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THE HON WAYNE SWAN MP

Deputy Prime Minister

Treasurer

National Press Club Post-Budget Address

THE STRENGTH OF A NATION

15 May 2013

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Thanks very much Laurie, and thank you all for coming along today. This is one of my

favourite traditions of the week, mainly because my family is always here to share it with

me. I want to start by acknowledging my colleagues - particularly Penny and the ERC team

- for their tireless work, and I also want to thank all the officials and staff for their dedication

behind the scenes. In particular, I want to thank the hard working people in the Treasury,

many of whom have served this country for a very long period of time and have made such a

huge contribution to our economic success. I think the day after the Budget is a good day to

sit back and reflect on the battlelines that inevitably get drawn about interpretations of the

Budget and interpretations of the economy. It’s been a pretty wild ride in the global economy

over the last five years. We’ve had to make some defining choices about our priorities. But

as Labor ministers know, the task of the evangelist is never easy. The fact is, none of us gets

the chance to serve the nation in the circumstances of our choosing. But we do get the

privilege of serving.

And even when the times are challenging - especially when the times are challenging - we

accept our duty, which is to give it our best, and leave the nation in better condition than it

otherwise would be. If a global recession strikes when we come to office - all the more

incentive to work hard to defend the economic strength of our country. All the more

incentive to get us through the difficult times intact, and to strive for a better future for the

country and its people. That’s what I’ve sought to do - it’s what I’d expect any Treasurer to

do. This Budget has been put together in some of the most unprecedented circumstances in

our nation’s post-Federation history. Given what we’ve faced, I think we’ve got the balance

right. As always people have different, often extreme criticisms to make. I don’t always sign

up to the idea that if you have critics on either side of you then you have probably found the

right balance. But I do think there’s a sweet spot between the austerity-freaks who say cut

way harder, and the Green-types who would happily see the bottom fall out of the budget. I

think we’ve struck that balance in this Budget, just like we did in the last five. And just like

those last five, this one will turn out to be the right strategy at the right time.

Today I want to step back and look at the challenges we faced in this Budget against the

backdrop of Australia’s broader economic transition.

The message I want to leave you with today is this: In Australia, we’ve always been a country

that runs the ball right up the middle on the fifth tackle. We’ve never seen a challenge we

didn’t like, and we’ve certainly never run from one. We’ve got some big challenges ahead,

but the grit we’ve shown and the success we’ve had amid our huge economic adjustments

should give us the confidence to take on the next round. Of course, there’s naturally a lot of

focus at this time of year on the numbers in the budget bottom line. But budgets, like

everything, are about context. I think it’s really important that we don’t lose sight of

everything we’ve achieved as a nation during the biggest peacetime upheaval our economy

has been through since the early 1930s. Let’s just take a moment to reflect on what we’ve

been through. Five years of prolonged uncertainty and rolling crises in the world economy

after the worst global recession in 80 years. A once-in-a-century increase in our terms of

trade driving the biggest boom in business investment we’ve seen in over a hundred years. A

profound change in the structure of our economy flowing from these massive shifts,

reshaping industries across the country. So yeah, I think a lot about the numbers in the

Budget.

But I’m also really proud of some of the other numbers we’ve achieved through the middle of

what has been a huge economic transformation. Our nation has accomplished so much in the

last five-and-a-half years. Our economy is over 13 per cent bigger. We’re now the 12th

largest economy in the world, climbing three places from 15th - with only the 51st largest

population. We’ve created around 960,000 jobs in our economy. Our unemployment rate

starts with a ‘5’, at the same time that both underlying inflation and our official interest rates

start with a ‘2’.

I remember when I got this job the biggest issue was interest rates - it was a deadset political

livewire with the RBA even jacking up rates to slow an overheating economy in the heat of

the ’07 campaign. What really strikes me now is how the pressure has come off because

we’ve got new record low rates - the politics seem to be largely out of it. All the things

we’ve achieved together add up to a remarkable story of Australian success given everything

our economy has been through. I’ve now done half a dozen Budgets, we’re in the top dozen

economies in the world, and we’re heading for two dozen straight years of growth. And of

course we’ve got the gold-plated AAA-rating from all three global ratings agencies for the

first time in our nation’s history. Of course, the extraordinary structural changes we’ve been

through have made life incredibly tough for some sectors of our economy. The Aussie dollar

has been above parity now for the better part of two-and-a-half years - nearly half the time

I’ve been Treasurer. The more I think about it, the harder it is to escape the conclusion that

the high dollar is the price we are paying for our economic success.

This is how I look at it: an exchange rate is just a relative price. For the last couple of years,

the world has put a higher value on us. Against the challenges faced elsewhere, Australia is

seen as a safe haven for investment and that’s keeping our dollar high, even though our terms

of trade have peaked and our interest rates are at record lows. The good news is, more

businesses are starting to successfully adapt, helping mark the beginnings of a productivity

upswing. And parts of the non-mining economy - like housing construction and retail - are

starting to respond to lower interest rates. Together with the production and export phase of

the mining boom - as it continues to ramp up - these will become bigger drivers of growth.

But big transitions like this are rarely seamless. There’s no escaping the fact that the high

dollar has become a dominant force in our economy. And it’s having a very acute impact on

our budget revenues.

I’ve been upfront about the fact that we simply didn’t know how deep and enduring the

impact on tax receipts would be from the unique cocktail of global forces and the high dollar.

We could not have perfectly foreseen the prolonged nature of subdued prices and profit

growth right across the Australian economy. What we’ve been dealing with is a rapidly

moving policy equation. Now of course, I understand the natural inclination to look at all of

this through the prism of politics and use that as a benchmark for success. As I’ve said, I’m

happy to be judged by the decisions we’ve made. But I also think it’s true that the complex,

evolving and nuanced policy environment we’re dealing with doesn’t fit neatly within a

certain number of column inches or in a grab on the evening news. That’s not a judgement of

anyone, just a reflection on where we are. The money simply isn’t coming in the door like it

used to. While my predecessor got a cumulative $334 billion revenue windfall and redefined

what we mean by fiscal largesse, I’ve copped $170 billion in revenue writedowns. That’s

now more than half a trillion dollar turnaround in the period from 2004 to now - no small

beer, not by a long way. If our tax level was as high as Howard and Costello had, we’d have

an extra $24 billion in 2013-14 and be comfortably in surplus. Again, that’s not something to

complain about, it’s just a fact. But while the economic circumstances have constantly

changed, I’ve put Australian jobs first at every turn.

In the days that followed the collapse of Lehman Brothers in late 2008, as the global

economy began ripping apart at the seams, I set myself two overriding objectives to guide my

decisions as Treasurer. First, to do everything in my power to protect Australia from

recession as the carnage unfolded and keep as many Australians as possible in work. Second,

to keep our economy in the best possible position so that when the world economy turned up

again we could drive Australia forward. In early October last year, I kept this objective front

of mind as we went about putting together the mid-year budget update in the wake of a sharp

and unexpected fall in commodity prices in the previous months.

As we said at the time, the savings we undertook in MYEFO were carefully designed to

minimise the impact on economic growth. While we weren’t expecting the revenue situation

to get significantly worse from there, we knew that if it did we wouldn’t be able to cut much

further without putting jobs and growth at risk. Well as you know, the revenue outlook did

get worse. Much worse. By early December, we had the October monthly financial accounts

and a full appreciation of the impact on our budget of the hit to revenues. The news was

staggering. The entire $4 billion revenue writedown we’d expected to be spread over the

whole of 2012-13 had hit us in just the first four months of the year.

That’s what our collections money in the tin showed. The September quarter National

Accounts confirmed the high dollar was weighing heavily on prices across the board and

nominal GDP growth. Global uncertainty and the high dollar were clearly having a much

more acute impact on our budget revenues than we’d expected. As I said in December, a

surplus in 2012-13 looked unlikely. I’d been up in Townsville the day before that December

press conference, and I’ll remember that day as much as the next one. I’d just stopped into

Townsville Hospital to catch up for a coffee with some of the hardworking nurses, and as I

was chatting away to them, about their lives and work and all the rest of it, I felt a real sense

of calm. Looking back on it now, I think it was more than just the cuppa and the chat, I think

I knew then talking to those nurses - so modest about their huge contribution to our

community - that I’d made the right decision. I knew the announcement I’d make the next

day would be rugged. I’d be fronting up to take a hit as the politics and economics collided.

But I also knew that jobs were on the line in places like Townsville that were already reeling

from Campbell Newman’s savage cuts. And that made our decision the right one. As the

monthly revenue numbers rolled in through the end of last year and the start of this one, each

set painted a bleaker picture than the last. By February, the balance of evidence had

irretrievably shifted. The closer we got to the end of the financial year, the harder it was

becoming to fill the hole in revenue without hurting jobs and growth.

The hit to revenues we’ve taken in 2012-13 alone is the second biggest in a single year since

the Great Depression, with only the GFC worse.

In the months leading up to this Budget, I continued to view every policy decision I took

through the prism I had set out for myself in 2008.

I knew it would be a national tragedy to give in to the fiscal fearmongers by cutting further

and deeper because we’d be destroying the strong economic position that all Australians had

worked so hard to achieve. I will never sacrifice jobs and growth on the altar of political

expediency or to satisfy the ideologies of editorial writers. Not then. Not now. Not ever. In

setting out a pathway to surplus, we also can’t ignore the nature of the big adjustment that’s

going on in our economy. It would be irresponsible to impose a savage fiscal consolidation

on the economy when it’s still transitioning from mining investment to other growth drivers

in the face of the doggedly high dollar.

By contrast, the significant fiscal consolidation we previously put in place was at a time when

mining investment was going gangbusters.

Of course, we must continue our focus on the sustainability of the budget, but with all our

economic resilience we can’t afford to lose sight of everything we need to do to keep driving

Australia forward. That’s why we’ve found savings to make room for investments that will

create fairness and wealth and give us a better society in the future. Over six Budgets, we’ve

put in place around $180 billion in savings. And despite the hit to revenues we’ve seen, real

growth in spending has remained low at an average rate of 1.3 per cent from 2012-13 to

2016-17 - that’s the lowest five-year average growth rate for 25 years. We’ve been

methodically improving the sustainability of the budget through structural savings which

permanently improve the bottom line. The structural savings we’ve put in place will deliver

cumulative savings to the budget of over $300 billion by the end of the decade. We have

explicitly identified savings to fully fund our priority investments in both schools reform and

DisabilityCare over the next decade and beyond - a fiscal achievement unprecedented in our

nation’s history. And we’re doing this while setting out a pathway to surplus and paying

down our already low and responsible level of borrowings. This is a one-year Budget, but

it’s a long-term plan for Australia. We’re making the smart investments this country needs to

help boost productivity and participation for the long term. Just consider our school reforms.

Simply accepting our current declining trend in education performance would see our

economy end up $1.5 trillion smaller than it should be over the life of a child born today. On

the other hand, if we increase Year 12 completion rates to 90 per cent, we’ll increase

workforce productivity by 0.6 per cent a year and lift our GDP growth by 0.65 per cent a

year. Investing in our schools is also about choosing what kind of society we want to be.

Why does a young kid in Broadmeadows have to battle through with out-of-date textbooks

and her classroom falling down when a kid in Brighton gets a state-of-the-art computer with

the latest software?

The Australia I believe in is a country where you don’t have to be well off or able bodied to

dream the big dreams. That’s why I’m deeply proud that this Budget will establish

DisabilityCare Australia, following in the big footsteps of Medicare. I think the gravity of

this historic reform really hit me hardest when I was in Melbourne with Julia and Jenny a

couple of weeks ago to announce the strong and enduring funding stream that would help

support it. We stopped in across the road at a café to spend a bit of time with some of the

hardworking carers and the downright inspirational Australians that they take care of. I had

this young kid, Julian, just come jump on my lap like he’d known me all his life, and we

chatted away about this and that. As he showed me his matchbox cars, I looked at Julian,

sitting there at 12 years old, and thought about everything he could grow up to be. I couldn’t

have been prouder to know that striking the right balance in this Budget means other young

Australians will no longer have to wait all week for a shower, or three years for a new

wheelchair. And like our school education reforms, the creation of DisabilityCare isn’t just

about a fairer society, it’s also about a stronger economy. In 2011, the Productivity

Commission found that a National Disability Insurance Scheme of the type we are building

would ‘generate profound economic benefits’ by boosting productivity and participation.

We’re also building on the $36 billion we’ve already invested in road, rail and ports. Over the

next five years, we’ll invest another $24 billion to boost our nation’s economic capacity for

the decades ahead. This comes on top of the roll-out of the superfast National Broadband

Network to boost productivity for health care, education and businesses right across our low-carbon, high-technology economy of the future.

Now I don’t want to get too political, but let me just say a few words about the Opposition.

Mr Abbott and Mr Hockey now have the numbers. They are there in black and white for all

to see, and were prepared by the same officials who prepared eleven Budgets for the former

Liberal Government. The policy choices in this Budget are those of the Gillard Government.

The officials give us the numbers. We choose the policies. That’s how government in

Australia works. The Treasury does not have one set of numbers for this Government and

another set for the alternative government. There’s just one set. The Opposition can now

make its own choices, choose its own priorities. But what they cannot do is choose their own

numbers. If they don’t want a particular revenue source they must either specify another one,

cut a service, or hit the bottom line. If they want to add a new policy, they must either take

funding away from another policy, find a new revenue source or hit the bottom line. It they

want to keep pretending the economy and revenues would grow faster under the Coalition,

they must say why and by exactly how much. And their starting point is a long way back

from ours. Even if the Liberal Party does not want to fund the investments we have made in

this Budget, they will start with over $50 billion worth of budget deficits over the next four

years unless they agree to our savings. They must then add this amount to the $70 billion

budget crater that Mr Hockey announced on breakfast television on 12 August 2011.

And of course, we all knew Mr Hockey has a bit of a habit of saying whatever comes into his

head and being a bit loose with the truth. But I think a lot of Australians would’ve been very

disappointed last night to hear him say there was nothing in this Budget to give anyone hope.

I wonder if he’d have the guts to stand up in front of our teachers and school kids and say

there was no hope for them in last night’s Budget. I wonder if he’d have the guts to say it in

front of the 410,000 Australians with a permanent and severe disability. Australians expect

all of the members of this Parliament to rise above the politics and make the investments we

need as a nation.

That’s what we’ve done in this Budget, as we’ve done in the five before. I’m proud of this

Budget, and I’m proud to be judged against it. I know we are ensuring the Budget is

sustainable for the long term. I know we are doing the right thing to support jobs and growth.

And I know the smart investments we’re making will give every kid in the country the best

possible start in life and will give a long-overdue helping hand to Australians with a disability

and their carers. We’ve delivered this Budget in the spirit of every decision we have made in

the last five years in the interests of the Australian people. I’m proud that we’ve protected

their jobs and their standard of living and we’ve started building a better future for their

children. And I’m deeply proud that we’ve done all of this in the face of some of the most

challenging and unique circumstances in living memory. Thank you, and I look forward to

taking your questions.