SPEECH: Building on our Strengths

| September 20, 2010

Following is a transcript of the speech delivered by The Hon. Wayne Swan MP, Deputy Prime Minister and Treasurer to the opening dinner of the Global Access Partners National Economic Review: Australia’s Annual Growth Summit, Sydney, 16 September 2010.

Thanks very much for having me here today and thanks Lisa [Middlebrook] for that introduction.

Can I welcome Jonathan Coppel, Senior Economic Adviser to the Secretary General of the OECD – who’s sitting over there at my table. Jonathan I hope you enjoy your time in Australia.

It’s great to be involved in marking the opening of Global Access Partners’ National Economic Review, which focuses on “how to boost Australia’s global competitive advantage and drive sustainable growth”. This is the essence of the Government’s mission and I’m looking forward to stepping through some of that for you tonight.

Those of you who know me know I’m an optimist about the future of our economy and our country. And you know my optimism springs from two things: what we’ve been able to achieve together these past few years; and my belief our economy really is on the cusp of something special.

We came to Government with a broad agenda for economic reform, to lift national productivity and deliver growth with low inflation. We were hit mid-term by the global financial crisis, but a combination of intelligent fiscal and monetary policy helped us deal with it more successfully than comparable economies around the world.

And it is that success which provides a really solid foundation for a reinvigorated policy agenda to maximise the opportunities of the Asian century by lifting productivity and making our capital-hungry economy stronger, broader and more competitive.

Global and Domestic Economies


We all know we’re not without challenges, and we’re not without obstacles, including a still-fragile global economy. The United States is up against some stiff headwinds, and the European recovery is still pretty frail.

Just last week the OECD reminded us that the global economy faces a long, slow grind towards a sustainable, private sector-led recovery. We’ve got the big industrial economies still struggling with near double-digit rates of unemployment, and the OECD expects G7 growth to slow to a 1.5 per cent annualised rate in the second half of 2010.

The Australian experience couldn’t be more different; we grew at 3.3 per cent over the year to June and unemployment is just 5.1 per cent.

We saw the creation of more than half a million jobs in our first term, and almost 350,000 in the last year alone. What’s really encouraging is the fact that three in every four jobs created in the past year have been full-time jobs.

We’ve got our stimulus unwinding as planned, and private sector investment is coming back.

We’re well-placed to encourage that investment and build our global competitiveness at a time when other countries are still sifting through the rubble of their recessions.

Underlying inflation is also back below 3 per cent for the first time in three years.

But, unfortunately, we still get from sections of the media and the business community a degree of pessimism that poisons the public debate about our own domestic economy. As a country we must stop looking for reasons we could fail, and instead build consensus behind the plans we need to succeed.

We start from a position of genuine strength. We’re a country with two decades of continuous growth under its belt, and an outlook many of my G20 colleagues would die for. I think it went unnoticed during all the colour of the last few months that on 1 July this year we ticked over into our 20th year of economic growth.

The fact that in just three years we have jumped five places in the international standings of GDP per capita to tenth in the world also went unnoticed.

I urge you to judge our economic prospects by the facts, not the commentary.

Take private investment. We have a very strong pipeline of business investment plans about to get underway – and it won’t just support activity this year, but in the coming years as well.

The latest CAPEX figures showed that businesses are planning to invest a massive $123 billion in our economy in 2010-11. That’s an increase of 24 per cent on the estimate made at the same time a year ago for the 2009-10 year. For mining, it’s an increase of almost 50 per cent.

Now we heard all kinds of things during the tax debate about the fragility of the mining industry, but at the same time mining companies were planning to invest $55 billion this year. That’s a staggering five times more than they were investing just six years ago before the boom took off.

According to the Reserve Bank, this is by far the biggest boom in mining investment this nation’s seen since the Gold Rush in the 1850s.

And that investment is delivering huge profit growth. Mining company gross operating profits rose by a massive 63 per cent in the June quarter after rising 11.5 per cent in the March quarter. That’s an 81 per cent jump in profits in just six months. It’s a level of profit growth that any company anywhere in the world would wish to see.

That brings with it big opportunities; for jobs, our economy, our export markets and our mining communities.

But it also brings more pressure on our capacity and our workforce. And it puts pressure on the dollar. Australia’s real exchange rate is currently around its highest level since the float.

That makes it harder for our trade-exposed industries like manufacturing, tourism and education. They find it tougher to find workers and capital and the stronger dollar makes them less competitive in their own global markets.

But the answer to this ‘two-speed’ or ‘multi-speed’ economy challenge is not to slow down the fast lane. It’s about doing what we can to speed up the other lanes, to broaden and strengthen our economy so that all sectors can grow sustainably.

These are big challenges for our economy into the future, and it’s a key focus of our economic reform agenda.

Forward Reform Agenda

So we begin our second term of government with:

  • Strong growth and low unemployment;
  • A two-speed, capital-hungry economy;
  • And on the cusp of great things in the most dynamic part of the global economy.

That’s why I want to spend the remainder of my speech talking about our economic policy agenda, and specifically:

  • What we’re doing to boost the international competitiveness of our businesses, attract investment, and broaden our economy by reforming company tax;
  • What we’re doing to help satisfy our economy’s hunger for capital by reforming super and building a bigger pool of national savings;
  • What we’re doing to lift productivity, service the investment surge, and build low-inflation growth by training more workers and investing in broadband and roads, railways and ports.
  • Then I’ll talk about how we’re doing all this within the strict confines of a fiscal strategy that sees us return to surplus in 2012-13, comfortably ahead of all the major advanced economies.

Global Competitiveness

Let’s begin with global competitiveness, and tax reform. We came to tax reform with a plan to make our country a more attractive destination for investment and to make our businesses more competitive.

Australia is capital-hungry. There’s just so much investment needed.

Cutting the company tax rate is about boosting our ability to compete in global capital markets for the funding we need.

To the savvy international investor, we are just one among many alternative investment options – we have to compete for their business. We are able to be a net importer of capital only because we present a compelling value proposition to foreign investors, and they are confident we will use their capital so well.

We do this across a diverse range of industries which benefit from the most robust financial, physical and regulatory infrastructure globally. But we can’t take this for granted. We have to make sure our settings are right across all industries to encourage this investment.

Cutting the company tax rate will help all Australian industries attract mobile capital. This boosts investment, and more investment means higher real wages for Australian workers. Independent modelling confirms that a 1 per cent cut to the company tax rate will add around $3 billion to GDP every year in the longer-term, and that’s what makes it so worthwhile.

This was the central thrust of the Henry review which we accept. Of course we can only implement the recommendations of the review within the strict fiscal rules which we have set for ourselves.

When I released the Henry report I said we’d have a national conversation about tax reform in this country. And the tax forum we’ve announced will keep that conversation going. I said at the time that in the next term of government, if re-elected, we would have that conversation about the broader recommendations of the Henry report.

National Savings

We’ve also taken steps to build our future pool of national savings. By growing our pool of national savings we can generate more of the capital we need across our own economy.

By 2035, it’s estimated that our super reforms announced in the Budget – including increasing the superannuation guarantee – will have added another $500 billion to Australia’s national superannuation savings.

And we’re not just focusing on private savings. Our fiscal strategy also means that we are increasing national savings relative to investment by around 4½ per cent of GDP over the next three years.

We should never forget how critical it was during the crisis that we had a pool of national savings through superannuation available to recapitalise our banking system when it needed to replenish to keep lending.

And I think that the weight of our superannuation funds could in future play a very important role in funding a broad range of investments, including in our nation’s infrastructure.


We should also never forget that before the crisis Australia was faced with capacity constraints in skills and infrastructure which were dragging on growth and putting pressure on inflation. It’s so important – absolutely critical – that we commit to doing all we can to address these capacity constraints which will soon re-emerge.

We’ll do that by investing in skills, training and education – to tackle the skills shortages that put pressure on wages and prices. We’ll do that by making historic investments in transport infrastructure to expand the economic capacity of our roads, rail and ports. We’ll do that by rolling out the National Broadband Network – one of the biggest economic reforms Australia has seen in a generation.

There’s been a lot of commentary about the business case for rolling-out the NBN, and the planning process we undertook before announcing it. Let’s give that commentary a bit of perspective.

On coming to Government, we undertook a rigorous and detailed assessment of the private sector’s capacity to build the NBN. We commissioned an independent Expert Panel to advise the Government on proposals from the private sector to build the Network. The Expert Panel included some of the most eminent names in telecommunications, business and investment. And the Panel concluded unambiguously that none of the private sector proposals offered value for money.

So the Government was presented with a very stark choice.

In 2007, Australia’s broadband speed lagged behind 26 other OECD countries and we had the third most expensive internet in the world. Governments around the world had already recognised the importance of high-speed broadband and many had already rolled theirs out, or were in the process of doing so. Countries like South Korea, Japan, Singapore, China, Germany, France, the Netherlands, Sweden, New Zealand and the USA.

We simply wouldn’t have been able to compete in years to come without superfast broadband. To do nothing at this point would have been the same as sending our jobs of the future overseas.

So we took the only responsible action available for the future of our economy and announced we’d build the National Broadband Network.

We also announced that McKinsey and KPMG would undertake an implementation study on the operating arrangements and network design of the NBN. After very detailed financial analysis, including granular revenue and cost modelling, they confirmed that NBN Co had a strong and viable business case.

Now we have Mike Quigley, CEO of the independent NBN Co, leading our delivery of the NBN rollout. Mike is one of the most experienced and widely respected telecommunications professionals in the business, having most recently worked as Chief Operating Officer of Alcatel Lucent – one of the biggest telcos in the world.

High-speed broadband is absolutely vital to turbo-charging our national economic success by securing long-term productivity growth and boosting our international competitiveness.

It’s estimated that innovation from information and communications technology is the single biggest driver of business productivity. It drives nearly 80 per cent of productivity gains in service businesses and 85 per cent in manufacturing businesses.

Overall, Access Economics forecasts that smart technologies like the National Broadband Network will add 1.5 per cent to the level of our GDP within a few years.

It’s truly remarkable technology, and a truly important reform, and we can’t afford not to do it.

Fiscal Strategy

The final thing I want to touch on tonight is our fiscal strategy. We’re determined to deliver our program without jeopardising our reputation for the responsible economic management that will see us return the budget to surplus in three years.

Fiscal discipline is at the heart of our forward economic plan. We’ve got a commitment to holding real growth in spending to 2 per cent a year, until the budget is back in surplus; and continuing that discipline beyond that to build a stronger balance sheet.

The global debate about sovereign debt levels really does bring into sharp focus just how far ahead of the pack Australia is when it comes to balance sheet consolidation. While advanced G20 economies agreed to at least halve deficits by 2013, Australia will have its budget back in the black by 2013.

It shouldn’t go unnoticed that we came through a very tough and close election campaign to actually be ahead in fiscal terms and are on track for the fastest fiscal consolidation in Australia since at least the 1960s. Our net debt will peak next financial year at only 6 per cent of GDP, around 15 times lower than the average of the major advanced economies.

The strength of our fiscal position, the strength of our economy, and the quality of our policies do give us cause for the optimism I described at the beginning of my speech.

I’m excited about what the business community and the Government can achieve together this term. We’ve got a suite of important initiatives that will help broaden and strengthen the economy, and I look forward to working with many of you in this room to deliver them in the national economic interest.

Thanks again for inviting me here tonight.