Challenges remain

Return to full capacity

The economic outlook has improved dramatically over the past year and the economy is returning to more normal levels of capacity.

The policy priority has now shifted towards supporting private sector expansion through measures that expand the economy's productive capacity.

The broad economic recovery and the mining boom have the potential to yield significant gains in income and wealth for all Australians over many years.

Managing and sustaining that growth will be the key to realising that potential.

Two speed economy

The global financial crisis saw a shift in the balance of world economic activity towards China, India and other emerging Asian economies. These countries are set to be major drivers of the world economy in future decades.

Australia is well positioned to benefit from this economic shift, with substantially increased demand for our mineral and energy resources.

But with the opportunity of a mining boom comes the challenge of managing a two‑speed economy. The non‑mining sectors of the economy will find it tougher to compete for workers and capital.

In these circumstances, the best thing the Government can do to support growth in the broader economy is to cut company taxes and encourage investment in key skills and infrastructure.

A better trained workforce and a larger capital stock boost the productive capacity of the whole economy, while still supporting its adjustment to a higher terms of trade.

States with a large share of mining activity are likely to continue to experience strong growth. But boosting the economy's productive capacity will ensure that the benefits of growth are shared by working families across the nation.