TREASURER:
In the December Quarter the Australian economy grew by 1.0 per cent to be 2.8 per cent higher through the course of the year. Today’s National Accounts show an economy which is growing strongly but is suffering very severe effects of drought.
Today’s National Accounts show that drought production in the agricultural sector fell another 11 per cent in December and is 22.8 per cent lower than a year ago. The non-farm GDP grew by 1.4 per cent in the December Quarter and is 3.5 per cent higher than a year ago, which is the announcement I made before December that the non-farm economy is growing at around about 3.5 per cent but we can now see in these figures that drought is subtracting about ¾ of a percentage point from growth. And with the rainfall being as it is I would imagine that there is no immediate pick-up. We are seeing production falling, we are seeing agricultural incomes falling and you can see in these accounts just the impact which severe drought is having.
Household consumption is strong and business investment is also very strong with engineering construction increasing 9.6 per cent in the quarter. Conversely to the agricultural sector, which is now suffering an extreme downturn, the mining sector is very strong. We have had $43 billion of new investment in the mining sector since 2004 and we are now starting to see some increase in volumes, 3.3 per cent increase in the December Quarter coming off the back of increases in the September Quarter. This of course is in response to strong mining prices and the Terms of Trade are very strong, led by mining prices.
The National Accounts show that price pressures in the December Quarter eased, as we saw in the Consumer Price Index with the unwinding of abnormal fruit prices and to some degree the unwinding of very, very high transportation particularly petrol costs.
Australia is now in its longest continuous period of economic expansion, we have our lowest unemployment rate in 31 years, notwithstanding an extremely severe drought, the economy continues to grow and this has been reflected in very, very high business profitability. The profit share of the economy is the highest ever recorded. So business is making strong profits, business is investing strongly, investment is a big part of what is driving the economy, people are in jobs and they are consuming and that is giving us a strength to offset a historic downturn in Australia’s very important agricultural industries.
Now, what this gives you is a snapshot of an economy which has been severely buffeted on one hand by drought and a severe drop in production, but being conversely lifted on the other hand by mining prices and of course the bulk of the Australian economy which is in wholesale and retail and manufacturing and service industries being kept strong by high employment levels and rising wages.
Just to put a footnote to that, since the Government’s election, real wages have now increased around 20 per cent and if you want some comparison under the previous government – the Labor Government – they fell by 1.8 per cent. So, high employment with good strong real wage growth is keeping the Australian economy strong.
JOURNALIST:
Treasurer what does this mean for the Budget? You said you predicted a fall in the (inaudible) sector, what does it mean for (inaudible)?
TREASURER:
Well before Christmas with the Mid Year Review, you recall I downgraded the growth forecast to 2¾ per cent and said that – 2½ per cent from memory, 2½ per cent – and said that the direct and indirect effects of the agricultural downturn would wipe about ¾ of a percentage point off. You have seen that in these figures.
JOURNALIST:
(inaudible) make a further adjustment?
TREASURER:
Well these figures confirm those forecasts right on the money. Now, the critical thing for the Budget is what is going to happen with agricultural conditions. We hope that they will return to normal in 2007. We can’t make any other postulation in relation to that but if the drought should continue that will mark down growth.
JOURNALIST:
Treasurer at the Mid-Year you noted there had been some weakness in company profits towards the end of the September Quarter, business showing (inaudible) company profits are going gangbusters, look that, presumably that will be good for your tax revenues, do you expect that sort of growth to continue?
TREASURER:
Well company profits are extremely high. Not only are they high in an absolute sense but as a proportion of the economy we have now got the profit share up at all time records and that in turn is leading to strong investment and the investment is building additional capacity. So, we would expect and hope that that increased investment starts flowing into exports. That is the part of the picture that has not been as strong as we would have hoped by now. And I think it is the long lead times between the investment and the exports. It is now three or four years since this surge in investment began and we are now only seeing growth in exports. So I would like to see the investment work its way out into increased exports and I think once you see that you will see a bit more of the growth starting to come from the external sector rather than the internal sector.
JOURNALIST:
It is quite a different mix of growth around the country this time Treasurer, New South Wales (inaudible)?
TREASURER:
Well you know, you have got to look at these things on a bit of a longer term time frame because sometimes if you have the big increase in one quarter you get a correction in the next and that is why it is better to look at them over the course of the year. And I think if you do look at it over the course of the year you will see that growth has been stronger in states like Queensland and Western Australia and weaker in states like New South Wales. And New South Wales had a negative quarter and so you are getting a correction back from that. But if you look over the course of the year, it is still a much weaker State than most of the others.
JOURNALIST:
So is New South Wales bouncing back or is this just a minor correction?
TREASURER:
I see this as a correction. You had extremely weak conditions in New South Wales and as a consequence of that this quarter comes back a bit. But if you look at the course of the year, the New South Wales economy has been weaker than most other states.
JOURNALIST:
Treasurer there was a turn around in productivity during the Quarter, do you think that that might be, giving some discussion at Senate Estimates a couple of weeks (inaudible) about this whether we are going to start seeing a pickup in productivity because of all of the investment?
TREASURER:
It is a very welcome bounce back in productivity…
JOURNALIST:
Do you think it is going to continue?
TREASURER:
…and the productivity and story is an interesting one. One of the industries that recorded a decline in productivity in previous quarters was the mining industry. Now does anyone believe that the mining industry suddenly got unproductive. The more probable explanation is with all this huge investment going on but without the output, the way it showed up in the measures was a decline in productivity. More investment, but no higher output. Now if I am right about that, and the volumes start rising, you are going to get a huge surge in productivity which is really just the delay coming through. The good news is that we are seeing a strong bounce back in relation to productivity in these figures.
Now, let me make another point. This is a very, very important point of policy. At a time when you have got strong prices in the mining industry, where you have low unemployment, where miners are competing for investment, they can and are offering big wage increases. The worst possible thing you could do is have an industrial relations system that took wage outcomes from a profitable area of the economy and applied them back into the general economy. That is what happened in the late ‘60s, that is what happened in the early ‘80s. That is what we cannot afford to happen now. We need an industrial relations system, which will allow profitable wage outcomes in areas of the economy, like the mining industry, but will not transmit them back into the general economy. That is why it is so important to grasp the changes that have been brought about by WorkChoices. It is designed to avoid all of the mistakes of the past. Anybody who wants to go back, get rid of WorkChoices, go back to the old industrial relations system, it is a recipe for inflation and recession.
JOURNALIST:
Treasurer, can I just divert you for a moment, there are international reports coming in this morning that a plane with Australians on board has crashed in Jakarta. (Inaudible) do you have information for us on that?
TREASURER:
Look, I’ve heard the reports myself. Obviously it is a tragedy. I don’t have any further details at this time, but the Department of Foreign Affairs will be trying to get further information. Once the Government has further information, an announcement will be made.
JOURNALIST:
Can you confirm for us that Mr Downer wasn’t on that flight?
TREASURER:
Well nobody has suggested to me that he was.
JOURNALIST:
Treasurer, turning to matters of Western Australia, I wonder if you consider Senator Lightfoot’s position under threat given that he used Parliamentary Privilege to promote a company (inaudible) Brian Burke, in which he also had a significant financial interest.
TREASURER:
Look, well Senator Lightfoot is obliged to put all of his financial holdings on the public register. They can be inspected on the public register. Senator Lightfoot does not hold any position in the Government and does not have any position of influence in relation to any commercial decisions. And the commercial decisions as I recall it that came out of Xstrata’s application in relation to Western Mining was made by me. And far from ruling out the bid, as I was being urged to do by some, I allowed it to go ahead.
JOURNALIST:
Just picking up on that point though, Senator Lightfoot has previously, his pecuniary interests has been incorrect and he’s corrected that. And once again (inaudible) found that his pecuniary interests statement were incorrect. What is the Government doing to ensure the integrity of those statements?
TREASURER:
Every Member of Parliament is required to comply with the disclosure rules of the House of Representatives and the Senate. That’s an obligation that is on every MP, regardless of party.
JOURNALIST:
And, if they don’t?
TREASURER:
Well, if they don’t, it is up to the Houses of Parliament concerned.
JOURNALIST:
So Senator Lightfoot has not done that.
TREASURER:
Well, I don’t know whether he has or not.
JOURNALIST:
Well, he’s admitted to that.
TREASURER:
Well I don’t know if he has or not. And I don’t keep the register. It is not my obligation to keep the register. The register is kept by the Clerk of the House and the Clerk of the Senate. Everybody has an obligation under the rules of the Senate and the House of Representatives to make proper disclosure and if they fail to do so, then it is a matter for the Clerks or the Chambers concerned.
JOURNALIST:
Mr Costello, should Andrew Laming resign?
TREASURER:
Well, I don’t have any information at all as to the nature of any allegation against Mr Laming. I’m not going to advise him.
JOURNALIST:
Mr Costello, just going back to Angus’ question, what he was asking about is the use of Parliament to attack a company and in a situation where a member of a government who though you say he doesn’t actually have any role in the Government but is a Senator for your Party, he’s using Parliament in an improper way, isn’t he?
TREASURER:
Look, anybody is entitled to raise any matter in Parliament that is their open and legitimate view. As I recall it, there was only one issue that was before the Government and that was whether or not a bid by Xtrata for Western Mining would be ruled out under Foreign Investment guidelines, and it was not. So, whatever Senator Lightfoot was doing, it patently did not have any influence.
JOURNALIST:
Treasurer it was a very different issue he was talking Treasurer, about the mine in Western Australia which, the re-opening of that mine, he stood to make $800,000.
TREASURER:
Well, I don’t know what he stood to make frankly. But, if you want to put those questions to him, put them to him. I would encourage you to do so.
JOURNALIST:
I am just asking – do you think it is inappropriate for him to have done that, to use the Senate Chamber?
TREASURER:
You don’t know what was the motivation behind the speech. But, if you suspect there was an improper motivation behind the speech you put it to him. You ask him. What I am telling you is that I had to make a decision – should the Xstrata bid be ruled out, and I might say so, there were a lot of people saying that I should have ruled it out. And I would be – if my recollection is right – a lot of people in Western Australia. But, in the circumstance I think you can see I might have taken the right decision.
JOURNALIST:
You are saying last week in Parliament that anybody who deals with Brian Burke is politically and morally compromised and it is all very strong stuff, but how come it is okay to say that about somebody outside of Parliament but you can’t draw judgement about the Senator’s use of the Chamber?
TREASURER:
Well I don’t know – is Senator Lightfoot saying he dealt with Brian Burke on that is he? I don’t think he is.
JOURNALIST:
He has admitted that he had consultations with Julian Grill.
TREASURER:
Julian Grill. I stand entirely by what I said. Anybody – any Member of Parliament – and particularly anybody that wants to be Prime Minister – who gets into the clutches of Brian Burke is compromised. You have seen how compromised Kevin Rudd is. You have seen the story change and morph. You know Kevin Rudd was not forthright about the details. He made this big thing of saying ‘yes, I made an error of judgement but at least I was honest about it’. Let me tell you – yes he made an error of judgement, and he was not forthcoming about the details. Now as those details have emerged bit by bit so his story has changed. We now find that a man who wants to be the Prime Minister of Australia, a man who is holding himself up as having some new moral standard, has repeatedly engaged with Brian Burke, who has been found through the Crime Commission of Western Australia to be totally inappropriate to be reflecting evidence. That is the truth, that is the truth of the matter and you know that story has changed. Now let me say by the way – we found out yesterday, this was a new fact, that Graham Edwards had actually asked him whether he would go to a meeting with Brian Burke before he got to Western Australia. Now it wasn’t a surprise we now find out when he got to Perugino’s. That is why the written invitation had gone out. That was a new fact too which did not pop out until yesterday. You want to watch this moving feast. The story changes by the day.
JOURNALIST:
Mr Costello, could you explain the thinking behind the undertakings that Macquarie Bank directors would have to sit out of any decisions involving Sydney Airport, yet the ACCC said they did not have any problems with competition in that regard?
TREASURER:
Well the obligation is that where an issue arises for access in relation to Sydney Airport - I am just looking up the clause here – Macquarie will not vote on any specific decision relating to terminals or other facilities at or access to Sydney Airport. Now the thinking behind that is that Macquarie Bank, having a very strong material interest in Sydney Airport should not use its interest in Qantas to advance its interest in Sydney Airport. That is the thinking behind it.
JOURNALIST:
But why have you got a problem with that if the ACCC said that (inaudible)?
TREASURER:
Well because I think that could possibly be a conflict of interest. Last question.
JOURNALIST:
Just on Mr Laming, in you experience of him have you always found him as being honest and an exemplary Liberal MP?
TREASURER:
Well I have done functions for him, I think he is a highly qualified individual. I think he is an ophthalmologist, I think he is a doctor, I think he has worked with the World Bank. I have found him to be a highly intelligent person who has won a seat, as I recall, from the Labor Party, and I have always tried to assist him in the discharge of his duties. But as to matters, and I have read newspapers like you have, as to those matters I have no more knowledge than you do.
JOURNALIST:
Treasurer, one last question on the economy if I may, the growth was driven in the quarter by household consumption, that is the biggest contributor to growth and yet household savings were again negative, but the interest bill on households is rising, does it concern you that so much of our growth is dependent on households going deeper into debt?
TREASURER:
I do think you have got to be a little careful of household savings ratio – partly because it is calculated in a funny way – it has depreciation in there which plainly households do not pay and it leaves out capital gains which plainly they receive. And I have mentioned this before and a lot of work has been done on this by the Reserve Bank, a lot of Australians are saving in other forms these days – particularly through superannuation and equities – and when you bring those savings back into account you actually see that saving ratios are very strong. So, the household savings ratio is good for what it is there for. But I do not think it is the best measure of savings. Thank you.