TREASURER:
Well employment in the month of August increased by 31,900, nearly all of which was full-time employment – about 30,000 new jobs for the month, which means that about a thousand people a day were finding work. The August figures also show that people are now coming out of welfare and into work. At the time of the Budget we expected that our measures to encourage people to move off welfare and into work would temporarily increase the unemployment rate. But what we are finding is that the unemployment rate is not moving. What is moving is the participation rate, which is now at an all-time record. That is, there are more Australians either participating or seeking to participate in the labour market than ever before. And with this record participation rate unemployment remains at 30-year lows of 4.3 per cent, because those Australians who are coming into the labour market are looking for and finding work. And this is the object of good economic policy to encourage people to look for work and to help them find it. The pleasing results are right across the board, including the fact that teenagers looking for work, the unemployment rate amongst teenagers looking for work has also considerably fallen.
Having said that, we are not out of the woods. The fallout on the sub-prime market in the United States continues. It is clear that this has affected confidence, and in relation to some aspects of the market it is proving difficult to rollover borrowings, and where borrowings have been rolled over premiums are being charged. That means that for some mortgage originators and for others who fund themselves by borrowing on bank bills or other instruments they will find it more difficult and they will find it more costly. And that is affecting some of those organisations.
Let me make it clear however, the fact that in this market it is proving more difficult to raise funds, at least raise it at the cost that they were raising before, but not justify the five major banks increasing interest rates. Those banks are highly profitable and well capitalised and they have good deposit bases. And there are no grounds for them to use this as an opportunity to increase home mortgage interest rates.
JOURNALIST:
Treasurer, we used to say that unemployment was a lagging indicator, these figures now for the second month in a row show the economy is powering along, that itself would be putting pressure on rates, wouldn’t it?
TREASURER:
The figures show that about a thousand new jobs a day were created in the month of August. But they also show that we are increasing the labour force so that more people are looking for work. We are bringing people off welfare and they are getting into the jobs market. And of course this is what we have to continue to do – to get more Australians to seek to participate in the labour market, to build the capacity so that those jobs can be built. This is the object of economic policy. This is where we have been striving to get the economy for a long time. But we haven’t reached the end result yet and there are still the big risks that have to be managed.
JOURNALIST:
Treasurer, if a businesses costs go up, how can the Government say that there are businesses not entitled to pass those costs on to its customers, which is the situation that the banks see themselves in?
TREASURER:
Well I made the point in relation to the banks, that the banks have significant deposit bases, high profitability and they are well capitalised. Now, you have seen the cost of money in some aspects of the commercial bill market move, but that does not mean that the banks would be justified in moving standard variable mortgage interest rates. They have big profits and they are well capitalised.
JOURNALIST:
Does it justify perhaps a cut in interest rates by central banks around the world, including ours?
TREASURER:
Well I think that in the light of the fallout which is now coming from the sub-prime market in the United States, which is where the problem originated, that monetary policy, monetary authorities in the United States will be looking very carefully at the situation. There is no doubt that this is a significant blow in the US market to a significant part of that market. And that could well affect the real economy. And I am sure that monetary authorities in the United States will be monitoring the situation very carefully.
JOURNALIST:
Mr Costello, you say that the greater participation as more people coming out of welfare into work what are the figures for that or is it in fact just greater participation across the board are not necessarily out of welfare?
TREASURER:
It is greater participation across the board. The participation rate increased to 65.1 per cent which is the highest that we have ever recorded in Australia. Now, we can’t tell you how much of that is people who were previously on welfare. What we can tell you is that we have tightened eligibility for welfare and encouraged people to move off welfare and to look for work. And the increase in the number of people participating is coming from somewhere and it is a fair bet that some of that is coming from those who were previously on welfare. We can’t tell you at this stage how much of that. But we always factored into our figures that these welfare changes, because they would encourage the number of people looking for work, would increase the rate of unemployment. That is, they would look for work but it would be some time before they found it. What is really pleasing about these figures is although there are more people looking for work, they are actually finding it and the unemployment rate is not moving up. Now, it is still early days and we would still expect some effect in this area, but the really pleasing thing is that there has been none to date.
JOURNALIST:
Mr Costello, this morning a large agreement was announced with the Chinese on gas development exports, what will be the macro-economic effect of that agreement?
TREASURER:
It will be extremely important for the Australian economy. I think we have signed our largest ever export contract for LNG from Woodside three years ago. What is now opening up is the opportunity for more such agreements…
JOURNALIST:
This is bigger isn’t it?
TREASURER:
And it could well be, yes, that was the largest that we had ever had to date, was the point that I was making, and now it looks like we have the opportunity to sign some more. So these will be huge contracts in national terms. They will be good for export earnings. They take a while to come on stream of course, but I think this is going to be very good for Australia’s exports. I have been saying for some time that we are going through an investment surge, that the investment surge will deliver increased capacity, we are seeing the signs of that capacity coming on stream.
JOURNALIST:
Have there been any discussions with the United States and of course at the APEC about LNG exports to the US?
TREASURER:
Well you know, there has been a lot of interest in LNG exports to the West Coast of California. But that has run into some environmental concerns and I understand that there has been a bit of litigation in California, which you would expect in California, so we will have to see whether that works its way out.
JOURNALIST:
Treasurer, the credit crunch that is currently afflicting commercial lending markets has had the effect of about another one or two interest rate rises over the past month on businesses, do you think then that the Reserve’s move in August, in early August, was perhaps not justified?
TREASURER:
Well, the fallout from the sub-prime market started late July and the statement that the Reserve put out at the beginning of August mentioned that and mentioned that that had been considered in the decision. I don’t think what people could have anticipated back in July or August was that here we are six weeks later and the fallout continues. And that is that the fallout has been more significant than we had hoped. I think we had all hoped that this would be a temporary blip. You can still see the working out of that in the markets at the moment and I believe it has some way to run, because nobody is quite sure yet, who is holding the balance of these loans and therefore who is holding the potential losses and of course you would expect a large proportion of this to be in the United States as it is. But it is clear that there are other institutions around the world that are holding some part of the default in the mortgage market in the United States.
JOURNALIST:
Mr Costello, can you just elaborate on the nature of this Woodside deal and what exactly it did mean?
TREASURER:
No, I won’t. I will leave that to Woodside. All right, thank you very much.