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

by leave—Since the darkest days of the global financial crisis, I have regularly updated members on international developments and their implications for Australia. As I do so again today, I cannot assure the House that the outlook for the global economy is any less concerning than it was last time. Indeed, the global economy is in some respects in worse shape than it was last year. Germany and France, the locomotives of European growth and two of the major global economies, are both expected to have contracted in the fourth quarter of last year.

As Governor Stevens noted on Tuesday, growth in China has moderated as was intended, although indicators remain robust. But more broadly in Asia, we have seen some softening in growth. Of the major economies to have released fourth quarter GDP data, the US alone was a little stronger but even so, growth overall remains below trend and under threat from fiscal contraction. Responding to these developments, the IMF has again lowered its forecast for global growth in 2012.

So I cannot offer today an assurance that 2012 will not be as challenging as 2011 for the global economy. But recent actions in Europe, in particular by the European Central Bank, have settled markets somewhat and may have bought Europe and the global community a little space—space that must be used to tackle the underlying problem if further deterioration is to be avoided. Today, just as we should not hold out false optimism, we should never hold on to false pessimism. Despite the global economic challenges, our economy is very much the envy of the world—with solid growth, low unemployment, contained inflation, strong public finances, and a record pipeline of business investment. As the world’s 13th largest economy, we are also the world’s quiet achiever. We punch above our weight with an enviable record of achievement and the knowledge that our fundamentals will serve us well into the future.

Global and European outlook

The recovery from the deepest global recession since the Great Depression was always going to be long and difficult. But a combination of political gridlock and policy half-measures has turned a tough road towards prosperity into a perilous path. I have now been to 19 G20 meetings as Treasurer and the concerns among my colleagues as last year drew to an end were as grave as they were at the height of the global financial crisis. Fortunately, Europe has taken some recent positive steps forward. There is no doubt the active intervention of the European Central Bank—in particular extending the maturity of its lending to European banks—has helped to calm sentiment in recent weeks. The agreement of a new fiscal compact for Europe is also a step in the right direction. But more is needed given the scale and significance of the problems that Europe faces.

In November last year I outlined the government’s Mid-Year Economic and Fiscal Outlook in the context of deteriorating global growth, which of course significantly impacted budget revenues. Our midyear update reflected the now widely held view that the euro area is entering recession, an assessment with which the IMF and World Bank have agreed. Sovereign governments in Europe need to take credible action to put their budgets on a sustainable footing in the longer-term. But fiscal austerity alone is not the answer to Europe’s problems. Economic growth in Europe is crucial to achieving debt sustainability. But to achieve stronger growth, Europe must embark on a wide ranging package of structural reforms. These are the tough reforms which Australia has long since introduced—like opening up sectors to competition and reforming pension systems. While this is primarily a European crisis, it cannot be assumed that Europe’s solutions alone will safeguard the world economy. The economic policy choices of the rest of the world are also critical for the global outlook. In the United States, President Obama is trying to introduce measures to support growth and jobs, while putting his budget on a sustainable medium-term path. The United States and the global economy would be well served if Congress put away its partisan politics and got behind the President’s plans.

Closer to home, near-term growth prospects in Asia remain healthy, although the region is also not immune from European developments. Although weaker global demand has weighed on regional growth, China continues to perform solidly. And, underlying all of this, the shift in global economic weight continues to move from West to East. Increasingly, it is our region that is driving global growth in this, the Asian Century. For the first time in our history Australia finds itself in the right part of the world at the right time. We can make our future the Australian Century in Asia, not just Australia in the Asian Century.

Australia

Despite our bright prospects, no economy remains untouched from the fallout from Europe. Ours is no exception. As I outlined in the midyear update, we have seen the European crisis impact on our economy and budget. We have seen global turbulence create volatility in our share market, dampen confidence and unsettle consumers and businesses. Households have become more cautious, and businesses more hesitant in their hiring decisions.

While reflecting our relative economic strength, the high dollar is also a pressure point for our trade exposed industries, such as tourism and manufacturing. Despite these headwinds, our budget is on track for surplus in 2012-13, well ahead of our peers. Through discipline, and the right policy decisions, we have kept our economy strong, fought off recession and secured jobs even in the worst global conditions of our lifetime. Every member of this House should be proud of what our country and our people have achieved throughout this difficult period.

As most of the developed world braces for the prospect of weak or negative growth, we are expecting trend growth—higher than every single major advanced economy. As we saw in the most recent quarterly National Accounts, our economy recorded impressive growth of one per cent in the September quarter. We have seen over 700,000 jobs created since Labor was elected—that is over 700,000 more Australians going home with a pay check—while unemployment queues have grown in Europe and the US. Our unemployment rate is low at just 5.2 per cent, compared to10.4 per cent in the Euro area and 8.3 per cent in the United States.

For the first time in Australia’s history, all three global ratings agencies have awarded us the gold-plated AAA credit rating—something never achieved by any previous government. We cannot lose sight of these strengths, which is why it is so disappointing that some members of this House have sought to talk our economy down and undermine confidence, putting Australian jobs at risk.

Our strong fundamentals mean we are uniquely placed to deal with the worst that the world can throw at us. Our forecasts recognise that we will continue to see uncertainty and volatility in financial markets. But, of course, if global conditions take another turn for the worst, this will hit our revenues and obviously make it harder to return to surplus—that is just plain common sense.

We have already seen $140 billion ripped from government revenues due to global instability, including $20 billion in the six months between last year’s budget and the mid-year update. And we have a tax-to-GDP ratio at levels well below that which was left by the Howard government. As the Prime Minister said recently, we are committed to return the budget to surplus in 2012-13—we are determined to deliver it, and we will deliver it. Putting the budget into surplus will preserve our existing strong credibility with global financial markets and increase the scope for our independent Reserve Bank to ease monetary policy should conditions require.

Global e ngagement

While the fundamentals of our economy are sound, every Australian has an interest in the global community working to put an end to the rolling global economic crisis. That is why later this month in Mexico I will again meet with my G20 colleagues to push for global action. As I have said, the solutions primarily must come from Europe, but the global community has a role to play. At Cannes last November, the Prime Minister along with other G20 Leaders, announced an Action Plan for Growth and Jobs, which outlined the policies G20 countries have committed to pursue to secure strong, sustainable and balanced growth. In 2012, the G20 must hold firm to those commitments.

A global firewall—in the form of an adequately-resourced IMF—alongside a strengthened European firewall will also boost confidence and prevent contagion spreading from Europe to the rest of the world. And that is the message I will take to Mexico, along with the message about the strength of the Australian economy.

Conclusion

Australia's economic fundamentals are rock solid. The Gillard government’s objective is to turn this economic strength into a stronger community as well; to create wealth and spread opportunity with policies that help ensure Australians under cost of living pressures feel the benefits of the Asian Century and the mining boom, not just a fortunate few. It is why we are not only returning the budget to surplus but also investing in the critical skills and infrastructure our economy needs. It is why we are cutting tax on small businesses and corporates. It is why we are investing in national superannuation and building a savings pool for our economy and a more secure retirement for our people. And it is why we are putting a price on carbon pollution to drive investment in a clean energy future.

Australia’s success and resilience over the last four years is not due to luck. We are a young, optimistic nation, and we stand ready to capitalise on our opportunities and show the rest of the world what is possible.

I ask leave of the House to move a motion to enable the member for North Sydney to speak for 12 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 the ministerial statement for a period not exceeding 12 minutes.

Question agreed to.

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

In the first ministerial speech from the Treasurer in 2012 I was expecting to hear something a little different. There is no doubt that the global economy continues to face significant challenges, but I take exception to the Treasurer's assessment that the global economy is in worse shape than it was last year.

Government Members:

Government members interjecting—

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

Members on my right are interjecting from outside their places.

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

The situation in Europe remains parlous and the spectre of unmanageable sovereign debt still hangs over financial markets, but this is not new news. Europe is an ongoing slow-motion train wreck. The difficulties will not be resolved quickly, and uncertainty and volatility can be expected to continue for years, perhaps even for decades.

Recent news from the United States, particularly on the labour market, provides hope that the United States might finally be entering a period of a sustainable recovery, although I recognise that it is early days yet.

More relevant to the prospects for Australia, China appears to be engineering a soft landing, against expectations in some quarters that the difficulties in Europe would also derail the Chinese dragon. I also note that there has been a significant shift in the attitude of China towards the IMF, and in part I expect that that is a recognition by China that they are more vulnerable to an economic downturn in Europe than they first thought.

Financial markets can provide a more timely reading of economic health than the official statistics on economic activity, which in part lag, and they are telling us that overall the global environment does not seem to be as parlous as it was in the closing months of 2011. The Reserve Bank notes in its latest monthly statement:

Financial market sentiment, though remaining skittish, has generally improved since early December. Share markets have risen and term funding markets have re-opened, including for Australian banks …

So I am a little surprised that the Treasurer scoffed at my earlier statement, given that he completely contradicts his own Governor of the Reserve Bank.

The Treasurer regularly accuses the coalition of talking down the economy. In this case, however, it is the Treasurer who seems to be putting, very publicly, a gloomy spin on the global situation. I am led to wonder why he would do that. The answer is clear. In his statement, the Treasurer refers to the Australian budget surplus five times—a surplus he has never actually delivered. That is right: this ministerial statement to the House is titled 'Ministerial statement on the global economy', yet the Treasurer manages to work in references to the domestic budget surplus he has never delivered, no less than five times. I can only conclude that he wants to link these two aspects so that if he fails to deliver his promised surplus in 2012-13—which we will find out in September 2013, of course—he can just blame the global environment. He blames everyone else for everything that goes wrong in this world. He never accepts personal responsibility for his own actions.

I note that the Treasurer's original commitment to a surplus remains a determination. However, given that he has been boxed in by his own Prime Minister with a 'we will deliver a budget surplus', I look forward to the $38 billion fiscal consolidation that he is going to achieve in one year. In one year he is going to achieve $38 billion of fiscal consolidation. He talks about $70 billion over four years. He is going to be the miracle man and do it all in one year! We look forward to that fiscal consolidation.

This is why the government makes Australia more vulnerable than it should be. It overpromises and underdelivers. Labor constantly blames the global financial crisis for its economic mismanagement. It seems to think it is the only government that has ever faced economic turmoil. Well, the coalition government did not have it too easy either.

We faced the Asian financial crisis of 1997-98, when most of our major trading partners were in recession or depression, unlike now, when our major trading partners have delivered us the best terms of trade in our economic history. It does have an impact on our economy. At that time—because I was there at that time, I well remember the Asian financial crisis—investors fled the region and fled Australia. There was a widespread expectation that Australia would be sucked into the morass. And of course we had the dot-com bust in the early 2000s, which led to a near recession in the developed world. On top of all of that, we had the worst drought in 100 years. So Australian agriculture was hit, Australian mining exports were hit and our export markets were in recession or depression, and at that time the Australian government continued to keep the Australian economy growing. We guided Australia through those difficult episodes with a sure hand and sound policies that were consistent. And do you know what? We were not biting away at each other on leadership issues the way the Labor Party are.

Mr Shorten interjecting—

How it undermines confidence when we have old Bill here—old Bill wants to go for the job; he is hoping he is the third man. Old Swannie has threatened to resign should the PM go. And where is Kevin? The Labor Party are so committed to the jobs of Australians that they are only worried about their own, while we are worried about the jobs of everyday Australians, the jobs that the Labor Party just do not care about. They are only focused on their own jobs. From our perspective, good governments focus on the challenges to the economy today. They focus on consistency in policies, and that is what matters at a time of global uncertainty. The government cannot keep using everything as an excuse not to get their own house in order and not to have consistent policy. We know global times are tough. As I have said on numerous occasions, they may well be tough, volatile in fact, for the next 20 years. We get that. But we want everyone else to understand that. And the best way to inoculate the Australian economy is to have consistent policies, stable leadership and a focus on inoculating our economy so far as you can against volatility in the rest of the world. A prudent Treasurer would adjust his fiscal settings to take account of this new reality, and he would do that by reducing spending to less than revenue to achieve a solid surplus.

This Treasurer is trying to ride the wave of the best terms of trade in 100 years into a budget surplus. It is not because he is cutting back on expenditure. No, the Public Service has increased by more than 20,000 since Labor was elected here in Canberra. But I say to you, Mr Deputy Speaker, that if you expect Australians to be careful with their money, to be prudent, then the government has to lead. That is hugely important in a range of areas. Let us remind ourselves of what Labor inherited from the coalition: the lowest unemployment rate in a generation. I was the minister for employment that left Labor in February 2008 with an unemployment rate of four per cent, the lowest in at least 20 years. Under Labor the unemployment rate has risen to 5.2 per cent.

As the Treasurer knows, the participation rate is actually falling, which means that if you look at the Roy Morgan research on employment there is going to be over the next few months potentially a significant increase in unemployment. From October 2011 to December 2011 some 37,000 jobs were lost within the Australian economy, leaving the number of people employed in December 2011 slightly less than a year before. That is right—there were no new jobs created in net terms in 2011. This is the first time in 20 years that there has been no net job growth—the first time in 20 years and the government are praising themselves as good economic managers.

Compare this with the record of the coalition. We inherited from Labor an unemployment rate of 8.7 per cent and more than halved it. We increased jobs in every year we were in office, even during the Asian financial crisis. Despite the global travails we faced, we improved the employment prospects for everyday Australians. That is what good governments do.

The Treasurer said he is pleased about the AAA rating. Well, we are pleased about the AAA rating because it is built on our efforts, it is built on our surpluses, it is built on our Future Fund, it is built on our low unemployment, it is built on the productivity in the Australian economy that this mob inherited and they continue to waste away. When it comes to Labor, you need to look carefully at what they do, not what they say. I can say that this is a Treasurer who said he is fiscally prudent. How embarrassing it is for him that at the last budget he said the budget was about jobs, jobs, jobs. He scurried out of the studio with Fran Kelly the other day after saying, 'Well, we are not going to achieve that jobs growth of the last budget, of course we are not. We said there would be 500,000 jobs created. It will be much lower than that.' At the same time he said the budget deficit for this current year would be $22 billion—and, miraculously, it is $37 billion. So he rabbits on about a $70 billion hole. This year alone, in six months, he has deteriorated the budget by $15 billion—in just six months. Not four years; six months, old sunshine. And they are accusing us of fiscal irresponsibility.

Now he says he is going to have the largest fiscal consolidation in Australian history since the early 1950s and he is doing it, he will claim, by cutting back on government expenditure. If he does it he is riding the wave of the best terms of trade in 100 years, but the structural deficit remains. The pain for Australians is down the track because this is a government that is engaged in the greatest waste of taxpayers' money in modern Australian history. Cheques for $900 to dead people, school halls where people did not want them and pink batts in homes where they did not want them or that caused death. This is the waste of Labor. And when it comes to consistency, particularly on the car industry, don't give us a lecture: it was the Labor Party that announced a green fund of over $1 billion and it was the Labor Party that ripped over $800 million out of it. So when it comes to good government you need fiscal consolidation, you need consistency of policy and you need strong leadership. (Time expired)