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

7 September 2011

Press Conference

Canberra

7 September 2011

SUBJECTS: National Accounts; productivity agenda; manufacturing sector; people smuggling

TREASURER:

Well I think it's pretty clear that today's figures give us all cause for confidence in the underlying resilience of our economy.  They're encouraging figures.  They're encouraging figures especially when you consider the challenges that we see abroad.  The National Accounts show our economy grew by a robust 1.2 per cent in the June quarter.  That's the strongest quarterly growth in four years.  Now the results show that economic growth and economic activity returned to more normal levels after the devastating impacts of last summer's natural disasters but the recovery has taken longer than expected.

Today's figures don't just confirm that our economy has bounced back strongly from these events but they also show there are broader signs of underlying strength in the economy.  Businesses are investing with confidence, incomes are rising, we're seeing reasonable consumption growth, and unemployment remains low.  Now despite the strong outcome we're seeing today, we know that not all sectors of our economy are growing as much as we'd like. Many businesses are doing it tough due to the higher dollar and, of course, the cautious consumer. Today's accounts do present a picture of the patchwork economy. But overall, the outcomes today are testament to the fundamental strength of our economy and our people, and our proven track record in difficult economic times.

Now, as the chart before you shows, despite being hit by the most costly natural disaster in our history, the Australian economy has continued to forge ahead of most others in the developed world.  Growth is now five per cent above, or the level of GDP is now five per cent above where it was at the onset of the global financial crisis.  And as you can see here, compared to the United States, Japan, the Euro area they're still below levels experienced prior to the global financial crisis, and indeed a few weeks ago GDP was revised down in the United States and that was one of the factors that prompted a further round of global turbulence.  So other countries are still struggling to return to the output levels that they saw before the global financial crisis.  What all this underscores is that Australia is better placed than just about every advanced economy to deal with global instability and, of course, the patchwork pressures that we're seeing in our economy.

Level of GDP - Australia compared to the US, Euro area and Japan

Now I just want to spend some time running through the figures.  As I said before, GDP rose by 1.2 per cent in the June quarter and 1.4 per cent through the year.  As I said before, the economy has rebounded strongly from the summer's natural disasters.  Mining profits increased by 15 per cent in the quarter, and as you can see from that chart, exports are recovering after being hit hard in the first three months of the year. Iron ore and thermal coal exports are now back to their pre-flood levels, but many mines are still affected by flood waters, and some coal exports remain 19 per cent below their levels seen before the disaster. And you can see that there at the far end of the chart just how much those exports dropped off and how much they've rebounded and when it comes to coal there is still some recovery to occur. Now, overall, the rebound from the natural disasters added half a percentage point to GDP growth in the June quarter, after subtracting more than one percentage point last quarter.

Coal and iron ore exports

Now, I know some will be tempted to characterise today's result as being solely due to the bounce back in the mining sector but it is much, much more than that.  That rebound is certainly very important but today's outcome is broader than that. And one of the areas you can see this is when it comes to household spending.  That has contributed as much to the quarterly growth outcome as did the rebound from the natural disasters. So what's really pleasing about the results today is that they do show the broad-based nature of our underlying fundamentals.

We have an economy with strong investment, rising incomes, sustainable consumption and low unemployment, and these are the building blocks of a strong economy and they are all evident right across the data that you're seeing today: strong growth in corporate profits, up 10 per cent in the quarter;  solid growth in wages; reasonable consumption growth despite the fact that we have a cautious consumer, with household spending up one per cent in the quarter.  So that has contributed 0.5 percentage points to growth in the quarter. And we are seeing an unprecedented business investment pipeline gathering pace with business investment rising by 1.7 per cent in the quarter and a staggering 10.2 per cent in the past year. And you can see this in the capital expenditure figures that are before you now.  Businesses invested a record $120 billion in 2010-11. And you can see from this chart there, that there is more business investment to come with business planning to invest a record $150 billion in 2011-12, with resource investment accounting for more than half of that -  $120 billion in the past year, $150 billion to come in the next year.

Mining and total capex

Now, these investments are a vote of confidence in the Australian economy and they will not be knocked off course by events or instability elsewhere in the world. So the figures today are a report card which ticked the box which says that the Australian economy is resilient and well positioned to deal with the challenges ahead domestically and internationally.

Now having said all of that - we'll come back to the charts if you like - having said all of that, we still do have a patchwork economy.  The patchwork economy has at its core the challenges which are posed by a higher Australian dollar, tighter credit which is crimping activity in some sectors of our economy.  And it is true that consumers do remain cautious with the saving ratio remaining around the elevated levels we've seen since late 2008.  The cautious consumer is not somebody who just arrived in the last couple of months or this year.  The cautious consumer has been with us for some time but what is occurring is that households are taking advantage of rising incomes to strengthen their balance sheets while still having room to spend and they have been spending as well. And you see this in the figures: consumption growth of more than three per cent over the past year, that is around the long-term trend. 

This is not to say that some sectors aren't doing it tough.  We know they are.  The retail sector is doing it tough.  We know the tourism sector is doing it tough but what you need to keep in mind is that consumption has been stronger in other areas and people have been spending more in other areas.  Spending more in services, for example, spending more in education, spending more in recreation, spending more on services generally, and less on goods.

Now the high dollar is also bringing pressure to bear on our trade exposed industries and we're all familiar with that and that is reflected in the mixed picture you see in terms of company profits.  As I said before, one sector which is really feeling the pinch here is the tourism sector with fewer visitors coming from abroad and more Australians holidaying overseas.  There's been quite a remarkable jump in short-term overseas departures, which are up 8.8 per cent in the June quarter. So these sectors of the economy are also finding it hard to regain traction after the global financial crisis, and another sector which is affected by these trends is, of course, the non-residential construction sector which is 30 per cent below its pre-crisis levels. 

So, what we see today is an impressive result given the challenges in the global economy, and the pressures that some sectors are still facing here at home as well. But I think today's figures send a really powerful message that even the biggest natural disasters in our history and the worst global downturn in 50 years can't knock us off course.  That's the message that comes very strongly through these figures. Now we know that global uncertainty will be with us for some time to come and, of course, we do know that the shift in global economic gravity is also a mixed blessing for some of our sectors. But what these figures demonstrate is the underlying resilience of our economy and I think we can stand tall in the world knowing the challenges that we do have are not beyond us.  That's what these figures really demonstrate.  That's why the Government is so emphatic about getting the basics right in terms of the economy, getting the budget back in the black, supporting jobs, supporting investment, getting all of these foundations right is the basis for maximising the opportunities which will flow from the Asian Century.

Before I conclude I just wanted to make one particular comment because, through this year, and particularly over the last 3 months or so we've had a lot of rhetoric and commentary about our economy which simply doesn't match up with the facts. These figures today should be a reality check for the doomsayers who continue to talk our economy down and make dire predictions about our future. I think these figures demonstrate that we can all have confidence in our economy which is underpinned by strong investment, rising incomes and low unemployment. Yes, there are challenges in our economy. We have to meet those challenges. We've got to get the policies for the future. We've got to lift our productivity and get on with our strong agenda to reform the economy and maximise the opportunities which are coming our way. We should not, in the middle of a political debate, lose sight of the underlying strengths in our economy that set us apart from the rest of the developed world. This is not about being overconfident; it's about recognising that we have the building blocks for sustainable growth in our economy and we can face the future with confidence.  Over to you.

JOURNALIST:

Mr Swan, there was a longer lag in resources projects coming back on stream after the floods, I was wondering how these accounts track with the budget forecasts and as a result whether they take the pressure off the Government being able to meet the surplus forecast for next year which has been under a bit of pressure because of the economy. Also I'm interested in your comments on productivity and what you see as the productivity agenda.

TREASURER:

Well that's pretty broad, let's just take those one by one and I'll try and deal with them comprehensively. We were forecasting growth for 2010-11 of 2 ¼ [per cent], on a year average basis we've got growth at about 1.8 [per cent] so the impact of the natural disasters has been bigger on our economy then we expected at the Budget, that is very clear. Now in terms of the coal exports in particular it has been more difficult to get the coking coal exports going again, thermal coal I think has been going pretty strongly, iron ore as you could see from that graph earlier - if you want to bring it back - iron ore is just about back to where it was. The reason why the graph there for coal was down and still has got some way to go back, is because of coking coal - deeper mines with water in them. So it's taking longer for those exports to return so I think we could probably expect in our next quarterly figures to see a further jump in that area.

But what is most pleasing about these figures, and I think we really should take some time to reflect on it, is the continued investment that is going on right across our economy and not just in the resources, although the resources investment is very strong. But we're also still seeing investment in other areas of our economy, mining is now projected to be a bit over half of that $150 billion pipeline I was talking about before, but the investment story is still reasonably broadly based, and it's overlaid with a mining boom essentially or an investment boom in mining. The consumption figures in here are encouraging. If you had been listening to the public debate over the last six months you would have sworn that consumers weren't spending anything, well consumers have been spending. They've had good solid growth in their income, they've been rebuilding their balance sheets so the savings rate is high although down a little from last quarter, but they've also been out there spending. They've just been spending a bit differently and perhaps spending more wisely. They are changing the way in which they spend, the goods or services they are spending on.

What does that all mean for growth? Well basically we will update all of this at the end of the year but what we have got here is a pretty good yarn about strong investment, reasonable consumption, low unemployment and rising incomes. And there is just not many other developed economies in the world who can tell that sort of story.

JOURNALIST:

Do you have (inaudible) productivity?

TREASURER:

Sure, productivity. Well productivity and interpreting outcomes by quarterly figures is not the way it should be done. You'll never have an accurate debate about productivity based on a quarterly figure. Now there was a big hit to labour force productivity in the last set of figures for a reason that seemed to get discounted in much of the public commentary and that was very simply the fact that a lot of people were in work and kept in work by their employers after the floods but they weren't producing anything. So what we saw was a very big drop in labour force productivity in March and it has bounced back in this quarter. But I won't be standing here making the sorts of claims that were made about the March quarter in terms of that being so bad. And I'm not going to stand here and say that this is a fantastic outcome because it's bounced right back and it's quite strong based on one quarterly figure, it is where you're going over time.

And I do welcome the opportunity to put a bit more perspective into this whole debate about productivity because at the very core of this Government's agenda has been a broad-based productivity agenda. We recognise - particularly given the ageing of our population and the need to be competitive in our region and more so globally – that we need to be constantly working on lifting our productivity. And there has been a structural decline in productivity in this country for a long period of time, right through the latter period of the previous government, and it can't be addressed piecemeal by one-off measures.  What it has to be addressed by is by doing the sorts of things that we have been doing over the last four years. Critical investment in skills, training and participation, the very centrepiece of our last budget which was widely welcomed by the business community as being an essential part of a productivity agenda responding to the economic challenges of the future. Before you get to a broad based education agenda, before you get to investment in infrastructure, before you get to the NBN, before you get to regulatory reform and all of those things that you need to do, there isn't just one thing you can pull out of a box and say this is going to change productivity next week. I think I've made this comment at press conferences here before, the very big bang productivity reforms of the 80s and 90s are no longer available to governments. What governments have to do is to craft out a really broad agenda across a wide range of areas and that is what we've been doing quite methodically and will continue to for all of the reason that I've outlined before.

JOURNALIST:

Treasurer, Ged Kearney from the ACTU today is giving a speech right at this moment based on a survey of (inaudible) workers and her concern is that productivity is in fact code for workers working longer, unpaid hours for even lower wages (inaudible)

TREASURER:

The Government's perspective is that productivity is not about stripping away basic working conditions and tearing the workforce down, and ripping away fair wages and fair working conditions. That's not a productivity agenda, but it would be a productivity agenda by some of those people out there who are arguing for a return to WorkChoices. It wasn't a productivity agenda under John Howard and it's not a productivity agenda now. What we need is a broad based productivity agenda where we have skilled and trained workers, and skilled and trained workers that are working on the job in work environments where they're keen to go to work, keen to contribute, where there is a broad culture of productivity and improvement. That's what we need just when it comes to the workforce. And what we need on top of that is to get all our structure right across a whole range of policies. The whole NBN, the whole rationale for the NBN is to lift productivity. It's an investment in technology, enabling technology which will boost productivity in our economy, particularly in small businesses for example. And broader investments in infrastructure, broader reforms when it comes to things like national health and occupational safety laws. These are all part of a productivity agenda. And that's a debate we should be having. It's a debate the Government is keen to have because we actually think that we've been in this space for a long time. Everybody out there at the moment is talking about productivity, that's a good thing. I just don't agree with some of the commentary that I'm hearing. But the Government has a good story to tell in this area and we're going to keep telling it.

JOURNALIST:

Mr Swan do you entirely disagree with the commentary that's now coming from business including some of your own business supporters that industrial relations and in particular individual contracts needs to be addressed in (inaudible)?

TREASURER:

Well, I've had conversations with people I respect in the business community and they express concerns from time to time about aspects of industrial relations and some of the frameworks but there's very few of them that come to the Government and say that they want to rip away the Fair Work Act.  They don't come to us and say that.  They may come to us and say 'there's been a decision taken by Fair Work Australia over here, we think it may have some implications for reform in this area and we want to talk to you about that'. So there's a variety of views across the sector.  The biggest boost to productivity that came in industrial relations systems in this country was the introduction of enterprise bargaining back in the early 90s and essentially we're still with that framework and I believe it's still is an important framework.

JOURNALIST:

(Inaudible)?

TREASURER:

Well, we'll sit down and talk with the business community and with workers and with unions about these questions.  We're up for productivity agenda.  We understand its importance to the ageing of the population.  We understand its importance to dealing with many of the challenges that we face in our country.  But it just needs to be an informed debate.  It needs to be one where there is a broad exchange of ideas and debate and it should not be solely put into the space of the ambitions of some to tear wages and working conditions off working Australian families.

JOURNALIST:

Mr Swan, do you expect that the renewed strength of consumption will add pressure to inflation?

TREASURER:

No I don't necessarily expect that.  What's good to see here is that we've got consumption at about trend, and that's good.  It's a good thing in some ways that it's not galloping along like it was a few years ago where people were spending unrealised capital gains in either their houses or their share portfolios and we had a mining boom taking place with  a consumption boom.  That was not good and it was fuelled by a government which had pretty lax fiscal policy at the time. 

What the government understands that we need to do is to get our fiscal policy settings right and we're doing that.  Our return to surplus and our overall fiscal settings are one that work very well towards the objective of not adding to inflationary pressures in our economy at all.  In fact our fiscal stance is contractionary.  So in that environment to see people consuming roughly about trend, albeit changing their behaviour a bit, is good and I don't think it has necessarily any of the implications that you're talking about.

JOURNALIST:

Mr Swan, just on the issue of manufacturing that's been in the news lately after the BlueScope job losses.  There are those who argue that okay the Australian dollar is causing this but the Australian dollar could come back down in the future.  So in the mean time we need to think about how we protect the existing assets.  Is it your view and the Government's view that that is a fair way to approach it or are you convinced that the effects of the mining boom on the dollar will require permanent adjustment by an existing manufacturers?

TREASURER:

Well, I think it's a bit of both.  The fact is that our response to these challenges has to always be from a perspective of how do we advance our comparative economic advantage in an environment where very substantial structural changes are being forced on our economy. And that's occurring in the steel industry.  The response at the firm level was to say that in this environment they couldn't continue to export, they will refocus their operations on the domestic market and they would continue to do that but they would keep open the option if things changed in the future of going back into the export market. 

Now, what the government has said for 18 months, and I've been saying in press conference after press conference to you and others in this room, is that the dollar was going to become a very, very important part of the story of structural change in the Australian economy which is why we needed a Resource Rent Tax to give us a revenue stream to provide tax cuts to many of those companies out there that weren't in the fast lane, particularly small business, thanks to the instant asset write off, the overall cut to the company rate coming down the track.  Recognising that that is one way amid a whole lot of other policy paths we could take of making those companies more competitive in this changed environment. 

I won't speculate about where the dollar's going to land and how long it's going to land at a particular level but we do know our terms of trade are going to be higher for longer and they're going to settle at a higher level because that's a consequence of the Asian Century.  The construction boom that's going on in Asia is going to be fuelled by a consumption boom in Asia which is also going to bring higher demand for a whole range of goods and services in our economy.  So the Asian century isn't just a story of a construction boom producing a mining boom.  It's a middle-class boom in Asia producing a boom and increased strength of demand for all manner of goods and services. 

So I'm very optimistic about where our industries land in that environment but as we get there many industries are going to find it tough given that the dollar is high in that environment.  So what we're up for is a pretty constructive discussion with industry, unions and the rest about what further changes we can make to policy settings to ensure that they're part and parcel of that.  I don't want to see in our economy, I don't want to see a situation where we're excessively dependent upon one country or one commodity for our future prosperity, and I don't believe that is the case, but we've got to make sure that we're not.  So getting all of those settings right is part and parcel of what we've been talking about in responding to the challenges of the patchwork economy for the past 18 months.

JOURNALIST:

Treasurer there seems to be a disconnect between these figures and a number of surveys of confidence – business and consumer confidence – I'm just wondering if the explanation could well be the low standing of the Government itself?

TREASURER:

Well, I think you can see, and I'm happy to take you through each of the components, but we have had a cautious consumer since 2008.  So a lot of commentary out there saying that people haven't been out there spending like they were in Mining Boom Mark I and that suddenly this cautious consumer only just arrived this year courtesy of actions of the government or somebody else.  Well, that cautious consumer has been there for a while.  So let's be absolutely clear about that.  It's been a feature of our economy for some time and it is producing some pressures out there. 

There were retailers who thought they could sit back and get double digit growth every year, wouldn't have to do anything new, people would just wonder in and buy, you know, three lots of the same garment, walk out and all that sort of stuff.  Not happening.  Not happening; structural change.  But it is true and I made this point right at the end of my remarks earlier, that there have been some people out there misrepresenting the strength of the Australian economy dishonestly, and the Leader of the Opposition is the prime culprit there.  Out there saying outrageous things about our level of debt that are just wrong, that are repudiated by international authorities such as the IMF every day but continually out there misrepresenting debt, misrepresenting spending and continuously talking down our economy.  That's not good.  I don't believe that he has produced the cautious consumer, but it hasn't helped.  And what these figures do is it should blow away some of the pessimism that we're seeing from some of the commentary out there about what's going on in our economy. 

I remember, vividly - and I'll give you this example - that when I was in this room three months ago giving a press conference on the March quarterly results there were some commentators who went out there and said that those March quarterly results meant hat Australia was heading for recession.  It was blatantly inaccurate but it got pedalled right around the media, right around the media. It got up on prime time TV.  That's the sort of stuff that the country doesn't need.  We do need accurate reporting of these economic facts.  There will always be at the margins disagreement about what they mean, but when it get s to the level of distortion that we've seen from particularly the Leader of the Opposition I do believe that is damaging.  That a Leader of the Opposition could run around and misrepresent the debt situation of Australia for example, the spending profile of what the government does in the way in which he does it continuously, I do think that is damaging.

JOURNALIST:

Is your message don't feel guilty about opening your wallets?

TREASURER:

No I think people make sensible decisions in their own interests and I think many consumers out there have said to themselves look it was only two and half years ago, three years ago, in fact it was September 2008 that Lehman Brothers collapsed.  That's not that long ago.  People do remember the fact that every major advanced economy from that date went into recession.  Seven or eight of our top trading partners went into recession.  This was the end of 2008 right through to 2009.  And we as a country said look we are in grave danger of going into recession, we are going to take some steps to support our economy and support jobs and we did and almost uniquely amongst all advanced economies avoided recession.  So I do believe consumers have got those memories fresh in their mind, understand that there is a bit of global uncertainty out there and are being a bit more cautious.  And that's part and parcel of this whole issue of the cautious consumer.  There's an international component, there's a domestic component, there's a political component.

JOURNALIST:

(Inaudible) manufacturing actually doing very well.  (Inaudible) they show the equal biggest contributor to growth, the mining industry contributed nothing in the quarter.

TREASURER:

I don't think that's true.

JOURNALIST:

It's true in the figures.

TREASURER:

Can I just say I know why you're saying that and I know the figure you're pointing to that says the mining industry contributed nothing but elsewhere in the figures it clearly shows the mining industry contributed a fair bit.  So I'll talk to you about that later.  I'll get the technical people to take you through it but you're overall correct -

JOURNALIST:

(Inaudible) importance of mining generally.  These figures would suggest that.

TREASURER:

If you read that one figure in isolation you'd be absolutely correct.  You just can't read that one figure in isolation, but I agree with your broader point that we shouldn't be reading these figures as just being all down to the mining industry.  It is far broader than that.  It is far broader than that in terms of other industrial sectors, to that extent I agree with you.

JOURNALIST:

Mr Swan can I just ask you to clarify your answer to Michelle's question earlier – I don't want to misunderstand it – about industrial relations.  You're saying that there are people out there who want to return to WorkChoices.  You're saying that employers who talk to you – people you respect – about this matter, they say we've got a problem here or there.

TREASURER:

We've got a -

JOURNALIST:

But they don't say we want to go back to WorkChoices -

TREASURER:

No they don't -

JOURNALIST:

Sorry, I just want to get it right.  You said that you're happy to talk to them, you're happy to talk to unions.  Are you then saying that you are, you think that there is room for productivity enhancing changes that can be made to the Fair Work Act?

TREASURER:

Well, I'm happy to have that discussion with people.  We've got a review of the Fair Work Act going on right now and that will be part and parcel of that review.

JOURNALIST:

Mr Swan on another matter related to unions, is it appropriate for the AWU to pay private legal bills for Bill Ludwig?

TREASURER:

Well, I'm not aware of all the detail.  I wouldn't comment on it.

JOURNALIST:

Treasurer, an Acting Prime Minister question.  Is it your view that reviving the Malaysia solution should be the government's primary policy objective and what would it mean if Tony Abbott were to help you revive offshore processing but not support Malaysia as an option?

TREASURER:

Well, I noted earlier in the week that Mr Abbott said that he was open to consideration of all options in terms of offshore processing including Malaysia.  Now he appears to be crab walking back from that pretty strong commitment that he gave.  So he should be upfront enough to tell us where he really stands. 

We went forward with the Malaysian solution for the very best of public policy reasons.  It is a deterrent and it is the best way to deal with this issue in a sustainable way by sending a message to people smugglers on the one hand; and two, making sure we do the right thing by asylum seekers.  It's the best way of achieving those twin objectives.  So the Government thinks that there's a very strong public policy case for the Malaysian solution.  We had thought given Mr Abbott's emphatic comments a couple of days ago that he might have been coming to that point of view.  Now he appears to be crab walking away from it.  Well, he should tell everyone whether he's yet again changed his mind or misrepresented his own position.  Thanks.