Australian economy is vulnerable to overseas forces, but is strong: Wayne Swan

• UPDATED Ben Packham and James Massola
• From: The Australian
• August 16, 2011 2:43PM

Wayne Swan says the nation's strong balance sheet, its stable banking sector and the strength of the Asia-Pacific will help Australia ride out growing international financial turmoil.

But, in a special statement to parliament today, the Treasurer said the Australian economy was still vulnerable to an overseas economic slump. “I don't want to sugar coat the current situation,” Mr Swan said.

“If the global economy were to weaken materially, that would obviously have an impact here.

“But our fundamentals are strong, and we have a government with a proven track record of dealing with global instability and that is getting on with the job of rolling out a reform agenda to further strengthen our economy.”

While warning of the challenges ahead, the Treasurer said tougher economic circumstances would not prevent the government from reforming the tax system or cutting pollution.

Mr Swan said Australia was better placed than just about any other nation to deal with the growing economic instability. The nation's fiscal strength, including its “determination” to get the budget back to surplus by 2012-13, was a core strength keeping Australia “ahead of the pack”, Mr Swan said.

He said the banking sector had built up large capital reserves, allowing them to go for a long period without needing to raise money offshore.

While China and Asia were not immune to the emerging crisis in the United States and Europe, Mr Swan said demand from the growing Asian middle classes meant Australia was located in the “right part of the world at the right time”.

He said the government's actions during the last financial crisis had also left Australia in a position of economic strength. In a reference to the opposition, which he claims is talking the economy down, the Treasurer urged a “mature debate” about the economy rather than “damaging rhetoric”.

Opposition treasury spokesman Joe Hockey accused Mr Swan of preparing the ground for Labor to abandon its pledge to return the budget back to surplus by 2012-13, just as it had abandoned its no carbon tax pledge.

Responding to the Treasurer's statement, he said he remained confident about Australia's medium term economic prospects. But he said Australians' confidence in the economy was low and activity in the non-mining sectors had fallen.

"The Australia situation is far from comfortable," he said. "The government keeps blaming the financial crisis but that argument is wearing thin after three years."

Mr Hockey said Australia's economy had begun to slow down a year ago and was a result of domestic factors. "The slow down began about a year ago, I repeat about a year ago, well before the US downgrade and the recent volatility in global markets," he said.

"The slowdown dates to the time of the election and the formation of a minority Labor government, it is primarily a function of domestic factors, rather than of global influences."