Thanks very much ladies and gentlemen for your warm welcome. And can I also thank AmCham for hosting this event.
Your work in promoting trade and investment between the United States and Australia is highly valued. You've been doing it for over five decades now and I hope you can facilitate the same business synergies between our two countries in the next fifty years as we progress through the Asian Century. Because as well as believing in shared ideals like a free market and individual endeavour, the United States and Australia hold the shared belief that no region will be more important to our future than the Asia-Pacific region.
The United States has long been Australia's primary source of foreign investment and remains so. This has been critical for the development of our mining sector, particularly here in Western Australia. And it will continue to be critical given our huge investment pipeline in resources, with WA right at its heart.
It's great to be here to talk about the opportunities that lie ahead for our country, and about the importance of continuing to get the policies right to drive growth and productivity in Australia's economy.
As I've travelled around the country this week, I've been speaking about how the Budget delivers on our fiscal strategy, while also making the big investments that will strengthen our economy. It is not a case of choosing between these two priorities.
It is not a case of choosing between fiscal and growth objectives. Just as we have focused on returning the Budget to surplus, we have also had a very clear eye to the future. Because we understand that we need to act now to make the long-term investments in our economy and our people if we are going to grasp every opportunity offered by the Asian Century.
So today I want to spend a bit of time talking about how this Budget is putting in place the big reforms to ensure we are building the foundations for long-term growth. First, though, I'd like to step you through the economic context that surrounded this Budget – because an understanding of this is intimately linked to any understanding of Australia in the Asian Century.
Economic Context
A crucial part of my preparation for the Budget is a flying visit I make to the United States in April each year. This is to represent Australia at G20 and IMF meetings, which are very important in themselves. But just as important is the opportunity that that trip presents to inform our Budget thinking about the state of the world economy, and one of its largest engine rooms – the US economy.
My conversations with international colleagues, with Wall Street and with Main Street confirm that ongoing uncertainty continues to plague the global economy. Major advanced economies remain weak and financial markets are fragile.
While the US recovery continues at a moderate pace, but it still has a long and difficult road ahead towards achieving economic sustainability. And consistent with our Budget forecasts, we had confirmation overnight that growth in Europe remains stalled. So it goes without saying that the global situation is challenging and will continue to be so for some time. But amidst these challenges our own region is much stronger and our economy walks tall.
We are on track to return to trend growth, and we're expected to outperform all major advanced economies over the next two years. In fact, our economy is now more than 7 per cent above its pre-GFC level, while many others haven't even made it back to the starting line.
Together, the resources and the resources-related sectors of the economy are expected to grow by an average of nearly 9 per cent per year over the forecast period. Unemployment is low, with nearly 800,000 jobs created since we came to office. Official interest rates are well below those achieved at any time under our predecessors. And with this Budget we are returning to surplus ahead of every single major advanced economy.
Returning the Budget to surplus, on time and as promised, will send an important message of confidence to international markets. We are projecting increasing surpluses over the forward estimates, providing a buffer in uncertain economic times. And our approach provides the Reserve Bank with ongoing scope to adjust monetary policy to respond to economic developments – as needed and consistent with the medium-term inflation target. This is particularly important as our economy enters a period of structural change.
Australia in the Asian Century
While the impacts of the GFC continue to reverberate around the world, we are also witnessing a dynamic transformation of the global economic landscape as the weight of activity moves from West to East. These transformations are displayed in many ways across Australia, but nowhere do you see them more than here in Western Australia.
Western Australia is a remarkable place from which to view the reversal of the tyranny of distance. Western Australians are champions of distance. They've had to be – as you know Perth is one of the most isolated capital cities in the world. But this is all changing – and a long-standing competitive disadvantage is about to become a massive opportunity. Let me expand on this a bit.
Just over 60 years ago, in 1950, around 15 per cent of world GDP fell within 10,000 kilometres of Australia. Today, this share has more than doubled. And, in less than 20 years from now, by 2030, with the continued expansion of China and India, close to 60 per cent of world GDP is projected to fall within 10,000 kilometres of Australia. The speed and scale of this economic shift towards Asia – and towards us – is unprecedented.
What it says is that Australia – and particularly Western Australia – is now closer to the center of global production than it has been at any time in its history. And it is only getting closer. I have been discussing for some time the rapid industrialisation of Asia that's fuelling demand for our resources – and the opportunities that this is unlocking.
As Western Australia well knows, we have an investment pipeline that is booming. The Bureau of Resources and Energy Economics estimates the total resources investment pipeline to be $455 billion – with $205 billion of this right here in WA, and $147 billion of that at an advanced stage.
But there's another part of the story that is relevant for all those sectors outside the resource sector, many of whom may not feel like they are directly benefitting from the investment boom in China or our region.
Because the historic transformation we are seeing alongside these global tectonic shifts is the rise of the Asian middle class. Across the Asia-Pacific, the middle class is expanding at an extraordinary pace, with around 110 million people added each year. By the end of this decade, China could be the world's single largest middle-class consumer market. And Asia itself could have an extra 1.2 billion middle-class consumers – more than the rest of the world combined.
I have said before that one of the greatest humanitarian and economic achievements of our age will be lifting hundreds of millions of people out of poverty and into a modern life. This achievement is not something that will happen on the other side of the world – it will happen right here on our doorstep.
And with it we will see demand accelerate for all the goods and services that a modern life involves. The new Asian middle class will seek things like high-quality food, leisure, travel, health and education. Things we have in abundance.
There are huge opportunities for Australian businesses right across the spectrum to move further up the value chain and deliver the range of complex consumer goods and sophisticated services Asia will demand. Small business is front and centre of this transformation.
Across Australia, there are firms of architects, planners and consultants who are already making their living by designing buildings in Beijing and Hong Kong. There are accountants and lawyers for whom Asia is now an important and growing part of their business. There are mining services businesses that not only work in the Pilbara or the Bowen Basin, but also in Vietnam and India. There are web-based travel businesses, headquartered in Australia with offices in Bali and Bangkok.
The possibilities of the Asian Century are simply enormous – but we can't think for a second that we have a monopoly on these opportunities. We need the right investments and the right policies now if we are to maximise the opportunities ahead.
The Budget and Boosting Productivity
The key to maximising these benefits will be increasing productivity – and the Budget I handed down last week recognises that. Productivity is the key to our success in the Asian Century – it's the backbone of long-term competitiveness and higher living standards.
We are one of the top dozen countries in the world in terms of labour productivity levels. But we all understand that our productivity growth needs to improve following a decade long-decline that will take some time to reverse.
That is why the reforms I announced last week, and those across my five budgets, will help boost productivity growth so we can achieve sustainable growth and job creation in the future. At the core of our policy agenda is a broad-based plan to boost the productive capacity and flexibility of our economy, while maintaining macroeconomic stability. This includes things like:
Record investments in skills and critical infrastructure like road, rail and ports;
Allocating almost $9 billion for science, research and innovation in 2012-13, which represents a 35 per cent increase since 2007;
Building on our tax reform agenda by increasing the tax‑free threshold to improve workforce incentives, and by introducing the instant asset write-off and loss carry-back reforms to encourage investment;
Moving to a clean energy future in the most efficient way, with new investment driven by a carbon price; and
Working with State and Territory Governments to improve competition and reduce costs for business through an ambitious regulatory reform agenda .
These reforms set us up to maximise the benefits of the Asian Century. Let me outline some specifics for you.
The Budget continues the Government's record of building up our nationally significant infrastructure. This will allow us to transport people and goods more efficiently, helping us become more productive and competitive as we pursue Asian markets.
We are providing over $36 billion over the six years to 2013-14 as part of our Nation Building program. And in WA we've nearly doubled federal infrastructure spending. We have committed $261 per person in WA per year while in Government – the Howard Government committed just $155. In the coming financial year alone, we will inject $1 billion into WA transport infrastructure – a record level of federal funding for this state.
Of course, it is critical that our trade gateways are modern, efficient and able to cope with growing demand for Australian goods. We need to avoid a repeat of the Howard years, where infrastructure bottlenecks constrained growth. That's why the Government has set aside $339 million to make important upgrades to the Oakajee Port facilities.
The Budget also invests in providing Australian workers with the skills that businesses need to draw upon if they are to move up the value chain.
One of the big reforms we put in place in the last Budget was the National Workforce Development Fund, now funded to the tune of $700 million over five years from 2011-12. This is a new approach to training – it relies on partnerships with business to ensure that we are providing workers with the skills that Australian businesses need. It puts business right at the heart of the training effort – and it has been a massive success. So far 50,000 training places have been committed, with business chipping in a dollar for every dollar committed by the Government.
But these programs have a double benefit. Not only do they provide workers with the skills that are in demand now. But just as important, workers who do this type of training find it easier to accumulate new skills down the track. This gives them the sort of versatility that is increasingly important in a dynamic and evolving economy.
But it's not just about providing more training places – everyone here would agree that we need to improve the system as a whole. That's why in April the Government agreed a $1.75 billion partnership with the States on skills reform to improve the quality of our training and improve transparency for students and employers. The Budget provides an additional $101 million investment in skills initiatives – including support for the reform agenda through new Skills Centres of Excellence to advance innovation and improve training.
This Budget also continues our wide-ranging tax reform agenda, supporting businesses to invest and improve their competitiveness.
Of course, we have now enacted the Minerals Resource Rent Tax, which is due to commence on 1 July. The MRRT will collect a better return for the use of our non-renewable mineral resources. We are investing roughly one-third of the proceeds of the MRRT in business tax reform, one-third in improving superannuation and the remaining one-third in payments to families and improved infrastructure.
Our business tax reforms also include initiatives that will help our small businesses to focus on what they do best – propelling the Australian economy into the future. From 1 July, we will provide up to 274,000 small businesses in WA with the instant asset write off which encourages them to invest in the capital needed to improve productivity and competitiveness. This reform will give Australian small businesses much more flexibility to meet changing market conditions – renewing their capital base as conditions change.
It will benefit small businesses, whether they are run through a sole trader, partnership, trust or company. This will help WA businesses like ORElogy, a young specialist mining consultancy that operates in West Perth but advises on projects ranging from the Pilbara to Namibia. Or Eco Pallets, another young company that operates over in Kewdale, supplying plastic packing pallets as far flung as Malaysia. And the Perth Wood School which provides a workshop and timber courses for up and coming wood craftspeople over in Belmont.
In this Budget, we will build on the $6,500 instant asset write-off by establishing a new loss carry-back scheme to encourage companies to invest in the capital, training and restructuring that they need to improve competitiveness. It will provide particular support for businesses in sectors like manufacturing, tourism and retail, many of which are struggling with an economy in transition.
These reforms will support the capital deepening that improves labour productivity. They will also encourage more flexible and more dynamic businesses which will be so important in the years ahead.
One example of the type of challenges that businesses will face is the global move to a low pollution economy. Most economists agree that the cheapest, most efficient way to make this change is by putting a price on carbon. That is why we've put in place a carbon price to start from 1 July this year, which will drive $100 billion worth of investment in renewable energies.
Precisely the type of thing we see in Carnegie's wave farm down the coast, which I visited just last year and which recently received an extra boost of $9.9 million from the Government under our Emerging Renewables Program.
The Government's Clean Energy Future Plan includes significant support for business to make this transition, including $8.6 billion over three years through the ongoing Jobs and Competitiveness Program and $1.2 billion through the Clean Technology Program.
In the coming weeks, the Government will be announcing the first recipients of grants under the Clean Technology Program, which will help improve the efficiency and competitiveness of Australian manufacturers by supporting investment in new clean technologies. This is occurring at a time when competitive pressures on the sector make support for new productivity improving investment especially welcome.
The final area I'd like to touch on in our productivity agenda is regulatory reform. Australian businesses will be most productive when we can reduce regulatory constraints on what and how to produce, reduce regulatory compliance costs, and encourage competition across the economy.
We are working through COAG on the ambitious Seamless National Economy program of regulation reform in 27 areas, with 16 areas of reform delivered so far. The Productivity Commission recently estimated that these reforms could provide cost reductions to business of around $4 billion a year, in the longer run.
Of course, these are only the latest steps in our productivity agenda. We'll continue to work with business to improve productivity, including collaborative efforts like the COAG Business Advisory Forum and the Business Tax Working Group to determine how we can further help businesses where we can.
Conclusion
Asia will see an evolution in just a few short decades that took the West hundreds of years to achieve. The mining boom has helped put Australia in a strong position to take advantage of this. But we now need to consolidate our gains and ensure our economy, and our living standards remain among the world's best.
We are a modern and optimistic country, on the cusp of great things. That's why this Budget doesn't only focus on returning the budget to surplus – light years ahead of the major advanced economies, sending a strong signal of our economic strength. A considerable achievement in and of itself given revenue write-downs of $150 billion.
This Budget also converts our economic successes by building further on our long-run productivity plan to help all Australians step into the Asian Century. It is a Budget that makes the investments we need to succeed in future years.
Thank you, and I look forward to your questions.