TREASURER:
Well the National Accounts are like the quarterly report on a company. They are the quarterly statement of what has happened in the economy in the preceding quarter. Today's National Accounts showed that in the June quarter of 2004 the Australian economy continued its solid run, growing by 0.6 per cent to be 4.1 higher through the year.
And out of the 33 quarterly National Accounts during the term of this Government, 32 of them have been positive. And today's National Accounts showed that the Australian economy continued to grow in a strong and solid way at 0.6 per cent in the quarter and 4.1 per cent through the year to the end of June.
The Australian economy is supported by consumer confidence which is at historically high levels. It is supported by robust employment growth with unemployment now at 22 year lows.
And today's figures show that corporate profitability is the highest ever recorded in Australian history. And strong companies make for strong employment prospects. In fact the corporate profit share to GDP is almost 1 per cent higher than the previous Australian record. The corporate profitability to GDP, the profit share of total factor income, was 26.5 per cent in the June quarter of 2004. And what that tells you is that in proportion to the economy, Australian companies are as profitable, more profitable than they have ever been and that is supporting employment growth, supporting the lowest unemployment in 22 years and strong companies are making for a strong economy.
Now as we look through the figures in this particular June quarter we see that domestic demand retained significant momentum, but our growth continues to be supported by moderate wage increases and low inflation. The outcome for the year to June of 2004 was the Australian economy grew by the Budget forecast of 3¾ per cent.
Farm production fell in the June quarter but was 36 per cent higher through the year. Now there could be a number of explanations – the drought persists in some areas of Australia but undoubtedly there is also the statistical problem of seasonally adjusting for a 100 year drought. And it is very difficult as you are coming out of the worst drought in 100 years to make sure that you can get that seasonal adjustment right. And the large grain harvest in 2003 gave support to the rural sector which increased 40.6 per cent through the year.
Private business investment increased by 4.9 per cent in the June quarter with activity at very high levels.
And dwelling investment, whilst increasing, appears now to have moderated. This is in line with other forward indicators in relation to the housing sector such as building approvals, finance approvals and auction clearance rates. We welcome the fact that it continued to grow but it looks like dwelling investment has moderated.
Exports rose 1.8 per cent in the June quarter but imports rose by 2 per cent so that net exports detracted from growth.
The National Accounts provide further evidence that wage and inflationary pressures remain contained. The National Accounts measure of inflation was 1.8 per cent higher through the year. So that is somewhat lower than the CPI measure of inflation. And employment outcomes continue to remain moderate.
This has been a remarkable run for the Australian economy which has continued growing through the Asian financial crisis, a US recession, the worst drought in 100 years, the SARS epidemic, the terrorist attack on the World Trade Centre, the war in Iraq and record oil prices.
Economic management is not an accident. It is not a fluke. This is a very large economy, this is an $800 billion economy. And the management that is required takes experience and discipline. The fact that the Australian economy has had this remarkable run doesn't mean we can take it for granted in the future. There are still pressures around the world – the pressure of high oil prices, the pressure of rising global interest rates, domestically the fact that the drought is not yet still broken and the management of the housing cycle – are all matters which will take considerable, disciplined economic management over the course of the next year. And if we have consistent and disciplined economic management and can continue to keep the Australian economy growing in a solid and sustainable way we can keep unemployment at the 22 year lows that they are currently at and structurally we could continue to work going further.
JOURNALIST:
Mr Costello how much disciplined economic management is it to have spent $3 billion since the Budget which is an underdebt in an economy that is as strong as the National Accounts suggest today?
TREASURER:
Well our Budget is probably the most disciplined Budget in the western world.
JOURNALIST:
On what basis are you saying that?
TREASURER:
Well, I think the US Budget is 5 per cent deficit, Britain is in deficit, France is in deficit, Germany is in deficit, Japan is in deficit, Italy is in deficit. There may be only one country in the G-7 that is not in deficit. The fact that Australia has a surplus Budget unlike the G-7, unlike the OECD, the fact that we have now reduced our debt to GDP ratio below 3 per cent, the fact that we have now paid off over $70 billion of Labor's deficits would indicate that Australia's fiscal performance is probably the strongest in the western world.
JOURNALIST:
Mr Costello you say managing the housing cycle takes disciplined economic management, I am just wondering on whether you can elaborate on that a little bit?
TREASURER:
Well, as you know the housing cycle has been very strong, house prices have risen quite significantly over 3 or 4 years and it is important that they don't grow in an unsustainable way. I have been saying for some time that it is in our interests for the growth in house prices to reduce, the growth in prices to reduce. I don't want to see crashes in house prices but I would like to see a plateauing in prices. And there are a lot of economists that were saying this time 12 months ago that you would see a crash in Australia's housing market, you haven't, but you have see a slowing and managing that slowing will take incredible discipline. Now, I think if you get incompetents bumbling in they can make big mistakes. Treasurer Egan in New South Wales, bumbling into the middle of the New South Wales housing cycle with his new investment tax was a classic case of somebody bumbling into something they did not know anything about. And if you got people that bumbled into this situation, it could have very bad effects.
JOURNALIST:
Treasurer couldn't people though, according to a new report that shows that 30 per cent of household incomes are going to paying off the mortgage, wouldn't they be pretty worried with today's figures in the sense that the economy is going gangbusters on the back of record, near record imports, this is enormous pressure on the Reserve Bank isn't it and the, and interest rates?
TREASURER:
Well I wouldn't describe today's figures as gangbusters, I would describe today's figures as very solid economic growth, 0.6 per cent for the quarter, 4.1 per cent for the year. It is good, it is good growth, I mean there are other countries around the world that would give their arms to have that kind of growth. Would I describe it as gangbusters? No, it is not 5 per cent and it is not 6 per cent and we have been through those sorts of periods. More importantly Paul, the price pressures are contained. The measure of inflation in these National Accounts is below 2 per cent. We have a target of 2 to 3 per cent over the course of the cycle and there is no indication of inflation breaking out in Australia, so I wouldn't be worried about inflationary forces at all.
JOURNALIST:
I'm sorry, the GDP deflator is 4 per cent according to Table 13 and the contained price index for GDP has gone up 4 ½ per cent, and it is certainly consumer prices are the ones that you have been quoted, they are 1.8, (inaudible) is it a worry that the rest of the economy is experiencing much higher inflation than we get in the CPI?
TREASURER:
The household Consumption Chain Price Index, if you want me to give the full definition, rose by 0.2 per cent in the quarter to be 1.8 per cent higher through the year, that is the closest National Account Measures to the CPI as I said, and it is lower than the CPI. Our inflation target is based on the CPI – 2 to 3 per cent over the course of the cycle. The closest measure in these National Accounts is actually below the CPI, that is the point I am making.
JOURNALIST:
Mr Costello, why did the Reserve Bank then say that it would be likely that interest rates would have to rise in this cycle?
TREASURER:
I don't believe that it did. I know that you know, general commentary has been to say, particularly out of the markets that we need an interest rate rise, I don't believe that the Reserve Bank has said that.
JOURNALIST:
I think it said it quite clearly.
TREASURER:
No, no, no, no, the Reserve Bank, I said, there was some phrase like, during this period of expansion, right, during this period expansion. Well this period of expansion has gone on an awful long time and if I have my way it would go another awful long time. If you want to say during this expansion, and measure it by another 8 ½ years…
JOURNALIST:
Well, Treasurer do you…
TREASURER:
…but the financial markets that, you know, want to price in interest rates changes, in much shorter time frames than 8 ½ years…
JOURNALIST:
If those interest rate markets are right, we haven't got much of a risk of significant interest rate rises, how does that gel with your comments on what happened under Labor?
TREASURER:
Well you don't, well it is a different fish if you get a change of government, of course it is a different fish.
JOURNALIST:
Wouldn't they putting that risk into their calculations now?
TREASURER:
Who? The Reserve Bank?
JOURNALIST:
No, the financial markets.
TREASURER:
Well, I don't think that the Reserve Bank could start putting into its assessment the possibility of a change of Government. And how would you? You see, Mark Latham hasn't released an economic policy yet and you say start factoring in what a Labor Government would do, do you know? I read in the newspaper today, that Mark Latham has got the mother of all tax breaks. Has he? He promised his tax policy 16 weeks ago, you know, if this tax policy takes any longer in its gestation, he will be asking for the maternity bonus when he releases it.
JOURNALIST:
It will be an elephant.
TREASURER:
You know, 16 weeks late and now it is the mother of all tax breaks. The only people that are never let in on the secret are the Australian public. Now there are informed commentators out there today saying, 'where is his tax policy?' Promised in the Budget week. He leaks out to these papers right, informed speculation so he can get headlines like, 'Mother of all tax breaks.' Now journalists that want to be searching in this election would say, well if you are promising the mother of all tax breaks, then please tell us, what the rates are, what the thresholds are, who gets them, how it will be paid for, what the cost is and what other decisions will be made to pay for them. But you have got a bloke who is going around feeding out to journalists that he has got 'mothers of all tax breaks' and yet refusing to release a policy, you have got to get serious in this election. Mr Latham wants to be Prime Minister. You know, it is not like running the Liverpool Council where you leak an easy story out to a soft journalist. You want to have a real policy, you announce a policy and you have it costed and you come out and you defend it. 16 weeks late.
JOURNALIST:
Well speaking of costing policies Mr Costello, how much is your new Medicare initiative going to cost?
TREASURER:
Which Medicare initiative is that?
JOURNALIST:
It was announced by the Health Minister last night, on obstetricians.
TREASURER:
Well that is a previously announced initiative, that is the Medicare safety net.
JOURNALIST:
No, it is about meeting obstetricians' costs, it is a new element of the…
TREASURER:
It is an announcement about the fact that you are entitled to recover out-of-pocket, out-of-hospitals, including those which are charged by obstetricians, and it was an announcement as to how much an obstetrician could actually allocate their fees between in-hospital and out-of-hospital.
JOURNALIST:
How much will it (inaudible)…
TREASURER:
If it is out-of-hospital and out-of-pocket, and if you are entitled by reason of the fact that you are a Commonwealth Seniors Health Care card holder, or you are on Family Tax Benefit, over $300, you are entitled to an 80 per cent rebate.
JOURNALIST:
He was announcing it as a new policy Mr Costello, and I am just trying to clarify how much it is going to cost.
TREASURER:
Well I am telling you the policy is, we have already announced, you get 80 per cent rebate on out-of-hospital, out-of-pockets including for obstetricians. What was being done in consultation with the obstetricians, is that once upon a time they used to treat all of their fee as an in-hospital fee, even though that lump sum fee would have included numbers of consultations before the actual delivery. So the question was, with that lump sum fee, how much would be allocated out-of-hospital, how much would be allocated in-hospital, because the allocation in relation to out-of-hospital would qualify for the Medical Safety Net.
JOURNALIST:
So are you saying that there is no net change in the cost of the safety net as a result of this…
TREASURER:
The Medicare Safety Net has been properly costed in the Budget and you know, if there is any variation to that, Finance and Treasury are going to release their costings in 10 days time. You know, if I had been doing a Beazley on you and telling you, or if I had been doing a Labor Party and telling you the Budget was in surplus when it was actually $10 billion in deficit, Friday's announcement would show you whether or not I had been right.
JOURNALIST:
Tony Abbott said last night that the…
TREASURER:
Wouldn't it? And if Kim Beazley and the Labor Party had done during the 1996 campaign what we do, the Pre-Election Fiscal Outlook, you would have come out during the campaign, and said, $10 billion deficit. Now, we have put that in place so that you can have the Treasury and the Finance Department tell you what the bottom line is 10 days after the issue of the writs.
JOURNALIST:
So, was Tony Abbott…
TREASURER:
…no motivation, no motivation not to disclose the situation whatsoever, free and open. You know what, something the Labor Party never allowed either, you can actually have your policies costed by the same people that cost the Government's. So there can never be any argument about costing, you can put your policies into the Treasury and Finance Departments, so there can be no argument about costing. We don't have to have any argument about costings in this campaign, if the Labor Party will submit its policies and have them costed in the same way as we do…
JOURNALIST:
Tony Abbott…
TREASURER:
…nothing to stop it happening now.
JOURNALIST:
…Tony Abbott said last night that the cost of the safety net is going to blow out. He said…
TREASURER:
Sorry?
JOURNALIST:
…Tony Abbott said last night that the cost of the safety net is going to blow out. Does the Government know how much by?
TREASURER:
Well I didn't see him say that.
JOURNALIST:
It is in The Sydney Morning Herald this morning and The Herald Sun.
TREASURER:
Well I know The Herald Sun is a reliable newspaper, but I didn't see that comment. But let me tell you, costings in relation to the Medicare Safety Net will be taken into account in the Pre-Election Fiscal Outlook. It will all be there in ten days time.
JOURNALIST:
Does the Government not have anything better to spend its health money on than to underwrite private hospital births?
TREASURER:
Well I don't agree with your question. I think the Government spending money on helping mothers who are giving birth and helping them pay the costs that they incur in giving birth from their obstetricians, it is good use of taxpayers' dollars.
JOURNALIST:
Mr Costello, one policy that we have had from Mr Latham is that he has ruled out ever running a fiscal deficit. Would you do the same?
TREASURER:
Well, you know, can I just say, I don't think he, a fiscal deficit did he say? Did he say a fiscal deficit or a cash deficit?
JOURNALIST:
A budget deficit.
TREASURER:
Well did he say which? No. See this is the thing with Mr Latham. Mr Latham is not good on detail, is he? He is not good on detail, is he?
JOURNALIST:
(inaudible).
TREASURER:
No, no, let me tell you what the policy is. The policy of this Government is, and we put it in our Budget every time whilst the economy grows, we run underlying cash surpluses. That is the policy of this Government. That was put in place in 1996. That is what we do. Now, can I just say, do not listen to what Mr Latham says, look at what Labor does. The economy was actually growing in 1996, it just had a $10 billion deficit. See, it's time, this, you know, there's been this tendency so far with Mr Latham to say, well, we can't expect much of him because he's the new leader. He's running for Prime Minister. He's got to come under some scrutiny. He's got to be assessed by reason of his policy and his experience and his record.
JOURNALIST:
So there is a place for fiscal deficit?
TREASURER:
I'm sorry.
JOURNALIST:
Is there a place for a fiscal deficit?
TREASURER:
Well I'm just asking what he announced. I'm telling you what our policy is.
JOURNALIST:
Mr Costello, has the brawl in Queensland and the alleged “rodent” comment damaged the Prime Minister's 'honest John' image?
TREASURER:
No, because I do not believe for a moment that the combined statements of George Brandis, Brett Mason and the statement of Michael Johnson could in any way be undermined by the statement of Mr Galt. Senator Brandis was there, Senator Mason was there, Mr Johnson was there. The only person who allegedly heard this was Mr Galt, who, as I understand it, recently resigned from offices in the Liberal Party, was unsuccessful in a preselection attempt, and this incident is supposed to have happened, was it 16 months ago, and he just decided to release it now. Now, Senator Brandis, I think, has been a powerful performer on that Senate Committee and in the media, and there is no doubt in my mind that Senator Brandis believes that the Government was telling what it knew and believed to be the truth. And I don't think for a moment the statement of Mr Galt undermines that one iota.
JOURNALIST:
Mr Costello, has George Brandis ever publicly or privately described the Prime Minister to you as a “lying rodent”?
TREASURER:
I have never heard Senator Brandis speak in that way.
JOURNALIST:
Mr Costello, why do you defer some of the Reserve Bank bulletin, sorry, Reserve Bank dividend, until next year?
TREASURER:
Because we have decided to smooth the dividends, and if we had not actually smoothed the dividends you would have had some years where there would be very large dividends and some years where there would be no dividends. So we have decided to smooth them. That has been a policy which I've announced previously.
JOURNALIST:
Is that to help pay for promises?
TREASURER:
No. It is all in the Budget already. It was already in the Budget.
JOURNALIST:
In the Charter of Budget Honesty will you also undertake to submit any new policies that you announce in time for costing by Finance and Treasury beyond PEFO?
TREASURER:
Yes. Okay. Thank you very much.