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Wayne Swan on Australia's resources boom -

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Wayne Swan on Australia's resources boom

Broadcast: 17/03/2010

Reporter: Kerry O'Brien

Treasurer Wayne Swan speaks with Kerry O'Brien about the future of Australia's economy and the
possibility that the nation could be heading into the biggest and longest running resources boom.

Transcript

KERRY O'BRIEN, PRESENTER: KERRY O'BRIEN, PRESENTER: As we highlighted on this program two nights
ago, Australia is heading rapidly into what could be the biggest and longest-running resources boom
in this country's history.

Despite concerns that America could be heading for a double dip recession, China is going
gangbusters and Australia's big mining companies are now looking at big increases, big price
increases, in commodities like coal and iron ore.

Market analysts are increasingly optimistic about the Government's budget returning to surplus much
earlier than current forecasts.

But is Australia really ready to cash in? Are those infamous bottlenecks in Australian ports that
limited the volume of our exports in the last boom now a thing of the past? And how will Australia
deal with the next surge in demand for labour without the economy over-heating and forcing interest
rates up again.

I put these questions to Treasurer Wayne Swan earlier tonight.

Wayne Swan, firstly, can you clarify whether the optimism of recent market analysis is justified.
Suggesting that the Australian economy is in such good shape that the budget will return to surplus
as much as four year earlier than Treasury's most recent projections.

WAYNE SWAN, TREASURER: Well, Kerry, we get this sort of speculation before every budget and most of
it, frankly, is pie in the sky and that particular piece of speculation is most certainly pie in
the sky.

The truth is that there are accumulated losses in the system, which are going to be a drag on
revenue for some time to come and that is particularly the case this year, so we're certainly not
expecting a return to surplus earlier to the extent that that prediction is being put out there.

KERRY O'BRIEN: by the same token, you know the size and the scope of the last resources boom before
the global financial crisis, you know that we're rapidly heading back towards something of that
size, if not bigger.

I know that you can't have precise projections on that, but nonetheless, surely that suggests that-
that you're going to be getting some very big tax dividends inside the next two years beyond what
you may have projected in the recent past.

WAYNE SWAN: Well, Kerry, the contract price negotiations are going on now. There's no doubt there's
going to be a substantial improvement in price for some commodities, but on the other side of the
ledger, we've just been through a global recession, which has had a very significant impact on
revenues in our budget. We've still written down revenues over the forward estimates to the tune of
$170 billion as recently as MYEFO (Mid-Year Economic and Fiscal Outlook) last year.

No doubt there will be some improvement but I do need to make the point that there are accumulated
losses in the system, which will continue to be a drag on our revenue for some years to come.

KERRY O'BRIEN: It seems pretty clear that the Reserve Bank now thinks that unemployment has reached
its peak in the response to the global recession, judging by its most interest rate increase, apart
from anything else.

Do you think it's that cut and dried that unemployment has reached its peak?

WAYNE SWAN: Well, certainly the figures we've seen recently, Kerry, are strong. We must bear in
mind, however, that hours worked are also down, although in the recent employment number, there was
a strong reduction in that figure as well.

The Government is delighted with this outcome. it is the case that the economy is performing better
than anyone would have anticipated and I certainly hope it is the peak but there are still people
out there working less hours than they would like and we would like to see more improvement there.

What we've got is a patchy global economy. Our advantage, Kerry, is that we are in the right region
in the global economy. Our region is doing well. That means we can do better and it also means that
we are in a very good position to maximise the opportunities that will flow from the Asia Pacific
region.

This will be the Asia Pacific Century and we're located at the right place at the right time.

KERRY O'BRIEN: But I wonder how well prepared we really are to cash in on this next resources boom.
The next phase after the global financial crisis - a boom that does appear to be open-ended - is
showing all the early signs of returning Australia to a two-speed economy.

Of course the boom is good news for Australia, but how concerned are you about the implications of
returning Australia to all the dilemmas that the two-speed economy throws up.

WAYNE SWAN: Well, it is the case that the resources sector is going to do much better, but if you
go back to the national accounts, which were released a couple of weeks ago; there are some sectors
in the economy which are still weak, Kerry.

Let's have a look, for example, at non-residential construction. That area is very weak - there was
a 20 per cent drop in private investment in that area over calendar year 09. So what we have to
understand is that some sectors will do well and some sectors are still weak.

That's why stimulus has been so important. We will go into this up-turn in better shape than any
other advanced economy. We're the strongest-growing advanced economy out of 33 in calendar year 09.
Only two countries didn't contract during that year, so we're in good shape.

But some sectors of the economy are still weak. That's why stimulus as we move forward is
important. And also, Kerry...

KERRY O'BRIEN: But... but I'm not talking just about some sectors versus other sectors, I'm talking
about boom states versus states that aren't doing so well and you would remember better than
anybody the conundrum that the Reserve Bank had in applying interest rate increases in trying to
reduce the overheating in the economy during the last boom, when the overheating was really taking
place in only two of Australia's states.

In other words, States that weren't doing so well, that were flat, were being hit with interest
rate increases as well as the boom states. Now, that could well return.

WAYNE SWAN: Well, Kerry, it's not just a question of states. I think we all know that there is
going to be strong investment in resources in Western Australia and that's happening now,
particularly off the back of the Gaughin approval. We also know that coming in Queensland is much
stronger investment in terms of- in terms of investment in gas and that's important.

But if you look at the various performances of the others States, Tasmania has been going quite
well; South Australia has been going quite well. Victoria has been going quite well. I prefer to
look at sectors rather than states, because there will be some parts of Queensland that are not
going as well as other parts and vice versa.

It is the case that resources will go well. It is also the case that some other sectors of the
economy are weak. But either way, Kerry, what we have to do to prepare for this surge of
investment, particularly into resources is attend to the capacity constraints in our economy that
basically the Government has been attending to from Day one.

KERRY O'BRIEN: Well, that's what I wanted...

WAYNE SWAN: Before we came to...

KERRY O'BRIEN: That's what I wanted to come to because one of those, of course, was infrastructure.
You made some big promises on infrastructure when you came into government two years and four
months ago.

Does that mean that we won't be seeing those notorious bottle necks we were seeing at ports around
Australia during the last resources boom?

WAYNE SWAN: Well, Kerry, when we came to Government, we inherited the twin deficits of a deficit in
infrastructure and a deficit in skills and we've set about repairing those deficits during the past
two years as well as dealing with the impact of a global recession. We've put a lot of money into
infrastructure...

KERRY O'BRIEN: I understand that, I understand that but are you confident that we will not see
those bottlenecks recurring around Australian ports as we saw the last time around?

WAYNE SWAN: Kerry, what we are doing is everything that is humanly possible to deal with those
deficits. For example, $36 billion invested in critical economic infrastructure - in road, in rail,
in port. If you just take the Hunter Valley in New South Wales, we've doubled the investment there
in its freight capacity via our investments. We're putting money into ports in Western Australia.

All of these things are critical. All of them are investments that have a long lead-time. That's
why...

KERRY O'BRIEN: But let's come - let's come to the lead-time, Mr Swan. Are you saying we may well be
looking at more of those bottlenecks for the next two, three, four years until that infrastructure
kicks in?

WAYNE SWAN: Well, it's possible...

KERRY O'BRIEN: I mean, what stage are those-are those projects at?

WAYNE SWAN: Well, it possible that there may continue to be bottlenecks in some parts of the
country, but we've done as we've talked about before, as we've set up Infrastructure Australia.
We're now publishing a pipeline of projects that not only will the public sector possibly invest in
but the private sector may invest in. We began to deal with this at our first budget and last year,
we put something like $36 billion into critical economic infrastructure and more...

KERRY O'BRIEN: Okay, but are you happy with the rate of...

WAYNE SWAN: And more will be required, Kerry.

KERRY O'BRIEN: Are you happy with the rate of- are you happy with the rate of progress on
infrastructure? Are you happy with the cooperation of the states?

WAYNE SWAN: Well, we're working very hard with the states and the private sector, not only on
infrastructure but also on skills. We're making progress; we could always do better, but we're
working very hard because we understand the nature of the challenge ahead.

KERRY O'BRIEN: So what would you regard as the critical weaknesses in what lies ahead. When you say
that in some states it might be more problematic than others.

What would you identify as the biggest weaknesses right now?

WAYNE SWAN: Well, I think we've been concerned about our port capacity and the Minister for
Infrastructure, Anthony Albanese, is now preparing an integrated strategy for ports in Australia.
That's just one area.

Rail is another. That's why we put so much investment into the Australian Rail Track Corporation in
our last budget. All of these things are important.

KERRY O'BRIEN: But you're saying the Infrastructure Minister is preparing a plan for these ports
now.

WAYNE SWAN: We've never had a plan for our ports. We've started investing in our ports and we did
that in the last budget. The first time in our history that a national government has done that.
The first time in our history that a national government...

KERRY O'BRIEN: But he's-he's-he's working on the plan now? He's been the Minister for two years and
four months.

WAYNE SWAN: He has been the Minister for two years and four months and he's done an enormous amount
in the area of infrastructure.

All of these things, the building blocks are being put in place now, the funding is being put in
place for some of the projects. Many of the projects will depend upon private sector investment but
we are doing everything we can through our Commonwealth agencies and through working with the
States to put in place the critical economic infrastructure for the future. Also, the skills.

KERRY O'BRIEN: The Western Australian Chamber of Commerce highlighted in a story we put to air two
nights ago - it's projecting 400,000 more workers would be needed in Western Australia alone over
the next few years to meet demand in this resources boom.

If that is true, that would put enormous pressure back on the rest of the workforce, would it not?
How are you going to meet that shortage and is it inevitable that you're going to have to call on
higher immigration as part of the solution?

WAYNE SWAN: Well, Kerry, this is one reason why we published the Intergenerational Report at the
beginning of the year: to look at participation in the work force, to look at productivity and of
course to look at population.

And what we know is we do have an ageing population and the conclusion we reached, which you and I
discussed on this program, was we need to dramatically increase our productivity, which does mean
getting the investments right when it comes to infrastructure and skills, as we've discussed.

It also means a range of policies to encourage more workforce participation, particularly from
females but also from those in older age groups who wish to keep working. That's why paid parental
leave is so important...

KERRY O'BRIEN: Yeah, but this is like, now... The Western Australian Chamber of Commerce is saying
now that we're going to be looking- We, Western Australia, are going to be looking for 400,000 more
workers in our state alone over the next few years. That is a huge challenge.

WAYNE SWAN: Yeah, it certainly is, it's an enormous challenge if that turns out to be the correct
figure. And the Government has been working with Western Australia in particular and with the
resources sector to examine in great detail, through a taskforce chaired by Gary Gray, what the
precise requirements will be.

We've got a taste of this when you look at the Gaughin project but it could be bigger than that.
And it could be bigger than that when you go to Queensland as well. So all of that planning is
being done now but they're not saying they need 400,000 workers tomorrow.

KERRY O'BRIEN: No...

WAYNE SWAN: That does have imp- that does have implications for future training programs. That's
very important. We put something like 700,000 productivity places out there.

They are being taken up in that sector with gusto. And more will be taken up as time goes on. And
then of course there will be the whole question of the extent to which workers come here on a
temporary basis or not.

All of those things are currently part of the planning process, Kerry.

KERRY O'BRIEN: Do you think...

WAYNE SWAN: But I can't say to you right now that we would have to lift migration by a certain per
cent to cope with that. It is not before us at the moment but what we always do is, on a yearly
basis, we target our migration program to suit the set of... to suit the economic circumstances we
are facing.

KERRY O'BRIEN: Wayne Swan, we're out of time. Thanks for talking with us.

WAYNE SWAN: Good to be with you.