TREASURER:
I think today’s figures show that despite the global financial crisis and the slowing global economy, the Australian economy continues to grow solidly. Gross Domestic Product rose by 0.3% in the June quarter and is 2.7% higher over the year. These are solid numbers, especially considering the global challenges that we are facing and what is happening elsewhere in the developed world. The global credit crunch and the global oil shock have buffeted confidence and share markets around the world and of course they are slowing global growth.
Let’s just put these figures in perspective. Five of the world’s largest developed economies recorded zero or negative growth in the June quarter. Japan: -0.6%; Germany: -0.5%; France: -0.3%; Italy: -0.3%; and the UK: zero. That’s what’s going on elsewhere in the world.
So, while growth has stalled or gone backwards in the world’s largest developed economies, it’s still growing solidly in this economy. And you can see that point there made on a yearly basis in terms of the other developed economies. When you look at what’s going on around the world Australia does hold up relatively well. So, I think that graph puts today’s data in perspective.
We’re certainly not immune from global difficulties which are slowing global growth, but I think the point is that we are better placed than many other countries to withstand the fallout.
Now, as I said earlier, GDP rose by 0.3% in the June quarter and is 2.7% higher over the year. The non-farm economy grew by 0.5% in the June quarter. Now, while these numbers are solid, the data also confirms that Australian families are still doing it tough. It doesn’t come as a surprise that in particular households in NSW and Victoria where housing stress has been most evident have been hit harder by rising interest rates.
Overall, household consumption fell by 0.1% as the country experienced sky-high global oil prices and, of course, continuing high interest rates. That has had an impact upon consumption. It has had an impact on family budgets. And you can see in the figures that sky-high global oil prices have had a particular impact when it comes to overall consumption.
Operation of motor vehicles, for example, largely fuel [petrol] consumption, fell by 2% in the quarter. And if you look at that quarter, the rise in average petrol prices from day one of the quarter to the last day of the quarter was 25 cents a litre. And I think you can see from these figures that families were not only cutting back on consumption of fuel, but they were also cutting back on consumption of other items.
And of course, all of that underscores the importance of the delivery of the tax cuts from July 1 of this year, also the delivery of the additional childcare assistance, the additional support for seniors, the additional support for carers. And of course, it underscores the importance of yesterday’s rate cut by the Reserve Bank.
There’s some good news particularly in these figures. Businesses are continuing to invest confidently in the Australian economy. Business investment rose by 4% in the quarter to be 9.9% higher over the year. Australia is, of course, well positioned for further increases in business investment which will support growth in future years.
We saw the CAPEX figures, for example, last week that showed that businesses are planning to invest $100 billion in our economy this financial year. This would be the biggest increase in capital expenditure on record.
And of course, as everybody is aware, as a nation we are also continuing to benefit from record prices for our key commodity exports. Our terms of trade rose by a massive 13% in the June quarter. That is the largest quarterly increase in 35 years – a substantial boost to national income.
So, today’s figures are a reminder that while we do confront the toughest global economic conditions in over a quarter of a century, there is also plenty to be optimistic about. We are determined to be upfront and open with the Australian people about the challenges that we face as a nation. Global turbulence, together with 10 straight interest rate rises under our predecessors, do continue to buffet our economy and Australian families. But today’s figures are solid, particularly considering the global circumstances. But we do expect difficult times ahead, so we’re not out of the woods by any means. But the Government is focussed on delivering responsible economic management so we can have strong growth with low inflation well into the future.
Over to you.
JOURNALIST:
To what extent do you, Mr Swan, think that the Australian economy could be lagging and so the sort of figures we’re seeing internationally could flow through in the next quarter?
TREASURER:
I think we’ve seen in these figures today the reasons to be optimistic – that we are better placed to withstand the fallout from the circumstances in which we find ourselves than just about any other country in the world. Business investment is still very strong. That comes through in these figures in spades, and that is investment which has got the capacity to strengthen the economy over time. And when combined with the delivery of the tax cuts, combined with the high terms of trade, combined with the fact that our financial system is in good shape – unlike many other parts of the world – all of those things do underline the continuing strength of the fundamentals in the Australian economy. But we can’t defy gravity forever. But if you were in any country in the world in these circumstances, the country you’d want to be in is Australia.
JOURNALIST:
Treasurer, in Opposition you spoke extensively about productivity. There was a big fall in productivity. How do you explain that in the last quarter?
TREASURER:
There is a big fall in productivity and as you know, these figures are volatile quarter to quarter. But I think even when you look at them on a yearly basis in this data, there is cause for concern. The Government has consistently highlighted the poor productivity performance in the Australian economy in recent times and that is why so much of the program we took to the people at the last election, and we are implementing now, is focussed on lifting productivity growth, enhancing the productive capacity of our economy. We are very fairly and squarely focussed on underpinning a stronger productivity performance in this economy, and these figures point to continuing weakness over time.
JOURNALIST:
Mr Swan, domestic farm demand grew by 0.9%, which is pretty rapid growth, (inaudible) down from the previous quarter of 1.1, (inaudible) rising by 4.3% over the year. Is that consistent with declining pressure on inflation?
TREASURER:
Well, there’s a series of things in these accounts which can be interpreted in a variety of ways. What we’ve got is a fair bit of investment going on, and that’s a good thing. If you’ve got investment going on in your economy you can lift the productive capacity of your economy, and that’s why that investment into the future from both the government on the one hand, and the private sector on the other, is so important. So, yes, that can be consistent with dealing with the inflationary pressures in the economy over time. So, I think it’s a strength that investment is so strong in these circumstances because it is going to carry this economy through these difficult times.
JOURNALIST:
Mr Swan, NSW has contracted for the quarter slightly by 0.1%. Is that (inaudible)?
TREASURER:
Well, I don’t think it comes as a surprise that consecutive interest rate rises hit hard in those States where housing stress is higher, and I think you can certainly see the impact of that in NSW. Yes, it has moved back slightly but growth over the year is still very positive.
JOURNALIST:
Mr Swan, the RBA wants to keep a brake on domestic demand, regardless of yesterday’s rate cut. (inaudible) the prospect of a further slowing in the economy, what does that suggest about the forecast for finance in the Budget, and is there any revision (inaudible) to these forecasts?
TREASURER:
Well, what we’re dealing with here is the final figures that have come in for 07/08, and the outcome here is broadly consistent with our Budget forecast for 07/08, although they are calculated slightly differently but when they are done in a comparable way the figures are entirely consistent. So, we stand by our Budget forecasts for O8/09, and we have been up front about those forecasts. They do forecast slowing growth, they do forecast slowing employment growth and they do forecast a slight rise in unemployment. But the forecasts that we produced in the May Budget are the ones that are important to us and they are the ones that we believe are correct.
JOURNALIST:
Mr Swan, you’ve talked again today about there being difficult times ahead. How long do you anticipate these difficult times will last? (inaudible) Australian working families get out of the woods.
TREASURER:
What we can do is control the things that we control and we are doing everything within our power when it comes to public policy in this country, to strengthen the foundations of the Australian economy. And we’ve talked about that agenda at length. I won’t go through it now. But when it comes to things we can’t control, it just becomes all the more important that with the things we can control, we get those settings right for the future, and that’s what we’re doing. If you would have asked somebody in November last year that banks around the world by this stage would have written off close to $500 billion, that the chaos we’ve seen in international financial markets would have been putting such upward pressure on borrowing rates globally and domestically the way it has, nobody predicted that then. We are in difficult international circumstances which require, in many ways, international responses. We have been active participants through the Financial Stability Forum, other bodies such as the IMF and the World Bank, working with other countries to get a framework together that will deal with the conditions of international financial markets.
But what we have to do here is concentrate on the things that we control and that’s why it was very important that we implemented our election commitment to deliver the tax cuts which commenced on the 1st of July, to deliver the additional childcare assistance, to deliver the Education Tax Rebate, to deliver all the additional assistance for seniors and so on, because that has been needed given the financial pressure that Australian families are under and which you can see acutely in the data here today.
JOURNALIST:
Mr Swan, without that tax cut, without that extra childcare assistance, what state would the economy be in? I mean, we’ve got a situation where growth is 0.3%. What kind of economy…
TREASURER:
Non-farm growth is actually 0.5. Quite a respectable figure. Quite a solid figure, and quite a solid figure by world standards as well.
JOURNALIST:
What sort of an economy do you think we would be having were it not for those things (inaudible) in the Budget?
TREASURER:
Well, we’re looking at the figures for April, May and June. The tax cuts commenced on 1st July this year and they are badly needed by families who are under financial pressure.
But you well recall, Peter, that I was the subject of a lot of advice in the lead up to May from many commentators, from many, many commentators, who suggested that it was irresponsible to deliver this financial relief to a lot of people who at that stage had been doing it very tough and at that stage had yet to experience a 25 cent a litre increase in the price of petrol, let alone the impact of what has flowed through for interest rates from the global credit crunch.
So, these tax cuts are timely, they’re needed and they are being delivered precisely at the right time that they are needed.
JOURNALIST:
Yesterday you talked to Parliament about those four big banks passing on the rate cuts (inaudible). We’ve got Wizard today upping their credit card interest rate by 3% and St George are not going to until late in the month. Are you concerned that many institutions might risk confusing consumers or giving with one hand and taking with the other?
TREASURER:
Well, when it comes to the big banks I made it very clear that I expected them to bring down rates as quickly as they put them up, and the announcements from the big banks yesterday are consistent with what they did when rates went up. In the case of Wizard, they implemented a 25 basis point cut a couple of days before, I think, the Reserve Bank made their decision.
There is never a direct linkage between the cash rate and credit card rates, but let me make this point: if people feel that their company has got settings which are unfair when compared to the rest of the market, they should shift. And when it comes to the credit card market, there is a lot more competition out there and there are plenty of other providers in the market who may be willing to have customers who are disillusioned with a particular brand.
But I don’t have in front of me the various rates charged by the various providers to make that comparison, but I’ll be happy to make that information available as I collate it. I’ve made it very clear that when it comes, particularly to our deposit taking institutions – and Wizard isn’t one of those, Wizard is not a deposit-taking institution – that we need competitive markets. And I tell you what we’ll get them.
JOURNALIST:
Treasurer, away from the economy, is the Government pleased that Belinda Neal has been cleared of any Commonwealth charges?
TREASURER:
I don’t propose to comment on that because I gather this is still going through the formal processes in NSW, and until these processes have been formalised I don’t propose to make any comment.
JOURNALIST:
Mr Swan, is the Greens Senator, Christine Milne, verballing you by putting around yesterday that you’ve agreed to their amendments to the luxury car tax?
TREASURER:
We have been engaged in discussions with the Greens and other minor parties and independents in the Senate about the luxury car tax. There is no final outcome yet agreed across the board. And the basic problem here isn’t the Greens or the other independents, it’s the Liberal Party.
JOURNALIST:
So, is there a deal with the Greens?
TREASURER:
There’s no point having a deal with the Greens if we don’t have the other votes because they don’t add up, Michelle. And given the economic vandalism being perpetrated by the Liberal Party in the Senate, we do need to get all of the minor parties in the Senate to vote with us.
JOURNALIST:
Are you willing to make some changes to the legislation?
TREASURER:
I haven’t concluded any arrangements as yet which would make me confident to say that the numbers are there for it to pass.
JOURNALIST:
Mr Swan, can I ask your view on Sinosteel’s application to develop a uranium mine in South Australia?
TREASURER:
I’ve got no comment to make on that matter. There’s no matter from Sinosteel before me in that area.
JOURNALIST:
Mr Swan, yesterday the Reserve Bank shifted from the fear of inflation (inaudible) to the fear of a hard landing. Does the Government now agree with that shift in priority from inflation to (inaudible)?
TREASURER:
I don’t necessarily accept your characterisation of the Reserve Bank decision yesterday at all. The Reserve Bank operates within its charter, takes its decisions independently and implements them independently.