TREASURER:
Before I start can I just say publically after the final 110th meeting which the Reserve Bank Governor chaired yesterday – that is quite a record – I would like to pass on the thanks of the Australian Government to Glenn Stevens for the extraordinary work he has done as Governor of the Reserve Bank and I wish him and Sue all the very best for their future and also to congratulate once again Dr Lowe and Dr Debelle on their appointments to both the positions of Governor Designate and Deputy Governor Designate. We had a very pleasant evening last night to say our thanks to Glenn and to Sue and it was a great recognition of his great public service.
Today, we are here to talk about the National Accounts. According to the National Accounts data released today it is official, Australia has now achieved 25 years of uninterrupted economic growth. As always it’s never a time for complacency when it comes to growth if we wish to see this growth continue. The result today once again shows that the Australian economy is taking ground. We continue to fight for every inch of growth in a very difficult and challenging global economy. The result of not only 25 years of consecutive economic growth but particularly the growth over the last 12 months is a tribute to every Australian who has gone out there and gone to work, who has got a job, that is running or has started a small business or a business more generally, has invested in a new product, has secured a new market, has taken on another employee or invested in new plant and equipment.
This achievement is their achievement. They are the engine room of the Australian economy and this is an extraordinary performance that they have achieved. It is those who drive our economy are the ones that are taking ground. It's been the responsibility of governments over more than 25 years to seek to provide the climate environment for them to realise their goals and their objectives and to realise the earnings that they've sought from their efforts.
It's an achievement that's been gained by Australians backing themselves in. That is why the Turnbull Government continues to back Australians in, to succeed in our economy with our national economic plan for jobs and growth that following the election we are now continuing to implement. With real growth through the year of 3.3 per cent, we are leading the advanced economies of the world and on year average terms the economy is better than the forecasts set out in the midyear update last year and the more recent Budget. The improvement in nominal growth is also welcome with nominal growth through the year now exceeding real growth for the first time in several years. The accounts released today show our best export performance since the Sydney Olympics. During the 12 months to June 30, with growth of 9.6 per cent, and 1.3 per cent for the quarter. Now, this includes 10.4 per cent through the year growth in goods exports which includes the strong performance on resource exports and a 6.3 per cent growth in services.
After taking account of imports, net exports contributed 1.5 percentage points to our through the year result off the growth of 3.3 per cent. Slightly exceeded by household consumption of 1.6 percentage point contribution, new public final demand of 0.7 and dwelling investment at 0.5. During the last quarter the net export position was softer for seasonal factors and followed a very strong result in the previous quarter. The accounts highlight the continued successful transition of our economy which includes, by definition, as you move out of the mining investment phase of that boom into the next phase, which means that you will see weaker investment levels than what we are currently seeing both obviously in mining investment but also in non-mining investment. When you look at the mining states, you will see the correlation between non-mining investment and mining investment because obviously one has had an influence on the other. When you look at the states which you describe as less mining states, not non-mining states necessarily, you would have seen an improvement in investment.
Now, this is why investment remains the significant challenge and focus of the Government and why the Government just last week introduced into the Parliament measures to relieve the tax burden, particularly on small and medium-sized businesses and to ensure we are doing the things that are necessary to support businesses who are looking to invest in this country and who are also resident in this country.
The growth in new public final demand in the most recent quarter can be substantially attributed to the listing of the Hep C drugs on the PBS as well on as on the capital side the Chinook helicopter procurement. There was also an improvement in building up of inventories in this most recent quarter driven by the wholesale trade sector while there was a decline in this area, predictably, for the mining sector but no-one is reading too much into that at this point.
Like investment, household consumption was softer during the last quarter contributing just 0. 2 percentage points to growth, however over the year was consistent with the forecast at 3 per cent on year average team terms. On the income side, there was some welcome improvements including a revision to last quarter’s results and a slight improvement in the terms of trade. It's been a while since we've seen that.
Growth in real net national disposable income per capita moved into positive territory for the second quarter in a row taking into account the revision which was the result of a change to a very large company in the treatment of a re-evaluation. Compensation of employees was up 3.1 per cent for the year while company profits were up 2.2 per cent through the year. However, in both cases we are still well below the rolling averages of 5.8 and 6.4 per cent respectively. We still have an earnings problem to deal with in our economy and we need to earn more for what we do.
This is one of the biggest challenges and one I referred to in the Bloomberg speech a week or so ago and I will be going into more detail on how the Government is seeking to address that issue in the next of those presentations in that series. So, our economy is taking ground. There is much to welcome in these accounts today but they also remind us of the challenges ahead and the need to stick to our plan, the need to stick our plan so our economy can continue to take ground.
That means continuing to increase our resilience by arresting the growth in debt that will hold us back, by improving the Budget, particularly by getting expenditure under control and also reinforcing the resilience of our banking and financial system so it can weather whatever storm that comes our way and not indulge in things that would weaken that system. Secondly, to provide the policies that support Australians to earn more from what they do and what they produce and thirdly to keep the door open for trade, for investment and positive migration that makes a contribution which is our national experience, rather than taking one.
Happy to take questions.
QUESTION:
How much is that going to impact your Budget forecast?
TREASURER:
Well, those things are updated in the midyear, as you know, and that is when those assessments will be made. It is interesting to note that when you look at the commodity price position today it is very consistent with what it was at the time of the Budget. So if someone for example was releasing an economic statement some 100 days after the election, they would find those figures were pretty consistent. But as we always know, these things have to be assessed against collections on revenues and things of that nature and that will be done in the normal course of events as we lead to the midyear update.
QUESTION:
Treasurer, you talked about the one-off impacts in public final demand but the number is still fairly important in getting the overall result for this quarter. Does that point to a bit of a dilemma for policy that we basically still are relying on government spending to keep things moving along? Does that create a problem if you are trying to get into the expenditure savings task?
TREASURER:
No, I don't think you could draw that analysis by doing anything other than looking at one quarter's results. And, as you would know, that is not the way you would look at these. You would look over the year and the trend and so on. It is true there was some significant elements in this quarter's new public final demand figures and they were for the reasons I said particularly on the Hep C PBS listing and the helicopter procurement. Several quarters ago these figures were negative on new public final demand. So, they tend to be a bit lumpy and they move around but, that said, infrastructure spending remains a core part of our national economic plan for jobs and growth. It is a core part of how we are going to improve the productive capacity of our economy. I absolutely agree with the sentiment that you want to encourage not just public investment into these things but private investment into these things which boost our capacity and focus on productive assets not passive assets. So, the Government is using every opportunity it has to seek to see where we can play a more positive role and a more innovative role in these ways without overstressing the balance sheet.
QUESTION:
Treasurer, are you concerned by the weakness of both wages and household consumption in the quarter?
TREASURER:
Particularly on household consumption, David, I think that figure that's been well below what we have seen for the last few quarters. It tells us that we have to be very mindful of the sensitivity of the economy in the circumstances that exist globally. But at the same time, despite that, despite that, the resilience that's been demonstrated in our economy is reassuring. So, it is important that we continue to invest in the confidence that people have in our economy. If you look particularly at whether it's the ANZ figures or the NAB figures that look at sentiment and so on, you are seeing people having a positive view over the last 12 months or so and going forward about their own personal financial position but a slightly less positive view when it comes to economic conditions more generally. I think it's very important to be highlighting it and to be mindful of it and the ratings agencies in particular make reference to these indicators and they link that often to what is happening in the real estate market. So the last thing you would want to do is take a sledge hammer to the real estate market. If you want to crash consumption, if you want to crash consumer confidence, then take out a sledge hammer and get stuck into the real estate market and as we know that is what our opponents were proposing to do at the last election. Now, I don't think that would be a wise course of action. That is one of the reasons we haven't gone down that path. You make also references to the wages outcomes and this goes to this issue of incomes. We need to grow incomes and we need to grow incomes off the basis of improved growth in the economy and improved productivity. We need Australians to share through their increased productivity, through what they're contributing to getting a better outcome for themselves. We want to see household incomes lift. We want to see company profits lift. Because when those two things lift, then obviously revenues are benefitted. And we obviously saw that during the course of the mining investment boom and under various governments but this is my point about incomes. An income problem is not a revenue problem. An income problem is an earning problem and I want Australians to earn more and businesses to earn more. That is why I think they should pay less tax. That is why I think we should have reforms in our economy which help them to do better. I don't want to tax them more, I want to relieve the tax burden from those in the earning economy so they can earn more.
QUESTION:
So you would like to see wages going up? [Inaudible]
TREASURER:
No, I don't want see a wages exposure or a wage inflation. I am not going to task the union movement to do that because they are always quite willing to go down that path. What I want to task the economy to do and support the economy to do is to see a real boost in wages by a real boost in productivity and a real boost in the earning performance of companies and our economy, and to see Australians benefit from that. I think one of the challenges we often have when we talk about productivity and people hear politicians and other economists talk about productivity they think, "Oh, they want me to do more for less." No, I want you to get more for doing more.
QUESTION:
Given the softness [inaudible] which does have revenue implications just in the short term is it still a viable option to get back to Budget balance just by expenditure savings in the Budget?
TREASURER:
Well, you would know that the percentage of revenue as a share of the economy is projected to increase over the forward estimates, and increase at a greater rate than expenditure as a share of the economy is projected to fall, and so there is a contribution that is coming on the revenue side, but not as a result of increasing the tax rate on Australians, but as a result – not deliberately as a policy measure – there is obviously bracket creep and those sorts of things that go into that and the Government has already taken a step on addressing that with the Bill I introduced to the Parliament last week. That at least provides an initial down payment on our intention to see that income tax burden, in this case, those moving on the average full-time ordinary wage who this year would actually be going into the second highest tax bracket. On the revenue side, I would rather see the revenues increase as a result of our economy earning more. So, we welcome that slight uptick in the terms of trade, but I'm not about to make any brave forecasts on that, we will see where that goes. One of the things I can do something about, I can do something about controlling the expenditure of the Commonwealth and that's what this Parliament can do something about. What the ratings agencies have said is, “we understand the trajectory you've placed the Budget on." I met with S&P last week, they understand that. What they're not convinced about is that this Parliament is actually going to support expenditure restraint and that is a test for this Parliament, and we have a number of bills before the Parliament where they will be able to encourage the ratings agencies by showing their commitment to arresting the debt and ensuring that future generations of Australians will not have to pay higher taxes for lesser services because in this Parliament we dealt with arresting the debt.
QUESTION:
What can the Government do to boost incomes?
TREASURER:
It's competition policy, the Harper reforms that we have been working through, it’s tax policies to boost investment, it’s start-ups, it’s the innovation policy, the NISA agenda which was outlined last year, it’s FinTech, it is all of these agendas which you're all very familiar with. It is no one thing, it is a product of economic policy which is designed to try and get regulation off the back of business, to have more competitive tax regimes to enable them to get ahead. It is the instant asset write-off. It is extending the pooled depreciation provisions to companies between $2 million and $10 million and not treating them like they are some multinational which they are not. They are a business from between $2 million and $10 million, and they employ 2.2 million employees, they reinvest in their business every extra cent they earn, on balance. So, by enabling them to keep more of what they earn in their business rather than taxing it, that would enable them to employ more people, it will enable them to have the encouragement to go out there and grow their business and reinvest in their business, which we'll see, which is the intent of their investment, see them lift their earnings.
QUESTION:
[Inaudible] farm register.
TREASURER:
I am happy to take questions on the farm register, but let's just deal with the National Accounts first and then we'll get to that.
QUESTION:
Your point is there is no silver bullet and there are little things you can do inch by inch but increasing incomes is slow, is hard work. We can't expect something from government action to achieve the result quickly?
TREASURER:
Well, Government is part of the response, of course it is, and providing the right set of policy settings, tax settings, competition environments, all of these things, regulation reduction, working with the states to achieve those outcomes as well. All that have is incredibly important and assists the businesses and householders get on and do the things they want to do because they want to increase their earnings as well. So that is where we come into the picture, and that is what our plans for jobs and growth has always been about, in all of these areas which we've been outlining for some time and now we're just getting on with it.
QUESTION:
Treasurer, on foreign ownership, why isn't there a register…?
TREASURER:
Have we finished with National Accounts?
QUESTION:
I have.
TREASURER:
I didn't know if you had started, Paul.
QUESTION:
Why isn’t there a register for Australians to find out which foreign companies are investing in Australia and where and how many other bits of land they've got?
TREASURER:
The foreign ownership register results which I've released today is absolutely consistent with the commitment that we made in relation to this register and what it tells us is that more than 85 per cent of Australia’s agricultural land is owned by Australians, and that the biggest investor in agricultural land together are the Brits and the Americans. Other countries like China account for – in term of our total agricultural land – less than half of 1 per cent of those land holdings. Interestingly, it also notes that of the agricultural land holdings that are foreign-owned, more than 80 per cent of that is on leasehold rather than freehold. I know they are concerns that Australians have raised, so this information which delivers what we promised to deliver helps inform this debate. Foreign investment has always been a key component of our national economic prosperity story, for hundreds of years. When we say we can't pull the doona overhead, this is one of the issues we are talking about. We need to ensure we keep the door open on our economy. Almost $200 billion a year coming in in investment into Australia, this is not something we want to stop because your job your kids’ job, your brothers job, your sisters job, your Mums job, your Dad’s job is heavily dependent on this. So we need to be very careful and we need to have an informed discussion about how we manage foreign investment and we have strong regulations and rules around how we do that and foreign investment cannot be against the national interest of this country. That means from time to time I am going to say no – and I have said no. We have every right to say no where something we believe is contrary to the national interest we have done so. It is also important to understand that the prime investors in Australia are actually the Brits and the Americans and the Canadians and the Dutch and these countries. The single largest agricultural foreign investment purchase that I have approved in my time of Treasurer was actually to a Dutch Canadian consortium and it has dwarfed pretty much everything else that has come near it. You haven’t heard much about it though.
QUESTION:
Barnaby Joyce is playing up the significance of the overall total in foreign ownership at 13.6 per cent. You appear to be playing down the significance of that – why the split between the two of you?
TREASURER:
Well, that’s your commentary and I don’t share it.
QUESTION:
Treasurer, is the level of what is less than half of one per cent for Chinese ownership, is that the level where you want to keep it?
TREASURER:
One of the advantages of having data is that you can analyse it, you can monitor it, it can inform policy decision making and the Government has no plans to make any changes based on the data that is before us.
QUESTION:
Just on Glenn Stevens, what do you think his biggest achievement was during this term and are you going to tap him into the future as an adviser or to use as other governments have used past Reserve Bank Governors?
TREASURER:
Well, as I relayed last night for the last 12 months the headquarters of Australian economic policy management has been in the Sutherland Shire. Glenn I first met as a constituent many years ago at a school function for one of his children. So, you can expect, as I said last night, we will be exchanging the view of our more recent discussions over Martin Place for a view over Cronulla Beach where I intend to continue to tap into Glenn’s great counsel and advice. He has been a great support to me as Treasurer over the last 12 months and I have greatly benefited from his counsel. Glenn, what he does next is a matter for him and Sue and I understand he is taking a bit of time between now and the end of the year and then he will make some decisions about where he goes from there. But what was his greatest achievement? He had many achievements but the thing about Glenn Stevens was this, he had the intellect and capability to develop insights into what was happening and to fashion that into his strategy and he could stick to it. He had great resolve and strength in doing that. When I was at the G20 with him earlier this year, you know when someone like Glenn is respected because when he starts talking the room listens. He earned that through considered, sound, consistent performance and a Treasurer could ask no more, a country could ask no more of a Reserve Bank Governor than that. Glenn and I absolutely share confidence in Dr Lowe and Dr Debelle coming into those roles. He has ensured a very good transition. A good, stable, smooth transition because the stability of our banking and financial system is incredibly important. We weathered the global financial crisis because of the strength of our banking and financial system. It weathered the storm and it is stronger today than it was then because we have not rested. We have continued to improve it and Glenn has been a big part of that. This Government through the Financial System Inquiry, for the actions we have been taking to further strengthen that system is important for our resilience and that has been a consistent theme of the economic and financial policy of this government.
QUESTION:
On superannuation the $500,000 cap is not reflected in the exposure draft when can we expect to see those changes in your proposal?
TREASURER:
Well, we are doing the exposure draft in tranches as I indicated yesterday. It wasn’t intended to be in any tranche that we were releasing today so there is nothing in any of that. I am continuing to consult with my colleagues. This is complex legislation and those elements of the package will be released in coming weeks and months as they are finalised.
QUESTION:
On the farm register one of the concerns has been that it only looks at land size not land value. So, would you consider including further details in the register to look at things like the productivity of the land that is foreign owned because you can look at a dairy farm in Tasmania versus a huge northern cattle station?
TREASURER:
Well, it is a different exercise and it obviously involves different procedures to look at value. If you look at the value of foreign direct investment in Australia more broadly and there are measures of that, in 2015 from memory that places China, I think, fifth or sixth down the list. Even by value it was a very similar score sheet on who is investing and how much both by value as we saw with the land size on the other measure. That would come at some cost I would imagine. I want to thank and commend the states and territories for working with us on this register. It hasn’t been a simple exercise. It has been quite an undertaking and we have had to work closely with the states and territories to be able to get that register where it is today. I think that is a great instalment of information to the debate and hopefully it gives Australians a greater degree of comfort based on actual information about what the state of play is and that will obviously be an important tool to assist us managing foreign investment policy in the future. If there are other tools we think we need. If there are other improvements that we think can be made then obviously we will look at them subject to resources.
QUESTION:
On superannuation, just the $500k the lifetime concessional cap, you are still consulting with your colleagues, how would you describe that consultation? Is it positive? Is it negative? Are we not seeing that in the first tranche because they are perhaps not that receptive?
TREASURER:
No, it was never in the first tranche. Just like in what you haven’t seen today is the concessional cap bring forwards or the concessional cap reductions in what is being released today. They are complicated legislative measures. So, that is something the Treasury continues to work through and consult on to make sure they get it absolutely right. Superannuation is a very technical area. My consultation with colleagues has been in very good faith and I really appreciate the very honest and very good faith feedback that I have received. It has been a good opportunity to talk about some of the issues, the concerns that have been raised. One thing they remain very committed to, as do I, and that is it must do its job, not only to make the superannuation system more flexible, and more sustainable - they understand that we’ve got a situation now where you’ve got fewer people of a working age population and more people of a non-working age population aged over 65. Having a superannuation system which heavily loads tax concessions into the retirement phase, as that pool of assets grows and grows and grows, makes it quite unsustainable. So they understand the policy challenge that is before us, and they also acutely understand and support the policy challenge of arresting the debt that we were left by Labor. They remain committed to those, and they remain committed to a package which will tick both of those boxes, because that’s what we took to the election and that’s what we’ll deliver.
Thank you very much.