Today’s National Accounts shows that the Australian economy remains remarkably resilient in the face of significant global and domestic economic headwinds.
The Australian economy has grown by 1.7 per cent through the year and by 0.4 per cent in the September quarter, within the range of market expectations.
While other major developed economies like Germany, the United Kingdom, South Korea and Singapore have experienced negative economic growth this year, the Australian economy is in its 29th consecutive year of economic growth - a record unmatched by any other developed nation.
We have maintained our AAA credit rating - one of only 10 economies to do so from the three leading credit rating agencies.
We have seen our current account return to surplus for the first time in more than 40 years.
Welfare dependency is at its lowest level in 30 years.
We have delivered the biggest tax cuts in more than 20 years.
We have seen the first balanced budget in 11 years and we’ll be returning the Budget to surplus for the first time in 12 years.
The Budget is back in black and back on track.
Importantly, the labour market remains strong with more than 1.4 million new jobs created since we came to Government, the participation rate is around record levels and annual jobs growth is at 2.0 per cent – more than double the OECD average and nearly three times what we inherited when we came to Government.
In today’s National Account numbers, growth has been broad-based with household consumption, public final demand and net exports all contributing to GDP growth.
Household consumption increased by 0.1 per cent in the September quarter to be 1.2 per cent higher through the year. Expenditure increased in nine out of seventeen consumption categories.
Household disposable income grew by 2.5 per cent, the fastest quarterly rise in a decade with the ABS saying it was “driven by a decline in income tax payable and interest paid on dwellings as well as continued rises in the compensation of employees.”
This has led to an increase in the household savings rate to 4.8 per cent through the quarter.
As at the end of November 2019, the ATO has issued more than 8.8 million individual tax refunds for the 2018-19 year totalling around $25 billion, which is 30 per cent higher than a year ago.
Whether spent or saved, the tax cuts are putting households in a stronger economic position, making them more financially secure with more money in their pockets.
The economy continues to be supported by new public final demand, which includes spending across all levels of Government, which rose by 1.5 per cent in the quarter to be 4.9 per cent higher through the year.
Public final demand is being supported by the continued rollout of the National Disability Insurance Scheme, more money being spent on aged care, as well as the Government’s ten year $100 billion infrastructure pipeline.
Last month, the Prime Minister announced that the Government will bring forward $3.8 billion of infrastructure spending to ensure that infrastructure continues to support the economy and create jobs.
When you add the bringing forward of the infrastructure spending to the largest tax cuts in over two decades, along with more than $1 billion additional funding in drought relief, this amounts to $9.5 billion of additional near-term support to the economy that we have provided since the election.
Net exports contributed 0.2 percentage points to GDP growth in the September quarter, with strength in mining and services exports supported by a lower Australian Dollar and strong demand for these exports supported by the large number of free trade agreements that this Government has entered into since coming to office.
Through-the-year services exports growth has been above 6.0 per cent for the past five quarters particularly education related exports.
The drought continues to have a devastating impact on Australian communities as well as hitting the bottom line of the Australian economy. Farm GDP is 5.9 per cent lower through the year to the September quarter and falling in four of the past five quarters. Rural exports fell by 2.8 per cent in the quarter.
After several years of strong growth, dwelling investment has fallen for the past year, and detracted 0.1 percentage points from growth in the September quarter.
New business investment fell by 2.0 per cent in the quarter to be 1.7 per cent lower through the year. This was principally driven by falls in mining investment, which fell by 7.8 per cent in the quarter to be 11.2 per cent lower through the year, largely reflecting LNG projects transitioning from investment to production.
However, the outlook for the mining sector and mining investment is strengthening, with investment intentions from the capital expenditure survey suggesting that mining investment will grow solidly in 2019-20.
There was some strength in the construction of offices, hotels and warehouses in the quarter; non-residential building construction increased by 3.0 per cent in the quarter to be 4.2 per cent higher through the year.
Company profits increased by 1.7 per cent in the quarter to be 11.1 per cent higher compared to a year ago. Company profits were partly offset by a fall in mining profits of 2.3 per cent in the quarter but mining profits remain 23.1 per cent higher through the year.
Growth in compensation of employees, which measures the national wage and salary bill, was up 1.1 per cent in the September quarter to be 5.0 per cent higher through the year. Through-the-year growth has been above 4.0 per cent for the past eight quarters – the strongest run of growth since 2012 and above the 10-year average of 4.6 per cent.
Average earnings, as measured in the National Accounts, grew by 0.7 per cent in the quarter to be 2.9 per cent higher through the year, compared to 2.6 per cent, the ten-year average.
Importantly, living standards, as measured by the ABS’s preferred measure of real net national disposable income per capita, are 3.3 per cent higher through the year, compared to a long-run average of 1.5 per cent.
Productivity growth in the market sector was 0.1 per cent lower in the quarter to be 0.2 per cent lower through the year. This is why we are pursuing important reforms across the tax, deregulation, infrastructure and skills agendas.
In conclusion, Australia is not alone in facing significant domestic and global economic headwinds, but there are reasons to be positive about our economic future.
Standard and Poor’s said recently that the outlook for the Australian economy is “sound.”
Deloitte Access Economics said that the Australian economy is picking up with momentum.
The IMF and the OECD are forecasting Australia to grow faster in 2020 than any G7 nation.
And the Reserve Bank of Australia has said the economy has reached a “gentle turning point.”
The numbers today underline the economic resilience of the Australian economy and the need to stay the course and stick to the plan as outlined in this year’s Budget.
I will now just quickly go through a few slides.
So the first slide shows that we’re seeing 1.7 per cent through the year growth. The June quarter was revised upwards to 0.6 percent.
Nominal GDP continues to be a strong story. At 5.5 per cent it’s above the ten year average.
What we’ve seen is a pickup in nine of the seventeen consumption categories. Furnishings and household equipment is a positive story and may be related to the improvement we’re starting to see in house prices and the stabilisation of the housing sector. The purchase of motor vehicles continues to be a challenging sector.
New final public demand, that’s strong growth based on Government investment in infrastructure as well as the full rollout of the NDIS which is now covering 100,000s of people and will continue to be fully rolled out in the years ahead.
Farm GDP, well this is a drought story. Down 5.9 per cent and obviously that is a significant hit to the bottom line but a more devastating impact on Australian families and communities that have been hit by the drought.
Household savings ratio has picked up by 4.8 per cent. This is clearly another story in the Budget. People are getting more money in their pocket through the tax cuts, but they’re not spending it all, they’re definitely saving and that has increased. The Government’s goal has always been to put more money in the pockets of the Australian people and it’s their choice as to whether they spend or save it.
Compensation of employees. This is the wages and salary bill of the Australian economy, again a good story, 5 per cent above the 10 year average.
And finally, real GDP growth comparisons. As you can see Australia is second only to the United States in through the year real GDP growth. What you need to look at in the context of the economic challenges that Australia faces is that we are not alone and these challenges, be the trade tensions between the United States and China, or the devastating drought at home, these domestic and global economic challenges are very real, they are being felt across the Australian economy, but the economy as shown by the numbers today is being remarkably resilient.
Over to any questions.
At the time of the Budget, you forecasted 2.75 per cent for this financial year. Is that still achievable?
We’ll update our forecasts in MYEFO. But the story today is despite the headwinds, domestic and international, we see the Australian economy continuing to grow at 1.7 per cent. I see the Labor Party was out last night trying to inoculate themselves about an increase in economic growth. Well, today’s numbers show there has been an increase in economic growth. But what we have seen is the labour market continues to be strong. We’ve seen a pickup in compensation of employees, we’ve seen a good story in terms of net exports and what is happening with our current account surplus. And of course, we’d like to see consumption higher, there is no doubt about that, but obviously people are getting more money in their pockets through the tax cuts.
Treasurer, you say it’s the Government’s responsibility to give people more money, it’s up to them if they spend or save it. How does saving help the economy?
At the end of the day, people are doing what we’re doing at the Federal level which is paying down debt. You’ve got now more than 70 per cent of people with a mortgage being at least one month ahead of their interest payments. So people have decided to pay down their debt and that is absolutely their right. But as the Secretary of Treasury said to this Parliament at a committee hearing, if people pay down their debt then ultimately in the long run, they will have lower interest payments and that will free up more money to spend across the economy. So it does represent a bit of a timing issue, but ultimately our goal is for Australians to get more money in their pockets and that’s what we’ve done with the most significant tax cuts in more than twenty years and it’s up to the Australian people whether they choose to save or to spend.
Treasurer, business investment is still really anaemic. Are you going to make them wait until the Budget next year until you give them some extra help or are you going to announce it at MYEFO?
As I’ve said previously, Renee, we’re in discussions with the business sector about initiatives in that area. What we’ve seen in terms of the business investment numbers is a bit of a story out of the mining sector in terms of the LNG investments coming to an end. We’ve also seen in terms of farm investments, obviously flowing on from the drought and that’s also been a factor. So, in terms of business investment, we’ve continued to discuss with the business community about various initiatives, but of course, there are some other factors behind these numbers.
Treasurer, the Reserve Bank has made clear that it wants unemployment down below 4.5 per cent. Can you see unemployment getting down to that level based on current policy settings?
The employment numbers have been strong. As I said, employment growth of 2 per cent compared to an OECD average of 0.9 per cent and 0.7 per cent when we came to Government and that has helped get our participation rate up to near record levels. So, we’ll continue to have initiatives that drive more investment, that drive more employment and as you know, Shane, the notion of what is full employment has actually changed from the central bankers views. Traditionally, they understood full employment to have a five in front of it, now they understand it to have a four...
But can you see it getting to 4.5 per cent?
Well what I can see is more jobs being created within the Australian economy. Let’s not forget that 34 of the last 36 months we’ve seen jobs creation and we’ve seen very strong jobs growth in a number of sectors.
Treasurer, the economy and consumption in particular is still subpar and substandard, what can you point to that is going to be a catalyst to change that around in the next few months. What is going to change that?
Well, obviously we’ve got major spending in infrastructure, we’ve got a major skills agenda, we’ve got industrial relations reforms and we’re bringing back the Ensuring Integrity bill and of course, in terms of tax cuts they continue to be rolled out, the most significant in more than 20 years.
I better go to a division but the numbers commend themselves here.