TREASURER:
Thank you very much for coming. GDP grew by 0.8 percent in the December quarter to be 2.8 percent higher over the year. That's just slightly higher than what was the consensus forecast of around 0.7 percent for the December quarter. We need to do better. It means for the year we had 2.8 percent growth. You need trend growth or better of 3 percent to 3.25 percent to start to get unemployment down. That is a core focus of what we're trying to achieve.
About two-thirds of the growth in the December quarter came from net exports. The volume of exports are rising. The volume of imports are falling. That's a reflection of the transition in the Australian economy. The big mining equipment is no longer coming in because the production phase of the resources boom is nearing completion and we are now into the export - the production and export. So the construction is coming to an end. The production is now occurring.
As you can see, the December quarter numbers - new building investment is down 2.3 percent. New engineering construction; down 1.5 percent. New machinery and equipment investment is down 8.2 percent in the quarter. That's pretty much as expected. I say again, the construction in the resource and mining industry is coming off, the big equipment is coming off. Now we're into the production and export phase. What you can see out of the National Accounts is that there are some positive signs. Spending on goods and services by households was up 0.8 percent in the quarter and what you saw was a decrease in the amount of savings that households had below 10 percent for the first time in some time. Now that is a good trend. It's a positive trend. We've also had other data that would suggest that household consumption is improving. Construction of dwellings was up 1 percent in the quarter but looking forward, there is a very significant pipeline building of construction in housing. And that's, as well, going to spur, hopefully, some better numbers during the course of the year. Even though in the December quarter iron ore prices held up, the terms of trade are good, the fact is that iron ore and coal prices have been falling since December. So, more recent data would suggest that there has been a bit of a drop-off in nominal growth which can affect revenue.
So what do we do now? Well, the transition in the economy is unquestionably continuing at pace, as expected, as expected. The best thing we can do is grease the wheels of this transition. The best way to do that is to remove the taxes that are impediments, such as the Carbon Tax and the Mining Tax. We've got to get rid of the regulation that holds back businesses. We've got to free up enterprise to allow this transition to occur in a smoother and, hopefully, more rapid way to the benefit of the non-mining sector. Now everything we have in place is directed at that. We are focused on trying to free up enterprise. Removing the shackles of taxes, removing the shackles of regulation, getting in place entities like the Building and Construction Commission which can deal with some of what appear to be the embedded poor work practices on construction sites, particularly in the non-mining sectors around Australia.
We've also got room to move in making sure that, in the Budget, we have a transition from expenditure in some of the more traditional areas of government, where we can, focusing on expenditure in more productive areas of the economy, particularly in infrastructure and new productive infrastructure. So this transition is obvious - it's been obvious for years. It will continue. It will cause some strains in the Australian economy, but overall I remain positive about the outlook for the Australian economy and the trends revealed today indicate we're heading in the right direction.
REPORTER:
(Inaudible). The National Accounts suggest revenue is going to be much stronger than we saw in MYEFO. Are you feeling more optimistic about the bottom line as a result?
TREASURER:
No, I'm not. Because I see this as one quarter in relation to some of the nominal growth details. Frankly, I think there are some good signs, profitability of business is good but that may mean that they take advantage of the losses they've accrued over previous years and what we actually receive in company tax, which is our most volatile, as you know, our most volatile source of revenue arguably. The fact is that even though companies might be more profitable during this period, it might not necessarily be reflected in the level of tax they actually pay because they've got previous losses.
REPORTER:
Are you expecting, mining for example, now that it is in the production phase and exporting, to begin paying more taxes? I'm not talking about the Mining Tax.
TREASURER:
Mining companies aren't - they don't switch on and switch off with their profitability. I mean if you look at some of the major mining houses, without naming them, but they're pretty obvious, they would have been the biggest taxpayers over the last few years. Maybe, not last year but over the last few years. That's because they have consistent revenue streams and relatively consistent profitability. But as I say, iron ore prices have come off – volumes are up, volumes are good but prices aren't necessarily terrific and coal I think we're near record volumes but prices are down significantly. In fact, the prices - the current iron ore and coal prices are below our budget forecast.
REPORTER:
Treasurer you talked about the best thing the Government can do is grease the wheels for the economy, you mentioned a few things which particularly helped big business. You also talk a lot about small business. Would greasing the wheels of small business to change penalty rate rules that a lot of small businesses say is stopping them from opening on Sundays?
TREASURER:
Well, unquestionably workplace reform is, if it's done in a positive way, is going to improve the capacity of the nation to improve its productivity. Now I don't want you to be disarmed by some of the productivity growth figures here because they suggest productivity is improving and the reason why it does that is because when a mine goes into the production phase they use far fewer workers for the production than, of course, during the construction phase. The productivity figures, labour productivity figures, are a little misleading. So, how are we going to drive productivity growth? Well, there are a number of factors. Workforce participation is one. If we can, for example, encourage more women to come back into the workforce, and our female participation is lower than it should be – in fact, our workforce participation is lower than it should be. If our workforce participation was the same today as it was before the GFC, we'd have 7.5 percent unemployment rate today.
REPORTER:
Changing penalty rates?
TREASURER:
Anything we can do to free up the labour market within the framework of what we promised at the last election is going to be a positive step forward. I'm not going to get into a debate about penalty rates. That's what I did for 12 months of my life when I was Workplace Relations Minister and I’ve expunged it from my memory.
REPORTER:
Treasurer, is growth at trend or better, a realistic aspiration for 2014-15?
TREASURER:
Well if we can get some reforms through I think it is. But we need to get some change through. We need to, firstly, get some better economic data. Secondly, we need to be able to get our reform agenda through such as getting rid of the Carbon Tax to improve economic growth, as Treasury has identified. Getting rid of the Mining Tax which will send a message to the world, we are open for business. It is hugely important in that regard. Getting the Australian Building and Construction Commission back on track, which unquestionably - as we are trying to drive construction growth in the non-mining sector, the best thing we could do for building sites around the nation is ensure that some of the thuggery that has been part and parcel of disputes, whether in the middle of Melbourne or anywhere else is removed from the industrial scene. Having the ABCC on board is hugely important if we want to try and drive productivity growth. It is also the case that we need, wherever we can, to get rid of unnecessary regulation. I know my colleague Arthur Sinodinos is having an all mighty brawl in relation to FOFA. I want to back him 100 percent, because all the regulation left by the previous Government is simply making it harder and not easier to get ahead and build enterprise.
REPORTER:
Mr Hockey, regulation and Carbon Tax bring to mind Qantas. They’ve just issued a statement practically retracting their statement about the Carbon Tax they made on Monday night. Was there any pressure exerted on Qantas by your office, Tony Abbott’s office or Warren Truss’ office between those two statements?
TREASURER:
Not that I'm aware of. Quite obviously Qantas said in their report to shareholders, I think it was last week, that one of the three key factors involved in the costs increases on their bottom line was unrecovered $106 million associated with the Carbon Tax last year. I think they said this year – and if I'm right they've just announced it for the half year this year alone it is $59 million, $59 million. This is a cost that is unrecovered by Qantas, by Virgin. It affects their balance sheet.
REPORTER:
What do you make of this chopping and changing within a day by Qantas? Warren Truss was saying this morning, the Government or he was quite surprised at some of the remarks Qantas has been making generally over the past few days. Do you share that view?
TREASURER:
No – no in terms of the Carbon Tax, that’s a matter for the company. What they say is a matter for them.
REPORTER:
Have you been surprised by the statements on various things?
TREASURER:
No, it is a matter for the company to make statements. I am not going to second guess the company. That's one of the reasons why throughout this entire process in relation to Qantas, we did our homework, we did our due diligence. You don't just write out a cheque at taxpayers' expense to a business without properly going through the books of the business and ensuring that what they claim or may imply is absolutely correct. Now, we have been forensic in analysing the issues relating to Qantas and the very best thing we can do for Qantas and its workers, is to remove part 3 of the Qantas Sale Act. There is no argument about that. If anyone really does care about the future of Qantas, they will be out there lobbying hard to get changes to the Qantas Sale Act, to allow the company to get on with the job of not ceding an advantage to international and domestic competition.
REPORTER:
You said the other night that a debt guarantee for Qantas might have exposed taxpayers to a $6 or $7 billion liability. Since then, some of us have heard that it is actually could have been a $3 billion debt guarantee. I’ve talked to people who have said it would make a marginal difference to Qantas at best, maybe in terms of tens of millions of dollars to the company’s bottom line. Do you have a comment on whether that debt guarantee would have helped the Qantas bottom line much at all based on your advice?
TREASURER:
The best way we can help Qantas with its bottom line is to remove the Carbon Tax. That's the fastest thing; we can do it immediately, immediately. Secondly, it has been a to-and-fro process and it has changed, by its very nature, in a similar way to the market changing over the last few months and the nature of Qantas's own dealings with its balance sheet over the last few months. So it's not a static enterprise. At various times we have discussed things. A debt guarantee, the question would be how much of the debt is guaranteed? And with a debt guarantee, it means the Commonwealth hasn’t got any assets necessarily to fall back to if there is a default. The other option was an unsecured loan for $3 billion, an unsecured loan like a personal loan for $3 billion to put it in its most basic form, without any assets. So if it was called on, they paid interest and if an entity then defaults, well the Commonwealth Government hasn't got any assets to turn to, it basically writes off the debt, particularly given other assets might be fully encumbered, in which case you would then be in a position where you would try to work through the challenge which would be a dual challenge for the Government. On the one hand you have a national carrier and a major piece of infrastructure that has closed down. And on the other hand, you have an entity where you have an unsecured, very significant liability. There are lots of different factors at play. The bottom line is the very best thing we could do for Qantas is get rid of the Qantas Sale Act and get rid of the Carbon Tax.
REPORTER:
Treasurer, in that forensic due diligence you did, was there an estimate of the cost to taxpayers in an annual form, was it tens of millions, was it hundreds of millions?
TREASURER:
It varies on a basis of probabilities, Denis, but the bottom line is, if you give someone an unsecured loan, you work on the basis you won't see it again. That’s what I’ve discovered.
REPORTER:
What are you saying, is it going to fall in a heap?
TREASURER:
No.
REPORTER:
Was it more or less than the Carbon Tax impact that Qantas announced today?
TREASURER:
The best thing we can do for Qantas's balance sheet is to get rid of the Carbon Tax.
REPORTER:
When you did that forensic analysis of Qantas’ situation, did you conclude that either a debt guarantee or opening up the possibility for the business, Qantas to have more foreign investment would make a big difference? Like, is it really capital raising that is the company's biggest problem right now or is it other things?
TREASURER:
These are issues for Qantas. I look at it from the taxpayers' perspective. If someone comes to me asking for an unsecured loan, I'm always thinking about the impact on taxpayers, right? So that is what I was focused on. That was the advice that we sought. What would be the impact on us and, importantly, let's have a look at the company. Now, let me just give it to you. We do that due diligence, that's what a responsible government should do. Yesterday I was hoping that the Labor Party would ask me questions on this, but they didn't. So let me just answer it. Yes, we did engage people to go and have a look at Qantas, absolutely we did. We did that because they were asking us to deal with the fact that they were hamstrung in a way that others weren’t in the market place. We had specific legislation that was holding back Qantas, and therefore, because we, the Government and the Parliament, had restricted just this one company in a way that none of its competition were restricted, what were we going to do about it? Now, I said there is four points in the test. The first one it: does it have a specific piece of legislation against it? Yes. And we are seeking to remove that. That's what we need to do. But the second and third and fourth factors are still very much in play. As for what came out of the individual analyses, they are highly sensitive, commercially sensitive, but Qantas were very agreeable along the way. We said, "We're not moving unless we are fully informed about what is there, the challenges are…and so on". Now, they are matters for the company. They are matters for the company. The company has to resolve this. I would hope that the union leaders in particular would work with the company to resolve the challenges the company has, and that we do not end up in a situation where there is confrontation between the union leaders and the company that is trying to preserve, not only its, hopefully, prosperous destiny but also preserve as many jobs as possible.
REPORTER:
Is there anything Qantas can do that would make the Government revisit any of the other options that were on the table?
TREASURER:
They're not on the table.
REPORTER:
Anything Qantas can do now?
TREASURER:
The best thing Qantas can do, as it is trying to do, is get its house in order. The second thing, I would urge Qantas to try and get some common sense into Bill Shorten - I don't know if you can do it with the Greens, but I've occasionally had a victory in that regard, and Clive Palmer. So I would suggest anyone that is familiar with the situation would be wise to recognise that the environment has changed. The environment has changed - and now is the time to allow Qantas to be free to compete.
REPORTER:
Within the due diligence and those various reports, was there advice that went to what Qantas could do within itself, regardless of what you do with the Qantas Sale Act and so on, that would make it a better business? Without going into all the caveats over commercial confidence, but were there some conclusions about the way it is being run?
TREASURER:
That is a matter for Qantas. I'm not going to pre-empt what Qantas should do to run its business. You haven’t asked it, and if anyone hasn’t asked it, I’ll be quick…
REPORTER:
Treasurer, you said that today's National Accounts don't give you much good news in terms of the improving revenue, how much does this outlook, this position, put greater pressure on the Government to give the big cuts that you were talking about and the answer to the mess you say Labor left behind for the Budget in May? Are you under more pressure to cut deeper, to get some…
TREASURER:
No, we’re not going to undermine improving economic growth in the Budget. We're not going to do that. We want the economy to grow faster, to give people more jobs. That's what we want. But we are, of course, going to do everything we can to have a credible path back to surplus, so that we can then start paying down the debt.
REPORTER:
Why does the company, Qantas, so confident that they had your support for a debt guarantee right through until last Thursday? Did they misread what they were hearing from you? And on the question of Clive Palmer and the Carbon Tax, how confident are you that you can get the Carbon Tax removed after July 1? If not, what is your plan B to help the business community given that the price is due to go up?
TREASURER:
I am confident Mr Palmer and his team will support the repeal of the Carbon Tax. I only wish Bill Shorten would do it now. In relation to the first matter, we have had discussions with Qantas. We want Qantas to succeed. So we have been working it through. This is a company that I've been familiar with for 20 years, since Bill Dix was running it, I feel as though it is a dream that keeps coming back actually. The fact is all Australians want to see Qantas succeed. Even their competitors say they want to see Qantas succeed. We would be negligent if we didn't put in the effort somewhere between midnight and dawn each day to try and understand the challenges that they face, to be fully informed of the options, as we were, because we do these things properly. That's the Coalition way. We don't do an NBN on the back of an envelope as Labor did. We don't allocate or appropriate money on the basis of a whim. We think it through carefully. We get the proper analysis done. We get all the information together and we form an opinion and that’s what we've done in relation to Qantas.
REPORTER:
It looks like there is going to be a Senate inquiry into the Qantas foreign ownership restrictions. Is there any value in that do you see, or is it a waste? And given it is a private company how does it work?
TREASURER:
We just want the legislation passed. After that, there is not only the Air Navigation Act and a whole lot of designated criteria in relation to ownership; there is also the foreign investment rules. Ultimately, in relation to foreign investment and the proper scrutiny of foreign investment, particularly when it is a state-owned enterprise, it would immediately be triggered in relation to Qantas. If you haven't asked a question…
REPORTER:
Just getting back to the Qantas statement that it did make on Monday regarding carbon pricing was issued around the time Cabinet was meeting. Did that feed into your discussions about, without naming anyone, I wouldn’t want you to do that, but did it feed into the discussions about just how desperate things may not have been?
TREASURER:
I don't discuss Cabinet discussions.
REPORTER:
If Labor agreed today to abolish the Carbon Tax you would be collecting it until July 1st anyway. If you are confident Clive Palmer’s going to repeal it after July one what's the material difference?
TREASURER:
It's still being collected. You're still having to collect it; you have to collect it to a point. In relation to a tax policy, there is a set point in time, although some Treasurers have tended to announce tax policies to begin from a certain period. The revenues would be very different. The revenues would be very different. The revenues would be different and it means additional uncertainty for business. We want to remove…
REPORTER:
Are you suggesting the union should be willing to negotiate with the company to re-negotiate their current EBAs, perhaps forego pay rises? Is that what you're suggesting?
TREASURER:
I understand union leaders have a responsibility to act in the best interests of their members. I would want them to be aware, that their best interests of the members are not in causing industrial disputation or trying to stop Qantas from being freed up from the Qantas Sale Act. The best thing you can do for the workers of Qantas is to get rid of the Sale Act and repeal the Carbon Tax. Thanks very much.