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Part 1: Overview

Secretary’s review

2012-13 was another difficult year in the global economy, with subdued growth in advanced economies, volatility in key emerging economies, and economic crisis in the euro area. Against this backdrop, the Australian economy has been undergoing significant structural change as the mining boom shifts from its investment phase and the terms of trade decline from their historic peak. These conditions create challenges not only for steering economies through difficult times, but for forecasting what lies ahead and developing enduring policy solutions. With this as the context for our work, the Treasury has continued in 2012-13 to pursue its mission of improving the wellbeing of Australians through sound and apolitical policy advice to our ministers.

We continued to forecast revenue and economic performance and implement the recommendations from the 2012 independent review of our forecasting methods. As well as our regular role in preparing the Budget and related documents, we provided advice to the Government on a number of new initiatives including school funding and establishing a national disability insurance scheme, the latter partly funded by an increase in the Medicare levy. Treasury analysis and advice was also provided on initiatives surrounding energy policy, housing, industry and agriculture, defence and national security, federal financial relations, superannuation, and on the future of financial advice. Advice was provided on tax matters, particularly on the sustainability of the corporate tax base. We worked with the OECD on the profit-shifting and base erosion that threaten the transparency and fairness of the global tax system.

With our international partners and with institutions like the G20, the World Bank, and the International Monetary Fund, we worked to promote global economic growth and support robust global financial architecture. We supported Australia’s participation in the G20 leadership troika in summits at Los Cabos, Mexico and St Petersburg, Russia, and prepared for Australia’s host year in 2014, when we will have a rare opportunity to influence global economic and financial decision-making, and to build our regional and international relationships through an ambitious and focused G20 program. We worked with the Asian Development Bank and other regional partners to develop a regional funds passport that will both promote Asian-region financial interaction and build Australia’s capacity and credibility as an important regional financial centre. We continued to build relationships with our regional partners, including China, Japan, India, Indonesia, Korea, Vietnam, the Philippines, Papua New Guinea and the Solomon Islands.

In the context of challenges and change, a focus in 2012-13 was to nurture and strengthen the Treasury’s core organisational capabilities, and to implement the recommendations from our two organisational reviews. We made improvements to the mobility and availability of our IT and began using new technology to improve internal and external collaboration. We made progress in building capability through better strategic and operational workforce planning, and by encouraging innovation from staff at all levels. As part of the Progressing Women initiative, all Groups addressed challenges and opportunities in their own work environment while we rolled out unrecognised bias awareness training to our leadership group. As the backdrop to our work continues to evolve, the organisational change being pursued is intended to deliver a more modern, resilient, flexible, and outward-looking organisation.

The outlook for the year ahead is one of continued volatility and structural change. While Australia’s economic fundamentals are sound, we are by no means immune to the volatilities and vulnerabilities that beset both developed and developing economies around the globe. The transitions underway in our own Asia-Pacific region have considerable implications for us, particularly the volatility and overall decline in the terms of trade. For almost a decade, high terms of trade due to the demand for our commodities have underpinned growth in the economy and in Australian living standards. With the terms of trade dropping, growth needs to be driven by a lift in productivity if Australians are not to experience a sharp slowing in living standard growth. The challenge of how we lift productivity enough for our living standards to continue to rise will not be easily solved, and will require concerted efforts across a range of social and economic policy areas. The Treasury will play a key role in supporting Government develop and implement a broad-based national productivity agenda while working toward a more sustainable fiscal position.

Martin Parkinson
Secretary to the Treasury