Today's economic note comes to you from Busan in South Korea following yesterday's G20 Finance Ministers' meeting. Later today I'll travel to Beijing for meetings with senior government leaders and policy makers. I flew out of Australia for Shanghai on Wednesday just after the release of the March quarter National Accounts showed Australia recorded another solid outcome that gives us further cause for confidence. But it's not enough to look at these solid numbers and put the feet up – there's much more to do to secure growth and strengthen the economy. That's why the message I took to yesterday's G20 Finance Ministers' meeting wasn't just about our success during the global financial crisis, but also our important reforms to convert these achievements into lasting gains by reforming our tax system and growing our whole economy.
The National Accounts reported that GDP grew by 0.5 per cent in the March quarter, to be 2.7 per cent higher through the year. The figures show that the economy is in the process of transitioning from the support provided by policy stimulus to private demand. Infrastructure investment is still playing a really important role but overall, the withdrawal of stimulus subtracted around 0.1 of a percentage point from GDP growth in the March quarter.
We're withdrawing stimulus in a way that ensures appropriate support remains targeted on the softer sectors in the economy. As stimulus measures such as the payments to households and the Small Business and General Business Tax Break unwind, our infrastructure investment continues to provide targeted support to those parts of the economy where it is needed most. That investment, particularly in education infrastructure, drove new public investment 12.5 per cent higher in the March quarter, to be up more than 40 per cent over the year. And private non-residential building investment – which fell by 0.6 per cent in the quarter and is now more than 15 per cent lower than a year ago – would have been even lower without the substantial ongoing support provided by the Building the Education Revolution program.
That vital support provided by our stimulus investment was pointed to by Macquarie Bank economist Ben Dite, who said that "much of the 0.5 per cent expansion in the Australian economy in the first quarter of 2010 was the result of significant government spending on education building projects". Duetsche Bank economist Tony Meer explained that "in the quarter and over the year direct government spending has more than accounted for Australian GDP growth. When the indirect effect of fiscal stimulus is also taken into account, e.g. the consumption boosting cash grants and the investment boosting tax rebates, the absolute reliance of the Australian economy on policy stimulus since [the second half of 2008] is amply evident."
Yesterday's meeting in South Korea provided a timely opportunity for G20 Finance Ministers to discuss the turbulence we're seeing in global financial markets stemming from difficulties in Greece and Europe more broadly. These developments really highlight the risks that remain for the global recovery and why it is so important that my G20 colleagues and I continue to work together to secure strong, sustainable and balanced growth.
We're also pushing forward with our important work to reform the financial system. I emphasised the need for global standards that secure careful supervision and can be applied flexibly by each nation to its own financial system.
It was great to visit the Australian Pavilion at the Shanghai World Expo 2010 on Thursday, which showcases Australian innovation and dynamism to China and to the world. Shanghai is the financial capital of China, and in addition to holding an investor briefing at the Australian Pavilion, I also met with representatives from the Asian and Australian financial sectors, attended the opening of the new Shanghai branch of the ANZ Bank, and launched the Australian Financial Services Summit – a joint initiative of the Treasury and our Trade Commission.
My meetings with Chinese Government leaders in Beijing tonight and tomorrow will provide an excellent opportunity to strengthen Australia's bilateral relationship with China and promote the resilience and dynamism of the Australian economy, the benefits of our strong and well-regulated financial sector, and all the advantages we have as a trade and investment partner on the doorstep of some of the most dynamic economies in the world at the cusp of this Asian Century.
On Tuesday I'll fly back from Beijing for Perth, where I'll be attending another one of our regular Community Cabinets on Wednesday. I'm really looking forward to the opportunity to listen to some of the local concerns about the Resource Super Profits Tax, and also talk to people about how a fairer tax on resource profits can deliver better superannuation for the workers of WA, lower company tax, tax breaks for small businesses, and better infrastructure for mining communities. I know from past visits to the West and up and down my home state of Queensland how much the resource-rich states have been crying out for more infrastructure, and I know we need to put something back into the mining communities that have done so much to make our country prosperous in recent years.
Treasurer of Australia
Sunday 6 June 2010