I acknowledge the First Australians on whose land we meet and whose cultures we celebrate as among the oldest continuing cultures in human history.
In the coming week, people around Tasmania - like Australians across our whole nation - will be joining in celebrations for Australia Day, some on the back verandah at home, some with friends and family at the beach, some at picnics and barbeques in parks and neighbourhoods across the state and some taking part in events organised by local communities across the state - events like the Australia Day Breakfast on the Bellerive Boardwalk, the Devonport Dance Fiesta, and what could be more Australian than the Gumboot Throwing Competition at Henley-on-Mersey?
There's also the Tassie event that really sparked my interest - the great Aussie Dummy Spit. I'd be glad to send down some politicians from Canberra to compete. I'm confident they'll provide strong competition. After all, they certainly get good practice.
Cast your mind back to the challenges our nation was facing 12 months ago. In the lead-up to Australia Day 2009, I came to this same historic building and spoke about the enormous challenge we faced with the worst global recession in 75 years. Since then, the global recession has taken unemployment into double digit figures in many countries across the world, but in Australia, we are weathering the global storm.
Tasmania's unemployment rate, while it has risen 0.4 percentage points in the last year to 5.2 per cent, is below the national average. Indeed, Tasmania is earning the name of Australia's Tiger economy, with the equal fastest growth rate among all states in the last financial year. As a nation, we have the fastest growth, lowest debt, lowest deficit and the second lowest unemployment rate when compared with the Major Advanced Economies.
2009 was a tough year, but Australia rose to the challenge of the global financial crisis and we showed what can be done when we all join together and work together, governments of all persuasions - state, territory and local - businesses large and small, unions and local communities right across the nation.
On Australia Day 2010, as we enter this second decade of the 21st century, Australians can be optimistic about our future. However, we cannot be complacent about the future.
This week I am travelling across the nation ahead of Australia Day in a series of addresses on our need as a nation to prepare for our long-term future challenges. We know that we have major long-term challenges to tackle if we are to keep our economy strong: the challenges of our ageing population; a fiercely competitive global economy; and the enormous environmental and economic challenge of climate change.
Building Australia's future and tackling these challenges will require much work. To help guide that work, the Commonwealth Treasury has been preparing the third Intergenerational Report, entitled Australia to 2050: Future Challenges. The Australia to 2050 report, which the Treasurer will release in coming weeks, analyses the key long-term challenges facing Australia over the next 40 years.
The ageing of our population is central to those challenges, and that is revealed by three key facts I discussed last night in Melbourne. The first fact concerns the extent of the ageing of our population. Today there are 22 million Australians, of whom 14 per cent are over the age of 65. By 2050, there will be 36 million Australians - but an equally momentous change is that the proportion of those over 65 will almost double to 23 per cent. That's nearly one in four Australians - compared to just one in seven Australians in 2010.
The second key fact is that this will significantly affect our economy and working families around the nation. It will simply cost more to look after the needs of older Australians in health, aged care and age pensions. t the same time, a smaller proportion of Australians will be working, so tax revenues won't keep pace with those rising costs.
In 1970, there were 7.5 people of working age to support every person over 65. Today, there are five. By 2050, that number is projected to drop to 2.7, so we will face higher costs yet slower economic growth, and that is the heart of the economic challenge of an ageing population.
The third key fact is that we will need a sustained, strong and long-term national effort to respond to this challenge focused on raising productivity and removing barriers to people participating in the workforce. The Government has already acted to lift workforce participation by removing barriers to work for women and young people, but even with these measures, workforce participation will fall over the next 40 years from its peak of around 65 per cent now to around 60 per cent by 2050, so our long-term response to the ageing of our population must centre on a sustained effort to increase annual productivity growth.
We need to turn around the decline in productivity growth that occurred in the past decade, when it fell to an annual average of 1.4 per cent. Yesterday, I outlined that if we could lift average productivity growth back towards the 1990s mark of 2 per cent per year, it would produce enormous benefits for the nation and for Australian families. By 2049-50, the higher productivity path would add around $570 billion to Australia's annual economic output - and that is in today's dollar terms - and on average, every Australian man, woman and child would be $16,000 better off a year, and because of that we would be able to raise more tax revenue than would otherwise be the case to fund increased outlays on health, aged care and pensions.
These are three core reasons why raising productivity is so important, and it is why building Australia's long-term economic future must start now. The Government has already begun investing in the key drivers of productivity:
* In long-term nation-building economic infrastructure;
* In our education revolution;
* In innovation, in particular through the high-speed National Broadband Network, and
* By implementing microeconomic reforms to cut red tape for business and building a seamless national economy.
This is the agenda to which the Australian government is committed as we enter a new decade - a period that I describe as Australia's Building Decade.
This afternoon I want to make some specific remarks about what the ageing of the population means for the outlook for government finances. This is an important long-term challenge facing our nation, arising from an historic structural change in our population mix.
The Australian Government's early and decisive response to the global financial crisis during the past 18 months has limited the extent of permanent damage to the Australian economy. Australia, unique among the Major Advanced Economies, has avoided recession. We have generated the second lowest unemployment and the lowest debt and the lowest deficits.
Of course, these achievements have not come without cost. The reduction in forecast Government revenues by a staggering $170 billion because of the crisis, together with fiscal stimulus have put the Budget into temporary deficit.
Importantly, the Government has implemented a fiscal strategy that ensures a return from deficit as rapidly as possible. The latest Treasury budget figures released in the Mid-Year Economic and Fiscal Outlook show the Government is on track to return the Budget to surplus by 2015-16. Without this clear-cut fiscal strategy, net debt would be significantly higher in the future.
Our timely, targeted and temporary response to the crisis has helped minimise permanent damage to the economy, by minimising the loss of skills that occurs with unemployment, and the loss of capital investment that occurs with recession. This is the core of conservative economic management - expanding the role of government in the economy when the private sector is in retreat, and contracting that role as the private sector recovers.
The Government's medium-term fiscal strategy puts Australia in a stronger position to respond to long-term challenges, including our ageing population. Nevertheless, the ageing of the population of itself will create significant additional challenges for our public finances for the long term, challenges that must be addressed.
Tonight I am releasing new findings from the Third Intergenerational Report, Australia To 2050 on the ageing of our population and the long-term health of the Budget. These findings underscore the concerns that I expressed before coming to government about the budget spending that occurred throughout much of the past decade. The aftermath of higher budget expenditure during the late 1990s and in the 2000s makes it tougher to deal with the long-term budget impacts of ageing of the population.
While it is common for governments to increase spending growth during times of financial crisis, governments in boom times ought to exercise spending restraint, so as to avoid overheating the economy, crowding out private investment and embedding into the Budget long-term recurrent expenditure commitments that become more difficult to meet once boom time tax revenues cease to flow. The new Treasury modelling prepared for the Australia to 2050 report shows that this high level of government spending of the late 1990s and early 2000s has locked in a permanently higher spending base. This makes responding to the long-term structural challenges to fiscal policy caused by the ageing of the population even more difficult to meet.
The average annual real growth in government spending was 2.5 per cent in the growth period of the 1990s (from 1992-93 to 1999-00), but during the expansion of the 2000s decade (from 2001-02 to 2007-08), when the economy was benefiting from the mining boom, average real growth in government spending actually increased to 3.8 per cent. This is the fastest growth in government spending during any expansion period since the early 1970s under the Whitlam Government.
The Australia to 2050 report concludes that continuing fiscal restraint is essential once the constraints of the global financial crisis ease. The Government has adopted a strict fiscal strategy to support the economy during the global downturn and return the budget to surplus as the economy recovers:
* As the economy recovers, and grows above trend, the fiscal strategy requires us to hold real spending growth to two per cent a year until the budget returns to surplus;
* And to allow the level of tax receipts to recover naturally, but not exceed our existing commitment to keep tax as a share of GDP below the 2007-08 level on average.
In the Mid-Year Economic and Fiscal Outlook, we delivered on these fiscal rules, as well as fully offsetting all new spending with savings.
It is crucial that as a nation, we sustain fiscal discipline as we confront the long-term challenge of an ageing population. As our population ages, it will also require a different mix of government services and support - in particular, more provision for health care, aged care and age pensions.
We must also embrace new ways of delivering services to meet the changing needs of Australians in coming decades, as well as ensuring the cost-effectiveness of all publicly funded services. The Government has already had to take action to make sure older Australians can access a secure age pension system that is fiscally sustainable.
Some of the steps we must take to ensure fiscal sustainability will not be popular, but they will pay dividends over the longer term.
The Government's fiscal strategy addresses the ageing of the population by delivering a permanent structural improvement in Australia's public finances. The long-term consequence of the Government's medium-term fiscal strategy is that by 2049-50, the Budget outcome will be around 3.5 per cent of GDP better off - or $130 billion in today's dollar terms. In other words, the Government's commitment to responsible budget settings will put us in a significantly better long-term budget position.
Just as previous higher levels of spending have had a long term impact on the Budget, similarly the Government's commitment to medium-term fiscal restraint will deliver long-term fiscal benefits by undertaking structural repair to Australia's public finances.
Of course, the consequences of an ageing population do not only point to the need for fiscal sustainability. They also underscore the critical need to continue to invest in productivity growth, the subject I addressed in Melbourne yesterday.
A more productive economy will mean the economic pie grows larger and faster, and in terms of budget policy, this in turn means more revenue to fund quality services for Australians into the future. That is why a sustainable budget policy based on expenditure constraint, together with a comprehensive agenda for productivity that boosts economic growth and revenues, constitute the two core planks of a credible, long-term fiscal strategy for Australia that addresses the challenge of an ageing population.
The decisions we take in this new decade will shape Australia's future for decades to come. That's why I describe the decade ahead as the Building Decade: building stronger, more sustainable economic growth; building a sustainable budget strategy; building Australia's future.
Australia Day is not only a time when we can look to the challenges of the future. It is also a time to acknowledge the great achievements of individuals in building the modern Australia of today.
On each Australia Day, we recognise those individual contributions through the Australian of the Year Awards, which turn 50 years old this year. These awards are a great way for us all to say thanks and well done, to some of our nation's highest achievers - Australians who have achieved the highest in their field of endeavour; Australians who have served their community and made us all proud of our nation; Australians who are an inspiration to all of us; Australians who remind us why we have such good reason to be optimistic about our nation's future.
Tasmania's own 2010 Finalist for the Australian of the Year Award is a man who came for a visit from England and couldn't leave. As he tells the story, he fell in love not only with Australia and its people, but also with one of our great Australian icons: the Tasmanian Devil, and for years Bruce has dedicated himself to giving back to his adopted country, working day and night to find a way to save the Tassie Devil from the facial tumours that threaten to wipe out the species.
The Australian Government has supported this cause, with funding of $10 million for research into the transmission and treatment of the disease. This is nationally important work, so I'm sure you'll join me in wishing Bruce the very, very best for his work and for next week's Awards.
The strength of the finalists each year for the Australian of the Year Award reminds us that the Australian spirit is alive and well in 2010: the spirit of the pioneers, of the Gold Rush, of Eureka, of Barcaldine, of Gallipoli, of Kokoda, of the Boxing Kangaroo and the winged keel, and of the Sydney Olympics; the spirit of the "fair go", together with the spirit of the "can do"; the spirit of Australia.
And that spirit can be found in every corner and every community in Australia. That community spirit of looking after your mates, and compassion for those in need. The individual spirit that relishes a challenge and that simply says 'let's get on with it'. The courage and resilience that stands up to tough challenges without making a fuss. The no-nonsense informality that marks us out as Australians wherever we go across the world.
Those Aussie traits have been with us for as long as time remembers, so let's take pride in what our nation has achieved and let's roll up our sleeves and get on with our work in the building decade ahead.