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

I ask leave of the House to make a ministerial statement relating to the global economy.

Leave granted.

by leave—It has been my practice since the darkest days of the global financial crisis to keep the House updated on international developments and their implications for Australia. I do so today in the shadows of Greek elections overnight, just shortly before the Prime Minister meets with G20 leaders in Los Cabos. While we do not yet know the full implications of the results coming out of Greece, we do know that the G20 summit about to get underway is held at a time of heightened uncertainty in the global economy.

The Prime Minister and I have written to our counterparts outlining the need for Europe to take decisive action to stabilise their financial system and move towards deeper financial and fiscal union. All G20 members need to support growth and jobs, including through structural reforms, while putting their fiscal positions on a sustainable path. But we must be honest about the magnitude of the challenges facing Europe in particular, which no one meeting can fix entirely on its own.

I noted in the budget papers that the European economy as a whole was expected to contract in 2012 and that a re-escalation of the European sovereign debt crisis was the key risk to the global recovery. And despite a period of relative calm on global financial markets in the early months of this year, this was never going to mark the end of the global volatility. Recently, the tempo of global turbulence has risen again, this time triggered by the Greek elections and concerns around the Spanish banking sector.

Global and European o utlook

The focus is obviously on Greece today. Adjustments necessary in Greece were always going to be difficult, with a disenchanted populace experiencing their fifth year of economic recession. The official outcome of the Greek election will not be known with any certainty today. But whatever the outcome, it is important that Greece's political parties quickly undertake coalition discussions and form a stable government.

We know that fear of contagion from Greece has already put upward pressure on government financing costs across many parts of Europe. Spain has also come under increasing pressure to address the substantial weaknesses in its financial sector, while at the same time meeting its ambitious fiscal targets. I welcome the support euro area finance ministers are providing to Spain to bolster their ailing banks, but it is crucial that further details of the package are released as soon as possible. While Greece and Spain have become the recent focus of Europe's distress, we should be under no illusions about the deep-seated challenges that confront Europe more broadly. Weak financial systems and fiscal positions continue to feed off each other at the expense of confidence and growth, and there has been insufficient political accord to make changes that are urgently needed. For the European project to prevail, what is needed is a pan-European approach that, once and for all, addresses the crisis. This type of unified approach must no longer be seen as a move that will threaten the individual interests of any one country, because the interests of each and every country within the euro area depend critically on the strength of the euro area as a whole. Only by moving forward with fiscal and political integration can Europe be saved. Europe needs to outline and, more importantly, deliver credible fiscal plans—policies that in the short run boost consumption and investment, and in the long run make budgets sustainable.

Good examples bring forward infrastructure projects that create jobs and demand in the short run, and add to productive capacity in the long run—precisely the type of investment that this government has persisted with, even at the height of the global crisis. The idea that you must choose between growth and fiscal consolidation is false. You can have growth then consolidation, so long as your plans are achievable and believable. The Australian pro-jobs, pro-growth model, with a well-anchored medium-term fiscal framework, is proof of that fact. By supporting growth in the face of the worst global recession in 80 years, we have emerged from the crisis in a position of strength that is virtually unrivalled. And by setting out a strict fiscal approach from day one, we are also returning to surplus ahead of all major advanced economies.

Rest of the w orld

Against the backdrop of severe weakness in Europe, the United States economy continues to grow at a modest pace, though it has yet to achieve a self-sustaining recovery. GDP growth has improved since its soft patch in mid-2011, the unemployment rate has trended downwards, and even housing market indicators are registering tentative signs of improvement.

While these signs are encouraging, there is still underlying weakness in US labour and housing markets, and the US recovery remains vulnerable to further fallout in Europe. With much of Europe in recession and US growth still modest, the global recovery will continue to rely on emerging markets, particularly those in Asia. On IMF estimates, emerging economies contributed more than three-quarters of global growth in 2011, and this is expected to continue over the next two years. China has continued to grow at a robust, but more sustainable pace. Chinese policymakers are well-placed, if necessary, to use a range of policy tools, fiscal and monetary, to support growth—and indeed China has recently taken steps to do so.

We have seen this, for instance, through decisions by the Chinese government to speed up approval processes and bring forward infrastructure projects earmarked in the 12th five-year plan. Monetary policy has also been eased, including a reduction in the amount of funds that commercial banks must keep in reserve and a cut in the benchmark lending rate.

Australia

Amid the economic volatility now engulfing the world, Australia is recognised the world over as a beacon of strength, stability and resilience. The most recent data showcases our strong economic fundamentals that put our economy in a league of its own. Over the past year GDP grew by 4.3 per cent, the fastest pace in over four years.

We are officially growing faster than any of the major advanced economies and we are projected to outperform these economies over the next two years. While many advanced economies are not even back at the starting line yet, our economy is almost 10 per cent larger than it was just before the global financial crisis broke. Since this government came to office, over 800,000 jobs have been created. At the same time around 27 million jobs have been lost across the world.

These results have been made possible by the government's decisions to support our economy and jobs at a turbulent time. Our fiscal stimulus shielded our economy from the worst of the global recession, and our credible strategy to return the budget to surplus has underpinned the confidence that financial markets have in Australia. And in the face of rugged global circumstances we have not ignored or overlooked important investments in our productive capacity. Together, we have won the confidence and respect of the world through our actions and our resilience.

Confidence in our fiscal management is a key reason behind Australia receiving a AAA credit rating from all three major ratings agencies, for the first time in our history. Confidence in our financial system has ensured that Australian banks remain some of the most secure and highest-rated in the world. And confidence in the Australian economy has seen our pipeline of resources investment grow to a staggering half a trillion dollars. Over half of these projects are at an advanced stage, which provides a bedrock of support for our economy in uncertain times.

Of course, just as Australia has not been unaffected by global developments to date, we are not immune from a further deterioration in global conditions. While our economy walks tall, difficult global conditions have weighed on sentiment and demand for some of our exports, and we have seen the impact of global turbulence on our share market. Consumers are also more reluctant to take on debt, and this has contributed to subdued conditions in our housing market. And while some industries are booming, global headwinds have made it harder for some sectors already struggling from a high dollar and broader structural transitions underway in our economy.

We know there is some anxiety in our community during these times of economic turmoil abroad and structural change at home. But Australians can take great confidence in our rock-solid economic fundamentals and our standout performance in these testing times. Right now we have the best combination of impressive growth, low unemployment, contained inflation, strong public finances, low interest rates and a record pipeline of investment. We are only one of eight countries in the world to receive a AAA credit rating with a stable outlook from all three global ratings agencies. And during this difficult chapter for our global economy, there is an even greater responsibility of each and every member of this House to acknowledge the great strengths of our economy, our people and our businesses.

Conclusion

I accept that there will be continuing volatility from Europe for some time yet, but I do not accept that the pace and scale of action to address this has been adequate. As the Prime Minister gathers with our G20 colleagues in Mexico, the clear message that she and I have conveyed to our European colleagues is that we all have a responsibility to put world growth on a stronger and more sustainable path. And we will continue to remain closely engaged with our international counterparts to reinforce the strengths of the Australian economy and our region—a message I conveyed over the weekend to the managing director of the IMF, Christine Lagarde. We will continue to confront new challenges and opportunities with the same spirit of energy and resilience that our country is proudly known for.

Kate Ellis (Adelaide, Australian Labor Party, Minister for Early Childhood and Childcare) Share this | Link to this | Hansard source

by leave—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

We in the coalition fully appreciate that the global economy is delicately poised, not only with headwinds from Europe but also with moderating growth in the United States and some recent signs of a slowing in China. We also recognise that Australia's economy is not immune to the impacts of the global situation. Where the coalition differs from the government is in the approach that should be taken to respond to these challenges.

The Acting Prime Minister has advised the House that he and the Prime Minister have written to their European counterparts telling them of the need to stabilise their financial situation and put their fiscal positions onto a sustainable path. Well, this will hardly come as news to European leaders! I do not think European leaders will be dropping everything to read Prime Minister Gillard's letter. It was only last November that the Prime Minister was lecturing G20 leaders in France on concerns about European financial stability and on the need to act. That lecture had no discernible impact on recent decisions by European leaders, and it is clear that they would not pay any greater attention to our Prime Minister giving her new lecture—and I do not think the Treasurer of Australia will make any difference either.

We in the coalition suggest that the Prime Minister and the Treasurer should do less in the way of ink-based diplomacy, lecturing the Europeans with vague generalities about what their countries should do, and spend more time focusing on addressing the vulnerabilities which the Prime Minister and the Treasurer have themselves created in the Australian economy—vulnerabilities exposing our economy in the event of a further downturn in the developed-world economy.

For the past few years, we in the coalition have been warning repeatedly of the risks that will face the Australian economy in the event of another global shock or a decline in our sky-high terms of trade. We have consistently urged the government to take the hard decisions to prepare our economy for volatile times. Unfortunately, these warnings have not been heeded by this government that has run out of ideas.

In the past few weeks we have received the news that growth in the March quarter was stronger than expected and that employment rose in May. We welcome the good news—although it is good news that comes through the rear-vision mirror. For example, it is notable that the rise in jobs in May was a reflection of the fact that we have had job growth at less than half what the Treasurer originally predicted when he boasted in the 2011-12 budget of 500,000 jobs being created over the next two years. Given that there were no new net jobs created—for the first time in nearly 20 years—in 2011, it was a pleasing outcome for May.

The more important point is that the labour market is a lagging indicator of the state of the economy. The March quarter growth figure tells us what was happening in the period three to six months ago. We now need to be focused on how the economy is travelling going forward. On that score, the Reserve Bank, which of course is forward-looking with monetary policy, has just cut the cash rate by 75 basis points over the last two months. At the same time, its accompanying statements have warned of a deterioration in financial market sentiment, of share market declines, of ongoing precautionary behaviour by households, and of further weakness in the housing market.

Then in the past 10 days we have also had current reads on both business and consumer sentiment. On the business side, the NAB monthly survey for May recorded sharp falls in business confidence and conditions, taking both back to below average levels. And on the consumer side, the Westpac sentiment index showed essentially no change in May or June from its weak levels, despite 75 basis points of cash rate cuts and a slew of government cash splashes.

It seems businesses are not impressed with a government that turns on a dime in changing its policies, including on the policy on company tax cuts, which it promised for two years and then dumped in the budget. And then, in a whimsical thought, the Prime Minister announced the other day that those cuts were back on the agenda, even though there is no money in the budget for them.

It seems consumers are not impressed with the government's attempts to buy their votes with handouts. Instead, they remain worried by this government's lack of any coherent economic strategy to lift growth, boost jobs and restore confidence. A lady came up to me last Saturday and said, 'Joe, why would I borrow money against any future earnings I have in this environment? With a government that seems to tax things out of the blue, with what is happening overseas, and with the instability in Canberra, why would I take the risk of borrowing money against any income I might get next year, and in subsequent years, to buy a home?' She said, 'I'm sitting on it. I'm sitting on what I have and, frankly, if I'm not going backwards in this environment, then I'm doing quite well.' I suppose that vox pop, if you like, in so many ways encapsulates the vulnerability this government has created.

It is not negativity from us—they keep talking about our negativity. I do not write the speeches or press releases for the head of Glencore, the head of BHP or the head of Harvey Norman. We do not write the press releases or media statements for Gerry Harvey or John Singleton. These people are at the coalface saying it is not as good as Labor say. In fact, the government are making it far worse by flip-flopping on policy and changing policy. There is no better example than the carbon tax, which so many of us are familiar with. And there are so many others, right back from 2008, when they changed employee share scheme arrangements and flip-flopped on that. They have flip-flopped on the mining tax over the years.

They flip-flopped on withholding tax. That is a classic example which will be before the House soon. The government said they wanted to reduce withholding tax in Australia and in 2008 they reduced it from around 30 per cent to 7½ per cent to encourage foreign investment, particularly in commercial real estate. The coalition praised them for reducing the tax. Now the government say they are going to increase it from 7½ per cent to 15 per cent, which in itself leaves people confused. They thought there was a downward trend in relation to the tax but now the government are doubling it. Yet the government wonder why the world is so concerned about the sovereign risk in Australia.

Then there is the narrative from the government about the economy. The Treasurer does not talk about the 'patchwork economy' anymore, because he is making it harder not easier. They are making it harder for manufacturing by imposing a carbon tax on energy, which directly affects the value-add associated with manufacturing. Then, of all things, they go ahead and massively increase the passenger movement charge on the tourist industry, which they say has been going through such difficult times.

International investors are wondering what the hell this government is about. It seems to think that the best way to make people more prosperous is to increase their taxes. This is the logic of Labor's economic narrative. I say, quite frankly, it is no wonder that when the rest of the world gets a letter from Julia Gillard and Wayne Swan they talk about it. The Prime Minister has said they are talking about that letter. I bet they are talking about that letter! They are rolling around in the aisles having a good giggle at that letter, because they are getting an economic lecture from Julia Gillard and Wayne Swan. The lecture is about how to be austere, how to live within your means. They are getting that from the Labor government of Australia and I bet they are they talking about that letter.

What matters is not just where all the risks to our economy come from but how we have prepared ourselves to deal with the risks. We remember the government's response to the collapse of Lehman Brothers after denying that there was any issue during the early part of 2008—in fact, declaring war on inflation and urging the Reserve Bank to increase interest rates at exactly the wrong time, the beginning of 2008. We remember this. We also remember that they inherited a situation where net debt did not exist—in fact, there was money in the bank. They inherited a strong surplus. The budget had recorded its fourth surplus in a row of 1½ per cent or more of GDP, and its tenth surplus of 12, under John Howard and Peter Costello.

We are not in that position today. As we stand before the House, the budget deficit has increased to $44 billion this year. Let us talk about what it actually is, not what the government are promising. They are promising a surplus that, looking at their form, they will never deliver. In the current year they said there would be a $22 billion deficit and now we have a $44 billion deficit. They are cooking the books in order to promise a surplus next year. The Greeks got themselves into a bit of trouble cooking the figures. We are not on anything like that scale, but the truth is that if you include the NBN expenditure and the Clean Energy Finance Corporation then we are running a deficit. And the debt ceiling is increasing from $250 billion to $300 billion. The Prime Minister is giving the Europeans a lecture about austerity when she is increasing the debt limit of the Commonwealth government from $250 billion to $300 billion in a year when the government are promising a surplus.

Having more front than Myer, our Prime Minister is seeking to give the rest of the world a lecture. I say to our Prime Minister, 'Remind the world of where it all started: with a surplus, money in the bank and good consistent government that delivered stability and certainty.' (Time expired)