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Wayne Swan MP, Treasurer - Economic Note

Brisbane 2 June 2013. The coming week is shaping up to be a big one, as the Gillard Government sets about the work of implementing DisabilityCare Australia and the National Plan for School Improvement. We will also get important updates on our economy when the National Accounts are released on Wednesday and we will hear from the Reserve Bank on Tuesday.

An economy in transition

Throughout my life I have always relished getting stuck into debates over the direction our country should head and how we should tackle the big challenges we face. However when it comes to analysing the economy, it's important we look calmly at the facts and ignore those making exaggerated claims for their political ends. On Thursday, the ABS released its capital expenditure survey which highlighted the transition underway in our economy. There's no doubt that mining investment has been powering ahead in recent years, with capital expenditure in the sector increasing by over 200 per cent since the Government came to office. But for some time now we've been expecting this unprecedented investment phase to shift towards greater production and exports, so it's no surprise to see growth in mining investment moderate. Contrary to some suggestions, however, the level of mining investment is expected to remain at historically high levels for some time.

While we saw capital expenditure decline in the March quarter, it was encouraging to see the capex survey point to a further lift in business investment going forward. After adjusting for historical spending patterns, total capital expenditure is expected to reach a record $181 billion in 2013-14, which would be a 14 per cent rise on 2012-13. As firms typically revise how much they intend to spend over time, this adjustment is made using a five-year historical average of how expectations have evolved. While this is only an early estimate, it's particularly encouraging to see signs of improvement in non-mining investment intentions. We also saw building approvals rise in April to be 27 per cent higher over the year – the fastest growth in three years – supporting a positive outlook for housing construction.

We will get an update on how the broader economy is tracking on Wednesday when the ABS releases the quarterly GDP figures. On Tuesday, the Reserve Bank Board will meet to set interest rates and regardless of what it decides, it's important to remember that last month's rate cut to a record low of 2.75 per cent means a typical family with a $300,000 mortgage is still around $5,500 better off a year than when we came to office.

On top of the world's podium

We also heard from one of the leading global economic authorities, the Organisation for Economic Cooperation and Development (OECD), on Wednesday when they released their latest Economic Outlook. The OECD highlighted strong economic fundamentals but emphasised the transition underway and the pressure from the high dollar. Against this backdrop, the OECD said it was appropriate to allow the Budget's automatic stabilisers to work freely in the near term rather than crunch the economy in order to return to surplus too quickly. I was pleased to see this endorsement of the fiscal strategy we laid out in the 2013-14 Budget which charts a pathway to surplus on a responsible timeframe that does not threaten growth and jobs, gives the RBA scope to keep interest rates low, and makes the big investments in our nation's future.

This can be seen clearly with the OECD expecting Australia's economy to outperform every single major advanced economy – and the OECD as a whole – over the next two years, despite a fragile and uneven global recovery. To break that down a little, the OECD expects our economy to grow by 2.6 per cent this year, and by 3.2 per cent next year, which is broadly consistent with our own 2013-14 Budget forecasts.

This week the OECD also put out another measure known as the Better Life Index. This measure ranks developed countries based on criteria such as jobs, incomes, health and the environment. Once again, Australia sits at the top of the world's advanced economies, beating all the G8 economies and places like Sweden and New Zealand for the third year running. This is just further evidence that we should be proud of our economy and its performance in recent years as Australians have kept on working and growing this country.

Boosting our superannuation system

Another reason we as a country are in such a strong position is because Labor governments, past and present, have taken on the challenges of the future and made the important long-term reforms. Labor created superannuation and we continue to nurture it on behalf of all Australians and the nation – with a plan that will boost the national pool of superannuation savings by more than $500 billion by 2037.

On Wednesday, Superannuation Minister Bill Shorten and I launched an updated online Super Calculator at the More Super website , which allows workers to see for themselves how much they will benefit from our gradual increase in the Superannuation Guarantee (SG) rate from 9 to 12 per cent. The first increase to 9.25 per cent is starting in just a month's time on July 1, and it will continue to gradually increase until it reaches 12 per cent on 1 July 2019. This reform means a 30-year-old on average full-time wages will retire at age 67 with an extra $127,000 in superannuation savings. The Super Calculator also includes the benefits of our Low Income Superannuation Contribution, which started from 1 July 2012. It is providing 3.6 million workers earning up to $37,000, including 2.2 million women, with a tax cut on their super contributions of up to $500 a year. To find out how much our reforms could increase your superannuation savings, simply enter some basic information into the Super Calculator at the More Super website .

Also starting from July 1 this year, are the higher concessional cap for older Australians, and the abolition of the maximum age limit on SG contributions. The higher cap will enable Australians aged 60 and over to make up to $35,000 in concessional super contributions from 1 July 2013, and will be extended to those aged 50 and over from 1 July 2014. The abolition of the SG maximum age limit will enable workers aged 70 and over to receive SG contributions for the first time.

These measures will bring significant long-term benefits for our nation – not only in terms of better living standards in retirement for millions of hard-working Australians, but also through improved fiscal sustainability by reducing Age Pension outlays in the coming decades. Australia already has the fourth largest pool of superannuation savings in the world and our reforms to increase it further will underwrite this important source of capital for our economy so we can continue to fund the productivity-boosting investments we need for the future.

Getting on with the job

Last week saw some really important progress in terms of the legislation that enables us to fund one of this Government's most significant reforms: DisabilityCare Australia. On Tuesday 28 May the Medicare Levy Amendment received Royal Assent from the Governor-General. On the same day, indexation of the Medicare Benefits Schedule passed the House of Representatives. While it is still scheduled for debate in the Senate, it's great to see these long-term savings measures that will secure funding for DisabilityCare moving along. This coming week we will also see some more legislation go to vote in the House that will make the savings needed for DisabilityCare, one of the most important changes to Australia's safety net in a generation. Australians have told us they want more services and support for those Australians with significant and permanent disability and I am very proud to be part of the Labor Government that will turn this into a reality.

Wayne Swan
Deputy Prime Minister and Treasurer of Australia