WAYNE SWAN MP THE ECONOMIST MAGAZINE - BELLWETHER AUSTRALIA CONFERENCE CLOSING REMARKS SYDNEY - 17 July 2013 CHECK AGAINST

DELIVERY Thanks, its great to be here today. Im looking forward to our chat but Id like to start with some brief remarks about Australias extraordinary economic journey. Of course, like so much of the past five and a half years, our economy faces a unique set of challenges against the backdrop an uncertain global economy where the situation remains very fluid. While were all aware of the profound challenges being faced in Europe, the US and Japan, more recent challenges have also emerged, with both the US and China looking to normalise their highly accommodative monetary policy stances. This has contributed to a noticeable increase in financial market volatility over the past month or two, with markets increasingly focused on growth in emerging economies and concerns about Chinas financial sector all of which of course impacts on Australia. These global forces washing up on our shores remind us therell be bumps along the way as our own economy undergoes two big transitions:

 In resources, as the sector transitions from unprecedented growth in mining investment to exceptional growth in commodity export volumes. And more broadly, the transition towards non-mining growth drivers. As we face these challenges, we shouldnt lose sight of the success we've had in navigating some of the most extraordinary years in the economic history books. If you'd told any economist ten years ago we'd go through a once-in-acentury terms of trade and business investment boom and come out with contained inflation and record low interest rates, they'd have laughed. If you told them we'd also get hit with the worst global crisis in three generations and come out the other side with an economy over 14 per cent bigger and nearly a million more jobs, theyd have shown you the door. We should also remember that this is not the first time our economy has faced some challenging transitions in recent years and these transitions were managed with reasonable success. At the height of the GFC, we made the big transition from private to public demand, with the mining investment boom supporting growth as the stimulus was unwound. Throughout these big periods of economic change, the Australian economy has outperformed virtually every other developed economy, with our economy emerging as a leader on the world stage. It was an enormous privilege to be Federal Treasurer through this period.

You dont get to choose the circumstances in which you govern, but you do get to choose your policy responses while youre there. Im deeply proud that Labor was in charge during these tough times, because frankly I dont believe the other side wouldve made the same decisions to support jobs when the backside fell out of the global economy. The economic fundamentals weve achieved are the envy of the world. We've got an economy that, this month, notched up 22 consecutive years of growth - a record unmatched by any other advanced economy over this period. Over the past five and a half years alone: We've climbed three places from 15th to now be the 12th largest economy in the world, and with only the 51st largest population. Weve moved up six places in the world rankings on GDP per capita. Today, we've also got: An unemployment rate that starts with a '5', at the same time that underlying inflation and official interest rates start with a '2'. Record low interest rates despite having seen over $1 trillion dollars of private business investment since we came to office. And we're one of only eight countries in the world with a AAA rating and a stable outlook from all three global ratings agencies. But what weve achieved runs so much deeper than these numbers. Its about the families and communities that have stayed together. Its about ensuring so many Australians retained the dignity of work.

Its about the values at the very heart of the Labor side of politics. I sometimes read accusations that Australians have been complacent and profligate consumers of the benefits of the mining investment boom, leaving us ill-prepared for the inevitable downturn in commodity prices and the terms of trade. I dont agree with that diagnosis and its worth considering why As a share of either nominal or real income, household consumption is well below its average in the ten years to 2003, the beginning of the boom. Australian households have been restrained in their response to the terms of trade boom. At the same time, household saving has been correspondingly higher spectacularly so after the Global Financial Crisis, but beginning well before it. And all the while, housing investment has been fairly restrained. Partly as a result, we have been able to finance this huge investment boom in mining without blowing out the current account deficit, as has occurred in the past. Today total investment is not far short of 30 per cent of GDP a far higher share than in Germany, Japan, the US or the UK. Yet our current account deficit at three and a quarter per cent of GDP for the year to the March quarter is well below the average of the thirty years since the float, though investment as a share of GDP is above average. The reason is that Australians have saved so much of the income from the boom. In just the last quarter, Australian households saved $44

billion of their disposable income. That is the highest quarterly household savings total in our history. It is four times as much as households saved in net terms a decade ago, when the terms of trade boom began. In addition, we have been making very solid improvements to our physical capital as well as marked improvments to our human capital through greater investment in education, training and skills. Ive also been encouraged by the recent improvement in labour productivity growth, which reassures me that we are not running out of puff. We often see a big boost in productivity in recovery from recession, but in this case we are seeing it when the economy is growing a little below trend. That suggests to me that the gains will be enduring and persistent. Indeed, that conjunction of high savings and high investment reassures me that we are not wasting our good fortune on the contrary we are saving and investing as never before, and restraining our current consumption to an income share well below where it was a decade ago. Because we got and are continuing to get - the big economic calls right, weve got a strong foundation to make the most of our opportunities in what is now the Asian Century. The Asian Century is still dawning and offers a rich bounty for Australia in the decades to come but only if we get our policy settings right. Now there are some who argue the transition underway in our economy to non-mining sources of growth could lead to serious economic instability, even dangling the R word to get a newspaper headline and their name underneath it.

I believe these dire predictions ignore three critical points: The transition is occurring quite gradually were not seeing the jumps and drops usually associated with instability. In fact, the latest CAPEX figures forecast that after mining investment peaks this financial year, it will come off its record highs slightly but remain high for some years to come. The second point to make is that on the transition to non-mining sources of growth, we are seeing signs of gathering strength in the housing market and other non-mining investment. Non mining business investment is twice as big as mining investment. If we add in dwelling construction and public investment, each of which is around five per cent of GDP, then the total of non-mining investment is nearly four times the size of mining investment. Thirdly, and most importantly, the policy settings are being put in place to support this transition. Interest rates are at record lows. Fiscal policy is being tightened at a responsible and measured pace. The sizeable fall in the nominal exchange rate since the Budget will also help in this regard, though much more will be needed over time. Even as this transition in the economy occurs, the surge in mining investment will deliver a large and sustained increase in the volume of exports over the coming decade. While theres no doubt falling commodity prices will continue to hit profits and revenues, the increased volume of production will be an important source of strength in output in the real economy. But what is clear is that our success in the Asian Century cannot rely on unfettered growth in China to support our mining sector its about how we diversify our economy by making the most of the enormous structural shifts occurring in our region.

 Labor has much to be proud of over the past six years, under both Prime Ministers Gillard and Rudd. Weve done a truckload lot of reform and policy improvement - and theres plenty more Labor wants to do. We want to see fast, high capacity broadband for every business, every farm, every town and every city, every home in Australia. We want to see our school improvement reforms rolled out across the country to give every kid the chance at a fulfilling, rewarding and productive career. We want to build on reforms to corporate taxes, such as our loss carryback, to drive investment and entrepreneurship and support the growth of new Australian success stories. We want to see Infrastructure Australia continue progress in assigning national priorities for new productive infrastructure in Australia. I think we can do more to encourage women in the workforce, and to encourage older Australians to remain in the workforce, helping to grow our workforce and our prosperity. Weve now closed out on the 22nd year of uninterrupted expansion in the Australian economy a truly remarkable achievement for our nation. As I suggested earlier, if we look at the structure of the economy today we can see that we are very well placed to continue that expansion for quite a while. Even so, we know there will come a point in the next decade or so when mining output growth will slow down. Its true now but it will be even more apparent then that Australias continuing prosperity, our capacity to raise our living standards, will depend on the four fifths of our economy

which is not mining or farming or manufacturing, and which, except for construction and utilities, is all services. We will depend on services growth for our increasing living standards, and for our ability to grow our imports without an unsustainable trade deficit. More exactly, we will depend on increasing productivity in services increases in output of services per worker. ... This is the Australia I want to see in the next ten and twenty years. An Australia that keeps the record Labor has built over the past six years as one of the strongest economies in the developed world. An Australia where jobs, growth, reforms and education are valued well above narrow-minded sectorial interests or the views of those who have the biggest megaphones. An Australia where we keep creating jobs, building prosperity and spreading opportunity. An Australia where the fair go prospers - where we have the infrastructure of the 21st century, an education system that puts our kids in a league of their own and a social safety net that ensures no one is left behind. An Australia where the poisonous politics from people like Tony Abbott and the right-wing commentariat no longer drag our debate into the gutters. To get there, this year each and every Australian has a choice. And its this choice which may prove the 2013 election to be the most pivotal in a generation.

Because it is a choice between a Labor Party focused squarely on investing in the future and an Abbott government that would drag us backwards. That is because Tony Abbott is not a man for the future. I don't say this lightly, but I firmly believe he represents the greatest risk to this nations bright future that we've seen in decades. Because its not just about the policies we advocate, its the values we represent: Labor jobs, growth and smart investments for the future. Liberals cuts, slash and burn. What unites the Labor Party Kevin, Julia and myself amongst tens of thousands of others is that we all passionately believe in investing in our nation's future, in grasping the opportunities of the Asian Century, in ensuring Australia becomes all that it can be. This is Labor's vision and its only Labor that has the ideas, values and policies to build an even better Australia.

ENDS