The National Accounts released this week reiterate the need for Australia to work hard for future economic growth.
Complacency is our enemy.
After an almost unprecedented 23 consecutive years of economic growth, prosperity will not come our way with a policy to do nothing about our future.
Today I reiterate to the Parliament the Government’s plan for strengthening Australia’s economic growth and future prosperity.
Our plan will ensure that the high living standards we enjoy today will continue for future generations.
The Government is embarking on a range of structural reforms that will help our economy be more competitive and more resilient in the face of ongoing global economic change.
Without economic reform, the economy will drift.
Without economic reform, the economy will be more exposed to global volatility.
Without economic reform, our future prosperity is not assured.
Since coming to Government just over twelve months ago much economic reform has already been achieved.
Some of these decisions are delivering benefits now, and others are providing exciting future opportunities.
To start, we have removed the Carbon Tax, which is already delivering lower electricity prices and helping ease cost of living pressures on everyday household budgets.
And lower energy costs, which lower the costs of production, have helped Australian businesses cope with the downside impact of a stubbornly high Australian dollar.
We have also honoured our pledge to abolish the Minerals Resource Rent Tax. The Mining Tax raised just 2% of its forecast revenue. But the fiscal mess came about because the previous government committed to new spending as if the tax raised 100% of its forecast revenue.
It was a disaster on many fronts but most significantly it discouraged investment and raised sovereign risk around a sector that already has long term, inbuilt, price and construction risks.
So now is the right time to create a more positive investment environment for the mining and resource sector.
In the last twelve months we have accelerated planning approvals for over 300 major new projects that will deliver over $1 trillion of output for Australia.
Many of these projects in the mining and resources sector will help fuel Australia’s future growth.
As we witness the emergence of a new 2 billion people strong middle class in Asia over the next three decades, what Australia has to potentially export will be in more demand than ever.
This is our growth opportunity.
By 2030 two-thirds of the global middle class will be residents of the Asia-Pacific region.
China currently has a middle-class of around 150 million people. This is expected to reach 1 billion people in just 16 years. India’s middle class of 200 million people will triple in size over the same period.
So during this massive period of unprecedented growth our energy and resources will help build the cities and infrastructure of a rapidly growing India, China, Indonesia and greater Asia.
Regional demand for our hard commodities, such as iron ore, coal, copper, uranium and gold will not diminish. It will grow substantially.
And regional demand for our soft commodities such as wheat, beef, lamb, dairy products and the like will also grow substantially.
So now is also the time to diversify and strengthen our other export industries to meet head on the massive growth in demand out of Asia.
In the case of services industries, that represent 70% of the Australian economy, we have massive export growth potential.
Australians involved in businesses that deliver services such as aged care, financial services, health care, construction and engineering, logistics and property services all have big growth opportunities across Asia.
Some service industries like education, tourism and hospitality have realigned over time to focus more on the Asian century of growth. But that does not exclude the need for further reform to cope with new and increased competition. That is why, for example, the Government’s Higher Education reforms are essential. They not only deliver better quality education services for Australians but they provide our campuses with the opportunity to capitalise on massive growth across the region.
In other areas such as communications, media and entertainment, and sport and culture, we have sophisticated skills that can meet the increasing demands of the world’s new affluent consumers in Asia.
Currently services exports represent only 17% of all our exports.
New growth in services exports is a blue sky opportunity for many Australians, particularly those involved in small businesses.
That’s why this year we have successfully negotiated new Free Trade Agreements with some of our biggest trading partners after years of procrastination.
New trade agreements with Korea, Japan and China make our exports more affordable for their citizens, and make their exports to us more affordable for everyday Australians.
The Government recognises that it has been hard for Australians to give away industry subsidies this year. But if we are to successfully convince other countries with much larger markets to make room for Australian exports, then we need to give them the same sort of equal access to our marketplace.
At the same time we should never discount our ability to compete with, and beat, the best of the world in advanced manufacturing, software development, and medical research.
Our innovation is world class, and with new streams of capital available, we can commercialise and export to our own great advantage.
As a nation we produce much more than we consume, so breaking down global trade barriers makes us a richer country and it future proofs our prosperity.
In order to facilitate our future we must have productive and efficient infrastructure.
This year we have cleaned up the inherited mess of the National Broadband Network. We have quarantined the losses and are now building the network to ensure that Australians receive affordable and accessible high speed broadband.
As planned in the Budget we are also delivering the largest national infrastructure program in our history.
Australians have often said we need a new Snowy Mountains Scheme. Well it took 25 years to build the Snowy Mountains Scheme.
The Coalition Government is facilitating the delivery of the equivalent of eight new Snowy Mountains Schemes over the next decade with projects like Westconnex, upgrades to the North/South Corridor in Adelaide and the Perth Freight Link.
As a result of our new spending, and our Asset Recycling Initiative in particular, this is driving unprecedented microeconomic reform at the State level.
The sober reality of constrained finances is now hitting state and territory governments that are facing massive infrastructure demands.
We are facilitating a new wave of construction, by rewarding states with new additional funding for infrastructure if they redeploy locked up capital in existing assets.
This will support near term economic growth and boost productivity over the medium to long term.
By putting government businesses into the productive hands of the private sector, we can deliver both better and greater services to households, and improve the productive capacity of our economy.
Of course we have done our part this year by selling Medibank Private, which was the third largest initial public offering in the world this year, returning $5.7 billion to the Budget to pay for new infrastructure.
For business to be less constrained we have to remove the logjam of regulation.
Through dedicated Parliamentary Repeal Days we have removed around 57,000 pages of government regulation and legislation. This saves Australian businesses around $2 billion of red-tape costs each year.
And at the beginning of this year we inherited nearly 100 announced but unlegislated taxation measures dating back 12 years that created uncertainty and regulatory instability for taxpayers. We have, this year, resolved the mess and removed that backlog of uncertainty.
Yesterday’s National Accounts highlight an Australian economy continuing to grow, and an economy transitioning from a mining boom to one with broader based growth.
This is an adjustment that we expected.
Going forward, there are reasons to be optimistic about continuing economic growth.
Consumers are becoming more confident and are showing early signs of a willingness to spend more. Retail sales figures released today rose for the fifth consecutive month and are now nearly 6% higher over the year.
Consumer confidence data has rebounded to above long-run averages. This is a further positive sign for our retailers going into the Christmas trading season.
Businesses are more optimistic about trading conditions, which is a precursor to greater investment and hiring. This is supported by job vacancies, which are now at a 20 month high.
And our export volumes continue to increase. This is reaping the dividends of past investments, not only in the resources sector but also in service industries like tourism and education.
Yes, we face many challenges. We are feeling the headwinds of weaker global demand, which has led to the considerable fall in commodity prices. Iron ore represents around a fifth of our export income and prices have fallen by more than 30 per cent since the Budget. We have also seen falls in prices of other major commodities such as thermal coal and wheat.
Despite these headwinds, the economy will continue to grow and jobs will continue to be created.
But government revenues have been impacted by a larger-than anticipated decline in our terms of trade. This means the Government will collect less in tax, which makes it harder to pay for existing government services.
On top of this we have softer wages growth as the labour market adjusts to the transition underway in our economy. This too has a detrimental impact on revenue.
While these factors have made budget repair harder, they do not alter its necessity.
Without the measures announced in this year’s Budget, deficits were projected for at least the next decade – a total of 16 years of deficits – leaving Australia vulnerable to external shocks, less equipped to cope with the ageing population, and increasingly reliant on future generations to pay off our debt.
Without action every Australian born in 2024 would start life with a Government debt of $25,000.
This intergenerational buck passing is unfair.
When preparing the Budget, the Government was very mindful that we should deliver an economically responsible fiscal consolidation, both in size and timing.
The structural Budget savings we put forward such as making Medicare and the PBS more sustainable, and welfare distribution fairer, were designed to ensure that the financial impact was relatively small in the short-term, but delivered increasing budget repair over the medium to longer-term.
We have also delivered a plan that carefully navigates the transition from the resources boom.
Australia’s incomes and living standards have, over the past decade, been boosted by unprecedented investment and profits in our resources sector.
As the resources investment boom abates, the transition of our economy to more balanced sources of growth will depend on demand for goods and services in other sectors. That demand will then attract resources to those sectors, drive investment, and create jobs.
A sustained improvement in public finances is an essential part of these plans.
The current economic environment reinforces the importance of getting the Budget back in order.
I urge the Labor Party, together with the Senate, to take a more mature and collaborative approach to addressing the challenge of Budget Repair.
This is what Australians want if we are going to be able to afford our future.
Blanket opposition and mindless resistance is nothing to boast about if you truly care about Australia’s future.
Early next year, the Government will be releasing an Intergenerational Report, containing 40 years of budget projections.
Like earlier IGRs, it will show that as Australia’s population ages, labour force participation will fall. Without economic reform this will slow the economy, reduce growth in the Government’s revenue base and create additional demands on government spending, particularly in health, aged care and pensions.
With the terms of trade in decline and population ageing weighing on workforce participation, the key to sustaining growth in living standards is raising Australia’s productivity.
Over a year ago as a new Treasurer I said; “There could even be periods where living standards actually decline. We don’t want that. If we want to sustain national income growth at its thirty-year average, there will need to be a very significant lift in productivity growth.”
The drop in national income recorded in yesterday’s national accounts highlights that this risk is real. All of the government’s actions are being taken with these risks in mind.
The Government will support Australia’s productive potential in 2015 by investing in infrastructure, improving the efficiency of the Federation and the tax and financial systems, and by sustaining our focus on competition and deregulation.
We are transforming industry policy to support innovation and entrepreneurship. We have provided more incentives for new start up business growth with landmark changes to employee share schemes.
Enterprise will drive our growth.
Business will drive job creation.
This combination of investment and structural reforms will support Australia’s long-term rate of economic growth.
In 2014 we made great progress in strengthening the Australian economy so that it is better able to cope with external challenges and internal transitions.
More work needs to be done.
Reform has no finishing line.
With the Government’s Economic Action Strategy underway we will all be able to achieve what we hope for – a better and more prosperous future for our nation.