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

11 October 2010

NO.025

The Australian Success Story

Address to the New York Stock Exchange

New York

11 October 2010
(US time)

Thanks very much for that introduction and for that very warm welcome.

For an Australian politician to recognise so many familiar faces in a US audience shows just how close we've all become, as we contend with the uneven, uncertain global recovery that has followed the crisis.

It's an honour to be back telling Australia's outstanding economic story, exactly two years since I first visited the New York Stock Exchange. Of course, things are a little calmer now than they were during my first visit in October 2008, when financial markets were collapsing before our very eyes and stock markets were in a free fall.

I remember standing on the trading floor on the day the Dow fell by 7 per cent, the biggest single day's drop since the stock market crash of 1987. And I'll never forget, two days later, seeing the fear in the eyes of my G20 colleagues as I looked around that conference room in Washington DC. So grave were the circumstances that President Bush himself came to the G20 meeting, helping establish it as a forum of national leaders, as well as finance ministers like me.

The global economy was teetering on the edge of a cliff, but common need – and common sense – prevailed. And it was at this meeting that we first agreed on the need for a forceful and coordinated global response to avoid a repeat of the Great Depression. We agreed to provide liquidity, to strengthen financial institutions, to shore up jobs and to defend economies.

In my own country, we responded with unprecedented speed, and on an unprecedented scale. In a little over a week, our central bank cut interest rates by a full percentage point, we issued a government guarantee for our banks, and we agreed and announced the first of two substantial spending packages to support demand and confidence. And that was just the beginning.

The bank guarantees shored up confidence in our financial system, and rapid fiscal stimulus measures shielded our economy and jobs from the worst consequences of the global financial crisis. But the key to the Australian success story is that as we were putting in place our stimulus, we were also planning for the right kind of recovery.

And that brings me to the four main topics I want to touch on today.

First I want to talk today about the global financial crisis and how Australia pulled through it in a stronger position than any other advanced economy.

Then I want to talk about the future and the opportunities presented by the re-emergence of Asia in what will be the Asian Century.

I want to talk about what the Gillard Government is doing to position Australia to take advantage of those opportunities.

And I want to give you an Australian perspective on the challenges we now face in the global economy, challenges at the heart of our discussions at the IMF and World Bank meetings in Washington over the last few days.

Australia and the GFC

It's an unfortunate reality that two years from the start of the crisis, many of the world's advanced economies are still grappling with near double digit unemployment rates, an anaemic private recovery and high sovereign debt. The global recovery is patchy, it's uneven, and it's uncertain.

Many countries are still yet to recoup the output lost during the crisis. And across the globe, there are still around 30 million more workers without a job than there were around three years ago.

The Australian story is a very different one.

Unlike the rest of the developed world, Australia avoided recession. In 2009 the global economy contracted for the first time since the 1930s but the Australian economy continued to grow. And the latest figures show our economy grew by 3.3 per cent through the year to the June quarter.

We have an unemployment rate of 5.1 per cent – around half that seen here in the US and in Europe.

And Australia's net debt levels are just a small fraction of the levels seen in other advanced economies. Australian government net debt will peak at just 6 per cent of GDP in 2011‑12. By comparison, the collective government net debt of major advanced economies is expected to hit 90 per cent of their GDP in 2015.

And we're on track to get the budget back to surplus in 2012-13 – years ahead of every major advanced economy.

So how have we come through the crisis in such good shape?

One of our great strengths was the strength of our banking system. Only nine of the hundred largest banking groups in the world are rated AA or above – and four of those are Australian. Even at the height of the crisis, no Australian bank, building society or credit union required an injection of government funds.

We've got tough and effective regulators. And we didn't suffer the financial market excesses of Europe and the US.

But it wasn't only the strength of our banks. The Reserve Bank of Australia aggressively cut interest rates to emergency levels and the Government immediately put in place powerful fiscal stimulus to support jobs and growth. Our response was quick enough and big enough to not just arrest the decline in confidence, production and spending, but to turn them around.

We would not have done so well, however, without the benefits of the preceding decades of hard-fought economic reforms. Reforms that opened our economy, improved the flexibility and efficiency of markets, and deepened linkages with our region.

So it's a combination of all these factors that now sees Australia entering its 20th year of uninterrupted economic expansion. Today we have an economy that's recovering strongly, low unemployment, a robust financial system, and we're on track to get the budget back to surplus in three years.

The Asian Century

Australia is also privileged to be in a corner of the global economy that has not only weathered the global recession so strongly, but is expected to drive future growth for years to come. The economic re-emergence of Asia is arguably the most significant global economic transformation since the emergence of the US as a major economic power in the early 20th century.

It is not that Asia is supplanting Europe or the US, but rather adding another engine of global economic growth. The US will remain a key trading and investment partner for Australia and our economic fortunes will continue to have close ties. The US remains our third largest trading partner. It is Australia's largest source of foreign investment and the number one destination for Australian investment abroad.

But as many of you may know, half of the world's growth is expected to come from emerging Asian economies in 2010. Asia is not just driving the current recovery – it is shaping the future of the world economy. The global recession has accelerated and intensified a transformation that was already occurring.

The IMF estimates that by 2015, Asia will have an economy 50 per cent larger than it is today. It will account for more than a third of global output and be comparable to the economies of the US and Europe combined.

This regional expansion isn't being driven by China alone, although it is a big part of it. India has become a key driver of Asian growth. Korea is growing rapidly. And Indonesia is a significant emerging market.

The smartest investors see Asia's rise as an opportunity for the rest of the world, and not a threat for the established economies. They look beyond today and see wealthier, more sophisticated economies with larger middle-class populations, open financial systems, and dynamic and integrated internal markets.

Australia's engagement with Asia has been to our advantage. Trade, investment, research and development, education, tourism and migration have all grown rapidly. Our top four export markets are in Asia. Over the past 20 years, the value of our merchandise trade with China has increased around 30 fold, as have our merchandise exports to India.

And as per capita incomes rise across Asia, new trade and investment opportunities are opening up. But we can't just sit where we are and wait for the tide of Asian growth to wash over us.

Our Forward Reform Agenda

Our economic reform agenda is built on the reality we're a capital-hungry country with a big investment pipeline and a lot to do to ensure we have the capacity to stay ahead of the pack. This is one reason why we're having such a passionate debate about tax reform in Australia right now.

Some of you may be aware of our plans to introduce a resource rent tax on coal and iron ore and the debate this has generated. This tax will ensure that Australians get a fair share of the increase in the value of these resources.

Following discussions with industry we have an agreed design with the major mining companies and we are now consulting on its implementation.

We plan to use these proceeds to cut the company tax rate for all businesses, invest in critical infrastructure, and build an even bigger pool of retirement savings.

Now there have been some who have claimed that this tax will stifle the mining sector, but this is not borne out in the data. Australia has a very strong pipeline of investment about to get underway – with much of it in the mining sector.

The latest survey of business investment plans in Australia showed businesses overall are planning to invest $123 billion this financial year. That's an increase of 24 per cent on the estimate a year earlier.

Mining investment plans were up almost 50 per cent. In fact, mining companies are planning to invest a staggering five times more this financial year, than they were six years ago.

And there's more to come. The Australian Bureau of Agricultural and Resource Economics estimates the current pipeline of resource projects in Australia is nearly $360 billion. $110 billion of that is in advanced projects.

So contrary to some of the debate you might be hearing, what we know is that Australia is about to embark on its biggest mining investment boom since the 1850s Gold Rush. This pushes us to pick up the pace of reform – to make Australia an even more attractive investment destination.

That's why we're cutting the company tax rate, to make our businesses more competitive.

That's why we're building national savings through superannuation – Australia's private pension system – with today's pool of retirement savings roughly the same size as our GDP. In our capital-hungry economy, retirement savings make a big contribution to our investment needs. Our economic reform agenda includes super reforms which will add another $500 billion in superannuation savings by 2035.

At the same time the Gillard Government is investing in our roads, rail and ports, and in a fast high-capacity and ubiquitous broadband network, to build productivity and economic capacity for the coming decades.

All these reforms will build a stronger, broader and more competitive economy – making us an even more attractive investment destination.

International Priorities

We also understand that it's not just what we do at home that determines our future. It's also what we do abroad. I'm in the US because tireless global engagement is just as important to Australia's future economy as it was to our successful response to the crisis.

I began by mentioning the Washington DC G20 meeting two years ago. A year later in Pittsburgh, we committed ourselves to the objective of achieving strong, sustainable and balanced global growth.

The big issue in our discussions in Washington last week was whether we had made sufficient progress in achieving that objective. Certainly we have a world recovery, albeit a modest one, and that is a lot more than we dared hope for in that G20 crisis meeting in Washington two years ago.

We are on the verge of having a very significant package of financial regulations that will strengthen the global financial system.

And through the crisis, we avoided many poor policy choices. We resisted protectionist pressures that would have sought to restore growth in one economy at the expense of another. We kept our markets open. We showed political leadership and we acted cooperatively.

Our collective efforts saved millions of jobs, and brought the global economy back from the brink.

I regard these as very substantial achievements.

The challenges we face now require the same degree of collective action, of good will, and political courage.

Global imbalances, that were a key underlying cause of the global financial crisis, still remain. One of the lessons of the last decade is that the US cannot and should not continue to be the consumer of last resort for the global economy.

If the global recovery is going to be balanced, and above all if it is to be sustained, developing nations are going to have to see a faster rate of growth of domestic demand. At the same time, developed countries need to undertake reforms that increase domestic savings.

But we also have to show that we are capable of dealing with the structural reforms that lift growth across all countries, not just shift it between countries. Currency reform is an important element of this reform agenda, but it is not the only issue. It has to be accompanied by structural reforms necessary to promote sustainable growth in all economies.

Our challenge here must be to lift growth, not just shift growth. That's why we need to continue to work together within the G20 to deliver comprehensive global economic reforms to achieve strong, sustainable and balanced growth.

Conclusion

I hope my speech today has conveyed to you my optimism about the future of my own country but also underscored the importance of an ongoing international reform agenda. We have a strong economy, a comprehensive reform agenda to further strengthen and broaden it, and the good fortune to be located in the fastest-growing region of the global economy.

Millions of words have been written and spoken over the two years since I stood here in October 2008. Millions of words about what we got right as a global community and what we got wrong, where we succeeded and where we failed. And millions more words will be written before the consequences of that awful crisis have subsided.

For my part I'm thankful for opportunities like these, to tell Australia's own success story to such a distinguished group of Americans.