HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
"Ministerial Statement On The Economy"
TUESDAY, 11 AUGUST 2009
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Mr Speaker, from the earliest months of this Government I have provided regular updates to the House on the unfolding global recession and its impact on our own economy.
In a March 2008 ministerial statement I warned "the deteriorating global outlook does present a significant risk to the Australian economy". In June that year I cautioned "much of the impact on the real economy is yet to be felt". And in September I described "a challenging time for the Australian economy and the global economy", adding "that if we engage and work on the challenges we face, we will come through this difficult time better placed to enjoy and secure the long term prosperity this Government is committed to delivering."
Mr Speaker, this last point is what the Rudd Government has been focused on – getting Australia through difficult times while building long term prosperity. And on the first day of this new Parliamentary session, it is appropriate that I again update honourable members, and through them the Australian people, on global economic conditions, how the Australian economy is faring, the performance of our stimulus, our prospects for recovery, and the challenges that lie ahead.
It is now more than two years since the first signs of the global financial crisis emerged, and next month will mark the anniversary of the collapse of Lehman Brothers. Back then, few were predicting the full severity of the global recession that has now unfolded. A recession that is expected to claim up to 60 million jobs globally by the end of this year.
The most striking feature of this downturn in both developed and developing nations has been the blinding speed with which it has unfolded. The financial institutions and real economies of many nations have been crushed by its brutal and uncompromising force.
The Australian story has been quite different, for three main reasons. Our communities and businesses and workers have pulled together. Among our inherent strengths are our geographic location and our more secure banking system, bolstered by very effective bank guarantees. And in tandem with monetary policy, we acted quickly and powerfully with three waves of stimulus that we now know have supported thousands of businesses, saved thousands of jobs and prevented a deeper downturn.
We knew extraordinary times called for extraordinary actions. We knew the conditions were unprecedented, and so our response had to be as well. We ignored those opposite who said do nothing, instead delivering two major stimulus packages, a Budget and a MYEFO, a guarantee of our banking system, and other important measures – all in the last ten months alone.
Mr Speaker, I am proud to say these measures have helped the Australian people withstand for now the worst the world could throw at us. But I remain conscious of the ongoing impact of a global recession that will continue to wash through our economy, altering forever the world's economy and presenting us with a new set of imposing challenges.
Today Australia finds itself countering the worst impacts of the global recession while simultaneously reaching for the fantastic opportunities presented by recovery in this Asian century.
I remind honourable Members that conditions in the global economy are still very difficult. Even after upgrading its forecasts last month, the International Monetary Fund still expects world output to contract by 1.4 per cent in 2009. This will be the first contraction of the world economy since World War II. For advanced economies, the situation is even worse, with the IMF forecasting a massive contraction of 3.8 per cent for this year alone.
Australia was one of only two advanced economies to grow in the March quarter. The average contraction across all advanced economies was 2.1 per cent. Eight of Australia's top ten trading partners have fallen into recession or contracted over the past year. And the United States and United Kingdom have continued to record falling output into the June quarter.
Despite all this, we are beginning to see some encouraging signs that the pace of contraction in the global economy is slowing. The IMF now expects world output to grow by 2.5 per cent in 2010 - an increase on its April forecast of 1.9 per cent. In our region, we saw Chinese growth of 7.9 per cent in the year to June. And the extraordinary actions of governments and central banks around the world to support their economies are beginning to have an impact.
These improvements to the global outlook are, of course, welcome. But there is still some way to go before we can say confidently that a sustainable recovery has taken hold. We agree with President Obama that encouraging signs are "little comfort if you're one of the folks who have lost their job and haven't found another."
Even after the crisis abates, it is likely that world output will grow by less than it has in the past, as economies adjust to the effects of greater risk aversion, increased capital requirements in the financial system, and lower leverage.
Mr Speaker, in the face of the worst global recession in 75 years, the Government acted early and decisively to cushion the Australian economy. We intervened to ensure stability in our financial system, to support demand in our economy, and put in place the Jobs and Training Compact.
We moved quickly in October last year to secure the savings of 15 million Australians. As Governor Stevens and others have clearly stated, the bank guarantee has been vital to maintaining the stability of the Australian financial system at a time when financial systems were collapsing in other economies.
The Government's guarantee of wholesale funding has allowed Australian banks to raise more than $110 billion. This money is ensuring banks continue to lend to businesses and households, providing vital support for jobs and growth. Without these funds, our banks would have had no choice but to ration lending to households and small businesses, including through much higher interest rates.
In the face of the most severe contraction in global economic activity since the Great Depression, the Government moved to support demand in the Australian economy through fiscal stimulus. That stimulus came in three stages – attracting praise from international and local analysts for the speed of its implementation, and the foresight of its design.
The first phase provided timely, temporary and targeted income support for pensioners, low income families, carers, veterans and primary producers. The second phase is delivering investment in shovel-ready infrastructure projects across the country from now until 2011 — upgrading schools, homes and communities as part of the $42 billion Nation Building and Jobs Plan. And this year's Budget delivered the third phase of our stimulus strategy — larger and longer-term nation building infrastructure projects – the roads, rail, ports, energy efficiency projects and broadband we'll need for the future.
70 per cent of total direct investment under the Nation-Building for Recovery strategy is investment in medium and long-term infrastructure. Construction is already underway in every community – and Australians are hard at work on more than 30,000 separate projects across the country.
We also understand many could still lose their jobs or will enter the labour market but not be able to find work as a result of the global recession. Unemployment will rise, and we have always been upfront about that.
Our responsibility is to avoid the mistakes of earlier recessions, intervening early to prevent jobs being lost in the first place, while working with those unemployed Australians to build skills for when the economy recovers. We refuse to contemplate a generation of wasted talent. That's why we are delivering a $1.5 billion Jobs and Training Compact, comprising initiatives for young and retrenched Australians, and for local communities.
Mr Speaker, I am pleased to report to the House that there is now substantial evidence the Government's measures to soothe financial markets and support the economy are working, helping to steer Australia through the most difficult period in the global economy since the Great Depression.
In the March quarter, Australia's growth of 0.4 per cent was the strongest of any advanced economy, and was one of only two advanced economies to grow in the quarter.
Without the economic stimulus, Treasury estimates our economy would have contracted by 1.1 per cent in the December quarter and a further 0.2 per cent in the March quarter. That would have resulted in an economy around 1 percent smaller today, translating into more business closures and more Australians out of work.
Recent data from the Australian Bureau of Statistics showed very strong growth in retail turnover in the June quarter. Retail sales are now 5.2 per cent higher than they were in November last year, just before the Government's first stimulus payments to households. In contrast, over the same period, retail sales have fallen by 1.6 per cent in the United States, 2.2 per cent in Canada, 2.3 per cent in the euro area, and 2.5 per cent in Japan.
The Government's First Home Owners Boost has also provided important support to activity in the housing sector. Finance commitments for the construction and purchase of new dwellings have increased by 59 per cent since October, just before the Boost was introduced. And the number of first home buyers has almost doubled.
The second phase of the Government's stimulus plan — investments in shovel‑ready infrastructure, education and social housing projects — is also providing significant support to non‑residential construction activity. The value of non‑residential building approvals almost doubled in June and the recent Access Economics Investment Monitor showed 104 new public sector projects in the June quarter, compared with just 14 new private sector projects.
This support for economic activity is also providing support to the labour market. Our unemployment rate, at 5.8 per cent, is lower than any of the major advanced economies bar one.
We expect further increases in the unemployment rate, but Treasury estimates that 210,000 more Australians would be out of work and unemployment would be 1½ percentage points higher if not for the stimulus package. As a consequence, Australia's unemployment rate is expected to peak well below the double‑digit rates forecast for many of the major advanced economies.
The success of the stimulus is also helping to support confidence. Consumer and business confidence are now back to pre-crisis levels. Consumer confidence has increased by 23.2 per cent over the past two months, the largest two‑month gain since the survey was first conducted in 1975. And business confidence has bounced back to its levels of mid 2007, before the worst of the global financial crisis had become evident.
Just this morning, we have seen a significant rebound in the latest business expectations surveys from Dun & Bradstreet and the National Australia Bank. The D&B survey showed sales and profit expectations recorded their biggest one‑quarter increase in the history of the survey, and capital investment plans are at their highest point in six years. Business confidence in the NAB survey jumped back to around historical norms.
All of these developments will have obvious implications for our economic forecasts, which we will update in the usual way at the time of the Mid Year Economic and Fiscal Outlook.
It is important to remember that the positive signs we have seen in our economy and the recent upward revisions to forecasts by the IMF and RBA are predicated on our temporary stimulus being fully implemented. That's why, to those who suggest we should wind back stimulus, I say that would be pulling the rug out from under the recovery. Not to mention an attack on the small businesses and tradespeople relying so heavily on stimulus to build recovery and employ more workers.
Mr Speaker, all Australians should be encouraged by these early signs that the economic stimulus is working, but we should be very cautious as well. The external environment remains very difficult, and the events of the past year show just how volatile the global economy can be.
Just as it has pushed almost every developed economy into recession, the global recession has savaged the budgets of governments worldwide. Increased public borrowing is the necessary consequence of falling tax revenues and the implementation of critical economic stimulus packages. In Australia, the effects of the global recession stripped $210 billion from expected tax revenues, driving the budget into deficit.
In the face of this savage hit to budget revenues, the only responsible course of action is to borrow to finance the temporary deficit. The alternative - massive spending cuts or tax increases - would have resulted in a deeper and longer downturn and much higher unemployment. And, Mr Speaker, those opposite know it, which is why they have still not uttered one word of an alternative fiscal policy.
Our budget deficit is expected to peak at 4.9 per cent of GDP in 2009‑10. In comparison, the 2009 budget deficit in the US is expected to be 13.6 per cent of GDP, in Japan 9.9 per cent, and in the UK 9.8 per cent.
Net public debt in Australia will rise to 13.8 per cent of GDP in 2013‑14 before falling in subsequent years. This leaves Australia in a much stronger fiscal position than any major advanced economy. 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. As the IMF said of its recent forecasts, this "would leave Australia in an enviable fiscal position by international standards."
Despite our position of relative strength, the recovery will be long and tough, with bumps along the way. The fall in global commodity prices is forecast to rip up to $50 billion from our economy in 2009-10 and with it tens of thousands of jobs. Private investment has retreated. In the coming months and years, there will inevitably be positive and negative data on the economy. This includes the possibility of future negative quarters of growth.
Unemployment will continue to rise for some time, even after the recovery gets underway. It is inevitable that global interest rates will rise from their current historical lows and, as the Reserve Bank has indicated, domestic rates will eventually rise as well. And the Government will have to ask Australians to accept more tough decisions to bring the Budget back to surplus.
Global economic growth will be weaker than over the past decade. The IMF forecast of global economic growth of 2.5 per cent next year is significantly lower than the global growth rate of 5.1 per cent in 2007.
Growth is being supported today by the extraordinary actions taken by governments right around the world. And as we move into 2010, I expect growth to be increasingly supported by the global rebuilding of inventories. How the world sustains growth beyond 2010 remains the key challenge.
Not only will we see weaker global growth as we emerge from the global recession, but the very structure of the global economy is changing dramatically. No longer will we be able to rely so heavily on the American consumer as the primary driver of global growth. Emerging economies, in particular in our region, will increasingly need to generate their own internal demand.
While it will bring challenges, this rebalancing of global growth toward our region could make Australia one of the biggest beneficiaries of the recovery, if we are bold enough to grab the opportunities of this Asian century.
These adjustments will need to be facilitated by sound global policies that deal with the aftermath of the global recession and ensure the world economy is placed on a more stable path. That is also why we are working through the G20 to ensure a coordinated global response to these issues.
Over the coming months, the Prime Minister and I will be working at summits in London and Pittsburgh to ensure the G20 delivers on its commitments to reform the global financial system and ensure that efforts to support growth and jobs over the year ahead are fully implemented.
Consistent with this, we will work with our G20 colleagues to map out an appropriate timeframe and process for the coordinated unwinding of the extraordinary measures taken by governments to stabilise the global economy and support recovery.
At home, we are also building a sustainable growth model for our future. This challenge begins with the recognition that the source of Australia's future growth cannot simply be the same as for our past growth. In the past, Australia has relied too much on the rollercoaster of mining and stock market boom and bust for our prosperity.
Instead, Australia needs to build more stable foundations for growth for the future, by reforming the economy to boost long-term productivity growth.
Though the path to global economic recovery will be tough, this does not mean that we must accept the inevitability of lower growth in Australia. We have a great opportunity to take stock of where we want to go as a nation and how we seize the opportunities presented by the global recovery. If one lesson is clear from the past year it is that tomorrow's prosperity will turn on the policy choices we make today.
Our task is to maintain the focus on investment in the drivers of productivity at the same time as we pay off the debt that was forced on us by the global recession's impact on revenue. That means implementing a broad and ambitious agenda that encompasses:
Mr Speaker, the way our communities, our businesses and our workers have pulled together during the worst global recession in 75 years shows this reform agenda is not beyond us. We have faced the toughest global conditions in living memory, yet still moved forward with confidence.
This is what makes the stimulus greater than the sum of its parts – the impact it has had on confidence. Almost everybody in the Australian community has had a role to play in building that confidence in each other and working together to meet these massive global challenges.
Unfortunately, Mr Speaker, that does not include those who sit opposite. Having voted against the stimulus that they know is working to support jobs, their focus is on a con job on debt and an argument that the stimulus is now actually too successful and should be wound back. For these reasons, many Australians would probably share our suspicion that the Liberal Party would prefer to see the country fail than the stimulus succeed.
In contrast, this side of the House agrees with the RBA Governor's view, that: "The fact that we have managed to get through the past nine months in reasonable shape ought to give us some quiet confidence in our capacity to meet the current set of crisis‑related issues."
Having demonstrated our capacity and resilience in the face of a global recession, I know Australians have the commitment and determination necessary to finish the job on stimulus and meet the big challenges of a new, post-crisis, global economy.
For our part, the Government is investing in productivity and long term growth, and focusing on carving out for Australia a bigger share of global wealth than we enjoyed before the crisis. Because that, in turn, means a new generation of prosperity for our people, built on sturdier and more enduring foundations than ever before.
I thank the House.