Macroeconomic Group contributed to a strong macroeconomic environment in Australia by providing quality policy advice and sound analysis of both domestic and international developments affecting the Australian economy. The Group advised the Government on a wide range of matters relating to the performance of the Australian economy, including current economic conditions and the outlook for the Australian economy, monetary and fiscal policies, and current and prospective international economic issues.
Macroeconomic Group examined the implications of a multiple speed global economy, the evolving sovereign debt crisis in Europe, natural disasters at home and abroad, conservative household spending behaviour and the effect of Australia’s high terms of trade and appreciating exchange rate on growth in the mining and non-mining sectors.
Macroeconomic Group continued to contribute to improving the global economic environment and advancing Australia’s domestic and international interests. The Group provided high quality economic analysis and advice, supported active Australian engagement with global and regional forums, helped utilise Australia’s strong bilateral relationships and deployed Treasury staff to overseas posts. The Group expanded its strategic analysis and advice on developments within key regional partners, particularly China and India.
Macroeconomic Group, through active engagement with the G20, advanced important initiatives including strengthening the legitimacy, credibility and effectiveness of international financial institutions, strengthening international standards for the regulation of the financial system, contributing to a strong, sustainable and balanced global economy and improving international development outcomes.
Through its activities, Macroeconomic Group assisted Treasury ministers in their work and contributed to improving the wellbeing of the Australian people.
Macroeconomic Group’s key deliverables are to advise on:
- domestic and international developments affecting the Australian economy and forecasts of the direction of the Australian and international economies;
- the setting of sound macroeconomic policies in the current environment;
- Australia’s involvement in the G20 processes, particularly in regard to the G20 Framework for Strong, Sustainable and Balanced Growth, to develop better cooperation on common international policy challenges;
- supporting and enhancing the effectiveness of international financial institutions, particularly the International Monetary Fund (IMF) and World Bank;
- ongoing work with the Indonesian Government through the Australia-Indonesia Partnership for Reconstruction and Development;
- improving the linkages between the priorities of the G20, the Asia-Pacific Economic Cooperation (APEC), Asia-Europe Meeting and East Asia Summit processes;
- ongoing deeper economic engagement strategies with China and India, reflecting the importance of these countries in the international economy; and
- supporting government initiatives to develop well-functioning economic ministries in the southwest Pacific.
Macroeconomic Group’s key outcomes were:
- providing analysis, preparing macroeconomic forecasts, and assisting in the formulation of policy solutions, taking into account domestic and international fiscal consolidation, the evolving sovereign debt crisis in Europe, Australia’s high terms of trade and exchange rate appreciation, the impacts of natural disasters, the uneven global economic recovery and structural reform challenges;
- contributing to the Clean Energy Future package and the formulation of the Strong growth, low pollution: modelling a carbon price (SGLP) report;
- delivering presentations and published material, including economic forecasts and analysis, in budget papers, the Treasury’s Economic Roundup and working papers to increase public awareness of economic issues and developments;
- assisting the Government to manage and influence changing global conditions and advance Australia’s international economic interests through engagement with international and regional institutions and forums, including the G20 and the Financial Stability Board; and
- broadening and deepening engagement with key Asian and Pacific economies through policy dialogue, cooperation, research and capacity building.
Analysis of performance
During 2010-11, the Treasury advised the Deputy Prime Minister and Treasurer, other members of government and relevant stakeholders on a range of macroeconomic issues:
- Economic and Fiscal Outlook. The Treasury provided analysis of the Australian and international economic outlook, including the Australian fiscal outlook, and prepared macroeconomic forecasts.
- Monetary and Fiscal Policy. The Treasury monitored economic, financial and policy developments to assess their implications for monetary and fiscal policy.
- Economic growth, living standards and wellbeing. The Treasury analysed drivers of the Australian economy and factors likely to influence medium-term economic performance, including productivity and labour force participation rates. This analysis was used to develop policy recommendations to improve Australia’s economic growth potential, living standards and wellbeing.
The Treasury’s economic modelling contributed to the development of evidence based policy analysis. Economic modelling, such as computable general equilibrium modelling, provides a mechanism by which complex implications of policies across the whole economy can be assessed and used to inform policy design.
In 2010-11, the Treasury modelled the impacts of carbon pricing to inform the development of the Government’s Clean Energy Future package. Comprehensive modelling of the international, domestic, sectoral and distributional effects of a carbon price was published on 10 July 2011 in the SGLP report.
The Treasury worked closely with the Department of Climate Change and Energy Efficiency to produce Australia’s greenhouse gas emission projections.
Economic forecasts prepared by the Treasury informed policy settings and underpinned the calculation of expenditure and revenue budget estimates. For policy formulation purposes, macroeconomic forecasts provide an assessment of prospective developments within the economy and the risks surrounding the economic outlook.
The Treasury discussed economic forecasts with the Joint Economic Forecasting Group. This group, chaired by the Treasury, comprises the Reserve Bank of Australia (RBA), the Department of the Prime Minister and Cabinet, the Department of Finance and Deregulation, and the Australian Bureau of Statistics (ABS). These discussions, together with information gained from liaison with the private sector and other departments, helped in the development of the forecasts. Forecasts from the Treasury’s macroeconomic model of the Australian economy, TRYM, contributed to the forecasting process, and sensitivity analysis conducted using the model helped inform policy advice.
Treasury officials liaised extensively with the ABS, both formally through ongoing representation on the Australian Statistics Advisory Council and the Economic Statistics User Group, and informally through regular discussions, to review economic data and ensure its accuracy for use in economic forecasting activities.
The Treasury’s forecasting activity focused on 2010-11, 2011-12 and 2012-13 with forecasts published in the 2010-11 MYEFO and the 2011-12 Budget.
2011-12 Budget papers
The Treasury contributed to public awareness and debate on economic policy issues through its economic analysis in the annual budget papers, the 2010-11 MYEFO and the 2010 PEFO statements.
Published forecasts in PEFO, MYEFO an
d the 2011-12 Budget were accompanied by an update on the economic outlook to help inform the public of key developments in the domestic and international economies and their likely effects on short-term economic growth.
The 2011-12 Budget forecasts reflected uneven economic conditions. Strong demand for global natural resources were seen to drive a high terms of trade and a rapid expansion in mining investments and exports, while the appreciation of the Australian dollar, legacy effects of the global financial crisis, cautious consumer behaviour and tighter fiscal and monetary policy were seen to weigh on the non-natural resource sectors of the economy. Forecasts for 2011-12 were largely unchanged in the 2010-11 MYEFO and revised downwards in the 2011-12 Budget. This reflected the negative impact of natural disasters on the economy and weakness in household demand.
Statement 2 of Budget Paper No. 1, Economic Outlook provided a comprehensive report on the domestic and international outlook. The paper outlined a favourable medium-term outlook, with strong economic conditions in the region supporting Australia’s terms of trade and non-rural exports. Natural disasters were expected to have a temporary impact on Australia’s economic growth in the first half of 2011. It was recognised that conditions would remain challenging in those sectors that are not benefitting — either directly or indirectly — from the resources boom.
Statement 4 of Budget Paper No. 1, Opportunities and Challenges of an Economy in Transition outlined the changing international economic landscape, including Asia’s re-emergence and the influence this development will have on the structure of the Australian economy. Beyond strong demand for mineral resources, the paper predicted that the rise in the Asian middle class will drive global consumer markets and lead to broader economic opportunities for Australia. The paper suggested that nurturing policy settings that build productive capacity and maintain flexibility are key to ensuring lasting prosperity and a rise in living standards.
Economic publications and speeches
- The Treasury’s Economic Roundup included research articles and speeches that provided detailed analysis and policy recommendations on commodity price volatility, the Australian banking system, economic and financial trends over the next 15 years, taxation, superannuation, economic forecasting, fiscal policy and the structural budget balance, the 2010 Intergenerational report, transport investment, China and mineral resource demand, as well as a regular summary of the key findings from the Treasury’s Business Liaison Program.
- Senior Treasury officials encouraged broader understanding of domestic and international macroeconomic issues by speaking with a range of organisations on topics including the economic outlook, national savings, macroeconomic forecasting, sustaining growth in living standards, the resources boom and structural change, climate change mitigation, and the challenges facing Australia over the next decade. The speeches were delivered to organisations including the Australian Chamber of Commerce and Industry, the Australia and New Zealand School of Government, the Committee for Economic Development of Australia, CPA Australia, the Australian Business Economists, Skills Australia, the Economics Society of Australia and the Melbourne Institute Public Economics Forum.
International policy advice
The Treasury worked towards enhancing international economic cooperation, particularly through the G20, helped advance Australia’s international priorities, and provided high quality economic analysis and advice on the implications for the Australian economy of international developments, including the evolving European sovereign debt crisis and the weak US economic recovery.
To achieve these outcomes, the Treasury supported active Australian participation in global and regional forums, assisted the Deputy Prime Minister and Treasurer at international meetings, and helped strengthen bilateral relations. Treasury officials posted to Washington DC, London, Beijing, Jakarta, Tokyo and the Organisation for Economic Cooperation and Development (OECD) contributed to analysis on regional economic and policy developments, helped strengthen relations with key institutions in their countries of accreditation and facilitated high-level meetings.
The Treasury worked with the Deputy Prime Minister and Treasurer to shape the G20 agenda and influence the outcomes of the G20 Seoul Leaders’ Summit and the three G20 Finance Ministers and Central Bank Governors’ meetings held during 2010-11. During 2010, an official from the Treasury was seconded to the Korean G20 Secretariat to assist with preparations for the Seoul Summit.
The Treasury co-chaired the G20 Working Group on IMF Quota and Governance Reform (with South Africa). This working group advised G20 Finance Ministers and Leaders on reforming the IMF’s governance structure to enhance its legitimacy and effectiveness. These reforms were endorsed by G20 Leaders at the Seoul Summit and agreed by IMF Governors in December 2010. The Treasury also supported financial inclusion by co-chairing (with Brazil) the G20 Access Through Innovation sub-group of the G20 Financial Inclusion Experts Group. The Treasury was also actively involved in the G20 working groups dealing with strengthening the Framework for Strong, Sustainable and Balanced Growth, reforming the international monetary system, reducing excessive commodity price volatility and strengthening international development outcomes.
The Treasury supported and provided advice on agreed G20 outcomes including a modernised IMF with greater representation for dynamic emerging market and developing countries; and measures to strengthen the international financial system, including new bank capital and liquidity standards.
Financial Stability Board (FSB)
The Treasury participates in the Plenary Meetings of the FSB and is a member of the FSB’s Standing Committee on Standards Implementation. The committee is responsible for promoting and improving adherence to international prudential, supervisory and regulatory standards. The Treasury chaired the FSB peer review of the Mexican financial system, and advised the Government on the key issues considered by the FSB, including the FSB’s peer review of the Australian financial system (due to be released before the end of 2011).
International financial institutions
The Treasury supported the IMF in its role of ensuring the stability of the international monetary system. This occurred through the IMF Executive Board, attendance at the IMF Spring and Annual Meetings and participation in relevant G20 working groups.
During 2010-11, the Treasury ensured that Australia fulfilled its commitment, as agreed by G20 Leaders, to increase the resources available to the IMF through expanding the IMF’s ability to supplement its quota resources by borrowing from member countries and institutions under the New Arrangements to Borrow. The Treasury supported the World Bank Group’s role in improving the living standards of the world’s poor by providing advice to the World Bank’s Executive Board and supporting Australia’s attendance at the World Bank Spring and Annual meetings.
The Treasury provided advice on key World Bank Group developments during 2010-11, including the Sixteenth Replenishment of the International Development Association, and assisted in the development of the International Financial Institutions Legislation Amendment Act 2010. This allowed for Australia’s subscription to the International Bank for Reconstruction and Development capital increases, and adoption of amendments to the International Finance Corporation Articles of Agreement and the Convention Establishing the Multilateral Investment Guarantee Agency.
Regional development banks
The Treasury continued to support the Asian Development Bank’s (ADB) efforts to
promote development in the Asia-Pacific region. The Treasury encouraged strong contributions to the next replenishment of the Asian Development Fund and supported reforms underway at the ADB as well as the re-election of the ADB President Kuroda.
The Treasury further supported the European Bank for Reconstruction and Development (EBRD) work to help economies in Europe and Central Asia transition to open, market economies. The Treasury contributed to the decision making process at the EBRD through representation on the Board of Directors.
Official development assistance
The Treasury provided advice on general development and aid issues including Australia’s multilateral and bilateral aid programs, new expenditure initiatives, and the framework for Australia’s aid budget. The Treasury worked closely with the Australian Agency for International Development (AusAID) on the Independent Review of Aid Effectiveness. The Treasury also participated in the Development Effectiveness Steering Committee, an interdepartmental committee convened to assist in strengthening the effectiveness of Australia’s overseas development assistance.
Relations with Asia
Towards strengthening Australia’s understanding of regional economic developments and to improve effectiveness and linkages between the G20 and regional forums, the Treasury continued to broaden and deepen its engagement with key regional organisations and partners by:
- working to improve the effectiveness of the APEC Finance Ministers’ Process and supporting Australia’s engagement with the Asia-Pacific region by delivering a capacity building workshop on the APEC Infrastructure Pathfinder Initiative, launching the APEC Pilot Public Private Partnerships Mentoring Scheme, and undertaking technical workshops to build support for the Asia Regional Fund Passport;
- working to strengthen regional financial cooperation through the East Asia Summit process and delivering workshops focusing on strengthening the institutional development and functioning of securities market supervisory agencies in Laos, Cambodia and Vietnam;
- supporting the attendance of the Deputy Prime Minister and Treasurer at meetings with senior Chinese officials in Beijing including the Vice Premier, the Chairman of the National Development and Reform Commission, the Governor of the People’s Bank of China, the Minister of Finance, and the Chairman of the China Investment Corporation; supporting the hosting of the Chairman of the National Committee of the Chinese People’s Political Consultative Conference as a Guest of Government; hosting an annual bilateral Macroeconomic Dialogue and co-hosting a forecasting workshop with China’s State Information Centre in Beijing; recognising the growing importance of China to Australia by setting up a China policy unit to improve the understanding and quality of analysis on economic developments in China;
- participating in the third annual India-Australia economic policy dialogue with the Indian Ministry of Finance and establishing a new position of Minister-Counsellor (Economic) at the Australian High Commission in New Delhi to facilitate Australia’s international engagement and contribute to the provision of quality economic advice;
- assisting the Deputy Prime Minister and Treasurer’s hosting of Indonesia’s Vice President during his Guest of Government visit to Australia and deepening relations with the Fiscal Policy Office of the Indonesian Ministry of Finance through the Government Partnership Fund to strengthen Indonesian economic policy advising capabilities and develop lasting institutional relationships with the Ministry;
- participating in the seventh annual economic policy dialogue hosted by the Japanese Ministry of Finance; and
- supporting the Deputy Prime Minister and Treasurer’s attendance at the Korea-Australia Business Dialogue and meeting with counterparts from the Korean Ministry of Strategy and Finance at the Australia-Korea Strategic Economic Dialogue.
Relations with the Pacific
The Treasury continued to promote economic management and development in the Pacific by providing advice to Pacific Economic Ministers. The Treasury supported the attendance of the Parliamentary Secretary to the Treasurer at the 2010 Pacific Islands Forum Economic Ministers’ Meeting.
The Treasury advised ministers and agencies on economic and fiscal issues relating to the Pacific, particularly the Solomon Islands and Papua New Guinea (PNG), where deployed officials work to build sustainable and effective economic ministries. The Treasury also provided support to Vanuatu and the Seychelles through seconded officials to AusAID.
The Treasury provided assistance to PNG, under the Joint Understanding between PNG and Australia on further cooperation on the PNG Liquefied Natural Gas Project, to assist PNG in considering the establishment of a transparent and well governed sovereign wealth fund.
The Treasury hosted three officials from the Pacific region (two from PNG and one from the Solomon Islands) and also supported two officials from the Australian Treasury to the PNG Treasury for short-term programs.
1 APEC members are Australia, Brunei Darussalam, Canada, Chile, People’s Republic of China, Hong Kong China, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Philippines, Russia, Singapore, Chinese Taipei, Thailand, United States and Vietnam.