HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
ADDRESS TO THE NATIONAL COUNCIL FOR APPLIED ECONOMIC RESEARCH
"Australia And India - A Partnership For The Future"
MONDAY, 7 SEPTEMBER 2009
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Thank you for your warm welcome. It's a terrific honour to be the guest today of the National Council for Applied Economic Research – an institution of global reach and importance, one well known to many of Australia's leading economists.
Having nurtured economists like Amartya Sen, India has much to teach the world in an era that will be dominated by issues of development, human capability building, gender equality and climate change. And like so many, I've come to learn from you and, hopefully, to provide you with some insights into my own country's recent economic successes.
The increased economic links between our two countries means that today travel to India by Australian Treasurers and economic ministers is more than just a great pleasure, it's an absolute necessity.
Our two nations are now forging a major strategic partnership to promote peace, prosperity, energy security and environmental sustainability in our region. And as our region rises to economic leadership in the years ahead, it's a partnership of real significance to the wider world.
I'm delighted to make my first visit to India as Australian Treasurer. Mine is the first visit by an Australian Treasurer in seven years. This is too long a gap, and I hope to be a far more regular visitor in the future. Just last week our Deputy Prime Minister and our Trade Minister were both in New Delhi, and I know the Prime Minister is keen to get here this year.
Right up front I would just like to reiterate the comments of our Deputy Prime Minister in reassuring Indian officials and students that the Australian Government is committed to ensuring Australia is a safe and welcoming environment of Indian nationals studying abroad. Australia looks forward to ongoing positive relationships between the young Indians and Australians who are studying together.
My colleagues before me would also have outlined the depth and breadth of the India‑Australia relationship – which is built on shared values of democracy and the rule of law, our burgeoning trade relationship and our extensive people to people links.
India is also our largest source of general skilled migrants and almost 100,000 Indian students enrolled to study in Australia last year. Indeed, Australia has a well-established Indian-Australian community, which is an important part of the rich and diverse tapestry of Australian life. And India is Australia's fifth largest export destination, with trade concentrated in commodities such as coal, gold and services such as education.
Ours is a relationship that is growing in importance and dynamism by the day – as we confront together the difficult global economic situation and continue to reform our economies for the future benefit of our people.
I want to say a few words today about these important themes, and bring you up-to-date with the Australian story during this global recession.
India's rise and resilience command the attention of the world, especially in Australia. India remains the second fastest growing economy in the G20 – something obvious from even a short stay in this great city of New Delhi, a city humming with construction, including the building of the New Delhi Metro. And just last week we saw that India's GDP grew by 6.1 per cent in the year to the June quarter. This is a remarkable performance in the face of the worst global recession in 75 years.
While Australia clearly felt the effects of the global recession, we have also done well in the face of it. While most other advanced economies have experienced deep contractions in output and employment over the past year, the Australian economy has continued to grow. Our GDP figures released last week show that Australia has the strongest growth of any of the world's 33 advanced economies. And Australia is the only advanced economy to have recorded positive growth over the past year.
Our survival amidst this global meltdown has a lot to do with the quick and decisive actions of the Government. We have acted without hesitation or reservation to cushion the blow of the worst effects of the global financial crisis on our economy. Like other countries, we have taken a range of measures to support the functioning and stability of our financial system – including guaranteeing the deposits and wholesale funding of Australia's banks.
Our Reserve Bank has also cut the cash rate at an unprecedented speed and to a lower level than in almost 50 years.
We also acted quickly and powerfully with three waves of fiscal stimulus to raise aggregate demand and support jobs. These stimulus measures have worked, boosting aggregate demand and employment, keeping us out of technical recession. Bodies like the OECD have praised Australia's actions as amounting to one of the most effective recovery plans. Without the Government's economic stimulus, GDP would have fallen by 0.3 per cent in the June quarter, and the Australian economy would have contracted by 1.3 per cent over the past year. Instead, it went forward.
Importantly, this stimulus is being pursued without running up excessive debt and without moving outside of our medium-term fiscal framework. Australia's net debt is expected to peak as a share of GDP at 13.8 per cent in 2013-14, before falling in subsequent years. In contrast, by 2014, net government debt is expected to rise to 75 per cent of GDP in the Euro area, 83 per cent in both the UK and the US, and 136 per cent in Japan.
Two and a half decades of economic reform have served our economy well.
Our financial market liberalisation, combined with intelligent regulation, has given us one of the strongest financial systems in the world. In fact, of the world's 100 largest banks, four of the nine highest-rated are Australian.
Our floating exchange rate and the relaxation of capital controls has enabled our dollar to act as a shock absorber, taking steam out of the economy when global growth is strong and supporting exports when global growth is weak.
Competitiveness in our industries has been increased by cutting tariffs on all products since the late‑1980s. Thus Australia's industries are strong, flexible and competitive enough to weather any storm. From next year, around 96 per cent of Australia's tariffs will be under 5 per cent. And this trade liberalisation remains a key priority for Australia – even during the global recession – as it is also for the developing world. So we remain strongly committed to, and hopeful of, a successful conclusion of the WTO Doha round.
In this regard I would like to acknowledge India's hosting of a Trade Ministers' meeting last week to further progress the Doha Round. This was the most representative gathering of Trade Ministers since the Doha talks collapsed in July last year. It is very encouraging that so soon after its recent election India has quickly re-engaged in the Round. India's hosting of these talks was a vital signal to the world community of the importance of international trade as we emerge from this global recession.
In tandem with trade liberalisation, Australia's product and labour market reforms have made us more flexible and competitive, while maintaining appropriate protections for the most vulnerable. And these processes are being given a new lease of life through reforms to make it easier for businesses and workers to operate across state borders; improve the efficiency of markets in transport, energy and water; and modernise the funding and delivery of health, education, housing and other crucial services.
Taken together, all these changes have helped protect Australia against economic crisis and delivered large rises in living standards for our people.
The success of our reforms is also reflected in the strength of our corporate sector. Our resource companies are world leaders too – BHP Billiton is the world's largest diversified resources company and Rio Tinto is one of the world's leading mining and exploration companies. In fact just last month, India's Petronet LNG signed a 20-year agreement with Exxon Mobil Australia, securing the supply of 1.5 million tonnes of LNG per annum from Australia's Gorgon field.
While most recent attention in Australia is on our rapidly growing exports to China, we have been supplying Japan and Korea for decades and we have an unparalleled record of reliability in doing so.
And Australia looks forward to enhancing its already significant trade relationship with India. As hopefully one of our biggest future customers and suppliers, India's prosperity will also contribute to our prosperity.
Australia and India should work together drawing strength from strength. In fact within my portfolio this process has already begun with the Australian Treasury developing a growing partnership with the Indian Ministry of Finance, one which we hope will endure and expand. Senior officials from both Ministries have now twice met for annual talks on economic policy, here in New Delhi last year and again in Canberra this April. Earlier this year, senior Indian officials also visited Australia at Treasury's invitation to discuss and share experiences of financial sector reform – it's a process we hope will continue well into the future.
The growing bilateral relationship of economic cooperation between India and Australia shines a light on the Asian Century we are entering. As you know, emerging economies in our region – led by China and India – will be the key drivers of world growth over the century to come. In 2010, almost 90 per cent of world growth is expected to come from emerging economies. And by 2014, with the recovery well and truly in train, the IMF projects developing Asia on its own will contribute to half of world GDP growth. India will be a key part of this – contributing around 10 per cent of world growth in each year to 2014.
A greater reliance on domestically sourced growth from emerging economies will be critical if the world is to achieve growth rates anywhere near pre-crisis levels. No longer will the world be able to rely so heavily on the American consumer as the primary driver of global demand. US households have already begun to save more and consume less, as they rebuild their balance sheets. This gap in global demand will need to be filled by other demand generated elsewhere in the global economy, most likely in the Asian region.
Just as the US and other advanced economies will need to undertake structural reforms to maximise their growth potential in the post-crisis world, so will developing economies, to foster more balance and more domestically generated growth. This will require progressive capital account liberalisation and reforms to address factors that have contributed to very high levels of precautionary savings – such as medium-term investment in health, education and rural infrastructure and a credible social safety net.
India's economic performance through the global recession already points to Asia's growing ability to generate its own growth. And this will only get stronger. The UN estimates your urban population will be nearly three times as big by 2050 as it was in 2005 and The Brookings Institute estimates that by 2025 your middle class will be 10 times larger than it is today. For these and other reasons, this century will belong to Asia.
This presents both of our countries with amazing opportunities to grow and to work together, but also to play a far greater role on the international stage.
Our two nations have much to contribute to the world's economic decision-making forums. Along with Finance Minister Mukherjee – who I will have the pleasure of meeting with again straight after lunch – I have come to you direct from the G20 Finance Ministers' Meeting in London, where good progress is being made across the entire London agenda.
Australia, as you know, is a strong believer in the G20. It's a forum where emerging economic giants like India and innovative middle powers like Australia can be at the centre of world economic decision-making for the benefit of ourselves and our region.
To be considered legitimate – and to have maximum positive effect – our economic decision-making forums must become more democratic. Together we can overcome crises, raise growth and tackle climate change whilst lifting people out of poverty. But it must be together. Over the last year, the world has shown what it can achieve when it works together in this way – and part of the reason for this success has been the increased role played by the G20.
The G20 incorporates two-thirds of the global population, 85 per cent of the world's GDP, and encompasses the world's major faith traditions and all the inhabited continents. Yet it is small enough to remain effective and to act decisively. And all of its members have equal status.
When the worst financial and economic crisis since the Great Depression hit the world, it was the G20 that emerged with the vision and courage to take decisive action. I believe, like past meetings such as Bretton Woods, it will be seen as a decisive moment in modern world economic history.
The world learnt its lessons from the Great Depression and, so far, has not repeated the mistakes of that era. The unprecedented agreements made by the G20 at this meeting to coordinate stimulus measures and to boost the resources of the IMF played a key role in stabilising financial markets and restoring confidence. These are preconditions for returning to economic growth and creating jobs. And we have since begun to see a tentative recovery that was unimaginable at the beginning of this year.
However, we are acutely aware that we are not out of danger yet. That is why at our weekend meeting in London we committed to implement forcefully our financial support measures and expansionary monetary and fiscal policies until recovery is secured. We agreed on the need for a process for coordinating exit strategies for extraordinary policy measures once recovery is secured, and as the share of consumption falls in many advanced economies, an orderly and globally-shared adjustment in demand.
We agreed that to achieve high, stable and sustainable growth we will need to remove domestic barriers, promote efficient functioning of global markets and facilitate the transition to a low-carbon, climate resilient economy. We have made significant progress in strengthening the relevance, legitimacy and effectiveness of the IMF and the development banks, though more needs to be done. And we have made substantial progress since London in implementing our action plan to overhaul the financial system and deliver a robust framework for global regulation and oversight that will help to prevent the build-up of excessive risk and future crises as well as protecting consumers.
These are critical steps toward the G20 Leaders' Meeting in Pittsburgh later this month. But the G20 has much further to go, because we are far from through this global recession and we have only just begun to tackle its long-term consequences. We also want the G20 to continue to lead world economic decision-making into the future, starting with a G20 Summit in Asia.
Other bodies also have a big role to play, including the East Asia Summit, APEC and of course the United Nations. And in that vein let me add that in consideration of India's emerging status as a major political and economic power, Australia strongly believes that India should become a permanent member of the UN Security Council.
India and Australia should be proud of our achievements in weathering this global recession. Our financial systems remain strong and our economies have continued to expand. But much remains to be done. And fortunately we are not alone in our ongoing efforts.
India and Australia are two countries who have a lot to learn from each other – and the opportunity to work together – to our mutual benefit. Be it through shared experience of overcoming economic challenges or collective action, particularly within major international forums. We should grab these opportunities with both hands.
I am confident that our bilateral relationship of economic cooperation will only grow. The G20 has demonstrated that it has a big role to play, but we can do much together also. That's why I am so delighted to be able to join you today, and I look forward to taking your questions.