May 10, 2006

More Downward Pressure Needed on Interest Rates


Wayne Swan MP

Federal Labor Shadow Treasurer

10 May 2006

Peter Costello has let middle Australia down in this year’s Budget.

The Budget does not do enough to put downward pressure on interest rates. And it fails to address widening skill shortages and Australia’s surging foreign debt.

Peter Costello has failed to seize a once-in-a-lifetime opportunity to make substantial lasting investments in Australia’s future.

No government in living memory has faced such favourable world conditions.

But governments aren’t judged on the luck they inherit – they are judged on what they do with it.

Tonight’s Budget reveals that in 2006-07, world economic growth and Australia’s terms of trade will remain at their best levels in thirty years.

But four years into the global commodities boom, instead of achieving strong trade surpluses, Australia’s half trillion dollar foreign debt will continue to grow.

The Government must come to terms with Australia’s continued export failure. Export growth has collapsed since 2000-01, with average growth in export volumes of just 0.6 per cent – compared to the 20 year average of 5.9 per cent.

As in previous years, the Budget promises export growth of 7 per cent, but delivers just 2 per cent.

And despite years of promises of a lower current account deficit, in 2006-07 the deficit will surge a further $6 billion to $63 billion – the highest on record, and the second highest of any major developed economy.

No wonder Peter Costello has yet again avoided mentioning the current account deficit in his Budget speech.

His persistent failure on the current account deficit leaves Australians exposed to the risk of higher interest rates and economic shocks.

Last week, Access Economics warned the Government of this interest rate risk, and the danger of a “sudden and messy vengeance” when the commodity boom ends and financial markets lose their patience with Australia’s spiralling foreign debt.

But the Budget ignores these serious risks.

Despite increasing both tax and spending by one third – or $60 billion per year – between 2004-05 and 2009-10, Peter Costello has failed to tackle the supply side problems that are adding to inflationary pressures and to Australia’s export constraints.

While the Government pays lip service to preparing Australia for future risks, the Budget does not deliver.

There is no plan to solve Australia’s skills crisis.

There is no plan to reverse Australia’s backward slide on innovation, which is seeing countries like China and India pass us by.

Despite some positive steps, like increasing the rate of depreciation for capital investment, it misses the opportunity to put in place national leadership to rebuild Australia’s crumbling infrastructure.

The resources boom has given Peter Costello the opportunity to step Australia up to a new level of prosperity, by making lasting investments in the drivers of productivity and future growth. We don’t know how long that opportunity will last, but it won’t last forever.

Peter Costello must not ignore Australia’s long history of frequent, abrupt and unforeseen shocks to the international environment that shape the economy’s fortunes.

That’s why Australia needs the ambitious nation-building and reform agenda that only a Labor Government will deliver.