Today's economic note follows the release of the Final Budget Outcome for 2009-10 on Friday, which shows that despite the impacts of the global recession, Australia's budget remains in a much stronger position than comparable countries. Faced with a choice between protecting jobs and businesses or slashing services and jacking up taxes, we made the decision to put jobs first. The global recession had a big impact on economies and budgets around the world and the budget outcome reflects that. But thanks to the success of our policies during the global recession and the fact we've stuck to our strict spending limits, we're on track to get the budget back to surplus in 2012-13, comfortably ahead of every major advanced economy.
The Final Budget Outcome for 2009-10 reports an underlying cash deficit of $54.8 billion – or 4.2 per cent of GDP. This outcome is the inevitable consequence of the most serious global downturn since the Great Depression. While Australia avoided recession and the large-scale job losses and business closures that occurred elsewhere, the sharp falls in global commodity prices and business profits that accompanied the global recession had a big impact on revenues. The 2009‑10 budget year bore the full brunt of the global financial crisis, stripping almost $50 billion – or one-sixth – off total tax receipts from the levels estimated before the crisis in the 2008-09 Budget. Adding up the impact over five years, the global recession has stripped around $110 billion from budget revenues overall.
Following the release of the Final Budget Outcome, international credit ratings agency Standard & Poor's said Australia has "exceptionally strong public sector finances even among the 'AAA' rated sovereigns." Even with the huge and enduring impact that the global recession has had, our budget position is still in far better shape than most comparable countries. At 4.2 per cent of GDP, Australia's budget deficit for 2009-10 is less than half the average of the major advanced economies. And Australia's government net debt of $42.3 billion or 3.3 per cent of GDP for 2009-10 compares to 2009 net debt positions of 28.6 per cent for Canada, 58.3 per cent for the US, 61.5 per cent for the UK, and 111.7 per cent for Japan.
The $50 billion hit to revenues in 2009-10 accounts for around two-thirds of the change in the budget position between the 2008-09 Budget and the Final Budget Outcome. We allowed the budget automatic stabilisers to work and put in place quick and powerful stimulus so we could protect jobs and support growth in the face of the worst global recession in 75 years. You can see the impact of the decisions we took in the jobs that were saved, the businesses that kept their doors open, and the families who kept their homes. If we had sat back and done nothing, our economy would have slid into deep recession, unemployment would be far higher, and we would be facing the prospect of bigger debt and deficits. Instead, our economy avoided recession and all of the destruction that goes with it, and we've now got a far stronger base to build from going forward.
It's a very different story for our American friends, who continue to face high unemployment. On Monday the National Bureau of Economic Research's Business Cycle Dating Committee officially declared the US recession the longest since World War II. The US recession lasted 18 months and saw GDP contract by 4.1 per cent, making it not only the longest, but also deepest post-war recession. US unemployment continued to rise even after economic growth turned the corner, as tends to be the practice during recessions. The unemployment rate peaked in October 2009 at 10.1 per cent, and in the ten months since has only fallen 0.5 of a percentage point. The OECD's Economic Survey of the US last week revealed that "it could be early 2013, at best, before the rate returns to its pre-recession level." It flagged the current high level of long-term unemployment as a particular concern, saying "the risk is that part of this upsurge may not be fully absorbed during the ensuing recovery, resulting in a permanently higher level of unemployment, a pattern known as 'hysteresis'."
Here in Australia we face challenges of our own, but of a very different kind to those in the US. The ABARE‑BRS Australian Commodities report for the September quarter reinforces again that we are in the grip of commodity boom mark II. Since its last report three months ago, ABARE-BRS has revised up its export volume forecasts for 2010‑11 by 3.8 per cent for iron ore, 3.1 per cent for thermal coal, and 9.9 per cent for metallurgical coal. ABARE-BRS expects earnings from energy and minerals exports to rise by 30 per cent or by more than $40 billion in 2010-11, to reach a total of around $180 billion.
In a speech on Monday, RBA Governor Glenn Stevens said that both the Reserve Bank and business expect "resource sector investment will rise further – as we experience the largest minerals and energy boom since the late 19th Century." He emphasised the importance of "national policies that aim to lessen the more stark differences that might otherwise occur" between the economic prospects of different regions across Australia. We're acutely aware of the challenges that mining booms create in terms of capacity constraints and a higher dollar, which is why our economic plan is squarely focused on strengthening and broadening the economy. That plan includes increasing national savings through superannuation, cutting business and company tax to make businesses right across the economy more competitive, and boosting economic capacity and productivity through historic investments in infrastructure, broadband, skills and education.
At the very core of our plans to boost productivity in the economy is the National Broadband Network. The economic significance of broadband was recognised by the United Nation's Broadband Commission in two reports released last week. The first report, A 2010 Leadership Imperative: The Future Built on Broadband, referred to international estimates which "suggest that for every 10 per cent increase in broadband penetration we can expect an average of 1.3 per cent additional growth in national GDP". The report went on to say that "in the 21st Century, broadband networks must be regarded as vital national infrastructure – similar to transport, energy and water networks, but with an impact that is even more powerful and far-reaching." The second report, Broadband: A Platform for Progress, made the important point that "to achieve the best results, broadband needs to be coordinated on a countrywide basis, as a national broadband network."
It's been great to see David Bradbury hit the ground running in his new role as Parliamentary Secretary. David's responsibilities in the Treasury portfolio include competition policy and consumer affairs, and on Friday he released the draft Australian Consumer Law (ACL) Regulations and Guides for consultation. The Australian Consumer Law represents the biggest reform to consumer laws in a generation – replacing the many state and territory consumer laws with a single set of national consumer rights and business rules that will be simpler and easier for business to comply with and will provide consumers with greater certainty about their rights. David also launched a new website – www.consumerlaw.gov.au – to coincide with the release of the draft Regulations and Guides for consultation. In addition to setting out the consultation process, the new website also explains how the Australian Consumer Law will be implemented and enforced and provides general information on consumer policy in Australia and internationally. I look forward to working with David as he delivers this important reform and as we continue to work to pursue the best interests of consumers.
This Tuesday marks the start of not just a new Parliament, but a new approach to decision-making in Canberra. The closeness of the vote was a message to all of us that the Australian people want us to find more common ground and work together in the national interest. I'm looking forward to the new Parliament adopting a more cooperative approach to tackling the key issues for our future, like putting a price on carbon and delivering certainty for business. We'll need to build consensus behind every one of our policies to get them through the Parliament, and I'm confident we can put aside the short-term politics so we can do the right thing by the country.
Deputy Prime Minister and Treasurer of Australia
Sunday 26 September 2010