7 August 2019

Interview with Laura Tingle 7.30, ABC TV

Note

Subjects: US China relationship, economic outlook, RBA, Australian dollar tax cuts, ASX, housing market.

LAURA TINGLE:

Treasurer, it feels like we keep talking about a full-scale US China trade war as something that might happen but that reality is that that’s what’s happening now and we are also in a financial war as well. 

JOSH FRYDENBERG:

Well, we shouldn’t overreact, Laura, to developments overnight but it’s definitely an unwanted escalation, and this trade and technology dispute between the two great powers, China and the US. What we as Australians need to continue to call for is for cool heads to prevail and for these two parties to come to the negotiating table and to resolve their differences no matter how great they may be because Australia is definitely hurt by the uncertainty that is created in the global economic outlook as a result of these trade tensions.  

LAURA TINGLE:

If you think about the economic effect, though, the fact that the Chinese authorities have started to devalue their currency suggests they are no longer trying to offset the impact of America’s trade sanctions with extra spending. That’s got to be a bad thing for our global growth and our trade, hasn’t it?

JOSH FRYDENBERG:

Well, I do think the Chinese authorities are committed to strong domestic growth and we have seen some stimulatory actions by them and that has helped support our strong prices for iron ore as well as some changes on the supply side which have led to constraints which have also escalated the price. Certainly, I think the Chinese economy will continue to grow. But really we need to be realistic about these recent developments and understand that the world is not always as we want it to be and the world is as it is and there is growing strategic rivalry between the United States and China and that is playing a negative role in terms of the global economic outlook. 

LAURA TINGLE:

Well, we’ve already seen the Reserve Bank yesterday trimming its forecasts for economic growth; the labour market and inflation which must reflect the thinking of your own economic advisers.

JOSH FRYDENBERG:

Well, the Reserve Bank Governor, Laura, has made it very clear that the fundamentals of the Australian economy are strong. They are his words and yesterday’s statement saw economic growth for 2.5 per cent for 2019 and 2.75 per cent for 2020. And we know that Australia maintains a AAA credit rating, our debt to GDP ratio is about a quarter of what it is in the UK and the US and many other OECD countries. Employment growth in Australia is about three times what it was when we first came to Government and double what it is across the OECD and we have seen over 1.4 million new jobs created on our watch. So, there are some positive signs to the economy but I don’t want to downplay the challenges that we also face.

LAURA TINGLE:

But the forecasts are being cut. I suppose on the positive side the Australian Dollar hit a ten-year low today after the Reserve Bank of New Zealand cut its interest rates. A lower dollar should make us more internationally competitive and may boost growth, I presume.

JOSH FRYDENBERG:

Well, there are two sides to that coin. As you know, a lower dollar means higher import prices that could also have inflationary impact and inflation has been relatively low, below the two to three per cent band at just 1.6 per cent today. But at the same time, as you say, a lower Australian Dollar will boost our exports and one in five Australian jobs are connected to trade. We’ve had 18 consecutive months of trade surpluses, that’s a run that we haven’t seen since the early 1970s. So, our trade position is strong, commodity prices have been elevated and our free trade agreements with the key partners in the region- China, Japan, Korea, most recently with Indonesia- they will continue to create jobs in Australia.

LAURA TINGLE:

At what point do the shifting international trends force you to reset policy?

JOSH FRYDENBERG:

Well, in terms of the global trend, we are seeing a low inflation, relatively low unemployment environment and it’s in that context that the Reserve Bank has reduced interest rates and that’s not just an Australian phenomenon. Today, we actually saw New Zealand reduce their interest rates by 50 basis points. This is a global trend. Domestically, we will watch what happens globally very closely but we think we have got the settings right. We’re committed to a surplus and we have just passed tax cuts through the Parliament consistent with our election commitment. And I am informed by the ATO that well over $7 billion has already made its way into the pockets of Australians; that’s money that is being spent by the local tradies in the local shops and will boost economic activity. 

LAURA TINGLE:

And that was a very important move for confidence which is always a little bit fragile. But what’s happened with the financial markets in the last couple of days is a really tangible sign of people getting lower investment returns. Is that going to have a bad impact on confidence, do you think?

JOSH FRYDENBERG:

Well, let’s not forget that the Australian Stock Market is up 14 per cent through the year and after a couple of days of falls actually had an increase today. So it will fluctuate but the balance sheets of Australian companies, Laura, are in much better shape than they were during the GFC. They don’t have the same leverage that they did back then. But, in terms of the key markets in Australia, the housing market is really important and has seen auction clearance rates at about 70 per cent in recent weekends compared to about 50 per cent at the same time last year. We’re seeing investment returned to the mining sector after a pause for a number of years and we’ve also seen the benefits from lower interest rates as well as the infrastructure spending and the tax cuts all play through with greater economic activity.

LAURA TINGLE:

We’re out of time, Treasurer, but thanks for your time tonight.

JOSH FRYDENBERG:

Good to be with you.