Address to the Chamber of Commerce and Industry of Western Australia Burswood Entertainment Complex, Perth
Period of Service: 03/12/2007 to 24/06/2010
Release Date: 22/04/2009
Release Type: Speech
Transcript ID: 16511
I said before it's good to be back in this great city, it's good to be back in this great state of Western Australia. In the 15 months or so that I've been Prime Minister this is the seventh time I've visited and for the future you can expect me back on a regular basis every couple of months or so.
When I come back here and I'm here, I always learn something. It's not just that you feel welcome in a State like this - coming from the great state of Queensland there are degrees of commonality between our two views on life - but it's also this is a genuine place of excitement and dynamism and what I've described as a positive attitude of having a go.
I think in the great debate about future directions in the economy at present, both in this country and abroad, effectively they're divided into two camps. Those who are prepared to sit at the sidelines and carp and complain and describe everything that is going wrong, and those on the other hand who are prepared to get out there and have a go. Have a go at making a difference, have a go at making a decision, have a go at taking those hard continued decisions about continuing to maintain your economy levels, keeping people in a job, wrestling with the difficult challenges which confront you on a daily basis and a weekly basis as you look at your balance sheets.
That's the positive attitude, the constructive attitude, the engaged attitude that I sense every time I cross the Nullarbor and come here. And it hasn't changed since the global economic circumstances have deteriorated. So I congratulate you as representatives of one of the most dynamic business communities in the country, it's a reputation you deserve.
The facts and figures for Western Australia speak for themselves. WA accounted for 36 per cent of goods exports for the Australian economy - more than any other state. WA has been so much the economic powerhouse of Australia and I have absolute confidence that that will continue to be the case and this Government, the one that I lead, intend to be your partners in that pursuit of progress. Of course conditions now are tougher in the global economy. Exports are weakening. Unemployment as you know is rising. It's harder for businesses.
Tomorrow, the International Monetary Fund will release revised forecasts for the global economy. This will be the fifth revision to the IMF's forecasts for 2009 since April of last year. Five sets of revisions. That alone highlights the force with which the global financial crisis has knocked the global economy and its uncertain trajectory.
The outlook for the world economy this year is worse almost than any of us has seen in their lifetime. We are in an exceptionally deep and widespread global recession. 28 of the 30 most developed economies in the world are already in recession or have experienced at least one quarter of negative economic growth in 2008. Seven of Australia's 10 largest trading partners are already in recession.
Today I'd like to spend some time talking to you about four or five challenges we face. Firstly, the key challenges which we the Australian Government confront in framing a national budget in the midst of a global recession.
Secondly, why it is necessary to support economic activity through the agency of Government while the private sector is under stress and difficulty and therefore why it is necessary for governments to engage in temporary deficits and temporary borrowings in order to do so.
Thirdly, to outline our strategy of action: local, national and global to chart a course for this economy through these difficult times which we now confront.
Fourthly, our specific strategy for investment here in Western Australia, and finally what I would describe as a rational basis for hope, optimism and confidence in this State's and this country's economic future.
Global conditions have never played a greater role in the framing of the budget that we now currently confront. Framing the budget in this current context is incredibly tough. Framing the budget in these circumstances has never been framed at a more difficult time. As I have said since the beginning of the global economic storm, Australia is better placed than most other countries as we make our way through this storm. But that doesn't mean we can be immune from such a deep and widespread global slump.
As Glenn Stevens, the Governor of the Reserve Bank, said yesterday and I quote him, “it is very rare for Australia to escape an international downturn and there is no precedent for avoiding one of this size”.
So what is our economic strategy to see Australia through this global crisis and how do we intend to prosecute that in the weeks and months and years that lie ahead?
Let's be clear about the facts. This global economic recession is the worst in 75 years and it has also dragged Australia into recession, and that means higher unemployment, lower government revenues and therefore the toughest Budget to prepare in modern economic history.
Since the collapse on global financial markets in the second half of last year, the Government has taken strong, early and decisive action through an economic stimulus strategy to support business, to support jobs and to cushion the impact of the global recession on Australia.
That's why a core part of our continuing economic stimulus strategy through the upcoming Budget will be to support business, jobs and confidence - by investing in our nation's future infrastructure, by building the schools of the 21st century and by building long-term infrastructure including a national broadband network. In short, by creating jobs we need for today while building the infrastructure we need for tomorrow.
This global economic recession has also dragged Australia into recession and has also produced the single biggest collapse in government tax revenues in post war Australia. That is why temporary government deficits are necessary and temporary government borrowing necessary as well. Necessary to support businesses and to support jobs until the private sector recovers.
The alternative would be to make the recession worse, throw more people out of work, put greater stress on business, therefore resulting in larger deficits and greater borrowing in terms of Governments.
That is not a responsible economic strategy. The core fact is more than two thirds of the government's temporary deficits and temporary borrowings are exclusively the result of the collapse in government tax revenues brought about by the global recession. Revenues are being hit hard by falling profits, the collapse of capital gains, lower incomes and rising unemployment.
These are basic unalterable facts and that's why we've got to make some tough calls in this year's Budget, which is being ravaged - the economy more broadly - by the impact of the global recession.
Downward revenue revisions have already been published in November's Mid Year Economic, Financial and Fiscal Outlook, and in February's Updated Economic and Fiscal Outlook. In November, those downward revisions in revenue amounted to $40 billion across the forward estimates.
By February, those revisions had risen to $115 billion across the forward estimates. The downward revisions in revenue already announced amount to 63 per cent of the change in next year's Budget outcome since last May. And they make up almost two-thirds of the Government's anticipated borrowing requirements over the forward estimates.
With the further deterioration in the global economy since early February, the revenue outlook and the budget forecasts are now substantially worse than the forecasts released in February.
In the current unprecedented global conditions, a temporary budget deficit is not an option - it is an inevitability. Every government, every responsible government around the world is being forced into greater levels of temporary borrowing. At the end of last month, the OECD forecast that budget deficits across the OECD will average nearly nine per cent of GDP in the OECD next year and rising.
In this respect it is necessary briefly to touch on the current national political debate over budget policy.
The Leader of the Opposition knows that the Government refusing to engage in temporary but necessary borrowing in the current economic environment would in fact be a recipe for an economic catastrophe in Australia. That is why the Opposition has admitted themselves that they too would also undertake fiscal stimulus and borrowings in the current climate.
It's important to underline some facts here.
In February Mr Turnbull acknowledged that a government led by him would still need to borrow at least $177 billion. At the same time, Mr Turnbull and the Opposition are attempting to criticise this Government's temporary deficit and temporary borrowings. This I would suggest is the very definition of opportunism.
Politics can often be a contest between policy consistency on the one hand and political opportunity on the other. And when it comes to temporary deficit and temporary borrowing I regret to conclude that Mr Turnbull's remarks indicate that he has chosen the opportunistic path.
If Mr Turnbull wants to criticise the temporary, responsible and necessary borrowing by government during a recession, then he should be clear-cut, absolutely clear-cut as to what the alternative strategy is.
Again, the facts are these - the collapse in tax revenues and the operation of the automatic stabilisers would result in a budget deficit and borrowings even without a single dollar having been spent on fiscal stimulus.
Therefore, the Opposition Leader needs to explain just how he could deliver fiscal stimulus without undertaking greater borrowings. He needs to explain how he could provide economic stimulus while revenues are collapsing without undertaking further borrowings.
The point I make is this - it just doesn't add up, and every mainstream economic commentator knows it doesn't add up.
Our strategy is clear - temporary deficits, temporary borrowings are necessary in order to support economic activity in our national economy, including the economy of Western Australia, until such point as the private economy recovers.
This is not a choice, it is a necessity, and it is the right choice under our national economic circumstances at present.
As the Reserve Bank Governor remarked yesterday, macro-economic support for aggregate demand is a condition for economic recovery. Indeed as Mr Stevens said, the role of fiscal policy is more prominent on this occasion than has been the case in many years.
But what is also important, as Governor Stevens noted, is that we articulate also a medium-term path with a budget back towards balance. The Australian Government recognises the importance to confidence of sound public finance and we set out a clear path back to budget surplus.
Our position is that when the economy recovers and grows above trend, government will take action to return the budget to surplus, by first allowing the level of tax receipts to recover naturally as the economy improves, while maintaining the government's commitment to keep taxation as a share of GDP below the 2007-2008 level on average.
And second, to hold real growth in spending to two per cent a year until the budget returns to surplus. These are important fundamental fiscal policy disciplines.
Of course the current collapse in government revenues caused by the global economic crisis, and the need temporarily stimulated the economy will have a temporary impact on government borrowing and debt.
But as the economy recovers, the government will use these future surpluses to repay these temporary borrowings. That is the responsible, prudent and cautious approach to public finance policy and national economic policy given the circumstances we now confront in the midst of a global economic recession.
I said also I've spent some time talking to you today about the government's strategy of global action, national action and local action to confront the crisis which the global financial implosion has presented us with.
When I attended recently the G20 Summit in London, what struck me as I sat with leaders from around the world was a common realisation of all sitting at the table that we were all in this together.
Whether it was the King of Saudi Arabia, the President of capitalist America or the President of communist China - all of us around the table not bigger than a few of these tables put together, each speaking with common purpose about a common challenge.
The good news out of London is that governments around that table concluded that they needed to craft a global economic strategy for global economic recovery.
Leaders around the table were enormously seized at what had happened with their predecessors when they met in London in 1933 at a similar conference. In 1933, leaders from so many economies around the world gathered in London in a major international conference to devise a strategy to chart the world out of what was then unfolding as the Global Depression.
The 1933 conference was a spectacular global failure. It was not just a failure of politics, it was a failure of economics, and the consequences there etched in black and white in the economic history texts.
Governments failed to coordinate their actions - governments instead resorted to unilateral national actions. They threw up the protectionist barriers around the world and as a consequence, what we saw in '29, '30, '31 and '32 continued, intensified and deepened through the 1930s, culminating in the catastrophic events of 1939.
The good news is that leaders of the G20, seized of that historical precedent, decided to act differently, and decided to act differently in five specific areas.
One - coordinated global economic stimulus. Here is a figure: the governments around the world representing those 20 significant economies concluded that they should act together to inject and invest $5 trillion into the global economy. The size of the global GDP is something in the order of $63 trillion. $5 trillion by way of investment by these economies, by these governments, represents a significant difference.
If you were to withdraw that, and if for example you can withdraw the effort currently being injected by the Chinese government in their own domestic stimulus programs there, the roll-on consequences for activity in all our economies would be acute and unemployment would be even higher.
Furthermore, all of those leaders gathered together in London realised the absolute premium attached to coordinated action. One government here, another government there deciding to stimulate their economies is one thing - acting together as a further multiplier effect of that on the back of combined monetary policy actions by the central banks across the world has had a significant stimulatory effect.
That's the first thing that global governments agreed upon.
The second is this, and it goes to the absolute heart of the financial crisis which we currently confront, and that is what is happening in terms of the overall health of the balance sheets of the world's leading private financial institutions - what is called in the professional literature ‘toxic asset management within the banks of the world', and that's principally the large funds which deliver the biggest slice of global capital funds.
Why is this of relevance to every businessman and woman in this room today? It goes to the heart of the continued delivery of private credit flows to our economy and to businesses within our economy, both large and small.
The fact that so many of our Australian banks have raised their capital from abroad in turn makes us entirely dependent on the health of the world's leading financial institutions.
The core of the problem is this - how do you restore the impaired assets, the toxic assets, currently lying on the balance sheets of a number of the world's leading financial institutions to health? And secondly, how do you recapitalise those banks back into normal credit flows? Because it is until that happens, we have a normal restoration of credit flows at reasonable quantity, availability and price, that will continue to be impeded in our overall trajectory of economic recovery.
That is why the Australian government, in partnership with the Brits and others, spent a lot of time going to that London summit preparing a draft international framework for toxic asset management for the major banks around the world.
The good news is the governments of the world signed and agreed on that common approach, and the application of it, both in the United States, the United Kingdom and other national jurisdictions is underway.
Some early signs of the restoration of normal levels of activity are beginning to emerge but there is a long way to go.
But absent coordinated action and policy resolve by governments gathered in London to do so in a coordinated, integrated fashion would I believe to cause all of us to end up just spinning our wheels, waiting for the restoration of normal credit flows.
Now we have a trajectory towards recovery, although the time will still be there for the taking before it has direct effect.
The third concrete action we agreed upon in London was this - something which hasn't been on the front page of the local newspaper here, or many newspapers anywhere, but is of fundamental and deep importance, and that is providing enough money, resources and power to the International Monetary Fund to deal with any other systemic financial shocks later this year.
Regrettably, the data emerging from the economies and financial systems in Central and Eastern Europe and other parts of the emerging economy world and the developing world are concerning.
What will be doubly concerning is if you had fundamental implosions in those financial systems is that an absence of resources on the part of the IMF and others to deal effectively and early on those problems as they emerge.
The alternative, absent proper resourcing and power on the part of the IMF, would be this - that the current exposure which the major European banks have to their Central and Eastern European counterparts and to the economies of those countries would cause a rebound effect back to the major European banks and onto the rest of the global financial system which would create a second round of toxic effect for the rest of the global economy including Australia.
Everything in the 21st century is connected to everything else, and therefore, us acting together, and Australia played its role, together with other governments, in crafting a reform strategy for the International Monetary Fund. A working group which Australia chaired in the leading up to the G20 summit, was to ensure that one, the IMF had the resources and two, the power and flexibility to act.
And once again, global leaders reached that agreement in London.
A fourth area of outcome - the rules governing the financial system. Those of you in this room who are either engaged in the financial services industry or who are customers of the financial services industry would all have different views as to what should be the proper balance of regulations for the future.
Guess what? We're not Robinson Crusoe - those debates have been had in every country, in every economy around the world and are being had between governments as well. The challenge is to get the balance right between what was an under-regulated environment in the past, to one which we don't wish to become over-regulated in the future. To preserve enough flexibility, opportunity and capacity for innovation of the financial services industry on the one hand while matching that with proper and prudent management of risk and exposure and systemic difficulty on the other.
What we did in London was agreed on principles to do that and commissioned an expert global body - the Financial Stability Forum, which Australia is on - to craft those new regulations for the financial system for the future.
To get the balance right on future prudential standards, to get the balance right on executive remuneration within the financial services sector so that risk is properly calibrated with reward.
And to get the balance right more broadly on how the financial services sector operates in the future globally, because confidence cannot be fully restored in our economy or anyone else's until the economy and the country and the people at large believe that the rules of the financial system are right for the future.
Finally, an outcome from London was this - we agreed in London that governments of the world learned from the lessons of the 1930s and draw a line underneath an outbreak of the rampant protectionism that we have seen in earlier decades.
Protectionism, let off the leash, has a capacity to completely throttle, destroy, strangle and suffocate economic recovery.
We cannot allow that to happen.
In the 1930s that's precisely what they did allow to happen. The good news from London is that through the resolve of that communiqué, building on the resolution we achieved in Washington only four months before, that we resolved as governments leading the economies representing 85 per cent of GDP that any further protectionist measures inconsistent with our WTO obligations would not be contemplated, considered or implemented by any participating governments.
Whether there are going to breaches at the margin of that undertaking, well, time will tell. But what I do know, is that in the absence of that declaration, the absence of that concerted effort and decisions to enable the World Trade Organisation and others to monitor compliance efforts between now and when we next meet as the G20 Summit, this is an enormous step in right direction compared with what the alternative would be. Protectionism would throttle the global economic recovery, it would certainly throttle economic prospects in a great state like Western Australia as well which is so export-led.
My purpose in making these remarks to you about the global course of action is simply to underline that your Government, the Australian Government, has been into this big time with our partners from around the world. Often in ways which are invisible to the domestic debate and policy debate in Australia and understandably so.
But it rests ultimately on an unassailable piece of logic, that unless we are in there with the rest of the world helping to craft a pathway to global economic recovery, our national and locals actions will not add up to a lot, which is why we've been doing it.
As to our national efforts - and I will not speak long on this as you're more familiar with it- but the decisions we took last October to underpin stability in the Australian financial system were fundamental to the continued wellbeing of the Australian economy. Those of you in the financial services sector will understand full well what a near-run thing the events of last October were.
The events following Lehmanns and the implosions on Wall Street and the extraordinary events of September and October last year, had we not in that critical weekend in October acted to provide Government guarantees for the deposits of Australian bank deposits, building societies and credit unions, as well as provide a guarantee for our banks for their inter-bank lending in order to secure their external lines of credit, there would have been a fundamentally different scenario that would have unfolded for Australia following that critical weekend.
No Australian Government in the history of Federation has ever been asked to make either of those decisions. It was a sobering moment. Had we not made those decisions the consequences for the real economy and for the businesses represented in this room, I believe, would have been catastrophic.
The second arm of our national action has been this. Consistent with what I said before, given the contraction that is occurring in the private economy, the Australian Government has stepped up to the plate and engaged in a conscious, deliberate national economic stimulus strategy.
That is why we have invested in providing support for the one and half million Australians who work in the retail sector through the support we have provided through the payments to pensioners, carers, veterans and families. That is why we have stepped up to the plate by investing in the largest school modernisation program the country has ever seen. We are injecting some $15 billion, the equivalent of 1.5 per cent of GDP in creating a state of the art 21st century school across the country.
And our objective is this, is to turn every single primary school in this country into a construction site. Some may object to that for noise reasons. I don't object to it for economic reasons because what we're on about is providing opportunities for sparkies, electricians and tradies and everyone else down to the local level in order to provide jobs now to build the infrastructure we need for tomorrow and so too large scale investments in social housing, large scale investments in energy efficiency, large scale investments in our nation building and jobs plan which had this as its fundamental rationale: getting activity in the economy now, some $30 billion worth of direct investment and on top of that creating the infrastructure we need for tomorrow. That's it in a nutshell.
And beyond that as well, longer term infrastructure of the type which is alive in our announcement of the national broadband network and creating an information superhighway for the 21st century. This will be a project with investments in it of up to $43 billion. This is not a pipe dream. We will start rolling out this network as of July in Tasmania. Jobs now. Economic opportunities now. Creating infrastructure for businesses of the future as well.
Global action, national action but beyond that again local action. One of the reasons I've come to Perth in these last few days has been to spend time with local communities as I did around Fremantle and the City of Cockburn yesterday, speaking to a local jobs forum. Because the human face of all that I've been describing is when people lose their jobs through no fault of their own and their families are put at risk and as a consequence their communities suffer as well. How do we support them? How do we do it right? How do we do it better than we've done in the past? How do we engage the great talents of business and others operating at the local level to make a real difference to people's lives?
It's not just providing additional resources to those who are dealing with genuine hardship cases - what St Vincent de Paul do, what the Salvation Army do, what other charities do with emergency payments. That is fundamental, that is necessary, and that needs to be supported as well, particularly at a time when so many of these charities are already under stress because of the contraction of the corporate sponsorship dollar and we the Government are stepping up to the plate on that.
But the other challenge is this. In areas of intensified local unemployment as a consequence of this recession, how do we act effectively from the ground up in local communities through effective partnership with local chambers of commerce, with local unions, with local government and with local church, charitable and community organisations and so forth to make a difference.
The purpose of the local jobs forum that I addressed in the City of Cockburn yesterday which had several hundred local people representing all of the sectors I've just described, was how do we tap into their talent and enthusiasm and ability and ideas on the one hand and how to coordinate that with the levels of stimulus that we the national government are providing as well as what we are doing by way of additional training programs being offered nationally as well.
As I said to that community of Cockburn and I say this to all of you represented here today, this will work on the basis of enthusiasm from the ground up. It will work on the basis of good ideas generated from the community up. It's not for me to mandate from the vast and distant shores of Lake Burley Griffin as to what the solutions the City of Cockburn should be because inevitably we will get it wrong.
What I do know, however, is that local enterprise, local small business working in partnership with local government and the local community sector can come up with some powerful ideas and to make that additional capacity, we have created a $650 million local jobs fund to be, to support the efforts of our priority employment coordinators in each of these priority areas and that's a challenge here as well.
Global action, national action, local action. We put these things together and we've got a powerful opportunity not just to see Australia through this global economic recession but to actually do it infinitely better than would otherwise have been imagined. And that depends on us all putting our shoulders to the wheel against the realisation that we are all in this together.
For Western Australia and I'll conclude on this and I understand I will take some questions. Each of the investments I have described actually hits the ground here in the West as well. For example the Nation Building and Jobs Plan I referred to before - $1.8 billion worth of direct investment from the Australian Government coming here in the months ahead, which would otherwise not be the case.
Similarly it applies to each of the other elements of the stimulus strategy that I've referred to as well. Each and every one of the training programs I referred to as well. Each and every one of the local government infrastructure projects I referred to as well and the fact that our trebling the first home owners boost is out there supporting the residential housing sector in this state as well.
What I have described nationally is hitting the ground here in the West as well and it is important that it does, because my mission as Prime Minister of Australia is to make a difference on the ground here, in every suburb, in every community and in every town and in every city that is bearing the brunt of something which they did not cause; this global economic recession.
So in the weeks and months ahead what we'll be doing is monitoring closely how we are delivering each of those projects on the ground here and we'll be doing so in partnership with the WA Government, we'll be backing large projects here in Western Australia, as we've already done via our investment in the Ord.
Within not a long time of taking office, proposals came to me from the WA Government about what we could do to invest together in the Ord. My response was let's go and have a look to see if it stacks up and hop into it. And we did and we are. Within a few short months you'll have a $195 million investment for us to go partners with the WA State Government on how we can make this work.
Regard that as a template of how we intend to do business with the rest of the State. Our job is to make a difference and we intend to so in partnership with all of you here.
Lastly if I could comment on confidence and I'd like to conclude by reflecting on the comments also made by the Governor of the Reserve Bank in his remarks yesterday.
The financial year ahead is obviously a difficult one, it is going to be tough for businesses and tough for people seeking to hold on to their jobs. But let us focus also on the fact that our glass is more than half full. Let us not become preoccupied with focusing on the glass being half empty.
When we realise the collective strengths we have as an economy, when we realise the great strengths that you have here in the Western Australiam economy, let us be confident about how we can see this national economy and State economy through this crisis. And the fresh and new opportunities which it will generate.
We believe there are strong grounds for confidence in Australia's economic future and again I underline what the Governor said yesterday and I quote him: “Australia's genuine long-term economic prospects remain good, and there remain good grounds to think that we will continue to weather the storm better than most.”
The Governor then went on to make reference to six reasons as to why in this global recession Australia still offers a more attractive proposition to international capital than most other nations. First he said, and we take this for granted, we enjoy an assured political stability. And I would remind those in this room that that is not necessarily the case in many countries and many economies where this global recession does its work and (inaudible).
Second, the Government is free of the difficult governance and exit strategy matters that will arise in other nations that have given direct financial support to banks or taken ownership stakes. Let us remind ourselves of the fact that worldwide today there are eleven remaining double A class rated banks, four of those banks worldwide are Australian banks. Five of them are Canadian and it doesn't leave many besides.
This is a powerful selling point as you track around the world and I sat down with the executive of the New York Stock Exchange for lunch recently in New York and with a number of major listed companies represented. That fundamental fact together with our prudent approach to public financial management speaks volumes in terms of the global economy's confidence in what we are doing here in Australia.
Third, our public finances remain in very sound shape, with modest debt levels and a medium-term path for the budget back towards balance. Fourth, we have sensible macroeconomic and microeconomic policy frameworks. Fifth, we remain open for trade and investment. Sixth, we enjoy strong links with the Asian region, which enjoys the most dynamic growth potential in the world.
These are the six strengths referred to by the Governor in his remarks yesterday. He is right to refer to those strengths, they are enduring and fundamental strengths of this economy.
As we go forward - you in the West, ourselves nationally - let us be mindful therefore of this glass being more than half full. Let us also be mindful that the Government which you have elected nationally is engaged in economic stimulus strategy and a wider economic strategy to charter a course for Australia through this economic crisis.
We are resolved so to do that, we look forward to doing so in partnership with you, the women and men of the business community of Western Australia and your colleagues around the nation. I thank you for your attention.