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 May 2011

NO.011

An Economy In Transition

Address to the National Press Club

Parliament House

11 May 2011

Thanks for that very warm welcome and thanks Laurie [Wilson, President of the National Press Club] for that introduction.

This annual address is among my favourite events of the week, because it gives me an opportunity to talk about the bigger story behind the Budget, not just the very specific numbers and measures that have been well-canvassed over the last 24 hours.

Each of my four Budgets has increased my respect for the two Labor treasurers who have delivered more than I have. Ben Chifley rebuilt our economy after war; Paul Keating opened it up to the world. Both contributed mightily to the higher living standards our people enjoy today.

I start with this nod to history to make the point that economic management is best judged on its impact on the big things, like positioning us to take advantage of global developments. And to make the point that the shifts we’re seeing today, and the opportunities for Australia, are equal in magnitude to any we’ve seen before, if not unprecedented in our history.

The key to this Budget is our resolve as a government to secure for Australians, for this generation and the generations to come, a prosperous future in the changing global economy.

My argument today is in two main parts: first that the Budget story is part of a broader story about mining boom mark II, which is part of an even broader story about the opportunities for Australia that flow from the middle classing of Asia.

And my second point is that our values, and the runs we put on the board during the global financial crisis, better position this Labor Government to handle the enormous opportunities and challenges posed by the global transition that is now well underway.

Budget Context

This Budget is different to the three that preceded it, but it began the same way – in discussions with the PM towards the end of last year and in a few days worth of me scrawling notes on big white notepads out on the deck of a holiday apartment at Maroochydore. By Christmas of last year we were on track to fairly comfortably deliver in this Budget a surplus by 2012-13, on a path we had mapped out in last year’s midyear economic and financial outlook.

When we started our preparations, we knew that we were coming out of the worst global recession in 75 years. A global recession that left around 30 million more people unemployed worldwide, and a recovery that in Europe, Japan and North America was both fragile and patchy.

Even today many advanced economies have barely recovered the ground they lost, and are still struggling with a toxic mix of high unemployment, high deficits, and high debt. By contrast, emerging economies are recovering strongly.

For our part the swift and vigorous action we took to meet the threat posed by the global financial crisis helped put us in our position of strength today – with low unemployment, low deficits and low debt.

But following our initial budget discussions late last year, we encountered a series of human and economic disasters. The floods that struck Queensland and down the east coast in January were a tragedy for those who lost homes, possessions and loved ones. And those we lost are still in our hearts and minds today.

The floods were followed by Cyclone Yasi, and then by the natural disasters in two of the countries with which we probably have the closest ties – the New Zealand earthquake, and the earthquake, tsunami and radiation leaks in Japan. Their impact on our economy and the Budget bottom line was among the very least of their terrible consequences, but it was not insignificant. Nor was the lingering impact of the global downturn on our economy.

As I moved around our country in recent months, I saw the devastating impact that the summer’s natural disasters have had on communities. But I also saw families and business from other corners of our economy doing it tough. Retailers were already struggling, as cautious Australian consumers paid down debt. At the same time many in the business community continued to find it difficult to access credit, as lenders became more risk averse.

It also became increasingly clear over the last four months of ERC discussions that revenue collections in mining boom mark II were not following the same pattern as in mining boom mark I. One reason was the renewed strength of the Australian dollar. This reflects the relative strength of our economy and the positive outlook.

It is also one of the ways that a wider range of Australians benefit from the mining boom, through cheaper imports. But it has also unfavourably affected some of our trade-exposed sectors such as tourism, education and manufacturing, and having a bigger impact on revenue than we had previously realised.

Capital gains tax receipts have been hit too, with Australian share prices still below where they were at the time of the 2008-09 Budget.

The mining industry accounts for an increasing share of profits, but the combination of the surge in mining investment and the accelerated depreciation provisions of the income tax law mean that this does not translate into revenue as it did in mining boom mark I.

These facts have wiped $130 billion off revenues between 2008-09 and 2012-13 but they have not diminished our appetite for iron fiscal discipline and targeted investments in the future.

Asian Century

This is because despite the short-term softness and revenue write-downs, the longer-term story that ran through our budget preparations, and this Budget, is the story of mining boom mark II in the Asian Century.

The speed and scale of the changes we are witnessing in Asia are unprecedented. Twenty years ago China and India together accounted for less than one tenth of world production. Today that share has doubled, and by the end of this decade it is expected to be over a quarter of world production. China and India will then account for more output than the US and Japan combined. By then it will be apparent that Asia has not only become the world’s biggest production zone, but also its biggest consumption zone.

So, concerned as we were by the overhang of the financial crisis, the floods, cyclones and earthquakes – we knew when we put the Budget together that our prospects were still bright and our economy would not be knocked off its long-term path.

Helped by strong demand from Asia we have seen a truly stunning rise in the prices for our commodity exports. Right now, our terms of trade are their highest sustained level in 140 years.

The huge global demand for our resources is also driving an investment boom the likes of which this country has never seen. New engineering construction will grow by more than half over the next two years. Large gas projects plus more developments in iron and coal are pushing new business investment to its highest share of GDP in 50 years.

We are familiar with Asia’s role in driving our mining boom. Less understood are the opportunities for the broader Australian economy from the expansion of the Asian market for goods and services as income, wealth and living standards rise in the region.

One of the key points we make in Budget Statement Four, and what I want to stress to you today, is that in many ways the mining boom is just the first taste for us of the huge shift in the world’s economic centre of gravity in Australia’s favour.

As well as generating huge demand for our energy and mineral resources, sustained rapid growth in Asia is delivering hundreds of millions of people into a burgeoning Asian middle class. By 2020 there is expected to be more middle class consumers in Asia than in the rest of the world combined.  The implications for high-value knowledge economies like Australia stretch well beyond the mining boom.

Demand from Asia’s middle class for quality education has already seen our education exports surge over the past decade. They are travelling more as well. Around 60 million Chinese and Indians now travel overseas every year, up from less than ten million just 15 years ago.

As the emerging economies continue to develop, the growing cities which are now generating extraordinary demand for Australia’s energy and mineral resources will be populated by an increasingly wealthy and upwardly mobile middle class, with incomes and tastes to match.

So along with many other policy measures pursued by the Gillard Government, this Budget is about securing for Australians a prosperous future in this immense economic zone that is emerging Asia. In the largest sense that is what the Budget is about.

It is about accepting the challenge to succeed in these huge new markets, recognising the crucial role education and training can play. It is about getting our policies right to maximise our competitive advantages.

Australia has always been at its best when embracing the forces of change rather than resisting them. We began 200 years ago with wool for the English market, and we extended over the following century into gold, meat and dairy. By World War I we were extending into manufactures, a trend that became even more pronounced during and after World War II.

Then we had the mining boom of the 1960s, the increasing exports of coal and iron ore and bauxite. At first gradually and then with greater speed we diversified our exports away from the UK to Japan and China and emerging Asia. We began to export more of our manufactures, and our services.

It is a mistake to think of Australia as an agricultural economy last century, although our farming sector made a huge contribution. Today it’s an oversimplification to think we’re just a resources economy, or that the time of our manufacturers has passed. Our manufacturers have innovated and moved with the times – and they will continue to do so, even in the face of the mining boom.

But the story that lies behind our economic development is the gradual rise of service industries in Australia. There are more than four times as many Australians in professional, scientific and technical services than there are in mining. There are four times as many in education and training as there in mining.

I make these points to you today because I want to remind you that while mining has rarely been more important to the Australian economy than it is today, most of us make out living in creating and delivering services. This is why the vast shift of world production, consumption and wealth into the region of which we are a part is so important to our future.

Not only for the opportunity to sell our coal and iron, our ore and gas and our other mining products, as important as these exports are. Not only for the opportunity to sell our wheat and wool and meat, as important as those exports are. Not only for the opportunity to sell our manufactures. But also for the chance to continue to transform our economy into one which increasingly exports services.

In my own home town of Brisbane there are firms of architects, planners and consultants who make their living designing buildings in China. There are accountants and lawyers for whom Asia is now an important and growing part of their business. There are mining services businesses which not only work in the Pilbara or the Bowen Basin, but also in Vietnam and China and India.

As we integrate more closely into this vast and swiftly expanding economic zone to our North, a zone of which we are already a significant part, more and more of our services industries will acquire the character of export industries. That is where our future lies.

Now the point I want to make to you about this future for Australia is that our success in the Asian Century, in the mining boom and beyond, will rely more on education and training than anything, and that depends heavily on investment by governments.

Jobs for an Economy in Transition

As the mining boom gathers pace it is crucial that we continue to make space for the growth in the private sector and support the adjustment taking place in our economy.

Our return to surplus, light years ahead of any major advanced economy, will lean up against the inevitable pressures of the boom. But it is the investments in education and training that will matter the most if we are to take full advantage of the opportunities of the Asian Century and spread the benefits of the boom to more Australians.

That’s what makes the workforce focus of last night’s Budget so crucial and the Labor values underpinning it so important. Just as jobs were the overwhelming priority of our first-term Budgets, it remains our focus to this very day.

Since coming to office over 750,000 jobs have been created in the Australian economy, while many other developed economies have gone backwards. That is a source of tremendous pride for our Government. There is no greater way to ensure we spread opportunity than to get more people into good jobs.

We will retain that very same drive for jobs in the good times as we did in the bad. Because among the pressures placed on our economy by the global economic forces I have described today will be the impact on our labour market in particular.

If Australians are to take advantage of the opportunities of the Asian century we need to ensure we have the bigger, better educated workforce equipped for the high-quality jobs of the future.

As I outlined last night, our economy is set to create a further half a million jobs in the next two years. That’s 500,000 reasons to get cracking on our plans for industry-led training, apprentices, and VET reform. By putting industry at the heart of the training effort, we will make sure we are delivering the skills employers need and ensuring that students can get a job at the end of their studies.

We will reward participation through more training and better incentives for those who face the biggest barriers to employment. But there will also be new responsibilities, because we want people to make the most of these opportunities. At the same time, we will help older Australians who want to keep contributing through the workforce to do so.

At the core of this Budget are the firm convictions that our economy doesn’t have a single person to waste and that a wealthy country like ours has no excuse to leave people behind. This is not just about lifting labour supply so that our economy can grow, although that is important. It is also about ensuring we bring more Australians with us.

The aspiration of a more inclusive society more than any other drew me to public life and led me to write my book. We have a unique opportunity to take the mining boom and use it to draw together the corners of our patchwork economy, bringing more Australians with us.

It makes no sense at all when our labour market cries out for workers to have families and disadvantaged Australians untouched by the dignity and benefits of work. Getting more people into work is how we best apply our Labor values to the task of lifting people up and equipping them for more rewarding, purposeful lives.

Opposition

These issues at the heart of our Budget deserve a national debate.

I don’t want to get too political, but I think people are getting a bit sick and tired of our opponents papering over the challenges that we face. The Liberal party pretend there was no global financial crisis, no floods, no cyclone, no catastrophic natural disasters overseas. They want to pretend that you can somehow spend more, save less, and still deliver a bigger surplus ahead of time.

We saw it again last night with what must have been one of the most confused responses to a Budget in recent times. In one breath Mr Hockey said the budget savings were too harsh, but then turned around and claimed the Budget was not tough enough. He claimed that there were no real savings in the Budget, but then signalled his opposition to more than $3 billion in savings.

Mr Abbott needs to walk into the Parliament tomorrow night and detail for Australians how he would return the Budget to surplus this coming year, and he needs to outline in detail the saves he will make to do it. Because you can’t run an economy on hot air.

A three word slogan will not get you back to surplus. And it certainly will not prepare the Australian economy to turn the opportunities of the Asian Century into enduring prosperity.

Conclusion

The point I want to finish on is that with this global economic transition bringing tremendous opportunities for our country, our Labor values, our reform history, our workforce policies, and the runs we put on the board during the GFC, better position us to manage the necessary transformation of our economy in the Asian Century.

While our opponents obsess with the politics of the little things we’ll keep focussing on the big things that matter – returning to surplus, jobs, and making the most of the boom. Anything less would sell Australia short.

Imagine if Chifley had refused to embrace the realities of post-war Australia, if he’d tried to stick to the Depression-era agricultural workforce, putting aside the opportunities of the industrial age. Or imagine if Keating had failed to push through the hard reforms that Australia needed as globalisation swept the world, if he’d left us isolated, protected and backward, with a 1970s-era industrial structure.

Today our success hinges on harnessing our rich natural resource heritage to strengthen our diverse, knowledge economy. Because of our natural advantages, we have been given a head start. But turning this into prosperity isn’t automatic. It’s never that easy.

Within the shift that’s going on in global economic clout, our responsibility is to manage an Australian economy in transition so that we make the most of our opportunities. This transition will impose changes in the structure of the economy as big as any we have seen before.

Each of them demands flexibility and foresight, investment and reform, openness and competition. But it also offers rich rewards for our country if we are up to the challenge – and in 2011 I know we are.

Our challenge today is to complete another great transformation of the Australian economy – to ensure we take the mining boom and create out of it the export-oriented workforce of the future, with the physical infrastructure to match our ambitions.

Having ensured the mining boom sets Australia up for continuing prosperity, we can then ensure that the benefits reach as many Australians as possible. That’s why I said last night I want this period to be remembered not just for the mining boom, but for an opportunity boom as well.

My belief is that we are the verge of something truly great, if we are willing to get the policy settings right.

We can ensure the benefits of a strong economy touch all corners of our patchwork economy. We can turn higher commodity prices into higher education, better jobs and more fulfilling lives.

I said earlier that preparations for this Budget began in December last year and that’s strictly true. But those of you who know me well, know I have been writing this Budget in my head since I started my political journey. It is the closest possible representation of my political philosophy, and I think Julia’s too.

The Budget is just part of our reforming story. In the coming months we will outline the details of our plans to implement a market based mechanism to tackle climate change and prepare our economy for the low carbon future. And we will also continue to build on our reforms to the tax system which are aimed at spreading the benefits of the boom and ensuring we remain internationally competitive.

In all these things – the Budget, the carbon price, the Tax Forum – we’ll be guided by the basic principles I’ve outline today, that there’s a big shift going on in the world and our policy settings will ensure Australians who work hard have the opportunity to benefit from them.

Thank you.