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Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

11 June 2010

NO.014

Australia and India in The Asian Century

Address to the Australia India Business Council

Brisbane

11 June 2010

Introduction

Thanks for the introduction, Bruce [Munroe - CEO, Thiess], and thanks to all of you for that warm welcome.

I'd like to acknowledge AIBC Chairman Neville Roach, and the delegation from the Indian Ministry of Power, Ministry of Coal, Ministry of Mines and Ministry of Petroleum and Natural Gas, who are also here today. I've got some great friends in the Council, some of whom are here today, like Maha [Sinnathamby, Chairman, Springfield Land Corporation] and other familiar faces I see dotted around the room.

I know the close relationships you develop between the various business, government and industry associations have helped support Australia's strong relationship with India. It's a partnership with real and growing significance to us - bolstered by the large Indian community in Australia - and I want to thank you for the really important job you're doing.

As Treasurer I know Australians of Indian heritage, and the companies that operate across our borders, are making an extraordinary contribution to our national prosperity.

Today I want to talk about the Australian and Indian economies through the prism of the two main things they have in common: one, a bright future in the Asian Century; and two, the key role we're playing in the global response to the financial crisis.

The Asian Century

The co-ordinated policy responses of governments around the world helped pull the world economy out of its worst slump in 75 years. But while the world economy is growing again, the recovery is patchy, and different parts of the world are growing at very different speeds. You only need to look at Europe or the continuing high levels of unemployment in the US to be reminded of that fact.

But while other regions have struggled, Asian economies expanded by 2.4 per cent in the first three months of this year. To put that in perspective, Asia's growth in those three months is roughly equivalent to the rate of growth the IMF expects for advanced economies over the whole of this year.

Asia's growth has helped pull the world from the depths of its slump. Over the past year, Asian economies grew by almost five times the rate of growth experienced by the major industrial economies. This is extraordinary given that Asia was initially hit hard by the global financial crisis.

But Asia's sound fiscal responses, credible monetary positions, and sturdy corporate and bank balance sheets saw it recover much more swiftly than first expected. These factors stabilised domestic demand, ensuring private consumption held up far stronger than in previous crises. They are responsible for the rapid turnaround in the region's prospects.

The statistics tell the story:

  • We were all stunned by India's recent growth outcome - a remarkable 8.6 per cent to the year to March.
  • Especially when you consider alongside China's recent outcome of 11.9 per cent through the year to March.

Even more important than these recent outcomes, the global recession has worked to accelerate and intensify the shift in balance of global economic activity towards this region. Asia isn't just driving the recovery today; it will be a key driver of growth for the world economy over the coming decades as well.

  • In 2010, nearly half of the world's growth is expected to come from emerging Asian economies.
  • By 2014, emerging Asia is expected to account for over a quarter of the world's output.
  • India will play a key part of this, contributing around 10 per cent of global growth each year to 2014.
  • And, if current trends continue by 2050, four of the ten largest economies in the world will be in Asia — with India not far behind the US.
  • Asia is shaping the future of the world economy, not just in recovery, but for the Asian Century that's now well and truly upon us.

India in the Asian Century

India's rise is absolutely central to this story. In the past five years, India's economy has grown by an average of around 9 per cent annually. Its economy has doubled in size over the past decade. And it has the people, skill base and resources to repeat that performance over the coming decade.

India is already the world's fourth largest economy, and is expected to soon overtake Japan.

I've seen India's growth for myself. Late last year I visited India and witnessed the frenetic hum of construction in New Delhi, including the building of the New Delhi Metro - a potent symbol of that city's and the country's modernisation. The pace of construction work, the numbers of people graduating from higher education, the advances in living standards are staggering.

I view the growth of India in the Asian Century as one of the most positive, significant and influential events to shape the future. There are many reasons for this, but I want to touch on three things that I see as being the most important.

First, by being home to one-sixth of the world's population, India's development is lifting hundreds of millions of people out of poverty, giving them the sorts of opportunities and prosperity their grandparents could hardly have dreamt of.

Second, by demonstrating that rapid economic development and democratic institutions go hand-in-hand, India is leading by example in the world.

And third, by becoming a major player in the shaping of world economic policy, India is helping make a new era of global economic stability possible.

India and Australia Together

This is where the Indian story and the Australian story meet. The rise and resilience of the Indian economy has commanded the attention of the world, and the attention of Australians in particular.

India, for instance, has become Australia's third largest export destination, and one of Australia's fastest growing major export markets. Australia's total exports to India have almost tripled in the last five years. And the IMF projects that by 2015 India will receive more than one-tenth of Australia's merchandise exports.

Together, India and Australia have an important role to play on the world economic stage - contributing to debate about the global economic architecture needed to build sustainable growth.

After the worst economic contraction in 75 years, we have growth returning but a number of challenges that won't go away. The effects of the crisis continue to wash through the global economy - particularly in Europe.

We have come together to get the response right. When the world's leading economies - including India and Australia - came together in Pittsburgh last year to help find a way forward, we were only just beginning to come to grips with the considerable changes wrought by the global recession. And we were beginning then to fully contemplate the acceleration of this shift to our region and the opportunities it would bring.

Having recently returned from the G20 Finance Ministers' meeting in Korea, I can tell you that the rise of India and other dynamic markets is continuing to shape those discussions.

As many of you know, the G20 was designated last year as the premier body for international economic cooperation, eclipsing the G8 and G7. That signalled just how much the global economic order is shifting to our region.

We are now part of the world's collective decision-making processes. Our voices are contributing to global efforts to build some momentum towards a global recovery. They are also helping develop a new global economic order based on the lessons of recent failures.

One of the lessons for this new order is the need to raise global growth, not just shift it. We have to put the focus back on productivity.

After the global stimulus, we also need to develop credible plans for fiscal consolidation, but in a way that does not choke off the economic recovery. What's happening in Europe reminds us just how important a task this is.

I'm happy to report that India is playing an important role in helping the G20 do this, as co-chair of the relevant working group responsible for strong, sustainable and balanced global growth.

The G20 has also taken on the task of reforming our international financial institutions - the IMF and the World Bank - to ensure they reflect current global realities and the shift in economic power to our part of the world. For this reason, last week in Korea my G20 colleagues and I welcomed the recent decision to transfer voting power to developing and emerging economies at the World Bank. And we will now turn our focus to achieving similar reforms at the IMF.

The G20 also has a responsibility to strengthen the global banking system so it can stand on its own two feet. We owe this to everyone who lost a job or had to close their small business during the crisis.

We are committed to moving forward with the G20 agenda to reform the financial system. We need a coordinated set of global principles that minimise regulatory complexity, but which are flexible enough to accommodate the different circumstances of each nation.

These lessons and issues were our focus in Korea and they will continue to be the G20's focus for the rest of this year, including at the next Leaders' Summit in two weeks time.

Australia's Fundamental Strengths

Despite being a middle-sized economy, there are good reasons why Australia's voice is being listened to in forums like the G20. Simply put, we have come through the global economic recession in a stronger position than just about any other advanced economy in the world.

Because we acted quickly and decisively we avoided recession and all the accompanying destruction to our skill base and capital stock.

And most importantly we avoided the sorts of large-scale job losses that occurred elsewhere. Something like 16 million people joined the ranks of the unemployed across the developed world in the past two years, but in Australia we created almost a quarter of a million new jobs over the same period.

Our economy is now recovering solidly, our financial system is stable, and our public finances are strong.

Because of this success, we are returning the budget to surplus in three years - that's three years earlier than forecast and ahead of any major advanced economy. And net debt is now projected to peak at around half the level expected just one year ago, less than one-tenth of the level expected for the major advanced economies.

Australia in the Asian Century

But despite the successes of the recent past, it is the future opportunities presented by the Asian Century I'm most excited about. Australia stands to benefit perhaps more than any other nation from the sustained economic growth of our dynamic region.

Growth in Asia means new and bigger cities; it means new housing and construction; it means new infrastructure and transport. These things require resources, energy, and expertise - and Australia offers these things in abundance.

We've already seen big increases in the prices for key commodity resources over the past five years, and further rises are in prospect. Contract prices for iron ore in the current quarter have doubled from a year ago and coal prices have also risen substantially.

As a result our terms of trade are likely to exceed the peaks seen in 2008. And that means a big boost to export earnings, which are expected to increase by almost $50 billion in the coming financial year.

Australia also offers one of the most attractive destinations for investment. Along with our strong and stable economic institutions, Australia is well serviced by a highly-skilled workforce, which complements its rich endowments of natural mineral resources. Our business and regulatory environment welcome foreign investment - and we have a great deal to gain from India as an increasingly prominent source of foreign capital.

This all means that the Asian Century is potentially also an Australian Century. It's our moment as much as anyone's.

Tax Reform for a Stronger Economy

This is the backdrop for the current debate we're having about the best way to invest a fairer share of our mineral wealth into a stronger economy that stands the tests of time. With the right approach and the right policy decisions, we can use this wealth to deliver enduring gains for our people.

This is what is at stake in the big policy debates underway here in Australia today. Let me say a few things about that because I know it will be of interest to you here today.

Whether it's tax reform, or building our capacity through infrastructure, skills and education - we can't afford to miss this moment just because we lacked the courage and foresight to act.

Like a lot of you here, I read the commentary that says it would have been easier for the Government to try and coast into a second term on the back of our performance during the GFC. Those of you who know me know I could never sign up to a strategy that was based on resting on our laurels, putting off the big calls for another day.

We all know Australia's economic successes over the past 18 months or so are not just a product of stimulus, as vital as that was. They are also a product of more than 25 years of hard fought economic reforms. Reforms like floating the dollar, bringing down tariff walls, and establishing superannuation which gave us a strong pool of national savings to keep investment dollars flowing.

These reforms made our economy stronger and more resilient. None of them came without a fight. But they taught us an important lesson: the biggest and hardest reforms are the ones that pay the biggest dividends. They're always the toughest to implement, but they're always the most valuable to the country.

We need to remember these lessons and keep tapping that reforming spirit to build a stronger and more secure economy for the future.

That's why we are overhauling the old inefficient royalties regime on mining production and putting a modern system in its place.

It's why we are cutting the company tax rate to 28 per cent by 2014‑15, so we can create more competitive businesses and grow the whole of our economy.

It's why we are providing tax relief and simplification for 2.4 million small businesses, through a $5,000 instant asset write-off starting from 1 July 2012.

It's why we are strengthening our infrastructure and removing constraints on our economy's capacity to grow sustainably.

And it's why we're increasing national savings to provide a better foundation for future generations and boost national savings.

Together these measures add up to substantial reform. They recognise the realities of our present economic circumstances and the opportunities of the region. They will secure Australia's future by strengthening our economy in the years ahead.

Conclusion

If there's one thing people know about this Government, it's that we get in and do what's necessary to grow our economy despite difficult global conditions. We got in and did what was necessary to keep us out of recession, and now we're getting in and reforming the tax system to further strengthen our economy.

It's not enough to be the best advanced economy during the GFC; I want us to be the best during the recovery as well.

Now, whether you agree with the RSPT or not, everybody knows we need to boost super, build new infrastructure, and give small businesses the chance to grow. And even the Minerals Council says we need a profits-based system for taxing the resources sector.

The country united behind stimulus and we're confident that in the fullness of time - despite all the argy bargy of recent weeks - they will get behind these plans for a stronger economy as well.

I'm not going to pretend this debate has been easy, but it's a debate I welcome because it goes to the core of our prosperity in the Asian Century. It's really important we have this national debate and every view gets aired as we work towards the final detail of the policy.

We've said from day one we'll consult with the companies and work towards a final design. The first phase was the tax review deliberations; we're now in the second phase which is consultation and debate; soon we'll move to the third phase which finalises the design.

When we do - and when we have a profits-based tax that funds tangible improvements to our economy - we'll be satisfied Australia is doing all it can to maximise the opportunities of Indian growth in the Asian Century I've been privileged to talk to you about today.

Thank you.