Wayne Swan theguardian.com, Friday 4 October 2013
Despite claims to the contrary, the performance of the Australian economy has been rock solid. Australians have been less aware of this strength than the rest of the world, but this isn't their fault
'The performance of the Australian economy over the last 20 years has been rock solid'. Photograph: Torsten Blaxkwood/AFP/Getty
In the three months since I stepped down as treasurer, I have had plenty of time to reflect on Labor's six years of government and contemplate the future. I've spent a lot of it reflecting on the often gaping difference between the perception and actual performance of the Australian economy and why such a gulf exists. It's never more obvious than when I travel overseas to attend international conferences and talk to respected economists and policy-makers, as I’ll be doing next week in the US and Europe.
I’ve always been up for a robust discussion on our economy and it is great to have a range of views in our public debate. But I've also been a politician for more than 20 years, so I guess I shouldn’t be surprised that often assertion and opinion in our public debate are bereft of the facts. Our national debate pays a price for this: you could almost set your watch to the rubbish coming from the conservatives and their cheerleaders in the media. As a side note, it's almost comical how quickly the new Abbott government has bolted from its claims of a "budget emergency" and "debt crisis", instead flagging the need for stimulus spending and government backed debt to build infrastructure.
Despite the predictable claims to the contrary, the performance of the Australian economy over the last 20 years has been rock solid, and continues to be outstanding in the face of ongoing global volatility. These are facts readily accepted by the IMF, the OECD and most credible private sector economists, but ignored by those with vested interests and parts of the press.
The facts are these. In global terms, there can be no clearer display of strength and resilience than the incredible 22 consecutive years of growth we have achieved. The incredible resilience of our economy has been confirmed yet again in the recently published 2013 June quarter National Accounts showing GDP growth of 2.6%, a little below trend for the 2012-2013 financial year.
It's probably fair to say that Australians have been less aware of our economic strength than the rest of the world, but this isn’t their fault. It lies in the refusal of a faction of those who lead and influence debate to deal with hard facts, and who instead are constantly looking to talk the joint down and erode confidence.
I recently saw some commentary suggesting Australia’s extraordinary record of continuous economic growth was largely "made-in-China", might soon come to an end, and that as a nation we didn’t have much to show for it. It's not the first time I've seen assertions that Australians have been complacent and profligate consumers of the benefits of the mining investment boom, leaving them ill prepared for lower commodity prices and terms of trade.
Whilst these incorrect assertions have been common in our domestic debate, they are damaging to the extent that they filter through to international perceptions. At its core, this diagnosis misses a lot of important developments in recent years and is not supported by evidence, such as the restraint Australian households have shown in response to the terms of trade boom. Household saving has been substantially higher – spectacularly so after the global financial crisis, but beginning well before that.
Australians have not been feckless in their experience of the terms of trade increases over the last 10 years; they have saved an enormous amount of income from the boom. In just the March quarter alone, net saving by Australian households was a massive $44bn of their disposable income. That's the highest quarterly household savings total in our history. It's four times as much as households saved in net terms a decade ago, when the terms of trade boom began. The combination we’ve seen of high savings and high investment reassures me that we are not wasting our good fortune – and to suggest so is incorrect. Australians are saving and investing like never before.
It's also not the first time I've seen the myth that Australia’s recession-beating performance came largely from riding China’s coattails. This couldn’t be further from the truth. In their authoritative post-crisis analysis, Australian treasury officials Steve Morling and Tony McDonald concluded that "a combination of factors explain the extraordinary resilience of the Australian economy" during the global financial crisis.
There is no doubt that the strength of the Australian financial system was critical in buffeting Australia's economy. As Morling and McDonald note, the decisive measures taken by the Rudd Labor government and our financial regulators to support the financial system "were important in ensuring continued financial stability in Australia, allowing the flow of credit to households and businesses to continue".
The Treasury officials also conclude that the "rapid deployment of fiscal stimulus appears to have been effective in increasing domestic demand, with transfers in late 2008 and the first half of 2009 boosting household consumption and putting a floor under business and consumer confidence".
Put simply, in their words, together with the "first effects of rapid and timely reductions in interest rates in Australia ... fiscal stimulus started to be reflected in increased household cash flow". To be blunt, it's therefore plainly ridiculous to argue that stimulus worked in China but not in Australia.
So what about China? Of course China helped, but Australian mining overall didn’t particularly. As Morling and McDonald state, Australian export volumes of metal ores and minerals dropped by 9% in the December quarter of 2008, and were down a cumulative 6.4% over the three quarters to the end of March 2009. The volume of coal, coke and briquettes fell sharply in both the December quarter 2008 and the March quarter 2009, to be over 16% lower over the three quarters. Continuing growth in demand from China helped to partly offset much lower demand from other major trading partners, but overall, mining production contributed only 0.1% to overall real GDP growth of 0.3% over the three quarters or 0.4% to overall growth of 1.8% from the June quarter of 2009 to the December quarter of 2009.
And while there’s no doubt our economy is in transition and will need new sources of growth beyond the investment phase of the mining boom, mining investment as a share of the economy still remains at record highs. In the June quarter this year, new private business investment remained at around 50 year highs as a percentage of GDP, at around 17.5%. All that investment is now starting to show dividends, as the production and export phases of the mining boom begin to ramp up. In fact, our exports were up an impressive 6.4% over the year to the June quarter 2013.
I think BHP Billiton CEO Andrew Mackenzie smashed these claims out of the park when he stated that "global demand for commodities is expected to grow by up to 75% over the next 15 years as 250m more people move from the Chinese countryside to cities and Asia’s middle class approaches 3bn". For example, Mackenzie noted that "steel consumption is expected to increase by over 50% in the next 10 years with more than half of this in Asia". As Mackenzie put it, "only a handful of countries, of which Australia is one, can currently deliver the volume of resources required for Asia’s continued economic growth".
Most significantly, I was struck by the suggestion that Australia has not been served well by the last three years of minority government, particularly with our economy in transition. Of course, even a cursory glance at the sheer size and scale of the long-term economic reforms that the Labor government has put in place over the last three years blows these claims out of the water. These included putting a market price on carbon pollution, reforming resource rent taxation arrangements, boosting superannuation or the massive productivity enhancing investments that have made in infrastructure, skills, education and the National Broadband Network and Disability Care Australia.
These are transformational reforms which will strengthen Australia’s economy for decades to come. Of course some of these reforms are about to be repealed, which will pose challenges for the Abbott government and our economy.
However, I’ll leave the last word on this to Fitch Ratings, which during this term of minority government upgraded Australia to give our nation the gold-plated AAA-rating from all three global ratings agencies for the first time in our history. In March this year, Fitch reaffirmed our AAA rating, saying that "Australia's high level of political stability and governance is maintained, which supports the country's attractive business climate".
And Fitch didn’t stop there. It blew the economic trash-talkers away with its simple declaration that "Australia has remained one of the strongest performing economies in the AAA universe since the global financial crisis began".
