TREASURER:
I am here to report on the September Quarter National Accounts released by the Australian Bureau of Statistics. This is the economy that the Coalition has inherited. It covers the period up to the end of September this year. it is also a look at the economy through the rear view mirror. It is yesterday's data. The fact is the economy is stuck in second gear. We have inherited an economy with below trend growth, rising unemployment and a deteriorating Budget. The data itself clearly indicates that through the growth of 0.6% for that Quarter alone, that the overall year growth of 2.3% – September on September – is just not good enough to be able to deliver the jobs that people want. Net exports were responsible for over 90% of the growth in the economy in the past year. That is basically in line with the fact that you have rising exports because the mining investment boom is in play. It is now going into the production stage, but the fact is the mining companies are not importing new capital. That clearly illustrates that we have some challenges ahead as mining investment drops from around 8% of GDP to somewhere around 3% over the next few years.
That is going to create a growth hole in the economy over the next few years. In terms of the September Quarter, household consumption remains subdued, dwelling investment fell by 0.5% and whilst private business investment rose it is clearly associated with investment in the LNG sector. Changes in inventories also had a negative impact and that is primarily because a lot of mining services companies and so on are running down their inventory. So what you are seeing is nominal GDP remains well below the historic average. Terms of trade fell 3.3% in the September Quarter, which is pretty much in line with original expectations. But the fact is terms of trade are still at this point, much higher than at any point under the previous Coalition Government, although they are falling quite significantly.
I want to emphasise this is the end of September, so since the end of September, there has been some positive developments. The exchange rate is coming down and that will have a very important role to play in helping the economy through this period.
Interest rates remain at historically low levels and we are also seeing some good data in relation to retail sales, consumer confidence and business confidence. What all of this says is we have got a repair job that needs to be undertaken. This is what we have inherited. There is much work to be done. We have an economic plan. Our economic plan is focused on building economic growth. It is focused on getting rid of the inhibitive taxes and inhibitive regulation that undermines our capacity to be at our best. We need to speed up the Australian economy and I would say to our political opponents now is not the time to oppose the repeal of the carbon tax which, if we repeal the carbon tax, it will add economic growth. Now is not the time to oppose the repeal of the mining tax, because when we get rid of the mining tax, it sends a clear message to the world that we need mining investment. Now is not the time to play silly games in relation to the Budget because these figures clearly illustrate the fact that the Budget has deteriorated and deteriorated significantly since the Pre-Election Fiscal Outlook. These are the challenges we have and I would say to our political opponents do not stand in the way of us trying to fix these problems.
JOURNALIST:
Mr Hockey, you say the Budget has deteriorated and deteriorated significantly since PEFO. Is now the time to be adding to the size of the of the Budget task by pulling back education spending through agreeing to grants you have previously said you would not agree to.
TREASURER:
All of those have been paid for out of savings - offsetting savings which you will see in MYEFO. But the Labor Party is now opposing $18 billion of savings that we went to the election promising to introduce. In fact, Labor went to the election promising to introduce some of those savings and now they are opposing their own savings – they pulled their own policies. So in relation to Gonski; Labor promised Gonski, it promised the savings in education to pay for them now they want us to deliver Gonski without the savings. They are opposing their own mandate.
JOURNALIST:
Well, could you just clarify for us Treasurer when you say we will see them in MYEFO, extra savings. Are you looking at MYEFO as a document that will deliver significant savings over and above the ones you outlined…?
TREASURER:
No. And why? Because we are going to clearly illustrate the full state of the books that we have inherited. That will be MYEFO and as I have said consistently the Budget will be the solution. It will be the pathway. Now we have got a Commission of Audit that reports in January . I am not going to go on a massive round of cuts ahead of a methodical process that we have put in place to address the problems in the Budget.
JOURNALIST:
You are not even going to offset the decisions such as the $1.25 billion…
TREASURER:
No, we will. We will announce how we will do that. That decision, in particular.
JOURNALIST:
Do the weakness of these figures today change your approach in the Budget, in May, in the extent of cuts? Do you need to still cut as deeply, given the weakness of the economy you have just expressed?
TREASURER:
We are not obsessed with cuts. We are obsessed with getting the Budget back into good shape, into robust shape. Overall, we are obsessed with growth and job creation. Obviously, if you had all asked me 12 or 18 months ago, would I inherit this I would have said no. It would have to be better than that. But over the last 12 to 18 months, so much of what has been promised has not been delivered and this is what we inherit now. We have a steely determination to make the economy stronger and to deliver a stronger Budget. The MYEFO that I release before Christmas will show what we have inherited in the Budget. This shows what we have inherited today in the economy. Put them together, but what is going to make a difference is our plan. Our plan is about addressing these problems.
JOURNALIST:
You have suggested in the past about the need to bring forward borrowing on infrastructure, increasing debt to fill this growth hole you identified today. Where are you up to with the Greens? Are any of those conditions on the debt ceiling or are any of those conditions that Christine Milne has made public unpalatable to you?
TREASURER:
We have had very constructive discussions with the Greens. They understand the significance of this issue. It is the Labor Party that is playing games. The Labor Party created the debt problem and now they are trying to prevent us from fixing it.
JOURNALIST:
[Inaudible]
TREASURER:
The Greens have laid on the table greater transparency measures and I have no problem with greater transparency, none at all. When it comes to the Budget and debt and the use of debt you will see that we have no problem illustrating what the debt is to be used for and how it is going to be paid for. We have no problems with that at all.
JOURNALIST:
How far away is the deal with the Greens? Today or tomorrow?
TREASURER:
I suspect it is not too far away.
JOURNALIST:
What does that mean?
TREASURER:
Not too far away. Within the next six months!
JOURNALIST:
Don't you need it by Monday?
TREASURER:
Yes.
JOURNALIST:
Are you then happy as part of the agreement that, as you just said, that as they put it would list good debt and bad debt?
TREASURER:
Yes. I have no problem with listing; that is their terms, I have no problem. In fact, I have flagged that I want to illustrate the difference between recurrent expenditure and capital expenditure. It is something that has not been done at a federal level before but I think it is time to do it. This is not something new. I think I have had a discussion with someone previously about it and it was reported. But the difference between what you spend on your day-to-day bills what you spend on capital works should be illustrated in the Budget.
JOURNALIST:
Is it embarrassing to be dealing with the Greens, you know, economic fringe-dwellers, aren't they?
TREASURER:
Well, it is the Labor Party that are the economic fringe dwellers. The Greens have come over. When it comes to dealing with these things, seriously, understand where Labor Party is at the moment. They created the debt, but they want us to default on it. They created the debt, but they do not want us to fix it. They announced savings during the election, which now they oppose, but they want us to keep their policies. So Labor is now opposing their own electoral mandate. Go figure, how does that work? They are actually opposing themselves and they are proud of it. So $2.3 billion on Gonski and then in relation to income tax-cuts which they said was compensation for the carbon tax – they announced they were going to get rid of those because they do not have to have an additional round of income tax cuts because they were terminating the carbon tax. Now they are terminating their policy to abolish the income tax-cuts which suggests they think the carbon tax is going to go up to $29 a tonne. They are all over the place. These guys could write great fiction. But the responsibility of an Opposition is to also be responsible, and they are reckless. I mean, they have got a Shadow Treasurer that does not know what the hell is going on, does not know the difference between net debt and gross debt, and they have taken a position in relation to policy issues that is confused and confusing.
JOURNALIST:
Mr Hockey, so, you are giving two thumbs up to the Greens, then they are mainstream? Peter Costello, the previous Treasurer argued that possibly the ceiling was actually a good thing. Perhaps to convince some of your high spending Ministerial colleagues that the ceiling was in place and it would be a good way to keep the checks and balances …
TREASURER:
Well, it is not the debt ceiling that matters. It is the debt. You do not repay a debt ceiling, you repay the debt. The problem is, for Labor, the debt ceiling is a target. They set the original $75 billion and they met that. Then they said $200 billion and they met that. Then they said $250 billion and they met that. $300 billion then met that. Now they think well $400 billion, but the problem is they left us with debt that well exceeds $400 billion. They are kicking the can down the road.
JOURNALIST:
Where is that forecast? Where is that publicly available?
TREASURER:
I have stated on numerous occasions. Their peak debt in PEFO was $370 billion plus their own advice, tabled by Wayne Swan in the Parliament, was they need a buffer of $40-$60 billion in addition to that. Plus, the Secretary of the Treasury went to the Senate Estimates and said it will exceed $400 billion. Now you see the deterioration in the Budget as a result of the information provided in the National Accounts which clearly illustrates that the economy they left us is going to mean higher debt for the Commonwealth. There is no argument about that. I do not want to be judged on what I am inheriting, I want to be judged on the turnaround, because, frankly, they have left us with a mess.
JOURNALIST:
If I can just go back to the National Accounts, just for a moment Treasurer. It does show that the terms of trade fell by 3.3% in the Quarter. It has got nothing to do with election timing and all those sorts of things.
TREASURER:
Sure, the terms of trade still operate despite the electoral cycle, you are right.
JOURNALIST:
And while this is true that it might still be higher than it was under the Coalition, it is falling. That does suggest you have to go much harder on spending doesn't it? It suggests that we are living beyond our means, if the terms of trade are continuing to fall?
TREASURER:
It is more than that because the terms of trade were lower when the Coalition was last in Government, but we still live within our means. The fact is, that we have got to focus on growth, we have got to focus on economic growth. That creates jobs. We have inherited rising unemployment, which is a major concern. I want to give Australians hope that tomorrow is going to be better than today. The fact is, as I said little earlier, mining investment is coming off. That is going to subtract from economic growth. We have got to fill the hole.
JOURNALIST:
You have got to fill that hole by Government spending?
TREASURER:
No. What we have got to do is find ways to stimulate the non-mining side of the economy. We have got to stimulate it. That means retooling the nation. We have got to retool the nation, despite the fact that we have excess capacity at the moment. We need to retool the nation and so much of what Tony Abbott, Warren Truss, and myself are focused is about how we can stimulate productive infrastructure investment. That is going to be a driver of productivity growth.
JOURNALIST:
For the past two months there has been a very large discussion about MP's entitlements and their spending. How would you explain to an ordinary taxpayer how Don Randall, who hasn't explained how he spent $1000 going to the footy, ends up on the Privileges Committee.
TREASURER:
I am not even familiar with that appointment.
JOURNALIST:
You said you do not want to be judged on what your inheriting, but rather on the turnaround. How long do you think it will take you to do that turnaround and when will you have the economy growing at trend? When will debt peak under the Coalition?
TREASURER:
You will see as we roll out our economic data. The starting point, which has not even been revealed yet, is MYEFO. That is what we have inherited. When you see MYEFO released, and I just emphasise again, this just illustrates the difference between our opponents and ourselves. They tended to release MYEFO in November, which was based on the June National Accounts. So it is a half year document based on the previous year's National Accounts. I deliberately wanted to wait until we had these National Accounts for the September Quarter, so that they would feed into the numbers and the forecasts, so that we have got realistic forecasts in the Mid-Year Economic and Fiscal Outlook document.
JOURNALIST:
Mr Hockey, one of the biggest sources of growth in the September Quarter was public sector spending and public sector capital investment. Do you think that winding back public sector spending was something that would be a hit to growth?
TREASURER:
You will have to wait and see. It depends on the quality of spending, that is what matters most to me. If we can spend taxpayer's precious money better in more effective ways that help to drive economic growth rather than on a range of different things that actually do not, at the end of the day, help to grow the economy then I think it is wise public spending that will help economic growth rather than simply about the gross number.
JOURNALIST:
Mr Hockey, can I ask you about Peter Costello's reaction to your GrainCorp decision and get you to reflect on that? He expressed concerns that you suggesting you are worried about a backlash against foreign investment would create a lot of impact in the future of foreign investment decisions. What would you say to that?
TREASURER:
Everyone's had a comment on GrainCorp. When the guy delivering my pushbike started to give me some advice on GrainCorp I got the feeling that basically we were at the point where the decision really needs to be made. Why? To provide certainty for people, and that is what we did. The certainty is this. I made a decision that was in the national interest. I had all the information including confidential information, commercially confidential information. I had got the best advice. The Foreign Investment Review Board was split in its recommendation. I go back – Chris Bowen said the FIRB actually recommended against the takeover of Woodside by Shell. He is wrong like he is wrong on so many things, he is factually wrong. At that time FIRB was divided, when it gave that recommendation to Peter Costello and Peter Costello made a decision in the national interest. As I am sure Wayne Swan did in relation to the ASX. Please, enough of the lectures about it. This issue has been dealt with. In fact, the United States has rejected an investment by Australian companies in the past on the basis that there was monopolistic activity that would be taken over by Australian companies. I think people just need to be better informed on the background to some of these things before they start running commentary.
JOURNALIST:
Treasurer, when are we going to see MYEFO?
TREASURER:
Before Christmas, it will be before Christmas. We will process these numbers through MYEFO and, as I have said, we are going through every line item that we can in the Government to identify where there are problems and if they need to be addressed. We are moving at the right pace because we have got to base it on the best available information.
JOURNALIST:
Is the Budget deteriorating in the same rate as it was between the May Budget and the Economic Statement or is that deterioration slowing?
TREASURER:
Nice try, there was a $33 billion deterioration in 11 weeks.
JOURNALIST:
Ten.
TREASURER:
Ten, I am being generous.
JOURNALIST:
Did the Expenditure Review Committee of Cabinet tell Minister Pyne to go out and find $1.2 billion…
TREASURER:
I do not comment on internal processes. We deal with the facts. That is the best line I can, Laura.
JOURNALIST:
You do not deal with the facts for the ERC?
TREASURER:
We do deal with facts in ERC, but I am not going into process.
JOURNALIST:
Just back on debt, just to clarify this allegation [inaudible] you made. You went to the election promising the voters that you would pay down debt and deficit. You are now telling voters, you have got to allow Labor' s debt trajectory to actually continue for a while perhaps even worse than you thought before it is down. Is that the case?
TREASURER:
This is Labor's legacy. You know what? On election day the economy does not stop. Everything does not reboot. I do not want it to be a shock. Everything does not reboot on election day. You inherit pipelines of expenditure on NDIS, on Gonski, on all these things. There are contracts that are entered into by the Commonwealth Government with the States, with contractors in Defence, right around the board. I have to deal with the legacy, and the legacy of Labor is more debt more deficits, a slowing economy. The fact is that we have got rising unemployment. That is the legacy, now I have got to deal with that legacy. I cannot turn it around overnight but we are damn well going to give it our best shot because Australia deserves the best shot. Thanks very much.