TREASURER:
The National Accounts released today showed the economy grew at 0.3 per cent in the September quarter and 2.7 per cent over the year. These figures represent the first 12 months of the Coalition in Government. During the corresponding 12 months of the previous Labor Government, annual growth was just 1.9 per cent. The National Accounts are obviously backward looking. Whilst the September figures are weaker than market expectations, 0.3 per cent is only marginally lower than what we were expecting as a result of the transitions in the economy.
These National Accounts reflect quite starkly, the resources sector switching from significant investment to significant production. Export volumes have been strong. Net exports are strong. Iron ore production in particular has picked up more strongly than expected at Budget time. However, prices for iron ore and thermal coal – two of our biggest exports – have fallen dramatically in recent times.
More broadly, the National Accounts show that the transition from a mining boom to broader based growth is also well underway. Over the last 12 months we have seen a pickup in consumption growth, although there is some way to go.
Even though in September – in the September quarter, dwelling investment was disappointing, this is a volatile series. Over the year, dwelling investment growth has been strong and forward indicators point to this continuing.
Nominal GDP fell in the September quarter. This was driven by significant falls in commodity prices. As I have said before, this has implications for the Budget. Real gross domestic income has now fallen for two quarters. This reflects the larger than expected fall in the Terms of Trade. It should be noted that we have had similar falls in the past six years.
These National Accounts show that it is important that we continue to implement policies that stimulate growth and create jobs. In the first two weeks of the September quarter, we abolished the Carbon Tax and electricity prices fell. This importantly reduced energy costs for businesses and households. Reduced energy prices helped mitigate the impact of lower income for households. Lower energy prices also helped businesses better cope with the impact of a stubbornly high Australian dollar.
I note that the Australian dollar has fallen significantly in recent times. This is much welcomed. It helps to cushion the economic impact of falling terms of trade. A lower exchange rate is an important driver for rebalancing growth across the economy. New business investment continued to fall in the quarter as resource investment fell. Thank goodness we abolished the Mining Tax, which was a disincentive for new investment across that sector.
It has been vitally important that, over the last 12 months, we have accelerated approval for over $1 trillion of investment outcomes through 300 newly approved projects across the country. Looking forward, business conditions have caught up with growing business confidence and our Free Trade Agreements will support a pickup in growth across the economy. This will be of particular benefit to the services sector, which represents 70 per cent of our economy but just 17 per cent of our exports.
Clearly the decline in public final demand is linked to a decline primarily in state government spending. These National Accounts confirm the necessity for the delivery of our plan to significantly increase infrastructure spending over the next few years. We expect the States to help us roll out this new productive infrastructure as quickly as possible. This will support growth and jobs in the short and medium term and it will lift our nation’s productivity.
So ladies and gentleman, these National Accounts confirm that when it comes to the future of the Australian economy, complacency is our enemy. Doing nothing on economic reform is not an option for our country. This Government is determined to continue to deliver its Economic Action Strategy. This involves getting the Budget under control, removing taxes, removing red tape, building infrastructure and growing trade. This all helps Australia to cope with events that are beyond our control.
Even though economic growth over the last 12 months is considerably better than the previous 12 months, there is still much work to be done. We are determined to work with the Australian people to strengthen the Australian economy to take advantage of the many positive opportunities that lie ahead in 2015 and beyond. Over to you for questions.
REPORTER:
Treasurer, the figures show that per capita, disposable income is down now 0.8 for two quarters in a row and combine that with rising unemployment, do you concede that in parts of the economy now it will be feeling like a recession?
TREASURER:
No, no I don’t because fundamentally, we are endeavouring to stabilise the rise in unemployment. Importantly, we are seeing strong export growth and the hardest part over the last few months has been that the Australian dollar has remained stubbornly high and normally that is available to cushion a significant fall in the Terms of Trade. Now, I note that the Australian Dollar fell significantly from around the middle of September until today and that is much welcomed, as I said.
REPORTER:
Treasurer, you mentioned the impact of infrastructure spending on providing a cushion; what timeframe do you think there is realistically for that to actually have some impact on growth? And secondly, what sort of impact – is there a measureable impact coming within the forward estimates period from the free trade agreements you've recently signed?
TREASURER:
In relation to the free trade agreements, obviously I'm factoring in the costs associated with the free trade agreements and the Japan Free Trade Agreement, in particular, will be reflected in MYEFO. Now, in relation to the benefits of the free trade agreements, I am going speak to Treasury about it. I am inclined to under promise and over deliver on some of those initiatives. There is no doubt, we have to grow our markets, we have to grow our markets and being able to deliver the Korean Free Trade Agreement, which the Deputy Prime Minister of Korea assured me will pass through their Parliament around about the beginning of December, having the Japan Free Trade Agreement and having the China Free Trade Agreement with more to come, particularly with the Gulf Council, potentially the TPP and India, helps us to grow the market and that lifts our export income and we have seen a dramatic fall in commodity prices, which has obviously had an impact on the Australian economy and had an impact on our nation's income but I have no doubt 2015 will be better, and beyond will be even better than that.
REPORTER:
Treasurer, is this a wake-up call on the economy and on the Budget? Will the Government take any message out of these results today and out of MYEFO to rethink any of its Budget policies?
TREASURER:
We have a plan, we have a plan that we are implementing. Thank God we got rid of the Carbon Tax, which hit at the beginning of the September quarter, and as you can see from the slides, energy consumption lifting. That is quite a stark indicator of how significant it's been. Oil prices have come down, that is going to help us as well but there is a flip side to falling commodity prices obviously, which for our exports reduces our nation's income. So, our plan is kicking in; getting rid of the Carbon Tax, getting rid of the Mining Tax, stopping the industry assistance, which helps with the free trade agreements. Getting on with the job of structural repair of the Budget. I mean, I took a view in forming the Budget that this year would not be as strong as we would have hoped originally. Therefore, we could not go harder or should not go harder for this year and next year in particular, in relation to cutting the Budget in May. I took that quite obvious decision, but what we did in the May Budget was put in place structural reforms that strengthened the Budget over the medium term – get us back to sustainable surplus. We didn’t go as far as some people wanted us to go and for some, they argued we went too far, but we got it right and that is proven by these numbers.
REPORTER:
Mr Hockey, how much harder has that process of structural reform of the Budget and bringing the Budget back to surplus been made by things like Christopher Pyne giving away a couple of billion dollars’ worth of savings in the higher education bill, in order to try and compromise with the Senate?
TREASURER:
Well, there are swings and roundabouts in relation to, for example, the Mining Tax. We had to negotiate very hard to get that through and that is something we promised. I mean, I'm rather bemused by this lecture from our political opponents that somehow if we don't have a mandate we shouldn't put it to the Parliament, because they're rejecting our proposals even when we do have a mandate, which is absurd. So, we now need to take action to strengthen the Australian economy and everything we are doing is about strengthening our economy, helping to drive growth and I saw this coming during the course of the year. I mean, that is why we laid down growth as a key plank of the G20. Only this morning I was speaking to a global banker overseas who gave me a rundown on some of the challenges that are being faced in international economies and Australia is in a stronger position than many of the comparable economies around the world. We have got the second highest growth rate in the G7, at the moment. Having said all of that, there are no excuses for us not continuing economic reform and I just want to emphasise, we are in our 24th year of growth. If we want another decade of growth we have to change. We have to be better at what we can do and that is exactly what our Economic Action Strategy is about.
REPORTER:
Mr Hockey, in terms of the Government’s messaging, are you worried it might sound to people out there like on the one hand the Government is saying the economic prospects are good and they should continue to spend up to Christmas, but on the other hand the Government is saying economic prospects are bad and that's why it's crucial that the Senate pass reforms and Budget savings? And can you explain why those messages aren’t contradictory?
TREASURER:
Well, the Government's income has fallen below expectations primarily because we have falling commodity prices and we have weaker wage growth, which is something that I note is affecting a number of other G7 economies. The fact is, the Australian economy is going to strengthen. It's 2.7 per cent growth year on year at this point. We expect over the medium term it will continue to grow towards trend. Having said that, we are putting in place the initiatives that are going to help to grow our economy. I want to emphasise how important our infrastructure plan is. I know infrastructure has a long lead time but what we've seen particularly in Queensland is a massive amount of redundancy in mining related construction activity; that's had quite an impact on the state figures for Queensland in the National Accounts, as it has in Western Australia but other parts of the economy like Victoria, need to get on with the job of building infrastructure. I'd say to the new Premier of Victoria, now is not the time to cancel an infrastructure project that delivers 7,000 new jobs in Victoria. Now is not the time to do it and if you need any evidence of that, look at the National Accounts today. We need to get on with infrastructure activity fast and we need to harness all the private investment of [inaudible] the corporate sector.
REPORTER:
Treasurer, do these Accounts and also your answer to David, do they suggest that there is not a strong case for fresh public sector cuts in next year's Budget?
TREASURER:
Well, we've always got to live within our means and endeavour to live within our means. We are not going to have cuts – new cuts, in order to make up for revenue shortfalls that have come about because of external challenges. We are not going to do that, that would be, in the current circumstances, quite irresponsible. We're mature about it and we are methodical about dealing with the challenges, but our plan is on track and it's proven through these National Accounts to be absolutely right.
REPORTER:
Treasurer, given we're in this sort of precarious transitional phase [inaudible] can the Government afford to wait until after the next election to move on the more structural productivity changes like industrial relations and tax reform?
TREASURER:
Well, Phil we are moving on…
REPORTER:
Well, actually implement…
TREASURER:
Sure, sure. On the weekend I am releasing, for example, the Financial System Inquiry – the Murray Report. In the next few days we'll also be having something to say about taxation reform. I'll be releasing MYEFO. Early next year we'll have the Intergenerational Report, we will have the Competition Policy Report. We have got White Papers hitting the deck in relation to Northern Australia and also in relation to agriculture. 2015 will be a year of reform, not because the Government simply wants to have that as a war cry. It is because Australia needs reform. We cannot be complacent and so many factors are beyond our control, but the things that are within our control need action now and that is exactly what this Government is endeavouring to do.
REPORTER:
Given the stress you are putting on infrastructure and the need for Victoria in particular to be building infrastructure, shouldn't the Federal Government respect the mandate of the new Government there and be flexible about the money being provided for infrastructure? Especially as you want a different Commonwealth-State relationship with more emphasis on the States?
TREASURER:
Well Michelle, one of the reasons why we put in not only $1.5 billion to make East West happen now, but we have offered another $1.5 billion for East West is because we need it to happen now. We actually need this infrastructure to be under work now – under activity now. Now, to have $3 billion plus the multiplier in infrastructure takes a lot of time and planning and takes a long process. Unless the new Premier of Victoria has ready to roll projects that it can actually make up for the loss of the East West, he is going to detract from the Victorian economy and cost the Victorian economy jobs. Now, there is a sense of urgency about what we are doing on infrastructure. One of the reasons why I set up the Asset Recycling Program, which Labor is opposing, is because I wanted to have not only new infrastructure at a state level, I wanted microeconomic reform – getting out of assets the states could no longer afford to maintain the capital in like electricity and water and so, and thank God I did it with the proceeds of Medibank Private, and why? Because that is an incentive that has changed the political and economic narrative at a state level. So, they are now getting on with the job of selling assets, but importantly, using that capital to go into new productive infrastructure and they're identifying that infrastructure but we need to move now. We can't procrastinate. There is no time to hang around and see how things go.
REPORTER:
[Inaudible]
TREASURER:
If Victoria has other projects that can move as quickly as East West, if they have got some other project that can immediately take 250 workers that are currently working on East West, then we are happy to talk but we are committed to East West because that was the deal that we signed up to, to get the jobs moving in Melbourne and they move now. Two hundred and fifty people are employed right now on East West, ramping up to 7,000 in the not too distant future. I mean, we can’t wait, we can’t wait.
REPORTER:
You have generally – well, we have got low inflation [inaudible] weak wage growth, lower than we would like GDP growth, and we want a lower dollar. Can you think of any reason why the Reserve Bank shouldn’t cut interest rates in the first half of next year?
TREASURER:
Well, that is a matter for the Reserve Bank. I know what you are asking me to do and I won’t do it.
REPORTER:
I am also asking theoretically.
TREASURER:
Well, you are asking the wrong guy, you are asking the wrong guy. Look, there are a lot of cross currents at the moment in relation to monetary policy. I mean, you have got the United States heading towards tightening – although, I am quick to emphasise, even though we welcome the United States economy doing well, it is not as broad a growth story as some think, but the fact that we went through the tapering period in the US without any significant ructions is encouraging and we will start to see some tightening obviously in the future. You have got Japan, which has gone into recession in recent months – in recent weeks, and they have had significant quantitative easing and you have got the Europeans who have also, through the European Central Bank, engaged in quantitative easing. You have got the Bank of England obviously nowhere near tightening and you have got a whole lot of moving parts in other jurisdictions. The Reserve Bank needs to think carefully about a range of different things, not only inflation, not only housing prices but they also need to think about not only the Australian Dollar, but they also need to think about some of the challenging movements in capital flows at the moment. I mean, the capital flowing out of Japan at the moment is very significant and a lot of those capital flows out of a number of other jurisdictions have come into Australia, which has held up the Australian Dollar to stubbornly high levels. So, we are starting to see some movement in that regard and I welcome – I emphasise I welcome, the Australian Dollar starting to drop a bit.
REPORTER:
[Inaudible] Medical Research Future Fund still tied to the GP co-payment?
TREASURER:
Yes, that is our policy.
REPORTER:
Mr Hockey, you said that, ‘our plan is on track’ but your plan was to return the Budget to surplus. You also said that you are not going to offset [inaudible] how would you currently define your plan for the Budget surplus? And has the timeframe changed?
TREASURER:
Well, no, we laid down a timeframe in the Budget that you know – if we have anything more to say about that timeframe, obviously we will be doing it in the regular economic updates. I am not going to fall into the trap of my predecessor – or predecessors in claiming to deliver surpluses and not delivering them. I think what we need to focus on is continuing fiscal consolidation but if we have revenue falls due to external factors, we should not chase them down with new cuts to the Australian economy, which would slow the Australian economy.
REPORTER:
If you are not going to chase those falling revenues with extra spending cuts, how do you describe the Budget bottom line at the moment? You used to call it a crisis, before the election. Is it still a crisis, is it worse than a crisis? And can I ask you: is the Budget meant to be stimulating the economy at the moment or not?
TREASURER:
Well, it depends on variations in the Budget, obviously. If you increase the deficit, it can have a stimulatory affect and if you decrease the deficit [inaudible]. From my perspective, so much of what we did in the Budget is structural. So, over the medium and long term and if we don’t do that sort of thing that is structural, then we will pay a significant price in the medium and long term. Labor locked in growing expenditure, growing expenditure against revenue that was falling, or in the case of the Mining Tax, it was two per cent of what they claimed that it would be. So, if they had the revenues rising to match their new spending, well maybe that was ok but it didn’t and as a result of that, we faced a challenge.
REPORTER:
Treasurer, the figures show that most of the growth in the past 12 months was in the first six months of that; you will need a fair pick up over the next six to nine months to get where you were [inaudible]
TREASURER:
I am confident that we are going to see greater construction in dwellings. We are seeing improvements in consumer confidence, business confidence and business expectations are back to long-term trend. You know, we want Christmas to be good for Australia, we want Christmas to be good for Australia. We want Australians to go out there and spend for Christmas, not just for Santa Clause but for Australia. We want that to happen. And why? Because increasing household consumption is good for the economy and that in turn will help to create jobs for other Australians.