Welcome to the Bush Capital.
This is a city, and certainly this part of the city, is one built along lines of symmetry and symbol.
The natural amphitheatre for a national conversation formed by Mount Ainslie, Red Hill and the Brindabella foothills.
The view line from the front of Parliament House across the lake to the War Memorial – deliberately to remind politicians of the consequences of their decisions.
The uphill walk from Old Parliament House to the new Parliament building - reminding us of our history, our traditions and our progress. And the grass growing on top of this great structure where the legislature now meets – an invitation to the people of Australia to walk atop their political representatives – reminding those of us working beneath who is the boss.
And there is the bush campfire smell and streetwise democracy of the Aboriginal Tent Embassy in front of Old Parliament House - a very short stroll from this very spot we're meeting I might add – reminding us to never let the rights recede from our minds of those who were displaced and disadvantaged by white settlement.
Delegates, this is a small city of big inspirations.
It's the seat of our democracy and a river of good debate and contested ideas runs through it. So I hope Canberra stimulates each of you in your short time here.
And I hope you did your bit for the Kiwi economy in recent days – they do need it given recent events and I'm sure they appreciated your patronage.
And in opening this Canberra leg of DB's Investor Mission – I do thank the ever clever people of Deutsche Bank for giving me the opportunity to speak with you all today on behalf of the Gillard Government.
Friends, in the wake of the Global Financial Crisis I think it's now penetratingly evident that this region is shaping the future of the world economy.
The Asia Pacific century, as many scholars have described it, is not in our midst - it now sits atop our morning newspapers, calling us to action from cable TV, our Blackberrys and iPods, and infused within every one of our business discussions and conference sessions.
The Asia Pacific century, ladies and gentlemen, is right now and we are living it.
The solemn present news is that a great dynamo of the Asia Pacific, a great economic and innovation engine room of our neighbourhood – the great nation of Japan – has suffered catastrophic loss in recent days.
We bow our heads in mourning with our Japanese friends, we search for missing loved ones with them still and we will rebuild with them.
They are a tough, wise and resilient lot the Japanese people. They have been through more than most in the last 100 years and they'll get through this.
And we welcome this strength of character as much as we've long admired the trait.
Experts are today warning that the earthquake and tsunami could push Japan into its fifth recession in two decades. And thus we're already seeing GFC-like fiscal stimulus into the banking system – some 15 trillion yen worth as of yesterday morning.
But setting aside the distressing events of recent days, the broader, longer term good news of course is that Australia is uniquely positioned to take advantage of the Asia Pacific century's opportunities.
We have a rich resource endowment. We are well‑positioned geographically. And we have solid economic growth and low government debt, which gives us the capacity to exploit this endowment.
Today I would like to talk a bit with you about the implications of the resource boom, the investment opportunities that flow from the surge in demand for our resources – and also some of the challenges.
Perhaps the best thing to do first though is briefly touch on Australia's recent economic performance and what we need to be clear eyed about to get the most out of our good terms of trade for the long run.
What I mean here is the need to be across the big trends of the next two decades at least. Because I am confident most, if not all, of us in this room would agree we are currently witnessing an economy in transition.
Recent domestic performance and the big global economic trends
The Australian economy continues to perform strongly.
The December quarter 2010 National Accounts, released earlier this month, showed solid growth of 0.7 per cent in the quarter, to be 2.7 per cent higher through the year. This solid growth was underpinned by strong growth in exports, a surge in investment in machinery and equipment.
The outcome was remarkable when we consider the drag on growth from the rains and storms in the eastern states in December, the return of interest rates to more normal settings, the high Australian dollar and the continued withdrawal of the Government's fiscal stimulus.
At 5.0 percent, our unemployment rate continues to remain lower than every major advanced economy, except Japan. Over the year to February 2011, more than 300,000 jobs were created in Australia. I know this is an achievement the Treasurer is especially driven by and will remain a big priority of our Government.
Looking ahead to the next few years, the economic prospects for the Australian economy remain positive; with solid GDP growth, low unemployment, moderate inflation and a strong surge in business investment.
So what are the big trends Australia ought to be acutely conscious of as we set about securing our next wave of prosperity?
1. Our presence in the Asia Pacific region
I said earlier we are living in the Asia Pacific century. The re-emergence of Asia is the third greatest transformation in the last four centuries.
First was the rise of the British Empire. Second was the rise of the United States. The third is the re-emergence of Asia.
It should not be forgotten that in 1570 Asia was the biggest region in the world – far bigger than the Roman Empire.
But for being closed off to the Industrial Revolution Asia would have stayed enormous.
Our great good fortune as Australians today is to be closely integrated with Asia – 70 percent of our traded goods and services is with Asia.
2. Huge moves in the services sector
Australia is a modern economy. Examination of our financial, accounting, insurance, legal, online, data industries reveal they are amongst the highest paid sectors in the world.
Except for the mining sector, wages in financial services are very high compared to the rest of our employers. Slowly, yet surely, our other sectors are declining.
That does not mean our farmers and manufacturers don't have a viable future – but the trends of greatest dynamism and competitive advantage are clear.
3. Communications and the Role of Education
Modern information technology and the flow of information are crucial. The boost it gives to productivity is huge.
It starts with schools and universities and then continues with the communications between people.
Education is all about what goes down the information technology pipe.
Our tertiary sector has massive assets. But it's only fully open for 24 weeks a year, so it's a privileged sector.
Quality IT means cheaper and better education.
Online technology will enable cheaper education with better teachers. "Televisioning" will enable greater education, as well as education access.
From the end of the 1960s we have been moving from manufacturing to services via technology.
But we are now in the second stage of this – it's now not just about computers and software development. It's about the information flowing through ICT.
For 200 years monasteries then universities stored all our information and knowledge. Google captured and stored all this in 10 years. This is mind blowing.
These are some of the big trends we will be dealing with in the future.
Obviously there some very tangible ones we are already dealing with now – like our strong terms of trade.
The resources boom
Australia's economy is certainly benefitting from the surge in demand for our resources – what is being called the 'Mining Boom Mark II'.
With Australia's natural resource advantages, the ever‑deepening economic integration between countries and the effective reduction in distance between Australia and our export markets, the economic growth of China and India has contributed to the largest and most enduring boost to our terms of trade in recent history.
These international and domestic economic developments have profound implications for the Australian economy.
Benefiting from strong non-rural commodity exports and higher commodity prices, we have seen a strong rise in national income. And we expect business investment and commodity exports to continue to be the key drivers of growth.
As mentioned in the 2010‑11 MYEFO, the Australian economy is expected to grow at an above trend rate, supported by strong business investment. New engineering construction is expected to grow by 16 and a half percent in 2010-11 and 21 percent in 2011-12 with new machinery and equipment investment growing by 7 percent in 2010-11 and 15 percent in 2011-12.
However, the strength of the Australian dollar and other factors will continue to put pressure on some sectors of our economy. High resource prices, combined with a high real exchange rate, lead to capital and labour migrating out of the non‑resources part of the traded sector and into mining and construction.
We are already seeing the conditions that will facilitate the emergence of these pressures in the labour market.
With the economy forecast to grow above‑trend and unemployment already at a low level, the Australian economy is expected to reach capacity within the next year or so.
Capacity constraints are expected to materialise earlier, and to be more acute, in certain regions and industries, notably WA and Queensland, and those industries in need of certain mining-related professions and trades.
For Western Australia, while its unemployment rate of 4.2 per cent is well above pre‑downturn levels, a continued pick-up in mining income may place pressure on the labour market.
In Victoria, NSW and South Australia, the unemployment rates are all near pre‑downturn levels.
In Queensland, reconstruction activity after the recent floods is expected to place considerable demands on the Queensland labour market. However, Queensland's current unemployment rate of 5.6 per cent is well above rates experienced prior to the downturn.
The acceleration in aggregate demand in our economy and a low to falling unemployment rate could also have implications for inflation with these pressures emerging.
So far, inflation remains moderate and slower growth in the non-mining sectors is making room for the expansion in the resources sector.
Implications of the mining boom for investment
Turning to the prospects this rapid expansion presents, I would like particularly to talk about the business investment opportunities arising from the mining boom, what government can do to facilitate a better investment environment and how we can also ensure the Australian people are getting their fair share from the proceeds of this national resource.
The boost in the terms of trade over recent years, and expected strong demand for our mineral resources is likely to underpin a strong pipeline of private investment activity over coming years.
In 2010, the value of mining investment was around $40 billion, or 23.1 percent higher than a year ago. Looking ahead, the mining industry's investment intentions point to further increases.
The latest CAPEX figures indicate that the mining industry is intending to invest $55.5 billion in 2010-11 and $76 billion in 2011-12 (in current price terms). Also, ABARES' most recent listing of major minerals and energy development projects, in October 2010, estimates that the current pipeline of resource projects totals over $380 billion.
The surge in mining investment will be mainly driven by the liquefied natural gas (LNG), iron ore and coal sectors. There are currently around a dozen large-scale LNG projects under construction or active consideration in Australia.
These include offshore gas developments in Western Australia and the Northern Territory such as Gorgon LNG, Ichthys LNG, Browse LNG and Wheatstone LNG; along with coal seam gas to LNG projects in Queensland including Queensland Curtis LNG, Gladstone LNG and Australia Pacific LNG. These projects range in size from $15 billion to $43 billion.
The mining-related investment is expected to further drive a boom in engineering construction activity. Infrastructure investment is also expected to grow strongly, with many mining projects requiring the construction of new infrastructure to deliver products to market.
MRRT
On an almost constantly rolling basis we are also seeing further evidence of the significant profit margins in the resources sector.
I am talking about reports, like those we saw earlier this month, that hardworking Australian based coal producers like Anglo American have secured record pricing for coking coal - in the order of $US330 per tonne. Rival coal producers are of course set to follow, driving Australia's trade balance to record levels and pushing coal's contribution to the Australian economy even further beyond the forecast $34.2 billion.
These welcome numbers of course come on top of BHP Billiton's recent reporting of half yearly profits of $11 billion and Rio Tinto's $14 billion annual profits.
As economic commentator Terry McCrann astutely pointed out last month – between these two big Australian miners alone they will go close to doubling the aggregated profits of our big four banks for the year. And BHP on its own could earn as much as our entire banking system.
With this sort of business data grabbing more than a couple of headlines and gradually filtering down into quite a few conversations – from around the kitchen table to around the investor conference circuit - surely it becomes ever more obvious that the Gillard Government's Minerals Rent Resource Tax is profoundly justified.
The proposed mining tax extracts from our rich mining companies a fair share for Australia from what these hardworking miners have extracted from the very country itself.
The mining tax sees that the Gillard Government can continue the task of reducing the tax burden for most Australians, and help smooth our economic growth and enterprise investment, by finally putting a 2 in front of the corporate rate – bring it down to 29 percent. A tax reform I have no doubt everyone in this room would warmly welcome.
And the mining tax ensures we can increase retirement savings – and therefore our $1.3 trillion national savings pool - by ensuring that a founding strength of our super system can be paid for – the concessional tax treatment of superannuation.
These are reforms I am displeased to say, that do not receive bipartisan support. Yet it remains quite unclear what the policy rationale is for objecting to the MRRT revenue and delivering what it pays for.
Foreign investment and government reforms
Of course the Australian economy as a whole will require significant new capital over coming years to develop the very strong pipeline of business investment plans – in the resources sector and elsewhere.
Foreign investment has played, and will continue to play a key role in facilitating these plans.
The ability of Australia to draw in this foreign capital reflects Australia's attractiveness as a destination for foreign capital, particularly our resources sector.
Australia's foreign investment liabilities have increased by around $820 million since the end of 2004, with the vast majority attributable to the private sector.
An increasing share of this capital has been directed to the resources sector, and has supported investment in major projects —delivering exports growth and increased incomes. Ongoing foreign investment in Australia's resources sector will support future projects.
Investment Manager Regime
An important regulatory reform is the Investment Manager Regime (IMR).
An IMR is a key reform to boost the competitiveness of Australia's financial services sector.
It was a recommendation of the Australia as a Financial Centre ('Johnson' report) and is intended to provide clear and comprehensive rules for taxing cross‑border financial transactions.
An IMR can open up new business and employment opportunities for our financial services sector.
The Government has given in-principle support to an IMR and asked the Board of Taxation to report on the design of an IMR as part of its review of collective investment vehicles (CIVs), due by 31 December 2011.
The Government also asked Treasury to report on the scope for an 'interim' IMR in advance of the Board's report.
Based on recommendations of the Treasury report, the Government has already taken some important steps to improving our taxing arrangements for foreign managed funds.
In December 2010, the Government announced it would amend the income tax law to clarify the tax treatment of past investments of foreign managed funds.
This was designed to mitigate the impact of certain US accounting rules (widely referred to as 'FIN 48'), which highlighted the complexity of our taxing arrangements.
The Government's action has provided certainty for investors and industry.
In January 2011, the Government announced it would remove a significant barrier to foreign funds engaging Australian financial intermediaries to manage offshore assets.
From the 2010-11 and later income years, the Government will introduce amendments to ensure that certain passive, portfolio investments of a foreign fund are not taxed solely because the fund is taken to have a 'permanent establishment' in Australia.
We will consult with industry in designing the legislation to implement these changes.
The Board will report on other aspects of the IMR, for example, the treatment of Australian sourced income, as well as how the IMR should apply to activities outside of funds management.
These issues were discussed in the Board's consultation paper (issued in December 2010) and the Board will consult with industry on these issues this year. The Board will provide its report to me by 31 December 2011.
Funds Management Passport
In addition to the IMR, another regulatory reform which would potentially benefit foreign investment in Australia is to develop an Asia Region Funds Management Passport (ARFMP).
This was also a recommendation of the Johnson Report. The ARFMP would provide a multilaterally agreed framework allowing the cross-border marketing of funds across participating countries.
The ARFMP concept is designed to compete with the European Union's successful passport regime – Undertakings for Collective Investment in Transferrable Securities.
The key benefit of a "passport" arrangement is that a fund registered in its home country may be offered in more than one overseas country, ideally without needing to meet different licensing requirements or investment restrictions in each country.
Australia and the Asian region are in a good position to create a similar passport project to attract foreign funds and make investing in Australia easier and more attractive for foreign investors
The ARFMP concept is an opportunity for Asian economies to help develop the funds management industry in Asia; expertise in important economic growth areas; strengthen the Region's capital markets and to deliver benefits of cross-border sales of funds managed and administered in our region.
Currently, it is necessary to determine whether there is sufficient interest in this concept within the Asian Region to move towards a basic model for a pilot project.
Working in close consultation with ASIC and other key stakeholders, the Australian Treasury is taking the lead role in facilitating the design and development of the ARFMP proposal within the APEC Finance Ministers' Process (FMP).
Building on the outcomes of the first APEC policy dialogue on ARFMP that was held in Kuala Lumpur in October 2010, the Australian Treasury will be hosting a follow-up activity in this area.
A policy and technical workshop on designing and developing an ARFMP will take place in Hong Kong on 15-16 March.
Finance officials, securities regulators and fund industry players from the targeted economies will be participating in this workshop.
It is intended that technical working groups will advance the design work of the passport in three areas in the next six months; these are fund design, consumer protection issues and administration of the Passport scheme.
Conclusion
I want to conclude today's remarks by emphasising that whatever some of our political opponents and some scallywag right wing commentators might like to pretend – Australia is simply not a high taxing country and setting a price on carbon is well worth doing.
I might add pricing carbon and reducing pollution is in fact well worth doing even if you are sceptical enough to believe climate change isn't actually happening.
Let me bust the tax myth first.
As part of our fiscal strategy, the Gillard Government has committed to keeping the tax burden (taxation as a share of GDP) on average below the 2007‑08 level to ensure budget surpluses are delivered through disciplined spending and not higher taxation.
The tax-to-GDP ratio has dropped from 23.5 percent in 2007-08, when we came to office, to 20.3 percent in 2009-10. The fall was driven by significant personal tax cuts as well as the economic slowdown during the global financial crisis.
And across all levels of government, Australia's overall tax burden (27.1 percent in 2008, measured as total tax revenue as a percentage of GDP), was the sixth lowest in the OECD in 2008-09 compared with the eighth lowest in 2007-08.
Our better tax regime, better economy reforms will continue.
Let me emphasise that the challenges of minority Government are no foil or bring no fear to Prime Minister Gillard.
You can see from Julia Gillard's sense of purpose in the carbon price debate that she is not for turning and is not to be underestimated.
The bottom line is we want a low pollution future for the sake of our children. And we want our industry and economy to innovate because we can make big dollars out of this transformation.
Some of the arguments in the carbon pricing debate are admittedly complex – but some are not.
Forcing businesses to operate more efficiently and reduce waste means our industry can compete better with leading countries such as Germany which despite having less sunlight than Australia currently has over 3 times as much solar.
Reducing pollution to our atmosphere has health benefits, especially for our kids, where asthma rates have increased in recent years and studies have shown kids living near busy roads have higher rates of asthma.
Reducing our reliance on cars, especially in the CBD, and switching to public transport has the potential to reduce pedestrian and cycling deaths. Not to mention less deaths from car accidents.
Furthermore, riding a bike or walking can help reduce obesity and improve overall fitness. Australia is the fattest nation in the world.
Cooling our cities through roof top gardens, public transport, green spaces and sustainable building design is good for business. Studies have shown green buildings reduce absenteeism by up to 15 percent. Many of us have heard of sick building syndrome and green design principles avoid many of these pitfalls.
Reducing our reliance on oil is good for national security especially where Australia is at the whim of oil countries and the designated supply at any one time.
Putting a cap on emissions supports the growth of new businesses such as solar energy which has the potential to offset jobs lost in the fossil fuel industry. The creation of green jobs is real. According to CSIRO economic modelling, 2.7 million new jobs will be created in Australia by 2025 if we set course to become carbon neutral by 2050.
The Prime Minister knows, the Treasurer knows and I know that business and investors want certainty. We know that the green collar jobs and clean tech economic opportunities arising from setting a price on carbon present massive economic opportunities for Australia.
You could see from the Prime Minister's stand out performance on the ABC's Q&A program on Monday night that she is right across the policy detail, is on the right side of logical argument and the right side of the future vision question.
By comparison Tony Abbott is little more than a walking, talking scare campaign – and to see his Finance spokesman on a Sunday morning television a couple of weekends ago saying that they weren't conducting a scare campaign on carbon pricing was, seriously, as absurd a statement I have seen in public life.
It's beneath the intelligence of Australians for the Liberal Party to deny they are prosecuting an almighty, unmitigated and unprecedented scare campaign.
They are. And they should admit it.
Frankly whether they soon stop it or they continue on with their cynical approach isn't my concern.
This is a Government that has been given a second chance by the Australian people and, whatever the political static, we fully intend to deliver in this term for the national interest. That is our focus.
Sure this great country is striding into a new century with some challenges on our shoulders and a few are yet to be fully addressed, that's why we're doing the hard reform work now.
But more than anything we stride forward today with competitive advantages that are the world's envy.
It's an excellent place and an excellent time to invest. Australia is writing a confident, prosperous story for the future.
And we passionately invite you and your businesses to be a big part in it.
Thanks for your time and I look forward to your questions and comments.