TREASURER:
Well thank you for coming along. Today's national accounts show that economic growth strengthened in the September quarter and that as an economy and as a country we are making the transition from the largest resources investment boom in our history to broader-based growth. The transition process is under way. Real GDP grew by 0.9 per cent in the September quarter and 2.5 per cent over the past year. This a strong increase up from the 1.9 per cent growth recorded in the year to the June quarter. Australia's annual growth is double the rate of that of Canada, it's higher than the G7 and it's above the OECD average. The key drivers of economic growth in the September quarter were net exports, household consumption and housing construction, more than offsetting the expected fall in business investment as we move through this transition period.
This composition of growth demonstrates, as I said, that the transition is under way in our economy and that is why it is so important that as a country, as a Government, we focus on growth-friendly policies, policies that grow the economy, policies that support jobs in our economy. The sheer scale of the resources boom means that this transition will take time and there will be challenges as we know. The Reserve Bank Governor refers to the current period now where the head winds are at their strongest. The Australian people understand this, they know, they understand what's happening in the global economy, they understand what's happening in our domestic economy and they are already out there making changes in what they're doing, they are already out there working hard every day, saving and investing to ensure they can secure their prosperity in this modern economy - and dynamic economy but there are positive signs because the thing about a transition is you're on your way to a better place and there is a strong place for us to go to and that's where we're heading.
There are positive signs of a strengthening economy and signs that our economy is heading in the right direction. The National Accounts show that the economy continues to see a moderate expansion. Our economy has shown considerable ability to adjust and to do so in a way that has preserved both overall economic and financial stability. After the historic highs of investment in the construction phase of the mining boom, and with the end of the labour-intensive development phase in the mining industry, production in many major projects is now coming online and the ramp-up in resources sector output is still under way.
The next phase of Australia's growth transition will be for businesses in the non-resources sector of the economy to increase their investment. The conditions are in place for this to occur. Following the GFC businesses have been consolidating their balance sheets and are well positioned to take a more active role in driving growth in the economy through investment. In domestic markets we can expect to see high levels of confidence translate into stronger domestic demand that will encourage higher levels of non-mining investment. As new markets open up for our exports, particularly in our 2
expanding services sector, Australian businesses will see opportunities to invest in their productive capacity. More and more Australian firms are experiencing success in developing and marketing their products and experiencing success penetrating overseas markets. Our free trade agreements and a more competitive Australian Dollar facilitate these outcomes.
Exports of goods and services in the September quarter rose by 4.6 per cent, the strongest growth in 15 years. As these developments offer the prospect of increasing profits they will support increased capital spending and employment in the future. Many businesses will first look to increase their labour force to fully utilise their existing capital stock. This is already occurring with employment growth picking up significantly. Job ads remain strong and the unemployment rate has fallen, especially youth unemployment that is now below the levels of the last election. Employment is growing at the fastest annual pace in five years and workforce participation is increasing. This initial activity can be expected to be followed by investments in fixed capital such as plant and equipment.
Investment plans may initially be limited to the replacement of old machinery and equipment until firms in fast-growing sectors invest to expand. In this regard, non-mining investment can be seen as a lag indicator as businesses first adjust to stronger domestic demand through their hiring policies before taking advantage of historic low interest rates to fully realise the growth opportunities.
Encouragingly, consumer confidence has increased, households are spending more and we are building a record number of new dwellings. Continued growth in household income and rising wealth lifted household consumption by 0.7 per cent in the September quarter and has supported a pick-up in retail trade over the past year which is a good sign heading into Christmas.
We should expect that the adjustments that we have seen in the exchange rate, the labour market and interest rates will help create the environment that leads to increased investment.
Over the last seven years the Australian economy has experienced the biggest structural swings in a century. While economic transitions of this magnitude are rarely seamless, the rebalancing continues to take place and the Australian economy is evolving, it is broadening and it is growing.
The Turnbull Government is backing Australians with our policies, whether it's in tax, whether it's in productivity improvements, whether it's in trade, whether it's in infrastructure investment, whether it's for a stronger financial system. In all of these areas we are working to support Australians to back them working and saving and investing and we are establishing this strong platform for jobs and growth in our economy.
So this transition is under way. There is a long way to go but Australians understand this and they're looking to the Government to continue to pursue policies that support jobs and growth which is what we're doing.
QUESTION:
Are these good figures a Turnbull effect or good luck?
TREASURER:
What we're seeing in these figures is about an economy transitioning, Paul, and these figures are showing the journey that we're on and I think these figures should give Australians confidence about the prosperity that still remains ours now and in the years ahead and that it is not beyond the Australian economy and Australians and Australian businesses to be able to adjust to what is a very dynamic environment and we are doing just that as we see these things diversify. Now, it is not unexpected that we saw business investment figures fall, as you move from the most heavy phase of the investment boom in the mining sector, that's to be expected but that's been compensated for by an increase in household consumption, it's been compensated for by a lift in exports and Australia is earning its way. Now, as these demand elements continue to strengthen then that will provide the reason, the case, for then the investment to follow which is my point about those factors being a lagging indicator. We do obviously want to see business investment in 3
the non-mining sector grow in the future and we believe that will occur in the years ahead but only, if as a country we remain focused on policies that support growth and jobs. There is no room for indulgent policies that go off and cost the economy and cost jobs.
QUESTION:
Treasurer, how do you explain the weakness in public-sector investment?
TREASURER:
Well as you…
QUESTION:
[Inaudible]
TREASURER:
No, I wouldn’t put it in those terms. As you'd know, David, they're very volatile figures, public investment. They move around every single quarter and I think there is no single explanation for any of these and we saw that in the last quarter, I'm sure we'll see it in the next quarter. I think the real story of these accounts don't fall in those figures, I think what we see in the real story in these figures is being around household consumption and exports and what's happened in business investment. On public investment, I think this will move around from quarter to quarter. So, I don't draw any particular analysis of that movement.
QUESTION:
Given most people aren't directly involved in shipping things off ports…
TREASURER:
Sorry? I missed that.
QUESTION:
Given most Australians are not directly involved in actually exporting resources, what do you say to people who live in just about every state where state demand has contracted?
TREASURER:
The state demand, of course, doesn't take into account the export figures that you’re referring to but if I do go through the year state final demand figures, New South Wales at 2.6 per cent, Victoria at 4.2 per cent, yes, contractions in Queensland and Western Australia but they are also states which do benefit significantly from things going through ports, particularly in the resources sector. In South Australia, 1.6 per cent, Tasmania 1.4 per cent, Northern Territory 4 per cent, ACT 0.6 per cent. One of the very interesting things when you look at the state figures is the strong growth we're seeing in New South Wales and in Victoria and I think this in part re-enforces the story the Prime Minister has been saying particularly about cities, but also about what is occurring in the performance of our services sector. Sydney and Melbourne, in particular, based on these results – but we would hope many of our cities will be, if you like, the mines that previously were in remote areas, they are now in the cities and they are delivering services exports and the functioning of our cities will be incredibly important economically and to drive productivity as well. So, the Prime Minister's focus on cities policy as an economic driver I think is a very clever one. It's very clever.
QUESTION:
I hear what you're saying, Treasurer, about the household consumption figures and net exports as a sign of transition but there doesn't seem to be a lot else in the national accounts where you can say, "this industry is really starting to pick up or this other industry is picking up." Can you elaborate a little bit about how you see those sectors working and also you just mentioned that you don't have room for policies that aren't helping growth and I just wonder whether you would like to elaborate on what you think those ones are?
TREASURER:
Well, I would be happy to expand on that, Laura, but firstly in terms of the contribution to GDP growth, as we've seen, there's a 0.3 per cent contribution from the services sector in these figures. There is through the year growth of 3.5 per cent in the services sector and 0.5 per cent in the quarter itself. I think that's a strong indicator. That is just shy, just shy, of the contribution of the mining sector at 0.4 per cent. So, I think these figures very much do point to that transition that is occurring and the broadening in our economy and I think that's also reflected in what I've just said of the performance of both the New South Wales and Victorian economies and that's very welcome 4
and that's why I think it's important that we continue to go down that path. We're not replacing services for mining. What we're doing is broadening the economy as a whole and we're diversifying the economy as a whole and that's the plan and that's why competition reform is important; that's why microeconomic reform at the state level is important; that's why infrastructure development and financing is important; that's why all of these things go to building the growth of the country but also drawing out the productive capacity of the country. And really backing Australians who are already doing this, people looking forward 10 years and saying, "well where do I need to be in 10 years from now? What sort of training do I need?" People coming out of school at the moment thinking about the studies they're going to undertake and what's going to position them to be in the right place in this modern dynamic and very agile economy. The innovation statement will come out next week. In that statement I think that will focus on yet another area where we can continue to diversify our growth and broaden the base of our economy and this is all part of the transition story and that's the story you're in. That transition story has challenges, it has frustrations, it has good news and it has bad news but the good news is we are making the transition, the economy is broadening, and it is growing, it's growing faster than the G7, it's growing fast than the OECD, it's growing faster than comparable economies like Canada whose numbers only came out last night for the same quarter and we're double, we're double what we've seen in Canada and in places like Brazil, well, those comparisons are obvious. I think that these numbers give Australians encouragement for the work they're doing already and it encourages them to keep going.
QUESTION:
Treasurer, do you think the Australian economy and equity markets are prepared for when the Fed makes its decision next month on interest rates? Do you think it's factored in? Glenn Stevens has mentioned when the Fed starts lifting rates it does cause all sorts of ripples through the global economy.
TREASURER:
You'd have to ask them. I'm not about to try and second guess what's in the heads of markets or in the heads of other central banks. That's purely, I think, for them to make those decisions and them to make those assessments. What our job is, what my job is, is to put in place policies that are going to grow the economy and to come back to the earlier question, there are alternatives to that. The 45 per cent emissions reduction target which has been put forward by the opposition is economic vandalism. It’s as simple as that. It is economic vandalism. We put considered, measured, respectable targets to the Paris conference. Labor are off on a frolic of their own with the Greens and the worst news about that for Australians is that they're not prizing growth as the focus of economic policy, they're prizing Green votes as their focus of economic policy. We are prizing growth and jobs. It is our absolute focus. As I think people know in this building I can be pretty focussed.
QUESTION:
How important is the GST reform to the transition? You're meeting the states in a couple of weeks, is that where you'll discuss that sort of reform or is that where you'll kill off the GST talk?
TREASURER:
I want a growth-friendly tax system – that's what I want. I want a job-friendly tax system. I want a tax system that is going to back Australians who want to work and who are saving and investing and are out there doing it right now. When the Coalition changes the tax system we cut taxes. We make the tax system better, we make it growth-friendly, and that will always be our focus. We've been working with the states and territories on these issues and they have their objectives. I'm setting out ours very clearly as has the Prime Minister. So, whether it's changing the tax system or it’s innovation policy or a $50 billion national infrastructure plan we're rolling out, the asset recycling initiatives – all of this is designed to grow jobs, to drive growth in the economy. Again, these figures highlight that while we're doing well comparatively to the rest of the world our future very much will depend on how successful we are with productivity improvements in the economy going forward. There won't be the commodity prices shield that there has been in the past. We know that. We know where commodity prices are now and obviously that will play into other announcements I have to make between now and Christmas. 5
QUESTION:
What's behind the growth in exports? Is that just services?
TREASURER:
The growth in exports principally is we've moved into the production phase in the mining sector and those volumes are very strong. We've also seen strong performances in those other areas as well. It's not like these things have turned off in these other sectors. When I talk about the mining sector I'm particularly talking about the investment in the mining sector and the investment boom in the mining sector was driving a lot of activity now for some years. That has predictably and understandably tapered off. I made this point in the House yesterday. There's no surprise with the capex figures we saw last week. That may have been at the not so pleasant end of expectations, but they were within the expectations and that just reminds us that we have to persist with our strong growth policies through this transition. We're working with Australians, we are walking alongside them and as they walk through this transition and work through this transition we are backing them in and working through it with them.
QUESTION:
Could you just clarify on the tax process, are you still planning to have a green paper as well as a white paper and have you any idea yet about the timetable of these two papers?
TREASURER:
In this process, Michelle, I've never got ahead of myself. The next phase is we've got COAG coming up next week, the Prime Minister will have his first opportunity to engage with his state and territory colleagues. This will be my second opportunity. We are still working through the objectives of the states and territories in this process. The next meeting will focus very heavily on state taxes. That's the purpose of the next meeting, to focus on state and territory taxes…
QUESTION:
But the plan was to have…
TREASURER:
There's no ultimate change to those plans and the form that may take and its timing, I think, is very conditional on the progress we're making with the states and territories, but I think also with the Australian people. I think we're now getting to the point that this isn't even a debate about tax, it's actually a debate about growth. At this podium we've talked about our response to the Harper Review, we’ve talked about federation reform, we’ve talked about changes to the tax system, it's a green paper on growth – not just on taxes – and having a growth-friendly tax system. That's the point. If it's not going to help grow the economy then why would you do it?
QUESTION:
Is the appropriate place then to have a discussion about the GST actually in the federation white paper and discuss the whole of state taxes in that context and leave it out of the federal white paper?
TREASURER:
I think these options are open to the Government, but it's about a fusing of all of these initiatives and reforms to how you run the federation can support growth; the reforms to how you run competition policy and the productivity payment process that I outlined and we're now working on which we'll discuss with the states in first principles next week. This is all about driving growth. I know that when the Labor party talks about tax they just want to talk about increasing one tax or the ciggies tax or things like this – that's not a plan for growth, that's just a plan for taxing people more. What we have is a plan to grow the economy of which changing the tax system is part.
QUESTION:
Treasurer, have you seen the modelling done for the states on the GST?
TREASURER:
As I said in the House and as I've said at numerous press conferences there was modelling done based on the request from the states and territories to model those outcomes. I presented that at the last meeting of state treasurers to those state treasurers in response. I've been transparent about that. It's been hiding in plain sight in press conferences and in the Parliament. So, I don't think there's anything terribly revealing about that. The difference is we did that in response to a request from the states. I noticed the Shadow Treasurer actually initiated modelling on a 6
broadening of the base of the GST and an increase in its rate. Now, he has chosen not to allow that information to be made available to the Government or the public. That's a matter for him. I don't know what the other scenarios were. There were at least three. I don't know what the other two were and I don’t know whether there’s five others but that's a matter for him.
QUESTION:
Treasurer, just on an earlier point about commodity prices, terms of trade is down again, income measures are negative. What's that likely to mean for wages in the year ahead?
TREASURER:
One of the very positive things in these set of numbers is the compensation of employees and that makes up almost half of the income measure in the GDP, that went up by 1.1 per cent in the quarter and 2.6 per cent through the year.
QUESTION:
Will that be sustainable?
TREASURER:
This is an encouraging sign and that was backed up in the wages information that came out over the course of the last week. We are seeing that growth in the compensation of employees. It's happening at the same time that we've seen a fall in unemployment and at the same time we've seen an increase in workforce participation as well. So these are good signs. We've also seen a lift in labour productivity as well. With the growth and more people getting involved and a greater output, albeit that's still being impacted by things happening in the resources sector, these are good signs, but they won't be sustained if you don't have strong growth policies. They won't be sustained if you don't have a tax system that supports jobs and growth. It won't be sustained if you don't pursue the reforms this Government is pursuing – the innovation reforms and to have a clear way forward and a clear vision for where we want to be – I think you are seeing that outlined by this Government.
QUESTION:
Treasurer, is the GST a growth friendly tax?
TREASURER:
Of course it can be. The previous Howard and Costello Government proved that. That was part of a package of tax changes. Of itself it is just one element as proved to be the case back in 2000. It's not about any one tax, it's about the mix of taxes that makes the difference. You can get the mix wrong and I would argue at the moment, because it's been left unattended from its last servicing for 15 years, that the mix has got out of whack. That means that we need to look at growth-friendly tax mixes. Now, there's an opportunity to do that. How far we will be able to do that well, that's a function of many different things. But the Government is serious about it - the point is this, I'm not looking at changing the tax system to chase higher expenditure. That's not our purpose. That's Labor's purpose. That's why they're putting a tax on ciggies and that’s why they are going after superannuation and the way they're choosing to do that. That's why they're doing those things, because they want to raise more money to chase higher levels of spending. That's not my purpose. We'll control expenditures, as we are, and make statements about that in the mid-year update. The way we seek to deal with the Budget is to grow the economy and to control expenditure.
QUESTION:
Do you believe it's realistic you can change the tax system without touching the GST?
TREASURER:
It's a bit of a hypothetical, Phil, and that's the process we're working through. There are things that can be done purely at the federal level and the states understand that and we can work through those issues and similarly, the states can pursue changes to their tax mix at their level of jurisdiction as well. They've chosen not to do that or engage in that at the moment – well some have to be fair. South Australia, interestingly, has had a modest run at that. So, all levels of government can do things differently within their own jurisdiction. What we're trying to explore with the states and territories is how we can actually work together to get a better tax mix that drives growth. That's important for all states. It's certainly important for states which are doing it tougher than others and they're very engaged in this process. Even states that have done well like in Western Australia and Queensland, that's where they're feeling the transition of this economy probably most profoundly. The Government was making some comments, I think, about that today about the 7
Western Australian economy. So, this transition process that we're seeking to lead and to do that in concert with the Australian people is very important. How you deal with taxes is an unavoidable issue that you have to address in leading such a process.
QUESTION:
Treasurer, there's a breaking story about a massive hack by the Chinese and the Bureau of Meteorology…
TREASURER:
Can we stay with national accounts?
QUESTION:
Well, I’m just wondering if it effects any, they're saying it's compromised computer systems across the Government, so I'm just wondering if it fits into any of your portfolio areas?
TREASURER:
Well, that's not a matter I've had any briefings on, so I'm not in any position to make any comment.
QUESTION:
I wanted to ask you about Mal Brough actually. He made a statement in the House this morning apologising for the comments he made about
60 Minutes in Question Time yesterday. Should that be the end of the matter? What do you make of Labor's assumptions or assertions, I should say, that he misled Parliament?
TREASURER:
The Government is focusing on jobs and growth and you've seen that in Question Time. Week after week we've been setting out what we're doing to focus on the issues that the Australian people are most focussed on. That's their job. They're looking at this place and going, "who's focussed on my job, who is focussed on the jobs for the Australian people and the jobs for my family?" This Government is 100 per cent focussed on that. The Opposition is bouncing all over the place. I don't know what they're focussed on. I have no idea and I don't think the Australian people do either. What we're focussed on is a National Platform for Growth and Jobs in our economy. A tax system that supports that, an innovation system that supports that, an infrastructure plan that supports that, a Budget that is strengthening to give us that capacity, a financial system - all of these things are designed to actually give people that confidence that they can go out there again tomorrow, continue to work through this transition that is happening in our economy and ensure at the end of the process they and their families will be better off. We're going to back them in that process. The figures we've seen today indicate once again we are making this transition, the economy is heading in the right direction, but we can take none of it for granted and we must focus on growth and jobs.
Thank you very much.