TREASURER'S ECONOMIC NOTE
I write this special Friday edition of my Economic Note as I arrive in Washington for the G20 and IMF spring meetings. As I sit around the table, it will once again serve as a chance to reflect upon the extraordinary events that have beset the global economy over the last five years, and reinforce the massive impact these events continue to have on so many people around the globe. It’s also a reminder that because Australia took the action we did during the GFC, we’re in the enviable position of being able to put in place the smart investments that are so critical for our future, like the National Plan for School Improvement.
When I attended these meetings in 2008, the discussion centred on leaders coming together attempting to get a true grasp of the momentous turmoil we were witnessing on world markets. The discussions in those dark days weren’t about whether the market crash was going to hit our economies or not, but rather, just how big the tidal wave would be – and what we needed to do to protect our countries. It was at these meetings in 2008 that global leaders agreed on the need for a powerful and coordinated global response to avoid a repeat of the Great Depression. Here in Australia, we responded with one of the world’s most successful stimulus packages. As American economist Joseph Stiglitz has said, Australia had “probably, the best designed stimulus package of any of the countries, advanced industrial countries”. While Australia’s response was critical in protecting jobs and growth, sadly, the response from many countries was too little too late. Even worse, we now see countries with very weak economies falling into the trap of mindless austerity, when they should be trying to provide support to activity in the short term while improving fiscal sustainability in the medium term.
The contrast between Australia’s resilient economic fundamentals and others around the world is there for all to see, whether it be our solid growth, low unemployment, contained inflation, record high investment or strong public finances. Going to G20 and IMF meetings really puts these indicators into perspective – for example, while some at home try to whip up ridiculous scare campaigns on debt levels, our net debt as a per cent of GDP is a fraction of the levels of other advanced economies. If not for our action during the GFC, Australia would have gone into recession like so many other countries that will be represented in Washington. In fact, our economy has grown more than 13 per cent since the Government came to office just before the GFC, significantly outstripping every major advanced economy.
Cumulative GDP growth since December 2007
For example, the United Kingdom has contracted by 3 per cent over this period and is on the verge of its third recession in four years, while the country that many commentators compare our economy to – Canada – has achieved growth of less than half of what Australia has seen over this period. Even today, many advanced economies remain in recession, and others like Germany contracted in the December quarter.
It’s one thing to have economic growth, but it’s an entirely different proposition to have inclusive growth. One of the greatest stories of the past five years has been how we have been able to spread the opportunities of Australia’s economic strength to more people. Consider this – in the US, median real household incomes were stagnant even prior to the GFC, growing by 0.4 per cent a year between the mid-1990s and mid-2000s, leading to a hollowing out of the middle class that now worries politicians and economists alike. By contrast, the typical Australian household has seen real income growth of 2.2 per cent a year, gains we have built on since the onset of the GFC.
One of the most important ways an economy can spread opportunities is through job creation. This has been the guiding principle that has underpinned the Government’s actions over the past five years. Not only has the Australian economy outpaced the vast bulk of advanced economies since late 2007, but we’ve also seen around 900,000 jobs created in Australia over this period, while 28 million jobs have been shed around the world. Our unemployment rate here is 5.6 per cent. In the US it is 7.6 per cent, and it is 12.0 per cent in the euro area. In Spain it is 26 per cent and 56 per cent for young people.
Cumulative employment growth since December 2007
The reality of the economic challenges the global community is facing is that once again, governments are facing choices. While Australia faces these challenges from an enviable position of strength, we face significant revenue write-downs in part due to a stubbornly high dollar and competitive pressure on our industries, which have contributed to lower profits and subdued price growth across the board. This means we’re having to make tough decisions. But as a Labor government, we will always prioritise jobs and growth, the same principles that governed our decisions during the GFC.
There’s a broad range of views on how to deal with today’s economic challenges – both at home and abroad. But to cut to the bone – as our political opponents advocate – would drive our economy into the ground and send unemployment skywards – the experience of many advanced economies around the world. This approach will never be acceptable to this government. As the IMF has highlighted, “fiscal adjustment needs to proceed gradually, building on measures that limit damage to demand in the short term.” As we deal with the ongoing challenges in preparing this year’s Budget, we will continue to have jobs and growth front of mind. We will continue to invest in our future, in particular in the future of our kids through the National Plan for School Improvement.
Deputy Prime Minister and Treasurer