Plenary address by Prime Minister Kevin Rudd
E&OE
Good morning one and all and its good to see you all bright eyed and busy tailed and fellow survivors one and all of last nights State of Origin. Congratulations to Queensland but can I also say this, say this as well, what an extraordinary effort from New South Wales and you know I was quite worried during that second half and in honour of that performance Albo, blue tie today.
Geoff Lake President of the ALGA and thank you for your strong leadership of the Association, Minister Albanese, Parliamentary Secretary Maxine McKew. And Maxine's new role as Parliamentary Secretary responsible for Local Government, get to know Maxine well she's going to get to know you well right across the country. Mayors, Shire presidents and representatives of Local Government from every corner of our great nation, parliamentary colleagues, ministerial colleagues, one and all. And I begin again by acknowledging the first Australians on whose land we meet.
Last years meeting, the inaugural meeting of the Australian Council of Local Government on the 18th of November saw the birth of an historic and new partnership between the Australian Government and each of the councils and shires across Australia.
When this sign behind me and front of me says a new partnership,' we're serious about that.
Like any new partnership it will take a time to develop. Like any new partnership there will be some bumps in the road. Like any new partnership it won't be perfect but as one party to that partnership, as Prime Minister to the country, I want to leave you with one fundamental message today and that is that we are serious, deadly serious about this partnership.
Co-investors with you in local communities because we, the national government believe in the absolute importance of the resilience of local communities, building blocks of our society, building blocks of our local economies and that's why we want this new partnership to work. As you know with any partnership it takes two to tango and we therefore look forward to taking advanced dance lessons with each of you over the period ahead. Albo will be the maestro.
I said at last year's meeting that you cannot have a strong Australian economy without a healthy global economy and you can't have a strong national economy if you don't have strong local economies.
Local governments have key roles in strengthening and stimulating local economies, local businesses and local jobs.
Since last November the global economy has turned sharply for the worse and the impact of the global recession has been felt across each and every one of the 565 councils and shires of Australia. A mention has already been made on the impact on rate bases and therefore the capacity of local governments to deliver that which they normally do.
But in response to this global crisis the government has delivered on our commitment to building this new partnership with local government and that is through supporting communities buffeted by the global downturn. Because we understand that the impact of the global recession is ultimately local, that is local families, local jobs, local communities and that's why we have also acted globally, nationally and locally in response to this extraordinary challenge, the worst global economic crisis since the great depression of the 1930s.
As a nation we can make our way through these tough times if we work together and support each other. The Federal Government, state governments, local government, big business, small business, unions, community organisations because the bottom line is we are all in this together.'
The OECD report out today shows that Australia has the strongest performing economy in the major advanced economies of the world. The report also shows that alongside these major advanced economies we are also almost the lowest debts and lowest deficits of any nation. This report indicates that the government stimulus package is delivering results but we are not out of the woods yet.
What I would like to do this morning in my allocated time, and it will take a little time, is take you through where we fit as a national response to this global economic recession and therefore where your local efforts as local governments and local councils across the country have a contribution to make, and as I said in my remarks last night, are already making a contribution.
As I said, since we met last November the global economic outlook has deteriorated dramatically. The global economy is experiencing the worst global economic collapse in three quarters of a century. Global growth is contracting for the first time since the IMF began keeping records in 1951. Global trade flows have collapsed, global investment has collapsed and global unemployment is fast rising.
If you look at this table, this slide on the screen in front of you and those who are experienced and have been around for previous recessions in the early 90s and the early 80s, I draw your attention to some basic facts here.
In 2009 we are looking at global growth contracting by 1.9%. In 1991 and 1982 not withstanding recessions in Australia global growth was still growing by positive 1.5 and by positive 0.9. When we say therefore that this is the worst set of global economic circumstances we've faced since the great depression we mean it. The data backs it up. And this is reflected also in what we see in our major trading partners on whom the Australian economy depends.
If you look at that table again what you will see is that 8 of our 10 top trading partners are in recession and those two who are not in recession, India and China, you will see that their growth has virtually halved. The significance of exports in our global economy depends on the health of global trade and we are generating numbers like this in the economy it translates back into economic activity and jobs here at home.
Therefore it's important that we as a National Government respond to the challenges that we have been delivered and this is the net result of the efforts between the Australian Government, state governments, local government as well as the actions of business.
What you see here is Australia generating the fastest economic growth in the OECD based on the March quarter data which was released most recently. You will see that against all these international standards, against the other advanced economies in the world that we have made a difference through government policy. Obviously the actions of businesses have been equally critical but government policy translated through the actions which we have taken here in Canberra, the cooperative investments by the states and territories and critically what you have done at the local level have helped produce this number.
One of the actions that we took at the beginning of this crisis in last October was to address the whole challenge of the collapse in global financial markets.
How many of you as local businesses know full well the response which you have received from your local businesses saying they can't get access to credit or if they can that the cost of credit is now too high.
What we faced as a National government is this table which again is in front of you now. If you look at those columns in September 08 through to the end of 08 where they disappear virtually to zero that equates to the virtual collapse and in two months the totally collapse in international bank lending to Australia. That's what happened after the critical events of October last year.
Black Friday on the stock markets and of course the extraordinary implosion we saw across global financial markets as a consequence.
What the government then did in response was act on a critical weekend in early October and issued two guarantees.
One a guarantee for every deposit holder in the country for the first time in the history of the federation in order to underpin confidence in the Australian financial system, 13 million Australian deposit holders in banks, building societies and credit unions. Never done before, we had to do it and had we not done so the impact on confidence in our economy would have been extraordinary.
The second guarantee that was provided goes directly to this matter which is on the table in front of you which is at the same time to provide a guarantee for the inter-bank lending of Australia's banks in order to obtain finance to deliver to small businesses and households.
The consequence was immediate and dramatic, the grey part of the bars and the black part of the bars represent off-shore guaranteed fundraising by banks and domestic fundraisings by banks also guaranteed by the government guarantee.
And as you can see from the end of 2008 which is when the guarantee kicked in through to January 2009 and onto the present virtually all, virtually all finance raised by our banks onshore and offshore has been as a consequence of the government providing a guarantee.
You will see in the emergence of the white shading in May of 09 the beginnings of the return of normality because the white shading represents the domestic raisings by our banks without the government guarantee and that very tiny orange shading represents offshore raisings by our banks without the government guarantee.
The point I would make to you however is in the absence of decisive government action we would have had and were beginning to have a total collapse in the supply of credit to the Australian economy. That is why the government acted and I draw this to your attention because of its absolute importance in underpinning local businesses in your local economies.
The other thing we did in early October was sit down with our advisors from the treasury and you're going to hear from the Secretary of the treasury, Ken Henry, fairly soon and we did two things.
One we went through an exhaustive examination of the wisdom of providing the guarantees that I've just described both for deposit holders and for banks in order to supply the continuation of credit in the Australian economy because the stability of financial markets is so fundamental.
But the second is this, the supply of credit is one thing, what is happening in the real economy now that is something else and what we could see unfolding was an extraordinary negative set of economic data across the world because what began as a financial crisis became an economic crisis, became and is becoming an employment crisis right around the world.
So what we did is we sat down with our friends from the treasury and from other government agencies and analysed what actually constitutes the drivers of demand in our economy and it's worthwhile just pondering these figures for a minute.
Household consumption represents 54% of GDP, dwelling construction 6% of GDP, private business investment 17% of GDP, public final demand, in other words public investment of the type in which you also engage as local authorities - 22% of GDP and of course the other final contribution to GDP is what is described as net exports.
The top four however are those which we can directly affect by government policy. It is this analysis which shaped the measures that we took at decided upon back in October.
One of the first measures that we took was the injection of cash payments into the Australian economy.
This again was absolutely necessary, absolutely necessary. This has been the subject of some political controversy in this place but can I simply make this point to you - those of you who know at a local level the amount of time it takes to roll out even a small scale infrastructure project, try doing something larger of the scale of 10 and 20 billion dollars or more, it takes a lot of time.
Therefore, confronted with what we saw as collapsing demand in the economy in the last quarter of last year and the first quarter of this year and on we had one course of action which we could embrace in order to provide immediate support to the economy and again our advisors in the Treasury said and the Secretary of the Treasury said this in particular if you wish to make a difference Prime Minister, go hard, go early, go households.' And his advice was based, as I recall Ken, on the experiences derived from the earlier Australian recessions. If you wanted to make a difference in reality not rhetoric but reality this is what you had to do to get activity into the economy in the here and now while you are moving to a further stage of stimulus which is what we describe as medium term infrastructure.
The consequences of the $21 billion in cash payments that we injected into the economy through deliberate decisions in the final quarter of last year and the first quarter of this year are under pinned in the data that you can see.
These reflect retail sales. A huge reflection of what goes on in terms of consumption. Look at the collapse in the retail sales figures in the United States, Canada, Japan, New Zealand and the Euro area and look at the contrast in terms of Australia.
Positive growth, 5% growth, and these are figures which percentage points change from November 2008 until the latest. If you want to know what made the difference between the events of last year and now in Australia relative to the rest of the world, this is a core part of the narrative and it's important to understand it, for those in your local communities who may criticize the wisdom of this particular sort of investment.
If you wish to make a difference, rather than just make a nice rosy sounding speech about the fact that government is concerned, if you really wanted to make a difference this is what you had to do and we did it and make absolutely no apology for it.
The other thing we decided at the end of last year, and this has particular effect in terms of local housing activity in so many of the local councils and shires which you represent here, is we trebled the first home owners boost and as a consequence of trebling the first home owners boost we have seen a take up in that category of private residential construction which again is atypical when you compare it to what is happening in other economies around the world.
This of course is Australia's specific data but what you see there is what happens when you actually intervene through government policy.
The fact that building approvals have gone up and housing finance for constructions and new dwellings has gone up, albeit against a collapsing base as it was, is a direct reflection again of what happens with government policy.
These were two measures that we took back then in order to make a difference to the economy and these are two measures which again stand out relative to the performance of so many other economies around the world. This was phase one of our stimulus strategy.
One - investing $21 billion into consumption through support for cash payments for pensioners, veterans, carers and families in order to get activity into the economy now because there are one and a half million Australians, more than 15% of the work force, employed in retail and so many of them are employed in each of your local government areas. If you think of the roll on consequences of them losing their jobs in terms of the impact on house prices, the ability to pay mortgages and the roll on consequences for indirect jobs it would be horrendous. And the second measure was the one which we are looking at at the moment, the trebling of the first home owners boost.
That's phase one. Phase two goes to the impact of medium term measures.
These medium term measures complies a number of parts. One is that we took a decision at the end of last year to bring in a temporary business tax break for capital investment of 30% up until the middle of this year and 50% for small business from the middle of this year until the end of next year. That was an important measure.
On top of that, or should I say in relation to that, it was designed particularly to underpin that other key driver of final demand.
Go back to those figures before. Remember 54% of final demand in the economy comes from consumption; we sought to address that with our injection of cash payments. 6% of final demand comes of residential construction; we sought to address that with the trebling of the first home owners boost. Some 16% of final demand comes of private fixed capital investment or thereabouts and we sought to address that with the immediate introduction of this 30% special tax advantages for businesses bringing forward their investment decisions in plant and equipment and upping that most recently in the budget to 50% for small businesses through to the end of this year.
But go to the fourth pillar of what I described as the drivers of final demand before - public investment and that is where we have also sought to make a decisive difference and that is why we, in February, in our nation building and jobs plan outlined three key planks of what we'd be doing.
One, the biggest school modernise program the country has ever seen, $15 billion dollars worth of investment.
Two, a large scale investment of some $6 billion dollars in the construction of social housing and the repair of existing social housing right across the country. Some 20,000 units of new housing, some 50,000 units of repaired housing.
And three - Energy Insulation in Australian homes. $4 billion worth of investment with the objective of taking 50 million tonnes equivalent of greenhouse gas emissions out of the atmosphere and at the same time providing a huge investment in local activity and jobs.
Aggregated these measures represented some $30 billion worth of investment to be spread over the years ahead and that's something like 3% of GDP. And the objective here in our national building for recovery plan is to support jobs, apprenticeships and small business today by investing in the infrastructure we need for tomorrow.
That's what it's about. The school building programs, also the subject of controversy and debate and that's just inevitable in political live but let's go to the core of it, we want to make sure that each of our primary schools, all 7,500 of them across the country have the best by way of school facilities. If they don't have a multipurpose hall then look at the possibility of a multipurpose hall. If they don't have a state of the art science centre then build one and for our secondary schools the possibility of state of the art science centres, state of the art language centres and in the case of primary schools I mentioned before, libraries.
These are facilities which last for a long time and they improve the learning environment of our kids but most critically, and I've seen already evidence in building sites in the country, providing jobs and support for small business and apprenticeships right now.
I was with a builder recently in western Sydney and I spoke to some builders just the other day in southern Canberra about the number of trades brought onto site with a single school construction project, about 25 different trades involving workers between 20 and 60 on a given site. This makes a difference in every community, every one of your local communities.
But when we look back we have also the investment in infrastructure which counts for the future, helps build the skills and improve the productivity we need for our economy long term.
And the netted consequence of this stimulus strategy is as follows - what you see before you is calculations from the Australian Treasury December 08 and March 09.
The white column is where growth would have been without stimulus. The orange bar is where growth is with stimulus. In the December quarter you know the economy contracted by .6.
Had we not invested in what we had done through short term stimulus and medium term stimulus then we would have had negative growth in excess of one.
Turn to the March quarter, we would have had negative growth of something in the order of 0.2, add the stimulus package we had positive growth of 0.4. My point to you is that it makes the difference and for this a country thus far to avoid a technical recession itself has been of significance when compared to so many economies around the world.
And I would draw your attention closely to the analysis contained in today's reports not just by the OECD but also by the IMF on where this country is performing in this awful set of global economic circumstances relatively to our compared economies in the world. Our efforts with you are making a difference.
The impact in terms of business investment figures is also demonstrated. You will see, barely positive I admit, that's the orange bar, but look at the collapse in business investment activity across our compared economies in the first quarter of this year.
And then as a consequence what you look at again is you look at the final two bars as the overall impact of what we've delivered in terms of growth absent stimulus and with stimulus and what we see in terms of the white bar at the end is where growth, where demand pre and post stimulus has gone as a result of the activities by government.
And of course this also translates through in terms of impact of stimulus on real GDP and most critically in terms of jobs.
If you look at this column again the orange bar represents where unemployment would have been absent stimulus and where it is projected to be with a white line post stimulus. That is a difference of something like more than 210,000 jobs a year.
Think of your communities and think of what that would mean in your areas. 210,000 more people out of work for the next year and the year following.
In other words, economic stimulus in these extraordinary circumstances has an effect. And there you see the report card on unemployment; we have the second lowest unemployment across the major advanced economies.
Of course all these measures, that is what we have done and the report cards back in on growth and on employment translate again in terms of business confidence and in the last business confidence data you will see this extraordinary kick up in business confidence data having been collapsing since the onset of the crisis.
And similarly with consumer confidence, consumer confidence also rising not withparticularly on the back of us avoiding a technical recession in the national accounts data most recently produced. And those of you who know your communities on the ground and your local businesses on the ground know full well how people view confidence for the future is so fundamental to the personal and business choices they make.
As I say, there is no point in politicians standing up and making rosy speeches which basically seek to cheer people up and cause them to say be bright, be rosy, be positive about the future,' when the data is telling you the reverse.
I believe instead in a form of government and policy which is called this - a rational basis for hope, pointing rationally to what we have done through government, through our injections into private consumptions, our injections into support for private fixed capital investment by business, our investments in terms of support for the housing sector, our investments in support of public investment in partnership with you because that makes a difference.
That is why we are the fastest growing economy in OECD together with decisions by business and that is why we have the second lowest unemployment of the major advanced economies and that in turn translates through to confidence and you, each and every one of you as local authorities are part and parcel of that picture.
The other part of the public debate around these matters is of course well how has all this been made possible in terms of debt and deficit?'
I would draw this to your attention, this here represents general government net debt across Australia compared with other economies around the world - Canada, the UK, the United States, the 25 most advanced economies in the world, the Euro area and Japan.
Australia is at the far left of this if you cannot see it clearly from where you are. Can I say therefore when those who engage in this bogus debate, this fear laden debate about debt and deficit understand this fact - this country has generated the fastest growth in the OECD, the second lowest unemployment in the major advanced economies with the lowest net debt of the major advanced economies. That is the bottom line here.
I understand as you do, as people elected to office at local authority level, what politics is all about, however I think truth in politics is a very useful thing. This therefore goes to the truth of where we stand in terms of net debt relative to other economies around the world. The fastest growth of the advanced economies, the second lowest unemployment of the major advanced economies and the lowest net debt of the major advanced economies.
And similarly in terms of what we've done by way of budget deficit over this year and the two subsequent years is comparable in terms of what is an acceptable set of standards which applies internationally and certainly our budget deficit over the period ahead is less than that of the average of the major advanced economies.
Of course the important thing for the future also is to be boosting productivity growth. Getting through this recession is one thing, managing our public finances properly is another, engaging also in investments which underpin productivity growth is equally important because when we come out of this recession globally we want to make sure that we've actually created through infrastructure investments and skills investments the things that ultimately count for long term economic growth.
This is a very obscure map but that map apparently represents each of your local authority areas and the reason I have it up on the screen before you is to simply emphasize the point that all the things that I have just run through in this presentation today would not be possible without you injecting and investing the $800 million of investment that we have made with you in local projects.
The minister said before 3,300 local projects out there either on the way to being implemented or being implemented, underway, each making a difference. And can I say that, because of the multiplier effect in local economies, is critical, critical in partnership with what we have done right across the rest of the country.
Last year, as you know, we made announcements in terms of the component. The remaining $120 million will be a competitive process.
The previous strategic projects program attracted almost four times as many applications that we were able to fund with many high quality proposals put forward but which were not funded. The process for delivering this $220 million boost to local community infrastructure which is provided for in the 2009/10 budget will commence towards the end of this year. Again our intention is to make a difference with each of these investments.
Finally, today I announce the creation of a $25 million Local Government Reform Fund.
This fund will assist local councils and shires in implementing nationally agreed frameworks for asset management and financial planning, matters about which I spoke last November. The fund will also support reforms to local operations through great cooperation and collaboration and all up this new funding I have announced today brings the Australian Government's total investment in local community infrastructure to just over $1 billion.
Friends we still have a long way to go but can I say that this investment of $1 billion and the various programs that we've announced so far, the investment in the National Centre of Excellence which I spoke about last night, the investment also in this Local Government Reform program for which funding has been attached of some $25 million is to give substance to what I described last year and what is on the banners before you today, a new partnership with Local Government.
It's not just co-investing now in the midst of a global economic recession, it's how we work in partnership for the future as well to reform the relationship between us and also to reform the way in which local government itself does its own business, hence the existence of that reform fund, hence the Centre of Excellence to assist with the training of your wider work forces for the future.
None of these measures would have been possible without the active intervention and support of Minister Albanese. I would simply make this very plain to all of you, Minister Albanese has been a passionate advocate for the interest of local government, passionate advocate for the need to work with local government through these investments and I commend his efforts publicly today.
This is the second meeting of the Council of Australian Local Government, we intend this to be a permanent feature.
We therefore will have an expanded program of cooperation, of reform, and from time to time I am sure argy bargy, that is things that we will disagree on as well. That's as it should be, that's normal, that's natural, but we want to get on with the business of building the nation. Our national strategy is nation building for recovery.
Building and supporting jobs, small business, apprenticeships, traineeships today by investing in the infrastructure we need for tomorrow.
Investing in the national infrastructure we need for tomorrow, investing also in the local infrastructure we need for tomorrow, investing in roads, rail and ports, investing in high speed broadband, investing in the other infrastructure our nation and our local communities so desperately need.
That is our strategy and our invitation to you is to be continued new partners, new partners in the implementation of nation building for recovery, nation building for the future.
Thank you.
