HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
ADDRESS TO THE INTERNATIONAL CEO FORUM
"Investing In A Capital Hungry Economy"
TUESDAY, 14 JUNE 2011
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Thanks very much to the members of the International CEO Forum for having me here today. This is now the fourth year I have had the opportunity to address this forum. And since last time we met we have continued to see improvement in the global economy - although this has not been as swift and widespread as we might have hoped.
Europe and US continue to struggle with the lingering impacts of the GFC and persistent high unemployment, and Japan is still feeling the impacts of the devastating earthquake and its ramifications. By contrast, emerging economies, in particular in our region, continue to grow strongly. This has sped up a shift in global economic weight that was already underway and which will bring great opportunities in the century ahead, in particular for Australia.
It is this shift and the important role that investment will play in Australia's economic future that I wanted to talk about today. And I also want to highlight the reforms that the Government is undertaking to support investment and growth in our economy. Because the Gillard Government is very conscious of how important investment is for our economy.
A Capital Hungry Nation
Across a range of industries and regions, this country is bursting with opportunities - opportunities to grow and develop.
For any country wanting to lift long-term productivity, raise living standards and spread prosperity, fostering an environment that attracts high-quality investment is fundamental. Australia has always been a capital hungry economy - and we have a stronger appetite for investment compared to other advanced economies.
The IMF estimates that, on average, gross national saving across the advanced economies is around 18 per cent of national GDP. Through our world-class superannuation system, we've got a massive $1.3 trillion pool of funds that can be invested in our economy. As a result total saving in Australia in 2009-10 was around 25 per cent, well above the average of advanced economies.
The IMF also estimates that, on average, advanced economies invest about 19 per cent of GDP. In 2009-10, investment in Australia was around 28 per cent of GDP, almost 10 percentage points above the average of developed countries.
This means that despite our high levels of national saving by international standards, it is still out-stripped by our investment needs. That means our investment needs and therefore demand for capital is only going to grow.
It's incredible to think that new business investment is expected to reach 50-year highs as a proportion of GDP in the next couple of years. This is being driven by robust growth in our region, which is generating an unprecedented pipeline of mining investment.
Mining investment plans for the coming financial year will, for the first time, outstrip investment for the rest of the economy as a whole. In resources alone, investment has gone from $35 billion in 2009-10 to more than $50 billion in 2010-11. This is expected to increase even further in 2011-12, to a record $83 billion - eight times greater than what it was before mining boom mark I.
On top of this, a recent report from ABARES estimates that the pipeline of investment in resources alone has reached a remarkable $430 billion.
There's no question that this investment will bring enormous opportunities and economic benefits to our country. But for Australia, it is only the first manifestation of the changing weight in the global economy.
We're at the dawn of the Asian Century. And we're as well placed as anytime in our history to take advantage of a global economic transformation of this magnitude - as we see the shift in economic clout to the East. The speed and scale of the changes we are witnessing in Asia are unprecedented.
Twenty years ago China and India together accounted for less than one-tenth of world production. Today that share has doubled, and by the end of the decade it is expected to be over a quarter of world production. China and India will then account for more output than the United States and Japan combined. By then Asia will have become not just the world's biggest production zone, but also its biggest consumption zone.
Forget China being just the world's factory - that's about as simplistic as the notion of Australia just being China's quarry. Sustained rapid growth in Asia is delivering hundreds of millions of people into a burgeoning Asian middle class.
By 2020, we expect there will be more middle-class consumers in Asia than the rest of the world combined. Think about what middle-class consumers want: as they become more affluent, their demands for quality education, high-end products, travel and other services increases.
Asia's rise is bringing great economic opportunities closer to Australia's doorstep - and I'm not just talking about mining. Many Australian businesses are already looking to take advantage of these opportunities. In the weeks since the Budget, as I've been travelling around the country explaining the Government's reform agenda, many business leaders have spoken to me of the increasing importance of the Asian market for their businesses.
Business surveys are picking this up. An AIG/Asialink survey found three-quarters of 380 Australian businesses surveyed wanted to expand into Asia. Seventy to eighty per cent of services companies, and machinery and transport equipment companies, for example, have indicated they were involved in or interested in Asia.
High-income growth among the Asian middle class will offer Australian businesses and the Australian economy big opportunities. But we have to lay the foundations for that transition rather than oppose long-term economic forces at work. There is simply no way we can forecast the vast array of potential goods and services that the future will seek - so our best strength is to build a flexible and open economy that can seize those opportunities when they come.
We've had a head start in facing the Asian Century to date because of our natural advantages and the hard reform efforts of the '80s and '90s. But there's nothing automatic about continued, sustained prosperity. We have to manage the Australian economy in this transition, at the same time as we deal with other long-term pressures with huge implications - like the cost of inaction on climate change.
The opportunities for foreign investment in this context are huge - Australia is a dynamic economy that will see growth in all sorts of industries through the next decades. Australia has a history of welcoming foreign investment and it has proved to be a crucial influence on our development as a nation. It has created wealth, diversity, jobs and prosperity.
We now have a unique opportunity to benefit from our fortunate positioning in the engine room of the global economy, and to attract the foreign capital that our country has always relied on. That's why it's so important - now more than ever - that we remain a vibrant, trading nation that is open for business.
In a world of great change, this country offers stability and certainty, as well as opportunity.
Central to our Budget was putting in place the policies to ensure we are well placed to take advantage of the transition underway in the global economy and in our own. That is why we are returning the Budget to surplus in 2012-13, so that we don't compound the inevitable price pressures that will come from the investment boom. And it is why we are boosting productivity and participation, by improving arrangements around infrastructure, investing in a highly-skilled workforce, and reforming outdated tax laws.
The Budget invested heavily in Australia's workforce, through better and more-targeted skills and training, as well as new measures to support participation. With unemployment around 5 per cent and declining, we know how crucial it is for our economy that we get as many people into work as we can. If we've got flexible and responsive education and training systems, we can tailor them to provide the skills we need, as our economy changes.
We know there have been rigidities in the vocational education and training sector - and we identified that as a critical medium- to long-term failing in terms of labour force flexibility. That's why we announced the Building Australia's Future Workforce package. Building on the 2010-11 Budget's Skills for Sustainable Growth strategy and the 2009-10 higher education reforms, we'll invest $3 billion in new skills initiatives over six years.
We will target our skills investments to better meet the needs of industry, even as their needs evolve over time. By modernising and streamlining apprenticeships, we're giving individuals and industry more flexibility and support.
Reforming vocational education and training through a $1.75 billion National Partnership with States and Territories will more effectively deliver the skills our economy needs. And implementing our earlier reforms by removing the cap on university places from 2012 will ensure greater flexibility for universities.
We're making sure we can skill up the workers we need, as our economy moves.
We are also reforming our tax system to ensure that our industries remain competitive and we remain an attractive investment destination.
The Government announced a broad tax reform agenda last year. These tax reforms are aimed at making sure Australia manages the current mining boom effectively, and Australians get a better return from our non-renewable resources. That is why the Minerals Resource Rent Tax is a central part of the Government's tax reform agenda.
The Minerals Resource Rent Tax is a more efficient way to tax Australia's resource sector than inefficient State resource royalties. On the back of these new mining tax arrangements, we'll be able to implement an important raft of tax and super reforms. This is about making sure the benefits of the mining boom reach out to the broader community and generate long-term benefits for Australia.
We'll cut the company tax rate to 29 per cent - making Australia even more competitive in finding the international investment dollar. And we'll lift the super guarantee from 9 to 12 per cent - helping build our pool of savings even further and potentially giving us new sources of investment.
Since that initial package of reforms in May last year, the Government has announced a further 12 measures that deliver on reform directions identified by the tax review. These measures further improve the tax system by reforming poorly-targeted concessions.
For people leasing vehicles under the fringe benefit rules, we're breaking the link between kilometres travelled and the statutory rate that applies. That link had created a perverse incentive for people to drive further to attract the lower rate - further risking environmental harm.
We're replacing the Entrepreneurs Tax Offset with better, simpler and more generous depreciation arrangements for small businesses. And we are removing disincentives to participate in the workforce, by phasing out the Dependent Spouse Tax Offset for people aged under 40.
We are also making the critical investments in infrastructure - especially road, rail and port.
Since coming to office, the Government has lifted expenditure on public infrastructure as a proportion of national income by more than 30 per cent. We're making it possible for Australians and Australian businesses to do more than they have in the past - helping lift the nation's productivity to sustain future growth. The National Broadband Network is a prime example of that - cutting-edge infrastructure that offers prospects we can't even imagine today.
We're making it easier for the private sector to invest in infrastructure, through our reforms to planning and identification of priorities. Infrastructure Australia's role is being enhanced, with increased independence. And to encourage private sector players to invest, particularly in projects where you might expect to see change of ownership in stakes over time, we're changing the tax treatment of losses. For projects designated as being of national significance, accumulated tax losses will survive a change of ownership.
Finally, one of the most fundamental transitions we will undertake this century is in breaking the link between growth in our economy and growth in our carbon emissions.
We want to be the Government that helps drive investment in clean technologies, because we believe that is the path to prosperity for future advanced economies.
I believe that no first-rate, first world economy in the future will be anything other than a clean-energy economy. We're not afraid of this transition - indeed we want to make sure that it happens in the best way possible for the Australian economy. That's why we're pursuing a carbon price - because it is simply the most cost-effective way to get this job done. And it's also why we've got a range of additional measures to help drive this change.
We have a Renewable Energy Target of 20 per cent by 2020. And our Clean Energy Initiative is investing $5 billion to help use our natural resources to create a cleaner energy supply. That will create more jobs in clean industries by giving investors the confidence to back low-emission technologies, like solar, and hot rocks energy from the Earth's crust.
A large part of that initiative is our Solar Flagships program. We're providing $1.5 billion to support the construction of up to four large-scale, grid-connected solar power stations, using solar thermal and photovoltaic technologies.
We want solar to play a significant role in our national electricity supply - in a competitive market. And we're supporting the construction and demonstration of large-scale integrated carbon capture and storage projects, through our $1.75 billion CCS Flagships Program.
As you know, Australia's economy is set to benefit greatly in the years ahead from the once-in-a-lifetime transformation we are seeing to our north.
While we have some soft spots today, as some sectors struggle with a high Australian dollar, I believe the Asian Century offers us the widest range of possibilities for success and for the benefits of economic progress to be spread to all Australians.
We have a strong economy, the envy of many other developed economies around the world. And we have a commitment to the sort of reform that will only build on our strengths.
There truly is amazing potential for investment in this country - as those who have invested here already are well aware. And the Gillard Government is committed to building on these by getting the fundamentals of our economy right, so that businesses such as yours can invest and prosper.
Thanks very much.