Good afternoon ladies and gentlemen.
I would like to thank the Securities and Derivatives Industry Association (SDIA) for inviting me to speak at todays inaugural National Stockbrokers Conference.
One of my principal responsibilities as Assistant Treasurer is for superannuation, but before I talk about the strengths of Australias retirement income system, I will first take the opportunity to outline the impressive performance of the Australian economy.
Australias Excellent Economic Performance
Australia has a dynamic, competitive, open market economy and its record of strong economic performance over the last few years has not come about by accident, but rather has been the result of sound macroeconomic management, ongoing structural reform and a desire to embrace new technologies.
We have seen thirteen consecutive quarters of through-the-year growth of 4 per cent or above. An outcome unrivalled since quarterly National Accounts statistics were first collected in Australia in the late 1950s.
In year-average terms, growth in 1999-2000 was a very strong 4.4 per cent, slightly above the Budget forecast of 4 per cent. The firm trend in the June quarter means that the economy retained considerable momentum going into 2000-01.
Australias growth rate compares very favourably with the growth rates of our major trading partners and with those of other OECD countries. Indeed, the Australian economy grew faster than both the United States and the European Union in 1999.
More importantly, the strong growth in the Australian economy has been achieved in a low inflation environment.
While the Consumer Price Index increased by 3.7 per cent in the September quarter 2000 to be 6.1 per cent higher than a year ago, a little less than 3 per cent appears to be the one-off impact of The New Tax System. This was significantly lower than the 3 per cent estimated in the Budget.
Looking through the impact of The New Tax System and petrol prices, in the period ahead the CPI is expected to remain consistent with the medium-term target band of 2 3 per cent.
Let me share a few other statistics with you.
Australias national unemployment rate fell to 6.3 per cent in September 2000 and has remained stable in October 2000. The growth in employment seen over the past few years has brought the unemployment rate down to around the lowest rate in over a decade.
Our reforms in the labour market have assisted this low inflationary growth by increasing its efficiency and providing greater employment opportunities.
The ongoing trend of rising labour force participation and falling unemployment means that an increasing number of Australians are joining the ranks of the employed and sharing in the benefits that a strong economy bring.
I also note that under this Government, official interest rates are currently 125 basis points lower than when the Government assumed office in March 1996. In addition, at 8.05 per cent the current standard variable mortgage rate compares favourably with home loan rates in March 1996 (10.5 per cent), and the average under the previous government (12.75 per cent).
The Governments sound domestic economic policies have also led to an improvement in Australias external balance.
The current account deficit (CAD) in the June quarter 2000 was $7.9 billion or 4.9 per cent of GDP. This continues the decreases of the past few quarters from the $9.4 billion result recorded in the June quarter 1999.
Furthermore, the CAD is expected to decline further reflecting the impact on net export volumes and the terms of trade of the stronger world economy, along with some moderation in the rate of growth of domestic demand.
The Governments economic forecasts will be updated in the coming MYEFO, which will be released shortly.
This Government prides itself on providing more information than the previous Government, (and has enshrined fiscal reporting requirements in the Charter of Budget Honesty Act 1998). In fact, the current Government was the first to publish MYEFO, which this year, provides over 150 pages of revised economic and fiscal information, which is substantially more than the brief media releases that were provided by the previous Government.
It is also timely to remember some other significant operational changes this Government has introduced since coming to office. It has:
- made the operation of fiscal policy more transparent and accountable, pledging to achieve a balanced Budget, on average, over the course of the business cycle; and
- enhanced the transparency of monetary policy by formally recognising the responsibility of the Reserve Bank of Australia for matters of monetary policy, and by endorsing its objective of keeping underlying, or core, inflation between 2 to 3 per cent, on average, over the cycle.
These actions taken by the Government have contributed to a figure that is often forgotten when looking at Australias strong economic performance and this is Australias impressive productivity growth.
Indeed, Australias productivity performance evidenced by both measures of labour productivity and multi-factor productivity has in recent years been comparable to the so called golden era of the late 1960s and early 1970s.
Over the past decade, labour productivity growth in Australia has been around 2.9 per cent per annum and around 3.5 per cent per annum since the Government came to office.
The IMFs recently released World Economic Outlook for the period 1996-99 shows that at around 3 per cent, Australia has recorded one of the highest levels of labour productivity growth amongst the faster-growing advanced economies and has achieved higher productivity growth than the US (around 2.5 per cent).
On both labour productivity and multi-factor productivity measures, Australias performance has been more impressive than that of the United States.
A recent US Federal Reserve Bulletin article noted that Australia had experienced a strong acceleration in labour productivity growth of around 2 percentage points in 1996-98.
Apart from the United States, only Switzerland and Australia showed a rise in labour productivity growth over 1996‑98.
The Government is firmly committed to pursuing policies to sustain these high levels of growth and productivity performance.
- The Government is investing a record $4.5 billion in major programs of science and innovation in 2000-01, a real increase of 1.1 per cent on 1999-00.
- The Government has introduced a number of key initiatives to encourage innovation including:
- Allocating $160 million to R&D Start in 1999-00, up from $135 million in
1998-99. - Establishing the Innovation Investment Fund, with $130 million allocated under the first round.
- A $600 million boost over six years to medical science in the 1999-2000 Budget.
- Allocating $160 million to R&D Start in 1999-00, up from $135 million in
These policies have created a climate in which enterprise and innovation can flourish, supporting the spread of knowledge and new technology.
Australia as a New Economy
I think the excellent economic performance of Australia which I have just outlined shows how nonsensical the proposition is that Australia is an old economy.
Australia has embraced the information technology revolution in a way few other countries can match, with total information and communications technology investment rising sharply, to represent around 17 per cent of total investment and around 3 per cent of GDP in 1998-99.
- In 1999, spending on information technology and communication products and services in Australia was almost US$36 billion.
- As a percentage of GDP Australia's spending in this area was the 5th highest in the world and ahead of the US, Canada, Singapore and most European countries.
- Computer access by Australians in 1999 was 6th highest in the world and highest in the Asia region. Similarly our internet penetration rate is very high by world standards.
- By May 2000 over half (54 per cent) of the households in Australia, or 3.8 million households, had access to a computer at home.
The United States is typically cited as the newest of all economies in the new economy race, yet the United States has the worlds largest trade deficit in computer hardware. This shows that the economic gains from the new economy come not from invention and production, but rather from its exploitation. In this regard, Australia is well placed to take advantage of the new economy.
- Australia had a trade surplus of more than $100 million in computer and information services last year.
Combined with its sound policy framework, Australias ability to harness the benefits of new technology has contributed to an impressive record of productivity and economic growth.
Both the IMF and the OECD have described Australias recent policy framework as representing worlds best practice.
Australia as a Global Financial Centre
I also would like to make mention of the Governments work in developing Australia as a global financial centre.
The push for Australia to become a global financial centre has been led by my colleague, Joe Hockey, the Minister for Financial Services & Regulation.
Since the Government has made serious efforts to establish Australia as a global financial centre, a number of international financial organisations have recognised the benefits Australia offers and have chosen to base some of their operations here. These include ABN Amro, Deutsche Asset Management and Deutsche Bank Foreign Exchange, Royal Bank of Scotland and the Royal Bank of Canada, Goldman Sachs and Morgan Stanley.
Australias world-class telecommunications and information technology infrastructure, its workforce of multilingual people skilled in finance and accounting and its proximity to Asia, makes Australia an attractive location for financial sector multinationals to base their Asia-Pacific operations. Australia also has a leading position in the availability of secure e-commerce over the Internet, with its ability to support businesses' e-commerce operations.
In terms of its debt market:
- At the end of 1999 Australia had the 10th largest debt market in the world and the second largest in the Asia Pacific (excluding-Japan).
- Debt on issue in Australia at that time was close to $US260 billion. Australias non-government debt market ranked 7th largest in the world.
- Australias government securities market offers a level of liquidity that compares with the most liquid markets in the world.
In terms of managed funds:
- These have increased more than 305 per cent since 1988 representing $590.4 billion as at June 2000, which is more than 64 per cent higher than total Australian currency and bank deposits.
Australias future as a global financial centre will be supported by the fact that Australia has the highest rate of per capita share ownership in the world with 54 per cent of Australians owning shares either directly or indirectly.
Superannuation
This now brings me to another impressive track record of the Government, Australias superannuation system.
Superannuation is fast becoming an integral part of Australian society with over 90 per cent of employees covered, and with superannuation making up the largest component of a household's financial assets.
In 1990, superannuation assets represented 33 per cent of GDP. Today that figure stands at over 70 per cent, making the rate of growth in superannuation the second highest amongst OECD countries.
Since the election of this Government in March 1996, superannuation assets have grown from $250 billion to $477.4 billion. Assets have grown 16.9% over the past year and more than doubled over five years. This represents the second highest level of growth amongst OECD countries.
Superannuation assets in Australia are growing strongly not just in absolute terms but also as a share of household assets. National Balance Sheet data by the Australian Bureau of Statistics shows that over the past 10 years, household assets in the form of superannuation and life company reserves has grown from 19 per cent of net household assets to 30 per cent.
The Australian superannuation system is based on strong foundations. With almost 80 per cent of Australias funds under management coming from superannuation, the growth in superannuation plays an important role in Australias financial markets. Because of superannuation, the volume of Australias funds under management is far higher than in other countries in the region.
For example, New Zealands economy is one seventh the size of Australias, but in the absence of incentives for superannuation, its funds management industry is one eighteenth the size of Australias.
Future Growth
Looking ahead, the Retirement and Income Modeling Unit of Treasury, projects assets to reach around $700 billion by June 2005 and one trillion, that is $1000 billion, by June 2010.
The ratio of assets to GDP is projected to move from its current level of 70 per cent to reach 90 per cent by 2010 and to exceed 100 per cent of GDP by 2017.
That is, notwithstanding the increased payouts to baby boomers as they retire, high rates of growth in superannuation are projected to continue.
There are three important reasons for this continued high growth in superannuation.
First, employer contributions, which are growing faster than wages, still receive substantial tax advantages.
Second, member contributions have doubled over the past three years, reflecting a continuing voluntary injection of savings into the superannuation system by fund members, indicating that they have confidence in superannuation and that they consider the superannuation system to be both strong and secure.
Overall, sustained voluntary contributions to superannuation also reflect an appreciation of the tax incentives involved in superannuation.
The third reason the Australian superannuation system has experienced sustained growth is the high investment returns. Over the last five years, returns for superannuation funds have averaged about 9 per cent over and above inflation, in part reflecting Australias sustained period of economic growth.
As the system matures over the coming decades, ordinary Australians will be well served by markedly improved retirement incomes.
While Australias superannuation system has a solid foundation and enjoys impressive levels of growth there are still areas for improvement.
This is why the Government is committed to introducing choice of superannuation, in order to make the super system more competitive and develop a robust savings culture.
Choice
The Government has several key initiatives to promote competition in the superannuation system. One such initiative is the introduction of choice of funds.
The Government is committed to giving employees greater choice as to the fund into which their superannuation contributions are paid.
For many people, superannuation is their largest asset, or second largest after their house. Yet unlike other investments, there is no general right to choose a superannuation fund. It is unfair and unjustifiable that workers have no choice in who manages their superannuation contributions.
Choice of funds is about allowing workers to take control of their superannuation - to make their own choices and to pursue their own needs within the superannuation system.
The Government believes substantial national benefits will flow from the introduction of choice of funds. In particular, choice of funds will increase competition and efficiency in the superannuation sector, leading to improved returns on superannuation savings and placing downward pressure on fund administration fees and charges.
Choice of funds will be accompanied by enhanced disclosure requirements for superannuation and a strong education campaign.
Unfortunately, the necessary legislation for choice of funds has been delayed in the Senate. However, the Government has undertaken very detailed negotiations with the Australian Democrats on the introduction of Choice. Through these negotiations we have dealt with a wide range of issues and it is my belief that we will soon be in a position to announce a final outcome which will be credible to employers, employees and industry.
Conclusion
This is a truly remarkable period in Australias economic history. Indeed, the strong performance of the Australian economy is a testament to the Governments sound mix of macroeconomic policies and an economy made more flexible and resilient through an ongoing microeconomic reform agenda.
I have illustrated why Australia can be regarded as a new economy and is attractive as a global financial centre.
I have also spoken about the future direction of Australias superannuation industry and why the growth in superannuation is expected to continue. In the immediate future, the Government is committed to increasing choice of superannuation in an effort to augment the efficacy of the superannuation industry. Thus delivering further substantial benefits to Australians.
Superannuation, like the Australian economy, is one of Australias success stories.
I wish you all the best with the remainder of your conference. Thank you for the opportunity to speak with you today.