Thanks Tim for the introduction; to you and Richard and your team at Morgan Stanley in Australia; and to your colleagues here from around the world.
Can I just say how grateful I am for the opportunity to speak to such a big and well‑informed crowd on Gadigal country today.
I acknowledge elders, customs and custodians and I thank you all for being here.
It’s been one month since the Budget, and one week since the latest National Accounts release gave us a good sense of how our economy was faring in the first 3 months of this year.
Growth has been weak, quarterly inflation has been moderating but it’s still higher than we’d like, and the geopolitical situation has created an even more complex set of global influences.
These are the conditions we anticipated in the Budget, so they came as no surprise.
We saw them then and see them now as a very clear justification for our balanced approach to fighting inflation without smashing the economy.
That’s why our fiscal strategy combines relief for people doing it tough, repair of the budget, and reform of our economy.
I want to get us to questions on time, so I’m going to limit my contribution to 5 areas which illustrates these key goals and what we’ve tried to achieve in our Budget and broader plan.
First, to fight inflation in a way that doesn’t damage an already weak economy.
Second, to repair the budget to help insulate ourselves against uncertainty, pay down debt, and make room for our priorities, including our longer‑term growth agenda.
Third, balancing our near and long‑term objectives, delivering cost‑of‑living relief that puts downward pressure on inflation, as we invest in renewable energy, human capital and the industries which will power a Future Made in Australia.
Fourth, making our economy more productive, more competitive and more dynamic.
And finally, making our people beneficiaries not victims of all the churn and change happening in the global economy.
Economic conditions
I’ll start by taking stock of the economic conditions we face and how they shaped our decisions in the Budget.
As you know, the global economic environment is complex and fragile.
Moderating but lingering global inflation, higher interest rates, fragmenting supply chains and conflicts in Europe and the Middle East are creating significant uncertainty.
The US is doing well but other economies are feeling the lagged impact of monetary policy tightening.
Almost three-quarters of the OECD have recorded a negative quarter over the past year.
Global factors were playing out in last week’s Australian National Accounts for March as well.
The Treasury forecasts in the Budget anticipated weak growth in our economy primarily because of higher interest rates, moderating but high inflation and global economic uncertainty – and that’s what we saw.
Perhaps the biggest part of that story is weak consumption growth, hammered by higher interest rates.
The Budget forecast consumption to grow by only ¼ per cent this year – when it usually grows around 2 ½ per cent.
We saw this weakness play out in the National Accounts, with consumption growing below average for the last 5 quarters.
At the same time, people are saving less, with the household savings ratio falling to rates not seen in around 15 years.
The pressures on people are also clear in the shifting composition of consumption.
As you can see in the chart, not only has consumption growth slowed but it is now dominated by essential spending.
Since the end of 2022, discretionary consumption has gone backwards, meaning any remaining consumption has been driven by essentials.
That’s why the primary focus of the Budget was to tackle inflation and provide meaningful but responsible cost‑of‑living relief in the form of tax cuts, energy bill relief, cheaper medicines and help with rent and student debt.
And build on our strengths, namely moderating inflation, real wages growth, historically low unemployment, record high participation and stronger public finances.
As you can see in the chart, inflation has moderated substantially off its 2022 peaks and Treasury now forecasts it will return to the RBA’s target band sooner, perhaps by the end of the year.
Obviously, the outlook is uncertain and the Budget is not the only influence, but fiscal policy can assist in the fight against inflation.
We are already helping, but it’s important to understand the impact of the May Budget won’t show up in key economic data until the second half of the year.
Our cost‑of‑living relief across 2 budgets is expected to reduce inflation by ¾ of a percentage point this year and by ½ of a percentage point next year.
We’ll learn more about our labour market in tomorrow’s data but the 820,000 jobs created since we were elected is already a record for a first term government, and we have seen stronger jobs growth than any major advanced economy.
Wages are growing at rates not seen for 15 years, real wages are now growing again, and the combination of a resilient labour market, wage growth and tax cuts will support real income growth in the coming year.
This should help underpin consumption and a broader recovery.
This is what a soft landing on a narrow runway looks like:
An economy still growing, inflation coming back to band, unemployment with a 4 in front of it, tax cuts and rising wages supporting a gradual recovery in consumption, and a sensible approach to budget repair to buffer us against uncertainty.
This is the soft landing we are cautiously confident of, but not complacent about.
Just as a soft landing in the global economy is assumed, but not yet assured.
We only need to look abroad to see how difficult this is to achieve.
The task of taming inflation has halted growth in Europe, raised unemployment in Canada to its highest level in 2 years, and progress on inflation has slowed in the US – but we’ll get an update on that tonight.
Budget repair
Achieving a soft landing in this complicated environment is a focus of our Budget, and it shaped our fiscal strategy.
Our responsible economic management is carefully calibrated for the combination of challenges that we confront.
With growth in the March quarter at only 0.1 per cent, and 1.1 per cent through the year, it is clear how misguided the hawkish pre‑Budget commentary was.
In this environment it would be irresponsible to slash and burn and cut too much.
Our more balanced approach is tackling inflation without crunching the economy.
Our approach has seen a substantial improvement in the budget position.
We are delivering a history‑making consolidation – and not at the expense of the economy.
We have turned 2 big deficits into 2 substantial surpluses.
You can see this in the chart.
And the RBA Governor last week confirmed this is helping in the inflation fight.
The budget is already cumulatively $215 billion better than we inherited.
We’ve found $77.4 billion in savings and re‑prioritisations and debt to GDP is expected to peak almost 10 percentage points below what was forecast when we came to office.
This means less debt and lower interest payments.
Our fiscal turnaround is already the biggest and fastest in the G20, and our fiscal balance is the second‑best as a share of GDP.
The budget improvement we delivered in our first year of office is a record for any first term Australian Government.
Our 2.3 percentage point turnaround was more than double the Howard government’s 1 percentage point, and better than the first year of any government of either political persuasion.
Delivering a substantial consolidation at the same time as we support people doing it tough and make key investments in the foundations of future growth.
Balancing near and long term objectives
This is how we balance our near and longer term objectives.
In the near term that means fighting inflation and delivering cost‑of‑living relief, but also investing in housing and infrastructure and managing migration.
We’re seeking to build 1.2 million new homes by 2029.
We’ve backed this in with $6 billion in new investment in the Budget, taking it to $32 billion in new money under this government, to build more homes, slash red tape and train more construction workers.
We are delivering our $120 billion infrastructure pipeline in a measured and coordinated way that gets us value for money and doesn’t add to inflation.
And we’re managing the migration system in an orderly, responsible, methodical way, getting it back down to normal levels.
Longer term, we have an ambitious investment agenda to get more capital flowing into our economy.
The world is changing, and the speed of that change is accelerating as we move towards net zero by 2050.
As the PM said on Friday, this transition will demand the biggest transformation in the global economy since the industrial revolution.
Our Future Made in Australia agenda will help make us an indispensable part of the global economy, by attracting not replacing private investment in key industries and making our country a renewable energy superpower.
To realise this ambition, we need much more private capital, flowing much more efficiently in our economy.
That’s why we’re creating a front door for investors to accelerate and coordinate transformational projects and establishing a domestic National Interest Account, that adds discipline to investments in the national interest.
The global energy transformation represents a golden opportunity.
Australia needs an additional $225 billion of investment by 2050 to transition the energy system and realise net zero opportunities in heavy industries.
That’s why we’re investing $13.7 billion in production tax incentives for green hydrogen and processed critical minerals and $1.7 billion for an Innovation Fund, to develop new industries like green metals and low carbon fuels.
The financial services industry will play a central role in all of this, especially in the way that private capital is attracted and deployed.
A more competitive and productive economy
To best utilise this investment we need to make our economy more productive, dynamic and competitive.
As we leverage the structural changes in the global economy and recognise the growing importance of services and the care economy.
This is a significant part of a broader reform agenda that aligns the interests of the government with all of you here, but which gets insufficient attention.
In the last few months we’ve made some significant announcements when it comes to competition policy.
We’re making the biggest reforms to our merger regime in 50 years to create a faster, stronger, simpler, more targeted and more transparent system.
From 1 July 2024, we will abolish almost 500 nuisance tariffs, streamlining $8.5 billion in annual trade.
We’re strengthening and streamlining the foreign investment framework.
Last year our government and all states and territories agreed to revitalise National Competition Policy – with Treasurers to agree new competition principles by the end of the year.
We’re boosting competition in the financial system by modernising payments and supporting more participants to offer clearing and settlement services.
And through our financial sector regulatory initiatives grid to make it simpler for smaller banks to comply and compete.
Our competition policies are just one part of our broader productivity agenda we outlined last year and significantly advanced in the Budget.
Our productivity agenda has 5 key pillars.
One, creating a more dynamic and resilient economy, through a Future Made in Australia, our competition reforms and our regulatory reform agenda.
Two, building a skilled and adaptable workforce through investments in skills and the University Accord reforms, and tax reforms that will boost labour supply by almost one million hours per week.
Three, harnessing data and the digital economy, by investing in the world’s first commercial grade quantum computer, our AI strategy and expanding the Digital ID.
Four, investing in cheaper and cleaner energy and the net zero transformation through our Future Made in Australia plan, funding the capacity investment scheme and reforms to investment vehicles like the Net Zero Economy Authority.
And five, as our population ages and the care economy expands, delivering quality care more efficiently.
By reforming the NDIS to ensure its sustainability, reforming aged care and investing in home care, so Australians can choose the care that best suits them.
Together, this agenda constitutes more significant reform in 2 years, than our predecessors managed in the decade before.
Beneficiaries of change
So in all of these areas:
A budget that fights inflation, while investing in future growth and strengthening our fiscal buffers.
A growing economy with moderating inflation and solid job creation.
And a reform and investment agenda that not only attracts capital but better deploys it in a more productive, more competitive and more dynamic economy.
You can see our plan to successfully navigate the economic upheaval and the uncertainty we face.
So that our people, our businesses and investors become the primary beneficiaries of a changing and churning global economy.
In a way that makes us confident but not complacent of a soft landing on a narrow runway.
Thank you, I look forward to your questions.