I ceased to be Australia’s Treasurer just over five months ago, but it was not until today’s release of the third-quarter national accounts that the record closed on the six years in which I took primary responsibility for running the Australian economy.
They were pretty tough years. I have my differences with Mr Hockey, but I earnestly wish he never has to work through an economic crisis of the gravity and scale I encountered. Today’s result, showing growth of 0.6 per cent in the September quarter and an annual growth rate of 2.3 per cent, is below trend but continues Australia’s sustained period of economic growth.
I took office in November 2007 at what appeared to be the midst of the biggest economic boom the world has ever known. But even by then two of Bear Sterns’ mortgage funds had failed, one in six adjustable rate mortgages in the US was in trouble, and what we can now see as the run on the US shadow banking system had already begun. Just a few short months after I delivered my first budget, the collapse of Lehman Bros plunged the global economy into its most dangerous peacetime crisis since the Great Depression.
Now that the record is complete, let us examine what it amounts to.
Over those six years, the record tells us, the US economy grew by a little less than 6 per cent, and Japan by 1.5 per cent. The whole eurozone GDP is 2 per cent less today than it was six years ago, and UK GDP is 2.3 per cent less. By contrast, Australian GDP is 16 per cent bigger today than when I took the reins in November 2007. We grew around three times faster than the US. There are many six-year periods in which the Australian economy has grown at a faster rate – but none at all when we outperformed our peers so completely.
On virtually any key indicator of living standards, Australia now stands head and shoulders above comparable nations. More people in secure jobs, with real income growth, interest rates at record lows and inflation well within the target range. Over the past five years we have more than halved the 5 per cent inflation rate our predecessors bequeathed us by failing to invest in the drivers of growth – infrastructure and education.
Interest rates are now much lower than under our predecessors and no Australian will forget rates going up 10 times in a row when our predecessors promised to keep them at record lows.
But, if you had told any economist 10 years ago we would go through a once-in-a-century terms of trade and business investment boom, and come out with contained inflation and record low interest rates, they would have laughed.
If you told them we would also get hit with the worst global crisis in three generations and come out the other side with an economy that’s 16 per cent bigger – with 1 million jobs created – they would have politely shown you the door.
Today’s National Accounts show per capita GDP in Australia increased by 4.5 per cent over the past six years. The most recent figures show other high income nations recorded no real growth in that time. The OECD member nations, of which Australia is one, on average went backwards 0.5 per cent.
On unemployment, Australia averaged 5.2 per cent while the advanced economies averaged 7.7 per cent, and the euro area averaged more than 10 per cent.
We also outperformed the rest of the world on total investment, notching up an average of 28 per cent over the period (through 2000-07 it averaged 26.3 per cent absent the GFC). In comparison, it averaged 19 per cent for the G7 and 19.4 per cent for the euro area. New business investment in Australia totaled $1.37 trillion over the six years from September 2007.
A period which saw many economies go backward, saw Australia outperform them on virtually any reading of the economic scorecard. We avoided the skills and capital destruction that comes with a recession; unlike virtually any other developed economy.
How did we achieve this? We put in place macro-economic settings that ideally suited the times. Consider both revenue and expenditure in the context of the circumstances in which we governed.
On total revenue we averaged 33.2 per cent of GDP over the 2008-13 period (our predecessors averaged 36.1 per cent from 2000-07). Through 2008-13, advanced economies averaged 36.2 per cent. On expenditure, we averaged 36.9 per cent while advanced economies averaged 42.3 per cent.
These facts tell us one thing very clearly; this unrivalled economic performance did not happen by chance. It was the product of the hard work of millions of Australian workers and businesses, plus a government willing to take the tough decisions to support jobs and growth as the GFC threatened to smash our economy.
Swift action to implement the bank guarantees meant credit kept pumping through the nation’s economic arteries, to home buyers and small businesses. Economic stimulus stepped into the breach when the private sector retreated as the ‘Great Recession’ pummelled the rest of the world.
It is true that these same destructive forces hit government revenue hard. I said at the time they put a ‘wrecking ball’ through our revenues. But, by borrowing responsibly to keep our economy strong, and through spending restraint in the years following the GFC, we more than halved the deficit. We also have a level of net debt that will peak well below our competitors. In fact we have the third lowest net debt in the developed world.
Incredibly, Australia has now been recession-free since the downturn of the early 1990’s – an extraordinary record that is the envy of the developed world. It's a legacy of good economic decisions and management stretching back over several governments. But even our political opponents would have to admit that the greatest threat to this record-breaking run of growth came during the GFC – the worst global slowdown since the Great Depression. It happened on Labor's watch, and I will always be proud that we saw off this challenge, and bequeathed a legacy of a strong and growing economy to our successors.
Of course with the benefit of hindsight, it was politically challenging to pin so much on a specific date for returning the budget to surplus. I'll wear that criticism, and am willing to do so if those dishing it out will also acknowledge that getting the economics right but the politics wrong is a much better alternative than if those two were reversed!
As the months and years roll on, the nation will undoubtedly better appreciate what we achieved by pulling together rather than turning inward, or worse, adopting austerity measures. The lessons of economic history are important. If not learned, the next time we face a global economic crisis, we will run the risk of following the rest of the world into recession, rather than being an exemplar for how to respond to a global economic crisis that other nations will no doubt model their responses on for decades to come.
Because we acted in the face of the Great Recession, our economy grew by 16 per cent, we created one million jobs and our nation is a better place because of it. That is a record I will always be proud of.
Wayne Swan is the former Treasurer of Australia.