Monday, April 13 2009

Welcome to the Easter Monday edition of my economic note. I hope you had the chance to catch up with family and friends over the Easter break. For my part I’ve taken an armful of Budget folders and briefings up to Queensland’s Sunshine Coast for a couple of days, getting stuck into them but also spending time with my family and chatting with locals before heading back to Canberra for more long meetings on what will be a difficult Budget to frame.

Superfast Broadband

Last week was a really big week for nation building, with the Government announcing its plan for the new superfast National Broadband Network. The network, to be built in partnership with the private sector, will be the single largest nation building infrastructure project in Australia’s history. The project will directly support up to 25,000 jobs each year over an eight year period.

Transmitting large amounts of data very quickly is becoming more critical as we move to a more information-based economy. The National Broadband Network will allow 90 per cent of homes, schools and workplaces to access broadband at speeds up to 100 times faster than most people use currently. This will not only help drive Australia’s productivity, but will also see benefits in areas like education and health service delivery.

Global Recession and Australian Jobs

Unfortunately, this past week we received further news of the devastating impact this global recession is having on Australians. The Labour Force figures for March confirmed that unemployment is rising here, just as it is in every other advanced economy. The unemployment rate in Australia rose to 5.7 per cent in March and almost 35,000 jobs were lost.

Sadly, these figures are the inevitable consequence of the worsening global recession which is destroying jobs around the word. The US economy is shedding over 600,000 jobs a month and unemployment there has already risen to 8.5 per cent. Unemployment has also risen to 8.5 per cent across the euro area, while in Canada it has reached 7.7 per cent, and in the UK 6.5 per cent.

This is exactly why the Government has acted decisively with our economic stimulus packages to cushion Australians from the worst impacts of this global recession. The one thing we know for sure is that unemployment would be much higher without this action.

Tax Bonus

This week the Government’s Tax Bonus started to flow to around 7.5 million Australian taxpayers. These payments are designed to support businesses and jobs until our direct investments in schools, roads and housing take full effect. The OECD gave us the big tick on our measures; their analysis shows our economic stimulus is amongst the most effective in stimulating activity and supporting jobs, when compared with fiscal packages put in place in other advanced economies.

Interest Rate Cut

The Reserve Bank has also taken further action, cutting official interest rates by a further 25 basis points to 3.0 per cent. This means rates have now been cut by a total of 4.25 per cent since September 2008 and takes the official interest rate to its lowest level in almost 50 years. The reductions in mortgage interest rates since September have provided Australians an annual saving of nearly $9,000 on a $300,000 mortgage. That’s a big help for families.

I know a lot of us are disappointed that not all of the latest rate cut has been passed through to lower mortgage interest rates, depriving borrowers of much-needed relief. In the midst of the worst global recession in living memory, Australian families expect everyone to be doing their bit to get us through. The Government is doing its part with substantial stimulus and we expect the banks to play their part as well.

Housing Boost

Housing Finance figures for February showed that loans to first home buyers reached record levels, while home loans for owner-occupiers rose for the fifth month in a row (having fallen in each of the eight months preceding the announcement of the First Home Owners Boost). This is clear evidence the First Home Owners Boost and sharply lower interest rates are playing an important role in supporting activity and jobs in the housing sector.

That brings me to this week’s Fact of the Week. More than 42,000 first home buyers had taken up the Government’s First Home Owners Boost by the end of February. That’s a great result given the difficult global conditions.

Consumer Confidence

This past week also saw a very welcome lift in consumer confidence. The Westpac‑Melbourne Institute Index of Consumer Sentiment rose by 8.3 per cent in April. Consumer confidence in Australia has now risen by 13 per cent since October when the Government announced its first economic stimulus package, despite further falls elsewhere in the world.

Coming Up

New figures to be released this coming week will give us a reading on the health of two of the most important international economies. China, our biggest trading partner, will announce its economic growth for the first quarter of 2009. China’s growth prospects are absolutely critical to Australia’s exports and commodity prices.

There will also be a number of important releases from the US. We will be closely watching the retail sales and housing starts releases, as well as data on inflation and industrial production.

I will be making my way back to Canberra, where I will spend most of my time working with the PM and other senior Ministers preparing for the Rudd Government’s second Budget. This Budget comes at a very difficult time, with the global economy facing its worst conditions in 75 years. But we are determined to deliver a responsible Budget that gets the balance right between supporting growth and jobs now, while putting in place the building blocks of the future economy we need to prosper after this global recession ends.

Wayne Swan
Treasurer of Australia