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 March 2012

Press conference

Canberra

SUBJECTS: National Accounts; interest rates; floods; Jeff Lawrence; Liberals'economic circus; Gonski review

TREASURER:

Good afternoon. I just want to say a couple of things about the floods and then I'll get on to the National Accounts. I guess, as a Queenslander and having lived through and witnessed the events in Queensland last year, I think that I can and I certainly think plenty of Queenslanders and people right around the country identify with what people are going through in northern NSW, northern Victoria, right across the country at the moment. And I know from the experience last year that the thing that year that the thing that really helped a lot of people was just knowing that people were with them, that people were thinking about them and that they were going to get the assistance that they needed. I'm pretty sure they are going they are going to get the assistance they need but I also think it's important just to let everyone know that we're thinking of them at a time like this because there can be nothing more devastating than having to leave your home and to see your possessions washed away, or damaged, or whatever. So a lot of people going through a pretty tough time at the moment. I just wanted to acknowledge that.

Also I did want to say a few things about today's National Accounts. I think the number today is somewhat softer than many people expected. It certainly does reflect patchiness in our economy and it certainly does reflect pretty rugged global economic conditions at the end of last year.

This is the last National Accounts release prior to the Budget, so there will be a lot of interest in these numbers from that perspective as well and there's no doubt that these numbers will have a detrimental impact on our Budget bottom line. Having said all that, there is nothing in these numbers that deters the Government from bringing down a surplus in 2012-13 although obviously this makes that task more difficult.

It's important that we do put the number in perspective, when you consider the very severe turbulence and weak global conditions that mark the final months of last year, the final quarter of last year. If you consider it in that context, this result is pretty solid in the circumstances.

We shouldn't also forget that this number today is a backward looking number. It's a snapshot of our economy right at the fever pitch, if you like, of the European turmoil at the end of last year. Now, while global conditions do loom large and we have seen some pretty positive action from European authorities since that time, I think we can say that some of the pressures emanating from Europe have eased a little since the end of last year but, as you know, there are ongoing discussions in Europe as we speak.

But if you do cast your mind back to the last three months of last year, we did witness the worst bout of global instability since the global financial crisis. I'll just take you through what actually occurred during this three month period at the end of last year. We saw the most violent swings in global financial markets that we've seen since the global financial crisis. We saw a contraction in over half of the major advanced economies, with global unemployment rising even further to very high levels, and we saw all of those rolling crisis meetings right through that period which did succeed in averting contagion in Europe. So that was really the grim global backdrop to the national accounts that we're talking about today.

So it's not surprising to see quarterly growth moderate here at home especially as we did have a particularly robust number for the September National Accounts and I think you would recall that I made the point at that time that we would be seeing pretty lumpy business investment, strong business investment but some lumpy outcomes in future figures and I think we're seeing that influence in the data today as well and I'll explain that in some detail later on. But the point I want to make is that with economies going backwards like Germany, Japan, the UK and Italy all went backwards in the last quarter of last year. For us to have any growth at all in that three month period I reckon is a pretty good result because we're simply not immune from that activity and those influences, but once again we have seen the enduring resilience of our economy and yet another reminder that our economy does walk pretty tall in the world.

So we have an economy that is on track to return to trend growth. We have low unemployment, we have contained inflation, we have very solid public finances and we have a huge investment pipeline. Now that's a pretty prized combination for any developed economy to have in the circumstances of the global economy at the moment.

Now I just wanted to say a few things about the detail of the numbers. The figures show GDP rose by 0.4 per cent in the December quarter and 2.3 per cent over the year. As I said before, we always expected that there would be an impact from the global turmoil and we've seen considerable head winds in the global economy reflected in our economy and we see this in the data. For example, we see it in consumer caution with the household savings ratio still elevated at 9 per cent, down a bit on last quarter but still pretty elevated. We see subdued consumer confidence, which has contributed to patchiness in dwelling investment which detracted 0.2 percentage points from growth in the quarter. And also weakness in Europe and greater global commodity supply led to lower commodity prices in the quarter and while the terms of trade remain at historically high levels, they've come off their record peak, down 4.6 per cent in the quarter. Now all of those factors plus the sustained high dollar have contributed to softer incomes with profits declining by 2.7 per cent in the quarter.

Now at this time of the year people do understandably start focusing on the Budget and I can tell you I've been focusing on it a lot in recent weeks and what we do know is that weaker profitability is just one obvious example of how global instability and the high dollar will flow through to budget revenues. As I said before, these pressures do not deter the government in any way from returning to surplus in 2012-13, but they certainly do make it harder to do. But in the face of all this heightened instability I still think these figures yet again demonstrate the underlying resilience of our economy. And you can see this is two figures in particular. You can see it in the strong growth in exports in the data and you can see it in the modest growth in consumption because even with a cautious consumer we still have relatively modest growth in consumption. This is a particularly important factor because what we've experienced particularly during this period was the nightly news really impacting, I think, on consumer confidence given what was going on in Europe but we still saw household consumption grow by 0.5 per cent in the quarter, contributing 0.3 percentage points to quarterly growth. Now unsurprisingly this growth has moderated against a backdrop of global uncertainty but we shouldn't lose sight of the fact that consumption grew through the year at around trend of 3.5 per cent, even in these circumstances.

We've also seen a strong lift in exports despite weaker global demand with exports growing by 2.2 per cent in the quarter, net exports contributed 0.3 percentage points to quarterly growth and indeed iron ore volumes increased to record levels and we continue to see recovery in coal volumes after last year's floods and that's particularly encouraging. But we also see the lumpy nature of investment and this has meant that we've had a slight reduction in investment or new investment in the quarter but off a really high level and we shouldn't lose sight of that.

So while new business investment declined by 1 per cent in the quarter it's still up a spectacular 18.9 per cent through the year and the lumpiness quarter is not surprising given the massive scale of individual projects that are coming online particularly in the resources sector. Just for example take engineering and construction. It rose by only 0.5 per cent in the quarter but it is up a staggering 47 per cent right through the year and I think that just is another way of confirming how strong this pipeline of investment is and how strong it is going to continue to be for Australia.

We also this lumpiness in the state figures, for example in the data today. The state final demand in Western Australia up 11.1 per cent over the year. That's a spectacular figure, despite declining by 2.4 per cent in the December quarter and that is just proving the point about the lumpiness of the figures. And as you would be aware we had the capital expenditure data last week which is now in the chart before you and I think it does pay to go back through some of those figures because they are quite spectacular.

Business planning record investment

We've got something like $164 billion of investment planned for this year. That is 27 per cent higher than the same estimate for the previous year. So essentially massive increases to make up here and over here to here. So whichever way you look at it, the pipeline has just been strengthening and strengthening. These are spectacular figures which really point to the investment boom.

The point I want to make is that this investment boom is a resounding vote of confidence in our economy and it provides a solid bed rock of support for our economy in uncertain times.

Now there are also cross currents here that flow from this investment boom particularly in resources. One of those cross currents is of course a high dollar and of course that has impacted also by global instability. What that tends to mean is that there are parts of our economy that are growing at vastly different speeds from other parts of our economy. Which is why the Government has been talking for some time now about responding to the challenges in a patchwork economy and you're seeing this even more clearly in the data that we are seeing today. And there are sectors of our economy and regions of our economy that are experiencing very substantial structural pressures for change, flowing from all of these developments. But we are making these transitions in an environment where our fundamentals are strong.

In the past we've had to make these transition where the fundamentals have been far weaker. And we have to make this transition and we will make this transition, we are doing it from a position of strength.

So it's hard to look past the fact that these structural pressures are impacting on sectors of our economy but we are in the best position to handle of them of just about any economy in the world. And I guess this is demonstrated by the next chart which just gives the relative position of Australia and you've seen it before but it's now updated. The relative position of Australia compared to other major advanced economies.

What this chart shows is that we have grown our economy by 7.4 per cent on pre-GFC levels while every single major advanced economy is lagging far behind us and indeed a number of them still have not got back to where they were. They have not got back to pre-GFC levels. Not only have three of the seven major advanced economies not returned to their pre-crisis output level, but four out of seven major advanced economies are now in reverse, having contracted in the December quarter.

Australian economy outperforms

So that's the backdrop to the data today and the point I want to make is that in ordinary times this would be seen as a soft number, but the last three months of last year were far from ordinary. This is quite a solid number in the circumstances and I believe it is one of the dividends of getting the big economic calls right.

What we've got to get right our plans for the future and that includes returning the budget to surplus in 2012-13 because recent events in Europe have underscored the importance of maintaining a credible fiscal policy, maintaining our commitment to surplus sends a message of confidence to the world but it also importantly provides a Reserve Bank with maximum flexibility to respond to any further change the global economy.

No I just want to finish on making a few remarks about something we've been talking about all week. I think we should never look past the fact that Australia has achieved an extraordinary result throughout some of the most difficult economic times in our history. When we look at Europe with double digit unemployment, we look at the devastation that that brings to communities throughout Europe and elsewhere in the United States I think it really rams home how well Australia has done and how resilient we have been. But that resilience is not just a question of the numbers that we're talking about today or any numbers on a page in a Budget paper or in a publication from the bureau. It's about the great bulk of our people advancing their opportunities and having the optimism that we as a country can do even better in the future.

The point I mad earlier in the week at the Press Club is that optimism flows from opportunity and the challenge for Australia is to maximise the opportunities that flow from the resources boom and the Asian century. And turning this into the Australian century in Asia, not just Australia being a passenger in the Asian Century, is the aim of so much Government policy that we are putting forward at the moment to maximise the opportunities that flow particularly from this this investment boom and spreading them to every corner of our country. Over to you.

JOURNALIST:

Treasurer, the Reserve Bank sat on its hands this week and the ANZ bank tells us that they'll review their interest rates on Friday. Given this number today, do you regret that the Reserve Bank sat on its hands and do you think the ANZ bank should maybe drop its rates?

TREASURER:

Well, the Reserve Bank takes its decisions independently from the Government. I read their statement yesterday, like all of you would have read their statement, and they made the point that should global conditions change, should there be a deterioration in the global economy, they had flexibility to adjust rates downwards. As for the major banks' taking out-of-cycle decisions about the future of rates, I've made my position on that abundantly clear.

JOURNALIST:

Treasurer, the Prime Minister yesterday was asked about when we would have, when you would know what sort of impact the flood had on the budget and I understand you won't be in much more of a position than she was yesterday to tell us that, but can you give us a rough time frame and process for what information the Government will be getting before it works out roughly what its impact has been?

TREASURER:

Well, it depends on how long they last to start with. So even evaluating the damage when the damaged goods are under water is impossible to do. We had a lot of experience of this with the Queensland flooding, Cyclone Yasi and so on. It does take a long time to get a real handle on it but I think we really fine-tuned our processes for doing all that, particularly because of the magnitude of what happened up in Queensland, we actually set up that reconstruction authority which had a supervisory agency and, you know, the way in which they now collect data is a huge advance on where we were as a nation in the past.

I've been to briefings up there where, before I went up to Tully for example at the beginning of the year for the one year anniversary Cyclone Yasi, I went into the reconstruction authority in Brisbane. They could put up the town of Tully on the screen. They could zero into every house that had been damaged and they could tell me where every one of those houses was in in terms of reconstruction or not and why not.

So I think that this sort of approach and this knowledge is now being shared through disaster management organisations across the country. I think we are in a far better position now to respond. We got the money out pretty quick up in Queensland and I think that will flow as quickly as it can. We're pretty good at getting Centrelink out in those communities, those sorts of things, but depending on the scope and size of what's happened in New South Wales there may need to be other institutional responses. But the answer at the moment is we don't know.

The really big thing that changed up in Queensland – this was for the first time in our history – was the massive deployment of armed forces which really, really made a huge difference. I don't know whether that's required in New South Wales but we will do what we have to do, but what I do think is that as a result of our recent experiences in Queensland both State and Federal Governments now have a better handle on how to handle really big natural disasters, how to collect the data, how to get it done, how to process it through bureaucracies and so on. But the answer is I can't tell you yet.

JOURNALIST:

Treasurer, given the banks are now ignoring the Reserve when it comes to setting interest rates and are doing their own thing. Does that make monetary policy a less effective tool in terms of (inaudible) than it was during the GFC?

TREASURER:

Well, the Governor of the Reserve Bank has made some statements about this so I'll refer you to his statements but my point is that I don't believe that there has been a case established in the circumstances we're currently in by the banks to not pass through rate cuts or to go for out of cycle changes. I made that point very clear, but I'll leave the leave the commentary of the Reserve Bank Governor on his views about what it does to monetary policy to him.

JOURNALIST:

Treasurer, you said that based on today's figures, your determination to get back into surplus is made harder, more difficult, will you have to look at further spending cuts to achieve that?

TREASURER:

There's no doubt that there'll have to be significant savings because we still have an economy which is going to be growing around trend but what we are seeing, I believe, is the circumstances where revenues are going to be further depressed by the conditions that I've just described to you. A combination of factors that I've referred to here: the higher dollar, the impact on business and consumer confidence, the events in Europe – those sorts of issues.

You would have recalled, I'm sure, from the mid-year review which we brought down at the end of November that we wrote down revenues by a further $20 billion across the forward estimates in the mid-year update. Taking the total right down from pre-GFC levels to $140 billion. So I fear that there will be less revenue and we will certainly need to go through another savings exercise because, as you know, we've been exercising very, very considerable expenditure restraint as we've followed our fiscal rules to come back to surplus in surplus in 2012-13. This is going to make that task harder but we think we absolutely need to do it given the circumstances, growth at trend, given what is going on in Europe, we've got to send a send a signal to the word that we're in good fiscal nick and we are, and that's what we'll do.

JOURNALIST:

Can you give us any ideas where you're looking?

TREASURER:

No. This is now really into that budget process that we go through every year and the dance that we do for a couple of months, but the fact is that we'll go about our business of doing the budget in the normal way that we do around this year. This is my fifth budget and you throw in a couple of major economic statements and MYEFOs. We've done a few. I think it, in some ways, it's going to be the hardest of them all because of the that I've been through today.

JOURNALIST:

Treasurer, where do you think that the growth will come from to get back to trend? Clearly there'll be some investment recovery but to get from these numbers here back to trend, where will the growth come from?

TREASURER:

You're an expert in this David, and as you know, the negative quarter will drop out. This is a bit below trend, as you've just observed, but I think that we are on track to record growth around trend. That's possible, you can do the calculations in your head as to what you think that might be, but I mean it's achievable. And if you look here we've got good export growth. We've got high levels of investment. We've got, even in the circumstances, moderate consumption in circumstances where you might have thought it had been a little weaker.

So in terms of where we are, we're tracking about around where we thought we'd be overall in MYEFO. You see the September quarter was a little stronger than we thought. This has been a little weaker but we're sort of tracking around that.

JOURNALIST:

(Inaudible) 2.5 per cent growth for the half year. Sorry but you said, but the question is, you said that that was close to trend. What do you regard trend growth as being?

TREASURER:

I regard trend growth at being about 3.25 per cent and that's where I think we are. We're on track to record around trend growth.

JOURNALIST:

Treasurer, can I just ask you about the charity status of organisations like Greenpeace and you mentioned yesterday your position on your confidence in the future of the coal industry. Do you think that organisations that get charity status should be allowed to retain that as long as they are activists? Or to put it another way, why should a coal miner in your state pay full tax while somebody who wants to knock over his job?

TREASURER:

Yes, good question. I've made my view about this really clear yesterday. It's a very good question and I think those sort of activities are reprehensible. The coal industry is a very important wealth generator and driver of jobs and prosperity for Australia and it will continue to be for a long time to come.

Unfortunately there are some in the environmental movement who don't understand the fact that you can reduce carbon pollution and still have a viable coal industry and indeed we need a viable coal industry unless you want to tank the global economy.

If you go back to Stern, for example, who wrote the Bible on all of this, in all of his modelling he still envisaged that coal would supply about 50 per cent of global power by 2030 or 2040. So let's just get that fact on the table as to why this is such a puerile gesture when it comes to actually achieving the aim this Government has and everyone of good heart has about reducing carbon pollution.

Now if people are abusing their charitable status that is a matter for the Tax Commissioner. I don't interfere in those matters and if their public activities bring them to the attention of the tax commissioner and they're not behaving in a way in which is consistent with their charitable status then that's where I expect action will be taken.

JOURNALIST:

Has there been a coup in the ACTU and do you believe the ACTU and do you believe that Dave Oliver is the best man for the job?

TREASURER:

Well, how would I know?

JOURNALIST:

Jeff Lawrence has announced he has been pushed to retirement.

TREASURER:

Well Jeff Lawrence I've just read has resigned. I think he was a terrific [Secretary] of the ACTU. He's a great guy, a good person to work with. I haven't seen any statements as to why Mr Lawrence resigned, but I certainly wish him all the best for the future. I wouldn't have the faintest idea who is going to take his place.

JOURNALIST:

(Inaudible)?

TREASURER:

Well, it's entirely up to the ACTU. It would be like me telling other people who they should elect in other organisations or companies or whatever.

JOURNALIST:

Mr Swan, in relation to your comments in recent days about influence, do you favour capping expenditures third parties as was recommended by a joint parliamentary committee late last year? Wouldn't that be a tangible way of trying to restrict campaigning by people like...

TREASURER:

Well, if you could find a way to do it that works. I mean, that's the big challenge here.

JOURNALIST:

Are you in favour of it?

TREASURER:

Well, if you could conceptually find a way to make it to work it would be a great idea, but as someone who has looked at this issue over 25 years, they've never been able to come up with a constitutional way to do it. That's the problem.

JOURNALIST:

Mr Swan, Warwick McKibbin is in the Financial Review arguing that the carbon price should start at about $10. He's also arguing that if the price crashes when you go to the floating price that the difference will be effectively a tax on industry. Do you think the price is still about right at $23 and is there any scope to review that, given that Europe seems to be in the doldrums?

TREASURER:

No.

JOURNALIST:

Treasurer, Joe Hockey is giving a speech about now on various aspects economic. One of the points that he's making is that the Coalition says you should prepare policy based around the dollar reaching (inaudible) based on the dollar reaching $1.25. Some market experts said it could go as high as $1.25 and there needs to be a policy response to prepare for that eventuality. Is that something you share?

TREASURER:

No I don't. I think it's deeply irresponsible actually. I never comment on the level of the dollar but the real challenge the Coalition's got is they've got a $70 billion hole and if they don't actually get some sort of fiscal rectitude then they would just simply wreck or economy if they were in power, which I don't think they'll ever achieve.

It's just remarkable today, you've got Mr Abbott out there confirming he's going to increase the company tax rate to fund his paid parental leave scheme and at the same time arguing he's somehow going to cut company taxes whilst he simultaneously increasing them, while they admittedly have got a $70 billion hole in their starting point. None of that adds up.

JOURNALIST:

Mr Swan, also on the Opposition, Tony Abbott has been at a school in Adelaide today saying that it's in your DNA to want to smash independent schools. I think he's basing that on the Gonski Review which I don't think you've made any commitment of that kind to. What do you make of those comments and the Opposition's attempt to what some people might describe as verballing you?

TREASURER:

Well, he's just increasingly desperate, isn't he? He's in policy cul-de-sac. He's got nowhere to go and he's just lashing out all of the time. The fact is that since the mid-60s we've had a big commitment in this country in the Labor Party to an independent sector in education, church, and charitable, and that's grown over the years and that's as it should be and the basic principle of Gonski takes all of that into account.

JOURNALIST:

Back on the subject of this. You've warned of a hit to revenues because of what would see company tax, company profits down in the year and you talked about the reasons why, yet your company tax collections have been holding up, in other words they're tracking MYEFO quite well. Is that going to change or is there some way in which in fact these National Accounts are not being fully reflected in the hit to the much you're actually bringing in?

TREASURER:

I don't think they're tracking MYEFO.

JOURNALIST:

(Inaudible)

TREASURER:

What you're referring to is that you see an increase but it is not consistent with where we expected them to be increasing to.

JOURNALIST:

Right.

TREASURER:

Right. So they are already down, of that there is no doubt, on what we had forecast.

JOURNALIST:

In MYEFO?

TREASURER:

In MYEFO, absolutely.

JOURNALIST:

And how much might you be short? (inaudible)

TREASURER:

Well, as you well know, because you follow these things, it's too early to say. That is the whole point because what appears to be happening is that the accumulated losses which have travelled along from the global financial crisis and global recession, are impacting severely on revenues and more severely than the Treasury had forecast.

JOURNALIST:

Have you had any state Treasurers contact you about the very sharp fall in the state revenue so far this financial year?

TREASURER:

No, I've heard a couple of them saying that they are talking to me but they haven't and they are writing me a letter but it hasn't arrived. Look, but seriously, there is a degree of revenue weakness and it's too early to tell the exact magnitude of that and all of detail causes of it but it is there.

JOURNALIST:

Treasurer, you and the Prime Minister both stated the economic benefits of returning the budget to surplus but if revenues are down significantly on the face of these figures, can it get to a point where cutting is going to be detrimental to the economy?

TREASURER:

I don't believe so. I believe it's really important to return the budget to surplus. It sends a very clear message to the world that Australia is in good nick. If you wanted any reminder of the importance of that, look again today at what's going on around Europe. And secondly I think it reinforces the capacity therefore of the Reserve Bank to deploy monetary policy. Thanks.