JOSH FRYDENBERG:
I’m just going to go through a few slides and then happy to take some questions.
The first slide references real GDP growth which, as I said, 9.6 per cent through the year, 0.7 per cent for the quarter, which was ahead of market expectations.
Next slide, again, our economy is today bigger than it was going in to the pandemic, and you can see that very strong V-shaped recovery obviously now starting to deviate a little bit from that trajectory and, of course, in the September quarter it’s expected to contract.
Next slide, this puts it in perspective as to where we are at the end of the June quarter. At the end of the June quarter our economy is 1.6 per cent higher than it was going into the pandemic. If you look at other major economies: France, 3.2 per cent down; Germany, 3.3 per cent; the United Kingdom, 4.4 per cent.
Next slide, these are the contributions to what we’ve seen in the quarter, and it is very much a domestic economic story because household consumption, which is up to 60 per cent of GDP, has continued its contribution, positive contribution, to GDP growth. Dwelling investment was strong – in fact, through the year it’s above 15 per cent. New business investment, particularly machinery and equipment, was very strong. New public final demand, which is off the back of the government’s infrastructure pipeline. Change in inventories, again, that will move quarter to quarter, but it detracted from GDP. Ownership transfer costs relate to in the housing market, conveyancing and the like. Net exports, that’s the international story, and, as I said and alluded to, there was some difficult weather conditions which affected particularly our iron ore and our coal industries and net exports reduced – detracted from GDP growth by 4 percentage points.
Next slide, 12 out of the 17 categories, importantly transport services, we saw a pickup in tourism in that quarter. Government programs like the half price air fares, restrictions started to ease, people started to travel around the country. And, again, hotels, cafes, restaurants reflecting the easing of restrictions.
Next slide, household savings ratio. This is an important chart because, as you can see, at 9.7 per cent we are now less than half of the savings ratio at the peak of the pandemic last year. But at 9.7 per cent we’re still around double what the savings ratio was going into the pandemic. So it tends to be 4 to 5 per cent as a savings ratio. And here it’s at 9.7.
Next slide, dwelling investment is a very, very strong story. So we’ve seen a 1.7 per cent increase in the June quarter, but over 15 per cent increase through the year. There’s 151,000 house approvals, so that’s new homes, but it’s also renovations through the year. And that is a big jump off the back of the HomeBuilder program.
Next slide, new business investment, again, 2.3, 6.2 through the year, particularly strong, which I’ll show you in the next slide, in machinery and equipment.
So machinery and equipment, 2.4 up if the quarter, 19.5 through the year. As I said in my opening remarks, 22.5 per cent up since the October budget last year. Now, this is pretty counterintuitive because normally in a recession investors or businesses decide to reduce their investment. But not this time around because of the nature of the incentives that we provided with the expanded instant asset write off.
Next side, state final demand, again, continues to be up consistently across the board.
Compensation of employees, this is the wages bill for the economy. Now, this is coming off the back of strong labour market growth. We didn’t expect the unemployment rate to get below 5 in the June quarter, which it did – it got to 4.9 per cent. We did expect the unemployment rate to get below 5 perhaps by the end of this year. And so the fact that 115,000 new jobs were created over the June quarter is what drove the wages bill for the economy up 6.8 per cent through the year.
This chart reflects where our labour market is today compared to what other countries are seeing – 1.5 per cent, employment levels are higher today than going into the pandemic. The United States, four and a half per cent lower in the June quarter compared to what they were doing – their employment levels were going into the pandemic.
Next slide. Thank you.
JOURNALIST:
Treasurer, the state final demand figure show just how much spending the states, local government and the feds are doing in terms of public expenditure. It’s a huge increase in, say, health, rail and road.
JOSH FRYDENBERG:
The vaccine rollout.
JOURNALIST:
The vaccine rollout. How much longer do you think that can continue, and how important will it be for the recovery?
JOSH FRYDENBERG:
Well, I think public investment, particularly in infrastructure projects, are going to be very important for the recovery. And as you know, we have a $110 billion pipeline which we continue to add at each budget. But I point out to you, it’s not just public expenditure, Shane, that is driving these numbers. Dwelling investment, business investment and household consumption have been very important drivers of these numbers.
I mean, to see dwelling investment up by more than 15 per cent through the year, to see household consumption up by more than 15 per cent through the year, to see business investment up by more than 6 per cent through the year but more than 19 per cent if you take out – if you look at machinery and equipment.
So the message out of today’s national accounts is that these are very solid growth numbers. These are better than what the market expected, and they’re being driven by domestic economic strength. And I want to underline the fact that in this June quarter for 29 days we saw at least one part of the country in lockdown. And we saw lockdowns across five of the eight jurisdictions, including our four largest states. And in some cases, like Victoria, we saw a two-week lockdown.
So these numbers do underline the fact, Shane, that our economy can bounce back and that not just public final demand but dwelling investment, business investment, household consumption.
The other point I just wanted to make was about farm income GDP and the contribution from that sector. Up 48.3 per cent through the year. Very strong improvement in farm GDP, obviously reflecting the fact that we’ve come out of drought and we’ve seen a bumper harvest.
JOURNALIST:
The expectation is that people will emerge from lockdown and spend, spend, spend like they did last year. But unlike last year they’re going to be emerging into a world with COVID cases and with a portion of the population unvaccinated. So do you think that the bounce in household spending is going to be as big in the fourth quarter this year as last year? If so, why, and will it be enough to keep us out of recession?
JOSH FRYDENBERG:
Well, of course, in the September quarter consumption has been constrained by the fact that in our two largest states we have seen lockdowns and extended lockdowns at that. So that will impact no doubt, not just the investment but also on consumption.
With respect to the December quarter, Paul, we have to wait and see what occurs in terms of the easing of the restrictions. I’m confident that now with those 70 to 80 per cent vaccination targets in sight that we will see an easing of restrictions. And I welcome the acknowledgement in Victoria today that eliminating the Delta variant is an impossibility. It can’t be done. No other country has done it, and based on the best medical advice we have, we can’t do it.
So we have to learn to live with the virus. That means rapidly vaccinating as many people as possible, bringing more supply online and then easing those restrictions as we get to those targets. Chris.
JOURNALIST:
In order to reopen you obviously need states to stick to the national plan. There’s a million different interpretations of the national plan. Today we’ve seen Annastacia Palaszczuk saying she wanted to open up a conversation about vaccinating children from 0 to 11 for which there is no vaccine in the world at the moment. What do you say to state premiers who are inventing their own pathway?
JOSH FRYDENBERG:
Well, firstly, we’ll take the medical advice as to what age cohorts are appropriate to receive the vaccination. And when we receive that medical advice, including from ATAGI, we’ve proceeded to announce a start date for the vaccination of 12 to 15-year-olds. And I think that’s a positive development, noting that you don’t see the same level of illness or transmissibility in that age cohort as you do in older cohorts.
With respect to the Premiers, my message is very clear: stick to the plan; a plan that you agreed to at national cabinet; a plan that gives Australians hope; a plan that allows businesses to reopen and plan for their own future; a plan that will allow our kids to go back to school; a plan that will allow us to attend the funerals and the weddings of loved ones; a plan that will allow families to be reunited across state and territory borders; a plan that takes Australia forward to living safely with the virus. That is the important message.
And I want to focus on the fact that today you saw an unprecedented number of CEOs from Australia’s leading companies – BHP, Telstra, Coles, Wesfarmers, Qantas, Commonwealth Bank, AGL – across the board representing more than a million workers in our country see that it was important for them to voice their support for the national plan.
And, Chris, as I’ve said before, if we don’t stick to the national plan businesses will close. If we don’t stick to the national plan jobs will be lost. If we don’t stick to the national plan our debt burden will increase. If we don’t stick to the national plan, the wellbeing of Australians will suffer. And we’re all conscious of the toll on people’s mental health that in the words of Patrick McGorry, the shadow pandemic is causing. So we need to vaccinate people, but we need to open up safely in accordance with that plan at 70 to 80 per cent.
JOURNALIST:
Treasurer, you said that there are some dark days ahead. Looking forward –
JOSH FRYDENBERG:
Challenging days ahead.
JOURNALIST:
Challenging days ahead. Looking forward, does the responsibility – are you saying that the responsibility and the risk of perhaps going into a recession if restrictions don’t ease, are you saying the responsibility of that will be with the states?
JOSH FRYDENBERG:
Well, I’m confident that our economy will bounce back when restrictions are eased. And restrictions will be eased when we meet the 70 to 80 per cent targets. And what we’re hearing out of Victoria is a positive step forward. It’s a positive step forward that they’re starting to ease the restrictions. Now, we need to continue that. And so, too, in New South Wales. Gladys Berejiklian has spoken openly about easing restrictions in her state certainly once those 70 and 80 per cent targets are reached.
It’s a reality that we have to live with the virus. We can’t eliminate it. And Australia should open up as one. Australia should open up as one, and that is why it’s really important whether you’re in Western Australia, whether you’re in Queensland or whether you’re in the southern states, you should follow the plan.
JOURNALIST:
Treasurer, one thing that isn’t in the national reopening plan is specifically when Premiers should be no longer able to close their state borders. What do you make of the argument that while they’re closed they have more economic activity than they would have if they opened? Do you have any modelling that looks at the difference between a closed yet internally open state economy versus the nation having no closed state borders?
JOSH FRYDENBERG:
Well, firstly, I make the point again – it’s not realistic that you can keep your borders closed indefinitely. Secondly, there are labour force shortages across states like Western Australia, which has obviously got a very strong construction and resource sector. And when I speak to business leaders, including proud Western Australians like Kerry Stokes and Rob Scott at Wesfarmers, they want their state and their country to stick to the plan because the economy gets harmed if they don’t.
Thirdly, look at Queensland. It has a vital and wonderful tourism sector, yet tourism operators are now doing it so tough in Queensland obviously because they’re not getting the interstate visitation that they previously were getting from New South Wales and Victoria with those states in lockdown. But when those restrictions ease in New South Wales and Victoria and people can travel across the country, they’re going to jump at the chance to go back to Queensland. And wouldn’t it be ludicrous for the Queensland borders to be closed to visitors from New South Wales and Victoria who will help drive jobs in Queensland’s tourism industry?
And as I’ve said before, Clare, how ridiculous would it be that you could travel to Canada before you could go to Cairns, or that you could go to Fiji or Bali or Singapore before you can go to Perth? You’ve got tourism businesses in both Queensland and Western Australia that are chomping at the bit to get their visitors back from the southern states.
JOURNALIST:
Treasurer, the Western Australian border, your colleague Michaelia Cash this morning has raised the prospect that the Western Australian government’s hard border would not stand up to High Court challenge once the 80 per cent vaccine target has been reached. I’m just wondering, given how much damage the Liberal Party suffered last year to its initial opposition to the hard border, given how much support there is amongst voters in WA to the hard border, why pick this fight? It’s a hypothetical.
JOSH FRYDENBERG:
We absolutely have no plans to challenge those border closures in the courts. We have no plans to do that. My message to Mark McGowan, to Annastacia Palaszczuk, is that there was a plan agreed to by them at national cabinet which provides their public with a pathway forward, a pathway forward to living safely with the virus, a pathway forward that will be good for businesses in their state.
I note of the 80 businesses and organisations that signed up to that open public letter today from the business community nearly all of them had operations in Queensland or Western Australia. They were banks, they were energy companies, they were resource companies, they were big investors and big employers in Queensland and Western Australia – another reason why it would be a positive step forward for those states to follow the plan.
JOURNALIST:
Just to follow up on Chris’s question about the states, I want to read to you exactly something that Annastacia Palaszczuk said this morning about children. She said, “You open up this state and let the virus in here and every child under 12 is vulnerable.” Now obviously there are concerns about children, but the Premier is naming that as a reason to be cautious. Do you think that concern about children is justified? What’s your view on that, and is it a reason to delay opening up at 70 and 80 per cent?
JOSH FRYDENBERG:
Well, I absolutely believe that you need to be cautious with respect to the virus, its spread, the mitigation measures and the response. And that means when it come to kids, we’ve got to be very conscious of what the medical experts tell us about the impact on children.
And what they have said from the Doherty Institute very clearly, Sharon Lewin among them, I point you to what Professor McNab at the Royal Children’s Hospital in Victoria has said, who did a study of 170 kids who got COVID, and they found that the virus and the illness was much less severe in children than it is in older cohorts and that the plan, according to the Doherty Institute, remains the plan, even in the situation where children may contract the virus.
So we’ve got to take the right mitigation measures. We’ve got to be cautious, but we’ve got to follow the advice. As a dad, I’m like you – I care about the health of my children. And that’s why I think we should continue to take the medical advice. But if you look around the rest of the world, David, countries have opened up safely with COVID and kids have got back to school. And I think it’s really important to be conscious of the need to get kids back to school.
And the last thing I’d say about that is we are focused obviously on that health outcome of preventing people from getting the virus. But there’s another health outcome – and it’s the one that Patrick McGorry talks about with the shadow pandemic. It’s the one about kids really struggling from being out of the classroom and kids who are really struggling from not being with their grandparents or not being with their friends. And the numbers are pretty alarming and confronting.
And it was reported in The Australian that more than 340 teenagers a week in Melbourne are presenting at emergency departments with mental health issues. This is a 163 per cent increase on the pre-pandemic numbers. In New South Wales, it’s around a 50 per cent increase on the pre-pandemic levels.
I’ve been contacted – like every MP in this place – by local constituents, and the letters, the phone calls, the emails, are about the pressures that the lockdowns are having on them. It’s not to diminish in any way, David, the severity of the virus and the threat of the virus. But we’ve got to be so conscious of this shadow pandemic and the need that the kids have to get back into the classroom at the appropriate time. I’m conscious that the Premiers would be aware of that as well. Let’s all work to that goal, and certainly let’s work to that national plan.
JOURNALIST:
Treasurer, do you agree the constitutional power of Premiers would be diminished as we get to that 80 per cent vaccination rate, and what impact will it have on the national economy if borders remain closed beyond that?
JOSH FRYDENBERG:
Well, I’ve referenced that question earlier. It will definitely hurt the economy if the borders remain closed. Definitely. And that is because you won’t have freedom of movement of workers. You won’t have the freedom of movement of tourists. And you’ve got impeded freedom of movement of other vital supplies and goods and services. So opening up the borders as one country in accordance with the plan would be good for the economy and it would be good for jobs.
JOURNALIST:
Treasurer, what is your expectation of the GDP contraction for the September quarter and just businesses obviously are quite concerned about what happens when lockdowns lift with COVID still in the community, are you open at all to extending support a little bit beyond lockdown to help them with that transition process?
JOSH FRYDENBERG:
Yep – and I’m conscious I’ve got to rush to question time. The first point I’d say is Treasury think the contraction will be at least 2 per cent and that is based on the fact that we’ve got our two largest states – New South Wales and Victoria – who are in lockdown. It’s costing the economy around $2 billion a week, and then at least a billion dollars extra from the commonwealth government in direct fiscal support. And that’s the COVID disaster payment and the business support payment.
With respect to support once we reach those targets, I’ve been very clear: there should be no expectation that the scale of our economic support would need to continue in the same way it is today once we reach those targets. Now, there may be some – as Doherty points out – some restrictions that are in place once you get to 70 per cent and before you get to 80 per cent. Some of those restrictions, for example, may be density limits, mask-wearing, other restrictions on public transport and the like. Now, that would have an impact on the economy and, of course, I would need to factor that in to our decision-making about that nature of economic support we would provide at that time.
But the large programs that we’ve got in place now are not required once you get to those vaccination rates. And so that is my message: that every state and territories’ Treasurer – and more than half of them are also Premiers or Chief Ministers – they’ve reached out to me and to the Morrison government in recent days and weeks asking for economic support and we’ve been forthcoming every time. But that economic support can’t continue. We are borrowing from future generations to meet these expenditures today. And the way we’re going to strengthen our economy is by opening up in a COVID-safe way in accordance with the plan. Thank you very much.