TREASURER:
Today's National Accounts are an important picture of the Australian economy. They show very clearly the challenges we confront as a nation particularly in relation to capacity constraints and to wage pressures and the consequences for inflation.
Today's data highlights the importance of the Rudd Government's agenda to expand the productive capacity of our economy, to modernise the economy by investing in skills and infrastructure.
The National Accounts data released by the ABS this morning does show the economy is growing strongly. GDP has increased by 1 percent in the September quarter to be 4.3 percent higher through the year.
The non-farm economy grew by 4.5 percent through the year while farm GDP fell by 6.9 percent.
The ABS expects little recovery in the farm sector from the drought with farm GDP projected to fall by 0.2 percent in 2007-08 following a 22.9 percent fall in 2006-07.
I think this shows yet again the severity of the drought and the impact it's having on families and rural communities and I might say, the broader economy.
Household consumption was the main contributor to growth in the September quarter. Household consumption rose by 1.2 percent to be 4.5 percent higher throughout the year.
New business investment grew by 0.5 percent in the September quarter to be 12.8 percent higher through the year.
Despite significant business investment labour productivity remains weak.
Labour productivity in the market sector, seasonally adjusted, fell by 0.9 percent in the September quarter and was only 0.8 percent higher through the year. This is just one-third of the long-run average of productivity growth of 2.4 percent.
The combination of strengthening wage growth and continuing weak productivity growth implies nominal unit labour costs are increasing. This provides further evidence of capacity constraints such as skilled labour shortages and infrastructure bottlenecks. Skilled labour shortages and infrastructure bottlenecks do require urgent attention following a sustained period of economic growth.
The household consumption chain price index increased by 0.5 percent in the September quarter to 2.2 percent higher through the year in line with the rise in the Consumer Price Index. However with the RBA measures of underlying inflation growing at around 3 percent through the year, higher inflation remains a risk to the economy.
Now this is why the Rudd Government is focussed fairly and squarely on expanding the productive capacity of the economy.
That is our objective. That is our number one priority and all of the material in these figures show why that is urgent.
So I'll take questions.
Journalist:
Mr Swan, the terms of trade difference in the September quarter …… (inaudible) the mining boom has perhaps reached a peak?
TREASURER:
No I don't and I'd simply refer you to the statement from the Reserve Bank Governor today. I wouldn't read too much into one set of quarterly figures when it comes to the terms of trade.
Journalist:
Treasurer, there were some steps forward in RBA transparency announced today. Do you think that appropriate ……(inaudible)?
TREASURER:
Can I say that I'm very supportive of the announcements by the Governor and the decisions that the Governor and the Board have taken. We fully support the independence of the Board and the measures they have announced today. I had a long discussion with Governor Stevens last week about these matters and indicated to him that I'm fully supportive and the Government is fully supportive of the independence of the Reserve Bank.
In relation to further measures or actions, we'll have more to say about that in coming days.
Journalist:
Even though the Reserve Bank left rates on hold can't they – for example Adelaide Bank increased some of their rates by a quarter of a percent – are you making an appeal now for Banks to leave their rates……?
TREASURER:
Well there's two things about that. I think the Governor's statement again today covered most of the issues around what is happening with rates in the community, nationally and internationally.
I would certainly urge all of the banks to think carefully before they raise rates again.
There have been six interest rate rises in a row. That has put many families under tremendous financial pressure but these are commercial decisions that the
banks will take and the Governor has outlined, I think very accurately in his statement today, the commercial environment.
Journalist:
How will the Government manage higher interest rates coming through in 2008?
TREASURER:
Well what the Government will do is take every step we possibly can to put downward pressure on inflation and downward pressure on interest rates. Tackling inflation is our number one priority and we have inherited inflationary pressures.
It has taken inflationary pressure some time to build and it will take some time to deal with those inflationary pressures which is why the whole of our program is directed toward expanding the productive side of the economy. The measures when it comes to tax are about increasing labour force participation because of the skills shortages and labour shortages more generally.
The whole agenda that we've outlined when it comes to infrastructure, to solve infrastructure bottlenecks, is critical. You see, what we are facing here are the twin problems of a skills deficit and the infrastructure deficit.
We've made that the focal point of our program to lift the productive capacity of the economy to put downward pressure on inflation and downward pressure on interest rates.
Now that won't happen overnight. This country desperately needs a Government with a set of policies directed toward expanding the productive capacity of the economy in the long term and that's what we propose to do.
Journalist:
Mr Swan, do you think that household consumption is growing too fast?
TREASURER:
Well there's no doubt that household income is also increasing at a reasonable pace David. The most important thing for us from a budget point of view is to maintain strict budget discipline.
That means running strong surpluses and as you know we've got surpluses of one percent or more across the forward estimates. But we have indicated, because of the inflationary pressures, that we need to add to those surpluses by making further savings and that is why we've talked about the razor gang process.
We understand how important strict fiscal discipline is in the inflationary environment that we are in at the moment.
Journalist:
How is the Government going to address the skills shortage?
TREASURER:
By a variety of ways.
Firstly we need to lift labour force participation. That's why the tax changes that we will put in place are so important. It's also very important to encourage second income earners particularly to come back into the labour market. That's why the initiatives we put forward in terms of child care are so important. That's why we put out there 450,000 additional training places. They are very important and it's also why we will attend to infrastructure bottlenecks in the economy by working with the States.
Journalist:
How will you deliver your election promises without placing further pressure on the economy?
TREASURER:
Well, by strict budget discipline. We have made this very clear. We went through the election campaign implementing a strict fiscal discipline.
We made $10 billion worth of savings to fund our priorities. What is really important here is to modernise Government spending and to prioritise Government spending into areas which lift the productive capacity of the economy.
So on the one hand we intend to make savings. We also intend to redirect spending into those areas which enhance the productive capacity of the economy. Hence, our commitment during the campaign to increase the number of training places by 450,000 because we all know the most significant problem we have out there is skills shortages.
We confront a skills crisis - a skills crisis that has come about through a decade of neglect and that's why our number one priority was the Education Revolution, investment in education generally, but also investing in skills most particularly and that is urgent. That is why Julia Gillard has the portfolio that she does because we understand the clear linkage between investment in people, particularly skills, and the relationship that has to lifting productivity and therefore putting downward pressure on inflation and downward pressure on interest rates.
Journalist:
Mr Swan, would you be looking to have surpluses of greater than one percent of GDP?
TREASURER:
I've made it very clear that we have surpluses in place over the forward estimates of more than one percent of GDP and we are looking to make additional savings because we understand the inflationary environment that we are in. We are committed to strict fiscal discipline. We ran as economic conservatives and we will govern as economic conservatives.
That is terribly important given the inflationary environment that is out there at the moment.
Journalist:
Mr Swan, freedom of information documents. There's …… (inaudible) Peter Costello had Treasury throw together the Mid-year Economic Review in pretty indecent haste in order to support his tax cuts on the first day of the election campaign. What's your reaction to that?
TREASURER:
Well it's certainly appears that Peter Costello tried to lean on the Treasury. That's what I think the documents indicate.
Fortunately for the country the Treasury is of a very high quality and the estimates contained in MYEFO are accurate as I've been advised by the Treasury.
Journalist:
Will you ask ……(inaudible) those figures?
TREASURER:
I've already been advised by the Treasury that the estimates contained therein are accurate but it appears the former Treasurer tried to lean on the Treasury.
Journalist:
(Inaudible).
TREASURER:
I don't think it's conduct becoming a Treasurer of this country. It's a serious job. We've got a high quality Treasury. It's a great talent bank for the country. It's one of the reasons why this economy has been travelling so well over a long period of time, 16 years or so, and the continuity can be seen now by everyone. The Secretary of the Treasury has been reappointed and is someone who has served in that office, both sides of politics, for a long period of time.
Journalist:
……(inaudible) takeover bid for Rio Tinto. Would you consider taking action against such a move?
TREASURER:
It would not be my practice to speculate or to comment on those matters in the press. I have the ultimate legal responsibility for making judgements about these matters under the foreign acquisitions act and it would be entirely inappropriate for me to be making public comment about it.
Journalist:
Treasurer, you've had briefings from both Treasury and the Reserve Bank on the economy since taking office. What advice are they giving to you regarding the US economy's outlook?
TREASURER:
Well once again I think the Treasury advice – I'm not going to comment on all the advice I've received - but can I say this: the statement by the Reserve Bank Governor today which has been issued I think is very accurate in the way in which it sums up the fall out that is occurring internationally from the subprime issues and I wouldn't go any further than that. There's no doubt that it is a challenge to the prospects for growth in the United States in particularly, and where the question mark exists is to what extent is there a flow-on to Asia which is actually, Asia is actually what is driving this economy. And the advice received is that some sort of downturn in the US may impact on Asian growth, but it is not expected to be as significant as may have had occurred in past economic cycles.
Journalist:
Do you expect to be framing your first budget against a fairly healthy global economic outlook?
TREASURER:
All the advice I've received at this stage is that we will have a reasonably healthy global economic outlook into the future. But I think the Reserve Bank Governor in his statement today has placed down accurately all of the caveats that accompany that statement.
Journalist:
Do you see closer ties to Asia under a Rudd-Swan Government?
TREASURER:
Well there's no doubt that the rise of China and the rise of India is creating fantastic opportunities but also big challenges for this country. It's turbo-charging wealth-creation in Australia … (inaudible) the mining boom, and may it continue for as long as possible. Where we have failed is that we haven't kept up with that challenge. We haven't been investing enough in the productive capacity of our economy, we haven't been training enough skilled workers, we haven't been educating our workforce and we've not been putting in place the modern infrastructure that is required to make us competitive in that Asian environment and to maximise all of the opportunities that are flowing from growth in that region.
Journalist:
(Inaudible).
TREASURER:
Well the Reserve Bank has been warning the previous government for well over three years, and longer, to deal with the skills crisis, to deal with infrastructure bottlenecks. That's why I say that inflationary pressures are really being driven by the twin deficits: the skills deficit, the infrastructure deficit. And the number one priority of a Rudd Labor Government is to deal with those deficits. It's going to take us time, but the long-term health of this economy depends on us putting down the foundations of long-term policy. Having the objective of having the best educated and trained workforce in the world must be our central purpose in this new environment that I was talking about before, so that we can maximise the opportunities not only of the resources boom, but of the long-term growth of India and China.
Journalist:
On the issue of Bali, you're going over there with Kevin Rudd as well, what role do you see Australia playing?
TREASURER:
Well can I just make it very clear. I'm going to Bali for a finance ministers meeting to discuss solely the economic consequences of climate change and of course they are enormous indeed. And of course what we know from the Stern Report is the consequences and costs of inaction are far greater than the costs of action. So I'll be there meeting with finance ministers from around the world discussing these issues from the perspective of a Treasurer. Kevin of course is leading the delegation to the UN Conference and is being accompanied by a number of our senior Cabinet members and they will be handling those negotiations.
Journalist:
In the Parliament you'll be taking questions on climate change in the lower house. Does that sort of protect Peter Garrett?
TREASURER:
Absolutely not. I mean climate change, when it's all said and done, is perhaps the most significant economic challenge this country and the world faces in the longer term. And dealing with it here through an emissions trading system is something that is absolutely essential to the Treasury and the Treasury is doing the modelling on climate change at the moment. In fact there are so many of them located in my Treasury office at the moment. And I'm delighted that they're there doing that good work. So the Treasury is going to be centrally involved in preparing the economic response to climate change domestically and that's the reason. But on Peter, can I just say Peter will have a seat at the Cabinet table and that is a fantastic feat for someone like Peter who's barely been in the Parliament over three years.
He's first class mind, a first-class intellect and a first-class advocate for the environment and I've got nothing but the highest praise for Peter's performance as a Shadow Minister. I've been a long-term admirer in Parliament and out of Parliament and I think his performance first of all as a backbencher, then as a Shadow Minister and into the future as a Senior Cabinet Minister will be first class.
Journalist:
(Inaudible).
TREASURER:
No look I don't speculate on the future of interest rates. That is very much the first principle of someone in my job.
Journalist: (inaudible).
TREASURER:
My job is to support the Reserve Bank by putting in place the economic settings that put downward pressure on inflation and therefore downward pressure on interest rates.
Journalist:
What would you expect in the long-term course?
TREASURER:
I don't speculate on the future of interest rates.
Journalist:
And also on climate change policies, do you think that could impact on our resources boom?
TREASURER:
Well I think what's terribly important is that we prepare this economy to take full economic advantage of all the opportunities that are arising from the global commitment to reduce carbon emissions and I think there are plenty of opportunities for companies right across the board in this country and they've just been waiting for a government that understands the problem.
Thanks.