Deputy Prime Minister and Treasurer
3 December 2007 - 27 June 2013
Positioning Australia for Recovery
Address to the CEDA 'State of the Nation' Conference
15 June 2009
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I'm delighted to be back with you today.
I like the name you give to these conferences: 'State of the Nation'. It encourages us towards a genuine stocktake of our economy, the pressures, the challenges over the horizon and how we go about meeting them together.
And it's a tribute to your organisation that in the midst of all this global economic carnage, you've still made this year's theme 'priorities for the future'. You know, as I know, that we can never take our eye off the long-term – however daunting the immediate challenges we confront.
Not since the 1930s has the Australian economy been exposed to this degree of turmoil in the global economy. And in this environment, the public focus has understandably been more on the immediate economic outlook and the Government's policy response. But while the issue of Australia's long-term economic future and the economic reforms necessary to secure it may have had less of a public profile of late, I can assure you that they have been ever present in our thoughts.
My job today is to talk a bit about the Government's economic strategy during this recession, but also this very important longer-term reform agenda. So I want to explore the reasons why Australia's outperforming the other advanced economies, but also the reasons why we still have a very substantial jobs challenge ahead of us, and what we're doing about it. Then I want to turn to longer-term considerations – the type of recovery I want for Australia and how we capitalise on the big opportunities that will present themselves in the months and years and decades to come. Then I'll finish on some reflections on what I think this global recession has taught Australians about ourselves, and what this means for our prospects.
That's a lot of ground to cover today, I know. But it all comes back to what I see as the Government's two main objectives in the face of the deepest synchronised global downturn in three-quarters of a century: to support our people by supporting their jobs; and to position us to benefit more out of the global recovery than any other nation.
We now know from the March national accounts that the Government's efforts to stimulate the economy and the resilience of the Australian community have allowed us to outperform all other advanced economies. We should take heart from the fact this combination of policy action and national unity allows Australia to have lower debt, lower deficits, and stronger growth than comparable countries.
Australia is going forwards, while almost all the other advanced economies are going backwards. For example, we grew by 0.4 per cent in the March quarter, while the G7 economies collectively contracted by 2.1 per cent over the same period.
There are a range of reasons for this, including the strength of our banking system, the quality of our regulators, our fiscal position, and our geographical position on the doorstep of the world's most dynamic region.
But another key explanation is the fact our stimulus is world's best practice – doing so much to support jobs and stimulate key sectors of our economy.
And you need to remember it is still flowing. The cash payments that did so much to prop up demand were only the first phase of our economic stimulus. This is still to be followed by the shovel-ready projects in schools, homes and energy, and the road, rail, port and broadband projects outlined in the Budget last month.
As you know, there's been a great deal of commentary on the deficit created by a $210 billion collapse in tax revenues, and on our program of responsible borrowing to cover this revenue collapse and invest in infrastructure. Sensible commentators and many in our community understand Australia has very low levels of public debt and deficit compared with the rest of the world – a fact underscored by the release of IMF analysis of the fiscal position of comparable countries last Tuesday night.
But what is not often understood in this debate, largely as a consequence of the political opportunism of the Liberal Party, is the consequences for jobs of not borrowing – the human costs of not borrowing. Responsible borrowing means fewer jobs lost, it's as simple as that. So those who argue for less borrowing are arguing for fewer jobs.
Our number one priority is jobs and that's what has guided our successful stimulus strategy all along. We are absolutely determined to support employment now and build an economy with meaningful employment for future generations.
Treasury estimates our economic stimulus will support up to an extra 210,000 jobs over the period ahead. That's 210,000 Australians and their families who would otherwise be without work, were it not for Government action.
The stimulus packages are expected to reduce the forecast peak in the unemployment rate by 1½ percentage points, from 10 per cent to 8.5 per cent.
The political debates about stimulating the economy to support jobs too often fail to factor in the human and financial costs of unemployment. Consider this – Treasury estimates our economic stimulus could mean:
- Total employee incomes over the next decade will be around $100 billion higher;
- These higher incomes translate into additional personal income tax of around $23 billion over the decade;
- The number of long-term unemployed will average around 80,000 lower; and
- Expenditure on unemployment benefits will be nearly $4 billion lower over four years.
Now, despite the success of our stimulus, there's still a rocky road ahead when it comes to the employment challenge in Australia, as the global recession continues to batter our people and our businesses. Let me be really frank for a moment and admit that one of the difficulties in giving speeches like this is talking about recovery when we know full well that hundreds of thousands of Australians still risk losing their jobs to this global recession before it has run its course.
That's why our optimism about recent encouraging signs in our economy is always tempered by our understanding that there's a rocky road ahead. And it's why we try not to get bogged down by technical debates about recessions – that time is better spent implementing labour market initiatives to meet the employment challenge in our economy.
These initiatives need to alleviate the immediate pressures on those who are affected by the downturn in economic growth. They also need to promote flexibility to allow the economy to adjust smoothly during the recovery. And they need to maintain a focus on skills and productivity that will secure sustainable, long-term economic growth.
The Government's Jobs and Training Compact, worth $1.5 billion over five years, will assist Australians whose job prospects have been adversely affected by the global recession. It will invest in the education and training of young Australians, retrenched workers and local communities, to get back to work, add to their skills, or learn the new skills required to obtain jobs as the labour market recovers. The Compact brings the total number of additional training places for jobseekers to 81,000 – and the total number of Productivity Places being offered by this Government to over 710,000, at a total cost of $2 billion.
Our approach is to do all we can to keep people in work, and to train those people who, through no fault of their own, lose their jobs to the ravages of the global recession.
If the global recession has taught us anything, it's that no Australian is immune from the international conditions we operate in.
So in considering what kind of recovery we want for Australia, and how we chart the course to a more modern, competitive and productive economy for the future, we must also consider the challenges and opportunities on the horizon and beyond. So what are the big demographic and technological and societal shifts we need to harness and turn to our advantage?
Everything we know about economic growth in advanced economies over the past half century tells us that there has been a clear shift towards knowledge-based goods and services. Today, the distinguishing feature that sets advanced economies apart is their emphasis on the knowledge economy. Increasingly, it is the skills and knowledge of the population – our human capital – on which the fortunes of countries rest.
To adapt to the changing global conditions successfully, we need workers with the skills and education to enable them to seize economic opportunities as they arise. We also need robust institutions and quality infrastructure, to boost productivity. In short, we need a modern, competitive, productive economy.
And we need to build that modern economy conscious of three fundamental challenges which will shape its performance over the medium-term:
- The looming demographic transition facing the economy as a generation of older workers starts to retire;
- The shift in global economic weight toward China, India and other emerging economies; and
- The economic and social changes that will flow from climate change and our responses to it.
These factors will underpin and inform policy making in the years ahead – well beyond the current economic downturn.
Building the new economy will entail a revitalised and broadened reform agenda every bit as ambitious as that of the 1980s and early 1990s.
The task we face is huge. We can't lazily rely on favourable global economic conditions for our future prosperity, or on a never-ending mining boom. We no longer have the luxury of coasting along while a booming global economy underwrites continuing rises in living standards.
Tomorrow's prosperity and economic security depend crucially on the economic policy choices we make today. This is why a bold plan for the long-term economic future of the nation is more important than ever.
Which brings us to perhaps the most important question facing us today: what kind of recovery do we want for Australia? This question goes to the type of economy we want for the future and also, of course, what kind of society we want, as well.
The Government's plans for nation building infrastructure and the Education Revolution comprise the physical and human capital we'll need to build a new generation of prosperity – one that lifts productivity and expands opportunity.
Sustained investment in Australia's economic infrastructure and reform of infrastructure markets are critical to boosting national productivity. Before the global economic downturn, capacity constraints and infrastructure bottlenecks in some of Australia's key export supply chains were shackling our economy. Addressing critical infrastructure gaps, reforming planning and regulation, improving logistics chain coordination, and better using infrastructure through appropriate pricing, all have important roles to play in ensuring that we avoid the re‑emergence of these problems.
The infrastructure measures delivered in the Budget represent a critical investment in the drivers of Australia's long-run economic growth. Our $22 billion investment will support around 15,000 jobs each year, peaking at around 18,000 jobs in 2011‑12. That includes an $8.5 billion investment in critical economic infrastructure – in road, rail and port networks. This investment will mean that when that global recovery takes hold, our ports won't be straining, our rail networks won't be as poor, and our roads won't be so clogged.
The superfast broadband network we are building will also help transform the Australian economy and allow us to take advantage of the global recovery, and the shift to knowledge‑based industries. The network, built in partnership with the private sector, will be the single largest nation building infrastructure project in our history.
The other pillar of our recovery is our Education Revolution. On top of the training initiatives I covered earlier, and despite the difficult economic times, the Government has not backed away from our Education Revolution or the vision outlined in the Bradley review of higher education. We are undertaking the most substantial reforms of the higher education system in the last 20 years, investing $2.1 billion in higher education over five years plus funding from the Education Investment Fund (EIF) to build the productive and skilled workforce of tomorrow.
One of the issues very close to my own heart is the need to make better use of the talents and toil of more of our people – bringing more Australians along with us as we create wealth and raise living standards. With this in mind, we will invest $491 million to uncap the number of public university places from 2012, allowing universities to offer a place to all eligible students. This will see an extra 50,000 students commence studies over the next four years. And a new financial loading will be provided to reward institutions that attract and retain low socio-economic status students.
Along with these investments in human and physical capital, we know other reforms we put in place today will shape the economic performance of the Australian economy well into the future.
We are focused on the kinds of reforms that will underline Australia's place as a prosperous, flexible and fair economy for the next two decades.
Getting Commonwealth-State relations right is a key factor in our ability to recover in the best way from this global recession. COAG's revitalised reform agenda is aimed at delivering better services to the Australian community, enhancing sustainability, addressing social inclusion and closing the gap in Indigenous disadvantage. Key reforms include changing the framework for federal financial relations and modernising specific purpose payments; improving the efficiency of markets in transport, energy and water; and reshaping the way key services such as health, education and housing are funded and delivered.
As you know, we are also undertaking a comprehensive review of state and federal taxes. The Henry Review will consider measures to harmonise and simplify taxes, reduce inefficient taxes, ensure a progressive system, and address negative interactions between the tax and transfer payment systems.
The Budget included significant pension reform to ensure the pension system remains sustainable over the long-term, particularly given the challenges of an ageing population, and ensure spending is focused where it is most needed. And to boost participation in the long-run, we took the historic decision to implement a Paid Parental Leave scheme.
Our efforts to tackle climate change will also play an important role in positioning Australia for the recovery. We will invest $4.5 billion as part of a new Clean Energy Initiative designed to assist Australia's transition to a low-pollution economy, improve our competitiveness and help us create the jobs of the future. And substantial progress has been made in the area of energy market reform, including efforts to create an efficient national market.
All of this is occurring within a strict framework of fiscal sustainability, which is essential for maintaining macroeconomic stability, reducing economic vulnerabilities and improving economic performance. We will return the Budget to surplus by allowing the level of tax receipts to recover naturally as the economy strengthens, and holding real growth in spending to 2 per cent per annum once economic growth is above trend.
Our ability to succeed in these ambitious endeavours goes to the heart of our national character. And it goes right to the heart of what this global recession has taught us about our country. What it has taught us about ourselves, and what it has taught us about the capacity of the Australian people to cope with global challenges not of our own making.
Over the past quarter of a century, Australian firms, workers and families have shown a remarkable capacity to adapt to change, indeed to thrive and prosper from it. The clear sighted and courageous reform agenda that commenced in the 1980s was the catalyst that reinvigorated the Australian economy and allowed it to successfully meet the challenges that arose. And one of the key lessons this reform experience taught us is that delaying the necessary reform ultimately leads to higher costs to business and the community.
The challenges in the years ahead are as great as any we have faced since the 1930s. I am confident that the Government and community can effectively meet these challenges and modernise the economy together. And we can do it in a way that makes better use of more of our people.
I have said many times that I am optimistic about the future. I am. And one of the things that gives me that optimism is the resilience and courage and strength of the Australian community, in tough times.
I'm also heartened by the community's willingness to educate themselves about this global recession and what it means for Australia. I've lost count of the amount of times I've been stopped in the shops on Sandgate Road in my electorate or in suburban Sydney or Melbourne to be asked detailed questions by average Australians about our economy. And I've been delighted by the response I've received to a weekly note I send out, updating Australians on the global and local economy.
The fact is too many Australians will be hurt by this global recession. That's why it is so important we pull together as a nation and face up to the worst the world can throw at us.
It's also why it's so important we build a new generation of prosperity based on the best kind of economic recovery. A recovery that makes the next generation of prosperity better than the last. A nation building recovery which supports jobs and invests in the human and physical capital we'll need to spring out of this global recession as the best placed nation on earth.