TREASURER:
Today's National Accounts show that the Australian economy grew by 1.3 per cent in the December quarter of last year and 4.1 per cent in 2001.
By any measure these would be very strong figures, but against a background of a major global slowdown, these are exceptionally good figures for the Australian economy. The National Accounts showed that notwithstanding the events of the last quarter of 2001, September the 11th, pessimism that was around, Australians showed a sunny optimism and led by private final demand and good corporate profitability, Australia's economy continued to grow and is not just one of the fastest of the developed world, but it was growing faster than most of the other economies of the developed world by a very large margin. In fact the growth rate of 4.1 per cent through the course of 2001 was about 10 times the OECD average and about 10 times that of the G7.
So I think all Australians will welcome the figures that are released today, because they show a continuing resilience and strength in the Australian economy notwithstanding the Japanese recession and the United States recession, notwithstanding a German recession and recession in countries like Singapore and Taiwan. The Australian economy continued to grow.
Economic growth was underpinned by strong growth in household consumption. As we know, consumers have been very positive and household consumption grew by 4.2 per cent through the year.
The good, new news in the National Accounts today is that private new business investment grew strongly. Particularly, plant and equipment rising by a very strong 11.1 per cent and the good thing is now having two quarters of rising business investment we are starting to see business investment come back in and the capital expenditure surveys for 2002-03 are positive. We've always said that the upswing in the housing cycle will begin to work its way out of the system over this quarter and the next quarter and if private business investment begins to pick up over this quarter and the next quarter, it may well take its place. The only area which substantially detracted from the very strong growth of the December quarter was net exports, which subtracted 0.7 of a percentage point. This is partly due to falling exports in the quarter and increased imports, but the falling exports are principally as a result of a synchronised downturn in all of the major centres of world activity, Japan, the United States and Europe. And frankly, the fact that Australia's exporters held up to the extent that they did through this synchronised downturn, I think is a pretty good credit to Australia's exporters, supported of course by a competitive exchange rate and also the fact that in 2000-01 we took tax off our exports for the first time in Australian history.
Two other points that I would just point out to you, measures of inflation are subdued in these National Accounts. Measure of inflation, household consumption, was around 2.4 per cent which is good news. And there is very strong productivity growth that has been recorded in these National Accounts rising to be 10.8 per cent higher at the end of the year than it was at the beginning of the year. In fact the highest rising productivity since quarterly National Accounts have been taken.
The rest of the Australian economy as I have been saying now for most of the last 12 months is the world situation. Japan is still in recession. Europe is looking weak. The good news seems to be that the US economy may have bottomed. Although anybody who sees a strong recovery coming in the US in the next couple of quarters I think is being a bit too optimistic but the good news is that the US seems to have bottomed and in this quarter seems to have passed out of recession.
If I were to take you back 12 months to March 2001 when we had the negative December quarter led mainly by transitional effects from the New Tax System, you would recall that many were predicting an Australian recession. In fact one of our newspapers, I remember the next day, headlined "Recession Looms", back in March of 2001. That was before a US recession, that was before September the 11th. Dun and Bradstreet said that there would be three negative quarters through the course of 2001. And yet through the course of 2001 Australian economy grew at 4.1 per cent. And I pay tribute to our businesses which seem to have shrugged off a lot of the pessimism; the sunny optimism of the Australian consumer supported by low interest rates and tax cuts which came on board in 2000. And Australia can hold its head high as certainly one of the best performing growth economies of the developed world.
JOURNALIST:
Mr Costello, given the sunny outlook and the fact that the Reserve, and the figures are so strong, is the fact that the Reserve Bank is so independent and sets rates in its own right, given that, do you agree that there is a case to just tap the brakes and put interest rates up a little bit to stop the boom-bust cycle taking over (inaudible)?
TREASURER:
Well, I don't really see these figures as boom-bust figures. These are figures of good strong 4 per cent growth. And what makes them exceptional is it's in the context of a world downturn.
4 per cent growth wouldn't surprise us that much in the context of the world economy of the late 1990s when the US economy was growing at 3 and 4 per cent. But 4 per cent growth in the climate of a US recession, a Japanese recession, a downturn in Europe, you know, is just remarkable.
So I wouldn't characterise these as boom-bust. I would say there is good consumption. There's been strong dwelling construction, business investment is now starting to kick in, profits have been strong and the only negative is the negative which is coming from the external environment over which we have little control but maybe it's bottomed. Well in fact I'll go further, I think it probably has bottomed.
JOURNALIST:
(inaudible)
TREASURER:
Sorry I'll …(inaudible).
JOURNALIST:
Given all of that is it appropriate that interest rates stay at the level they are in relation to (inaudible)?
TREASURER:
Well interest rates at the moment are very competitive and they're at 30 year lows in relation to housing interest rates and that's kept the Australian consumer happy and sunny and I think that the good news that you see in relation to these figures is that inflation pressures appear to be quite restrained. Yes.
JOURNALIST:
On the basis of these very good results, would you say that Australia has avoided the Godzilla of recession which has been stalking the world (inaudible) and would you on the basis of this say that we are going to escape…(inaudible)?
TREASURER:
I think I'd go this far. Knowing what I now know, it looks to me as if the worst in the international environment is over. And Australia survived the worst in the international environment. I think that there have been two remarkable periods for the Australian economy in recent years. The first was surviving the Asian financial crisis of 1997, which surprised a lot of people around the world. The second is 2001 where we survived the US recession and grew at 4 per cent. That is remarkable. Now, I don't like tempting fate because a thing I've learnt in a volatile world is there could always be another shock around the corner, but I think this is a remarkable run. This is, the fact that Australia grew in calendar 2001 at 4 per cent when Japan was in recession and America was in recession and, and a good deal of Europe was in recession, the fact that the growth rate was 10 times the average of the OECD and the G7 I think is truly remarkable. And it is, I think, one of the really good stories of the Australian economy in a long time.
JOURNALIST:
…housing…(inaudible)
TREASURER:
Look, I, what kept Australian consumers strong in 2001 notwithstanding the world downturn and September the 11th and war in Afghanistan, I think low interest rates, the fact that we had income tax cuts in July of 2000, I think another piece of good news that occurred through 2001 was that the oil price which had been very high in 2000, came off. And that aided consumers. But that of course applied to other countries as well. It wasn't just Australia. So what made Australia different? I think income tax cuts, low interest rates. What was the significance of the building cycle? Well, the first significance of the building cycle was that it led to an increase in the run up to July of 2000 and a fall away which produced that negative December 2000 quarter. And I remember saying at the time, well if you abstracted from that then the economy was still growing at 4 per cent. I think that was greeted with a lot of amusement and chuckling. But, just as that produced an abnormal result in December when it came back it worked its way out of the system and gave a lot more strength back through the course of 2001. Now I have always said that that will come off in, in the, probably this quarter and the next quarter. So what will take up the slack? I hope two things. One is business investment. And, the great, new news in these National Accounts is business investment starting to come back. And the second is, I hope that the world economy has bottomed.
JOURNALIST:
…capital expenditure…good, but very lumpy…(inaudible)?
TREASURER:
Well, the figures in these National Accounts show an increase for plant and equipment as I said I think, of 11.1 per cent with private new investments growing by 5.7 per cent. We have now two quarters of growth and we have the Capex which has given us an expectation for the 2002-03 year which was also strong. Are there some big projects in there? Yes, I think there are. And actually I am pleased there are some big projects in there. We have got a couple of big projects going on at the moment. We have got another train coming on board with the North-West Shelf, we have got the Darwin to Alice Springs rail link being built. But what we are also seeing is we are seeing a recovery of business profit and business confidence, and I believe that is translating for most businesses into new investment intentions and that's where you're seeing the increase in plant and equipment. See the interesting thing about, and you would have seen this in the profit results which came out during the week but profits were very strong in the December 2001 quarter. Now when you bear in mind that you had some industries, like the airline industry, which had a shocking quarter in December of 2001. The tourist industry which was affected in 2001. You had the Ansett collapse in the December quarter of 2001. That shows that there is very good profits going on in other parts of the economy. I think that's going to work its way out in investment.
JOURNALIST:
Mr Costello, do you think with a result like this that a pick-up in tax receipts will help ease some of the pressure on the budget?
TREASURER:
You wouldn't, I wouldn't actually interpret these figures as leading to a pick-up in tax receipts. You've got to remember that corporate profits are up, but the corporate tax rate is down. Wages are subdued. So I've always made this point that a growth figure doesn't necessarily translate into tax receipts, it depends where the growth is.
What would cause a pick-up in tax receipts would be large rises in employment, but employment is a lagging indicator and although I think that there are signs, although I think that there are signs that employment may be better than we were thinking towards the latter part of last year, it's still lagging obviously. I would expect if corporate profits stay strong and if consumer demand stays strong, and if business investment picks up, I would expect later in the year that you would see some effect in employment, but I wouldn't expect any short-term response.
JOURNALIST:
Mr Costello, do you have any concerns about low household savings ratios and do you think that could place pressure on interest rates further out?
TREASURER:
No I don't think housing, household savings ratios works its way into the way in which we conduct monetary policy. We certainly don't target that as part of our monetary policy. But I think the figures here actually show a slight up-pick in the household savings ratio. I've made this point before that bounces around a lot and even the statistician himself says it's not the most scientific measure. But I think one of the things that you're finding is that people have been prepared to borrow against rising property values. You've got to remember this, in the big cities, particularly the big cities of Australia, there's been a massive wealth accumulation in the last year with housing prices going up 20 and 30 per cent, a massive wealth accumulation. And what I think we're seeing on low interest rates is a preparedness perhaps to borrow a bit more against assets. And I think the important thing when you're looking at household savings ratios and borrowing is to remember borrowing is against assets, not against income.
JOURNALIST:
Treasurer, given our place in the world at the moment, can this raise a bit pressure for the Bank to raise rates?
TREASURER:
Well I won't, I never comment on the future directions of monetary policy for obvious reasons.
JOURNALIST:
(inaudible) if the productivity is (inaudible), Treasurer, it's a very complicated economic variable, what's your take on it?
TREASURER:
Oh, strong growth is a big part of it. I think coming through those difficult quarters in late 2000 when business was probably wary of putting on extra staff, they decided to cut costs, they took a lot of the growth and the profit in terms of productivity.
I think that was quite a big part of it. I think that you've also got the natural increase of ICT through the economy. We've written a lot about this over the years, but it is a really exceptional productivity boost and that's good. What that means is we've had strong growth without seeing our wages break-outs and a productivity boost which is adding to our national wealth.
JOURNALIST:
We also had a 1.2 per cent fall in (inaudible) which (inaudible). Would you like to see less productivity growth this year and more employment growth?
TREASURER:
Well that's the point I was making another way, that you've had a growth with employers obviously not following that up with employment intentions and that's one of the reasons why productivity increased. Well as I said earlier, employment is a lagging indicator. If profits are strong, and the consumer feels sunny and optimistic, and interest rates are low as they are, then you will expect employment intentions to follow. But they're not going to follow in the short-term. You've got to remember for many of these businesses they've come through pretty negative sentiment in 2001, a lot of the press saying there was going to be a recession. They then came through a US downturn, they came through September the 11th, they've come through a war in Afghanistan, they've come through a federal election and it wouldn't surprise me if they've been pretty cautious in their employment intentions. But these kind of figures continue, it will follow.
Two more questions. Sorry, Fran.
JOURNALIST:
…the figures continue given the growth you've had, should we have a stronger, bigger budget surplus? Are we too close to the bone or is that part of the strategy to deliver these figures?
TREASURER:
Look going back into 2000-2001, the financial year before the current one, some commentators were saying that we'd been too generous with tax cuts. That was a frequent criticism in 2000-2001, too generous with tax cuts, you know, you are going to overheat the economy. That was certainly the Labor Party's attack. And we look back at that and we say it was probably in the circumstances one of the best decisions that could have been made for the Australian economy. We are coming into 2001-2002, the housing cycle has turned down and there were some people that were saying, oh, you know, again, too much fiscal stimulation, and we doubled the first home owners scheme. Again, I think if you look back I do not think anybody would dispute now, if you look back, it was, turned out to be a very good decision, very good decision because what it enabled Australia to do was to grow at 4 per cent when America was contracting, and Japan was contracting, and Germany was contracting and if you contract your economy you do not actually save money at the end of the day, on your budget, by the way, if you contract your economy it affects your budget much more than savings measures, so, I think we can look back and we can say that we were not making the wrong calls then, that we were making the right ones.
JOURNALIST:
Treasurer, did the Government express a view to the Telstra Board about its dividend policy ahead of yesterday's announcement?
TREASURER:
Not that I am aware of. Not recently, no. I mean there are talks between the Government and the Board from time to time but I am not aware of any in the recent weeks.
Sorry, last question.
JOURNALIST:
Do you think the Sydney Airport should be sold before June 30?
TREASURER:
Well, I would like to sell Sydney Airport, and I would like to sell it as soon as possible for the best possible price.
JOURNALIST:
So you think the sale process should be expedited?
TREASURER:
I would like to sell it as soon possible for the best possible price.
JOURNALIST:
Mr Costello, (inaudible)…
TREASURER:
Last question.
JOURNALIST:
Were you tempted today to look at the world growth figures and see whether we were on top of it?
TREASURER:
Whether we are…?
JOURNALIST:
We are on top of the world growth (inaudible)…?
TREASURER:
Well, I have got this table at the back of the press release which has got the G7, OECD averages and non-Japan East Asia. Now, you could find, I am sure you could find a growth rate which was above 4 per cent, say in a country like China. I did not actually look at it but we do not regard China as a marker, you know, as a developed country. So, you know, I am sure you could find somewhere in the world, a country that had beaten 4 per cent.
JOURNALIST:
…(inaudible)
TREASURER:
But if you want to compare yourselves as we generally do to the industrialised countries of the world they are either in the G7 or the OECD and that is why I did a comparison on the G-7 and the OECD. So thank you all very much.
Thanks.