JOSH FRYDENBERG:
Today's National Accounts show that the Australian economy grew by 0.4 per cent in the March Quarter to be 1.8 per cent higher throughout the year. This is within the range of market expectations. The economy continues to grow in the face of significant international and domestic headwinds. However, growth is softer than it was at the same time last year.
In terms of real GDP, net exports, public final demand, household consumption and new business investment all contributed to growth. Nominal GDP continues to be strong, growing by 1.4 per cent in the quarter and 4.9 per cent through the year, driven in part by a rise in the terms of trade and strong commodity prices. The terms of trade was up 3.1 per cent in the Quarter and 6 per cent through the year. Household consumption, which comprises around 60 per cent of GDP, grew by 0.3 per cent in the March quarter, with consumption increasing in eleven of the seventeen consumption categories.
New public final demand across all levels of government rose by 0.7 per cent in the quarter to be 5.5 per cent higher through the year. This reflects the continued provision of essential services and the roll-out of substantial programs like the National Disability Insurance Scheme, as well as nation building infrastructure projects that the Commonwealth is rolling out together with the states.
Net exports contributed 0.2 per cent to real GDP growth in the quarter. It was driven by an increase in exports which rose by 1.0 per cent and a small decline in imports by 0.1 per cent. Services exports increased by 2 per cent in the Quarter to be 6.6 per cent higher through the year. More generally, growth in services industries across the economy increased by 0.9 per cent for the quarter, contributing 0.6 per cent to GDP growth. The on-going transition to services is important as these industries tend to be more labour intensive and therefore a key driver of jobs growth which has been robust in recent years.
The drought continues to impact on growth with farm GDP down 6.8 per cent compared to this time last year. Crop production fell in the quarter as on-going drought conditions in the eastern states continued to have an impact. Farmers also continued to reduce livestock numbers, in part reflecting the drought and high feed costs.
New private business investment increased by 0.6 per cent in the quarter, driven by investment in non-residential building construction. However, new business investment is down 1.3 per cent through the year, largely reflecting the continued transition in the mining sector from the investment phase to the production phase. The transition is nearing completion with the last LNG projects coming on line.
Dwelling investment fell by 2.5 per cent in the quarter, the second consecutive quarterly fall since the record levels were achieved for dwelling investment in September 2018. Compensation of employees, which measures the national wage and salary bill, increased by 1.2 per cent in the March quarter to be 4.3 per cent higher through the year. Employment growth continues to be robust with 320,000 new jobs created over the past year and around eight out of every 10 jobs being full time.
The strong labour market has drawn more people into work, particularly women and seniors and a participation rate of 65.8 per cent is now at a record high. The strong labour market is a really important factor in the economy and will continue to be vital in the months and years ahead. The strong labour market is one of the reasons why the fundamentals of the Australian economy remain sound. The proportion of working age Australians on welfare now is at a thirty year low. We have been able to maintain our AAA credit rating, one of only ten countries to have a AAA credit rating from the three leading credit rating agencies. And Australia is in its 28th consecutive year of economic growth. However, the economy does face some real international and domestic challenges.
The personal income tax cuts announced in the Budget, along with yesterday's decision by the RBA to cut interest rates, will provide a timely boost to household disposable income. Our record $100 billion infrastructure spending program, together with our plan to create 80,000 new apprenticeships, as well as the increase and expansion of the instant asset write off, including its provision to companies with a turnover of up to $50 million, will be important in enhancing economic activity and is a key part of the Morrison Government's pro-growth agenda. I will now just turn to a few slides before taking some questions.
So the first slide shows us where our GDP numbers are in terms of 0.4 per cent for the quarter, 1.8 per cent through the year. It's really important to understand that both in the last two quarters, the December quarter and the September quarter growth was lower than 0.4 per cent, 0.2 per cent and 0.3 per cent. So growth in the March quarter is slightly higher than what we've seen in the previous two quarters. But if you go back to the March quarter for 2018, that was 1.0 per cent and that 1.0 per cent growth now comes out, which explains why we've gone from a revised 2.4 cent growth to today at 1.8 cent growth.
The next is around household consumption. Now, household consumption grew by 0.3 per cent for the quarter and is 1.8 per cent through the year. It is part of the reason why the economy is softer than it was at the same time last year and this is where the provision of the tax cuts, as well as the interest rate decision yesterday, will boost household disposable income and will be important as part of consumption.
This is the consumption by category and as you can see it covers discretionary and non-discretionary items, and 11 of the 17 have increased. But I will point to one where it has decreased, which is around furnishings and household equipment. That is an example where the fall in dwelling investment has impacted upon the consumption by categories.
This is dwelling investment and obviously this is where we have seen a fall of 2.5 per cent for the quarter, down 3.1 per cent for the year. This is the second consecutive quarter where dwelling investment has come down and as you can see, it reached record highs around September 2018. APRA's recent announcements around the serviceability and the 7 per cent floor in managing new loans will also, I think, help investment across the dwelling sector.
This is new business investment. Now, it's grown by 0.6 per cent for the quarter but is down 1.3 per cent through the year. What's really important to understand behind this chart is it is a tale of two sectors; the mining sector and the non-mining sector. The mining sector fell 1.8 per cent in the quarter and is down 10.6 per cent through the year. So, mining investment has come off quite strongly as a result of the transition from the investment phase to the production phase.
In terms of the non-mining sector, we have seen a boost to business investment which grew by 1.2 per cent in the quarter to be 1.4 per cent higher through the year, and what is leading a lot of this new business investment is the commercial construction sector.
New Public Final Demand. Now as you know, this includes government spending and is across obviously both infrastructure projects as well as services, very strong at 5.5 per cent and that is being driven by new social programs like the NDIS but also the roll-out of the significant infrastructure projects. We've got $100 billion worth of infrastructure projects, this pipeline is very strong and will continue for some time.
The next slide is nominal GDP. Now we all know that when it comes to our Budget, this is the most important chart. This is the most important chart because it will determine the Budget numbers going forward, and obviously we're seeing strong growth there, at 4.9 per cent through the year, up 1.4 per cent through the quarter. 4.9 per cent is above the 10 year average, and obviously this is following on from the commodity prices and the terms of trade.
The next slide is where wages and profits [inaudible] as an overall share of the economy. Wages are obviously the dominant share and tended to be pretty steady. But we've seen a little uptick here in the profits, and that is driven by the high profits in the mining sector as opposed to the non-mining sector.
Household savings ratio, a slight uptick from 2.6 per cent to 2.8 per cent but hasn't moved that much. As you would know during the GFC we had a very high savings ratio, as people were uncertain and today that number is significantly lower.
This is also an important chart, and this is the final chart. This is just to give you a perspective of where the Australian economy is, compared to some other comparable countries. Obviously the United States is growing strongly, and we have been at 2.4 per cent, coming back to 1.8 per cent, but we still compare favourably to a number of other economies and obviously the fundamentals of the Australian economy remain sound. Happy to take some questions.
QUESTION:
As part of your most recent budget you had about $30 billion of infrastructure announced then, but only about 30 per cent of that is due to be spent in the next four years. The RBA Governor yesterday talked about what more the government can do to stimulate the economy. Would you consider accelerating any of that infrastructure spending into the first four years?
JOSH FRYDENBERG:
We've got about $100 billion of infrastructure spending planned. Nearly half of that is going to be over the forward estimates and that is important. Where projects can begin, we will begin, but obviously there are some projects we want to begin where we need state approval like the East West Link in Victoria and we would like Daniel Andrews to give the green light to that project because we have $4 billion waiting as a contingent liability ready to be spent on that important infrastructure project in Victoria.
But we have projects that are shovel ready, 20,000 people are going to be employed with the WestConnex and NorthConnex projects, as you know, and work is underway. The second airport for Sydney, Snowy 2.0, these are major nation building infrastructure projects that we have underway.
You referred to Governor Lowe's comments. He has also often been on the record as to the benefit from the tax cuts to people's disposable income, and the extra money that that will put in to people's pockets. That's why it is such a priority for us, when the Parliament gets back, we'll be putting that as a package and obviously the package includes immediate tax relief, which will provide up to $1,080 in to people's pockets who earn up to $126,000, but also the long term structural reform through the flattening and simplification, Phil.
QUESTION:
Treasurer, just an extension to Eryk's question with the tax cuts, the immediate stimulus or growth dividend comes from the Stage One, will there be any prospect, if the Budget permits, of bringing Stage Two forward?
JOSH FRYDENBERG:
We set out to the Australian people what our plan is on tax cuts and we'll be putting it to Parliament as a package, as endorsed by the Australian people in the Election and let's hope that the Labor Party has learnt that lesson this Election. You can't stand in the way of aspiration and you shouldn't stand in the way of lower taxes for millions of Australians.
QUESTION:
You said the tax cuts will be passed in the first week of July when Parliament comes back. How quickly would they then flow?
JOSH FRYDENBERG:
Well the ATO has made it very clear that they're now doing the preparations with their systems and within days, they said, within days. They've said that they can make the adjustment once it becomes law and people who may have already put in their tax return for the '18-'19 year wouldn't have to put in a new tax return. So, they're preparing and I've spoken to the Commissioner Chris Jordan about it. They're preparing all their systems, as we are, in the hope that this legislation, as a package, goes through the Parliament once it resumes.
QUESTION:
Treasurer, in addition to infrastructure spending, the Reserve Bank Governor identified the need for structural reform to help business investment and drive employment. Can I just ask, what is your response to that? Are you going to heed that message in this term of government? Could you do more in terms of changing up the tax settings? Could you do more in terms of industrial relations reform? What is your response on that pointed call for structural reform?
JOSH FRYDENBERG:
Well, where the challenges are, for example, in household consumption. We've got policies which are focused on delivering more money into people's pockets. So, for example, the tax relief. Where we need to boost productivity, which is a focus for us. The skills agenda and the apprenticeships have a role there. The productive capacity is critical in the Australian economy to boosting our overall productivity and that's where the infrastructure projects can make a difference. Don't forget the Instant Asset Write Off which was extended in this Budget to $30,000 in companies with a turnover of up to $50,000 is also important in generating more investment and more economic activity across the economy. There are more than 300,000 businesses already accessing the Instant Asset Write Off.
So we believe we've got the right measures and the right plan to strengthen the economy, to continue the strong jobs growth and I do want to underline the fact that the labour market is strong and I did talk about how services is a growing part of the Australian economy and that's where so many new jobs are being created. Over 1.3 million new jobs have been created during the Coalition's term and time in government and over the last year, more than 320,000 new jobs have been created.
So we do face some headwinds, domestic and international, but we have got the economic plan that was laid out in the Budget and we will continue to implement it.
QUESTION:
Just in relation to Eryk's question, was the answer 'no'? That you are not going to bring forward any of the infrastructure spend which I think is about $40 billion over the forwards? So, it just wasn't entirely clear to me whether the answer was no.
And another, if I may, which relates to economic fortunes and Australia's economic fortunes. Mike Cannon-Brookes, the head of Atlassian, has said at the Morgan Stanley summit today that coal will be done in twenty years and that if the Australian Government was running Australia like a business that someone might want to think about that and do something about that. So what is your response to that?
JOSH FRYDENBERG:
Well, in relation to your first questions, we're always looking for opportunities to bring infrastructure projects online, but you've always got to tick the boxes, you've got to do the business cases, you've got to get the planning approvals, you've got to get the personnel to build these projects. If you go across Victoria, there's cranes over the city. It's sometimes difficult to get all the inputs that you need for these major projects. So that is why the Prime Minister and the Victorian Premier, as well as myself and the Treasurer of Victoria, we recently sat down to discuss the infrastructure pipeline for Victoria and how we can work together. So we will bring the projects online that we can but there are a number of projects in the Budget, for example, there are a number of commuter carpark funds and the other congestion busting infrastructure that we will bring on as quickly as possible.
In relation to Catherine's second question, about the transition in the energy mix, that is underway, right, and I've spoken often about the opportunity that that provides, but I think it is wrongheaded to think you can shut down new coal fired power stations and maintain a stability in pricing and in reliability. It just doesn't work like that. So it's a smooth transition that we're working on. We're encouraging renewables but we're also doing everything we can to get more generation into the energy mix, including following up on the ACCC's recommendations, which Angus Taylor has done, by identifying where the Government can provide some level of backup for new generation.
QUESTION:
Just days before the Federal Election, Treasurer, you said that there was no impediment to paying these tax cuts as a result of the election, at all. You said, quote, 'they would be in worker's pockets from July 1.' Now, did you lie or did you receive poor advice from the Australian Tax Office? And secondly, the Prime Minister also repeatedly said, the day after the Budget and indeed, the day after that PEFO was released, that the tax cuts could just be waved through administratively and the ATO could pay these tax cuts without legislation. You now say that's not the case. Did he lie or did he have bad advice from the ATO?
JOSH FRYDENBERG:
Well Sam, the only impediment to tax relief for the Australian people would be the Labor Party, because we'll be putting it as our first order of business when the Parliament resumes in the first week. And as I said earlier, the ATO have made it very clear that they are doing the work right now on ensuring that their systems are right so that when the tax relief package becomes law they can implement it straight away.
QUESTION:
But that's not what the Prime Minister said the day after the Budget and that's not what he said the day that PEFO was released, that clearly stated legislation was required. Why did the Prime Minister tell voters that that money could be paid, regardless of legislation, as long as the Labor Party supported that element alone, which they do, why did the Prime Minister say that?
JOSH FRYDENBERG:
We've always said we will be putting this package of measures on tax relief as a package. We've been very consistent with that. The Labor Party doesn't get to pick and choose, after an election, which things that they support because as we did last time, with the $144 billion worth of tax cuts in Scott Morrison's last budget as Treasurer, we got it through with the support of the crossbench. So, our key point is…
QUESTION:
But with respect, that's not the question. The Prime Minister said it could be paid by the ATO administratively. Do you now accept that's wrong? And if you do, why did the Prime Minister say that?
JOSH FRYDENBERG:
We've been very clear. We need legislation to pass it and that's what we're working to do.
QUESTION:
For the second day in a row now, we've seen the Australian Federal Police going first into a journalist's home and now into a journalist's workplace seeking information. Now, I know you will say that agencies act on their own behalf. Why has this happened after the election on stories which were written sometimes two years before the election? Do you condone this behaviour? You sit on a National Security Committee in Cabinet, is this the kind of country you want to live in? So I'm asking you for a personal opinion on this, as well, on the raids on journalist's houses and on their workplaces. Is this the kind of country that we're going to have under the Morrison Government?
JOSH FRYDENBERG:
Chris, I answered this question yesterday and I saw it was in your package last night. We respect the independence of the fourth estate, but at the same time, this is an ongoing investigation. It would be inappropriate for me to comment, I understand…
QUESTION:
You can have the opinion on any investigation. You're also….
JOSH FRYDENBERG:
Well, I will be prudent here and not comment on on-going investigations, noting that the Attorney-General has already answered a number of questions.
QUESTION:
Just back on Governor Lowe's comments on structural policies that would support firms expanding, innovating and employing people, apart from the Instant Asset Write-Off. You've already ruled out reducing the corporate tax rate for big businesses, but are you considering reducing the tax rate for small and medium businesses further to what you've already implemented in this term?
JOSH FRYDENBERG:
Well, we've announced the reduction to 25 per cent. That's where our focus has been and I have to point out that our support for small business, noting that it is part of the engine room of the Australian economy, has been multifaceted. It's not only been tax cuts, but it has been the $2 billion Securitisation Fund, which is about increasing access to finance. It's also about ensuring that big business doesn't use small businesses as a bank by paying them on time. It's the support that we've given to employee share ownership schemes to encourage entrepreneurship and development. There's a whole series of measures, including the Instant Asset Write Off. So, we've outlined our measures for small business. I know that the Small Business Minister continues to look for ways to support small business, but they're getting more support from us than they would ever from Labor.
QUESTION:
In the past 24 hours, you've had these two raids. They are extraordinary; we haven't seen these scenes for a very long time in Australia. If you won't to offer a proper opinion on how comfortable you are with that, is it not incumbent on the Government or the heads of these agencies to provide an explanation to the Australian public to prove to the Australians that this is not an attack on press freedom?
JOSH FRYDENBERG:
Well, as you know. These are matters of on-going investigation and I'm not going to run a commentary on it. The Attorney-General has answered the relevant questions on it. But, we do respect the independence of the fourth estate, and I promise….
QUESTION:
….Do you at least concede that there is a strong public interest in journalism that exposes evidence of unlawful killings and gross misconduct by Australian Special Forces?
JOSH FRYDENBERG:
It will disappoint you but my previous answer stands.