TREASURER:
Today’s National Accounts show that the Australian economy in the June quarter grew at 0.7 per cent and throughout the year to the end of June 2000 4.7 per cent. This was the thirteenth consecutive quarter of growth above 4 per cent, an outcome which is unprecedented since Australia began the system of quarterly National Accounts in 1959. That is, this is the longest run of consistent growth above 4 per cent that we’ve recorded in Australia. Not only was growth consistently strong at 4.7 per cent through the course of the year to June of 2000 but inflation was low and the household consumption deflator which is part of the National Accounts released today, a broader measure of prices than even the consumer price index rose by 0.5 per cent in the June quarter and just 1.4 per cent through the year. So you had 4.7 per cent growth on very low inflation. Exports made a positive contribution to growth in the June quarter and we expect that they will continue to make a positive contribution to growth in 2000-2001, the first time that we’ve had a positive contribution to growth from exports since the Asian financial crisis. In fact over the year to June 2000 Australia’s exports by value increased 29 per cent. 29 per cent compared to a growth in imports of just 21 per cent. Showing an improvement on the current account, and that improvement being led by exports. The prospects I believe for growth in 2000-2001 are very solid. The Government forecast 3 - per cent in its most recent May Budget but exports in particular, I expect will continue to strengthen through the year supported by a stronger world economy, the exchange rate and a boost from the Sydney Olympics. With thirteen quarters of growth above 4 per cent, strong employment growth, unemployment now the lowest it’s been in a decade, we have the prospects to reduce unemployment further. The task for the Australian economy is to continue the strong non-inflationary growth, that’s what the Government’s economic settings are all about.
JOURNALIST:
Mr Costello given that you say it’s a strong growth on low inflation does that mean the case for people that have to make these decisions about interest rates, should be that rates can stay on hold for the foreseeable future?
TREASURER:
Well as you know, I never comment about the future movement in interest rates. But monetary policy in Australia is set within a well known framework, a transparent framework by an independent central bank, and the framework is that we’re targeting underlying inflation of 2 to 3 per cent over the course of the cycle. The good news about today’s National Accounts is that it shows strong growth and low inflation; the kind of outcome that you would be trying to produce. Having produced it now for thirteen consecutive quarters, and where are the results? The results are in job creation. We’ve now got an unemployment rate of 6.4 per cent. We have historically high participation rates, up around 64 per cent. That is, a lot of people who gave up looking for work coming off the Keating recession of 1990 are now back looking for work. The participation rate is as high as 64 per cent and our unemployment rate is the lowest in a decade. Now we forecast it to come down. We forecast that it would be lower than it is today by the end of the financial year and if it goes through 6 per cent in the year after that, that would be the lowest in twenty five, thirty years.
JOURNALIST:
(inaudible) the Australian dollar is 55.25 this morning, that’s an all time low, it appears this you know, remarkable data that you have this morning, is it good enough to reassure investors that Australia’s a good place to put their money?
TREASURER:
I don’t think there’s any problem with investment in Australia. In fact investment particularly equity investment has been extremely strong, extremely strong.
JOURNALIST:
Now with the dollar are you concerned at all that numbers like this still leave the dollar at an all time low?
TREASURER:
As I pointed out yesterday part of the story on world currency markets is the rise of the US dollar, not just against the A dollar incidentally but against nearly every currency in the world and most dramatically against the Euro. And that is partly because there is strong growth in the United States, partly because there are high interest rates in the United States, but as far as Australia is concerned we are determined to ensure that we have the right policy prescriptions in place for the real economy. They are the following – we will now enter our fifth surplus Budget in a row, over the course of this year our debt to GDP will fall to about 7 per cent. We want to keep the Australian economy growing strongly. We want to keep inflation low, we now have a much better tax policy, and we’re going to ensure that we keep the Australian economy competitive with our structural policy. These are the important things for the real economy.
JOURNALIST:
Mr Costello I think you say you’ve got the right policies. How can you say that when, when Government spending in these National Accounts are up 10.8 per cent for the year, it added half a per cent, 0.7 increase, surely that’s not the appropriate policy in a very strong economy?
TREASURER:
Well, Government spending only accounts for about 1/3 of Commonwealth outlays, and Government spending is actually quite a small proportion of overall purchases of goods and services. That is that the Government spending on goods and services is small, a small part of the Government’s spending, and the Government purchases of goods and services is a very small part of overall purchases of goods and services. And if I can just find you the amount, I think it’s around about 10 or 13 per cent. So whilst that has actually grown, it’s on a very small part of actual Government spending and it’s on a very small part of overall goods and services spending. Now, 14 per cent, 9 per cent, Commonwealth spending on goods and services accounts for about 9 per cent of total spending on goods and services in the Australian economy, and spending on goods and services by State and local Governments accounts for about 14 per cent of total spending in the economy. Now, that’s in the year past. We haven’t yet issued a final Budget outcome for the year past, that is, the year ending on the 30th of June 2000, but I expect it will show a very strong outcome in fiscal terms for the year ended on the 30th of June 2000, and all of that will be devoted to paying off Government debt. As you know, in the five Budgets before this Government was elected net Commonwealth debt increased $80 billion. We have not borrowed a dollar since we were elected. We have now paid off $50 billion. And the debt to GDP ratio in Australia in 2000/2001 will be 7 per cent. Japan is something like 130 per cent, the United States about 40 per cent, and Europe about 50 per cent. So in the fiscal position, which is measured by your debt liabilities, Australia becomes one of the strongest countries in the world. And I’ve made this point, if the Government were successful in its privatisation programme of Telstra, we could be in a position where the Commonwealth carried no debt, no central Government debt, and when I last looked at this there were only three countries in the world that were in such a position.
JOURNALIST:
Treasurer, do you accept the argument that perceptions of Australia as an old economy is one thing that could impact on the dollar, whether those perceptions are right or wrong, and if you do accept the argument is there anything the Government can do about it?
TREASURER:
Look, there’s been a lot of discussion about this old economy/new economy, it’s been going on for some time in Australia, and various people, I guess, have different perceptions. The traditional industries of Australia were agriculture and mining, and there are some people who think, who haven’t updated their understanding of the Australian economy. Undoubtedly there are some people that think that these are the only really, big, significant industries in Australia. But, those people who have updated their thinking know the facts. And the facts are that we now have a very substantial part of our Stock Market index, which is comprised of telecommunications stocks, of financial services, and of new industries such as telecommunications. In fact, on our estimates, since September of 1990 the share of the All Ordinaries Index devoted to the new economy has grown from 2 per cent to 36 per cent. Financial services are now a very big part of Australia’s economy and its exports, and we now have telecommunications stocks, probably our largest company Telstra, a big part of the All Ordinaries. Let me go through a couple of other measures, very interesting. We have either the second or third highest penetration of Internet use and personal computers in the world. One of the highest penetration and use of cellular phones in the world. And we pulled out some statistics recently – June 1998, 63 per cent of all employing businesses in Australia use personal computers, and 44 per cent of Australia’s adult population accessed the Internet at some time over the 12 months to November of 1999. The rate of uptake is on a par with North America and double that of Western Europe. In other words, on all of these indicators the United States tends to be number one in the world and Australia number two. That is on all of the indications: Internet usage, personal computers, cellular phones, use of personal computers in business, we tend to outrank Western Europe, that is, to be second in the world. The point I want to make about the so-called old economy/new economy debate, there’s been a lot of work done on this, and the most recent work was at the OECD. A measure of a new economy is a measure of productivity, that is, the extent to which you are harnessing all these technological innovations to boost your productivity. The OECD, when it considered this, found that Australia was among the six economies of the world that had had significant productivity improvements in part as a result of the uptake of information technology. And in fact, the increase in labour productivity in Australia over recent years has been significantly more than the United States. In 1998 Australia’s labour productivity growth, 4.3 per cent, compared to the US of 2.8 per cent. And in 1999 3.3 per cent compared to 2.5 per cent. That is, the point about the new economy is not whether you’re making semi-conductors or personal computers. The point about the new economy is, are you utilising semi-conductors and personal computers in financial services, in mining, in agriculture, are you using it in manufactures, are you using it in other IT? It’s the extent to which you adapt new technologies in industries and get productivity lifts from them. Now, the story of Australia is quite an impressive adaptation of productivity, borne out by quite an impressive leap in productivity, as recognised by the OECD along with few other economies in the world.
JOURNALIST:
Mr Costello, did you get upset that Australia does have a big IT deficit and it seems that some of the countries are faring better against the US dollar, such as Korea, Japan, those countries that actually do manufacture IT, significantly?
TREASURER:
Well look, you know, you raised Korea and Japan. You’ve got to be very careful when you make international comparisons. I mean, Korea has just been through a very significant financial crisis and an extraordinary devaluation as a consequence, it is now coming back off a low base . . .
JOURNALIST:
But during this crisis they’re doing better than us.
TREASURER:
Korea was in an IMF programme in 1997 and 1998. It ran out of foreign exchange. The Government was appealing for people to bring in gold bracelets and donate it to the Government. It went through a very severe crisis. Now the good news about Korea is that it is now growing very strongly, but off a very low base. So, I think you’ve got to be very careful when you make these international comparisons. Now, compare Australia with Japan, I think on any measure technology uptake, utilization, Australia’s rates are much higher than Japan on any measure. In fact, it’s one of the discussions that’s been going on down at the World Economic Forum. It could be one of the explanations why Japan is limping along in its fifth year of either negative or bare growth.
JOURNALIST:
Do you share the Reserve Bank Governor’s view that the Australian dollar is undervalued against the US dollar?
TREASURER:
Look, I’ve found over years that there’s no point in commenting on values of exchange rates. As I said earlier, a big part of what’s going on in the world at the moment is the rise of the US dollar and the financial markets love affair with all things American, not just against the Australian dollar, but against the Euro in particular, the New Zealand dollar, currencies from all around the world. And that’s the only observation on the question that I would make.
JOURNALIST:
Treasurer (inaudible) stronger dollar at the moment, how can you then justify it on economic fundamentals grounds, you also make the task of economic management much more straight forward? I mean, we have a surge in export income, which is what (inaudible) already said, a potential problem with inflation, a stronger dollar would ease that problem for us.
TREASURER:
Look, we have a floating exchange rate, and the reason for a floating exchange rate is so that you can take some adjustment on your exchange rate. That doesn’t mean that we aren’t interested in the exchange rate. We are, we watch it extremely carefully, but in these particular areas its not wise to actually, in my experience, comment on levels. But I make this point:- over the long term, levels relate to fundamentals. And if you have an economy which is growing for thirteen consecutive quarters above 4 per cent on an inflation measure which is one or two, with a fiscal situation which is five surplus Budgets in a row and a central government debt to GDP which outshines anything in Europe or North America, they are policies which are designed to have a strong real economy. And that’s the important thing to bear in mind, that you’re policies are directed at the real economy, which we intend to do. We intend to do some more things too by the way. We’re getting a new tax system, we want to improve industrial relations further, we’ve got a program to unleash the private sector in Telstra and telecommunications, we’ve got a lot of unfinished work to do.
JOURNALIST:
Treasurer, the Reserve Bank Governor has said that you want to have look at the proposal for an ANZAC dollar? What is your position?
TREASURER:
Well, the first thing is that any change in Australia’s currency arrangements, that is the actual currency itself are matters for Government decision and if a request were put to the Government, the Government would look at it. But I think I can indicate to you that no such request has been made. As far as the Australian Government is concerned, the Australian Government is not proposing any change to the Australian currency or to our monetary arrangements. If somebody wanted to adopt them, if somebody made an approach and wanted to adopt our arrangements we would look at that if such a request were made. But no such request has been made.
JOURNALIST:
Those are the signals from Helen Clark though, aren’t they?
TREASURER:
I don’t know that the signals are that they would want to adopt the Australian dollar. There’s been some discussion about some kind of joint currency. We’re not interested in any new currency, any third currency. We are happy with our monetary arrangements and we intend to keep them. Now if somebody came along and said we would like to adopt your currency and your monetary arrangements we would look at it, but no such request has been made and what I’ve seen from the comments, the thinking in New Zealand is not along those lines.
JOURNALIST:
(inaudible) the Australian currency if New Zealand was to adopt it?
TREASURER:
It’s just too hypothetical. It’s open to other countries to say we would like to adopt your currency. I think there was a proposal, I think it was by Argentina, which at one point said to the US Government they would like to adopt the greenback and I think the US Government made it entirely clear that if they did, the US Government would not be changing its Federal Reserve or changing the composition on its Federal Reserve. And it was a matter for Argentina. Now I’m not sure that that has been advanced, but obviously if somebody said to us, and this has not been said to us, we would like to adopt the Australian dollar at a senior government level, that would be looked at. But the point I’m trying to make clear is, we are not proposing to change the Australian dollar nor are we proposing to go into some new currency. We are very happy with our monetary arrangements and the banking arrangements which support it.
JOURNALIST:
Treasurer, do you regret at all that the Australian dollar has fallen to its lowest level ever during your tenure?
TREASURER:
We concentrate on the important measures in the real economy. And the truth of the matter is that we have a growing economy and a sound fiscal position with reducing debt and more people in work than ever before, with lower unemployment than we’ve had in a decade. And that’s what we’re focussing on.
JOURNALIST:
Mr Costello, you said you wouldn’t comment on interest rates, but you have discussed inflation. You’ve described growth as being non-inflationary growth and you’ve highlighted the deflator of 1.4 per cent. I mean doesn’t that really suggest you have a very different view to the Reserve Bank?
TREASURER:
No, it suggests that I can read the National Accounts.
JOURNALIST:
(inaudible) . . .
TREASURER:
Well hang on, hang on, you say I refer to the fact that the deflator was 0.5. That is a finding of the National Accounts. It’s like saying growth is 0.7 for the quarter and 4.7 for the year. I mean these are objective findings by the ABS. I don’t make them up and I can’t refer to any other figures. The figures I have to refer to are those that are found and reported today which on the inflation front are 0.5 per cent in the June quarter and 1.4 per cent through the year. Now these are objective findings.
JOURNALIST:
But you characterised growth as well as being non-inflationary?
TREASURER:
Well how else can you characterise 4.7 per cent growth on a 1.4 per cent consumption deflator? These are, these are not opinions, these are objective findings by the Australian Bureau of Statistics which bind me and everybody else in Australia, I can’t pretend otherwise.
JOURNALIST:
In characterising it that way, does that indicate you are opposed to low interest rates?
TREASURER:
No, in characterising it that way, means I can read the tables. And I can’t read them any other way. Thank you all very much for your time.