Today's National Accounts for the June quarter 2018 highlights the strength and the resilience of the Australian economy, which is in its 27th year of consecutive economic growth.
According to the Australian Bureau of Statistics, real GDP grew by 0.9 per cent in the June quarter 2018, which was above median market expectations. This follows an upwardly revised increase of 1.1 per cent in the March quarter.
The economy grew 3.4 per cent in through-the-year terms, which is the fastest rate of growth since September 2012, which was during the height of the mining boom.
In year average terms, which is what we publish in the Budget, our economy expanded by 2.9 per cent in the 2017-18 financial year. This is above our forecast of 2 ¾ per cent published in the 2018-19 Budget.
Nominal GDP grew by 4.7 per cent on a year average basis, also above our Budget forecast of 4 ¼ per cent. As prices for key commodities have remained higher than we prudently assumed.
The strength in the June quarter was broadly based. Household consumption, dwelling investment, new public final demand and net exports all contributed to growth in the quarter.
Business investment and changes in inventories made no contribution to growth. Households continued to demonstrate their confidence in the economy with household spending up 0.7 per cent in the quarter, to be 3 per cent higher through the year.
The outcome is above the 10 year average through the growth rate of 2.7 per cent and shows that households are benefitting from recent strong employment growth.
It is important to note that spending in 12 of the 17 consumption categories grew in the quarter including in food, recreation and culture and shows that households are benefitting from recent strong jobs growth with more than 330,000 jobs created in the last financial year which is the largest jobs growth since 2004-05.
I will repeat that, more than 330,000 jobs were created in the last financial year, which is the largest jobs growth since 2004-05.
The June quarter result finishes off a strong 2017-18 financial year for household consumption and the Government's targeted tax relief through our personal income tax plan for lower, fairer and simpler taxes will continue to support household incomes.
Dwelling investment reached a record high level, expanding by 1.7 per cent in the quarter to 3.8 per cent higher throughout the year.
This outcome followed a strong growth of 3.6 per cent in the March quarter 2018 and was driven by robust growth in investment in new and in used dwellings.
New private investment fell by 0.2 per cent in the quarter to be 4.1 per cent higher through the year.
New building construction was up 1 per cent in the quarter, while new machinery and equipment investment was down 1.7 per cent and new engineering construction was down 0.8 per cent.
By industry, mining investment rose by 5.1 per cent, which was the first rise since the March quarter of 2017. This result reflects investment in machinery and equipment by mining firms and an increase in mineral and petroleum exploration expenditure.
While new non-mining investment fell by 1.7 per cent in the quarter, it remained elevated and grew by 8.8 per cent through the year.
New non-mining investment refers to new investment only and does not include asset transfers. The fall in new non-mining investment in the quarter reflects lower machinery and equipment investment following strong growth in the previous quarter.
Through the year strength in new non-mining business investment has occurred alongside business conditions and confidence which are above the historical average. The results have evidence to suggest that private business investment is benefiting from increased infrastructure investment in the public sector.
The unwinding of the mining investment boom and its associated drag on economic growth has also worked its way out of Australia's economic landscape.
New public final demand, across all levels of government, rose by 0.6 per cent in the quarter to be 4.7 per cent higher through the year.
New public investment fell by 0.9 per cent in the quarter but was up 3.3 per cent through the year. With infrastructure investment by the states and the territories, particularly on transport projects, continuing to remain elevated. New investment is defined as not including asset transfers.
Public consumption grew by 1 per cent, to be 5.1 per cent higher through the year and is expected to continue to grow strongly as a result of the transition to the National Disability Insurance Scheme.
The benefit of a strong economy is it allows Government to guarantee the essential services that Australians need.
Net exports contributed 0.1 percentage points to GDP growth in the quarter and exports contributed 0.2 percentage points, partly offset by the traction of 0.1 percentage points from the imports.
Exports rose by 1.1 per cent in the quarter, with broad-based growth across components including in agriculture, led by meat, grains and cotton and commodity exports.
Exports continue to be supported by the expansion of Australia's mining capacity, particularly LNG, as key projects ramp up to full production.
Services exports are also contributing to growth as strong demand from Asia for tourism and education services continue.
The terms of trade did fall by 1.3 per cent in the June quarter but was still 2 per cent higher through the year.
Pleasingly, compensation of employees, which is wages and salaries across the economy, rose by 0.7 per cent in the quarter to be 4.8 per cent higher through the year. Growth was mostly driven through a large increase in employment.
Company profits increased by 0.9 per cent in the quarter, to be 8.8 per cent higher through the year, which did include strong results from mining companies.
Strong employment outcomes have been accompanied by an elevated rate of labour force participation, particularly women, which has recently been near its record high.
Importantly in 2017-18, over 95,000 young Australians found employment, which is the best financial year result since 1988-89.
I'll repeat that. Importantly in 2017-18, 95,000 young Australians found employment, which is the best financial result since '88-89, almost 30 years ago.
The unemployment rate has declined, reaching 5.3 per cent in July, the lowest level since November 2012.
Improving the incomes of wages and salary earners must remain our most important challenge. Wages can be expected to rise if economic growth remains strong as excess capacity in the labour market is absorbed, this is a view shared by Governor Lowe and was reflected in yesterday's Reserve Bank statement.
I'll now just turn to a few slides, and happy to take some questions after that.
The first slide reflects that there was 0.9 per cent real GDP growth for the quarter and 3.4 per cent through the year, which is above, as you can see, the 20 year average. This is the strongest growth since the height of the mining boom in 2012.
Next slide. In terms of contributions to real GDP growth, what you can see is that there are a number of components that have contributed to this number and it is broadly based.
Next slide. In terms of household consumption, actual growth as opposed to contributions to growth, this is the actual growth slide, household consumption grew by 0.7 per cent in the quarter, to be 3 per cent higher through the year.
And strong employment growth is underpinning this strong household consumption number.
In terms of dwelling investment, it increased by 1.7 per cent in the quarter, to be 3.8 per cent up through the year, with a strong pipeline of dwellings that are under construction which will support this activity going forward.
The next slide is new business investment. New business investment, as you can see, fell by 0.2 per cent for the quarter, but is still up 4.1 per cent through the year and is noticeably stronger than it was a couple of years ago.
The next slide is new public final demand. And this grew by 0.6 per cent in the quarter and was 4.7 per cent up through the year.
Again, this is higher than the 20 year average and it reflects the fact that we are getting on with the job of delivering new infrastructure projects across the country and the essential services that Australians rely on.
In terms of the household saving ratio, this did fall in the quarter, down to 1 per cent. But it is really important to understand that Australians are still saving.
And this does reflect the fact that we have got record low interest rates and they are having the intended effect, which is to get people to spend with confidence.
Next slide. This slide is extremely telling. Because what it shows is that Australia's real GDP growth through the year is substantially higher than any G7 country, is well above the OECD average of 2 ½ per cent and as I said earlier, is above the median market forecasts.
So by any calculation, the Australian economy is strong, the fundamentals are good, the momentum has continued and these are an encouraging set of numbers.
Treasurer, this result has really been driven by a lot of employment growth, which in turn has been driven by high migration rates. How important is our high migration rate to maintaining strength of the Australian economy?
Certainly employment is driven, to some extent, by growing population, but not only by growing population. What we have seen is a 1.6 per cent increase over the last year in Australia's population. And if you look at permanent visa numbers, actually they are down this year compared to last year.
But what we are seeing with employment across the economy is real confidence in a vast range of sectors and we are seeing dwelling investment, business investment, we are seeing obviously public final demand, which is government spending being stronger – infrastructure projects.
I wouldn't put it down simply to population. What I would say is that there is stronger confidence in the Australian economy, our export numbers are strong as we have seen around the world - China while coming off very high levels of growth to more moderate levels of growth, continues to grow. And there is an important market for Australia.
We have found new markets, we are increasing trading through our free trade agreements that the Coalition Government has delivered, with Japan, China, Korea or most recently the TPP.
This is what is creating jobs across the economy and we will continue to support measures, whether it is the enterprise tax plan, which it is important to point out, Bill Shorten wants to roll back. He wants to cut company taxes. He wants to make it harder for them to employ more people.
As well as our income tax plan, which as you know has helped millions of Australians get more of their hard earned earnings back.
Treasurer, can I just ask you about wage growth, in particular for childcare workers? They have stormed off the job today. They receive about $22 an hour for a Certificate III level, while others in that bracket are receiving $15 more an hour.
Do you sympathise with them and what can the Government do?
Firstly, we have made record investments into childcare, I have spoken numerous times in the house about how we have actually delivered more money to particularly the low and the middle income families.
And we have put an emphasis on getting money to those families to meet their childcare costs so that they can actually stay in the workforce or enter into the workforce in a more active manner than they have done previously.
When it comes to wage growth more generally, we have seen the wage price index up by 2.1 per cent, which is pretty much consistent with inflation. But what I think is important from these numbers is to look at the compensation of employees, the COE number, which is through the year 4.8.
And that is strong, and that is reflecting more employment in the economy. So while we are very conscious of the need to get wages up, what I have noticed from yesterday's statement by the RBA Governor, is his prediction that while the economy remains strong, there will be increases over time in real wages as that spare capacity comes off.
But specifically, those childcare workers who are protesting today because their wages are so low, what is your message to them?
My message to them is, we are investing record amounts in the childcare sector where Labor didn't. And that is going to make a difference to the families who need the childcare, that will create a more sustainable childcare sector, a bigger and better childcare sector and that is good for the employees as well.
Treasurer, you mentioned the enterprise tax plan, the leaked details today showed that…
…showed that by abandoning the large cut for big business, and fast-tracking the cuts for small business, you are going to hit your tax to GDP cap in year '20-21 and the recommendation is you will have to cut taxes again beyond that.
And the recommendation is that either you cut personal income tax again or you re-kindle the company tax cuts. Is there any prospect that you can re-kindle the larger company tax cuts in the next term of government if you win?
We have been very clear, those big company tax cuts, we have left those behind. What we are focusing on is those businesses that are up to $50 million in turnover.
We have legislated that and what then-Treasurer Morrison, now-Prime Minister Morrison has said very clearly is we will look at it, how, Phil, we can accelerate it and provide the support to those businesses.
But let's go back to what Bill Shorten is proposing here. He has had plenty of stumbles over the company tax. We were successful in delivering more than 3 million businesses, of which about 900,000 plus were incorporated businesses, delivering them great benefits.
It is not about the businesses, it is about the employees – 6.7 million Australian workers are getting a kick in the guts from Bill Shorten. They are getting a kick in the guts because he wants to tax those companies more and that will make those companies more difficult to employ more people and keep people in their job.
Treasurer, for more than four years the Government has argued that to have a sustainable Aged Pension long term, the age needed to be lifted to 70.
Can you tell us what has changed now, in long term numbers, to make it not necessary to lift the pension age or are we to assume that you have lost the stomach for tough long term reform?
Well certainly in terms of the aged pension, as you know there was legislation that went through the Parliament, with the Labor Party's support. So that's in place.
But this was one of those 2014-15 Budget measures which had no hope of getting through the Parliament. You'd only be able to make these changes if you had bi-partisan support.
So the key for us here is to accept that we have an aged pension that will rise, but that is through a bi-partisan, legislated agreement.
I want to emphasise, though, when it comes to the aged pension what we have put a focus on in then Treasurer Morrison's last budget, was how do we get ageing Australians into the workforce or enable them to work longer without hurting their pension.
And there was particularly a Pension Work Bonus which allowed people that were self-employed to get up to over $7,000 additional income without hurting their pension.
It was initiatives like that that were in the budget which were helping to create healthier and more prosperous older Australians.
Treasurer, consumption has held up remarkably well despite the housing market starting to cool, do you think that consumption strong numbers can continue in the months ahead as people in Melbourne and Sydney start to see the value of their homes fall a bit?
Well in terms of the housing market and again Governor Lowe referred to this yesterday, there has been an easing in the prices, but it has come off a very high base, as you know, and so it is creating a more sustainable housing market, particularly in those two capital cities of Sydney and Melbourne.
When it comes to household consumption, as I pointed out, it is 12 out of those 17 categories where we've seen increases and those categories have included people's culture and recreation, it has included food. It is focusing on volume, not value.
And what we have seen with household consumption is that it's been buoyed by the strong employment growth and our tax policy will continue to drive our household consumption as well, as more people get the product of their hard work, with more money in their pocket.
Can I go back to the immigration question which I didn't hear an answer to. You're answer was 'don't worry about immigration, growth is broadly based', but the question was how important is the immigration program that we're running at the moment for the sustainment for want of a better term of that growth? And a second one, because I'm greedy. You said wages growth or were Government's most important challenge…
In terms of an economic challenge, it's absolutely a focus for us.
But then you basically said, look the economy is improving so that will flow through to wages in due course.
Do you think that's enough from the point-of-view of voters who may not be all that sanguine about waiting for the economy to improve before that flows through to their wages outcomes, given that the economy has been improving for quite some time and people have not seen the wages growth?
Well what is very positive for all Australians and for the economy is the strong jobs growth because that impacts upon everyone. You get more people earning more money, there is more spending and that has a real impact on generating more product across the economy.
So as Governor Lowe has said, when that spare capacity is starting to erode, which we are starting to see in some sectors already. For example in the health sector, we are starting to see an acceleration in some of the wages. That will generate improvement to the real wages outcome, which as I said on the WPI is 2.1 per cent.
On your issue of immigration, the answer to that is that the economy is not relying simply on immigration to spur growth, it is actually the new markets that we're opening through free trade and in terms of is it enough? And in terms of where is immigration going? We continue to have a fair, transparent, robust immigration program.
Let's not forget that nearly half the number of Australians, we're either born overseas or with one parent overseas. So we need to have an immigration program which rightly focuses on skills, as well as family reunion, as well as humanitarian intake. I think we've got a good balance there.
But one of the things you do see conflated in this debate about immigration is about the impact on population challenges in particular cities, for example.
And that's why Prime Minister Morrison in creating Alan Tudge's portfolio, minister for congesting busting, is really focusing on infrastructure. So how do we ensure that the population growth, which we have seen particularly in my own state of Victoria and in Melbourne in particular, how do we create the infrastructure and better plan for the future so that increased population does not affect people's quality of life and standard of living.
Can I take you back to the question of confidence, one sector that is now not expressing confidence is the energy sector. What is your message to investors in that sector and why should they now have any more confidence than they had three or four weeks ago?
Well Michelle, the first thing to say about the energy sector and what has been happening to energy prices is that they've started to come down. The ABS found that in recent numbers and as you know the wholesale price of power is down about 25 per cent through the year. And on July 1 in South Australia, in Queensland and in NSW, we saw prices come down affecting businesses as well as households.
Now that was a product of a number of the reforms that we put in place, including abolishing the Limited Merits Review, a process which stopped companies gaming the system, which also involved getting more gas into the domestic market, which the ACCC has said it has seen prices come down by up to 50 per cent, as well as getting clearer, simpler retail offerings from companies.
Now when it comes to investment going forward we want to see new investment, but we also don't want to see existing power generation facilities close prematurely. Because of one of the lessons of what happened with the closure of the Northern Power Station in South Australia and the Hazelwood Power Station in Victoria was the sharp jump in wholesale prices.
So in know Angus Taylor is very focused on this. He has already been talking to the energy companies. We've announced a number of ACCC recommended policies. We will continue to put in place the measures that are needed to get prices down. But I don't have a lot of sympathy for the energy companies.
Treasurer, would you advocate for the current rate of migration to remain the same, 162,000 people a year?
I advocate for a strong, robust, transparent and fair immigration policy. That's our policy. It hasn't changed. So you are asking me to speculate on a hypothetical. But I do point out that the permanent visa numbers in this year is down from last year.
The government infrastructure spend has played a reasonable proportion in this and looks like it is going to gather pace over the next year, the next couple of years. Given the overall budget position for how long is that massive spend likely to be sustainable and what do you say to those private companies, particularly those in north-west and western Australia, who are starting to become concerned that the competition for skills and labour and expertise are starting to impact on them building their own economic infrastructure elsewhere in Australia?
Well, what we've seen in Western Australia is we've seen a transition from the investment phase of the mining boom to now the production phase and that is why net exports are still very strong, because all those facilities were actually built in Western Australia.
When it comes to your point about public final demand and what we're seeing in government infrastructure, we need that infrastructure, so the Commonwealth supports it. The Morrison Government is heavily investing in infrastructure projects, but I think one of the key messages about the numbers today, which see Australia continue its 27 years of uninterrupted economic growth, which see numbers that are better than the OECD average, which are better than any G7 country, which are better than the median market forecast, is the fact that it's broad based.
It is not just public final demand. It is also household consumption that is up. It is also business investment that has been up. You have also seen it in the dwelling investment that is up. And of course you have seen net exports make a contribution to overall GDP growth.
Thanks very much.