Thank you Mike for the very kind introduction.
I would like to take a moment to thank both you and Richard [Goyder] for all your work this year on the B20. Under Australia’s leadership business leaders have provided the G20 with valuable policy recommendations. The B20 has added important momentum to our G20 reform agenda.
The recommendations delivered at the B20 Summit in July align closely with the G20’s work on investment and infrastructure.
This year more than ever business leaders must be an integral part of the G20 policy formulation process. The traditional stimulatory levers of expansive fiscal policy and accommodative monetary policy are, in the main, at their limit around the globe. So, I say again, it will be the private sector that will reinvigorate global growth over the next decade. I will have a little more to say about this later in the speech.
G20 Presidency and the global economy
Just before Australia took over the Presidency of the G20 in December last year, the Prime Minister and I agreed that we would not waste the opportunity to promote a new era of ambition for the global economy that reflected the same goals and aspirations that we have for the Australian economy.
We want less tax, less regulation, more enterprise and more innovation.
As a result we wanted real and achievable outcomes that delivered more jobs, better infrastructure and greater prosperity.
But we inherited a situation where both international confidence and growth were weak.
Commentators expressed a view that the G20 had started to lose its way. There was no immediate crisis to rally behind. The cooperation so evident at the beginning of the global financial crisis had been replaced by an unwillingness to work together for global solutions.
It was in Australia’s interest to re-energise the G20 as a peak decision making body.
This forum brings all the key global economic decision makers together at regular intervals. Together we have influence over the key policy tools available to generate growth.
For Australia, simply being a member of the G20 means that we can better shape opportunities for Australian businesses and for our economy.
We play a role in developing key international standards and institutions, meaning our national circumstances can be taken into account.
The G20 also contains Australia’s key bilateral partners. Through regular meetings across most economic portfolios like trade, finance and central banking we can use our membership of the G20 to deepen these relationships.
Our leadership of the G20 this year gives us an unprecedented opportunity to lead many of these crucial discussions.
As I said when we started our G20 presidency, the global economy was in a mediocre state.
The IMF had downgraded its global growth outlook six consecutive times over the previous two years. Unemployment in some economies was at near record highs, while global consumer and business confidence was at very low levels.
Macroeconomic policies were stretched to their limits, with governments weighed down by mountains of debt and central banks having little policy space after taking extraordinary measures to support growth. Some countries began to resort to old-style protectionist practices.
And in my first G20 meeting in Washington last year, just before taking over the Presidency, I was struck by the level of policy and reform fatigue that was reflected in discussions between ministers and central bank governors after five years of crisis management following the Global Financial Crisis.
This was the backdrop of the February G20 Finance Ministers and Central Bank Governors meeting in Sydney. Something had to change in order for us to decisively shake off the legacies of the crisis.
So in Sydney I asked my G20 colleagues to lift growth by more than 2 per cent over five years, to avoid becoming entrenched in a world of weak growth.
There was a little apprehension, even some reluctance at first. That’s because they knew this was no easy task. They knew the economic challenges and political realities ahead for each of their economies.
Let me say that lifting growth by an additional 2 per cent is difficult even in the best of times. But with the economic challenges we face – with higher unemployment and subdued international confidence - the challenge is even greater.
But Australia secured that agreement in Sydney.
In the end, there was strong support for this joint commitment, and every G20 member was keen to use this opportunity.
For the first time the G20 put a number on our ambition.
For the first time we had made the task real.
We knew we had to seize that moment and show economic leadership.
We are working together to boost global growth and create jobs by taking tangible actions. And we knew that to achieve this, we had to focus our efforts and energy in four key areas.
Firstly, we are boosting new private investment, particularly in infrastructure. New economic infrastructure not only lifts demand in the near term, it enhances the productivity of our economies to meet challenges in the future.
Secondly, we are undertaking domestic reforms in the areas of competition and deregulation. This will reduce the cost of doing business across our economies.
Thirdly, we are implementing policies to increase employment and participation in the workforce – with special attention being paid to making sure those that can work, should work.
And finally, we committed to address the challenges of a global trading system, recognising that our futures are best served by developing closer economic ties.
The G20 is a broad church.
Every G20 country is culturally, economically and politically different. But, one thing we all understand is that reforms in these areas will make a significant difference to our long-term growth path.
By working collectively on these reform areas we will all benefit. Domestic reforms have strong economic spillovers, through stronger demand for exports and new capital. About one-third of the boost to world output we are seeking could actually come from spillovers between G20 nations. Better investment will also assist in rebalancing demand internationally which remains a major concern given high current account imbalances.
Stronger growth can reduce pressure on monetary policy, and contribute to stability. A world where economic growth and asset prices are driven by fundamental factors like productivity and technology is in all our best interests.
I want to stress that this is not an exercise involving general statements and empty promises.
Australia’s strategy
In November, at the Leaders’ Summit in Brisbane, every G20 member will present a comprehensive listing of their new policy actions to lift growth.
And of course, Australia is doing its part.
We are implementing our economic growth strategy, focussing on providing the right conditions for the private sector to drive growth and create jobs.
We are creating the right incentives for a more dynamic and competitive Australian economy.
Our strategy is straightforward. Restore fiscal sustainability and confidence in our public finances. Promote business confidence by creating the right environment to innovate, invest and thrive. This is the way to create more jobs.
We are moving away from government-led growth towards facilitating private sector-led growth.
The Government has achieved a great deal since being elected just twelve months ago.
We started off by making sure the frameworks and structures that underpin the Australian economy are right. We strengthened the Reserve Bank of Australia by investing $8.8 billion so that they are equipped to handle whatever challenges lie ahead.
We abolished the nation’s debt limit, the responsible thing to do to provide financial markets with more certainty about the Government’s capacity to finance its operations for the foreseeable future.
We have dealt with nearly 100 announced but unlegislated tax measures dating back to March 2001 that we inherited. This is providing greater certainty for business.
We have already cut $800m of red tape for businesses, community organisations, and individuals – particularly for small business. We removed almost ten thousand redundant regulations and over one thousand redundant Acts of Parliament this year alone.
Outside of our involvement in the G20 and the signing of free-trade agreements which I will come to shortly, we have deepened ties with our major trading partners. We are supporting Renminbi offshore market development to better integrate China into the global economy. We have signed a tax agreement with the United States to reduce the burden on Australian financial institutions in complying with onerous US reporting requirements.
But most importantly, we are getting the Budget back on a sustainable path, which is crucial. My G20 colleagues tell me they wished they had taken action earlier, before the level of debt made the challenge so much harder.
We got straight to work on fixing the Budget. We released the Mid‑Year Economic and Fiscal Outlook back in December that showed clearly just how unsustainable the budget position was. The Commission of Audit also provided a valuable input on reshaping the role of government in the economy. And through our first Budget we laid out a credible plan to bring the Budget back to surplus without hurting our plans for more sustainable and broader based economic growth.
If we did not take action to address the Budget mess, then Government debt would reach $667 billion within a decade. That would mean $25,000 of Government debt for every man, woman and child in Australia. Under that scenario, we would be spending $3 billion a month on interest payments alone.
The fact is if we don’t move now to live within our means, our future becomes more uncertain. We need to rebuild fiscal buffers to confront the challenges we may face in the future.
The imperative is not only in the near term. We need to think about one of the biggest challenges Australia faces over the medium term, the reality of an ageing population. An ageing population means greater demand on government services.
As such, we are looking at the impacts of demographic change on the Australian economy and our fiscal position. We will release this work in our Intergenerational Report within the next six months. This means we need to have a longer term vision for the Budget.
As I’ve said often, we have set about immediately repairing the Budget. This was always our priority. The day-to-day bills are being paid, but we need to lay down a strategic, structural response to the debt burden. That's why we're focused on getting our reforms through the Parliament.
By moving to meet head on the medium and long term structural challenges to the Budget, the less severe the response needs to be in the future.
As an aside, I hear about the consequences of delayed actions first hand in discussions with my G20 colleagues. The policy choices they have today are just so stark. They are trying to do the best for their economies with limited options available. I do not want this to become Australia’s case.
So we are getting government finances under control and laying out a credible plan for fiscal repair.
And we are going further. We are also taking the necessary steps to improve the business environment more generally and to encourage greater investment in Australia.
We got rid of the carbon tax that was stifling business activity.
We got rid of the mining tax that was causing so much reputational damage to Australia.
We are creating more self-reliant and competitive industries by simplifying industry assistance programmes.
These are important steps to improve business confidence.
Our first Budget outlines a comprehensive strategy for the recovery of public finances and the economy. And we have since seen a rise business confidence. Business conditions are now at a four year high[1]. Business expectations are at decade highs. Consumer confidence is also back to long run average levels.
But to continue building confidence we need to pass the reforms we laid out. Fiscal policy that is focused on sustainability provides greater stability and certainty for businesses and households.
Like all of the G20 membership, we recognise the importance of trade and investment. In Australia, trade and investment is essential for business to thrive. We need to develop new relationships in new markets. And we need to deepen and broaden existing relationships through new free trade agreements and facilitation of business to business partnerships such as the Prime Minister’s current timely trip to India and Malaysia.
We won’t take a backward step on trade. We won’t let protectionist attitudes take hold. That will only result in lost opportunities and lost jobs.
That is why we have signed free-trade agreements with Korea and Japan. These agreements, along with Australia’s existing free trade agreements, now cover 44 per cent of our total trade. I am also confident by the end of this year we will sign a free-trade agreement with China.
And in terms of investment, we are building infrastructure for the 21st century. To increase the supply of infrastructure, the Australian Government is investing over $11 billion in a new Infrastructure Growth Package. This will bring the Government’s investment to $50 billion by 2019-20. This will lead to additional investment from state and territory governments and the private sector. In total, it will deliver $125 billion of new additional infrastructure investment.
This is now the biggest Commonwealth infrastructure programme in Australia’s history and will raise the level of GDP in Australia by 1 percentage point.
The way forward
We are in the early stages of delivering on Australia’s Economic Action Strategy.
We can’t lead the G20 reform agenda with credibility if we are not prepared to take real action on our words here at home.
At the G20 Finance Ministers and Central Bank Governors meeting in Cairns in a fortnight we will review all of our plans for new growth.
We will assess our progress towards meeting the 2 per cent goal.
Let me be clear, it is an ambitious goal. But without a combination of agreed ambition and mutual pressure very little will ever be achieved.
Officials are discussing and crunching the numbers behind our ambitions as we speak.
In every country reform is hard and reform takes time. Meaningful reform is never easy and these are hard processes. We are each asking a lot from our systems.
But as I have now said on many occasions….growth must be earned.
What I am sure about is that through the year the G20 has made more progress on its growth agenda than it has in previous years.
We already have spurred hundreds of new policy commitments that will lead to a real step up in global growth. We will have developed plans that create millions of jobs and opportunities for individuals and businesses across the world.
This has been a result of a step change in the way Ministers work together and it all started at the Sydney meeting.
In Cairns, we will continue to have quality discussions around the big economic issues facing the membership. This will include frank and robust discussions on how to break through the political barriers to achieve change.
And another thing I am sure about is that Cairns will create a good platform from which to build for the Leaders’ Summit in November.
But we won’t be resting here.
Whatever the progress on our 2 per cent growth ambition reported in Cairns we have to do better. If anything, the world outlook has become a bit more uncertain since February so we have to redouble our efforts to ‘shift the dial’ on growth.
If we needed any reminding of that I note that overnight, the European Central Bank cut their lending and deposit rates by 10 basis points – taking their deposit rate further into negative territory. This, coupled with the commencement of a programme of purchasing private sector securities, is a clear indication that they are concerned about weak European growth and very low inflation.
Conclusion
I said earlier this year that there is no finishing line when it comes to economic reform, it is like a continuous Olympic 400m relay race. Australia has, in a way, lifted the speed of the economic race through its leadership of the G20.
Whilst it is the role of Government to facilitate reform ultimately it is the private sector that innovates, builds and employs. Governments facilitate prosperity but people through enterprise and innovation generate prosperity.
Australia should never doubt itself. We can shape the global economic landscape with ideas, vision and leadership.
In many ways, our 2 per cent Sydney ambition is more than just a commitment to lift growth. It has reinvigorated and focused G20 discussions and our collective commitment to strong, sustainable and balanced growth. It has galvanised the spirit of economic cooperation within the G20.
I very much look forward to deepening the G20/B20 partnership over the months and years ahead.
After all if we can make it work then our communities will get the very real benefits of more economic growth and more jobs with greater prosperity.
[1] July 2014, NAB Monthly Business Survey.