Wayne Swan (Lilley, Australian Labor Party, Treasurer) Share this | Link to this | Hansard source

by leave—It was less than three years ago that the world was witnessing an unprecedented meltdown in the global financial system. Not long after, the global economy plunged into the depths of recession—the worst the world had endured in 75 years. Throughout this period, I have from time to time provided an update on events to the parliament. In light of events in Europe in the past week and broader challenges facing parts of the global economy, it is appropriate that I do this again before members rise for the winter break.

Recovering from such a widespread and severe financial crisis was always going to be hard. It was never going to be speedy; it was never going to be seamless. The IMF made this point back in April 2009, in its World economic outlook, when it said:

So it should come as no surprise that many economies are still coming to terms with the considerable legacies of the crisis. It is important to remember that Australia is in a far stronger position than most advanced economies. This is because we heeded these very warnings from the International Monetary Fund and the broader international community that it would be harder for economies to recover from a recession that was induced by a financial crisis. It is exactly why we acted to avert a recession at home.

It is because of the action that we took at the heart of global financial crisis, and the hard work of the Australian people, that we now have a strong outlook, strong job creation and a strong fiscal position. And despite the fact that we have been hit hard by natural disasters, we continue to have one of the most enviable economic scorecards of the developed world. We are not immune from global uncertainty—and this is clearly reflected in some of the patchy economic conditions we are experiencing at home. But it does not change the fact that we face a dramatically different set of challenges to many of our peers. As I have said before, our challenges are far better challenges to have.

International uncertainty

For some time now, I have characterised the global recovery as uneven and subject to risk. In recent weeks these risks have become more pronounced and the global recovery has weakened. We have seen a hit to the Japanese economy from the earth­quake, tsunami and nuclear disaster as well as disruption to international supply chains. In the United States, a depressed labour market, unprecedented weakness in the housing market and high oil prices are still holding back recovery.

Most significantly, we have seen debt problems confronting a number of European economies—especially Greece. The uncert­ainty surrounding the situation in Europe has weighed on markets and generated signific­ant volatility in these past few weeks. The Greek parliament approved last week a further package of austerity measures which will allow for the provision of the next tranche of its existing EU and IMF assistance package.

I welcome Greek and European efforts to avert what would have been an immediate default. But we should not underestimate the challenges ahead for Greece and Europe more generally. It must deal with a huge debt overhang, and a projected fiscal consolid­ation of around 12 per cent of GDP over the next five years. This comes on top of the unprecedented consolidation already imp­lemented, worth eight per cent of GDP.

Greece, Portugal and Ireland are by themselves relatively small parts of the global economy, so the direct impact of their issues is limited. However, given their status as euro area members, the potential for contagion is significant, particularly in the event of a disorderly default. With banks in Europe and the US holding significant amounts of European government debt, such contagion could generate renewed financial market turmoil globally.

These challenges were underlined just last night when Moody’s cut Portugal’s credit rating by four notches to below investment grade. Moody’s pointed to a growing risk that Portugal would also need further financial support and that it may be unable to meet its deficit reduction targets.

The role of European authorities and EU member states in confronting the challenges facing Greece, Portugal and Ireland is crucial, and it is essential that they take decisive action. These issues also go to the heart of the work I am doing with my G20 colleagues to bring about strong, sustainable and balanced global growth.

Even beyond these immediate challenges, Europe’s high government debt, persistently high unemployment and structural rigidities, suggest it is unlikely to contribute substant­ially to global growth for some considerable time.

It is not just Europe that faces continued sluggish growth and challenges in addressing fiscal sustainability. The United States and Japan are faced with balancing the need to avoid undermining their economic recoveries in the short term, while setting in place credible medium-term plans to address high and rising public debt. As the IMF warned last week, the failure by the United States to move quickly to increase its borrowing authority could result in a severe shock to global financial markets.

Asian c entury

Despite the fragile global outlook, we can take confidence in the fact that the outlook for our own region remains bright.

If the events in Europe did trigger a more serious disruption in global financial markets or significantly stalled the global recovery, this would have implications for us and our neighbours. But from where we sit now, we are well placed to benefit from strong conditions on our doorstep, which are expected to continue for some time.

Unlike many advanced economies in the West, emerging Asia recovered relatively quickly from the GFC, and is now growing strongly. This strong growth in Asia is helping to accelerate the transformation that was already underway in the global economy before the crisis hit.

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 this decade it is expected to be over a quarter of world production.

We can see the first manifestation of the Asian century on Australia in the mining boom. But there will be just as pronounced an impact on the rest of our economy in future as the growth in Asia’s middle class drives demand for the rest of our goods and services.

This means that enormous opportunities are unfolding on our doorstep. It also means that we need to ensure the Australian econ­omy has the productive capacity and the right long-term settings in place to allow us to grab this opportunity and not let go.

The opportunities of the Asian century are not just on offer to us because of our positioning in the global economy. The fact is, we are only in a position to capitalise on these opportunities because of our strong economic foundations.

If we had not weathered the global financial crisis as we did, if we had instead followed the rest of the world into recession, then we would be in a very different position today. While many of our peers are still struggling to make up for lost ground, Australia’s GDP is now significantly ahead of what it was at the start of the crisis.

This has meant we have avoided the high rates of unemployment that now plague many advanced economies. While our unemployment rate stands at just 4.9 per cent, economies like the US and euro area are grappling with unemployment rates in excess of nine per cent.

We have also emerged from the global recession with lower government debt and lower deficits than any of the major advanced economies. Net government debt is expected to peak at 7.2 per cent of GDP in 2011-12 and decline thereafter. Even at its peak, Australia’s net debt will be less than one tenth of the average of the major advanced economies.

But despite our impressive scorecard, we know that the GFC is still having a lingering impact on some parts of the economy, as is the continued uncertainty in the global economy. Consumers are still more cautious than they have been in the period before the crisis—spending less and saving a bit more. This is not surprising given the subdued recovery in household wealth since the global financial crisis and the uncertainty surrounding the global outlook. Credit conditions also remain tight.

On top of this, we have taken a huge hit from last summer’s natural disasters, and although we have made significant progress in recovery, there is still a long way to go.

The higher dollar—a sign of our relative economic strength—is also a burden for many of our industries, such as manuf­acturing and tourism.

But despite these soft spots, we need to remember that our fundamentals are strong, and we are well positioned to benefit from robust growth in the most dynamic corner of the global economy. And the historic shift in the global gravity from East to West is taking our terms of trade to record heights, and is driving an unprecedented pipeline of business investment—with ABARES estim­ating a pipeline of $430 billion in resources alone.

So Australia is located in the right part of the world at the right time—the prospects for our region remain much stronger as the weight of global activity continues to shift in our favour.

Australian banks have also strengthened their regulatory capital and maintained sound provisioning levels. Local banks now depend less on wholesale funding from abroad than during the global financial crisis because they are attracting more local deposits. Their foreign currency denominated funding rem­ains fully hedged into Australian dollars.

All of these factors mean that Australian banks are in a good position to meet future challenges. But it is important that we build on our existing regulatory framework to ensure that we maintain a world-class, efficient and safe financial sector.

The government is committed to implem­enting the Basel III reforms to ensure banks have sufficient liquidity to withstand stress in global funding markets and appropriate capital levels as a buffer against unexpected losses. The government is also taking action through its competitive and sustainable banking system reforms to help consumers get a better deal, while also securing the long-term safety and sustainability of our financial system. This government is clearly focused on the challenges facing the global economy and what this means for us.

That is why we are investing in our economic capacity to make sure it can withstand any future shocks and maximise the opportunities that will flow to us in the Asian century. This means serious economic reforms like putting in place a price on carbon to drive investment in the clean-energy technologies of the future. It means continuing our record of serious tax reform, where we are introducing a broad range of reforms, like the minerals resource rent tax and a cut to the company tax rate.

It also means announcing in the budget a record skills and training package that converts the prosperity of the mining boom into more and better jobs—for both the min­ing and non-mining sectors of our economy. And it does mean increasing our skilled migration program to ensure it is supplem­enting our labour needs of the future.

Despite the challenges facing the global economy, the government’s reform agenda and our solid foundations will ensure the Australian economy remains the envy of the developed world. I ask leave of the House to move a motion to enable the member for North Sydney to speak for 13 minutes.

Leave granted.

I move:

That so much of the standing and sessional orders be suspended as would prevent Mr Hockey speaking in reply to my statement for a period not exceeding 13 minutes.

Question agreed to.

Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Link to this | Hansard source

It is curious that the Treasurer feels the need to make a ministerial statement on the economy just four days before the release of the details on the carbon tax—and yet, from what I heard, the carbon tax rates only one mention in the ministerial statement. Surely, of all the issues that the Treasurer could discuss, the detail on the carbon tax would be of the most immediate interest to the House and the Australian people. What the Treas­urer has done is to outline some of the risks as to the international outlook. In particular, he has noted concerns over sovereign debt in Europe and the challenge of addressing fiscal sustainability in Europe, Japan and the USA. The coalition shares these concerns.

But I am somewhat perplexed that the Treasurer does not draw out the lessons of the international experience for Australia. The Treasurer does not seem to realise that it is the continued uncertainty and risks in the international environment which make it critically important that Australia gets its fiscal house in order. The Treasurer does not seem to realise that federal government debt itself represents a risk, and that the debt should be paid down as soon as possible, not at some uncertain date at the decade's end. The Treasurer does not seem to realise that maintaining a stable and certain policy envir­onment for investors is critically important to preserving confidence and investment, part­icularly at a time when sovereign risk is high in the list of concerns for the international community about Australia.

The Treasurer makes brief mention of economic conditions in Australia, noting some patchiness and also that consumers remain cautious. Well, I think he is tiptoeing around the true state of our economy. This country should be going at full speed ahead, with the terms of trade at 140-year highs delivering an unprecedented boost to nat­ional income. But we now find that consumers and businesses are increasingly uncertain and lack confidence. Recent economic indicators show that the Australian economy is going throng a soft patch. Let me run through the evidence. Consumer confidence was down 2.6 per cent in June, to the lowest level since June 2009. Retail spending was down 0.6 per cent in May. In trend terms, Australian turnover for retail in May was only 2.4 per cent higher than in May 2010, which is a very weak increase in the space of a year. Investment in dwellings is collapsing. Dwelling construction approv­als were down 7.9 per cent in May and in trend terms have fallen for seven consecutive months. House prices are down, with industry data showing capital city values falling in the five months to May. Demand for credit is weak, with household borrowing for housing rising at the slowest pace in a generation. And this household caution has led to consumers cocooning, with the house­hold savings ratio rising to 11.5 per cent in the March quarter to around the highs of the financial crisis a few years ago. So it is no surprise this is reflecting in a softening in business conditions, with the ACCI reporting business conditions in the June quarter down to levels not seen since its survey began in 1998, 13 years ago.

The Treasurer should be focusing on these statistics and he should be looking for causes and coming up with solutions. Perhaps he wants us to believe that this loss of confidence is linked to concerns on the international front. I note Australia has been through bouts of international uncertainty before. Australia sailed through the Asian crisis of 1998, in spite of concerns in some quarters that our close ties with Asia would lead to severe repercussions for our economy, and I well recall the Australian dollar falling to near-record lows at that time. Australia was relatively unaffected by the near-recession in the developed world in 2001 in the face of significant headwinds. And we were arguably the developed country least affected by the North Atlantic financial crisis of 2007 and 2008.

What the Treasurer will not admit is that it is his own actions and the policies of this government which have caused such a severe loss of consumer and business confidence. There are many, many elements to this. Taxation policy is just one. The govern­ment's approach to taxation reform is to milk the economy for all it can get. The government has introduced, increased or foreshadowed 19 taxes since it came to power just over three years ago. From 1 July this year—just five days ago—workers are now paying the flood levy. That is an extra half of one per cent in increased personal income taxes for people with an income between $50,000 and $100,000, so up to $250 a year, and one per cent for incomes above that. Households now have a little less spending power than they had a week ago. That is unlikely to make them more confident about the future, especially whilst they are facing massive increases in elect­ricity prices, water prices and transport prices. The government's behaviour in refusing to release the details of the carbon tax while parliament is sitting, to allow proper scrutiny, is not helping confidence. Australians have many legitimate questions about this tax. The coalition has been asking these questions for months and, especially, this week. But the government just refuses to answer. This refusal to answer has left many thousands of households and businesses in limbo. Will the carbon tax apply to diesel for the trucks and other vehicles run by small businesses? The government announced an initiative in relation to petrol but then it did not want to explain who it would apply to and who it did not apply to.

Then there is the compensation issue. The government has announced part of the compensation equation but it will not tell anyone about the rest of the equation. What will be the price per tonne of carbon? We have had members of the committee responsible for shaping the carbon tax speculating about a price of up to $100 a tonne. In some cases it is settling on $40 a tonne, yet this just creates further uncertainty. How quickly will this tax rise? Again, an unknown issue that has not been addressed yet.

It is not as though the government does not already have the information. We know from the information that has been selective­ly leaked to the media that the carbon committee has thrashed out the details. Although, we do know that not all the members of cabinet have seen the details of the carbon tax. The entry of the Minister for Foreign Affairs to the chamber is very timely because I understand he will not see the details of the carbon tax until Friday or Saturday. It is the case that the Independents and the Greens know more about the carbon tax package than those government members who are members of cabinet, and who are meant to approve it. It shows how totally dysfunctional the decision making is in this government.

All we are getting from the arrogant government is delaying tactics. The Treasu­rer says further detail will be there on Sunday. The Leader of the House screams into the microphone, 'Wait five more sleeps for an answer.' These are not things that inspire confidence in the government. These are not statements that encourage consumers to go out there and buy a new TV or upgrade their car, or to go and buy that house. These are not the things that inspire confidence amongst the enterprises of Australia.

It is no surprise that households and businesses are hoarding funds for a rainy day. That is a natural response when the economic future becomes uncertain. Aust­ralians have understandably lost confidence in the quality of the economic management of this government. Australia has never before had a government that is so cavalier with taxpayers' money, spending billions of dollars to install pink batts and millions more to inspect them and remove them. School halls and other school buildings were built well above the normal price that should be paid in the private sector. Computers in schools are another cracker; GP superclinics, which have been overpromised and under­delivered; stimulus cheques for $900 being sent to dead people and overseas—the list goes on and on. The budget remains in a mediocre state: four budgets and four deficits, including the largest peacetime deficits on record.

The Treasurer wants credit for a surplus. He has not delivered a surplus. I suspect he never will deliver a surplus.

Ms O'Neill interjecting—

I understand the new member is interjecting. I would warn her to get her facts right. Australians shake their heads in disbelief when the government claims to be a responsible economic manager even while it is running huge budget deficits at a time when we are experiencing the best terms of trade in 140 years. Australians shake their heads in disbelief when the government continues to compete for funds in the capital markets and puts upward pressure on interest rates at a time when households and businesses are already struggling with the impact of seven recent increases in less than two years.

Australians have lost trust in this government. We have a Prime Minister who says one thing before an election and then does the opposite after the election. This government is failing in its long term planning to provide the future underpinnings for the economy. Sir Rod Eddington, Chairman of Infrastructure Australia, bel­ieves Australia's infrastructure networks are barely adequate for current needs and are beginning to impose significant long-term costs. He believes there has been a collective failure by governments to give the issue of infrastructure planning and financing the priority it needs.

One of the unfortunate consequences of Labor's mismanagement of the economy is a stalling of productivity. I well remember the now Minister for Foreign Affairs being on this side of the chamber talking about prod­uctivity, and being asked about productivity. The GDP per hour worked in the March quarter this year was lower than the last full quarter of the coalition government. Productivity has actually fallen after 3½ years of Labor. By comparison, over the life of the coalition GDP per hour worked rose by over 25 per cent.

Of course, the Treasurer will not tell you this. It is not something he wants to focus on. He does not want to talk about productivity; or smaller government, or economic effic­iency, or real tax reform or the things that lay down strong foundations for the future of the Australian economy.

A recent private sector report to both domestic and international investors says it all:

The key issue is that Australian economic and taxation policy remains unpredictable, with foreign investors displeased with the continual surprise movement of the regulatory goal posts in Australia.

What Australia needs right now is a government that is consistent, capable and able to deliver on what it promises. It needs a government which keeps one eye on the international environment but which streng­thens and inoculates the Australian economy against almost any eventuality. We need a government that will restore the trust and confidence of Australians and restore Austr­alia as an attractive place to do business. What this country now needs is a coalition government.