Welcome to the latest edition of my economic note. On Wednesday I attended the Former Origin Greats (FOGS) Indigenous Employment and Careers Expo in Brisbane. This is a great initiative where Indigenous job seekers and school leavers throughout Queensland get to meet current and former Queensland State of Origin greats, at the same time as they get to talk with prominent employers and education and training providers. Wednesday's event was opened by my colleague Mark Arbib, the Minister for Employment Participation. I've always been a strong believer that we need to create prosperity so we can spread opportunity. Initiatives like this Expo are an important part of making sure that we don't leave anyone behind – and that the country reaps the benefits of what every Australian has to offer.
That's why Thursday's job numbers were so encouraging. The labour force figures showed the unemployment rate fell by 0.1 per cent in September, to 5.7 per cent. This week's Fact of the Week is that employment increased by 40,600 people in September. This is very welcome news, though we must keep in mind that 650,000 Australians are still looking for work.
These unemployment numbers confirm our economic stimulus is working to support Australian jobs and small business. Since September last year, employment in Australia has risen by around 11,000 people – or 0.1 per cent. That compares to falls of 1.5 per cent in the Euro area, 1.6 per cent in Japan, 1.8 per cent in the UK, 2.2 per cent in Canada, and 4.2 per cent in the US. You can read more about the US unemployment situation in this Wall Street Journal article, which explains that economists think the US labour market will take years to heal from its current 26 year high in unemployment.
On Tuesday, the Reserve Bank Board took the decision to lift the official interest rate by a quarter of one per cent, to 3.25 per cent. As I said in my press conference on Tuesday, I know the Reserve Bank's decision makes it harder for many families with a mortgage. But I also think many homeowners can see that rates at 50 year lows couldn't last forever. The Governor of the Reserve Bank, Glenn Stevens, has previously said that official interest rates at 3 per cent are 'emergency levels', and has been flagging that rates would rise as our economy recovers.
We shouldn't forget that monetary policy is still providing a substantial boost to household budgets – with rates still 4 per cent lower than their peak last year of 7.25 per cent. For a family with a $300,000 mortgage, Tuesday's rate rise will cost an extra $46 a month, but that same family will still be $708 a month better off than they were in August last year.
In announcing the RBA Board's decision on Tuesday, Governor Stevens said that "the Board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy." The Government is taking the same approach to its fiscal stimulus, which has been designed to phase down and is already starting to taper off. But, just as the RBA is not withdrawing overnight all the monetary policy stimulus it's injected into the economy, neither is the Government cutting all the fiscal stimulus now. To do so would rip the rug out from under the recovery – and see more workers and more businesses hit the wall.
This was one of the key messages from the Secretary to the Treasury, Dr Ken Henry, who appeared on Friday before the Senate Committee inquiring into the Government's economic stimulus initiatives. He told the Committee that Treasury "remain rather cautious about the near-term outlook. The world recovery is only in its early stages. Those elements of domestic demand that have performed the strongest have been assisted by fiscal and monetary stimulus and, in particular, household consumption and parts of business investment have been greatly assisted. Evidence of a self-sustaining recovery in private activity remains tentative at this time." Dr Henry said that "all credible forecasters are expecting the economy to continue to operate below its productive capacity in the next year or two, even taking into account the stimulus still to come."
Dr Henry said Treasury's view is that "withdrawing the stimulus more quickly could risk stalling the economy and causing a steeper rise in the unemployment rate." He explained that "if all the stimulus scheduled to impact in 2010-11 were cancelled, that would mean a further detraction of 1½ per cent from GDP growth and the loss of up to an additional 100,000 jobs." Dr Henry made it clear that "it is unlikely that the recovery in private sector demand would be sufficiently strong for the economy to withstand such a sudden withdrawal of public sector activity without significant costs in terms of lost output and higher unemployment."
The Government is committed to ensuring Australia has a competitive and healthy banking system, which offers consumers a wide range of financial products at competitive prices. To further support competition in the banking sector, this morning I announced the Government will invest up to an additional $8 billion in Australian residential mortgage-backed securities (RMBS). This investment will provide a major boost to smaller lenders and promote competition in the mortgage market, helping to put downward pressure on borrowing rates over time.
Today's announcement follows the near completion of our $8 billion investment in RMBS announced in September and October of last year, which has enabled smaller lenders to lend at competitive rates of interest and maintain a higher level of lending and market share than would otherwise have been possible. The temporary extension of this program will help smaller lenders to continue to issue RMBS in the short-term as the securitisation market recovers from the impacts of the global financial crisis.
This week we will receive the UK's unemployment figures for August, ABS lending finance data for August, and the latest readings of consumer and business confidence.
On Monday I'll be speaking at an Australian Business Economists function in Sydney. I'm really looking forward to addressing the Australian Business Economists for the first time as Treasurer, and talking to them about our economic stimulus strategy and where fiscal policy goes from here. I'll be talking about the design of the stimulus, and how its impact has peaked and is already tapering away to make room for a private sector recovery. After this speech I'm travelling to Hobart, where I'll be joining other Ministers and locals on Tuesday for one of our regular Community Cabinets.
Treasurer of Australia
Sunday 11 October 2009