TREASURER:
Australia’s economy grew 0.9 per cent in the June Quarter and 4.3 per cent through the year. This is higher growth than any of the G-7 economies and one of the strongest growing economies in the developed world.
There is a sector of the Australian economy which is still suffering very badly and that is the farm sector. In year-average terms, GDP in the farm sector fell 19.2 per cent. So that makes the overall growth even more remarkable – that our economy grew as it did at 4.3 per cent notwithstanding a very severe drought and a very severe downturn in farm production.
What is leading the Australian economy at the moment is investment. We are going through an investment surge. New business investment is 13.3 per cent higher through the year. New engineering construction grew 6.6 per cent in the quarter and is 28½ per cent higher through the year. New machinery and equipment investment increased 5.9 per cent is 11½ per cent higher through the year. And the outlook for business investment remains positive. There is $23 billion worth of engineering construction commenced but not yet completed.
Investment to GDP is around about 28 per cent. This is amongst the highest that it has ever been in the Australian economy and capital expenditure plans are strong, showing that it is intended by business to continue strongly next year.
What this is doing is it is increasing the capacity of the Australian economy. We are in an investment surge which is building capacity for the future. And in these accounts, we are finally seeing some of that increased capacity come through with the strong growth.
Strong business investment is supported by strong profits which rose 16.8 per cent through the year and incomes also rose very strongly. Average non-farm compensation per employee increased 2.1 per cent in the quarter and is 5.6 per cent higher through the year.
As I said earlier, this investment surge is now beginning to work its way into increased production, and labour productivity increased 1.2 per cent in the quarter, and is now in trend terms 3 per cent higher through the year. That is, labour productivity is now coming right back, growing well above the long-term average of 2¼ per cent.
So as I have remarked in previous press conferences, we were going through an investment surge. Now the investment is starting to work out into production. You are seeing labour productivity lift and that productivity is lifted above the long-term average as expected. And as this investment surge continues, so it will build greater production in the years ahead.
Over the past six years, new business investment has grown almost 115 per cent. That is an extraordinary growth in business investment which has dramatically increased the capacity of the economy and is now working out in output growth and labour productivity.
There are some risks to the outlook, particularly in the global economy. The fallout from the sub-prime crisis in the United States, instability in equity markets and interest markets has affected our economy and will continue to have an effect. Outbreaks of diseases such equine flu, of course, are always a risk to the economy as we go forward. But what we can see in these National Accounts is a surge in business investment now adding to the capacity of the Australian economy, now working its way out into productivity, lifting labour productivity and giving Australia capacity to drive it for decades which lie ahead.
JOURNALIST:
Treasurer, are you concerned about the 5.6 per cent growth in average earnings?
TREASURER:
Well as I say in the release here, the 5.6 per cent is stronger than the wage price index which is the ABS’ preferred measure. That index takes out compositional changes and bonuses. But what you are seeing here is you are seeing an economy which now has an extraordinarily low unemployment rate, a rate that we didn’t think was possible some years ago. And as a result of that, wages are growing. You would expect that. But let me go on to make this point. In a situation like this, the worst thing you could do would be to backtrack on AWAs, return to pattern bargaining, return to across the board union negotiated wage increases, because that would be a recipe to break out inflation as it happened in the past. These figures illustrate in a strong economy, with low employment, with rising wages we cannot afford to backtrack on industrial relations reform and that is why Labor represents a risk.
JOURNALIST:
Treasurer, can you explain why these strong economic figures are not translating into strong support for the Government in the opinion polls?
TREASURER:
Well, look, we are going to have an election in this country by the end of the year and in the election campaign we will have the opportunity to argue the policies which are required for Australia’s future and the leadership which is required for Australia’s future. I have strong views about both of those issues and I will argue them throughout the election campaign. Now, this is up to the Australian people. They will cast their judgement and I will be arguing for Australia and its future and the policies that we need right up until election day.
JOURNALIST:
But you have been arguing that all year (inaudible) people not really…
TREASURER:
Well Paul, I am not a commentator on polls. I read polls the same as you read polls. They are an indication of people’s voting intention but until they actually vote, that is all they are, an indication.
JOURNALIST:
(inaudible) the very strong levels of demand we see here are likely to increase as the farm sector recovers. Are you confident that there is enough supply in the economy to cope with (inaudible)?
TREASURER:
Well look, our economy is growing strongly. It is growing at 4.3 per cent, it is higher than any of the G-7 countries. Our unemployment is low. It is at 30 year lows. Wages are rising – and that is a good thing, by the way. The increase in real wages under this Government is now 21.5 per cent. Now, the good thing about these National Accounts is you can see the investment surge. The surge has been building up for a number of years and is now beginning to work out in increased capacity. We are raising the speed limits of the Australian economy. Now, you have to be careful with the engineering of your car when you raise the speed limits. You have to make sure that the engineering is still safe and sound and that is why I warn against backtracking on industrial relations reform. But I do believe we are raising the speed limits of the economy and to get back to a growth rate which is above 4 per cent shows that this economy has still got some oomph.
JOURNALIST:
(inaudible) the fours is it, rather than the threes that Ian Macfarlane said 18 months or so ago?
TREASURER:
Well you see, over the long-term what we know is this. That the long-term growth of the Australian economy will come back, principally because of the ageing of the population. I have been very upfront about this. We put out projections for 20, 30, 40 years and the speed limits will come back as our population ages. But this ageing population has got a lot of virility left in it as you have seen in today’s growth rate of 4.3 per cent.
JOURNALIST:
With today’s polling, what is your explanation for why things are going, why you think the Government’s performance has gone from bad to worse?
TREASURER:
Well, look I am not a poll commentator. I am not going to sit down and analyse polls, I wouldn’t do anything else. What I am going to do is manage Australia’s economy. And I am going to do what is right for this country. And the point I would make as we get closer to an election: if you want Wayne Swan managing Australia’s economy, you can vote for him. If you want Julia Gillard managing industrial relations, you can vote for her. If you want Labor in control of a trillion dollar economy, you have the chance to vote for it. But I wouldn’t be risking my mortgage, my job, my future on that team.
JOURNALIST:
With that said, Treasurer, do you fear that the polls are becoming somewhat self-fulfilling?
TREASURER:
They do in the sense that it seems to me that a poll comes out practically every week. And as a consequence of that, that dominates the news cycle and it interests the media - which it is entitled to be interested, I’m not being critical - whereas I think what is more important to people are their jobs and their houses and their facilities and that is why I will be concentrating on those issues.
JOURNALIST:
Is it too late for the Government to change leaders?
TREASURER:
I don’t think there is any contemplation whatsoever in relation to that.
JOURNALIST:
Treasurer, given that you’re having trouble getting the message through, how much better off do you think you’ll be in communicating your message to the voters and getting them to focus on the choice they have to make once the election is called. Is that going to be a turning point for you?
TREASURER:
I think when an election is called and people have to cast a real ballot, which will determine who will be managing Australia’s trillion dollar economy and our future, they think about things more seriously than when they take a phone call at home from a pollster whilst the dinner is cooking in the oven. Now, I think they do think about their decision and its consequences much more seriously, and that’s not to say the poll doesn’t reflect their current thinking, but there are no consequences attached to current thinking. There are consequences attached to the way you vote in a ballot. If you change the Government, you get a new group that are managing Australia and its future. You can’t take it back you know. You can’t say on Sunday morning, gee, you know, I was just kidding. That’s it. That’s it for three years.
JOURNALIST:
And on these figures, what do you think the implications are for an interest rate (inaudible)?
TREASURER:
Well I think this is strong, sustainable growth led by business investment. And the most important thing that I would take out of these figures is this investment surge is building capacity. And that is what we need, because with a long period of economic growth, with unemployment now as low as it is, most firms have been operating to capacity and so, if you want high capacity, you need investment to build capacity, to raise the speed limit of the economy and that is what I see coming through in these figures.
JOURNALIST:
(Inaudible) this investment surge is a good thing Treasurer, to build capacity, but you also noted in your press release that the thing that’s really cut in this quarter is public investment which increased at 15.4 per cent (inaudible). How much of a concern is that, particularly given both sides of politics have in the last few days been making very big promises on road infrastructure further out, what is your view of the public sector’s investment role?
TREASURER:
Well I support public sector investment, of course I do. And we do an awful lot of it. The point that I make is that after the Government has done its investment, I believe it is prudent that the Government still produces a surplus. I am not against public investment, in fact as you will see in these figures, quite a lot of public investment from the Commonwealth is going on. Not just in road and rail, but in defence - I think the defence figures were affected particularly this quarter by the C17 Heavy lift aircraft, which is an enormous investment. But I would say that governments ought to be able to fund their investments and still balance their budgets. That is what the Commonwealth does. It funds its investment, it balances its budget, it adds to savings. I don’t criticise the states for doing investment, I think it is much needed, but you have got to remember that at the end of the day after they do their investment and their recurrent expenditures, they are borrowing money. And they are borrowing over the next four years almost entirely what the Commonwealth is saving. So the two levels of government are just netting each other out over the next four years. So, let’s look at the picture overall: business borrowing, yes; States borrowing, yes; Commonwealth saving. Commonwealth investing, yes; States investing, yes; business investing, yes. There is an awful lot of investment going so that is keeping pressure on construction and all of those sorts of things. But I think government would be better served if at both levels we were balancing our Budgets and adding to savings.
JOURNALIST:
Mr Costello…
TREASURER:
Sorry, we will go 1, 2, 3.
JOURNALIST:
Treasurer I note that household savings are back into positive territory for the first time in a long time…
TREASURER:
Yes.
JOURNALIST:
To what do you attribute that?
TREASURER:
Well, it looks as if households are saving more and it is something that I welcome. Bear in mind that this savings measure that we have has a few statistical quirks in it. For example it doesn’t capture where you save though capital gains but it treats as an expenditure depreciation, as I am sure you know. If you actually do a better analysis as we do of savings, including capital gains, savings has actually gone up quite a lot. Households are saving and you can see a little bit of that in the household savings ratio. It looks as if households have actually been strengthening their balance sheets. It does look as if, over the last couple of quarters at least, they have been saving some money. It is actually a good thing – it may well be that some of the tax cuts have been saved. And as we know, people are saving a lot more in superannuation. We don’t have final figures on this yet but it looks like a very large sum of money went into superannuation savings in the June quarter. And that is a good thing too.
JOURNALIST:
Treasurer, the Terms of Trade went down for the first time since the December quarter in ’01, do you think that maybe the price gains we have seen on the commodities side have plateaued and we might see (inaudible) particularly in the mining sector.
TREASURER:
Yes, this is an interesting point – we don’t want to read too much into it because the next quarter could surprise, but looking at this quarter it looks like the Terms of Trade have peaked. Now, I have been saying for some years that the Terms of Trade would peak and then unwind. If we have been surprised, it has been that the Terms of Trade have continued rising. That is, we thought they might peak a couple of years ago and be unwinding by now. Have we seen the peak? Well, according to this quarter they came off a little bit, but I think it is still too early to call it. Next quarter could still surprise us. But we are prepared, and we have prepared ourselves for a peak and an unwinding in the Terms of Trade.
JOURNALIST:
Four months ago John Howard told the Party Room that the Government faced annihilation if the polls didn’t improve. Today’s numbers are worse than what they were back in May, how would you describe (inaudible)?
TREASURER:
Well look, I have said all that I want to say about the polls.
JOURNALIST:
Do you think that John Howard should be campaigning with you in this election, saying this is the man that is going to replace me, this is when the handover will be?
TREASURER:
Well of course we will be campaigning together in this election, of course we will. We are a team, we will be campaigning together as we have in previous elections and the team is very important to the Government. It has been a team over a long period of time and it is a team which has some experience and when you compare it to Labor’s team I think it compares – well, you make your own judgement, but I think it compares quite favourably.
JOURNALIST:
John Howard’s line that ‘I will remain Prime Minister as long as the Party wants me’, do you think that’s no longer washing with voters, that (inaudible) leadership question?
TREASURER:
Well, as I said in answer to your second last question, we will be campaigning as a team.
JOURNALIST:
Do you respect the right of the Reserve Bank as (inaudible) the Governor last month to raise interest rates in the middle of an election campaign (inaudible)? Do you think he should be able to do that?
TREASURER:
Well, the Bank has got a mandate which is set by an agreement between the Governor and myself. And I set that agreement and I appointed the Governor. And the agreement makes it clear that monetary policy is adjusted by the Bank in accordance with inflation targeting. It doesn’t have any sub-clauses in relation to election time.
JOURNALIST:
Have you given up, Treasurer, your dream of becoming Prime Minister, given the polls?
TREASURER:
Ah Jason, we always ‘keep the dream alive’, to quote a well known radio commentator. In all sorts of areas – one day I dream of waking up and seeing favourable news coverage in your magazine. I keep that dream alive.
JOURNALIST:
Do you think today Treasurer it is in the best interests of the Liberal Party for John Howard to be Leader at the next election?
TREASURER:
Yes.
JOURNALIST:
So it would be worse under you?
TREASURER:
Well, I think that you are trying to ask trick questions, but I have answered your question – we are a team and we will be going to the election as a team. Okay, thank you.