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

18 October 2010

NO.026

Global and Domestic Economies

Ministerial Statement

Parliament House

Canberra

18 October 2010

International Update

Mr Speaker, two years ago this Government participated in an historic crisis meeting of the G20 group of leading economies in Washington DC. That meeting agreed to unprecedented measures of international cooperation to try to avert what then seemed almost inevitable: a collapse of the global economy so deep and so prolonged as to rival the Great Depression. Through unprecedented collective action the global community stared down the most severe, widespread and threatening financial collapse in 75 years. That G20 meeting brought the global economy back from the brink. Many at that crisis meeting would have found it difficult to believe that two years on we could have regained as much ground as we have.

Last week I was again attending a G20 meeting, which coincided with the IMF Spring meetings in Washington. I can report to the House that the resounding message from those key international economy meetings is that while we have seen a global economic recovery, it is still uncertain and uneven. Certainly, the developing world is doing well. But unemployment remains very high in the US and Europe, their capacity for further policy stimulus is limited, and the contribution of the inventory rebuild to output growth is ending. The risks of prolonged slow growth in Europe and the US or even another downturn in those economies was a central theme at both the G20 and IMF meetings.

Fortunately, Australia remains in a far better position than major advanced economies. Our economy is strong. Job creation is strong. Our fiscal position is strong. We have a large volume of both current and planned business investment that reflects confidence in the policies of this Government and the future of Australia.

Australians should take great pride in the stark difference between our economy's performance and that of most other developed economies. While the advanced economies of the world are still trying to claw back the output lost during the crisis, Australia's output is already substantially higher than it was before the global recession. Consider for a moment that three and a half years ago Australia and the US both had the same low unemployment rate. Today, Australia's unemployment rate stands at 5.1 per cent, compared to 9.6 per cent in the US.

The unprecedented speed and scale of our policy response, combined with our location in the fastest growing region in the world, was critical for the strong recovery in the private economy we are now all seeing. Together, the bank guarantees and the stimulus packages we put in place were bold decisions that reinforced the strength of our financial system while supporting spending, production and confidence.

Domestic Challenges

But our success during the GFC shouldn't be seen as an end in itself – it should be seen as the foundation upon which we build prosperity and tackle some familiar economic challenges. Chief amongst those challenges is addressing the capacity constraints that were left unattended during the earlier mining boom.

As we move into Mining Boom Mark II we give this undertaking: this Government will not squander its benefits. That is why capacity building has been and remains central to our economic agenda. It will take time to address the capacity constraints and skill shortages in some areas of industry, but we're making steady progress. At the same time we're having to deal with a strong currency. Some of that strength is of course a reflection of the weakness of the US dollar against all currencies, including our own. But it also reflects the relative strength of the Australian economy, very high world commodity prices, and the dynamics of international currency markets.

Mr Speaker, I well understand the impact that the high dollar is having on some parts of the economy. Our trade-exposed industries such as tourism, manufacturing, agriculture and education are finding it tougher to compete in global markets. That's one of the reasons we introduced a package of reforms to make our business more competitive across all sectors, including cutting the company tax rate and giving a tax cut to small business.

Mr Speaker, some in the Opposition have suggested we should take action to artificially lower the value of the Australian dollar. The consequence of this would of course be higher inflation and then higher interest rates, and with it a global collapse of confidence in the management of the Australian economy. This would hurt our manufacturing, agricultural and tourism industries, as well as homeowners right around the country. So it's not surprising that The Sydney Morning Herald's respected columnist, Ian Verrender, described this argument as an "outburst" that "defies logic".

But I think it's more serious than that. I think it's dangerous. Because it risks fracturing the long-held bipartisan consensus on the floating exchange rate. The floating of the dollar was one of the big changes which made our 20 year record expansion possible. It has helped us to manage both positive and negative shocks and sustain the momentum of our expansion. Any action to artificially lower the value of our currency would also encourage retaliation from our trading partners, not something that's in the interests of our export industries.

One of the great strengths of the coordinated response to the global recession was that we avoided a repeat of the protectionist policies that so exacerbated the Great Depression. That's why Australia will continue to support reform of global currencies as part of a broader package of reforms to lift global growth, not just shift it.

The Opposition has also suggested that the Government's fiscal policy is feeding the rising dollar. But if this logic were true, with larger fiscal deficits in the US, we would see the USdollar appreciating against the Australian dollar, not depreciating. The fact is Australia has one of the strongest fiscal positions in the developed world. Along with our strong economy, low unemployment and strong fundamentals, this is part of what is helping to attract further investment in our economy.

Domestic Reform Agenda

Mr Speaker, of course the Australian success story does not mean we are immune from continuing instability in the global economy. Considered, intelligent policy making is just as important now as it was to our success during the crisis. That's why we're so passionate about our economic plan:

  • A plan to cut business taxes, invest in the infrastructure this nation needs and keep building our pool of retirement savings.
  • A plan to build a stronger, broader, more competitive economy, that will create even more jobs and keep us ahead of the pack.
  • A plan to meet the challenges of Mining Boom Mark II.

Mr Speaker, far from resting on our laurels, we'll keep the wheels of economic reform turning here at home and at important discussions abroad. That is why this weekend's meeting of G20 Finance Ministers will be so important. Together, we are focused on structural reforms needed to achieve a stronger more sustainable global recovery. And we are also determined to avoid a return to the protectionist policies of the past, because we understand that such a step would have a devastating impact on the global economy, as well as our own.