LAURA JAYES:
Thanks so much for your time, Treasurer. How much worse can this trade war get?
JOSH FRYDENBERG:
Good morning. Well, let’s not overreact but at the same time let’s recognise that this is an unwanted escalation in the trade tension between China and the United States. This escalation is what many thought would happen but also what many hoped would not happen. But now that it has happened, Australia is calling on cool heads to prevail and obviously for the parties to negotiate a resolution of this dispute. But certainly, the currency move by China and the increase in tariffs by the United States is an unwanted escalation in this trade dispute.
LAURA JAYES:
Is China a currency manipulator?
JOSH FRYDENBERG:
Well, currencies do move and obviously they have had a fixed exchange rate. But, at the same time, the US has domestic legislation where they’ve acted under its domestic legislation for the first time since 1994. But again, it’s not for Australia to say which side is right or which side is wrong. What Australia wants is for the international rules based framework to be maintained, Australia wants cool heads to prevail and that’s certainly in our national interest given one in five Australian jobs are related to trade and given that we want the global economy to continue to grow.
LAURA JAYES:
Australia is part of that rules based order, so under the WTO rules, has China manipulated its currency?
JOSH FRYDENBERG:
Look, the United States has said that they’re going to have this issue raised through the IMF. It’s important to understand that the IMF does not have the power to change the behaviour of countries when it comes to their currency. At the same time, central bank governors and finance ministers recently in Japan all agreed, and China was there, the United States was there, and we all agreed that countries wouldn’t be using their currency for a competitive advantage. So that is the Australian position and one hopes that it’s also the position of the other countries that signed on to that document.
LAURA JAYES:
Okay, we saw $86 billion wiped off the share market in just the last two days. What effect is that having and what is the Government doing to mitigate against the effects of this ongoing trade war?
JOSH FRYDENBERG:
Well, the first thing to say is that the Australian Stock Market is actually up 14 per cent through the year, even taking into account those recent falls. What we have seen with superannuation returns is above 5 per cent over the last year which is obviously much stronger than if people had put their money in a bank in this low interest rate environment.
What we’re doing to ensure the economy continues to grow is providing the biggest tax cuts that this country has seen in more than two decades and we did that against the will of the Labor Party and that was an important election commitment that we’ve seen through. We’re spending $100 billion over the decade on infrastructure. It’s a very significant pipeline of nation-building projects. We’re creating 80,000 new apprenticeships.
Yesterday, in the Reserve Bank announcement on interest rates, they made it very clear that their central scenario for the Australian economy is that it will continue to grow, that employment growth has been strong, that the participation rate is at a record high, that they’re seeing a stabilisation in the housing market with clearance rates having jumped up compared to where they were a year ago and we’re also seeing investment come back into the mining sector. So there are some positive signs, but that’s also not to downplay what are significant challenges facing the Australian economy.
LAURA JAYES:
The RBA was a little bit more pessimistic than you about where Australia’s economic growth is at. It has flagged further rate cuts. Do you welcome that? The RBA seems to be running out of levers. It wants the Government to do more. Are you considering more immediate stimulatory effects?
JOSH FRYDENBERG:
Well, the Governor yesterday in the statement made it very clear that the interest rate cuts combined with the fiscal measures- the tax cuts, the infrastructure spending and the improvements that we’re seeing in investment in the mining sector- will all make a positive contribution to household incomes going forward. And the RBA is still predicting economic growth, Laura, of 2.5 per cent in 2019 and 2.75 per cent for next year. So, the Australian economy will continue to grow. But as you do say, interest rates are at historic lows and the Reserve Bank has given themselves flexibility to move again if they so see. But we have seen around the world countries have low interest rates. This is a new phenomenon where we’re seeing low inflation, relatively low unemployment as well as very low interest rates.
LAURA JAYES:
So where is the evidence that those tax cuts have actually had an effect and do you think, perhaps, that you need to go further?
JOSH FRYDENBERG:
The ATO have told us that over $6 billion has already made its way into the economy and a record number of Australians have put in their returns in quick time for the 18-19’ year. So this is money that is being spent at the local cafes with the local tradies on goods and services across the economy. All that is money that is now churning through the economy. Post the election, we saw some confidence come back into the economy and, importantly, the housing market with clearance rates above 70 per cent compared to about 50 per cent at the same time last year. So, this is not a time to overreact to those developments in the last forty-eight hours overseas but we are very conscious of the challenges that the economy faces.
LAURA JAYES:
Just one more question. Wages growth is just stagnant. There is no sign of that picking up anytime soon. Commodities are booming at the moment. There’s an insatiable appetite that continues from China. So mining companies are really benefiting here, why isn’t that flowing through to the rest of the economy?
JOSH FRYDENBERG:
Well, obviously there is always volatility in commodity prices. Yes, you’re right, we have seen very strong prices for iron ore and for other commodities like coal. But that has not always been the case and these are major investments that companies make in that sector. When they do produce good returns it helps smooth out what are sometimes more challenging times. When it comes to wages growth, the Wages Price Index, which is that euphemism for wages growth, is growing at 2.3 per cent. That’s above inflation which is at 1.6 per cent. But the way to drive further wages growth is increased productivity but also tackling some of the spare capacity that we’ve seen in the labour market even though unemployment is at 5.2 per cent. And that’s where our policies, whether its skills, whether its infrastructure or whether its tax, that’s where our policies are directed; how to create more jobs, given that as a Government, we have helped create more than 1.4 million new jobs since coming to Government.
LAURA JAYES:
Treasurer, Josh Frydenberg, appreciate your time this morning.
JOSH FRYDENBERG:
Good to be with you.