Speech

25 June 2009
Address to the Council of Local Government Conference
Parliament House, Canberra

I acknowledge the First Australians on whose land we meet, and whose cultures we celebrate as among the oldest continuing cultures in human history. 

I am delighted to welcome you back this morning for the second Australian Council of Local Government meeting.

Last year’s meeting, the inaugural meeting of the ACLG on November 18 2008, saw the birth of an historic, new partnership between the Australian Government and each of the councils and shires across Australia.

I said at that 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 is being felt across each of the 565 councils and shires across the nation.

But in response to the global crisis, the Government has delivered on our commitment to building a new partnership with local government that is supporting local communities buffeted by the global downturn.

Because we understand that the impact of the global recession is ultimately local – on local families, local businesses and local communities.

That is why we have acted locally – as well as responding nationally and globally, to this enormous challenge.

And it is why our partnership with local government plays an important role in the Australian Government’s strategy to cushion Australia from the worst impacts of the global recession.

As a nation we can make our way through these tough times if we work together, and support each other – the Commonwealth, State governments, local governments, big business, small business, unions and community organisations.

The OECD report out today shows that Australia has the strongest performing economy in the major advanced economies.

The report also shows that alongside these major advanced economies, we also have among the lowest debt and lowest deficits of any nation.

This report is a big tick for the Government’s stimulus packages, and the Government’s plan for nation-building for recovery.

Since I last addressed you in November, many of your communities have been through very testing times.

Not only with the global recession, but also through fires, floods and the continuing impact of drought.

For many communities, these disasters are on a scale never experienced in living memory.

Local councils in fire-ravaged Victoria and flood-stricken north Queensland and northern NSW have faced the very toughest of challenges––to rebuild communities whilst keeping basic services rolling out through the darkest of days.

In the tragic Black Saturday bushfires in Victoria, 173 people lost their lives and 2,029 homes were destroyed across 24 local government areas.

The impact of such loss and destruction has profound consequences for communities trying to rebuild.

Following these natural disasters, Minister Albanese invited affected councils to reconsider their proposals for funding through the Community Infrastructure Program, to ensure the funding was most appropriate to the needs of the communities.

Against this backdrop, local councils have worked together to come up with innovative solutions – like the 134-kilometre trail across Victoria’s bushfire-affected communities developed by the Murrindindi, Mitchell and Mansfield Shire Councils.

The ‘Goulburn River High Country Rail Trail’ is a trail that will be used by recreational walkers, cyclists, horse riders – supporting jobs in local tourism, as well as creating access roads for emergency and maintenance vehicles.

In the Gulf region of north-west Queensland, six local councils have come together to help upgrade the flood-damaged Einasleigh River bridge.

This is a great example of working together and I thank the mayors here today from four of those communities –– Etheridge, Burke, Croydon, and Mornington.

The project to upgrade the bridge will support local construction jobs, while delivering lasting benefits for the community.

The Government’s investments in major community infrastructure in disaster-affected communities is both generating jobs and local economic activity, and helping communities get back to on their feet.

This morning I want to speak about the economic challenges facing communities around Australia, and how the Australian Government is tackling these challenges in partnership with local and State governments.

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.

Global trade flows have collapsed.

Global investment has collapsed.

And global unemployment is rising fast.

And falling growth has been particularly pronounced among Australia’s trade partners.

8 out of our top ten trading partners are in recession.

And growth in the remaining two countries, India and China has fallen dramatically over the last year.

Last night, we were provided with yet another sobering reminder on the state of the global economy.

The OECD released its latest economic assessment, showing that economic activity in the OECD area is projected to contract by 4.1 per cent this year.

But the news is not all bad.

For the first time in two years, the OECD has revised its growth projections marginally upwards – from negative 4.3 to negative 4.1 per cent for 2009.

In fact, the OECD notes that the severity of the downturn is moderating.

There are signs that the slump in OECD economies could be nearing a bottom, following the deepest decline in activity in the post-war era.

The report also notes that recovery is already underway in major non-OECD countries such as China.

But the OECD has warned that “the ensuing recovery is likely to be both weak and fragile for some time”, and that the “negative economic and social consequences of the crisis will be long-lasting.”

Despite the severe slump in global economic growth, Australia is weathering the storm better than nearly all of our global competitors.

As last night’s OECD Economic Outlook has confirmed, right now Australia has the strongest performing economy in the OECD, with lower debt and lower deficits than any of the major advanced economies.

Across the developed world, only 3 of 33 advanced economies recorded positive growth in the March quarter.

Australia was one of those countries – growing at 0.4 per cent in the first quarter of this year.

Our economic growth is higher than all the major advanced economies in the world.

In addition, our budget deficit is amongst the lowest of all major advanced economies in the world.

Our level of net debt is the lowest of all major advanced economies in the world.

And we are the only major advanced economy not to have fallen into recession at this point.

But Australia is not out of the woods just because we have so far avoided a technical recession.

We know that there will be more bad news to come, with growth continuing to be slow, and unemployment continuing to rise.
Australia has fared better than most – in part because we took early and decisive action to step in while the private sector was in retreat.

When the global financial crisis intensified in September last year, the Government recognised the severity of the crisis and formulated a comprehensive strategy to support the economy and reduce the impact of the global recession on Australian jobs.

In the short term, the government moved quickly to respond to the immediate crisis in the banking sector.

During the financial crisis the global financial system went into meltdown and interbank lending ground to a halt.

As interbank lending virtually froze, Australian banks found themselves unable to raise the offshore funds they need to lend into the Australian market.

In September Australian bank raisings had fallen to just $1.7 billion, down from the $13 billion a month earlier in the year.

As the chart indicates - in October there were no raisings at all.

Offshore markets were totally closed to Australian banks.

That is why the Government took a historic decision in October to guarantee term wholesale funding for APRA regulated banks, building societies, and credit unions.

The guarantee had an immediate effect.

By December – with the help of the guarantee - Australian banks raised more than $15.4 billion in guaranteed funds, and a further $20 billion in January.

The guarantee helped restore confidence and underpin the continued provision of credit, which is crucial for local businesses across the nation.

In addition to stabilising the financial system, the Government has also acted to support activity in the real economy.

Our approach to stimulating the economy was to start with the components of aggregate demand and then identify policy levers that could be used to support activity in each area:

The key components of Gross Domestic Product are:

  • Consumption – about 54 per cent of GDP
  • Dwelling construction – about 6 per cent of GDP
  • Private Business Investment – 17 per cent of GDP
  • Public Final Demand – 22 per cent of GDP

In each of these key areas, we sought to identify measures to support the economy – from immediate support, to the medium-term, right through to the long-term.

And this approach has had results.

Last night, in addition to the release of the OECD Economic Outlook, the International Monetary Fund also released an updated assessment of the Australian economy.

That assessment noted that Australia’s downturn: “has been milder than in most other advanced economies.” And specifically, it remarked that: “This is because of...a timely and significant macro policy response.”

Our first measures were designed to provide immediate support to the Australian economy as the global economy deteriorated.

Since infrastructure investment has long lead times, the Government decided to introduce fast-acting measures to directly stimulate consumer demand.

To achieve this we invested $21 billion to provide immediate support to the economy – through cash payments to families, pensioners, veterans, and low income earners.

As the chart shows, those payments have boosted the Australian retail sector, which employs more than 1.5 million Australians.

While in the major advanced economies, retail sales have fallen on average by 1.1 per cent since November, in Australia retail sales have grown 4.8 per cent during this time.

In the March quarter, the consumption component of GDP contributed positive 0.3 per cent to growth.

There is no doubt that without the economic stimulus, we would not have seen these positive numbers in the first three months of the year.

Of course there are other factors at play, but without the stimulus measures we would clearly have fallen into a technical recession.

We also took direct action to support the housing sector with a trebling in the First Home Buyers assistance, delivering a $2 billion First Home Owners Boost to support the housing and construction industry.

The impact of those measures - supported by a record 4 percentage point cut in interest rates - has been reflected in the rebound in housing construction activity this year.

Housing finance commitments have increased substantially.

Loans for the construction of new houses have increased by 42.6 per cent since the Boost was introduced in October 2008.

And while building approvals are down by 16 per cent in Australia compared to a year ago, the fall was more than twice as great in Canada, and more than three times as great in the US and New Zealand.

Overall, without the short term economic cash stimulus payments boosting the retail and construction sectors, Treasury estimates that Australian growth would have been minus 0.2 per cent in the March quarter – pushing Australia into a technical recession.

And that would have meant many more jobs lost in the local communities that each of you represent, without that early and decisive action.

Beyond the immediate term the government also acted early to support the economy in the medium term.

We took decisive action to strengthen incentives for businesses to make capital investments, by introducing the 30 per cent Business Tax break for capital investment and a 50 per cent break for Small Business.

As the chart indicates, Australian business investment through the year to March was positive at 1.1 per cent – and much stronger than business investment in our peer countries.

In addition the Government raised public investment by investing in the medium term in shovel-ready infrastructure projects, including:

  • our $800 million investment in the Regional and Local Community Infrastructure program with local councils and shires;
  • the largest school modernisation project in Australia’s history;
  • the construction of more than 20,000 new social and defence homes, and repairing almost 50,000 homes, and
  • providing free ceiling insulation for around 2.7 million Australian homes.

Over the longer term, the Government’s strategy is nation-building for recovery.

We are supporting jobs today by investing in the nation-building infrastructure Australia needs for tomorrow.

  • We are investing $32 billion in highways, railways, local roads and ports projects.
  • We are investing $4.5 billion in clean energy infrastructure, including the largest solar power plant on earth.
  • We will also be investing up to $43 billion in a partnership with the private sector to build a high-speed National Broadband Network to link local communities across our nation to the global digital economy of the 21st century.

In total $49 billion – or around 70 per cent – of our stimulus is directed to nation building infrastructure over the medium to longer term.

This is nation building for recovery – providing jobs for today, and productive infrastructure for tomorrow.

As the IMF noted last night: “The increase in public investment will continue to support activity in the near term, while addressing infrastructure shortfalls.”

And by the end of the year we’ll have more than 35,000 construction projects underway around the country.

As the chart indicates, public final demand is set to grow strongly, driven by a record 25 per cent increase in public investment in 2009-10.

The Australian Government is making up a large part of the increase, stepping in to use our strong balance sheet to support investment.

This strategy of short, medium, and long term support for the economy during the global recession has helped to cushion Australia from the worst impacts of the global recession.

Overall the government’s stimulus will have a significant impact on growth.

Treasury has estimated that the overall impact of our measures without our nation building plan over 200,000 more Australians would be out of work.

Without government action, unemployment would peak at over 10 per cent – the same level as is expected across the OECD by the end of 2010, according to the forecasts the OECD released last night.

No-one likes to see unemployment rise as a result of a global recession.

But Australia’s unemployment rate at 5.7 per cent is lower than all the major advanced economies except Japan.

While there is a tough road ahead, Australia is weathering the storm better than most economies in the rest of the advanced world.

Nevertheless, many communities are already being hard hit by rising unemployment.

It is for this reason we’ve identified Priority Areas as ones that will receive additional immediate assistance through the appointment of a Local Employment Coordinator.

These people will be working in some of your council regions to ensure that communities in their priority areas fully benefit from the significant investment the government is making through the Nation Building - Economic Stimulus Plan.

The Government is looking to you to work with other councils and the Local Employment Coordinators to ensure that jobs are generated for local people in these communities.

And we want to say thank you to those councils who have already offered to host Local Employment Coordinators.

I will expect them to be active across all council regions in their priority area.

But let me make an important point - and this is an issue raised with me yesterday by one our interim employment coordinators.

The effort we collectively need to put in to this massive task is extraordinary.

We cannot go on as if this is business as usual.

For the greater good of our communities, the different arms of government – including local governments - need to put aside traditional rivalries and put their collective shoulders to the wheel.

After all, we’re all in this together – and if we’re to be effective in supporting the people in our communities most vulnerable to the global recession, then we must work together in new and innovative ways.

One of the most positive developments in recent weeks is the bounce-back in business and consumer confidence in Australia, reflecting a positive response to the stimulus package and greater confidence in the future.

Business confidence is on the rise, with the month of May recording the sharpest rise in business confidence since 1989.

Business confidence is now at its highest level since February 2008.

Consumer sentiment also rose 12 per cent this month - the largest increase in 22 years.

Consumer sentiment is now up 20 per cent since the announcement of the Government’s first economic stimulus package in October, to its highest level since January 2008.

There is a long way to go, but this data suggests that Australian businesses and consumers can see some light at the end of the tunnel.

The global recession has of course had a significant impact on the budget’s bottom line in Australia, as it has around the world.

The Australian budget has been hit with a $210 billon collapse in Australian tax revenues caused by the global recession.

This is the greatest collapse in tax revenues in our nation’s history and has made a budget deficit necessary in Australia until the economy recovers.

But despite the revenue collapse and our stimulus measures, since the release of the Budget in May we have seen confirmation of Australia’s AAA credit rating.

And Australia’s net debt is lower than any of any major advanced economies, as the graph shows.

Last night the IMF was unequivocal in its statement that Australia’s Budget deficit is appropriate in current circumstances.

It also noted that Government debt is projected to remain low compared with other advanced economies, while also commending the Government’s medium term fiscal commitment to return the budget to surplus, pointing out that: “Few other advanced countries have adopted such a clear commitment.”

Further, Australia’s deficit of 4.9 per cent of GDP is among the lowest in the advanced economies – in contrast to the 2009 Budget deficits of 13.6 per cent of GDP in the US, 9.9 per cent of GDP in Japan, and 9.8 per cent of GDP in the UK.

In focusing the Government’s stimulus package on nation-building investment, the Australian Government is investing in building a more productive economy for the future.

The greatest long-term economic challenge for Australia is to turn around the prolonged decline in productivity that we have experienced since the mid-1990s – which has taken average productivity growth in each productivity cycle since the mid-1990s down from 3.3 per cent, to 2.1 per cent, and to 1.1 per cent in the current cycle.

Productivity is ultimately what creates greater competitiveness and higher living standards for a nation.

And that’s why around the nation we are investing in advanced infrastructure, and in training Australians with the skills and know-how for the jobs of tomorrow.

Our $800 million investment in the Community Infrastructure Program is an important part of our commitment to nation-building infrastructure.

It has been an excellent example of the new partnership between the Commonwealth and each one of our nation’s 565 local government bodies.

Last year I asked the Australian Council of Local Government to work with us to get this program off the ground quickly.

The Australian Government identified local governments as important partners in our strategy to fight the impact of the global recession in communities across Australia.

Because local councils can be effective in getting local community infrastructure projects moving quickly, and getting local jobs flowing quickly.

So today I want to thank you for your efforts to date.

Of more than 3,300 local infrastructure projects announced around the country, the majority will be completed by September.

That’s an outstanding response.

Importantly, the local governments that you represent have been able to choose the community projects, because the Government believes that it’s you who know what’s best for your community – not Canberra.

I know this has involved enormous efforts, from those in the council and shire chambers, to council staff, right through to the skilled workers delivering those projects on the ground.

But it is making a difference.

As the Australian Government has this year raised Commonwealth funding for local government to its highest level in history, this has flowed through to local communities around the nation.

Town halls, community centres, sports grounds, swimming pools and libraries are all being built, expanded or upgraded.

There are many projects I could highlight today.

Projects which are creating jobs and which are making a real difference in communities.

Projects such as the building of a new grandstand in Renmark, in South Australia’s Riverland region.

The local Mayor of Renmark Paringa Council, Neil Martinson, who is here today, says it’s a project that’s been great for both the local economy and the community – a community that has been battling with drought and water restrictions which have resulted in a downturn in construction activity.

Projects like this don’t only meet the longer term needs of communities - they also strengthen the capacity of local communities to weather the global recession.

This is why in addition to the $800 million for the Community Infrastructure Program, today I announce a further investment of $220 million in local community infrastructure.

All councils and shires will benefit from this funding.

Of this funding, $100 million will be allocated between all councils and shires.

A minimum of $30,000 will be given to each council.

Additional amounts will be paid to larger communities that qualify for a further growth component.

The remaining $120 million will be available to fund larger Strategic Projects, through a competitive process.

The previous Strategic Projects program attracted almost four times as many applications as we were able to fund, with many high quality proposals put forward.

The process for delivering this $220 million boost to local community infrastructure, which was provided for in the 2009-10 Budget, will commence towards the end of this year.

This additional funding will further assist local government as further waves of the global recession break upon our shores.

In addition to this infrastructure funding, the Government understands the cash-flow challenges councils face with revenue streams hit by the global recession.

And it is for this reason that we have brought forward nearly $480 million in Financial Assistance Grants from the first quarter of the 2009-10 financial year to June.

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 that I spoke about last November.

The Fund will also support reforms to council operations through greater cooperation and collaboration.

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.

The $1 billion partnership between the Commonwealth and local governments is playing an important role in cushioning local communities from the full impact of the worst global recession in 75 years.

More than that, we are embarking on a fundamental reform of our Federation – proving that we can end the blame game and bring the resources and expertise of each level of government to work together more effectively than in our nation’s past.

That’s why we’re here today for the Australian Council of Local Government, and why this historic partnership is so important.

We face many challenges with many fiscal, economic, social and environmental dimensions.

But in facing these challenges, we are all in this together.

And together, we can build a stronger and fairer nation, more capable of tackling the great challenges that lie ahead for Australia.