TREASURER:
Today’s December Quarter National Accounts show that our economy rebounded strongly from the unexpected result that we had in September, growing at 1.1 per cent in the December quarter. This is well above market expectations, as you’d know, and results in an encouraging 2.4 per cent growth through the year result for the 2016 calendar year. Once again, Australia is growing faster than every G7 economy, every G7 economy. Our growth continues to be above the OECD average and confirms the successful change that is taking place in our economy as we move from the largest resources investment boom in our history to broader-based growth. Now, this is also the first time we have seen growth for a while in final state demand for all states and territories in the December quarter. That includes, thankfully and hopefully, as we've been looking forward to, in Western Australia.
While this growth result is welcome, we must continue to remember that our growth cannot be taken for granted and is not being experienced by all Australians in all parts of the country in the same way. As a Government, we are extremely mindful of these differences. That is why, last year, I tasked the Productivity Commission to examine these differences to better understand how we can better target government policy – in particular economic policy – to address the economic challenges in these areas for these Australians in the future. We welcome growth. We work for growth. You cannot have more inclusive growth in our economy if you do not have growth in the first place. But we will continue to work to ensure that all hard-working Australians and their families benefit from that economic growth. That is our mission.
What was particularly encouraging was that economic growth in the December quarter was more broad-based, across all of the contributing sectors. Firstly, today's results are principally driven by a solid rebound in household consumption. Despite subdued wages growth, Australian households are continuing to express confidence in our economy. This is also reflected in the lower household savings ratio. Household consumption rose 0.9 per cent in the quarter and contributed 0.5 percentage points to growth. That's around double the result we had in the last quarter in terms of contribution. Consumption rose 2.6 per cent through the year, which is higher than the through-the-year real GDP result. Continued growth in consumption spending has supported our economy as we absorb the significant changes that are taking place as we move from the once-in-a-lifetime mining investment boom to our broader-based economy. Similarly, dwelling investment rebounded in the quarter, increasing by 1.2 per cent in the quarter to be 5.6 per cent higher over the year. Increases in housing supply are expected to continue for several quarters, as there remains a considerable pipeline of work yet to be commenced. Most significantly, after 12 consecutive quarters of decline, it was encouraging to see new business investment increase for the first time in this quarter – up almost 2 per cent. This included a 1.3 per cent improvement in new engineering construction, particularly related to LNG projects, and a 5 per cent increase in new building construction. The positive development reflects the improvement in business sentiment that we have seen in recent months and the increase in new business investment follows a weak outcome in September that was weighed by temporary weather disruptions in the construction sector, which I referred to at that time.
Now, while we welcome this result on investment, to lift wages and increase jobs, to increase the number of hours people have access to, we must continue to pursue policies that encourage investment. Our Enterprise Tax Plan, combined with our innovation and science investments, our infrastructure investments to lift productivity and our defence investments are all designed to drive investment in our economy, to support jobs and to support wages.
Public investment also grew strongly by 7.7 per cent in the quarter, especially by the Commonwealth. This included spending on the second NBN satellite as well as defence aircraft procurements and as well as continued growth in state and local infrastructure investment, obviously supported by the Commonwealth as well. Net exports also contributed 0.2 percentage points to growth. Exports grew by 2.2 per cent in the quarter to be 8.9 per cent up over the year, with strong growth in resource exports. Services exports also grew by 8.6 per cent over the year, with tourism and education continuing to perform well. Rural exporters also experienced a good quarter following the record grain harvest with exports up 8.3 per cent in this quarter alone.
Higher volumes in our exports coupled with higher prices have also produced some good dividends in these numbers. For the third successive quarter we had an increase in the terms of trade and on this occasion by just over 9 per cent, the largest quarterly growth in the terms of trade since June 2010. So when you combine that terms of trade result with stronger growth in volumes, these are the dividends – firstly, nominal growth grew 3 per cent in the quarter to be 6.1 per cent nominal growth through the year for 2016. This increase in the quarter was the fastest pace in six and a half years. Secondly, there was a substantial narrowing in the current account deficit which would have been seen from figures earlier in the week. That is down to $3.9 billion in the December quarter or 0.9 per cent of GDP. That is the narrowest current account deficit as a share of GDP that we have seen since 1980. And thirdly, the combination of these two forces of better prices and higher volumes has had a significant impact on company profits, especially in the resource sector. However, I caution it would be wrong – just plain wrong – to assume that those gains have been experienced evenly across all businesses in the economy. That would be a complete falsehood. It is also important to note that this one quarter of strong profits growth, particularly in the mining sector, comes after many quarters of subdued profits growth and reflects in large part the recovery in global commodity prices that took place late last year. For many years now businesses have been carrying their businesses, dipping into their own pockets, seeing their own incomes decline and that has kept people in work and it has kept even the modest pace of wage growth that we have seen, which we acknowledge is not strong, but it's maintained those people in jobs and the wages they've been able to take home to their families. Those small businesses in particular have made great sacrifices for our economy, for their own businesses and for all the employees who work for them. And I pay tribute to them.
Of concern in these accounts is that compensation of employees in the quarter declined by 0.5 per cent. While it was up 1.5 per cent over the year and while we saw more jobs in the quarter, with modest wage increases and compositional changes, this quarter’s result was disappointing. This is why the core task of our Government remains to increase what hard-working Australians can earn. This means generating more hours and more jobs in our economy. You cannot achieve these outcomes without growth and without businesses investing in their future to support the jobs and the wages that Australians rely on. You can't get a job in a business that is closed or is not hiring. You can't pay a pay rise in a business that is not earning a profit. Profits and wages are co-dependent. That said, improvements in the terms of trade has benefitted national income, real net disposable income per capita – a proxy measure for living standards increased 2.5 per cent in the quarter to be 5.3 per cent higher over the year. This represents the strongest annual growth in our income for five years
In closing, we cannot be complacent and we cannot rely on commodity prices remaining at current levels to do the hard work. We cannot base our budgets, our economic plans on the volatility of commodity prices. We must continue to take the necessary steps to keep our expenditure under control structurally, to boost investment, to maintain the AAA credit rating by following this path and to ensure that we're able to sustainably fund necessary government services, not just now but in the future by ensuring we deal with these difficult decisions the Government is making. Today's results were a positive sign that our economy maintains solid momentum in our 26th year of annual economic growth. But as the last quarter reminded us, you can never take anything for granted and the Government has doubled down on its efforts.
QUESTION:
Treasurer you mentioned WA in your opening remarks, after seven consecutive quarters of contraction over there have we now reached a bottom in WA?
TREASURER:
The future will provide the answer to that question. All of us would certainly hope so. I can only refer you to the comments of the Reserve Bank Governor Phil Lowe, when talking more broadly about how far we are through the move from the peak of the mining boom and the investment that sat around that and he’s [inaudible] so let’s hope that that’s the case, but I think what it shows is that Western Australia in particular has borne the most brutal shock of the transition of our economy and to be where they are today, under the strong leadership that’s been shown by the Premier and his team in Western Australia, I think they will see the light at the end of the tunnel.
QUESTION:
Treasurer, the strong profits growth is obviously good for the Budget, weak wages growth not so good, does the very strong nominal growth mean that overall we’re seeing some encouraging signs for the Budget?
TREASURER:
What we’re seeing today is consistent with what we set out in MYEFO. That’s the best way to describe it. There are swings and roundabouts in all of those things. Of course commodity prices are still sitting above where we’ve been pitching them in MYEFO, and of course the Budget, but equally the weak wages growth is what is most heavily weighing on a lot of revenue projections. What we did in MYEFO, what I’ve always sought to do, is adopt a conservative approach when it comes to these issues. If there is upside, well that is welcome. But when it comes to whether it’s commodity prices or all these other things, when it comes to Budgets, I’m not going to chase them over the hill, and I’m not going to chase them down in the valley. That’s a mug’s game. What you have to do is deal with structural issues in the Budget that you have some control over and those are issues that the Government never has control over.
QUESTION:
Can I ask you on company tax cuts, this morning you said when the Parliament rises at the end of the month the Government will frame its Budget and frame its [inaudible] based on where the Government gets to. Can I just get you to expand on that a bit?
TREASURER:
I have nothing further to add to it James.
QUESTION:
[Inaudible] whether it’s a 10, 20, 25, 50 million whatever it might be, will the company tax cuts for the full ten years, all the way up to the largest companies, remain Government policy?
TREASURER:
James you’re speculating on things that have or have not happened yet. So I can’t really entertain those things. The Parliament is considering the enterprise tax plan, the point we’ve been consistently making, and it’s a point that was made by Chris Bowen and Bill Shorten and they committed it to print and they published it, and they said that if you relieve the tax burden on business it promotes investment, it supports wages, it promotes growth. Now, if you’re interested in boosting people’s wages, then you’d be supporting the Enterprise Tax Plan. That’s the question we’ve put to the Senate, and it’s certainly the question we’ve put to the leader of the opposition Bill Shorten and Chris Bowen and they’ve given a flat no, I haven’t seen many bigger hypocritical backflips than that.
QUESTION:
The context of the fair work decision you’ve said people can’t work for a business that’s closed or not hiring. Is it just the reality in your view that some people in the real world have to take a pay cut so other people can get a job?
TREASURER:
The view expressed by the Fair Work Commission in coming to their view is their view. It is a view that was arrived at from a process that Bill Shorten set in motion. We all know that. They have come to their conclusion after an extensive and exhaustive inquiry. 550 pages, the evidence to support their decision is set out in that document, and I can only refer you to that.
QUESTION:
You refer in your opening remarks to a decline in compensation for employees, so what would you say to a young Australian now who’s looking at the fair work decision? Why should they accept a lower rate for their work? What’s the justification?
TREASURER:
What the Government is doing to support the Australians you’re talking about is to grow the economy, to ensure that businesses are open on Sundays and on Saturday and there is work and hours and employment opportunities there for them, and stronger profits growth in businesses so they can pay higher wages. That’s where higher wages come from. Higher wages come from businesses being successful. The money doesn’t fall from the sky. It’s important that we continue to focus on what is going to drive the incomes that are going to support wages, and that’s what our economic plan is focused on.
QUESTION:
Where is business in all of this though? Because we’re hearing from various lobby groups, we haven’t heard from big business, or indeed many small businesses [inaudible]. Are they reluctant to get involved in this fight? What would you say to them about prosecuting the case?
TREASURER:
You’re speculating on asking me to speculate on something someone else may or may not be doing. I can’t really offer a comment on it, it’s a matter for them.
QUESTION:
Just on some other numbers, the polls recently have shown the Government is not getting its message across…
TREASURER:
Are there any other questions on the national accounts? Peter Martin will always have a question on national accounts.
QUESTION:
The Treasury Secretary, your employee, said this morning that the Government should not fall into the trap of spending unexpectedly higher revenue [inaudible]. Will you be doing that or will you be banking that higher revenue from the ramp up in commodity prices?
TREASURER:
Well, it’s not clear yet what position the Government will take on commodity prices in the Budget. There’s still some months to go before we reach a position to make that decision and I recall that when we’re making the decision about where to strike those assumptions for the mid-year statement the advice and the feedback from industry and others who look at these things on a regular basis is that they didn’t believe that those commodity prices would be sustained at those levels but they couldn’t say in a determinant way when they might fall. Now, we put in a projection in the mid-year statement which made an assessment of that and I think you’d agree that it was a conservative assessment. We’ll revisit that before the Budget so until we’re in a position to do that – I mean, the answer to the question depends on the decisions which have not yet been taken.
QUESTION:
John Fraser in the Estimates today was asked by a Labor Senator, ‘will there be more jobs created out of the Fair Work decision on penalty rates?’ And his opinion, ‘I don’t have an opinion on that.’ Do you have an opinion on that? Will the Fair Work decision actually lead to an increase in jobs?
TREASURER:
Well, it was the Fair Work Commission that made the decision and they said it would.
QUESTION:
But do you think it would? Do you as the Treasurer…
TREASURER:
I would refer you to the Fair Work Commission report. They made the decision. They said it would have that impact and that’s why they made that call. We always said that we would abide by the decision of the Fair Work Commission. We said that. We went to an election and said that. And we’ve abided by that promise. It’s Bill Shorten and the Labor Party who have not done that.
QUESTION:
So you’re not going to fight the argument? Are you not actually going to prosecute this argument that it’s actually good for the economy?
TREASURER:
The Fair Work Commission has made their decision and that decision has been handed down. It will have the impact according to the Fair Work Commission that they’ve set out and the Government will accept that decision and keep moving on with the things that we’re responsible for which are matters that I refer to, like tax policy, productivity policy, infrastructure, science and innovation, giving tax cuts to Australians which we did at the last Budget and seeking to provide tax relief to small businesses, in particular, so they can get the relief that they need to employ more Australians, more often, on more days.
QUESTION:
Do you have an opinion on the decision?
TREASURER:
I’m not here to offer opinion. I’m here to implement policy and my opinion is set out in the Budget. Everything I believe is set out in that Budget as it was in May last year and will be in May this year and as it was in MYEFO, that’s what I believe.
QUESTION:
[inaudible] the opinion polls, nothing else suggests that the Government is getting its message across. Now, communication is a very important thing for governments and for anyone advocating policy. Quite surprisingly the President of the United States this morning had given himself just a C+ in communication, what would you rate your Government’s communication efforts?
TREASURER:
I wouldn’t get in the way of all your enthusiastic assessments of those things.
QUESTION:
Not even if you’re doing well?
TREASURER:
It’s your job to commentate on what politicians commentate. It’s my job to do the things that drive the economy forward and actually focus on living standards and working to improve the wages of Australians, so I don’t engage in that sort of narcissistic self-assessment. Others may well seek to do that. In the Shire, they have a particular word for that sort of behaviour and I wouldn’t repeat that here.
QUESTION:
Treasurer, isn’t it your job to fight for something that is good for the economy and if Fair Work says that change to penalty rates is good for the economy and good for jobs, shouldn’t you not just abide by that decision but fight for that decision?
TREASURER:
Well, the decision has been taken. It will be implemented. It’s happened.
QUESTION:
But you won’t express an opinion about whether it’s good or bad?
TREASURER:
We said that we’d support the decision of the Fair Work Commission and that has happened.
QUESTION:
Treasurer, when might the benefits of the Fair Work decision but also the big increase we saw in the figures today in disposable income per capita, [inaudible] when might people see that in their pay packet?
TREASURER:
That’s a good question and as I understand the Treasury Secretary may have said this in response to a related question today, the impact of various decisions that affect the economy are taken into account when the Treasury updates its economic forecast. Now, they’ll obviously be doing that leading up to setting the parameters around the next Budget and all of those issues – whether it’s movement in commodity prices, whether it’s other movements in regulatory issues – if more unions decide to trade away penalty rates or other arrangements as Bill Shorten did when he was union leader, if more union leaders are going to do more of those things on a broad basis, well, obviously Treasury, the Reserve Bank and others will take that into account when they set their forecasts. I think at this stage it is a little too early to tell just like on issues like commodity prices where we will have to make another judgment about the sustained level that they may be at when we come to strike the Budget. I make this point about all of these parameter impacts and that is that they are things that are not in the Government’s control. It is the Budget’s job to do things that are within the Government’s control. That is getting expenditure under control. As a Government we have reduced expenditure growth that we inherited from the Labor Party by over 3.5 per cent – 3.5 per cent, to less than 2 per cent. We have curbed the rate of growth in debt by two-thirds. It was growing under the Labor Party by 34 per cent a year. Our Budget plan has been getting that under control. It hasn’t just been about the Budget in terms of getting expenditure under control. It has been about making our tax system, our superannuation system fairer and more targeted. It has been about investments in science and technology and defence. In these figures today you will see on public private demand that very strong boost in Commonwealth contribution to that figure. Now a lot of that, a significant part of that, together with the NBN satellite and so on, was the defence aircraft procurements. Now we have one of the biggest defence procurement plans running around today. That means more jobs in South Australia and Western Australia, in Queensland. These investments are driving growth. That’s what our plan is about.
QUESTION:
You are talking about controlling expenditure and on that very topic, the Omnibus Bill passed the House this morning, what are you going to do in terms of getting that through the Senate?
TREASURER:
Not sleep. I suspect Senator Cormann and my colleagues in the Senate will be doing the same thing. This is a very important question because getting expenditure under control, ensuring that our welfare budget doesn’t blow out in the way that the Labor Party, just in the house just now voted for - they voted for Australian taxpayers to pay for higher welfare bills. They voted not to get welfare spending under control, they decided that taxpayers, hardworking Australians, every day, should be going out there and paying more and more of their taxes on welfare. Now, we have a different view to that. We believe the welfare system is an important safety net. As you know, when I was Social Services Minister I made some difficult decisions, but those decisions were designed to actually boost support for those on the lowest incomes. Yes, at the expense of those on higher incomes but to boost for the most vulnerable. Because we believe the social safety net is there for them, it’s not there as a broad-based cash ATM. What we’re working to do is get that under control. Eight out of ten Australians go to work every single day to pay the welfare bill of this country through their income tax.
QUESTION:
Treasurer, in December 2015 the Productivity Commission’s IR report recommended that Sunday rates be reduced. That’s now happened with the Fair Work Commission’s draft decision. Does that show the Australia’s industrial relations system is actually working and that there doesn’t need to be major change?
TREASURER:
I think that’s a very interesting observation. What we’ve seen in these numbers here in the National Accounts, is the flexibility that exists in the Australian economy. I mean others may argue about the level of flexibility that’s needed in the labour market but if you’re looking at the flexibility in the financial markets, the flexibility of exchange rates, flexibilities in all of these areas that has been one of the key reasons that we’re in the middle of our 26th year of consecutive economic growth. There is not a country, I believe, that would not want to swap places with me at the G20 when I go there in a few weeks’ time. These growth figures say we are at the top of the pack, and while last September quarter’s figures were surprising and disappointing, what we’ve seen in the December quarter, is a return to the strong momentum that we’re seeing in our economy. But we can’t take it for granted, we can’t leave people behind, and we need to continue the hard job of Government which is what this Government is focused on.