Today's Treasurer's Economic Note:
"This note comes to you as I’m putting the finishing touches on the Budget, before it goes off to the printers ready for Tuesday. The note’s a bit shorter this week because I’ve got to get back to a speech draft that’s currently covered in messy handwritten edits!
It has been an arduous task putting this year’s Budget together but above all an honour to work late into the night with some extremely talented public servants, fuelled by a fair bit of pizza and Indian take-away, to try and construct the Budget the nation needs in the tough times imposed by this global recession.
The central core of the Budget is a really complex balancing act between continuing to stimulate the economy now to support jobs, while having the courage to make some very hard choices so we can make room to deliver for pensioners, for investment in the future, and so the Budget is sustainable in the long-term....
Last week’s labour force figures showed the unemployment rate fell to 5.4 per cent in April, down from 5.7 per cent in March. While we don’t get carried away with one month’s figures, any result that exceeds market expectations like this one is certainly welcome news. This result was particularly good news for the 49,100 Australians who found full-time work in April.
Unfortunately, we still anticipate the labour market will soften over the next 12 months, and the Budget forecasts will reflect that. That is why it’s so important the Budget will continue to support jobs and cushion Australians from the worst impacts of the global recession.
Last week we learnt that unemployment in the US has risen to 8.9 per cent, its highest level since 1983. While the magnitude of job losses is moderating, the US economy is continuing to shed more than half a million jobs a month. Since the US recession began, 5.7 million jobs have been lost. Other economies are similarly affected. Unemployment is 8.9 per cent in the euro area, 8.0 per cent in Canada, and 6.7 per cent in the UK.
We also received further evidence last week that our economic stimulus measures have been successful in supporting the retail sector, which employs over 1 million Australians.
Retail trade data showed the value of Australian retail sales increased by 2.2 per cent in the month of March. The Fact of the Week is that monthly retail sales turnover is now 4.5 per cent higher than it was in November last year (the month before our first economic stimulus payments started to flow to pensioners and families). During that same period, retail sales have fallen 2.5 per cent in the US, 3.1 per cent in Japan, 2.2 per cent in Germany, 3.1 per cent in Canada, and 1.7 per cent in New Zealand. You can find more information on the retail trade result and market economists’ reactions in this article.
On the back of our positive retail trade figures, we also learnt last week that Australia recorded its second largest trade surplus in March. This was the eighth month in a row that Australia has recorded a trade surplus, and was driven by both an increase in the value of rural exports and a fall in the value of imports.
Statement on Monetary Policy
The Reserve Bank released its quarterly Statement on Monetary Policy last week, which highlights the impacts on Australia of the sharpest synchronised contraction in the world economy in living memory. It notes recent indicators suggest economic activity continued to decline in Australia in the early part of 2009, but at a significantly more gradual pace than in many other advanced economies.
The RBA report points to the Government’s “substantial fiscal initiatives” as a key reason why Australia is outperforming other countries. It states the Government’s economic stimulus measures together with the substantial interest rate cuts “are providing significant support to domestic demand, and will continue to do so over the period ahead.”
In other Reserve Bank news, the RBA Board decided to leave the cash rate unchanged at 3 per cent at its meeting on Tuesday. It’s important to keep in mind that the RBA has already cut rates by 4.25 per cent since September, down to their lowest level in almost 50 years.
On Tuesday night, I will deliver a Budget that won’t shirk the tough decisions that are absolutely critical in making sure Australia is strongly positioned for the recovery when it comes.
Some of those decisions will be met with disappointment. But we haven’t taken these decisions because they are easy, quite the reverse. We’ve taken difficult decisions because we haven’t faced a more challenging set of economic conditions in our lifetimes, and we’ve got to do the right thing by the country.
Treasurer of Australia
Sunday 10 May 2009