Today's economic note follows a really important first week back in the Parliament, which focused on some of the most crucial issues for our economy like the Government's strict fiscal policy and our plans to build a National Broadband Network and the modern, low-pollution economy that flows from the responsible implementation of a price on carbon. At a time when global conditions are shaky, and the US and Europe are grappling with near double-digit unemployment, our economy is going from strength to strength and that's what provides such a great foundation to deliver our plans for a stronger economy. I think we've shown we have the passion and commitment to deal with the long-term challenges facing Australia, like managing the challenges of commodity boom mark II and giving business certainty. We're doing all this within the strict confines of our fiscal rules, which has us on track to get the budget back to surplus in 2012-13, well ahead of any major advanced economy.
Our plans for fiscal consolidation received a big tick last week from one of the world's premier economic institutions. In its Article IV Concluding Statement, the IMF made it clear that "the quick implementation of targeted and temporary fiscal stimulus provided important support for domestic demand, cushioning the impact of the global downturn." The IMF noted that "the exit from the stimulus, which began this year, sees the budget back in surplus by 2012-13" and said that "this pace of withdrawal is appropriate", being "faster than past consolidations in Australia and plans in most other advanced economies." These comments were echoed here at home by Macquarie Bank economists Brian Redican and Ben Dinte, who said that "by any measure, this is an aggressive consolidation" and "just as the stimulus was aggressive, so too is its removal".
Regular readers of this note would recognise our number one fiscal priority is returning the budget to surplus and we are on track to do that in three years, well ahead of any major advanced economy. This is the quickest a government has got back in the black since the 1960s and simply wouldn't be possible if it wasn't for our strict fiscal rules – holding real growth in spending to 2 per cent a year on average until we're back in surplus. That compares to average spending growth of 3.7 per cent over the last five years of the Howard Government, in a sign of just how tough our spending cap is. We went through an entire election campaign without adding a single cent to the budget bottom line – by making sure every single proposal was properly costed and every single dollar was properly offset.
During the week both the IMF and the Reserve Bank confirmed the strength and stability of Australia's financial system. The IMF's Global Financial Stability Report endorsed the Government's decisive action during the crisis, saying our bank guarantees "helped maintain confidence in the financial sector". The RBA emphasised in its Financial Stability Review that our financial system is strong and healthy, and so is our broader economy. On Thursday I signed a new Statement on the Conduct of Monetary Policy with the Governor of the Reserve Bank, continuing the framework we have had in place for almost 15 years. The Statement re-affirms the statutory independence of the Reserve Bank and recognises its longstanding responsibility for financial stability, working with the Government and our other world-class regulators.
My job as Treasurer is all about delivering long-term economic growth with low inflation, and that means tackling the capacity constraints that were left unattended during commodity boom mark I. Our mining tax reforms will ensure the Australian people get a better return on their non-renewable resources, so we can use the proceeds to increase national savings, make our businesses more competitive, and build productivity. Our new Minerals Resource Rent Tax will only apply to two commodities – iron ore and coal. It was increases in the export prices of these two commodities which drove the RBA commodity price index 52 per cent higher in SDR terms over the year to September, or 36 per cent higher in Australian dollar terms taking into account the appreciation of the exchange rate. We will use the proceeds of the new Minerals Resource Rent Tax and the expanded Petroleum Resource Rent Tax to boost superannuation, simplify personal tax, cut business tax and invest in infrastructure, especially in our mining regions. This is all part of our economic plan to strengthen, broaden and modernise our economy so that more Australians can contribute to and benefit from our prosperity, no matter where they live.
As part of our breakthrough agreement on mining tax reform in July, we announced that we would set up a Policy Transition Group to consult directly with affected companies, relevant agencies and state and territory governments. The Policy Transition Group held its inaugural meeting a fortnight ago, and last week followed that up with a letter to key stakeholders and the release of an Issues Paper before consultations kick off in Perth, Brisbane, Adelaide, Sydney and Melbourne.
In climate change we're also showing a similar commitment to consultation as we try and build consensus behind complex policies that are in the long-term national interest. That's why I was really pleased to be part of the announcement of the membership and terms of reference for the new Multi-Party Climate Change Committee. I'm looking forward to joining the PM and Greg Combet as the government representatives on the new committee which will explore options for the introduction of a carbon price. It will start from the position that a carbon price is a key economic reform that is required to reduce carbon pollution, encourage investment in low-emissions technologies, and complement other measures including renewable energy and energy efficiency.
I know how crucial it is to consult with business throughout this process, and that's why we are also establishing a Business Roundtable on Climate Change. I will co-chair this important roundtable with Greg Combet and we'll be joined by some highly-respected, forward-thinking business leaders. The discussions at the roundtable will focus on the introduction of a carbon price into the economy, and giving business the certainty that it needs to invest in the low-pollution economy of the future. We are already seeing the impact of investment uncertainty on the economy, with five-year investment forecasts in electricity generation falling from $18 billion in 2009, to only $8 billion in 2010. The longer that investment uncertainty remains, the greater the adverse impact on prices and reliability, and that's why we're getting on with it.
We also recognise the importance of demographics to the future of our economy and that's why we're working on the first ever population strategy. Demographic Statistics released on Wednesday confirm that population growth is slowing, down from 2.2 per cent for the year ended 31 March 2009 to 1.8 per cent for the year ended 31 March 2010. This fall was due to a 24.7 per cent reduction in net overseas migration from 320,362 for the year to 31 March 2009 to 241,352 for the year to 31 March 2010. This decline in migration numbers is in part due to the reforms we put in place to fix the problems in the skilled migration program and better match its design to the needs of the economy – like increasing the English language requirements, refocusing the list of skills to better match our priority skills needs, and refocusing the migration program towards employer-sponsored migrants. BIS Shrapnel predicts that we will see net overseas migration fall even further, to 175,000 in 2010-11 and 145,000 in 2011-12.
It's been an honour to be Acting Prime Minister while the PM is overseas visiting our troops in Afghanistan and leading Australia's inaugural participation in the Asia-Europe Meeting (ASEM) in Brussels. On Thursday I'll leave for Washington where I'll be attending IMF and World Bank meetings and participating in bilateral meetings with my G20 colleagues. It's so important that the international community which came together to fight the global recession continues its efforts to secure better regulation of the global financial system to prevent a repeat of the mistakes that led to the crisis. I'll also be talking to investors in New York about the strength of our economy, our strong fiscal position, and our commitment to responsible economic management. I'll report back on progress with those discussions when I write again, next Sunday.
Treasurer of Australia
Sunday 3 October 2010