Address to the B20 Plenary Session, Los Cabos
SUN 17 JUNE 2012
And I thank each of you for your contribution to promoting economic and social progress, despite the deep problems affecting the global economy.
There are some 200 million people unemployed worldwide, with nearly 75 million youth unemployed.
Growth is weakening in a number of countries and uncertainty and risks have intensified, driven in particular by events in Europe.
The scale of the human cost tells us that a return to growth is urgently required.
So it’s important that we ask hard questions about plans to spread and sustain growth, to create jobs, to avoid the mistakes of the past. Today I want to say to you very clearly:
In a world where it is easy to be downbeat, we must also be able to point to our successes and understand our strengths.
Difficult times in the global economy demand courage from leaders in government, business and wider society – but that courage can find its strongest foundation in confidence.
So for example, Australia takes considerable pride in the work of the G20 and of associated gatherings like this one, the B20.
The growth of the G20’s importance and effectiveness is one of the global successes and strengths we can reflect on, and build upon, as we look to spread and sustain global growth.
And today I want to say to you that Australia also takes considerable pride in our own economic achievements.
Our record of growth and job creation gives me confidence: because I have seen our own determination and decisiveness rewarded in Australia, I’m confident that determined and decisive leadership around the world will be rewarded too.
And I hope that Australia’s strong economy can be a sign of confidence to other countries.
We know there is a path of openness, investment and reform which leads to jobs and fiscally sustainable growth for the long term.
We know that because it is the path we have followed.
And while we acknowledge that every country faces its own unique circumstances, we do believe that there are some lessons for the world in the Australian way.
So first, the dose of realism.
Some progress has been made on the global economy since we last met.
Importantly, in the United States, the recovery continues at a moderate pace. But challenges remain even there, particularly in the housing and labour markets.
European leaders have also taken important steps.
But despite an increase in bail-out funds; the bank restructuring that has occurred in a number of countries; the unprecedented liquidity injection afforded by the long-term repurchase operations of the European Central Bank; and the debt restructuring that has occurred in Greece, Europe’s situation remains hugely difficult.
The euro area's unemployment rate remains at double-digits and many euro area economies appear to have re-entered recession.
Second, the signs of change.
It’s now clear to more and more people that austerity measures – measures which we freely acknowledge have been followed in response to well-grounded concerns about sovereign debt – need to be accompanied by a commitment to growth which is equally urgent and strong.
The growing consensus about this is a positive and important development.
We are seeing a reshaping of the debate in Europe and beyond: not before time, there is a growing recognition that growth is an important precondition for confidence, job creation and ultimately fiscal consolidation itself.
Europe must have credible fiscal consolidation plans to restore fiscal sustainability, but it is also essential that it has a strategy for growth that includes policies aimed at boosting trade and investment, freeing up product and labour markets, deregulating business, promoting competition and building skills.
Fiscal consolidation cannot be an end in itself.
It must be a part of a comprehensive approach to spreading and sustaining economic growth.
Plainly, one of the key pressure points of the global economic recovery is the magnitude of many nations’ public debt.
Plainly, ensuring the sustainability of these countries’ public debt positions is an important medium-term issue that cannot be ignored.
Indeed, that is perhaps the most important lesson of the current crisis.
But at this point, I believe the debate has often taken one of two missteps.
The first is the view that austerity alone is enough, when public debt is partly a function of other structural problems.
The second of these missteps is the opposite view – that we must choose growth instead of discipline.
For growth to be sustained, it must be sustainable – and so policies to promote growth must work alongside policies to deliver fiscal discipline over time.
The right path begins in recognising of a more complex reality.
It begins in understanding that in Europe and beyond there are at least two problems – the problems of fiscal sustainability and the problems of stagnant growth in the real economy, often underpinned by structural weakness.
Understanding, in turn, that these two problems are related – as the longer economic growth remains stagnant, the harder the task of reducing public sector debt to sustainable levels.
It requires acknowledging that fiscal sustainability can’t be achieved by immediate cuts which choke growth.
Knowing, in turn, that growth will not be forthcoming without credible commitments to discipline - without action now to adopt medium-term fiscal consolidation plans.
Businesses will not invest and consumers will not spend unless they have some confidence in the future and the economy.
If the need to keep a watch on longer term fiscal outcomes is the headline lesson of the crisis, the opening paragraph is that Governments must ultimately pursue policies which markets accept are affordable over time.
Ultimately, profligacy and austerity are each symptoms of simplification and short-termism.
What is needed in contrast is a comprehensive and long-term approach.
So – this is a sketch of the real strategy required.
Third, let me sketch the action that should flow from this strategy.
Governments in countries where growth is weak should not be looking to aggressively cut public spending or raise taxes now – in “real time” as it were.
Rather, I want to encourage policies that can maintain or even expand growth in the short term, but that can also be fiscally responsible.
Governments’ immediate fiscal decisions must be made with an “eye on the future” – something which has been missing for far too long.
This leaves room for sound policies which impart short-run boosts to consumption and investment and which also add to productive capacity in the long run.
This approach must be applied strictly. It cannot be used as an excuse to repent now and repent later. And open trade is vital too.
Pressures for protectionist measures remain high in many countries – often badged as a means to “keep jobs at home”.
Yet we know that open trade is ultimately vital for growth and jobs.
Broadly speaking, this has been the Australian way – the policy path our Government has chosen – not only in 2008 and 2009 but now as well.
We stimulated in the downturn.
When growth was threatened by the onset of the global financial crisis, our fiscal response was timely, temporary and targeted.
This was coupled with a clear set of fiscal rules to ensure we returned the budget to surplus when growth returned to trend.
We went for growth on the way in and we went for discipline on the way out once growth had returned.
This took form in deeds, not just words.
Our stimulus contributed around two percentage points to real GDP growth in 2009 and without it we would have lapsed into recession.
Now that our economy is showing strong signs of growth, we have brought down a Budget which delivers a surplus in the coming financial year.
The recent Budget did not just bring our finances back into balance.
It maintained a policy balance as well – shaped by a clear set of priorities reflecting our commitment to the wellbeing of all our people and our understanding of the long-term drivers of economic growth.
So in a Budget which contained total cuts worth around one per cent of government outlays, investment in infrastructure was maintained, spending on education and skills formation grew, and our investment in high-speed broadband continued.
Friends, each country faces circumstances more or less uniquely its own: its own weakness and failings, its own successes and strengths.
It’s certainly true that Australia’s circumstances are importantly shaped by forces beyond our domestic policy settings – like growth in Asia, like our rich natural resources.
It’s also true that Australia’s historically strong public and private institutions, particularly our strong financial system, have held us in good stead.
It’s equally clear to me, however, that Australia’s economic strength can be an important sign of optimism to countries of the world.
And that our policy response can be an important sign of the right way ahead.
This is why, in coming days, I’ll be urging my European friends this:
Take note of the Australian way.
A credible commitment to fiscally responsible growth is the only way forward: Australia has shown this is the way.
Consider this - unlike the recession Australia endured in the early 1990s, when our unemployment levels reached 11.2 per cent, since the crisis of 2008-09 we have been able to create over half a million jobs.
Indeed since late 2007, Australia has created over 800,000 jobs.
To give you a sense of the scale of this achievement in Australia’s medium-sized economy – the equivalent would be creating over 10 million jobs in the US or more than 13 million in the euro area.
Australia’s unemployment is currently 5.1 per cent.
Australia’s GDP is now about 9 per cent above pre-crisis levels.
By contrast, around half of the world’s other advanced economies have not recovered their pre-crisis GDP levels.
And by growing the economy and avoiding mass unemployment, we’ve prevented social dislocation and the destruction of human capital that other advanced economies have seen in the past four years.
During our own recession of the early 1990s, the number of people starting apprenticeships fell by one third in just two years – and even worse, took thirteen years to recover to pre-recession levels.
That loss of human capital meant skills shortages during the recovery and long-term joblessness even during periods of sustained growth.
We learned from that experience.
In 2008 and 2009, Australia’s Government invested in skills as the downturn hit Australia and cost jobs.
So while we had a drop in training starts as the down-turn bit, falling nearly one fifth in 2008-2009, they took just two years to recover and today stand at record highs.
And we have done all of this while putting Australia’s public finances in the most enviable of positions.
Last year, for the first time in our country’s history, we were awarded a Triple A credit rating from all three major credit rating agencies.
Ladies and gentlemen, friends. If I can summarise:
Realism demands that we recognise global weakness.
It also allows us to recognise some signs of positive change.
A more sophisticated understanding of the connection between economic growth and fiscal discipline is emerging – and not before time.
That understanding must lead to action – to decisive new measures to restart growth, combined with credible plans and practical steps for medium-term fiscal discipline to sustain growth.
And while that action will take courage, it can be based on confidence – and we offer the Australian experience as a sign that your confidence can be well placed.
And having summarised, if I can address you as business leaders in particular:
The type of approach I have outlined is not easy – if it were, it would already have been followed.
Your governments can only do so much and they need your support – business leaders are as important to this process as political leaders.
In Australia’s case, in 2008 and 2009 the business community and government worked together and it was this sort of cooperation that helped pull us back from the abyss significantly reducing the human cost of the crisis in Australia.
We’ve maintained that commitment to co-operation in the years since and it is driving our agenda in areas as diverse as deregulation, trade, innovation and reforms to tax.
Across the globe, this same cooperative approach is needed to drive growth and jobs.
Everyone has to support reforms to drive growth.
Everyone who does will benefit from such reforms.
That is the lesson of Australia’s way.