Reading The Australian Financial Review’s exclusive on the International Monetary Fund’s endorsement of Labor’s surplus strategy yesterday reminded me of the extraordinary economic journey our country has travelled over the past few years.
Tonight at the dispatch box, I will deliver the fifth chapter in this journey. I remember when we were faced with the worst global meltdown since the Great Depression and deficits each year of the forward estimates.
In those early days, no one will forget the carnage that was just around the corner and the punishment that was meted out to economies that were once regarded as powerhouses, such as the United States and parts of Europe.
The effects of the crisis still linger in the global economy. Europe has an unemployment rate that tops 10.9 per cent (in Spain, it’s just shy of 25 per cent). The moderate recovery in the US continues but the road ahead will be long and hard.
The contrast with Australia’s circumstances could not be starker.
Australia’s economy is the envy of the world. Right now, our unemployment rate of 5.2 per cent is below every major advanced economy in the world bar one.
Since late 2007, more than 750,000 jobs have been created in Australia, in contrast with the 27 million jobs that have been lost across the world over the same period. Indeed, with a pipeline of investment of $455 billion and contained underlying inflation, our economic fundamentals are strong.
The IMF has forecast Australia will outperform every major advanced economy this year and next. The budget tonight will forecast growth around trend over the next two years, with real gross domestic product growing by 3.25 per cent in 2012-13 and 3 per cent in 2013-14.
The retail trade figures yesterday are also encouraging, showing the largest increase in quarterly retail volumes in nearly three years.
Despite this increase, there’s no doubt that conditions are still challenging for many businesses, particularly due to the high dollar, cautious consumers and ongoing global uncertainty. These challenges are reflected across our patchwork economy, with many businesses under pressure.
With growth returning to trend, it’s entirely appropriate that we return to surplus – an approach that I’ve seen has been rightly endorsed in the Financial Review’s editorial pages. And we’ll do this despite lower revenues – down by $150 billion since 2008 – which means we’ll achieve this surplus by spending restraint.
Just as the government stepped in to support the economy and keep the doors of business open during the financial crisis, the government is now stepping back, ensuring that we don’t generate price pressures in the economy. I appreciate there’s a debate in the economic community about these matters, but it’s worth recalling a few perhaps obvious, though important, points.
As growth returns to trend, unemployment is low, and there is a huge investment pipeline coming through, disciplined fiscal policy gives monetary scope to ease interest rates if needed.
With this in mind, it’s entirely appropriate to return the budget to surplus so the Reserve Bank of Australia can consider further rate relief such as we saw last week when the board cut the cash rate by 50 basis points. No small business owner will forget the pain of 10 rate rises in a row under the Howard government, caused by its reckless spending spree.
While Australia’s economic fundamentals are strong, our economy is in transition, and conditions are challenging for many businesses not in the fast lane.
This is the reason I have announced that the budget tonight will include substantial tax relief for businesses facing pressures through a loss carry-back initiative, to help them through hard times, encourage investment and lift productivity.
From July 1, 2012, companies will be able to carry back up to $1 million of losses to get a refund of tax paid in the previous year, meaning eligible businesses will be able to receive a tax refund of up to $300,000 – that’s no small fry for many small businesses.
This measure was recommended by the independent Business Tax Working Group following the government’s successful Tax Forum.
It is one way we’re working with the business community to deal with the challenges of our patchwork economy – and I look forward to the Prime Minister’s Economic Forum in June to continue this important process with leaders from the business and broader community.
The Australian Financial Review