The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

27 July 2011

Press Conference

Sydney

27 July 2011

SUBJECTS: CPI; Labor policy on gay marriage; productivity; economic outlook

TREASURER:

Okay I just wanted to say a few words about the June quarter inflation figures that were released this morning.  Today's figures show that CPI inflation was 0.9 per cent in the June quarter - down substantially from 1.6 per cent in the March quarter.  Through the year to June CPI inflation was 3.6 per cent.

Today's figures show particularly the flow-on affects from the summer floods and cyclone Yasi.  The summer floods and cyclone Yasi caused massive destruction to crops in some of our most important farming regions.  Now this has led to a very substantial increase in the price of fruit and vegetables and we've seen these figures reflected in the past CPI and we've seen them reflected in this quarter's CPI.  Now because of the massive impact of these natural disasters, anybody putting fruit and vegies in the shopping trolley, particularly bananas, knows that prices do remain high and you see that reflected in the CPI today.

On today's figures fruit prices are up 27 per cent in the June quarter, contributing 0.4 percentage points to the quarterly CPI increase of 0.9 [per cent].  So 0.4 [per cent] of 0.9 [per cent].  Banana prices are up 470 per cent compared to where they were prior to the natural disasters with some people paying as high as $14 a kilo for bananas. 

Treasury estimates that the natural disasters have contributed around half a percentage point to headline inflation in the March and June quarters.  Now this has been tough on family budgets but we do know that prices should come down as crops regrow and as farm production comes on.  Now we've already seen this happen in the past and we're seeing it happen again. 

What we have to be aware of is that these events are one off events and they have a one off impact on the CPI.  This is particularly evident in terms of fruit and vegies but that's not the only impact we see in the CPI today.  We're seeing higher global oil prices feeding into higher prices as well at the petrol pump.  Fuel prices rose 4 per cent in the quarter contributing around 0.2 percentage points to the quarterly CPI increase.  So today's figures show that underlying inflation remains contained in the Reserve Bank's target band at 2.7 per cent in the year through to June.   Now despite this result we do understand that increases in the cost of living do have an impact on stretched family budgets and of course on top of this we've got the impact of a higher dollar, the impact of a cautious consumer, which is impacting on sectors of our economy.  And also impacting on our economy is the uncertainty that flows from events which are happening both in Europe and in the United States and of course some of this has been made worse by some of the scare campaigns that have been run by the leader of the Opposition Mr Abbott.

But despite all of this, the fundamentals in our economy remain strong and the medium-term outlook is strong.  We have low unemployment.  We have strong public finances and we have a huge pipeline of investment which is flowing into record commodity prices for our exports. 

Now earlier this year I delivered a Budget and contained in that Budget is the largest fiscal consolidation -  that is, return to surplus - on record.  We are doing that to ensure we're not adding to inflationary pressures from the mining boom.  Now the size of this consolidation has already been acknowledged by the Reserve Bank which is responsible, which is responsible for setting interest rates. 

Our job right now is to position the country to take maximum advantage from Mining Boom Mark II, and that means to make the necessary investments in lifting our productivity by investing in skills and education, by investing in the NBN and by making sure that we run a tight Budget, hence the fiscal consolidation that is being implemented right now.  We do those things, we will continue to build a high skilled, high productivity, low pollution economy for the future.  Over to you.

JOURNALIST:

Mr Swan, does this inflation number send a message to Australian families that the pressure is still on interest rates?

TREASURER:

Well, interest rates are a matter for the independent Reserve Bank and the Reserve Bank has noted in the past that there will be one-off effects on the CPI that flow from one-off events, but these are a matter entirely for the Reserve Bank, but from the Government's point of view the most important thing that we have to do is to put in place the return to surplus - a very large fiscal consolidation that I pointed to before - to make sure that we do not add to any of the inflationary pressures that arise from Mining Boom Mark II.

So a quick return to surplus is the most important contribution the Government can make but secondly we ought to recognise the one off impact of the natural disasters as we see here particularly when it comes to fruit prices.  A massive impact in this quarter but also in the previous quarter from those one off events and natural disasters.

JOURNALIST:

How do you explain the stubborn resilience of underlying inflation?  That's not going down.

TREASURER:

Well, underlying inflation is within the Reserve Bank's target band.  It is certainly within their band and if you look at the figures today you can see the dramatic impact in these figures of fruit and vegetable prices, not just over this quarter but also over the previous quarter.

JOURNALIST:

A way of compensating though, if you like, in terms of the rising cost of produce, are you satisfied given the strengthening of the Aussie dollar that retailers here who are doing it tough are passing on what should be the savings of cheaper exports to consumers?  Do you think that's happening?

TREASURER:

Well, I think there's a lot of pretty vigorous competition going on out there in the retail sector.  If you look at the moment at the sales - you can't go into a shopping mall or wander into any shopping precinct in the country without seeing pretty vigorous price competition from retailers and of course much of their merchandise will be imported, but not all of it.  But I would think that if you went and spoke to the retailers they would be talking about compressed margins and pretty fierce competition.

But there's no doubt that a higher dollar is a mixed blessing for some industrial sectors.  Many benefit, and we all benefit in the end, from a high dollar, but on the way through there are sectors which are impacted and some are impacted harshly.   For example the tourism sector is impacted harshly.  But what we've also got is a cautious consumer and we as a nation are living with the after-effects, if you like, or aftershocks of the global financial crisis and the global recession.  And what are those shocks?  Well, the fact is that our share market is not back to the level it was prior to the global financial crisis, for example.  We still live with the income and wealth effect of that crisis and that has produced a cautious consumer.  Australians are saving more and spending less.  That does make it very tough for a lot of people who are in retail. 

But on the flipside of that ledger, Australians are in jobs, unemployment levels are low, there has been strong job creation over the past year and we have strong, a very strong pipeline of investment creating further wealth and jobs in our economy.  So what we have is an economy where the fundamentals are strong.  In the past six months our economy has been challenged by the massive impacts of these natural disasters.  You not only see the impact of that on the inflation rate in this quarter and the last quarter, but you saw the massive impact it had on economic growth in the March quarter in the national accounts of a couple of months ago. 

So there are swings and roundabouts happening in our economy at the moment which have produced a temporary softness.  But the medium-term outlook for our economy does remain strong and Australians can be confident in that knowledge.

JOURNALIST:

Treasurer, on the remarks of Mr Stevens yesterday on the economy and the (inaudible) is that he suggests that consumer spending is (inaudible) mining and resources boom.  But he also says that the key is productivity and he implies that maybe the ball has been dropped on this during the mining boom.  Do you agree with him and do you take the view that what (inaudible)?

TREASURER:

Well, I don't necessarily agree with the way you characterised his remarks.  What I agree with the Governor on is this fact: there has been a structural decline in productivity growth in this country in the past decade or more.  The figures show that.  When we were elected almost four years ago we put at the centrepiece of all of our policies the task of lifting productivity.  Lifting productivity by investing in skills.  Lifting productivity by investing in education.  Lifting productivity by investing in superfast broadband, superfast internet connections.  Lifting productivity by regulatory reform.  Lifting productivity by tax reform.  The Government has a vigorous productivity agenda which it is prosecuting across a wide rage of policy areas, but with productivity you just don't click your fingers and it changes over night. 

The productivity decline that we are witnessing took a long time to be put in place and it's going to take some time to turn it around, but our economic settings at the moment are solely devoted to lifting our productivity performance.  So to that extent I certainly agree with what the Governor had to say yesterday, but I would also make this point about productivity - the big productivity boost that Australia go in the late 90s was a product of a series of reforms - very big bang reforms - which were put in place in the late 80s and the early 90s.  I could run through a few of them.  The floating of the dollar.  The bringing down of the tariff wall.  Enterprise bargaining.  All very big reforms but big reforms which can only be done once. 

What we are faced with, particularly given the neglect of the previous government when it came to skills and education and infrastructure in particular, is making up the deficit that they left which has produced flagging productivity performances in our economy and that's precisely what we are doing right now and you don't see the results of those long-term reforms in the short-term because they take a long time to put in place. 

For example the NBN.  There could be no measure that any government could do that would be more productivity-enhancing in our environment here and now than doing something about internet speeds and access to superfast broadband.  It just makes sense to business.  Business understands this; they can lift their productivity enormously if they've got access to superfast broadband but that takes some time to put in place.  There will be some time before we see the results of that in the figures.

JOURNALIST:

Labor backbencher John Murphy has said that there should be a referendum on the issue of gay marriage.  Is that something you would support?

TREASURER:

This will be discussed at our national conference at the end of the year and we will deal with party policy on this question there.  So that's where I will be making my contribution to the discussion.

JOURNALIST:

It is an issue that is dividing the…

TREASURER:

No hold it.  I would have thought it's an issue on which there's a wide range of views across our community as well as across the Labor Party and everybody will have their own view and they will be free to express their view and about our future course of action as a party at our national conference at the end of the year.  John Murphy's entitled to his view and everybody else is entitled to theirs and we will adopt our approach to this issue at our national conference at the end of the year.

JOURNALIST:

What's your view?

TREASURER:

Well, my view is that marriage is between a man and a woman.  I've said that publicly on many occasions.

JOURNALIST:

(Inaudible) five Labor MPs who would support gay marriage, they should join the Greens.  How do you respond to that?

TREASURER:

I reject that.

JOURNALIST:

Mr Swan, an Australian can deal without eating a banana for a quarter but the figures you show today that health's up 2 per cent on the quarter alone.  I think housing is up 4.6 [per cent] on the year, aren't they …

TREASURER:

Well, there's a seasonal increase here when it comes to health.  You won't see that one necessarily repeated in subsequent figures.  It's not appropriate to make your judgements about the contributing factors to these figures solely based on a quarter, OK.  So there's a seasonal influence here from health but if you look at the factors I was talking about in terms of the natural disasters, they dominate the March quarter and the June quarter and they won't be repeated unless we are unlucky enough to have another very significant natural disaster.  So yes there are some other factors in here, but the dominant factor that you can see through the first six months of this year not just in terms of our CPI but also in terms of our national economic growth, has been the impact of natural disasters.

JOURNALIST:

Treasurer, just coming back to productivity.  Mr Stevens (inaudible).  Is there any scope towards improving productivity through labour markets and also the BCA has made a number of demands (inaudible).  Is there any scope for improving productivity through labour market and labour regulation …

TREASURER:

Well, I'm absolutely confident that our Fair Work frame work is one which promotes productivity in the work place.  Now from time to time there will be decisions taken by independent bodies about particular rules within the system, but I think that our industrial relations system is one which is both fair and one which enhances productivity based as it is on the enterprise framework.  That's the way it should be and I don't take Governor Stevens' comments in the way in which you've put them there at all. 

I think we've got a good industrial relations framework.  There will be a vigorous debate about how sections of it could be changed, but as I move around the business community I don't find a full-  blooded or full-throated call for the upturning of our industrial relations system, far from it.  They want it to settle.  They want to work within it.  They will from time to time have differences of opinion with bodies taken, sorry with decisions taken by bodies like Fair Work Australia but by and large, not all, but most, are satisfied with that framework.

JOURNALIST:

You talk about a lot of oneoff factors.  Every issue that's been raised here and you dismiss as a one off factor.

TREASURER:

No I haven't dismissed them at all.

JOURNALIST:

But underlying figures which strip out a lot of the one-off forces on inflation are also stubbornly high, in fact much higher than expected.  Is that not a concern and are you saying that you expect underlying inflation to fall in the future?

TREASURER:

I think what I am saying is that when you do strip out those one-off factors, underlying inflation is around the mid-point of the Reserve Bank's target band.  That's what I'm saying and that's the fact. 

JOURNALIST:

So you're saying the Reserve Bank wouldn't be concerned about…

TREASURER:

I don't second guess…

JOURNALIST:

… keep the heat on interest rates?

TREASURER:

Well, I don't second guess what the Reserve Bank does.  They take their decisions independently, but I do make this point - that underlying inflation is around the mid-point of the Reserve Bank's target band.  I make that point - number one. 

The second point is that the dominant factors over two quarters are natural disasters, but the Government understands the importance in an economy where unemployment is low and where we have an investment boom with a huge pipeline coming through, that we have to put in place tight budget discipline, that's what we're doing.  We have to attend to the capacity constraints in our economy to investment in education and skills and indeed the centrepiece of the recent Budget was a massive skills package to deal with labour supply issues and skilling issues and labour shortages.  These are all things that Governments must do if we're serious, if we're absolutely serious about not adding to any inflationary pressures in the economy.

JOURNALIST:

(Inaudible) expect the pressures on underlying inflation to ease in the coming months?

TREASURER:

No what it says is that we are doing everything that we can possibly do to enhance capacity in the economy.  I don't sit around and speculate about likely inflation rates for the next quarter and I don't sit around and speculate about the likely value of the dollar.  What I do is get stuck into it to make sure we're dealing with all of those issues which go to the capacity of our economy to supply goods consistent with an amount of economic growth that we expect.