this world of policymaking just read the Financial Times or the Wall Street Journal each morning and think up your policy as you go along. It is in genuine discussion with bodies like the IMF and the World Bank that you pick up the important intelligence to understand how the crisis is playing out and influence the critical decisions affecting the global economy.

It is in forums with other countries that you get a sampling of how others are tackling events. And it is in one-on-one meetings with Ministers that you can really understand the policy responses – what is working and what isn't.

The real effects of the global crisis, now so evident in our growth figures, took a little longer to arrive in Australia. But our response certainly did not.

Consider that we were among the first to announce a major stimulus package. Likewise, our moves on bank guarantees and special purpose vehicles have been in place ahead of the crisis point arriving.

Taking car finance as an example, we have so far been quick enough that our special purpose vehicle appears to have restored confidence. This is the model – act early; minimise the depth of the problem; be in a position to recover faster. In short, stay on the offence.

This is not to say that things will not get tougher in Australia. Even our forecasts for unemployment hitting 7 per cent show a period of hard times ahead, and that is with early action.

But our international engagement and hard and creative work within government have put us in the best position to come through this crisis and protect many millions of our citizens from the worst effects along the way.

That's been the whole point of action to date, and it's what will guide the efforts of the PM and I when we head to London later this week.

What we do there, and what we do here at home to stabilise the banking system is not done for the banks or for bankers; it's done for millions of Australian depositors who rely on a stable system for their jobs.

As confidence in the global financial system was at its lowest ebb in October last year, we moved quickly to ensure confidence in the system through the guarantee of bank deposits. This gave 13 million local bank account holders certainty over their deposits.

We also moved to ensure that our banking system had access to global financial markets through the guarantee on wholesale funding. This has allowed Australian banks to raise more than $95 billion.

This is ensuring banks continue to lend to businesses and households, which is critical to support jobs and growth in our economy.

Australian banks are now on track to issue 10 per cent of global guaranteed issuance – the third biggest issuer of guaranteed bank paper behind France and the US. And our major banks all report being well ahead of schedule on this year's funding plans – we weren't in a position to say that before the guarantee.

Supporting Australian Jobs

The second set of initiatives I want to touch on now are those which stimulate the economy, support employment, and look after Australians who have seen the global recession take from them the jobs they value so much.

The Government will never shirk from doing all that it can to support Australian jobs in these unprecedented times – whether that be through direct stimulus or labour market programs.

We won't let people down. And we'll do what we can to prepare Australians to take full advantage of the recovery when it arrives.

Economic Stimulus

The results of our first stimulus package, mostly delivered in December, speak for themselves. Despite the full horror of the global recession, consumption in Australia still held up in the December quarter.

Retail trade figures in Australia increased by 3.8 per cent in December – the biggest monthly increase since August 2000 – a standout result in a world where consumption has slumped elsewhere.

Retail trade figures are recorded monthly; and so another way of putting this is to say that the figures from last December were the strongest of the 101 most recent recordings of retail trade.

This is despite the recent deterioration in economic conditions, and the boom that preceded them.

This higher retail activity has helped keep more people in work. Employment in the retail sector increased by more than 16,000 over the three months to February.

And while there's no telling how many people kept their jobs as a result of this stimulus, we do know this is a turnaround of more than 30,000 jobs on the previous three months.

The Economic Security Strategy – which also included the enormously successful First Home Owners Boost – clearly put a floor under demand in the Australian economy.

That's why, when the global economy took a turn for the worse early in the new year, the Government did not hesitate to act again.

The $42 billion Nation Building and Jobs Plan announced in February bolsters that floor under demand in the Australian economy – and also underpins the Government's broader economic reform agenda.

It should be remembered that more than two-thirds of the Plan is focused on direct government investment in schools, energy efficiency and housing which will yield long-term dividends for productivity, sustainability and equity.

The remaining one-third of the Plan builds on the success of the Economic Security Strategy.

The Bonuses targeted towards low and middle income households will fill in the hole in aggregate demand that would have been created if we had only provided for direct government investments in our February Plan.

Direct government investments necessarily take a few months to kick in – and that's where the Bonuses fit in with the Government's demand-side management plan.

The Nation Building and Jobs Plan has been criticised in some quarters with lazy and predictable arguments about deficits and government debt. The weakness of such arguments lies not in the long-term desirability of keeping Budgets in surplus and debt at optimal levels. The weakness lies in their assumption that global economic conditions have not changed, when clearly they have, in the most damaging fashion.

The Australian people understand these difficult conditions imposed on us by the world. They want a Government with a dogged determination to support growth and to support every Australian job it can, and that's what we're doing.

Labour Market Measures

Our economic stimulus is targeted at creating demand for labour, while our labour market measures to assist the unemployed are designed to improve the quality of labour supply over time.

As the labour market softens, our retrenched workers will need to enhance their skills – to improve employment prospects when the economy recovers.

We need a skilled, motivated and job‑ready labour force which will allow the Australian economy to grow more rapidly when private sector demand rebounds.

That's why, so far, we've invested $2 billion in training places through the Productivity Places Program – including 20,000 Structural Adjustment Places earmarked for workers in industries which have shed jobs.

We've invested $145.6 million to support out-of-trade apprentices to complete their training and to remain connected to the workforce. And we've allocated $298.5 million to help newly retrenched workers gain immediate access to more intensive employment services – including training referrals.

This is all about treating the downturn as a spur to re-equip our people with the skills they will need for the next period of growth and prosperity.

Building the Recovery

This approach informs the third broad set of initiatives I want to touch on tonight – centring on critical economic infrastructure, the Education Revolution, and the building blocks of future prosperity.

We are working to ensure that when Australia recovers from this downturn we have a stronger, more modern economy ready to take advantage of the challenges and opportunities of the 21st Century.

The Government is committed to delivering top-class broadband to every Australian, no matter where they are located. That's why we are investing $4.7 billion to deliver a National Broadband Network.

We are also undertaking the essential investment in Australia's roads, rail and ports – after years of neglect. We have fast-tracked key nation building investments in our roads, rail and education institutions – with $4.7 billion announced in the Nation Building Package in December 2008, with much more to come.

We have provided significant infrastructure investment in our schools, homes, roads and communities in the Nation Building and Jobs Plan.

We have already set aside more than $26 billion for the Nation Building Funds to finance critical national infrastructure projects. And work is underway through Infrastructure Australia – who will be reporting very shortly on the nation's priority infrastructure needs.

The Coming Budget

It is in this economic context that the 2009 Budget is being drawn up. The Budget will be the next step in the Government's coordinated response to the global recession.

Our challenge will be to continue to stimulate the economy and continue to invest in the future, while working under the constraints imposed by collapsing revenue and the global recession.

The Budget will be a strategically-focused document that will aim to maintain demand, support jobs, provide Australians with secure and sustainable retirement incomes, and lay the building blocks of the post-crisis economy in crucial areas like critical economic infrastructure and the Education Revolution.

It will add to the steps already taken to support demand, support jobs, support growth, and build the schools, roads and homes the nation needs.

The Budget will be developed consistent with our clear plan to return it to surplus and reduce debt over time.

As the economy recovers and grows above trend, our action to return the Budget to surplus will include 'banking' the natural recovery in tax receipts associated with economic recovery and holding growth in real spending to 2 per cent a year until the Budget returns to surplus.

We have set a clear objective to meet budget priorities – other than those specifically designed to provide a temporary economic stimulus – through a reprioritisation of existing expenditures.

We know that will be difficult, that it will involve some hard choices. We can't do everything we want to do, that's for sure. There will be sacrifices.

We will continue to be careful and responsible, and do only what we responsibly can – and this necessarily means reconsidering some priorities.

These tough decisions will be required to maintain the economic discipline necessary to stimulate the economy, while implementing our plan to start returning the Budget to surplus once the economy recovers.

Ahead of the Game

Thanks again for giving me the opportunity to speak so frankly tonight.

There will be no easy fix here, and we acknowledge that openly. Things will get worse before they get better.

Staying ahead of the game during this global recession will involve hard graft and pragmatic policy responses. It will take all our efforts to ensure the effective operation of the financial system, support jobs, and build the critical economic infrastructure necessary for future productivity.

Unfortunately some fall back on ideology. Some think we should let events run their course. Some opportunistically deny our economy is being buffeted by global forces. Unfortunately, no matter what the changing circumstances, their answer is always the same: don't intervene; let it rip; let the cards fall as they may.

This isn't sound economic policy; it's a failure of policy courage. Or worse, the false prescriptions by people actually willing Australia to fail.

Now this may sound harsh, but I really do believe our political opponents would rather see the country fail than the Government succeed.

But fortunately the broader Australian community is focused more on our shared short-term challenges and long-term promise than they are on those who seek to play politics with a global recession. A global recession that has demonstrated again the resilience of the Australian community.

It has been incredibly heartening for me to see the degree of understanding about the job ahead. Even people who normally wouldn't be interested in political or economic events are following this closely.

This is why I started yesterday circulating a regular economic note to the community so that our understandably worried nation can arm itself with the information needed to best understand a global recession they did not create.

Throughout this economic crisis we're doing what Australians always do: rolling up our sleeves, pulling together in that typical fashion. Dealing with these short-term challenges, but also diligently positioning ourselves for a future full of promise.