Resilience and risk
Thank you Tony, the HSBC team, and Ticky Fullerton for a really welcome opportunity to address you all at this Asia Pacific Board Summit on Gadigal country, and here at the NSW Art Gallery in Sydney.
This a serious crowd and HSBC is a major player –
A global bank, the biggest in Europe by market capitalisation, a balance sheet of around three trillion American dollars, all-told, with 61,000 staff just in Asia.
More than 2,000 of those jobs are here in Australia and we are grateful for that too, and for HSBC’s presence in Australia for almost 60 years.
Because of this longevity, you know what it’s like to see our domestic economy in a global and regional context, within reach of the vast opportunities of Asian markets.
You know what it’s like to weigh up the near-term pressures and the long-term possibilities, to make the most of things not just muddle through.
You know how important it is that we build more productive, more modern, more dynamic and more competitive economies that position our people and businesses to be beneficiaries, not victims, of change.
In all these areas our goals aren’t just aligned, they’re intertwined.
And I’m hoping as I take stock of the economic conditions, and give you a sense of our reform efforts, that will be the main thing you take away from my time with you here this evening.
It’s timely because, this time last week I was meeting with US Treasury Secretary Janet Yellen, the new Chinese finance minister Lan Fo’an, and Viet Nam finance minister Ho Duc Phoc.
When we joined our counterparts from the APEC economies, the group discussion began with a briefing from the IMF.
It described a global economy which had held up relatively well, all things considered, but which was losing momentum.
Inflation has peaked, the US has defied the worst expectations so far, issues in the banking system have been well-contained.
A soft landing is now assumed, but it’s still not assured.
It’s an unfortunate sign of the times that a tepid global economy, expected to grow at its slowest two-year, non-crisis pace in two decades, is seen as an outcome worth accepting, if not welcoming.
That’s because there is so much uncertainty still, and too much conflict, for us to be relaxed or complacent about global risks.
Not with China’s property sector downturn, and slowing elsewhere across its economy, which make its medium-term outlook even more uncertain.
Not with monetary policy lags which mean we have not yet seen the full impact of the most rapid monetary policy tightening cycle in the history of the global economy.
Not with pressure on budgets, and supply chains still, or inflation that has zigged and zagged a bit on the way down.
And not with war dragging on in Europe, uncertainty around oil, and conflict in the Middle East all distorting the picture.
In a global economy defined by risk, the Australian economy has been resilient, and the Australian government has been resolute.
Australia is one of the best placed economies in the world to deal with what is coming at us.
We are getting good prices for our exports; our commodities and our services, with education and tourism especially strong.
We’ve also seen stronger growth in business investment over the past two years, compared to pre‑COVID.
Investment growth in 2022‑23 was more than twice as strong as we expected at the May Budget, and the outlook remains positive, despite tighter financial conditions.
We’ve seen growth of 6.4 per cent in 2022‑23 – a quicker pace than the US and Canada.
Driven by strong business balance sheets and higher capacity utilisation despite the tighter fiscal conditions.
Encouragingly the non-mining sector has been particularly strong, where business investment grew 8.8 per cent and is expected to be a key growth driver through 2024‑25.
Weak business investment hurts our economy so we are pleased to see it turning around on our watch.
Our labour market has been another particular source of strength.
Unlike the United States, Canada and the UK – we have actually seen an increase in the participation rate since 2019.
620,000 new jobs have been added, more than in any other government’s first term – and we are only halfway through.
Since these monthly records were first kept in 1978, there’s only been 20 months of unemployment lower than 4 per cent in 45 years – and 17 of them have been since we came to office.
All this means that in a difficult environment, we’re world leaders when it comes to getting capital moving and keeping our people working.
This is helping wages to grow at their fastest pace in over a decade.
Last week the Wage Price Index rose 1.3 per cent in the September quarter to be 4.0 per cent higher through the year.
This is the highest quarterly growth in the 26‑year history of the WPI and the fastest annual growth since 2009.
We welcome strong wages growth, just as we welcome the RBA Governor recently confirming there is no sign of a wage price spiral in our economy.
Real wages have grown for two consecutive quarters, and we’re tracking towards consistent real wages growth next year.
Part of this is getting nominal wages growing again after a decade of stagnation; part of it is inflation easing.
Inflation is moderating, nearly half its quarterly peak from March 2022 and about a third lower than its annual peak late last year – but we need it to moderate further and faster.
Higher petrol prices were the major contributor to inflation in the September quarter, and earlier decisions by global oil producers to wind back supply put upward pressure on Treasury’s forecasts in the near term, but we still expect to return to target on the same timeframe, by 2025 – that’s unchanged.
So, our economy is slowing, inflation and higher interest rates are biting, the global environment isn’t helping – but we’re not without advantages.
Our focus is to build on these strengths, manage our exposure to risk, and ensure the long-term isn’t neglected while we get the near term decisions right.
This will give us the best chance of tackling inflation while laying the groundwork for stronger, more sustainable, growth.
Our strategy has three parts, and we are making progress on all three fronts simultaneously.
The first is rolling out tens of billions of dollars in cost of living relief for people doing it tough – but carefully calibrated, designed and targeted to ease inflation not add to it.
The Bureau of Statistics tell us its helping – that our policies on rent relief, childcare fees and electricity markets shaved half a percentage point off inflation in the most recent data.
The second part of our strategy is budget repair.
This is just as important to the primary fight against inflation, but also by rebuilding our fiscal buffers we give ourselves more flexibility if we need it, amidst all the uncertainty ahead.
Budget repair has required discipline and dedication.
A combination of:
Spending restraint – returning the majority of revenue upgrades to the bottom line, improving the structural position;
$40 billion of savings, when the last budget before us had none;
And tax reform for offshore gas, multinationals, large balance superannuation – and compliance efforts to help close some of the tax gap.
Because of this, we have delivered the first budget surplus in 15 years, courtesy of the biggest ever turnaround in a single year – from a $78 billion deficit under our predecessors to a $22 billion surplus in 2022‑23, our first year in office.
Gross debt is now expected to peak at 36.5 per cent of GDP, 8.4 per cent lower than the previous Government.
And we’ve avoided $44 billion in interest costs over the medium term.
Our actions, our decisions so far have led to a fiscal improvement bigger and better than three-quarters of advanced economies.
In fact, we now have the fourth strongest budget balance as a share of GDP amongst the G20 economies – up from 15th in 2021, a huge improvement in just 24 months.
Our fiscal strategy is broadly supported.
When Fitch reaffirmed our Triple‑A rating they confirmed our fiscal stance was “supportive of reducing inflation.”
When the Reserve Bank Governor was asked for her view she described our efforts as ‘very helpful’ and ‘very positive’.
When the IMF handed down its report card they concluded our budget repair is helping not hampering the fight against inflation – that fiscal and monetary policy were working well together.
The Government will hand down our mid-year update before the end of the year, and you’ll see then that we will continue our responsible approach.
That means returning most of the revenue upgrades to the bottom line and showing spending restraint where we can – at the same time as we help people doing it tough, provision for unavoidable spending, and invest in the future.
Investing in the future is the third part of our economic strategy – the one that reveals our ambition to make the most of the big changes underway not just muddle through them.
The big trends and transitions were central to our Intergenerational Report and I think they are broadly agreed and now well-understood:
From globalisation to fragmentation;
From hydrocarbons to renewables;
From IT to AI;
From younger to older;
And what this means for our budgets and the composition of our industrial base.
In this world of churn and change, the productivity push becomes more important than ever.
That’s why our productivity agenda focuses on:
More dynamism and competition;
A more skilled and adaptable workforce;
Better harnessing data and digital;
Delivering care and services more efficiently;
And the cleaner and cheaper energy that comes with investment in the net zero transformation.
Banks will play a central role in all of this and that’s why I want to touch on those parts of our reform agenda where our interests are most tightly intertwined.
In the way that private capital is attracted and deployed, through tax changes and co-investment.
In the way that capital markets are designed and informed.
And in how we de‑risk supply chains in our region, without decoupling from them.
This reform agenda doesn’t always dominate the pages of our press, but it’s important.
It dominates our work as a Government and my work as Treasurer.
A new regime for sustainable finance, including green bonds.
An Employment White Paper to set out our approach to human capital and the labour market.
A competition review, including reform options for mergers and acquisitions released for consultation just this morning.
Competition in clearing and settlement.
Reforming our payments system and updating our approach to crypto.
Streamlining foreign investment processes.
Renewing and refocusing our economic institutions like the Reserve Bank and the Productivity Commission.
And a new South East Asia economic strategy.
Which is all about linking up the domestic reform agenda I just ran through with broader trends in the Southeast Asian region –
And making sure that the global trend towards fragmentation doesn’t overwhelm opportunities for better collaboration.
The lessons we learned from COVID about the need for domestic and local resilience in the face of more economic and geopolitical uncertainty –
Can be a reckoning, but can’t lead to decoupling.
Real resilience that will work to burnish prosperity, rather than detract from it, will come from identifying more ways to work together and more common areas of common interest, not less.
The challenges that we face are global and regional, and our response is too.
Our strategy is about locating and finding opportunities for deeper partnerships, identifying complementary strengths, and getting capital and goods flowing towards the areas of biggest impact and biggest opportunity.
We’re right at the beginning of implementing the strategy, but already, we’ve announced almost $100 million in new initiatives to increase capital flows and support trade.
We’ve got specialised teams working with Australian investors, Southeast Asian businesses and governments to identify and facilitate investment opportunities;
A business exchange to boost two-way trade and support Australian exporters to enter, compete and grow in these fast-growing markets;
And a placement program for young professionals to build enduring links between our country and the region.
These investments will leverage our existing efforts to become a renewable energy superpower –
Including up to $3 billion through the National Reconstruction Fund, which will drive supply chain expansion to meet demand from overseas markets.
All of this is important.
But we know that opportunities in our region won’t translate into more growth, jobs and improved living standards at home without big important players like HSBC.
HSBC is a force multiplier when it comes to building a bigger, better place for Australia in the Southeast Asia region.
We’re excited about your plans to use your extensive networks in Southeast Asian markets to increase the number of buyers for Australian goods;
To connect us to more opportunities in the region;
And to invest in becoming a renewable energy superpower, as part of your target of lending up to $1 trillion USD in renewable finance globally by 2030.
You haven’t prospered for more than a century and a half by ignoring the big shifts underway.
Your official history, The Lion Wakes, is a pretty amazing story of the ups and downs of the cycles of economies and societies.
It’s a story of big expansions, punctuated by big shocks.
The 2020s are a defining decade for you and for us.
I’m realistic about the choppy waters ahead but I’m confident we can navigate them together –
And maximise, not just manage, the big shifts underway.
Thanks again for having me here.