Mr Speaker, since the darkest days of the global financial crisis, I have regularly updated members on international developments and their implications for Australia. As I do so again today, I cannot assure the House that the outlook for the global economy is any less concerning than it was last time.
Indeed, the global economy is in some respects in worse shape than it was last year. Germany and France, the locomotives of European growth and two of the major global economies, are both expected to have contracted in the fourth quarter of last year.
As Governor Stevens noted on Tuesday, growth in China has moderated as was intended, although indicators remain robust. But more broadly in Asia, we have seen some softening in growth.
Of the major economies to have released fourth quarter GDP data, the US alone was a little stronger but even so, growth overall remains below trend and under threat from fiscal contraction. Responding to these developments, the IMF has again lowered its forecast for global growth in 2012.
So I cannot offer today an assurance that 2012 will not be as challenging as 2011 for the global economy. But recent actions in Europe, in particular by the European Central Bank, have settled markets somewhat and may have bought Europe and the global community a little space – space that must be used to tackle the underlying problem if further deterioration is to be avoided.
Mr Speaker, today, just as we should not hold out false optimism, we should never hold on to false pessimism. Despite the global economic challenges, our economy is very much the envy of the world – with solid growth, low unemployment, contained inflation, strong public finances, and a record pipeline of business investment.
As the world's 13th largest economy, we are also the world's quiet achiever. We punch above our weight with an enviable record of achievement and the knowledge that our fundamentals will serve us well into the future.
Mr Speaker, the recovery from the deepest global recession since the Great Depression was always going to be long and difficult. But a combination of political gridlock and policy half-measures has turned a tough road towards prosperity into a perilous path.
I've now been to 19 G20 meetings as Treasurer and the concerns among my colleagues as last year drew to an end were as grave as they were at the height of the Global Financial Crisis.
Fortunately, Europe has taken some recent positive steps forward. There is no doubt the active intervention of the European Central Bank – in particular extending the maturity of its lending to European banks – has helped to calm sentiment in recent weeks. The agreement of a new fiscal compact for Europe is also a step in the right direction. But more is needed given the scale and significance of the problems that Europe faces.
Mr Speaker, in November last year I outlined the Government's Mid‑Year Economic & Fiscal Outlook in the context of deteriorating global growth which of course significantly impacted budget revenues. Our mid-year update reflected the now widely held view that the euro area is entering recession, an assessment with which the IMF and World Bank have agreed.
Sovereign governments in Europe need to take credible action to put their budgets on a sustainable footing in the longer-term. But fiscal austerity alone is not the answer to Europe's problems.
Economic growth in Europe is crucial to achieving debt sustainability. But to achieve stronger growth, Europe must embark on a wide ranging package of structural reforms. These are the tough reforms which Australia has long since introduced – like opening up sectors to competition and reforming pension systems.
While this is primarily a European crisis, it cannot be assumed that Europe's solutions alone will safeguard the world economy. The economic policy choices of the rest of the world are also critical for the global outlook.
In the United States, President Obama is trying to introduce measures to support growth and jobs, while putting its budget on a sustainable medium term path. The US and global economy would be well served if Congress put away its partisan politics and got behind the President's plans.
Closer to home, near term growth prospects in Asia remain healthy, although the region is also not immune from European developments. Although weaker global demand has weighed on regional growth, China continues to perform solidly. And underlying all of this, the shift in global economic weight continues to move from West to East.
Increasingly it is our region that is driving global growth in this, the Asian Century. For the first time our history Australia finds itself in the right part of the world at the right time. We can make our future the Australian Century in Asia, not just Australia in the Asian Century.
Mr Speaker, despite our bright prospects, no economy remains untouched from the fallout from Europe. Ours is no exception.
As I outlined in the mid-year update, we've seen the European crisis impact on our economy and budget. We've seen global turbulence create volatility in our share market, dampen confidence and unsettle consumers and businesses. Households have become more cautious, and businesses more hesitant in their hiring decisions.
While reflecting our relative economic strength, the high dollar is also a pressure point for our trade exposed industries, such as tourism and manufacturing. Despite these headwinds, our Budget is on track for surplus in 2012-13, well ahead of our peers.
Through discipline and the right policy decisions, we have kept our economy strong, fought off recession and secured jobs even in the worst global conditions of our lifetime. Every member of this House should be proud of what our country and our people have achieved throughout this difficult period.
As most of the developed world braces for the prospect of weak or negative growth, we are expecting trend growth – higher than every single major advanced economy. As we saw in the most recent quarterly National Accounts, our economy recorded impressive growth of 1.0 per cent in the September quarter.
We've seen over 700,000 jobs created since Labor was elected – that's over 700,000 more Australians going home with a pay check – while unemployment queues have grown in Europe and the US. Our unemployment rate is low at just 5.2 per cent, compared to10.4 per cent in the euro area and 8.3 per cent in the US.
For the first time in Australia's history, all three global ratings agencies have awarded us the gold-plated AAA credit rating – something never achieved by any previous government.
We can't lose sight of these strengths, which is why it is so disappointing that some members of this House have sought to talk our economy down and undermine confidence, putting Australian jobs at risk.
Our strong fundamentals mean we are uniquely placed to deal with the worst that the world can throw at us. Our forecasts recognise that we'll continue to see uncertainty and volatility in financial markets. But of course if global conditions take another turn for the worse, this will hit our revenues and obviously make it harder to return to surplus – that's just common sense.
We've already seen $140 billion ripped from government revenues due to global instability, including $20 billion in the six months between last year's budget and the mid-year update. And we have a tax-to-GDP ratio at levels well below that which the Howard Government left.
As the Prime Minister said recently, we are committed to return the budget to surplus in 2012-13, we are determined to deliver it, and we will deliver it. Putting the budget into surplus will preserve our existing strong credibility with global financial markets and increase the scope for our independent Reserve Bank to ease monetary policy should conditions require.
Mr Speaker, while the fundamentals of our economy are sound, every Australian has an interest in the global community working to put an end to the rolling global economic crisis. That is why later this month in Mexico I will again meet with my G20 colleagues to push for global action.
As I have said, the solutions primarily must come from Europe, but the global community has a role to play. At Cannes last November, the Prime Minister along with other G20 Leaders announced an Action Plan for Growth and Jobs which outlined the policies G20 countries have committed to pursue to secure strong, sustainable and balanced growth. In 2012, the G20 must hold firm to those commitments.
A global firewall – in the form of an adequately-resourced IMF – alongside a strengthened European firewall will also boost confidence and prevent contagion spreading from Europe to the rest of the world. This is the message I will take to Mexico, along with the message about the strength of the Australian economy.
Because, Mr Speaker, Australia's economic fundamentals are rock-solid. The Gillard Government's objective is to turn this economic strength into a stronger community as well: To create wealth and spread opportunity with policies that help ensure Australians under cost of living pressures feel the benefits of the Asian Century and the mining boom, not just a fortunate few.
It's why we are not only returning the budget to surplus, but also investing in the critical skills and infrastructure our economy needs.
It's why we are cutting tax on small businesses and corporates.
It's why we are investing in national superannuation, building a savings pool for our economy and a more secure retirement for our people.
And it's why we are putting a price on carbon pollution to drive investment in our clean energy future.
Mr Speaker, Australia's success and resilience over the last four years is not due to luck. We are a young, optimistic nation, and we stand ready to capitalise on our opportunities and show the rest of the world what is possible.