TREASURER:
Hello. Okay, the Australian economy grew by a solid 0.5 per cent in the December Quarter to be 2.5 per cent higher over the past year. This is up from a revised 0.4 per cent in the September quarter. Growth was supported by a welcome lift in household spending, strong exports, and further investment outside of the resources sector, especially in construction.
This shows that we are managing a very challenging transition from the mining construction boom to broader growth. The low interest rate environment and rising household wealth is driving household spending. Household consumption grew by a strong 0.9 per cent in the quarter to be 2.8 per cent higher over the year. This is the strongest outcome for household consumption in almost three years. Household savings continue to drift down from higher levels as consumers become more confident about the future. Housing investment rose by 2.5 per cent in the quarter to be a remarkable 8.1 per cent higher than it was a year ago.
Strong building approvals and other indicators suggest that residential investment will continue to grow, which will increase spending on things such as furniture, electrical appliances and other household goods. Consistent with higher household spending, firms in the services sectors undertook solid investment spending last year. Capital expenditure in these areas grew over 10 per cent, which is the fastest rate in seven years. As was expected for some time, mining investment fell as the construction phase of the mining boom continues to wind down from record highs.
Productivity growth remains a challenge over the long-term. There are signs that productivity is improving in the mining sector, naturally enough, because they’ve gone from the construction phase to the production phase. But that’s also seen employment growth in mining construction fall obviously. Supported by a lower exchange rate, exports continue to grow strongly, especially in the mining sector where we are now seeing the dividends of years of mining investment. With falling imports, net exports have provided the largest contribution to growth in the quarter. Our income as a nation picked up in the quarter, thank goodness, with nominal GDP rising by a solid 0.6 per cent. Real gross national income also rose in the quarter. But we continue to face global headwinds from Europe and Asia, which have put downward pressure on our commodity prices. The terms of trade fell again by a further 1.7 per cent in the quarter; that's the fourth consecutive fall. Since coming to Government, we’ve witnessed the largest ever fall in the terms of trade.
That said, Australia is still performing well by international comparisons. Our economy over the past year has grown faster than the United States, Germany and obviously Japan, and other key trading partners such as Hong Kong and Singapore. Furthermore we remain comparable to the best performing developed nations such as the United Kingdom and Canada. With continuing low interest rates, low petrol prices and a lower Australian dollar, we are in a good position to manage the transition in our economy and maintain our positive economic trajectory. Of course, this is good for jobs and it's good for Australian business. Over to you.
REPORTER:
Treasurer, over the last six months of 2014, the economy grew by just under one per cent. That's not enough to drive unemployment down, is it?
TREASURER:
No, and that's why we have to work harder. We have faced the remarkable drop in iron ore prices, which, I mean, obviously coming from the West you would be most familiar with – iron ore prices dropped from around $90 a tonne in the Budget to what we’re forecasting as $60 a tonne. It's our single biggest export and that’s had a big impact on our economy and on our national income. Having said that, there are good signs, unquestionably the housing construction sector is in a remarkably positive shape. This is very important because it is a big employer. Low interest rates are contributing, but also, we are seeing rising prices, which in turn helps to improve asset values. We’re starting to see the Stock Exchange get back to near-term highs and that’s providing some confidence into the economy and obviously providing consumers with some confidence, despite the challenge in relation to employment.
REPORTER:
Given though that it is growing at a very sub-trend rate, the unemployment rate is destined to go up from here isn’t it? Would you agree? [Inaudible]
TREASURER:
Two and a half per cent for the year in the face of the massive transition in the Australian economy is a good outcome. It's right on track with around about where we were expecting to be. Now, we want to get growth up and that's why in the next few weeks you’ll see us make major announcements in relation to families, small business, and continue to make significant announcements in relation to infrastructure. So, there is a good story there – there is a great story coming. We’ve just got to grasp the nettle and if we do that – in partnership with the Australian people – I'm confident that we can then get the jobs starting to flow through but when you’ve got a new Victorian Government cancelling a project that employs 7,000 people, and is currently employing 600 people, and when you’ve got a new Queensland Government that doesn't know what it's going to do on the massive infrastructure challenge facing Queensland in the wake of the election, that makes it much harder. That's why I will take this opportunity now that you’ve given me the window to encourage people in New South Wales to vote for Mike Baird because, by God, NSW needs that infrastructure and it needs the jobs.
REPORTER:
Treasurer, you mentioned a series of major announcements in the next few weeks. I guess tomorrow with the release of the IGR, would it be fair to characterise that really as the start of the Budget sales job for the Government for the second Budget? And secondly, on that sales job, how much is the Government actually going to spend advertising the IGR?
TREASURER:
Firstly, the story that was in your paper yesterday was dead wrong about the IGR, so you’ve got to understand that we haven't manufactured any numbers in the IGR. The IGR, when you see it will tell the truth. We’re not using it as a vehicle for any purpose other than to start a conversation with the Australian people – which the Australian people want, about where we’re going over the next 40 years. But they also want to have a say; they want to have a voice. Now, of course we’re going to engage in a conversation with the Australian people and that is going to be in town halls and street corners. We’re going to have a range of different people stimulating that conversation but we’ve got to get the information out to people. We will get the information out but we’re not doing it in a way that would be typical for governments to just buy those rather droll ads that, you know, try and convince people to come this way. We actually want people to read the information, to understand it and discuss it, discuss it, because ultimately Australians have got to guide their own future. You can't have Canberra try and lecture people about how they should live their lives.
REPORTER:
[Inaudible] That’s a different – If I just may follow up that: that’s a different approach to the way the Government approached its first Budget last year in terms of stimulating a conversation [inaudible]?
TREASURER:
The Budget is just part of the equation. Look, the Budget is not the be all and end all for the economic debate, and certainly, it’s not the be all and end all for the social policy debate that Australians want to have.
REPORTER:
Treasurer, wages fell across the economy [inaudible] National Accounts in the December quarter. Do you think that you can see the level of consumption growth sustained given the very weak income growth?
TREASURER:
What we are seeing is a significant drop in prices too. I mean, obviously oil coming down has been the equivalent – I got an analysis done when it was around 100 cents a litre, but that was the equivalent of a stimulus of 0.6 of one per cent cut in interest rates by the Reserve Bank for everyday households. Now, on top of that, the Carbon Tax went but yet we kept the Carbon Tax compensation and we kept the Carbon Tax tax cuts, so that's flowed through. We’ve already had another cut by the Reserve Bank in interest rates – that flows through. So, there has been quite a bit of stimulus in the Australian economy over the last six months and in part that will help to compensate for the lack of growth in real wages and obviously the growing excess capacity.
REPORTER:
If the IGR is not going to be used for any political purpose at all, what’s the point of including in it the Budget projections as they would have been under the former Government as they would have been under your [inaudible] under your first Budget and how they’re going to be now? And just to be clear about what you want us to do with that information – is it the Government's intention to keep the Budget projections as they are, as they stand now or do you want to make up that ground, make up those savings that have been stalled in the Senate in some other way?
TREASURER:
We’re taking the same approach as previous governments, including Wayne Swan, in relation to private health insurance in the last IGR. So, I think changes in private health insurance – now, I might be corrected here, but I think changes on the private health insurance had been rejected by the Senate before the last IGR but he still counted it in and eventually he got them through the Senate. So, you know, a Budget is a plan, and let me just say this, I really want Australia to have a proper informed debate about the future. It's exciting, we're going to live longer. That's fantastic as a nation, and we want to have quality of life along the way. And we are going – if we are going to live longer, we are going to be in and out of work and have many different careers. Technology is going to change the way we live our lives. That's all fantastic and exciting and one of the many reasons why I'm very positive about Australia's future. But this is just the information pack that starts the debate. It's the information pack that says look, this is a demographic trend, this is the trends in Government expenditure; how are we going to pay for our future, but more importantly, how are we going to embrace our future? In that regard, I would urge you not to prejudge the IGR – not to come with a cynical approach. Cast aside the cynicism; come on board with a positive attitude towards the future of Australia. David, nice socks.
REPORTER:
Thank you. Would you have preferred the Reserve Bank to have cut rates yesterday? And can I ask, would you – how would you describe the house price issue in Sydney, in particular?
TREASURER:
There is a lot of demand for housing in Sydney, in particular, but that's not uniform across the country and it's not necessarily uniform all across Sydney. Now, one of the things I'm most pleased about is there has been a very significant increase in construction – residential construction in Sydney and New South Wales over the last 12 months. There’s been a massive increase in the number of housing approvals, which is very important. But obviously, there will be parts of the economy that are doing very well; there will be other parts that are not doing well. Now, we saw that in Western Australia during the mining boom when the rest of Australia wasn't doing so well. Sydney is effectively around a third of the Australian economy, so it helps the Australian economy for Sydney in particular to be performing well. So, in relation to the Reserve Bank, that is a matter for the Reserve Bank. I have spoken with the Governor of the Reserve Bank this morning. Obviously I was – like he was – concerned about reports that there have been extraordinary trades before the release of the Reserve Bank decision yesterday. He advised me that he’d spoken to ASIC about the matter. I'm satisfied that that investigation will be properly undertaken.
REPORTER:
Okay, speaking of Sydney houses, number 63 Wolseley Road; if that's not sold within 90 days, can you just clarify – can the Government repossess the house [inaudible]?
TREASURER:
I don't want to get into that scenario; I have issued a direction. There are obviously criminal sanctions available and there are a range of different mechanisms available. If it is sold at a profit, the owner gets to keep the profit. Having said that, under our new rules, there would be a very different outcome. If it's sold at a loss, it sounds as though the owner has a capacity to absorb some of it.
REPORTER:
Are there any other properties that you’re looking at?
TREASURER:
I'm not a buyer, David.
REPORTER:
No, in terms of FIRB…
TREASURER:
Yes, there are, yes, there are. It's amazing how many phone calls we got this morning but yes, we are. Look, if someone’s broken the law, they’ve broken the law, that's it. We provided natural justice, we gave them an opportunity to respond, and I say, as I said in the Parliament, as we’ve been saying before, it is hugely important that we have integrity in our foreign investment regime, hugely important that we have foreign investment, hugely important that there is integrity in the foreign investment regime and wherever people believe that there has been unlawful behaviour in relation to foreign investment, we want to know about it, we want to know about it. Now, the Foreign Investment Review Board has been starved of resources in the past. We will be beefing up considerably their resources. I’ll have a further announcement in relation to foreign investment later today. That announcement will relate to a major acquisition. It has consumed an enormous amount of resources – of time and effort from the Treasury, from the ACCC and from myself and my team and at the moment there is no application fee. We’re changing that because we need to start to beef up the overall resources.
REPORTER:
Do you have the capacity to investigate all of the allegations of improper purchases in existing houses and is it your intention to investigate every single one?
TREASURER:
We want to get to the point where realistic evidence is being properly investigated. I mean, you know, we’re not going on a witch-hunt and we don't want to create an atmosphere – we definitely don’t want to create an atmosphere of xenophobia or anything else. We actually just want to be in a position where we maintain, preserve, and enhance the integrity of the foreign investment regime and Australians, wherever they go, any Australian that goes to an auction needs to know that they are competing on a level playing field with people that are lawfully able to acquire the property.
REPORTER: Treasurer, just back on the question about the three lines in that graph today, does that indicate that you can really only get Australia to a surplus if all of your current policies are passed by the Senate – or if you come up with alternatives? And does that mean that you’ve got to hold the line on those savings plans that you’ve already got on the table now and make them part of your election plan at the next election?
TREASURER:
As you will see tomorrow, the assumptions on getting back to surplus over the medium and long-term are based on a continuous period of economic growth of 40 years. So, the longest period of economic growth of a developed nation outside of Japan since its post-World War II period is the Netherlands, which had 26.5 years of continuous economic growth until 2008 on the back of, you know, oil revenues. Australia is in its 24th year – consecutive year of economic growth. The underlying assumption is that we’re going to get another 40 and that's how you get back to – it’s not how you get back to surplus but that’s the underlying assumption for the numbers. Now, that has been the [inaudible] practice we’ve incorporated today, but it shows you that we’ve actually come a long way – a long way in the last 18 months. It was very hard to deliver a Budget that delivered 40 years of Budget repair; one single night to deliver 40 years of Budget repair but we did come a long way, but there’s still a long way to go.
REPORTER:
Specifically on the GP co-payment, does whatever the Minister comes up with next have to find the same amount of money?
TREASURER:
No, the GP co-payment represented the equivalent of 1/17th of one per cent of expenditure over the forward estimates. The main intention was in relation to a price signal and the main intention was that, you know, people like you and I that can afford to go to the doctor should pay to go to the doctor and not get a free service. If I can just finish – so, you know, we can only do what is possible. The pressure is now on Bill Shorten and the Labor Party to start presenting alternatives, as well. I mean, they’ve been very successful in blocking and parading but they haven't done anything to actually help to fix the mess that they created. Even the fly by night suggestion in relation to multinationals released on Monday was blown out of the water by every independent commentator who had a look at it and said it's just not credible. So, you know, they’ve got to do – I thought they were going to have a year of constructive policy or something like that? What happened to that?
REPORTER:
On the question of Medicare, the Minister yesterday seemed to say that the price signal was still important. Do you believe that in the consultations going ahead now with the doctors, it is necessary to get some sort of price signal somewhere?
TREASURER:
I’ll leave that to Sussan Ley who is doing a fine job in managing this issue with the medical profession.
REPORTER:
When you said you were looking at more properties under the [inaudible] are they all luxury properties or is there a range?
TREASURER:
Well, no, there is quite obviously a range.
REPORTER:
Are they all in Sydney?
TREASURER:
No.
REPORTER:
How low [inaudible]?
TREASURER:
As low as the law lets us. Thank you very much.