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

6 October 2011

NO.032

Opening Remarks at Future Jobs Forum

Canberra

6 October 2011

Thanks very much Peter (Shergold) and it's good to see so many people here today. It's good to see my parliamentary ministerial colleagues here because I'm looking forward to having a fair dinkum discussion and broadening out the discussion that we had yesterday on tax into a broader discussion about the future of the Australian economy and why we can be so optimistic about our prospects if we get the short term, medium term, and long term policy settings right for the future. As the Prime Minister indicated, we've been focused on that from day one, and we have been looking intently right through the past four years at what are the most appropriate settings to maximise the opportunities that will flow to Australia from the Asian Century and the terms of trade boom which comes with that.

Now I've read Andrew's book. I suspect there are quite a few people in the room who've read his book as well but Andrew (Liveris) and I are members of a much more exclusive class than book readers on the manufacturing industry. We used to knock around the University of Queensland in the 1970s and I can tell you now we're much more respectable these days as we set about the important tasks that we do in our respective spheres.

We did have a good discussion yesterday about tax and I think it was a very good scene-setter for the discussion that we're having today because tax is a very important part, one of the essential building blocks that we do need to get right to put in place a series of policies which strengthen the productivity performance of our economy and its competitiveness for the future. I think it was timely for the Prime Minister to remind everybody that when it comes to employment, just what has happened globally as opposed to what has happened here, and before we lost Andrew he was making the point about how globalisation has impacted so differently in different parts of the world. His book makes that point most dramatically when it comes to say the future manufacturing industry in the United States.

But I think it does pay to remind ourselves today just how different to date the jobs performance of the Australian economy has been relative to that of other developed economies in recent years. Since 2007 we've lost something like 30 million jobs around the world and in that period, as the Prime Minister indicated, we've created in Australia something like 750,000 jobs. It doesn't mean to say that the manufacturing sector hasn't been doing it tough. They have in this environment. But here the glass is half full, it is not half empty. And it does pay to remember that when the financial crisis commenced, the unemployment rate in Australia was the same as the unemployment rate in the United States and today it is almost twice what it is in Australia. And we should remember those facts as we go through the discussion today.

But we should also understand that we are living in a very volatile international economic environment at the moment. That has been underscored yet again by events in Europe in recent days. The IMF has reminded us in its world outlook only a couple of weeks ago that all of the risk is on the downside and that we can still expect in the global economy a degree of volatility. But what does this mean in terms of global growth and what does it mean in terms of growth for our country?

Well I think we all know that given the challenges in the United States and given the challenges in Europe, it's hard to imagine those two economic engines contributing really significantly to global growth in the next few years, although I personally remain more optimistic about the growth prospects for the United States. But what we do know, given what is happening in those economies, is that the American consumer is certainly not going to be a major driver of global growth into the future. Fortunately for us, however, what we do have in our region is very strong growth prospects. I'm not necessarily suggesting that our region is decoupled from growth in Europe or the United States, but it does have an inherent capacity to drive growth in the global economy for some time to come because of the immense prospects for productivity improvement in so many of our neighbours.

Here I'm not just talking about China. You will hear people talk about the Asian Century. They will do it through the prism of China but it's far bigger than that. It's a story of Indonesia. It's a story of Malaysia. It's a story of Vietnam. It's a story of South Korea. It's a far wider story and it's one of the reasons why I think all of us in the room in terms of our medium-term and long-term prospects can be so optimistic about the future. Because what we are seeing is the beginnings of that growth in Asia, particularly the middle classes the Prime Minister was talking about before. What that is delivering for Australia in stage one is a resources boom which is bringing with it a terms of trade boom. But what is going to come on the back of that – and this is the reason why we can be optimistic about our future – is that it will deliver to our region a consumption boom and that's what the Prime Minister was talking about before.

The key for us is to make sure that through everything that we do in our domestic policy settings, we maximise the opportunities that come from that consumption boom which comes with the Asian Century. And that brings with it great prospects for us for our manufacturing sector, particularly niche markets there. For our services sector in particular, immense opportunities and what we are now seeing is the leading edge of that consumption boom reflected in agriculture and that is going to get stronger and stronger. That is yet another reason we can be optimistic about the future.

But also with that boom, as I said before, comes a record terms of trade. The terms of trade will be higher than they have been historically. They will certainly come off, but they will be higher as we go forward. We're all familiar with the consequences of having a higher terms of trade. The other day I was getting off a plane in Melbourne and I ran into a lady, a grandmother who was with her daughter and she looked at me and she said `Good to see you, Mr Swan. I've just come back – for the first time I've ever been overseas.' She said `Here's my daughter, she paid for the trip. You know we went to London, we gave the Brits a hand. We then went to Paris, we gave the French a hand. We then went to the United States, we gave them a hand in New York.' One of the consequences of a higher dollar is that many more Australians are travelling overseas, but that has flow-on effects for our domestic tourist industry. It puts pressure on our trade-exposed industries, it puts pressure on our manufacturing industries.

So what we have to do is to make sure that we take the benefits of a mining boom and spread them as far and as wide across our economy as we possibly can. And this will bring not just sectoral pressures, but it also brings regional pressures and you can see this in my home state of Queensland, illustrated quite dramatically by the difference between, say, the regional economy of Townsville and the regional economy of Cairns.  In Townsville, they have very low unemployment, and a very broad base to the economy. Go up to Cairns and of course it's much more exclusively dependent upon the tourist industry, being impacted by a high dollar. So it's not just the consequence of a higher terms of trade and a higher dollar by sector, it is also a consequence that can occur by region and it can even occur by suburb to suburb throughout a large city. Even if you go to a state like Western Australia in a city like Perth, you will find sectors of the city of Perth which are not doing as well as others because they are exposed to the structural change in different ways at different times.

Now the Government recognised all of this when we received the tax review going back 18 months. We recognised that when it particularly came to tax, that we were going to need to have a response to this high terms trade and what it meant for different sectors of our economy and different groupings of our economy. And of course that is why we accepted the recommendation then to have a resource rent tax and then use the revenue to spread the benefits of the boom more broadly around our economy. Particularly when it came to tax, we will give a tax cut to small businesses, for example, and to also begin the task of bringing down the company tax rate, but also to use some of those benefits to lift our national savings, which is also very important in a country like ours that is going to be so capital hungry.

Of course the high terms of trade also remind us of the importance in the international economy of having market-based exchange rates and this is a discussion that we've been having through the G20 and it is one that we must continue to progress through the G20. It's important that all countries move to market-determined exchange rates to stop artificially depreciating their currency relative to others including the Australian dollar, and I think this is going to be the subject as we go forward of much more debate globally - the need for all countries to move to market-based exchange rates. That is even more important because we've got to see that happen, and if it doesn't happen, what we may see is a reversion to protectionism in other parts of the world and that will have devastating consequences for Australia as well if that were to happen, particularly for our rural sector but other sectors as well.

But what we do know is that through the higher terms of trade we are going to be experiencing a substantial amount of structural change across our economy for years to come, decades to come, which is why the modelling that we commissioned through the Treasury on the impact of carbon pricing has been so important because what it also shows us - in addition to looking at the impacts of a carbon price across our economy in terms of cost of living and a variety of other issues - is it gives us an idea of the shape of our economy into the future. And what it does give us is some very serious insight into the makeup of our economy.

It projects, for example, that the services sector or services sector output will increase by 38 per cent over the next decade and of course that is going to come on the back of that middle-classing of Asia that I was talking about before. It naturally projects faster output growth when it comes to mining and the construction sector, growing by 77 per cent and 51 per cent respectively over the next decade. And of course when we get to manufacturing, it still projects substantial growth in output. It's just not as fast as what is going on in the other sectors. So we've got to keep this in perspective.

Our economy throughout its history has been changing and it is going to continue to change going forward. But what we have to do is to be ahead of the curve, to make sure that we are preparing all sectors of our economy for the opportunities that come from change in the region and maximise the opportunities that flow to all of our sectors, whether it's manufacturing or tourism. But I do recommend to everyone here to have a close look at that modelling because what it does give us is a snapshot of a likely picture of the Australian economy in the decades ahead. There's nothing predetermined about that picture. There are things that can change. I am certainly pretty optimistic about what we can do in value-added manufacturing, for example.

So we do have a road map about what our economy is going to look like. The question then remains, what do we do? How do we smooth the adjustment in our economy given these external forces that are impacting? And how do we maximise the opportunities that flow from that? And really that's what today's about. And the Government has, as the Prime Minister said before, been putting in place a range of policies to do that. The centrepiece of the Budget this year was a very big skills package which received broad support from business on the one hand, unions and community groups, because it recognised that we needed a broad-based approach when it came to the supply of labour in our economy - a broad based approach which recognised that we could no longer as a country afford to leave Australians behind. So we had approaches in there to lift workforce participation, to deal with welfare dependency, approaches in there in terms of changing our policies for skilling, working more closely with the business community to deliver the skills that were needed immediately, not just in the resources sector but in those other sectors which have to compete for labour with the resources sector, which of course has the capacity to pay much more.

But whether it is in skills formation or whether it is in tax policy, or whether it is in procurement, all of these areas are the important areas that we need to talk about today and if we do that in a constructive way, if we do that as constructively as we did yesterday with tax, I'm very optimistic about where we are going.

Yesterday and the day before we did find common ground in the forum when it came to business taxation about the need to better recognise company tax losses in our tax system and how we could go about better recognising those losses to assist those businesses which were being impacted in the short-term by a sharp adjustment but which would in the long-term be viable and productive and employers of labour. So we are going to go about that very quickly in the next few weeks and months to see if we can get some practical solutions in place as quickly as we possibly can to assist industry, to assist industry across the board, but particularly those sectors which are being impacted by rapid structural change.

So I believe there's a lot we can do. There is no one source of wisdom in this debate. The good thing about the tax debate yesterday and the day before was that we heard diverse views but we did find the capacity for common ground. I'm confident we can do that today. Thank you.