Speech to the CEDA Luncheon
TUE 01 FEBRUARY 2011
Hilton on the Park, Melbourne
Last week I spoke at the National Press Club on meeting the challenges
of flood recovery while retaining our commitment to fiscal responsibility.
Today I want to take a broader view of our nation’s economic future in the years and decades ahead.
Two months ago I spoke to you on CEDA’s 50th anniversary, and what remarkable years they have been for our nation.Those five decades divide neatly into two very contrasting eras.
The first 25 years were a time of complacency when we sheltered from the outside world.
The next 25 years were the age of reform.
Through good decisions and hard choices, we built an open and competitive economy based on skills, productivity and innovation.
I am a product of that era.
That is why I know that our continued economic success depends
on continuous reform.
Reform to nurture us through the resources boom.
But also reform to take us beyond the resources boom.
Nurturing the boom and sharing the growth won’t just happen,
it will take national leadership and decision-making.
Reform is essential if we are to realise our aspirations to progress
as individuals and as a nation.
One thing is clear.
Managing the current expansion through the conventional tools of fiscal and monetary policy are not enough.
Macroeconomic stability, including low and stable inflation and the stability of the financial system are vital.
They are necessary.
But they are not sufficient for the future I have in mind for Australia.
I am deeply ambitious for our nation.
Australians are hard workers.
Australians are innovators.
Australians are determined.
That has driven much of our success.
But we have been lucky too, blessed by a resources boom which, matched with hard work, is sustaining much of our growth.
We are the lucky country, but we are so much more than that as well.
I am determined to drive a permanent reshaping of our economy so that our success far outlasts our luck – and I believe we are up to it.
A high tech, high skill, clean energy economy that is self-sustaining beyond our reliance on mineral exports.
That’s the future I want our children and grandchildren to thrive in.
Such a future is in our hands, and it will be defined by the way we handle the current minerals boom.
Get it wrong, and we falter.
Get it right, and we set the nation up for decades to come.
Mining – the opportunities
Friends, the current upsurge in our terms of trade has been described by the Reserve Bank as the biggest resources boom since the 1850s gold rush.
Since 2004, mining investment has increased fivefold.
This year, Australian industry will invest more money into mining than the whole country invests in building new houses:
- something that has never happened before.
One single project – the $43 billion Gorgon project – is worth about the same as 2 years of output from agriculture.
To use a more domestic analogy:
Five years ago, the money earned from exporting 10,000 tons
of iron ore would buy about 280 dishwashers.
Today it would buy you around 1,400 dishwashers, a 500 per cent increase.
On any measure, we are living though a boom.
And that boom is a good thing.
Mine workers are gaining higher wages.
Suppliers are benefitting.
Superannuation funds are earning more.
And the higher dollar is cutting prices for household goods such as clothes, appliances, TVs and computers.
The boom is good news for Australia and we should celebrate it.
But there are real challenges in managing its effect on the economy.
Just as we made the big decisions to beat the global recession in 2008
and 2009, so we need to make the right calls to nurture our economy though the boom and safely beyond.
Mining – the challenges
Because mining is especially profitable at the moment, it rewards investors and pays workers well.
Equipment and workers are drawn from other parts of the economy,
like a magnet dragging iron filings towards it.
While the boom is good news for Australia, there is a challenge in managing its effect on the economy.
I think of this effect as the “patchwork pressures “ where some parts of the economy are strained by growth while others risk being left behind.
In mining areas, the boom has lifted housing costs, it forces non-miners to raise wages to keep workers; and it puts pressure on infrastructure like roads, ports and rail.
The mining boom has fuelled a record high for the Australian dollar.
This strong Australian dollar lowers prices for imports – which is good.
But is also makes it harder for our exporters to compete.
Mining’s hunger for equipment and workers can also raise costs and make it harder for these non-mining sectors to compete, compounding into a double-whammy the effect of the high Australian dollar.
The Minerals Resource Rent Tax will help ensure the proceeds of the mining boom are invested in a stronger economy to benefit the whole community.
Revenue will be used to cut the company tax rate for all companies,
to increase superannuation for all workers and to build essential infrastructure across the country.
These policies will strengthen and help share the growth across all parts of the economy.
Skills for the future
But friends, the biggest challenge arising from the boom is the shortage of skills.
After three decades when unemployment was our major problem, we now face shortages of labour – a problem unmatched anywhere in the industrialised world.
Since November 2007, we have created more than 715,000 jobs.
Never have so many Australians enjoyed the benefits and dignity of work.
But we need more workers – for today and tomorrow.
In the short term, the mining boom is placing huge strains on our labour market, compounded by the demands of flood recovery.
For example, the resources sector will face a potential shortfall
of 36,000 tradespersons by 2015.
But the ageing of the population will create even greater pressure over the next 40 years because it will create a yawning demographic deficit.
By 2050 almost one-quarter of this country's population will be over 64; almost double the figure today.
Real per capita GDP growth will slow to an average of 1.5 per cent a year - compared with 1.9 per cent during the past 40 years.
At the same time, Australia’s productivity growth has slowed over the past decade, averaging only 1.4 per cent compared to 2.1 per cent in the 1990s.
It is vital that we unlock all the potential of our labour market:
Both the young people who are the workers of the future.
And the adults of working age whose absence from the labour force
is not only a social tragedy but an economic risk.
For young people, our goal is nothing less than the best education system in the world.
Great schools led by great principals and staffed by great teachers.
Universities creating opportunities for all – with uncapped publicly funded places to meet the aspirations of students and at the same time, supply the professional skills that industry needs.
A world class market-driven TAFE and vocational training system – designed to deliver the expertise and skills to unleash a new wave of innovation in Australian industry.
We also need to drive participation for young people who fall through the cracks because the better their skills, the more likely they are to succeed in life.
That is why we have entered into a compact guaranteeing every young Australian under age 25 a training place if they are not already in full-time education or in work; Learn or Earn.
We are also increasing family support by up to $4,000 a year to encourage teenagers aged 16 to 18 remain in school or TAFE.
In the same way, we have been gradually changing policy settings to increase immediate and long term incentives for adults to participate in the economy.
Last month we introduced the nation’s first ever Paid Parental Leave scheme, which will help redress the Australia’s relatively low participation rate for women aged 25-44 compared to the OECD average.
We have increased the Child Care Rebate from 30 to 50 per cent, and raised the annual limit per child from $4300 to $7500.
Along with Child Care Benefit, this means that low income families have around 80 per cent of their child care costs met by the Australian Government, a significant measure to support low income families with young children return to work.
Our incentives also extend to the tax system.
We have delivered significant tax cuts for low to middle income earners
in our first three budgets, including an increase in the effective tax free threshold for low income earners from $11,000 to $16,000, a huge advance in making work pay.
And we intend to do even more to build participation and make work pay.
Friends,we look with particular care and concern on the large number of working-age Australians, possibly as many as two million, who stand outside the full-time labour force, above and beyond those registered as unemployed.
Around 800,000 are in part-time jobs but want to work more.
Another 800,000 are outside the labour market, including discouraged
And there are many thousands of individuals on the Disability Support Pension who may have some capacity to work.
We know that not all of them can work right away.
Many will need re-skilling.
The right mix of incentives.
Help to overcome ill-health or meet family responsibilities.
But we do want them to re-engage with the workforce and gain the benefits that come from having a job: increased income; social engagement and friendship;
self-esteem and wellbeing.
That is why this year I will continue to take steps to improve the incentives for such potential workers to rejoin the labour market, while also investing in the intensive support needed to lift their skills and job readiness.
The policy changes are formidable, and we will not lose sight of the need for compassion and understanding of individual circumstances.
But to the maximum extent possible, I want to ensure that every Australian who can work, does work.
I want to ensure that the incentives of work always outweigh the attractions of staying on welfare.
Beyond the boom
Friends, managing the pressures of the boom is vital.
But I believe we can do so much more.
We can create a high participation, high productivity economy, where everyone shares in the benefits of our hard work.
To do this, we need a stable macroeconomy, creating certainty for economic decision making.
We need flexible markets with the right incentives and price signals to maximise the value of our people and capital resources.
We also need strong capabilities: skills, infrastructure, research and development, entrepreneurship.
With courage and imagination, we can build a high-skill, high-tech, low-pollution economy that will succeed independent of our mineral wealth.
That is my vision for the nation.
A fundamental reshaping of the Australian economy as profound in scale and ambition as the reforms of the Hawke-Keating government, which opened our economy to the world.
I want to make sure that our nation invests enough of the profits from the mining boom so that the benefits are there for the long term.
That means investing in long lived economic assets and infrastructure.
Preparing for the nation’s journey through the 21st century:
Ports, roads and rail to fuel our exports and unblock our cities.
Research infrastructure to nurture the ideas and inventions of tomorrow.
Bringing the transformative possibilities of broadband to every home, school and business in the nation.
And above all, putting a price on carbon - a fundamental structural reform as significant in our own time as the reforms of the Hawke-Keating government a generation ago.
Hawke and Keating floated the dollar.
We will price carbon.
A carbon price will drive another sweeping technological revolution like Information Technology did in the 1980s and 90s.
New technologies bringing new jobs and demanding new skills.
Using the abundant resources of this nation – solar, wind, geothermal – that currently go to waste.
Manufacturing more and exporting more.
And regaining comparative advantage because the world is always in the market for good ideas.
That’s the future I want for our nation: strong; smart; sustainable; grateful for the boom but ready for the time beyond.
Friends, to achieve all these things, we need a strong and sustainable financial position, based on a culture of public and private saving.
Under my plan to increase super contributions from 9 to 12 per cent,
our $1.7 trillion pool of super savings will double in 15 years.
I want to make sure we save enough of the profits of the mining boom for the long term.
Putting some of that money into superannuation will do that.
To complement an increase in private savings, we also need to increase public savings and strengthen our budget position.
The truth is that although our economy is strong, our budget position remains compromised by the recklessness of the Howard years.
In the final term of the Howard government, additional revenue contributed $334 billion to the budget surplus over the years from 2004-5 to 2010-11 while new spending decisions and tax cuts reduced the surplus by
Effectively, the Howard government spent the entire additional revenue from the commodity boom Mark One.
Put it another way:
Whenthe economy was growing strongly during the previous boom,
real spending growth under the former Coalition government ran at
3.7 per cent, almost double our 2 per cent spending cap.
That was the situation we inherited in 2007.
Returning the budget to surplus is thus not a political goal but an economic imperative.
Firstly, to rebuild the structural integrity of our nation’s finances.
Secondly, to ensure that the footprint of government does not add to aggregate demand when the economy is running close to full capacity as expected in 2012-13.
In circumstances of strong demand, it is economically prudent to reduce inefficient spending and offset all new outlays.
Even before the floods response, our fiscal consolidation has been the fastest budgetary turnaround since the 1960s.
And in 2011-12, Commonwealth revenue as a share of GDP will be lower than for every single year of the Howard era.
This is a low taxing government.
And a last week’s flood response opened a new dimension of fiscal stringency.
I stand by those cuts and by the fiscal and policy rigour which drove them.
It’s right to price carbon, the most economically efficient way of reducing pollution and to cut less efficient programs.
We have also proposed a modest one-off levy to help pay the costs of rebuilding as we go: targeted, temporary, transparent.
There is a strong history of levies being used by the Australian Government.
Six were proposed during the course of the Howard years:
A levy on superannuation for high income earners.
Levies to restructure the milk and sugar industries.
A levy to buy back guns in the aftermath of Port Arthur.
A levy to help meet the entitlements of former Ansett staff.
A proposed levy to help the people of East Timor rebuild.
And, of course, Mr Abbott’s proposed levy on Australian business to fund his paid parental leave scheme.
If a levy was good enough to pay for Mr Abbott’s election promises just last year, how is it not good enough to support rebuilding flood-ravaged regions now?
That is political hypocrisy at its worst.
Friends, the levy I propose is modest and affordable.
The flood victims themselves won’t pay a cent.
60 per cent of taxpayers will pay less than a dollar a week.
Someone on $80,000 will pay $2.88 a week - less than a cup of coffee, 10 times less than the tax cuts they've received over the last three years.
With the funds raised from the levy and our budget measures we will help put the Queensland economy fully back in business.
We will fund the high-cost infrastructure that sustains employment and facilitates our exports, the hard infrastructure we own as a community: roads, rail, ports.
By contrast, the donations so generously given by the Australian people will go to individuals and families affected by the floods.
Those donations are tax-deductible.
And every cent will help a family in need.
Just as every cent of our $6 billion recovery package will go to restoring productive infrastructure damaged by the floods.
Two different streams of money, but one shared purpose – to put the flood affected regions back on their feet.
Friends, a high tech, low-emissions economy; skills; productivity; infrastructure; broadband.
I seek these things because they are the future.
And while we must govern for today, we must govern for the future
as well; for the nation we can become.
Yes, the challenges of today and tomorrow can easily leave us yearning for what we remember as a kinder and simpler past.
But I do not believe in romanticising the past, any more than I believe in being afraid of the future.
We best combat fear by taking deliberate steps to shape the future together.
Hard steps on the road of reform.
Big decisions and a big vision for our nation’s future.
I am a complete optimist about that future because I firmly believe the best days of our nation are in front of it, not behind it.
Australia is a wonderful country, the greatest country on earth.
We are privileged to live here and we best respect that great privilege by shaping a future of opportunity for all.