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

5 June 2013

Press Conference

Canberra

SUBJECTS: National Accounts; Budget; Parliament

TREASURER:

Good afternoon. I think Australians should take confidence from another solid GDP outcome, with an economy that continues to outperform the developed world. GDP grew by a solid 0.6 per cent in the March quarter and by 2.5 per cent through the year. This means that the Australian economy grew faster than almost every advanced economy over the year, and three times the OECD average.

Chart: Through-the-year real GDP growth

So today's result I think really does shine a light on the resilience of the Australian economy in the face of challenging global economic circumstances, and also in the face of some very significant transitions at home. It comes at a time when the euro area is enduring a longer recession than it experienced during the Global Financial Crisis, having entered its sixth straight quarter of negative growth. In fact, nine out of 23 advanced economies that have reported March quarter results contracted in that quarter, and many others continue just to limp along. So you can see that Australia is doing very well compared to many other developed economies.

This also comes at a time when the high dollar continues to bear down on many of our industrial sectors, making the transition towards non-mining sources of growth more difficult. But unlike other countries we face these challenges from a unique position of strength. Few countries in the world can boast a unique combination of solid growth, low unemployment, contained inflation, a triple A rating and record low interest rates. And as we can also see from this chart, the economy has continued to outperform over the past five years. Remarkably, our economy is 14 per cent larger since when the Government came to office, outstripping every major advanced economy. It's important to bear that in mind when we evaluate our quarterly results, we've got to look at them in the overall context. This says something special about the resilience of our economy and our people.

Chart: Australian economy outperforms

Now I just wanted to go through some of the individual figures. As I said, GDP rose by 0.6 per cent in the quarter; 2.5 per cent over the year. This reflects a large contribution from net exports and solid growth in consumption. Net exports contributed one percentage point to growth, the strongest contribution for four years. This partly reflects the transition that I've talked about in the Budget and on many occasions that's taking place from our resources sector to our non-mining sector. In particular, reflects the transition in the resources sector itself, from an investment construction phase to a production and export phase. Export volumes contributed 0.3 percentage points to quarterly growth and are now up by a strong 8.1 per cent over the year. If you exclude the post-GFC bounce, this is the strongest annual growth in export volumes in well over a decade. This was largely driven by a strong rise in non-rural commodity export volumes, which are up 13.2 per cent over the year. While quarterly growth can be volatile, we expect export volumes will be a key driver of growth and productivity as we go forward. We see in these numbers further evidence that we've broken the back of the weak productivity growth that we inherited from the Coalition, with productivity growth remaining above trend over the year at 2.0 per cent.

The jump in net exports was also driven by a large decline in import volumes, with capital imports falling by 12.3 per cent in the quarter. This is consistent with a decline in new private business investment – which fell 4.3 per cent in the quarter – and largely reflects the lumpy and capital-intensive nature of big resource projects. While the investment phase of the mining boom is near its peak, we shouldn't forget that mining investment is lumpy quarter on quarter and is set to stay at high levels for some time yet. As the figures show, new business investment is still around 50-year highs as a per cent of GDP - at 17.5 per cent. There's also more resource investment to come, with an investment pipeline of $268 billion at the committed stage. This shows we're continuing to convert the terms of trade boom into a massive expansion of investment and enduring export capacity. Nevertheless, there's still patchiness in parts of the economy, but that isn't surprising given the continued strength of the high dollar and gradual transition towards non-mining sources of growth. This transition was never going to be seamless, but it's encouraging to see that lower interest rates are continuing to support activity in non-mining sectors.

For example, new dwelling investment was up 2.2 per cent in the quarter and 10.2 per cent over the year,which is the strongest annual growth in 10 years. Forward indicators point to a further recovery in housing construction, with building approvals up 27 per cent in the past 12 months. Of course, while consumers remain cautious, low interest rates have boosted household incomes, with consumption strengthening in the quarter. As you can see from this chart, which comes from last week's Capital Expenditure survey – it points to further growth in business investment from already high levels, and that is quite encouraging.

Not just in mining, but also in the non–mining sectors. It shows that upgrades to mining investment intentions in 2013-14 are continuing, but it also points to encouraging signs of improvement in parts of the non-mining economy. All of these figures are consistent with our Budget forecasts. Of course, going forward, record low interest rates will continue to benefit families and small businesses right across the country. So I think in summary, when you look at today's National Accounts, I think they are a reminder of what Australia has achieved over the past five years, and a reminder that we can face the future with confidence.

As usual, there'll be commentary from predictable quarters that tries to put the worst possible gloss around every one of these figures– and I look forward to reading all that tomorrow. But I think what is most important is we examine the facts and these figures and analyse them in their correct context. We have an economy in transition, we have a high dollar which is making this transition harder.But we'll see the doomsday predictions that people will have when they look at these figures, but the reality is, the Australian economy is in good shape and it's handling these transitions very well. We've come through the biggest investment boom in our history and we've come through that with contained inflation and record low interest rates. That is an incredible achievement. We've come through the worst global conditions in over.80 years; we've got an economy 14 per cent larger than it was at the end of 2007, and we've got an unemployment rate with a five in front of it. That is a unique combination of economic strengths that put us in a very good position to meet the challenges posed by the transition. The transition within the mining sector itself, from investment in construction to export and production and the transition from mining to non-mining growth within our economy.

Our economy remains a stand out in terms of the developed world. We are in a very strong position to maximise all of those opportunities, which is why our recent Budget was so important. Getting the big economic decisions right for the future, to make sure we continue to grow in what is a challenging global environment and I might just note that overnight we've seen a speech from Christine Lagarde; sherefers to a potential soft patch in global growth. The point I want to make is that our recent Budget was focussed on growth and jobs, making sure that we supported our economy as we went through these two transitions I've talked about as well as meeting the challenges posed by global economic uncertainty and volatility in the global economy. Our fiscal settings have given the Reserve Bank the room to adjust interest rates to the point that rates are record lows and stimulating the non-mining sector. We have put in place a Budget which will support growth in the face of revenue downgrades, precisely because of the uncertainty that flows from the global economy and the transitions we are going through and making sure we are putting in place the big investments for the future, such as the NBN, better schools and infrastructure. All of that comes together as part of our response to the challenges our economy faces in the future.

Our Budget expressed a very clear position and preference for economic settings supporting growth which is why we are taking a little longer to come back to surplus, because we understand the challenges we face both domestically and internationally from the global economy. Now is not the time for our economy to face severe and savage cuts in key areas of expenditure such as health and education and infrastructure. But it's precisely the wrong way to go given the circumstances our economy faces. It doesn't need a sledgehammer taken to federal government spending in the circumstances that I've outlined. So this Government will continue to put jobs and growth first to make sure that the Australian economy continues to meet the challenges of the future and be stronger and smarter as a result. Over to you.

JOURNALIST:

Mr Swan, you talked a lot in the lead-up to the Budget about the gap between nominal and real GDP, in fact that nominal GDP is below real GDP. It seems to have swung back into the positive with this set of numbers. Are the figures positive enough to be consistent with the Budget forecasts or are there concerns that nominal growth –

TREASURER:

The real GDP figures are consist with the Budget forecasts but the nominal figures are a little weaker actually than our Budget forecasts. Trend nominal is up around five [per cent]. Real GDP trend growth is around three [per cent]. It's encouraging to see nominal come back but it is a little weaker than we had in our Budget forecasts.

JOURNALIST:

What does that mean for the revenue in that case?

TREASURER:

First of all real GDP growth is consistent with our Budget forecasts. There have been a number of other changes since the Budget came down; the dollar has come off quite substantially so it will be early to be making a call about what it meant for the revenues over the next 12 months - I think that's just premature. I would point out that one of the real factors that is impacting on our economy at the moment is a lower dollar which has come off since we brought down the Budget and what will also have impacts over the longer term. How long it stays down is something for the markets. But if we step back and just analyse what we have seen today, which is strong growth in exports and strong expectation that growth and exports is going to grow. We have a pretty solid consumption as well as some lumpiness if you like in investment, particularly in some states. A sustained depreciation of the Australian dollar in those circumstances would be a very good thing to further stimulate growth in the non-mining sector.

JOURNALIST:

Treasurer, you have described these figures today as an incredible achievement and you seem quite proud as you have gone through the various economic indicators of the Government, that some others in your position might have been tempted to describe as a 'beautiful set of numbers'. Why do you think that the Government is not getting the credit from voters and in the polls and in all the various ways things are measured for the low interest rates, the low inflation and low unemployment. Why do you think the Government's message not getting through on those issues?

TREASURER:

First of all, I am happy to answer that question but can we just actually deal with the GDP numbers first and then I will come onto general questions. Getting so quick to a question like that may actually demonstrate part of the challenge that we face.

JOURNALIST:

Treasurer, on state final demand, WA has had its biggest contraction over the last quarter since the 82, 83 recession. Do you believe it's a one-off and that it will stabilise or is the slowdown in the resources sector –

TREASURER:

If we could get the Capex graph back up, what we have seen is there is a number of large projects which have been completed, that is evident in the data. There are further projects which are at the committed stage but haven't yet commenced, then there are others that may go to a committed stage or the final investment stage. What you're seeing principally in the case of WA is the impact of lumpiness, particularly when you look at on a state-by-state basis. WA is so big in mining, what you're actually seeing there is a couple of things: one is either this year or next we are at the peak of mining investment, I think everybody agrees on that. What you see in the Capex figures it is a general plateau, it is not a cliff as it has been portrayed in some of the public discussion. Even on mining, and Western Australia is such a large part of that story, there is still optimism but you may just be seeing the impact of the lumpiness. The other interesting thing in there is the slight tick-up which has a greater impact than the shape that the line would indicate in non-mining as well. WA is a demonstration of the transition that we are making which is amplified in WA because mining is such a greater proportion of the economy.

JOURNALIST:

Domestic demand contracted in the quarter. While the economy is doing well from the point of view of exports, the domestic economy seems to be far from healthy really. What is Government's response to that? How does the Government feel, can they do more to support domestic demand? Does it think that - do you see light at the end of the tunnel?

TREASURER:

We are involved in a transition from mining sources of growth to non-mining sources of growth. That is why the monetary policy settings of the Reserve Bank are so important. I went through a range of data, particularly when it comes to dwelling construction that indicates that handover is happening. It is not necessarily as fast or as big, as we would like it, but let's go to the other component of the domestic economy which is consumption. Consumption is solid, a bit below trend, but also the savings ratio, you may have noted is still high. We are experiencing a transition in an environment where Australians are still saving a significant amount of their income. In that environment to get the sort of consumption outcomes we are getting is not too bad I reckon. It makes it hard for many of those sectors which are really dependent upon consumption to operate a model that they had prior to the Global Financial Crisis.

Our savings ratios are up, people are going to be borrowing less and people are spending less and some in discretionary areas - that impacts in parts of the non-mining sector and parts of retail. A really interesting thing in the data, if you actually have a look at some of the sub-heads in here, you will see that, I think it is furnishings and I forget the full title - furnishings and something or other - that go into houses is up significantly which reflects the investment moving into housing construction. We are starting to see some of that come through but there is no doubt that for a significant period of time, many of those sectors that fed on very significant spending in the consumer sector and discretionary areas have done it tough and they will continue to do it tough in some ways as a consequence of an elevated savings ratio.

JOURNALIST:

Mr Swan, last week Martin Ferguson said that Australia could experience a second pipeline of mining investment if the right policies were followed. Do you agree with that?

TREASURER:

It is a fact. That is what the Capex figures actually show. It shows the expectations of investment. We've still got $268 billion of investment in committed projects in that pipeline. That is still very big. It will come off but there are any projects on the drawing board that may or may not go ahead depending on a whole range of factors. The biggest factor in the last twelve months or so that has really inhibited people… sorry, there's two significant factors, one is the level of the dollar is impacting and the second is the view of many mining companies that they weren't getting value for their money in terms of investment because they prioritise speed of construction over value for money. You can sit down with any number of these senior executives in the resource sector and go through all the various components of that. They are certainly looking at how they can get their projects going in a more cost-effective way but there is still plenty on the drawing board. That is precisely what the Capex data that came out last week shows.

JOURNALIST:

What does the Government need to do enable that –

TREASURER:

Everything that we are currently doing. Making sure we have a productivity agenda, making sure we get the sure environment right. Continuing to work with the industry to make sure many of these projects go to final investment decision. There has been a lot of publicity about projects that haven't gone ahead but a lot weren't in the pipeline or counted, some of them were. There is no doubt there is a challenge. There is competition more vigorously from other areas of the world as well. We have to be out there and competing for it, yes I agree. What that diagram tells us is there a reasonable significant expectation of further investment as we go forward.

This public debate is conducted as if investment is falling off a cliff, it is just not in the mining sector. Yes, there are challenges and of course mining and commodity prices and terms of trade are also very dependent upon a healthy global economy and demand that comes from elsewhere in the world. There are plenty of swing variables which impact whether projects go ahead or don't go ahead.

JOURNALIST:

You said it would be a good thing if there was a sustained fall in the dollar or depreciation in the dollar (inaudible)?

TREASURER:

I don't speculate about the pathway of the dollar or what its individual value is of any one day. I have always said that I thought the Australian dollar would start to come down when the US economy started to grow more strongly. Indeed that is largely what has occurred in recent times.

JOURNALIST:

What about the sort of concerns about how certain countries might be manipulating their currencies?

TREASURER:

We believe in market-based exchange rate regimes and we lobby vigorously for them as we interact with our colleagues through the G20 and other regional and international forums.

Do you want me to go back to yours? Is there anything else on the GDP?

JOURNALIST:

I could argue these flows from the GDP. I'll just recap - you said this was an incredible achievement and you went through the various indicators, I won't repeat them all again, but you're proud of them but previous treasurers might have been tempted to say they were 'a beautiful set of numbers'. Why then do you think that the Government is not getting any credit for this and do you agree with your QLD colleague that the Government is in more trouble than Indiana Jones?

TREASURER:

First of all I make the point that I wouldn't be standing here today if it wasn't for the fact that the Australian people believe that the actions we took during the Global Financial Crisis stopped this country going into recession. It has provided the underlying strength for the figures we are seeing here today. If we didn't do what we did back in 2008 and 2009, we wouldn't be sitting here having a conversation about an economy which is 14 per cent larger. If you were to listen to the Opposition who opposed significantly the stimulus measures we put in place and were arguing then for cuts to programs, as they are arguing now, we could well be in a significantly worse position if those sort of policy positions had prevailed.

Secondly, during this term the Government's taken on some very big tough reforms and in so doing, we have had some paint stripped off us. No doubt about that but we had the guts to put in place carbon pricing, one of the most significant reforms. I read in one of the papers the other day someone had written an article saying that neither carbon pricing or the MRRT were part of the Henry Review of the tax system. They were in fact two of the Henry Review's most significant recommendations for reform in our economic system - and we have done both of them. The point I am making is this has been a Government that has put in place significant reforms and we have done it in the face of probably the most negative Opposition in the history of the country, but we've done it for the right reasons.

When we get down to the business end of this term of this term of Parliament, we are in an electoral fight. We can win and it is a fight we must win. Because incredibly, despite all the evidence that is emerging from Europe of the failure of austerity, that the Liberals under Tony Abbott are arguing such a policy for sharp and significant cuts to public expenditure in the middle of global uncertainty and these transitions that are taking place in our economy. All that would do would be to hit jobs to hit growth, to hit employment security and it would fail to put in place the big investments for the future that we need to ensure, that we make these transitions, particularly through our investment in education.

JOURNALIST:

Mr Swan, do you agree with Laurie Ferguson's assessment that the Prime Minister needs to get personally involved in the asylum seeker debate or the Labor Party is dead in western Sydney?

TREASURER:

I certainly think there are some significant issues in this area and of course we're coming up, I think, to almost the 12 month anniversary of the appointment of the Houston Committee and only months away from [the anniversary of ] their recommendations. And those were recommendations that the Prime Minister worked with that expert committee on and when we took them to the Parliament the Liberals wouldn't support them and they effectively sunk a significant part of the Houston recommendations which came as a package in terms of discouraging the people smugglers and people jumping on leaky boats.

She been full bore in putting in a comprehensive response to stem the flow which has now been substantially impacted upon by new push factors elsewhere in the world. We will continue to do everything within our power to put in place a full suite of policies which stem that flow, not just to save lives, to make sure that we have some (inaudible) to everything that we do in this area.

JOURNALIST:

The Malaysia solution wouldn't do much at this stage, would it? It's only 800 people?

TREASURER:

But the fact is if it was part of a package at that stage it would have had a dramatic impact and it was sunk by the Liberal Party. The Liberal Party, the best friends that people smugglers have ever had.

In sinking that policy when they did that they really tore a hole in an important set of recommendations which were meant to come as a package. And since that time they've maintained this farce and this fiction that somehow they have a policy that would resume boats to Indonesia and that lie has been exposed time and time again by statements from the Indonesian Government and more recently from the Indonesian Ambassador.

JOURNALIST:

You just made some comments… how would you describe as the ill-discipline of some of your colleagues in recent days?

TREASURER:

The public who elect us expect us to come here and to deal with the big issues that I've been talked about today – jobs, growth, jobs security, education for their kids and I think it's about time a few people that are out there just put a sock in it to be frank.

JOURNALIST:

Like who?

TREASURER:

We don't need to focus on our internals, people want us to be focused on the big issues which matter to them.

JOURNALIST:

Can you win Lilley Mr Swan?

TREASURER:

Of course I can win Lilley, but I don't take it for granted and when newspapers publish made up polling without any authentication of the data, it's a partial answer to Phil's question before.

JOURNALIST:

What about there seems to be a perception, I mean the Victorian branch seems to have written off the tthree most marginal seats?

TREASURER:

Hang on a minute. What the Australian public want us to get on with the job, and I mean us collectively, I mean the whole Parliament, is to be out there talking about the issues that matter to them. They don't want us out there calling the election based on any number of bodgy polls, briefed out reports of what may or may not be happening, none of them authenticated, made up stories, all sorts of guff that sorts of parades as if it's analysis. They don't want that. I don't believe the readers are interested in it and certainly the public are not interested in that. They want to see a contest of ideas and a debate that matters to them. I' m here today talking about perhaps the most important debate that matters to Australians - the future of our economy, jobs, job security, funding the investments for the future and that's what I think they're interested in and with those few words I'm off.