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

6 March 2013

Press conference

Canberra

SUBJECTS: National Accounts; Budget 2013; Temporary skilled visas; Joe Hockey Doctoring Transcripts

TREASURER:

Today's GDP figures show that the Australian economy ended 2012 the way we began; outperforming the rest of the developed world. The national accounts show our economy grew by 0.6 per cent in the December quarter, giving us around trend growth for the year of 3.1 per cent. This means Australia's growth is more than four times the OECD average over the year to December, outpacing every advanced economy as you can see from that chart. Well, almost every advanced economy, as you can see from the chart, which will come up in a minute.

Through-the-year real GDP growth

This is a pretty impressive outcome and I think it's been achieved in the face of some difficult and unusual circumstances that have buffeted the global economy and of course the Australian economy in the final months of last year. As you'd all be aware, our dollar remained quite high in the face of a decline in the terms of trade. There was global uncertainty which unsettled consumers in business and of course many large economies contracted, in fact 15 of the 27 advanced economies that have reported December quarter figures contracted in the quarter with Europe sinking deeper into recession and Japan suffering its third straight negative quarter. So when you consider that around half of all advanced economies contracted in the December quarter, you can see our solid growth is no small achievement.

Now, today's result doesn't just speak to our resilience. I think what it does is it builds on a pretty good economic record over the past five years and you can see that in the next chart because our economy continues to power ahead of every major advanced economy.

Australian economy outperforms

What you can see there is our economy is now more than 13 per cent larger than it was in December 2007 and that gives you a comparison with the other major advanced economies. That is a very, very substantial achievement. I think what it does show is that we got the big economic calls right at a critical time and it is one of the reasons why we can face the future from a position of strength.

I just want to go through some of the detail because there are a lot of cross currents in the data that's before you today. As I said, quarterly, 0.6 per cent, and over the year 3.1 per cent. This outcome reflects a surge in export volumes, a lift in new business investment, modest consumption growth and a recovery in dwelling investment. Exports grew by a strong 3.3 per cent in the quarter which is the second-fastest quarterly increase in almost a decade. This result was driven by sharp increases in coal and iron ore export volumes even though there were lower commodity prices and those lower prices have hit profitability. So what we are starting to see here is the upswing in the next phase of the mining boom, what we call the export phase, as projects ramp up and go into production.

Now with quarterly export growth being volatile, particularly because of things like adverse weather conditions, I still think that we are beginning to see this as a very important driver of growth and productivity going forward. And that's the other thing that we see here in the data today, an emerging upswing in productivity growth, a topic that is much discussed in our economic debate, as it should be. We've got market-sector productivity up 3.3 per cent over the year to December, more than double its 10-year average growth rate.

Total business investment, whilst it was down investment, whilst it was down in the quarter, this was just driven by a one-off asset sale from the private sector to the Victorian Government so I'd caution you the way you look at the private investment data here, there's really been a swap between what's been going on in the public and private sector that's distorting the data and that same factor explains the large headline increase in public demand. The figure I'd draw your attention to is new business investment which excludes this one-off factor which was up 1.2 per cent in the quarter while underlying public demand remains subdued. This takes new business investment to a record high of 18.7 per cent of GDP which has also been driven by a further increase in new engineering construction so this is a very good business investment number when you take out this one-off factor which you see sitting there in the figures.

Now as everybody is acutely aware, we are looking at a transition from mining to non-mining growth and we know that that won't be seamless as we go forward, but what we do see in today's figures is tentative signs of an improvement in some non-mining sectors, in particular we see further signs of recovery in housing, supported of course by lower interest rates and that's certainly quite encouraging. Dwelling investment rose by 2.1 per cent in the quarter, its strongest quarterly growth in 2.5 years which of course has been supported by lower interest rates. While the Reserve Bank put rates on hold yesterday, we've certainly had a very big cut to interest rates in the past year or so and it's good to see this flowing through to small business and to families. A family on a $300,000 mortgage is paying around $5,000 a year less in mortgage repayments than when Labor came to office.

I mentioned before; investment. We shouldn't forget that there is more mining investment to come which gives our economy time to rebalance and respond to lower interest rates so you can see this here.

Capital expenditure set to lift further in 2013-14

A lot of the discussion that we had at the end of last year may have given people the impression that mining investment wasn't continuing in a strong way. Well, it is. The debate is out there about where that peaks and begins to come off. The really good thing about the figures today is that we're beginning to see that export phase ramp up, the production phase ramp up, and even given all of that there's still relatively strong investment in mining to come but the other encouraging thing in this data is the slight tick up in non-mining investment as well.

So this transition, which has the chance of being difficult for some sectors, particularly given the fact that the dollar remains stubbornly high, we are beginning to see investment in a number of non-mining sectors , particularly in service industries. So the picture outside of mining is more complex but there are certainly an encouraging set of figures and of course we do know a high dollar weighs particularly on other sectors such as manufacturing.

So, in summary, real GDP remains solid but we're not immune from what has been going on elsewhere in the world and there is one particular feature of the data that I want to spend a bit of time on today and I spent a bit of time talking about this when I addressed the Australian Business Economists in Sydney over a week ago because factors such as the difficult global conditions that we're facing and the higher dollar is having and the higher dollar is having a huge impact on prices and incomes in our economy and it's driving an unusual divergence between real and nominal GDP.

Nominal GDP is the dollar value of production. It only grew by 2 per cent through the year, remaining below growth in real GDP. This is a rare event. It's not something that has happened many times in our recorded economic history; it's very rare. This is the first time we've seen through the year nominal growth fall below real growth for three straight quarters. That's never happened before. Now, one driver of this gap, if you like, between real GDP growth and nominal growth is the sustained high dollar and the terms of trade. On the one hand, the sustained high dollar hitting the profitability of many of our companies and of course on the other, the falling prices for many of our commodities meaning that profitability is further eroded at the same time. Over and above that, we are seeing subdued price pressures elsewhere in the economy and these factors combined are driving this large gap, if you like, between real GDP growth and nominal growth.

Why is that important? Because we all live in the nominal economy. The profits that are made, the prices that are paid and the incomes that are earned are all part of the nominal economy. Of course we can see part of the outcome in the data today. Its put pressure on profits which fell by 3.4 per cent in the quarter and that has contributed to subdued growth in prices across the board and of course, as I said at the ABE speech the other week, it's also hit our revenues, which are already down by around $6 billion since MYEFO. As I said before these downgrades will inevitably impact beyond the current year.

So these are some of the challenges, but the point I want to make is that we have a lot going for us in this environment. We've got solid growth, low unemployment, contained inflation, low interest rates a significant investment pipeline and an economy which is well ahead of most other advanced economies. Now all of this has been achieved in 2012, because we're looking back here and that was a particularly difficult year for the global economy. To have come through that year with growth around trend, I think is something we can all be quite proud of.

In saying that, it's not to say that everyone in our economy is on easy street, or that the sustained high dollar isn't bearing down on parts of our economy and making life very difficult for many businesses and their employees. Those are all a feature of our economic environment as well. I don't think you should look past what we have achieved over this past year in particularly difficult circumstances. Throughout all of this time, through the past five years, we've held our nerve and we've got the big calls right. Of course, that's important if we're going to lay the foundation for putting in place the future reforms which will deliver enduring prosperity as we go about maximising the opportunities which flow from growth in the Asian Century. What that is all about is investing in our people, investing in infrastructure to ensure that we are in the best position to grasp the opportunities that will flow.

From time to time we'll hear the usual suspects and those who are out there who want to talk our economy down but I think all Australians have contributed to this result and be proud of it. These numbers today will mark 21 continuous calendar years of growth for Australia, which is a record unmatched by any other advanced economy over this period. Why's that? Because over a 30 year period governments have put in place the sort of policies which have supported our economy, put in place the reforms which have built the prosperity for the future. Those policies, combined with the Government's response through the Global Financial Crisis and the global recession have put us in a position to go forward and maximise the opportunities of the Asian Century. Just as it was the big reforms of the past that got us to where we are, it will be the big reforms of today that drive the opportunities that will flow to this country from our region. I think you can look no further when it comes to the sort of policies required than that than the school improvement program which has been put forward by Mr Gonski. The Government will remain focussed on driving growth and driving opportunity. Over to you.

JOURNALIST:

Treasurer, as you say, the report shows that the economy is growing at trend. It is also showing the hit to nominal growth got a little less in the fourth quarter. Does this report indicate at all that we could still get to all that we could still get to a surplus?

TREASURER:

When I gave the speech in Sydney a week or so ago, I made the point we've seen substantial write-downs from MYEFO of around $6 billion. The Government was aware of the possibility of write-downs of this magnitude when I made my statement just before Christmas. I said because of revenue write-downs, we're unlikely to come back to surplus in 2012/13, and everything we've seen from the revenue figures since then indicates that that task is difficult. The Government remains absolutely committed to our medium-term fiscal strategy which is putting forward surpluses on average over the economic cycle and we will put that in place as we go forward and bring down our forecasts for the Budget in May.

JOURNALIST:

Does it presume, Treasurer, that, given you're talking about surpluses on average over the cycle, does it mean you'll be able to forecast a surplus at some stage in four years of the Budget figures?

TREASURER:

Let's bring down the Budget and let's talk about all of those issues then but I want to make a couple of points. The Government already has in place a very substantial fiscal consolidation. A fiscal consolidation which is quite important and one that we committed to as a consequence of putting in place a set of policies to make sure we strengthened our economy in the face of the global recession. We have a very good track record of making structural saves in our Budget to make room for new policy priorities. Our objective will be fiscal settings which support jobs and growth and are consistent with that medium-term fiscal strategy

JOURNALIST:

Treasurer, can you meet the forecast you've made for the last two to three years of Australia being in a no net debt position by 2021?

TREASURER:

All of the forecasts will be laid out in the Budget, as you're aware. When those forecasts are there we'll have that discussion then.

JOURNALIST:

That forecast you've had for two or three years, you promised for two years to deliver a surplus this year.

TREASURER:

And I indicated at the end of last year that conditions had changed fundamentally, that this divergence between real growth and nominal growth was causing a very substantial hit to revenues, that to cut any further in 2012/13 would hit growth and produce higher unemployment and that wouldn't be the responsible thing to do in those circumstances. We will always put in place the fiscal settings consistent with our medium-term fiscal strategy that will support jobs and growth.

We've got public finances in this country which are in good nick, and the key to having good public finances is to make sure your economy keeps growing solidly and generating jobs. We've seen what austerity for austerity's sake has done elsewhere in the global economy and I look no further than the sort of unemployment outcomes you're looking at elsewhere in the developed world.

JOURNALIST:

Treasurer, we saw interest rates remain on hold. Do you think in light of these national accounts we could see interest rates fall further this year or do you think they're about right?

TREASURER:

I just refer you to the statement made by the Reserve Bank board yesterday which provided guidance and advice on how they saw the economy. It's fair to say that overall that was a more optimistic statement than I've seen in some time and it also indicated the attitude of the Reserve Bank to the future of rates but I don't speculate what about they'll do in those circumstances. I refer you to their statement.

JOURNALIST:

How confident are you or what is your information about what's likely to happen with exports over 2013, how sustainable is growth of that sort?

TREASURER:

Whilst you're right to point out that net exports did make a very substantial contribution to growth, I don't think we can then just do a calculation and say the result was all due to net exports.

JOURNALIST:

(inaudible)

TREASURER:

No, it doesn't show that at all. In fact, we do need to go through and look at the contribution that has been made from consumption. Consumption in this quarter was modest but nevertheless it made a contribution and over the year consumption is looking at 2.8 [per cent]. Dwelling investment made a contribution, that should not be ignored. Business investment made a contribution, that can't be ignored and in fact if you go and look at the CAPEX data it was as good a set of CAPEX figures that you will ever see in this country that came out last week because I think it belied some of the commentary that we've seen about future investment in our economy and I had the graph up there before.

If you take all of those things into account you can't say oh well we won't count what's come from dwelling investment, we won't count what's come from consumption, we won't count what's coming from new investment and say as a result of that calculation it's all net exports. Admittedly it is a very strong contribution in this quarter and that's encouraging because as I said before it's an indicator that we are moving into that production export phase. One more point before I finish on what Tim said, also –

JOURNALIST:

What about 2013?

TREASURER:

I'll come to that but we have to first of all get the balance right in the December quarter. We also had detraction from growth of inventories, you might recall that in the quarter before it was positive. That can be volatile, so there was a head wind in these numbers from inventories as well, but 2013, given what I know about the CAPEX data that I saw given what I'm hearing on the ground it's fair to say we can be cautiously optimistic about that. I have probably not seen a better time where we've had a little more optimism in a global economy at the beginning of this year than we've had last year or the year before so I remain hopeful that in the US they sort out some of the challenges they've got there, the outlook for China is solid, and those things combined I think can give us cautious optimism about the year.

JOURNALIST:

Treasurer, you just showed us a big chart of mining investment, doesn't that show that 457 visas are vital to the continued expansion of the economy? Is there any evidence that 457 visas are driving down wages?

TREASURER:

The first point I'd make is that as a Government we've always been committed to ensuring that Australians get the opportunity to apply for jobs in the Australian economy. And every time we've sat down at Budget and looked at our calibrations about the skilled migration program and so on, we've always taken into account the fact that at various times there will be a requirement for temporary importation of skilled labour as well as the permanent important of skilled labour.

The purpose of 457 visas is to fill shortages which can't be filled by Australians who are a qualified and willing and able to do the work. So that's the objective of the 457 program and that's the objection the Government supports. But what we don't support is occasions where it is clear that Australians are not getting a fair shot at getting into some of these jobs, they are being filled by people through 457 visas and that is not correct in terms of the objectives of the program. The Government is saying we need to take some action in that area where that is happening.

JOURNALIST:

(inaudible)

TREASURER:

I can give you my own personal evidence of this which is I am frequently approached in my electorate by people who I know to be quite well qualified, hardworking Australians, who are looking to get jobs in certain sectors and find it hard to actually get there. My summation of this is that there is a bit of a problem in parts of the mining sector where Australians are not necessarily getting a look in first as they should where they are appropriately qualified and willing and able to work. It's not only the mining sector where this is an issue and the Minister's following through and has made some commentary about those matters.

JOURNALIST:

Treasurer, we saw a record high for the Dow Jones overnight. You mentioned the global economic conditions, do you think that's a very good sign and what do you say about that record high in the US?

TREASURER: I'm cautiously optimistic about the US economy growing. There's a lot of commentary around from time to time about trends in the global economy. I think the US is in a better position this year to grow faster than it's been in for a long period of time providing Washington sorts out some of the big calls that are yet to come. That will be good for the global economy and it will be good for our country as well.

JOURNALIST:

Do you see the underperformance in the nominal GDP over the last two quarters continuing in the March and June quarters of this year?

TREASURER:

I think you could say that what we've seen over three quarters could well be a feature for a little time to come.

JOURNALIST:

Treasurer, beyond your anecdotal experience about people with 457 visas, or people who are well qualified for the job. We found out today that the number of employers who abuse the visa program has steadily declined over the last three years. Why now crack down on these foreign rorters if this overall number has been steadily declining?

TREASURER:

This is an issue that the Government has been talking about for some time and I reject your characterisation. It's entered public debate now but I've been talking particularly to the Immigration Minister about these matters over a period of time and there's a general concern about it so we're going to address it.

JOURNALIST:

What's your response to Pauline Hanson's endorsement of that view?

TREASURER:

I've just explained the purpose of a 457 program and I think it's an important program provided it's not abused. And that there's nothing wrong with saying that Australians should go first when it comes to job opportunities generated in industry here, if they've got the appropriate qualifications and are willing to work. That's a common sense observation from the Government and I would have thought wouldn't be contested by anyone who is an Australian through and through, think it's only right that Australians get a fair go in our economy.

JOURNALIST:

Can you explain about this new building construction thing where the ABS hasn't published figures for data confidentiality reasons?

TREASURER:

I was a bit puzzled by that too.

JOURNALIST:

Do you have any information?

TREASURER:

I can't shed any more light on that. I can shed a bit more light on the issue of the purchase by the Victorian Government of a private infrastructure project which is something that is impacting on the data that we're looking at here.

JOURNALIST:

(inaudible)

TREASURER:

That distorts investment data, that's why you should just look at the new business investment figures that are there. I can't shed any light on it but I can assist you later to do so.

JOURNALIST:

Mr Swan, are you concerned about politicians doctoring transcripts, there's been allegations levelled at Mr Hockey?

TREASURER:

I think it's just extraordinary not only that Mr Hockey has doctored a transcript and if you like sought to hide the evidence but what this is really about is the issue and the issue is this: his view is that it's OK to withdraw or cut or to take away a tax cut from 7 million Australian workers.

What was the issue that he doctored the transcript on? He said basically that $3 was all that most Australians who were benefiting from that tax cut were going to get. Well, a lot of Australians were going to get a lot more from that tax cut than just $3. He might be able to doctor a transcript but he can't wash away or whitewash their attack on the living standards of 7 million Australian workers – and that's the crime. The substance of the crime is the Liberal Party's attack on 7 million workers who are receiving a tax cut from this Government with a very substantial reform which means that low paid workers don't pay a dollar of tax until they get $18,200, they're going to rip it out, he sought to doctor the transcript to hide that fact and his acute embarrassment at his characterisation that it was only worth $3 when in fact for many people, the vast majority of people, it's worth $300 and above.

JOURNALIST:

Just on the BCA, the external review on spending. Wouldn't that help public confidence about how we're going to fund things like NDIS and Gonski?

TREASURER:

We've had this concept of an external review on full display in Queensland over the last week. The Commission of Audit put in place by the Queensland Government and headed by one Peter Costello has been nothing more than an excuse to try and provide a rationale for slashing and burning health and education across the state of Queensland. The consequence of that audit has been the loss of up to 20,000 jobs in Queensland and over 4,000 within health. I think that what we are seeing here in this sort of discussion is a combination of suggestions, and I'm not necessarily saying this is where the Business Council is coming from, but the so-called Commission of Audit that Mr Abbott has spoken about is all about hiding the truth of their future agenda from the Australian people until after the election if they are elected. The brutal truth of their program will be massive cuts to health and education just like Campbell Newman has done in Queensland and I noted last week that Mr Abbott went to Queensland and he endorsed that approach and all of the outcomes of the Costello audit and I think that speaks for itself.