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Building Australia's future: beginning a building decade for a stronger Australia: speech to Australia Day reception, Melbourne.

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Speech 18 January 2010

Prime Minister

Building Australia's future: beginnng a building decade for a

stronger Australia

Speech to Australia Day reception

National Gallery of Victoria



I acknowledge the First Australians on whose land we meet, and whose cultures we celebrate as among the oldest continuing cultures in human history.

I am delighted in the lead-up to Australia Day to join you in our nation's oldest and largest public gallery, a gallery that contains so much of our nation's artistic heritage.

Ours is not a history without blemishes, injustices or tragedies. You don't need to know very much about our early convict days and relations between Europeans and the First Australians to know our beginnings were far from glorious, but this makes the achievement of building the modern Australian

nation all the more remarkable: a young nation, yet one of the world's oldest democracies; a stable, peaceful and prosperous nation yet with one of the most diverse populations of any country on earth; a nation for whom the spirit of the 'fair go' is part of our DNA; a nation for whom the spirit of the 'can-do' is also part of our DNA, and; and a nation that is the envy of the world. There is much to celebrate on Australia Day, and Melburnians this year will be doing it in style, though, as Premier Brumby always reminds me, Melburnians always do things with style.

I'm delighted that Victoria's finalist for the 2010 Australian of the Year Awards, Professor Patrick McGorry is also with us today. Professor McGorry is a leader in the medical profession who has invested 27 years in improving the treatment of young people suffering from mental illness.

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He has done extraordinary work in building up Orygen Youth Health as a world-renowned mental health organisation which targets the needs of young people with emerging serious mental illness and has become a model for youth mental health services around the world.

Patrick, congratulations - and we wish you well for next week.

I ask you to cast your mind back 12 months ago to Australia Day 2009. None of us could have imagined the tragedy that was about to sweep across this state on Black Saturday, February 7: the worst bushfires in our nation's history; the worst natural disaster in our nation's history; a firestorm that took 173 lives; a firestorm that damaged many others; a firestorm that destroyed more than 2,000 homes.

The horrific images of those fires will remain forever with us, but so too will the memories of the extraordinary response to the fires, from across Victoria, from across Australia and from all across the world. In these our darkest days, the essential spirit of Australia shone like a beacon of hope, because when the big challenges come - and when our backs are against the wall - we respond as one nation. We respond as one people, because at times like these, our hearts beat as one and the colonial boundaries mapped by colonial surveyors nearly two centuries ago count for nothing.

All that ultimately matters is that we're Australian, that we're part of the Australian family, and to be Australian is to know that we're all in it together, that we look out for each other, that we work together for the good of all and for the good of the world. That is the essence of the Australian character.

We also saw this same national character on display last year as Australia confronted the worst global economic recession in 75 years. 12 months ago the global recession was bearing down upon us and around the world it was destroying all in its wake, but Australians came together to confront this common threat. Australians, in governments of all persuasions - state, territory and local - in businesses large and small; in unions and local communities right across the nation; worked hard with the Australian Government to confront this fundamental challenge to us all.

Together, we took strong, early and decisive action and the results speak for themselves. We are the only one of the Major Advanced Economies not to have gone into recession. Together, we have kept the economy strong and

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other nations look with envy at what we have achieved in Australia in responding to the challenge of the global recession.

That's why 12 months later, on Australia Day 2010, as we enter this second decade of the 21st century, we can be optimistic about our future. But we cannot be complacent about our future. As we enter this new decade, it's a good time to take stock, having charted a course thus far through the global economic crisis, to consider the long-term challenges that lie ahead for our nation - including:

z the deep structural challenge of an ageing population and its

implications for our future economy and society, z the enormous economic and environmental challenge of climate

change, and z the challenge of building our future national and economic security

in an increasingly competitive world - a world which does not owe us a living.

To help guide our nation's work, the Government has in recent months 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 for the first half of this new century because Australia must plan for

the long term, not just the short term.

Central to our long-term challenges is the ageing of our population. To understand its implications, we need to ask three basic questions:

z First, how much are we ageing by?

z Second, how will this impact on family living standards and the

economy? z Third, what can we do about it?

On the first question, the Intergenerational Report projects that our population will grow from 22 million today to 36 million by 2050. This is a big challenge in itself given its implications for services, infrastructure and our cities, but an equally large challenge will come from the fact that between now and 2050, the proportion of our population aged 65 and over will almost double from around 14 per cent to around 23 per cent. In other words, nearly one quarter of our population will be older than what we now refer to as the

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retirement age.

The second question is how the ageing of our population will impact our economy. At a national level, public finances will be burdened with the increased costs of looking after the needs of older Australians - in health, aged care and age pensions - but with a smaller proportion of Australians in the workforce, tax revenues won't keep pace with those rising costs.

The extent of that change is revealed by the dramatic change in the ratio of the number of people of working age (and paying taxes) to those aged 65 and over.

Forty years ago, in 1970, the ratio was 7.5 people of working age to every person 65 and over. In 2010, the ratio is 5 to 1, and in 40 years' time, in 2050, it is projected to fall so far that there will be just 2.7 people of working age for each person aged 65 and over.

Unless we make big changes, we will either generate large, unsustainable budget deficits into the second quarter of the century, or else we'll need to reduce government services - including health services - as the needs of an ageing population become greater.

This is not just a challenge for future governments. It will also become a challenge for working families, because with a smaller proportion of Australians in the workforce, the size of the national economic pie will grow more slowly, and as a result, average family incomes will grow at a slower

rate than we've become accustomed to in recent years.

The third question is what can be done to strengthen economic growth in the face of the fundamental challenge we face from the ageing of the population. In the long-term, there are three sources of economic growth - the three Ps

of population, workforce participation and productivity growth.

With lower fertility rates and stable migration ratios, population policy will on current trends at best make a marginal contribution to the challenge of an ageing population.

The truth is that the strong policy levers lie with policy measures to lift participation and productivity growth.

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We must do all we can to lift workforce participation by reducing barriers to entry to the workforce. The Government has already acted on this front, to remove barriers to work for women and young people with greater investment in childcare, new measures to get young unemployed people into the workforce and the proposed introduction of Paid Parental Leave.

But the Treasury's analysis shows that even with all 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. This will detract from economic growth and constrain future growth in family incomes.

This takes us to the last and most important of the three Ps - productivity growth. It is productivity growth that must play the central role in building Australia's future economic growth. The first decade of the 21st century saw not an increase, but a decline, in productivity growth. During the 1990s, productivity growth hit the two per cent mark following the reforms of the Hawke-Keating Governments, but it fell to just 1.4 per cent in the first decade of this century. If we let this trend of lower productivity growth continue, Australia will struggle to meet the major challenges facing our economy in the decades ahead.

The Third Intergenerational Report provides for the first time an assessment of just what would be the cost of continuing on a path of low productivity growth compared to returning to the strong productivity growth path of the previous decade. The Australia to 2050 report shows that without a concerted effort to increase productivity, average annual productivity growth will be just 1.6 per cent over the next 40 years, leading to average annual economic growth rate falling to 2.7 per cent, compared to the historical average of 3.3 per cent over the last 40 years.

But with a concerted effort to raise productivity, we can lift average productivity growth back towards 2 per cent per year, and achieve an average annual economic growth rate of just above 3 per cent. The high productivity path would result in our economy growing an extra 15 per cent

by 2050, against what would otherwise be the case. By 2049-50, that would add around $570 billion to Australia's annual economic output in today's dollar terms and as a result it would increase living standards for all Australians.

The report concludes that if we return productivity growth to two per cent a

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year, average living standards for Australians, measured by real GDP per capita, would be $16,000 higher per year by 2050, so on average, if we boost productivity growth, by 2050 every Australian man, woman and child would be $16,000 better off a year. That is why raising productivity is so important to building Australia's future, and that's why working families trying to make

ends meet have a special interest in growing Australia's productive capacity, and that's why higher productivity is crucial to building Australia's future.

Australia must take decisive action to drive productivity growth forward - to improve living standards, to deliver better services while keeping the Budget on a sustainable footing, and to improve Australia's international competitiveness. The Government has already begun investing in the key drivers of productivity in its first two years in office:

z by investing in record levels of long-term nation-building economic

infrastructure - more than $18 billion worth of investments, including in roads, rail and ports; z by implementing an education revolution, doubling the investment in

Australian schools over the next five years, and increasing overall real investment in education by over 50 per cent; z by investing in business innovation, including innovative

manufacturing and helping businesses use technology to work smarter and faster wherever they are, through the high-speed National Broadband Network, and z by implementing microeconomic reforms to cut red tape for business

and build a seamless national economy.

This is the productivity growth agenda I outlined in a major essay in July last year, setting out the path to economic recovery and growth. It reflects the priorities I set out in January 2007 in my first major policy release as Leader of the Opposition and it is the agenda to which the Australian Government is committed as we enter a new decade, what I describe as Australia's Building

Decade: a decade of building a stronger economy for the future; a decade of building a more productive economy for the future; beyond nation-building for recovery, now nation-building for the future.

Ahead of Australia Day next week, I will be visiting every state and territory and discussing in a series of addresses different dimensions of the long-term economic challenges we face as well as discussing our response to those challenges. We are determined to make decisions for the long term, even if

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the benefits of those decisions won't always be immediate.

In fact, the pipeline between implementing reforms and their positive impacts takes many years and goes beyond many election cycles. Building Australia's future must start now.

I am profoundly optimistic about Australia's future. While we face significant challenges, the extraordinary achievements of past generations show just how much Australians can do when they come together in the face of great challenges of the future.

In the first decade of the 20th century, we became a nation and laid the foundations for one of the fairest societies in the world through such achievements as the living wage, age pensions and the right for all women to vote and stand for Parliament.

In the 1940s, we fought a war that threatened our very survival and laid the foundations for the long post-war economic boom, expanding immigration, building our suburbs and expanding educational opportunities for a generation returning from war.

In the 1980s, we created a dynamic, modern economy that could compete with the rest of the world, laying the foundations for the strong performance of the past two decades.

In the 2010s, we have the opportunity again to build Australia's future and lay foundations for a stronger Australia, a fairer Australia, one prepared to face the challenges of the future.

We must make this the decade of opportunities seized, not of opportunities squandered. We face formidable challenges, but Australians have the capacity, the resilience and the spirit to rise to each one and together to build Australia's future.

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