9 September 2015
Speech - #2015030, 2015

Ministerial Statement on the Global Outlook and
the Australian Economy

Check against delivery

Introduction

Mr Speaker, I have just returned from the G20 meetings in Turkey, where Finance Ministers and Central Bank Governors from the 20 most influential economies discussed the global outlook.

The frank and honest exchange about the real challenges we all face provided me with a sense of cautious optimism.

Whilst the global economy faces some headwinds, there is a deep resolve amongst policy makers to implement domestic and international initiatives that help to deliver structural improvements in growth.

The economic reforms that are part of the Coalition's plan for a stronger Australian economy are mirrored in many other economies around the world. Reforms in competition policy, the financial sector, taxation and trade to name a few, are the big drivers of future growth.

Global Economy

The recent volatility in global financial markets reminds us that this is not a time to be complacent.

We have all been affected by the deterioration in business and consumer confidence as a result of significant volatility in currency markets, equity markets and commodity prices.

As a result of this, all countries must do more to implement enduring structural reforms that boost growth and create new jobs.

At the meeting, the United States flagged its intention to soon start lifting interest rates.  This is a positive signal that illustrates a sustainable improvement in the US economy.

It should be noted that when the United States moves to increase interest rates, they will be moving from "ultra" accommodative monetary policy to "extremely" accommodative monetary policy. Under this scenario monetary policy will still be doing a lot to support growth in the US economy.

Yes, there may be some volatility in markets as a result of the decision, but like the previous so called "taper tantrum" associated with the ending of quantitative easing, the transition is definitely manageable.

After all, this is the most well flagged decision pending from the United States Federal Reserve in memory.

Transparency is hugely important to help address ongoing volatility and it is increasingly being embraced across the G20 by other economic leaders, including China.

China recognises that their stock market has been in a huge bubble in the last twelve months. It rose by 70% in just six months and its rise was totally disconnected from the performance of the Chinese economy.

Even today, after three significant corrections, it is still more than 30% higher than it was twelve months ago. The Chinese stock market is a highly leveraged and speculative market.

Following the corrections in late June, the end of July and in August, the Chinese Government introduced a range of rescue packages to stop the freefall. A number of these measures were counter-productive. 

That said, it should be emphasised that stock market volatility to date has not had a systemic impact on the real economy of China.

Nevertheless, the Chinese economy needs to undertake difficult structural reforms. This is a process that will take a number of years as it moves from an investment economy to a consumption economy. This will be of great benefit to the Australian economy where non-mining exports represent the greatest opportunity for medium-term job growth.

Our involvement with other economies such as Europe has not waned.  The recovery in the euro area will continue, supported by accommodative monetary policy and low oil prices, but at a slower pace. 

Across the Channel, the United Kingdom is seeing growth lifting and unemployment falling. This is the result of difficult, but necessary, decisions, including measures that have achieved significant budget repair.

And while Japan stumbled last quarter because of bad weather, there are green shoots.  A tightening labour market, stronger corporate earnings and greater private sector business investment are all encouraging signs.

In particular the determination of the Japanese Government to prise open the US$3 trillion in retained earnings in Japanese corporations for investment, innovation and higher wages signals a much more promising outlook for our second biggest trading partner.

Australian Economy

More importantly, what does this all mean for Australia?

For our part, the Australian economy is entering its 25th year of continuous growth, despite all of the challenges in the global economy. 

The June quarter 2015 National Accounts recorded year average growth at 2½ per cent, just as we forecast in the May Budget. 

The key to our success has been the diversity and flexibility of the modern Australian economy.

Our economy is incredibly resilient. We have continued to grow despite the Asian Financial Crisis, the Global Financial Crisis and most recently the biggest fall in our terms of trade in over 50 years.

This proves that we must continue to work away at strengthening all parts of our economy because the diversity of our economy has helped to inoculate us against external volatility.

The Australian economy is not solely commodity based. Yes, commodities are important, and a significant part of our exports, but they are not the sole driver of growth.

The mining sector only accounts for 10 per cent of our economy but 54 per cent of our exports.

The agriculture sector represents only 3 per cent of our economy and 13 per cent of our exports.

Each of these sectors is crucial for jobs and growth. They are valuable drivers of wealth creation.

But we can build on the traditional export drivers by expanding export opportunities in the services sector which represents 70 per cent of our economy, 80 per cent of Australian jobs but still only 17 per cent of our exports.

This diversification will help get us through the biggest fall in our terms of trade in more than fifty years.

Other economies with a significant reliance on commodity exports like Canada and Brazil are in technical recession, yet the Australian economy is continuing to grow and grow in line with reasonable expectations.

That is not a reason to be complacent.

More needs to be done.

We will always face uncertainty in the global economy and bouts of volatility in international financial markets.  The fortunes of our trading partners and those demanding our commodities can have a huge impact on an economy that is not diverse.

The question is how can Australia continue to grow and create jobs. 

The answer is our economic plan that we have been implementing since coming to government.

Australia's Economic Plan

The Abbott Government has an economic plan, and we are sticking to the plan.

First, we are ridding Australian business and families of the crippling taxes of the past Government.

The Abbott Government has removed the mining tax.

We have removed the carbon tax.

We have removed the bank deposit tax.

We have removed the car tax.

We have removed the unfair tax on untouched savings.

As a result of our actions, we have lowered the tax burden on Australian families and businesses by almost $7 billion. This helps strengthen the Australian economy.

And furthermore, this Government has delivered the largest tax cut for small businesses in our nation's history. 

This is more money in the pockets of everyday Australians.

This is a lower burden on Australian businesses so that they can invest more and employ more Australians.

Second, we are lowering the burden on Australian businesses by removing 80,000 pages of unnecessary red-tape that was costing Australian business $2.4 billion dollars a year.

That's more time that businesses can spend on growing their companies rather than being buried in paper.

Third, we are opening up the doors to the world for Australian business.

This Government delivered the Japan and Korean free trade agreements. These have already been implemented and are delivering economic dividends today.

For example, Korea's 45 per cent tariff on Australian grapes was almost halved to 24 per cent when the Agreement started in 2014.

These agreements also benefit every day Australians by putting more money back in their pockets. 

For example the Toyota Corolla, one of the biggest selling cars in Australia, is around $1000 cheaper as a result of the reduction or removal of tariffs. The next step is the China Australia Free Trade Agreement.

This the best free trade deal that China has ever offered any G20 country, and we stand at the front gates ready to access one of the largest growing markets in the world.

This agreement will eliminate Chinese taxes and regulations that are applied to Australian products and services. 

They will remove tariffs of up to 20 per cent off our exported dairy products.

Up to 25 per cent off our beef exports.

Up to 23 per cent off our lamb exports.

Up to 20 per cent off our wine exports.

China will remove tariffs on commodities such as coal and lock-in zero tariffs for iron ore, gold and LNG.

But equally importantly this is free trade for our services industries.

The agreement will provide significantly improved market access for Australian financial services, insurers, law firms, education services, and health and aged care providers.

China's Finance Minister Lou Jiwei highlighted in discussions with me, that the Chinese economy is undergoing a transition that will take time.

A transition from a focus on investment to consumption.

And that consumption will be driven by the demand of 400 million middle-class consumers in China today, which will likely grow to 1 billion by 2030.

China is our number one trading partner.

We currently have a $150 billion a year trade relationship with China. We export around $100 billion to China and we import around $50 billion of their goods.

For every $1 we spend, we get $2 back from China. That is a "no brainer" relationship for our country.

Anything we can do to build that relationship is to our great benefit.

And anything we can do to grow the relationship will help create more and better paying jobs for everyday Australians.

The fourth driver of growth is our $50 billion infrastructure program. This is the largest infrastructure investment by any Federal Government.

We are building the roads and infrastructure for the twenty first century, including Western Sydney's first airport. 

Additionally, our $5 billion Northern Australia Infrastructure Facility, along with the entire Northern Australia White Paper, will provide the funding and resources to develop our great North and provide a vital link to our Asian regional partners.

The fifth driver of growth is that we are addressing the long-term challenges of this economy by implementing measured structural reform.

 I have previously stated in this chamber that this Government's economic plan will address the intergenerational challenges we face with an ageing population and declining workforce participation. 

The Abbott Government's families policies will improve engagement in the workforce and provide choice for everyday Australian families. Female workforce participation is now at its highest recorded level since 1945 and we want this to rise further.

Furthermore, there are early indications that the Government's new Jobactive employment services scheme is helping to deliver improved workforce participation.

Our $6.8 billion Jobactive program places an emphasis on ensuring income support recipients who can work are actively seeking employment. This gives them the best chance of finding a job.

As a result of our changes, it is likely that some people who were classified as not seeking work in June, are now seeking work – and therefore counted as part of the labour force. This may create short term volatility in employment data but it reflects a structural improvement in participation, which is a key driver of growth.

And finally, we are putting the Australian Budget on a sustainable pathway to surplus.

As I outlined in the Budget, our budget position is getting stronger each year.

We inherited a $48 billion deficit, we are set to deliver a $35 billion deficit this year, down to a $7 billion deficit in three years' time. Directly as a result of our action, gross debt in a decade will be $110 billion lower than we inherited.

We are on a solid and credible path to surplus, despite the iron ore price more than halving and numerous international growth downgrades.

Budget repair is essential to buffer the economic headwinds that may prevail from time to time.

Conclusion

The one common theme across all the countries I engaged with in the G20 is that clear, accommodative monetary policy and big Government spending are not sustainable drivers of medium or long term economic growth. We need ongoing structural reform to deliver quality growth.

And this message is as clear for massive economic powerhouses like China and the US, as it is for emerging economies like Indonesia and Mexico.

In the future we will all have to earn quality growth through quality reforms.

G20 members are putting in place reforms that lift investment in infrastructure, improve competition and regulation, boost employment and facilitate greater global trade.

If we make good on these reform commitments, they will generate an extra 2 per cent in economic growth for G20 economies by the end of 2018, compared to 'business as usual'.

I'm pleased to say that G20 members are making progress. Early assessments are that, after the first year, roughly a third of measures put down at Brisbane have been fully implemented.

But more needs to be done and I can promise that Australia will play its role.