Monday, 6 July 2009
Welcome to the latest edition of my economic note. I spent most of last
week on the road, travelling south of Brisbane to Beenleigh and Logan for
one of our regular Community Cabinets, before heading over to Darwin with
the PM and other Ministers for our COAG meetings with State and Territory
Government Leaders. We had some really important meetings and agreed on some
really important reforms, but the thing I’ll most take away from these trips
was the discussions I had with locals, and their willingness to do whatever
they could to help Australia pull through this global recession.
BIS Report
The Bank for International Settlements (BIS) released its
Annual
Report last week. The report says that fiscal stimulus is necessary
to help cushion economies from the global recession, and that this
stimulus should be timely, temporary and targeted. It also says that
there should be a clear exit strategy from fiscal stimulus measures.
As the IMF report discussed in last week’s economic note
specifically points out, Australia ticks all these boxes.
Retail Sales
Last week’s
retail trade figures provided further evidence that
our cash stimulus payments are working to support activity and jobs
in the all important retail sector, with the value of Australian
retail sales rising by 1.0 per cent in May. The value of retail
sales is now 5.9 per cent higher than in November last year, the
month before the first of our cash payments started to flow to
cash-constrained households and pensioners. This is really good news
for jobs in a sector that employs so many Australians.
Trade Result
The impact of the unwinding of the commodity boom was clearly
visible in
trade figures released last week, which showed that
Australia recorded a $0.6 billion trade deficit in May. This was
driven by a 5.2 per cent decrease in export earnings, caused by
falling commodity prices.
The Reserve Bank’s
Commodity Price Index showed the extent of the
unravelling in commodity prices, with the index falling by 4.9 per
cent in Australian dollar terms in June. This week’s Fact of the
Week is that the Commodity Price Index has fallen 19.9 per cent in
the past 12 months, demonstrating just what tough conditions we’re
up against. You can read more about our May trade deficit and recent
falls in contract prices for key commodities in this
Bloomberg
article.
Financial System
Last week Standard & Poor’s reaffirmed the AA credit rating of
Australia’s four major banks. Our four major banks are now among
only eight of the world’s 100 largest banking groups that are rated
AA or above by Standard & Poor’s. This highlights the resilience of
the Australian banking system, and the importance of the
Government’s bank guarantee in ensuring the stability of the
Australian financial system in the face of the worst global
financial crisis since the Great Depression.
COAG Meeting
We’re determined to do all we can for those Australians who lose
their jobs to this global recession, through no fault of their own.
That’s why, at last week’s Council of Australian Governments (COAG)
meeting in Darwin, the Rudd Government together with State and
Territory Governments agreed to establish a
Compact with Retrenched
Workers. The Compact will mean retrenched workers aged 25 years and
over are entitled to a training place for a government-subsidised
Vocational Education and Training qualification. It will complement
the
Compact with Young Australians, established at COAG’s April
meeting, under which people aged under 20 years are guaranteed an
education or training place and 20-24 year olds are guaranteed a
place to upskill.
COAG also agreed to a package of microeconomic reforms that
include
faster approvals of major infrastructure projects and
housing developments to accelerate construction and encourage
private sector activity, and the
streamlining of regulations
applying to the nation’s transport sector to lift national
productivity and allow transport operators to get products onto
supermarket shelves and our exports to market at the lowest cost.
COAG also signed up to a
National Strategy on Energy Efficiency,
which will help Australian households and businesses cut their
energy and fuel bills while reducing their carbon footprint.
New Financial Year
The start of a new financial year last week also marked the start
of
new tax relief that will boost incentives for hard work. The new
tax relief builds on both last year’s tax cuts and our cash stimulus
payments, which have overwhelmingly benefitted low- and
middle-income Australians.
One of the new tax changes is a significant increase in the Low
Income Tax Offset, which will lift the effective tax-free threshold
for low-income workers. Compared with their income tax liability for
2007-08 (and excluding the Medicare levy), the Rudd Government will
have delivered an income tax cut by 2010-11 of around 56 per cent
for a person earning $20,000, 18 per cent for a person earning
$50,000, and 8 per cent for a person earning $80,000.
The new financial year also brought with it indexation increases
in the Child Care Benefit, the Child Care Rebate and the Baby Bonus.
And for the first time, eligible families will be able to claim our
50 per cent
Education Tax Refund in their 2008-09 tax return.
Coming Up
In the coming week we will receive housing finance figures for
May and consumer sentiment data for July, and will learn of the
Reserve Bank’s decision on official interest rates.
But, without a doubt, the most important release next week will
be the Australian labour force figures for June. We know that the
global recession is continuing to savage jobs around the world, with
the US reporting an increase in its unemployment rate to 9.5 per
cent in June. That’s why the Rudd Government is doing everything it
responsibly can to stimulate the economy and support jobs in the
face of the global recession. And those people who do lose their
jobs to the global recession won’t be forgotten. Our Compact with
Retrenched Workers is all about helping those people who lose their
jobs through no fault of their own, to get the skills and training
they need to re-enter the workforce and contribute to the recovery.
Wayne Swan
Treasurer of Australia