HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
ADDRESS TO THE PROPERTY COUNCIL OF AUSTRALIA - SOUTH AUSTRALIAN DIVISION
"Strengthening The Economy And Securing Growth"
TUESDAY, 18 MAY 2010
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Thank you for the introduction Justin [Hazell, President, PCA – SA Division] and for having me here today.
It's great to be back in Adelaide.
I was last here in January and I remember going to a Community Cabinet at Adelaide Town Hall, in the midst of preparing the IGR, being briefed on the tax review and developing the Budget. It was a busy trip.
So it's interesting for me to be back here today to talk about the culmination of all that work, in the 2010-11 Budget.
I've been travelling around the country once again, talking with business leaders and members of the public about the economy and the Budget. People haven't been shy about sharing their views with me – sometimes supportive and sometimes not – and I don't expect today to be any different.
The resource sector is important to the fortunes of this state, and it was developments in this sector that were the back-drop to this year's Budget. The renewed boom in commodity prices refocused our attention on the challenges of managing a two-speed economy.
I will speak about those challenges today because they go to the very core of the framing of this year's Budget. But first let me run you through the economic and fiscal stories before I turn to the resources tax and some broader policy issues.
None of the investments we are making in the Budget this year would be possible were it not for our success in staring down the global recession.
As you know, our economy has emerged from the GFC in better shape than any other advanced economy. Growth is recovering powerfully, unemployment is low, and the RBA Governor has said our public finances are in terrific shape.
Australia's resilience during the downturn is the result of the timely policy response, a resilient financial sector, and recovering demand for our commodity exports from some of our major trading partners. But our success throughout the global slowdown can also be attributed to the positive attitude that businesses and workers showed.
A high degree of flexibility within the workforce helped to avoid the mass lay-offs and skills destruction that are the typical legacy of recession. I think we would all agree that it's much better to have a job during the tough times, even if it means working fewer hours, than to be unemployed.
I want to thank the employers in this room for the faith you showed in your workers during the downturn. Your leadership is a big part of our success.
I know the property and construction industry has done it tough in the last 18 months. I also know that without stimulus, things would have been worse.
Non-residential building activity has borne the brunt of the crisis, falling by more than 20 per cent last year, despite the support from the stimulus projects. And activity remains subdued in this sector – with very few projects being added to the pipeline of work outside of the stimulus projects.
Those projects prevented a bad situation turning much worse. They helped put a floor under activity, driving the level of non-residential building approvals to a monthly record in the middle of last year.
Looking to the future, the Australian economy is forecast to strengthen, and at a faster pace than previously expected. GDP is expected to grow by 3¼ per cent in 2010-11 and by a further 4 per cent in 2011-12.
The outlook for the South Australian economy has also strengthened since the last state Budget. The most recent set of official forecasts has the South Australian economy growing by 2¼ per cent in 2009-10 and by 2½ per cent in 2010-11. As you are no doubt aware, the last state Budget forecast a recession for the South Australian economy in 2009-10.
The 2010-11 Budget delivers SA additional GST revenues of $1.2 billion over five years – partly a result of a robust recovery in consumer spending, boosted by the stimulus measures.
The fiscal story in the Budget is as impressive as the economic one. The centrepiece this year was spending restraint – getting back to surplus in three years, three years early and ahead of every major advanced economy.
In the lead-up to the Budget, I said this wouldn't be a pre-election vote-buying spend-a-thon. I said it would be responsible, and it was.
That's not to say that we didn't deliver significant reforms. We did.
Through the Budget, we made important investments in skills and infrastructure. We delivered on reforms to the tax system and to superannuation and to health and hospitals. We included measures to support household saving and ease cost of living pressures. And we provided additional resourcing to strengthen our borders and protect our troops on overseas operations.
All of these were important measures that I am proud of. But the thing that makes this a responsible Budget is that these reforms and investments were delivered within the strict confines of our fiscal strategy.
The fiscal strategy committed us to holding real spending growth to 2 per cent a year and allowing the level of tax receipts to increase naturally with the economic recovery.
As I said, by delivering on the fiscal strategy, we now expect the budget to return to surplus in three years' time. This is three years ahead of schedule. And it means Australia will return the budget to surplus ahead of any other major advanced economy.
The expected deficit in 2010-11 is now $16 billion lower than we forecast a year ago, and the expected peak in net debt has been halved.
We have delivered a budget position that really is the envy of the world.
We've achieved this without increasing taxes as a share of the economy beyond the 2007-08 level we inherited from our predecessors. And we have offset all our new spending over the forward estimates – and gone further, returning a modest saving to the budget.
We had previously committed to restraining real spending growth to 2 per cent in above-trend growth years until the budget returned to surplus. In this Budget we extend that commitment until the budget surplus is at least 1 per cent of GDP. This even stricter fiscal strategy will build larger surpluses and retire debt sooner, capitalising on our position of strength.
Net debt is now expected to peak lower and earlier than previously expected – at just 6.1 per cent of GDP in 2011-12. That's dramatically lower than what's expected for the other major advanced economies – and even for Australia just one year ago.
Our Budget is all about ensuring fiscal policy remains appropriate given the economic circumstances. We're tightening the reins on public spending as the economy recovers, while focusing our attention on expanding the economy's capacity.
But, as I said, beneath the overall constraint, we have taken the tough decisions necessary to find room to address some key policy challenges.
The biggest challenge we face is managing the next resources boom better than my predecessor managed the last one.
We want to turn a fairer share of the proceeds of resources that all Australians own into a stronger economy for all Australians to enjoy. We want to grow the whole economy and make our tax system stronger, simpler and fairer. Which brings me to the Resource Super Profits Tax.
Our objective here is to ensure the Australian people receive a fairer share of the profits generated from the non-renewable resources they own. And that this fairer share is invested in a way that further strengthens the broader economy – so we have more to show for the next boom than we did after the last one.
At the same time, we will make sure that the tax system supports growth in the mining industry. Our tax reforms will actually boost investment and production in the mining sector. The reforms are designed to provide better incentives for start-up projects and extend the economic life of existing mines.
The revenue from the RSPT will be invested in growing the economy – ensuring Australians benefit from the exploitation of non-renewable resources long into the future.
We will grow the whole economy by cutting the company tax rate to 29 per cent in 2013-14 and to 28 per cent in 2014-15. We will support South Australia's 230,000 small businesses by letting them write off assets worth up to $5,000 immediately. And 75,000 South Australian small companies will get a head start on the reduction in the company tax rate, at 28 per cent from 2012-13.
We will build extra capacity by using some of the RSPT revenue to create an infrastructure fund, to meet our infrastructure needs today and in the future. We will build labour market capacity by investing in the skills of our workers as part of the Government's Skills for Sustainable Growth strategy.
We will save for the future by boosting retirement incomes and national savings by gradually increasing the superannuation guarantee to 12 per cent. The increase in the super guarantee will deliver better retirement savings for nearly 8½ million working Australians, including 880,000 South Australians. Our superannuation reforms will boost national savings by around $500 billion over the next 25 years.
But we are not just encouraging more superannuation savings. We will make the tax system fairer by allowing Australians to obtain a 50 per cent tax discount for the first $1,000 of interest they earn. This will deliver benefits for around 580,000 South Australian savers.
These changes will increase Australia's pool of savings. We saw the benefits from a large pool of national savings during the global financial crisis, and we will see the benefits going forward too.
One place some of these savings will flow is to support private investment in Australia's economic infrastructure, complementing our large public investments.
Public investment in infrastructure is one area where the State and Federal Governments are as one here in SA.
One of our major aims has been rectifying some of the chronic Commonwealth under-investment in infrastructure over the previous decade. There is now a significant amount of federal and state infrastructure investment currently underway in South Australia – including major road and rail projects, new health and educational facilities and major utilities projects.
I'm told that compared with the last two years of the Howard Government, the first two years of the Rudd Government has seen a 264 per cent increase in funding for road and rail infrastructure here.
The Commonwealth will provide South Australia with over $400 million for road and rail infrastructure in 2010-11, bringing total investment to more than $2.7 billion over six years. This is a 128 per cent increase in spending on roads and rail in South Australia over the life of the current National Building Program (2008-09 to 2013-14).
Work will start on a range of major SA infrastructure projects this year: the South Road Superway in Adelaide; safety upgrades on the Dukes highway; the Gawler Rail Line Modernisation; and the O-Bahn City Access project. The Northern Expressway will be completed in 2010-11, benefiting communities across South Australia.
The Budget committed a further $2.4 billion investment over four years in nation building infrastructure.
The Australian Rail Track Corporation (ARTC) will be given almost $1 billion to implement a productivity enhancing package of rail freight works. This includes $312 million to replace 794 kilometres of rail on the east-west rail corridor, including between Broken Hill and Whyalla.
Just as it is important to move freight efficiently, efficient and dynamic communications networks are vital to a competitive economy.
The National Broadband Network represents a quantum leap in the way Australia communicates, works, and does business. It offers a substantial productivity improvement for businesses by working smarter and reducing costs through the use of broadband-based tools.
The NBN will deliver super-fast fibre broadband to 90 per cent of households and businesses and wireless and satellite broadband in other areas. The services offered by the NBN will help underpin Australia's future economic growth and international competitiveness.
So will our efforts to build a low-pollution economy.
We have already committed over $10 billion to support energy efficiency, renewable technologies and clean coal. We have added to this commitment in the Budget through a new $652 million Renewable Energy Future Fund, which will be part of an expanded $5.1 billion Clean Energy Initiative.
This fund will leverage private sector investment to support renewable energy projects, and the development and deployment of low-emissions technologies. It will be used to enhance Australia's take-up of energy efficiency, including helping households and businesses reduce their energy consumption.
I talked earlier about the Government's determination to reform the tax system, including by introducing a Resource Super Profits Tax. An important element of this tax reform is the boost that it will deliver to resource exploration, including for renewable energy.
The Government will introduce a Resource Exploration Rebate to give companies a refundable tax offset for their exploration expenditure. The rebate will also apply to exploration for geothermal energy.
As one of the states at the forefront of geothermal energy exploration in this country, South Australia can expect to be a big beneficiary of this reform.
This Budget also tackled the important issue of health reform, again within the confines of our fiscal strategy.
Improving our health and hospital system to provide the care and support Australians deserve was another really important objective. The Budget includes $2.2 billion to support the National Health and Hospitals Network, taking new investments to $7.3 billion.
For South Australia this is a $519 million investment over the next five years in your health and hospitals.
These are critical investments in our health and hospital system and the outcome of working with South Australia to deliver fundamental health reform.
So let me wrap up by saying this is a responsible Budget that still finds room for some important investments in a stronger state and national economy.
It is a Budget right for the times and right for the long-term policy challenges facing Australia.
It builds on the previous Budgets handed down by the Rudd Government by investing in the productive capacity of the economy, turning what we achieved in recent times into something more enduring.
It says to all sectors of our economy that we can grow together, not apart. That the success of one sector – managed right – can help ensure families in every corner of Australia benefit from a stronger economy.
In that respect, I hope the Budget I handed down a week ago will pay dividends for years to come.