Mark Butler (Port Adelaide, Australian Labor Party) Share this | Hansard source

It is a pleasure to rise and speak in favour of the Appropriation Bill (No. 1) 2009-2010 and cognate bills. In beginning to do so, I want to address the economic background to the bills, the canvas against which the Treasurer needed to frame this budget. I want to note particularly that this seemed completely absent from the opposition leader’s reply. There was no consideration of the gravity and the magnitude of the global recession confronting Australia and pretty much every other country around the world—with the exception, perhaps, of North Korea.

It is 75 years since we confronted anything of this magnitude. The global recession that we confront today has a depth and a breadth that none of us have ever confronted. Though it started in the American financial and housing markets, it has spread all around the world and no-one who is at all connected to the global economy is immune. It has impacted on equity markets and financial markets which around the world are still quite sclerotic. It has impacted on industrial production, on business investment, on consumer confidence and, importantly for these purposes, on government revenue, but most importantly it has impacted already and will continue to impact on jobs. Jobs is the central theme of this budget and the other responses which the Rudd Labor government has made to the global recession over the last five months.

For the first time since World War II, the world economy will shrink. In 2009 it is forecast to shrink by about 1½ per cent. Although there have been quarters since World War II where the world economy has shrunk, this will be the first full year that sees shrinkage in world GDP. For example, following of the 1974 oil shock and global economic downturn, the world economy that year still grew by two per cent. After the 1981 oil shock the global economy still grew by one per cent. This will have a very serious impact on the global economy. We will also see, for the first time since World War II, the sharpest downturn in world trade that any of us have seen, and this is particularly impacting on advanced economies. It is forecast that in 2009 the GDP of the advanced economies collectively will shrink by around 3¾ per cent, although we think our shrinkage will be limited to about half a per cent.

There are particular countries where this is impacting with very great severity, and I would point particularly to our largest export market, which is still Japan, where the economy is suffering a very severe contraction. Industrial production in the December quarter of 2008 in Japan shrank by 11 per cent. In the March quarter it shrank by 22 per cent. This is industrial production that is fuelled by Australian raw materials that have been exported to Japan for most of the postwar period and is the reason why Japan remains although not our largest trading partner our largest export market. There has been some recent recovery in Japan’s industrial production, which is pleasing, but it remains to be seen whether that has not been something of a dead cat bounce as Japanese producers seek to restore the inventories that they wound down over the last several months.

Other major trading partners of Australia are suffering similar contractions, though not as severe as Japan’s. I point particularly to the US and the UK, both of which are suffering quite significant contractions, and to other countries of the EU and to Korea. In that picture of gloom, perhaps the only slightly hopeful note is China, where GDP growth appears to have come back to about six per cent. That sounds good, but we all know that the Chinese economy needs to grow at around eight per cent if it is going to absorb the many millions of workers who are moving from the countryside to the cities. Growth of 6.1 per cent is not sufficient to keep the Chinese economy going at the pace that is needed to absorb those workers. But what we have seen very recently is industrial production turning back up. We know that, in the October to February period, Chinese exports dropped by about 25 per cent. This is of very significant concern to Australia, given that our raw material exports drive industrial production, which in turn drives Chinese exports. We have seen, though, in the last month or so industrial production starting to turn up again in China, which is pleasing.

Overall, our exports have been hit very hard. An industry very dear to my heart, and which does not attract as much public attention as some, is tourism. It is the largest service export industry in Australia and accounts for about 10 per cent of total Australian exports in services and goods. We have seen very big declines in traditional markets by way of international arrivals. In the traditional markets, we have seen a drop of 16 per cent in the 12 months to February in business arrivals, a drop of 29 per cent in convention based international arrivals and a drop of about six per cent in leisure arrivals. Those are for the 12 months to February. The figures that are out now for March and April show that those declines are continuing. We have seen continuing increases in the VFR—visiting friends and relatives—market and in the education market, which are mitigating those losses to some degree. But tourism is suffering already as a result of the global economic recession, and we expect it to suffer more as a result of the growing swine flu pandemic.

But the greatest attention is being paid to resource exports, which are obviously being hit very hard as a result of the decline in industrial production in countries that I have mentioned, such as Japan and China. Global steel production has declined very significantly over the last several months. There has been some pick-up in recent weeks in China. Again, one expects that is simply to rebuild inventories that were depleted over the last several months. It is too early to tell whether those increases in production will be sustained or whether they are short term. However, what we do know is that our major exports for steel production of iron ore and coking coal have dropped in the six months to March by about 12 per cent and 23 per cent respectively. Those are very significant declines in the country’s export earnings and, as a result, in government revenue.

Inevitably, all of this has affected the Australian economy. The GDP figures for Australia are expected to decline by about half a per cent in 2009-10. Although this is a decline, it compares favourably to the advanced economies around the world that are expected to shrink by about 3¾ per cent. Business investment is expected to be hit especially hard. We are already seeing that flow through in the economy as some of the pipeline projects that were started before the impact of the recession come to an end. We expect business investment to decline by about 18½ per cent in 2009-10.

These declines are across the board. We are already seeing declines in capital imports, which are having some good results for our current account deficit but which overall are bad. We are seeing very significant declines in non-residential construction, another very major part of business investment. Because of these impacts, the very important story for these purposes is a huge hit on government revenue—a hit which we expect to be of the order of $210 billion out to 2012-13, about $23 billion for the current financial year of 2008-09 and to grow to $50 billion for the next financial year, 2009-10. Compare this to the good fortune enjoyed by the previous Treasurer. In the last five years of his stewardship of the Australian budget, the BCA estimates—

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