Thanks for that introduction James [O'Toole – Joint Managing Director, International CEO Forum] and for inviting me here to speak to you today.
It's great to have the opportunity to address the CEO forum again this year. Of course, the last time we met was in very different circumstances. Many of the world's developed economies were mired in deep recession and their unemployment rates were rapidly rising.
Thankfully, the outlook today is more positive than the one we faced a year ago. That's in no small part due to global policy efforts that helped arrest the savage decline in output and sustain confidence.
But what we're seeing is a fairly patchy recovery, with the world economy growing at very different speeds across different regions. And the situation in Europe, and recent volatility in global financial markets, continues to remind us that downside risks remain to the global recovery.
These recent events were very much the focus of discussions I had with my G20 colleagues when we met earlier this month. I think it's fair to say the mood amongst developed countries was one of sobering determination, with many of them still facing very difficult conditions in their own economies. They face the huge task of reducing debt at the same time they are grappling with double-digit rates of unemployment.
Fortunately, the situation for Australia couldn't be more different. We came through the global recession in far better shape than other economies – because we acted quickly and decisively. We've escaped recession and largely avoided the business failures and large-scale job losses that have occurred elsewhere. Our recovery is on track, our financial system is stable, and our public finances are strong.
I couldn't think of a better report card on Australia's recent economic performance than the job figures we received last week. Those figures really do sum up what our joint efforts through the global crisis have been all about. Australia has created more than 250,000 jobs since the global crisis began. That's a remarkable achievement when you consider that OECD economies combined have shed over 16 million jobs in the past two years.
I want to take this opportunity to thank the employers in this room for the faith you showed in your workers during the downturn. Your leadership helped prevent a difficult situation for many families from becoming much worse.
But just because we've come through the worst of the crisis, doesn't mean we're now sitting back and putting our feet up – far from it. In many ways the challenges we will face over the coming months and years will be just as difficult as the ones just passed.
So today, I want to talk about some of those challenges and what we're doing to turn our successes during the GFC into more lasting gains.
Building On Our Strengths
When I spoke at this forum last year I said one of my key priorities for the coming year was to deliver on fiscal discipline. The turbulence on global financial markets in recent weeks has only served to reinforce the importance of that strategy.
The success of that strategy means we're getting the budget back to surplus in three years, and three years ahead of schedule. And it means that among the major advanced economies, Australia will be the first back to surplus. And that our public debt levels will peak at less than one-tenth the G7 average.
The improved fiscal position is just one of the dividends of keeping our economy growing through the global recession. It places us in a strong position to ride out any turbulent weather ahead in the global economy. And it means that we can begin to tackle future challenges from a position of strength.
The Challenges Ahead
One of those challenges is how we go about building additional capacity as the economy progressively returns to more normal levels of capacity; limiting the re-emergence of the bottlenecks that held the pre‑crisis economy back. These bottlenecks are a hand brake on growth. They add to inflationary pressures and constrain export growth.
A second set of challenges comes from the resurgence in global commodity prices and demand for our mineral resources. We've already seen a doubling in iron ore prices compared with last year and substantial price increases for coal. This means that our terms of trade will very likely surpass the peaks seen in 2008, delivering a substantial boost to export earnings and incomes.
But while the return of boom conditions in the mining sector has significant benefits, it also makes it tougher for other industries like manufacturing, construction and tourism. They find it tougher to find workers and capital and the stronger dollar makes them less competitive in their own global markets.
In these conditions it's our responsibility to do what we can to broaden and strengthen our economy so that all sectors can grow sustainably.
Building A Stronger Economy
This is the central focus of our plans to get a fairer price for our mineral wealth and build a stronger economy.
We only have one shot at getting a fair price for our non-renewable resources. These are non-renewable resources that are owned by the Australian community and that can only be mined once. That's why it's really important we're having this national debate.
I think most people now accept there's a need to overhaul the old inefficient royalty regime that discourages investment and put in place a modern system to encourage investment. We have heard the message from the tax review, that how you structure your taxes matters for growth.
And we have heard the message that taxing super profits, rather than production, is a better way to charge for non-renewable resources. This will mean some mines will pay a little bit more, but as Professor Garnaut said, "overall any investment that is going to be profitable before the tax is profitable after it."
Of course, there will always be some people who oppose reforms, especially when it might mean paying a bit more for some of the Australian community's non-renewable resources. But we're focused on something bigger here, and that's delivering a stronger and more secure foundation for long-term growth.
I know that it would have been easier to just let the old broken system continue, but we believe this is the right thing to do by our economy.
Making Our Businesses More Competitive
Importantly a large part of the proceeds from the Resource Super Profits Tax will be directed to cutting the company tax rate from 30 to 28 per cent. This will support broad-based economic growth and ensure Australian companies big and small, and in every industry, can compete strongly.
Australia's 2.4 million small businesses will also benefit from a fast-tracked reduction in the company tax rate and simplified depreciation arrangements.
This reform is critical to improving our global competitiveness across all industries and cutting red tape for small business. It will promote growth across the whole of our economy, and boost investment, productivity, and real wages over time.
Investing Back Into Mining Communities
We're also reinvesting a share of the proceeds from the mining boom back into resource states through critical economic infrastructure.
We will establish a Regional Infrastructure Fund to invest $6 billion over the next decade to strengthen infrastructure and remove constraints to growth. This represents a direct reinvestment into building economic capacity so our resource sector can continue to grow sustainably over time. It will help ensure that as the next phase of our expansion takes hold, our ports won't be straining, our rail networks won't be as poor, and our roads won't be so clogged.
Boosting National Savings
In reforming our tax system we've taken a long-term perspective, putting in place far-sighted reforms to build national savings for the future. The global crisis has only reinforced the importance of capital-hungry nations like Australia having a stable pool of domestic savings.
Our super reforms – including the increase in the super guarantee to 12 per cent by 2019-20 – will provide Australians with more security for retirement. By 2035, it's estimated that our super reforms will have added another $500 billion to Australia's national superannuation savings.
We are also promoting savings outside of super, through a 50 per cent tax discount on up to $1,000 of interest income, including interest earned on deposits, bonds, debentures and annuity products.
By growing our pool of national savings we can generate more of its capital needs across the economy and provide a further contingency against global uncertainties. It's also an important and significant further step in addressing the long-term challenges of an ageing population.
Conclusion
Let me wrap up by saying we are in a great position to make the most of the opportunities ahead of us provided we get the policy settings right. This is what's at stake in the big policy debates we're having today.
Our economy has had a remarkable run over recent years. We're about to enter our 20th year of economic expansion. That's not because of good luck or good fortune. It's because governments – of both political persuasions – had the foresight and political courage to do what was right in the national interest.
Had previous governments put sectoral interests ahead of the national interest we would never have floated the dollar, or pulled down the tariff walls, or introduced compulsory superannuation.
None of those reforms were easy, but they have taught us an important lesson: that it's the biggest and hardest reforms that make the greatest difference. To paraphrase John F. Kennedy: reformist work in government is worthwhile not because it is easy, but because it is hard.
We have a big opportunity to strengthen our economic foundations, to boost super, to build new infrastructure, and make our businesses more competitive. And I believe we'd be failing the Australian people if we didn't grasp it.
Thank you.