TREASURER:
Well, today’s National Accounts show that the Australian economy rebounded very strongly in the September quarter, growing by 1.2 per cent.
You will recall three months ago, we had I think, 0.1 per cent growth, although that’s been revised up a bit, and the September National Accounts show a very strong rebound. And the rebound in growth has been underpinned by strong growth in business investment and consumer spending. In addition, we are starting to see a little bit of improvement in the rural sector. I don’t want to overstate this. Exports rose 1.5 per cent in the September quarter, but that was principally travel services, which rose by 15.4 per cent coming off the SARS outbreak, and a little bit of a rise in rural exports.
But rural exports are still down over 21 per cent in the year, and we would not expect to see a significant increase in rural exports until the December quarter and the March quarter.
Although there has been an improvement in agricultural incomes, according to this set of National Accounts, agricultural incomes are still 55 per cent down on where they were two years ago.
So, what you are seeing in relation to the export story, is a bit of a recovery in the agricultural area with most of it yet to occur, some good recovery in relation to travel, but even still, not a strong recovery in other areas, which we would expect as the world economy starts to strengthen.
Private business investment grew by 2.1 per cent in the September quarter with new machinery and equipment growing 3.9 per cent and strong business investments represent a favourable investment climate supported by low interest rates, high capacity utilisation and strong corporate profitability. And I note that the profit share as a proportion of the economy rose to 25.1 per cent, as high as has previously been recorded in Australia.
So you are seeing a story of corporate profitability underpinning good, strong private investment and in addition to that, strong consumer demand, led by favourable sentiment. Consumer sentiment is quite high by relative standards.
The dwelling investment continues at quite high levels, rising by 2.6 per cent in the September quarter. The National Accounts also indicate that inflation is low in Australia, with the household consumption index rising 0.3 per cent in the quarter and 1.6 per cent over the year.
Now as the world economy strengthens, we would expect Australia’s export position to strengthen and net exports which have been detracting quite significantly from growth should detract less in future quarters and we expect the Australian economy to continue to strengthen through the course of this financial year.
We have forecast growth of three and a quarter per cent in this financial year, and we will be updating our forecasts at the Mid-Year Review, when that is released next week.
So, strong consumer sentiment, positive consumer demand, good strong business profitability backing business investment, a weak export position as we await the global recovery and the strengthening in particular of agricultural imports, but firm prospects for low inflation growth through the course of the next year.
JOURNALIST:
Mr Costello, are you concerned that the Reserve Bank’s decision to raise interest rates could push the dollar higher and make it even harder for Australian exporters?
TREASURER:
Well, leaving aside interest rates, the fact that the Australian dollar has risen over the course of this year, and risen against the US dollar by about 30 per cent, has made life harder for Australian exporters. Now, a large part of this story is a US dollar story. I can remember when the Australian dollar was declining sharply in 2000-01, saying that this was principally a US dollar story. That the US dollar had been over-valued, particularly at the time of the tech boom and the US dollar would correct. And it has. But the correction has been very, very large. And a 30 per cent appreciation of the Australian dollar in the last 12 months is quite an acute appreciation. It is making life harder for our exporters. Fortunately it is coming at a time when the global economy is picking up and so there has been some comfort on commodity prices for our mineral exporters. But you heard me say, all the way through 2000 and 2001, we had a super competitive exchange rate and it was helping us. We do not have a super competitive exchange rate at the moment and it is not helping us.
JOURNALIST:
The Deputy Prime Minister has told the Reserve Bank that enough is enough. Do you agree with John Anderson there?
TREASURER:
Well, the Reserve Bank is an independent Bank. It has been set up by an agreement between me and the Bank and the Bank will make its independent decisions in accordance with the framework that we have put in place. Now…
JOURNALIST:
Treasurer…
TREASURER:
Sorry?
JOURNALIST:
You have talked here about domestic demand retaining significant momentum and the Reserve Bank is (inaudible) interest rates for the second time in a month. In those circumstances is it very wise in macroeconomic terms to be contemplating tax cuts next year?
TREASURER:
Well, I take it that the import of your question is that cutting taxes could be stimulatory?
JOURNALIST:
Correct.
TREASURER:
Can I make this point, Laura? Australia would be almost alone of the developed economies of the world in having a surplus Budget. Let’s compare ourselves with the United States. What is the Budget deficit in the United States? About 4 per cent of GDP. In Australian terms, that would be a $30 billion deficit. So, let me make this point, we have $30 billion of unstimulatory policy compared to the United States, in place.
JOURNALIST:
But Treasurer you said…
TREASURER:
Now, let me make this point, name me a country, Laura, name me a developed western economy that has a balanced budget at the moment? Because it is not Britain, and it is not France, and it is not Germany, it is not Japan, and it is not the United States. The point I am making is that by having a balanced Budget, Australia is a long, long way ahead of comparable countries.
JOURNALIST:
But you have also…
TREASURER:
And that is testament to the tightness of fiscal policy in this country.
JOURNALIST:
But you have also said in your press release today, you have acknowledged the effect of this year’s tax cuts on consumer spending, now they were tax cuts that some of your colleagues famously talked about buying a sandwich and a milkshake, that has obviously had some sort of effect this year with the economy continuing to go closer to the Reserve Bank’s concern, does it raise the question about whether tax cuts are appropriate next year?
TREASURER:
The tax cuts that were introduced in the most recent budget were $2.5 billion this year, and I think $10.7 or $10.8 billion over four years, so I would describe them as, I think at the time I described them as a return to the Australian tax payer. Every Australian tax payer received a tax cut as a result of those budgets, and I, whilst I wouldn’t say that in net terms for everybody they were large sums of money, I think on average incomes there were something like $300 per annum. And for many Australians $300 tax cut is a significant amount.
JOURNALIST:
Mr Costello, is there any reason why the ABS has stopped publishing the Household Savings Ratio? Does it have anything to do with the fact that it has been negative for six quarters?
TREASURER:
I think it does publish the ratio. When I had a look at it, I found it, so I will find you the tables, but I am pretty sure it does publish it. And it was 2.2 per cent negative, an improvement on the last quarter.
JOURNALIST:
Treasurer…
TREASURER:
Table 2. So, yes, table 2. Household Savings Ratio…
JOURNALIST:
My apologies, it is not where it used to be.
TREASURER:
…well it is no deep plot, I know you all think I have deep plots to confuse you, but you know, deep plots are not my business. It is all there, it is all transparent. We actually improved. Part of that could be a bit of a recovery in agricultural incomes because I think the reason why in the last couple of quarters it has been negative, is that agricultural incomes have been so significantly down, and as you would expect when a farmer is getting no income, but still spending, a farmer has a very negative household savings ratio. Sorry?
JOURNALIST:
Do you expect the MYEFO figures on Monday will outshine any testimony the Reserve Bank Governor gives to the Parliamentary Committee in Brisbane?
TREASURER:
Will they outshine them? Well, I don’t think this is a competition, you know, as to who has the shiniest set of figures here. There were previous Treasurer’s that talked about beautiful sets of numbers, we don’t talk about shiny sets of numbers. We release our update on the Budget before Christmas every year. As it turns out, it will be next week. I think the Governor gives testimony twice a year, is it? As it turns out it will be next week. But I am sure that the press of Australia can handle two stories on one day.
JOURNALIST:
Were you one of the people cheering in the Party Meeting yesterday when the Labor Leadership ballot results were announced?
TREASURER:
No, because I actually announced it. It was quite funny, Peter Slipper came in and gave me the news, and I was in the middle of a speech. I was making some deep point as I recall, and a piece of paper was given to me and I read it out and everyone lost interest in my speech. I was rather upset, and it was hard to get back momentum into my speech. I was just getting to a critical cresendo.
JOURNALIST:
Do you welcome the concept of generational change in leadership?
TREASURER:
Oh, that is a real googly Louise. I think I will just sort of step back and raise the bat as that goes…
JOURNALIST:
Pull it to the boundary.
TREASURER:
…through to the keeper.
JOURNALIST:
Treasurer, just getting back to John Anderson’s comments, is it helpful to have senior politicians and senior colleagues of yours dictating to the Reserve Bank on monetary policy?
TREASURER:
Well, I don’t think he dictates to the Reserve Bank, you know, I think…
JOURNALIST:
(inaudible) he was.
TREASURER:
…well, look I don’t think he dictates to the Reserve Bank, I think the Bank is put on an independent basis and makes its own decisions. And you know, these are, and it has been put in place so that it can be independent. But, does he have a view on interest rates, well he’s, of course he is entitled to express a view on interest rates.
JOURNALIST:
And you are comfortable with that intervention?
TREASURER:
When I put in place the agreement between the Government and the Bank, enhancing its independence, I very specifically put a clause in there, that this would not stop the Government commenting on monetary policy, and the Government reserved that right, and the Government is entitled to comment on monetary policy. And you will hear me comment on monetary policy from time to time. But the point I am making is that the arrangement which is in place is for an independent Bank, and the Bank will make its own decisions. It can take advice or notice of everybody as party to this, but at the end of the day, there is an independent board.
JOURNALIST:
Do you agree with the Deputy Prime Minister then, that enough is enough?
TREASURER:
You know, I have followed a practice, I have been Treasurer now, coming up eight years, and I have followed a practice of not commenting on future movements in relation to interest rates, because I think it blurs the message out there. But I will comment on the economy, you ask me a question on the economy and I will comment on the economy each and every day. Please…
JOURNALIST:
Treasurer, would you like to see the US step in to prop up the green back because of the effect the slide is having on the exporting industry such as our own?
TREASURER:
During the Clinton Administration, the US used to run what they called a strong dollar policy, and they used to reaffirm that on every occasion, it became a mantra out of the US Treasury Secretary. But then the US went into recession, and its current account widened, and it was clear that the US would be looking for some stimulation and the Treasury stopped talking about the strong dollar policy. And in fact, US Treasury Secretary John Snow went to China, and talked to the Chinese about the possibility of the Chinese appreciating, or at least allowing some more flexibility.
I think what has happened is that markets as they always do, tend to over shoot, and just as I thought the run up, and I said it at the time you know, that the $A dollar where it was in 2000-01 wasn’t reflecting real value and I think markets tend to over shoot, and I think the green back has over shot the other way. Now, this is a big problem for the world economy. Let me tell you why, because the US is still a much stronger engine of growth then Europe or Japan, and all of these countries, Europe, Japan, America are trying to get competition or growth at the expense of others. They all have an interest in their currencies falling against each other, but you can’t have a situation where all currencies fall against each other. If a currency falls, another one has got to rise, and this does make for a bit of instability and volatility on the world financial markets. Now Australia has been affected by that because we run a floating exchange rate and it has made life harder for our exporters, but it is mostly the story of global realignment of currency.
JOURNALIST:
Treasurer, the company profits are very high, does this point to another bumper MYEFO number next year as far as tax revenues are concerned?
TREASURER:
Next year.
JOURNALIST:
Sorry, well in this financial year, 03-04?
TREASURER:
This year. Well, we will be releasing the MYEFO when it is done, and that will be on Monday, but company profitability has been strong, company revenue has been strong, I have indicated that, you have all written the private sector forecasters’ reports as per usual, when the figures come out, they will have some explaining to do.
JOURNALIST:
Can I ask about exports? You have made the comment that sort of, exporters are going to be facing hard times, is there anything the Government can do to try and make those exports more competitive from this end…
TREASURER:
Do you mean rural exports?
JOURNALIST:
Not specifically rural exports, (inaudible) manufacturing, rural, minerals, whatever.
TREASURER:
Well look, we should do everything we can. This has been part of the Government’s program to cut company tax, it has been part of the Government’s program to introduce full imputation for companies, cut transactional tax. My next task is to cut out the bank account debits tax, that is my next task.
We are trying to keep pressure up on the States in relation to stamp duty which is a drag on companies. There is so much to be done on the taxation sphere, industrial relations, this is part of our industrial relations program so that companies get increased competitiveness. Now, somebody pointed out before Australian profit share is strong and Australian profitability is strong, and the good thing about that is that the company tax that is being paid by Australian corporations is bearing a lot of the weight of the tax system. Company profitability is a good thing, we want to encourage it and if we can get a more competitive environment that is good for the companies, it is good for the revenue, but it is also for employment. Let me remind you that since 2001, over 500,000 jobs have been created in Australia, beginning of 2001, in the US over the same period, 2 million have been lost. That is a pretty stark contrast.
JOURNALIST:
Treasurer, do you think Mark Latham’s fair dinkum when he says under his leadership the Opposition will be constructive towards Government policy, more constructive towards Government policy?
TREASURER:
See, the thing with Mr Latham is he says so many contradictory things that it’s very, very hard, you know, unless you have weathervane to know how long it’s going to last, you know, it flips around, flips around, flips around, you know. It’s one thing this day, another thing the other day. So the statements don’t mean all that much. What’s going to mean something is action.
JOURNALIST:
He says you haven’t done enough…
TREASURER:
Now, well, well, so he’s going to be positive, right. Mark Latham called for the disability support pension to be reformed. The legislation is in the Senate. What will count is whether the Labor Party votes for it. The PBS measures, which are putting the PBS on a sustainable basis, are in the Senate, they’ve been rejected twice. What will count is whether or not the Labor Party votes for it. Now anybody can make these contradictory statements, and he’s made more than anybody I’ve ever seen in politics, but if it’s ever going to mean something, it will lead to an action. That’s the point, it will lead to an action. But, it’s like, remember when we had the flirtation with cutting income tax for people above $60,000. He said he was in favour of that. But if it means anything it leads to an action and when he had the opportunity in Parliament to vote for that, he voted against it. Now, you will find that on any issue he has held contradictory positions either simultaneously or within 24 hours, so what you’ve got to start looking for is action.
JOURNALIST:
You accept negative gearing gone, (inaudible) won’t be raising that again?
TREASURER:
Well who would know.
JOURNALIST:
Treasurer, do you have anything special planned…
TREASURER:
Where negative gearing was going to go one night, then it was back in the morning because it had been overruled by Simon Crean, but just hang on, you know, you’ve got today’s statement, next week’s could be entirely different. This is the point. There is no credibility in this kind of contradictory position. You know, today he was out there saying we should be sitting down with the Reserve Bank discussing interest rates. Last week, he wanted the Reserve Bank to be absolutely independent. You know last week it was Arthur, this week it’s Martha. It’s, the national debate ought to be a little bit elevated from contradictory statements which mean nothing. It ought to be elevated to some action.
JOURNALIST:
Treasurer, the 20th anniversary next week of floating the Australian dollar. Why has that been good for Australia?
TREASURER:
That sounds like a long speech, I’ll leave that to another day. Thank you very much, thank you.