7 March 2018
Transcript - #2018019, 2018

Press conference, Canberra

Subjects: December quarter National Accounts; trade

TREASURER:

Today's National Accounts reveal the continued resilience of Australia's domestic economy, with Australians backing themselves, getting jobs, spending more and investing more, particularly where it matters in our economy. It also highlights that we are not immune to what happens in the rest of the world. But, like most Australians, I am optimistic, and I have good cause for it.

2017 was the year of jobs. More than 1,100 jobs created every single day - the strongest on record. Now, that even eclipses the best year of previous governments, some 282,500 was the best under the Rudd-Gillard-Rudd years. Under the Howard-Costello years, 324,900 was the strongest year. As you can see the average is lower than that. 308,500 under the Hawke and Keating governments. 2017 was a record year for jobs, whichever way you want to cut it. Getting Australians into work has obviously had a profound and significant impact on our economy. Today's figures show that growth supported by consumption was up 1 per cent for the quarter and what employees are paid, compensation of employees, was up almost 5 per cent through the year.

The growth in jobs has been driven by non-mining sector businesses predominantly, investing and expanding, taking advantage of the best-reported business conditions in around 20 years. And we need them to keep doing this. That is what we need to do to lower taxes, to ensure that they can remain competitive. This growth in jobs has also been driven by government getting on with the job of building infrastructure and delivering on key services that Australians rely on. Looking more specifically at the figures, the growth of 0.4 per cent through the quarter produced a 2.4 per cent result through the year. Now, that is on track with our midyear outlook, which we released at the end of last year, and remain very comfortable with what we said at the end of last year, based on what we've seen in today's national accounts data. But the better news can be seen when you look beyond those top-line figures that we see here. As I said, growth was driven strongly by consumption, was the prime driver in the quarter, up 1 per cent. Now, that is the best December quarter on consumption we've seen since 2010, and it was up substantially from the 0. 5 per cent growth we saw in September. You'll say, "Hang on a tick. Didn't they say it was 0. 1 per cent?" And didn't all the chicken littles run out and say there was a crisis of confidence and consumption had fallen? I certainly remember Chris Bowen saying that. Those numbers have been revised up to 0. 5 per cent for that quarter. That happens from time to time with these numbers. It does show they're a little too quick off the mark to go and run down our economy. Through the year, consumption growth was up almost 3 per cent at 2.9 per cent, and this reflects the growth in consumer confidence that we have been seeing now for some time. In addition, it is also demonstrated by the pick-up and spending on discretionary items.

Now, the discretionary items you can see here are the red lines, and the blue ones are the non-discretionary. A big shout-out to the rugby league, on hotels and cafes and restaurants, I'm reliably informed that the Rugby League World Cup, with the season starting this weekend, I'm sure you're all terribly interested in that, I certainly am. But that was part of a number of events that were taking place during that quarter, and that was good to see. So, well done to Rugby League on boosting the economy in that quarter.

Under the Government's National Economic Plan, more broadly though, businesses are enjoying, as I said, some of the best conditions they've seen on record, and they are investing in the future with confidence. Now, private new investment did decline in the quarter, but it grew over the year by about 5.8 per cent, through the year. Now, that's above the 20-year average, as you can see here. It ticked down a bit in this last quarter, but as you can see, the strong surge here in the pick-up in new business investment is really what's been underlining the strength of our domestic economy and driving it forward, and it was pleasing to see that flow through in other things in consumption in this last quarter. Now, when you look beyond just this number, and you go to the next slide, what you can see is the breakdown of what's been happening by new investment by sector. The reason for the tick down on the overall numbers was driven by this red line here, which is the new engineering construction figure. Now, that new engineering construction figure tapering off like that is a result of the winding-down in the last phases of the construction of the LNG projects. So, that is what sits behind that red line ticking down. But what's very good to see has been this continued growth in what we've seen in new machinery and equipment investment. That has turned around from a 10.7 per cent decline over two years ago to a positive growth rate of 8.4 per cent today. So, that is a big switch when it comes to businesses investing in the plant, machinery, equipment that will drive the productivity and their growth into the future. Our economic growth plans are based on boosting investment, and what you can see in that grey line there is businesses responding to that arrangement. Now, this has particularly been so for non-mining investment. Now, based on these figures, and some new work, Treasury working together with the statistician, but these are Treasury estimates, they estimate that non-mining investment in the quarter was up 2.1 per cent, up to a staggering 12.4 per cent growth in non-mining investment through the year. That says businesses in the non-mining sector are really responding to the conditions that they have, and the environment that we are seeking to create.

Now, I've already mentioned on new engineering construction what is behind those numbers, so on the investment piece for businesses, we still see a very positive response to the conditions they're in. New public demand remains strong, with continued strong infrastructure spending from the states, which is, of course, supported by the Commonwealth Government's infrastructure program. We also see in the new public demand figures some increase also coming from the NDIS, increased aged care spending, and increased spending on the PBS. So, these essentials that Australians rely on, and particularly with an ageing population, and rolling out the NDIS, we are starting to see some of that flow through into the new public final demand figures. Now, the main drag on the figures, as you could probably see from the earlier chart, was on net exports. The net export outcomes were what was holding back our growth in that quarter, predominantly. It highlights the need to keep fighting for access in international markets. We have always been a trading nation and we must continue to do that. On the exports figures, what we have seen is a fall, but let's not forget that is also a product of coming off the bumper crop that we had, which was driving agricultural exports in previous numbers. And there were, as you would recall, some pretty healthy numbers on agricultural exports growing there for a period of time. It also notes the final stages of the close-down we've seen in the motor vehicles sector. Over the next 12 months we will see that effectively exit out of those numbers. So, there are a couple of issues or, rather, forces impacting on those export numbers, but it just highlights that it's a tough business and you've got to fight for market access and you've got to fight for bigger deals and you've got to fight to keep Australia out there and competitive in the global markets in order to ensure that you can support growth into the future.

Now, on the income side, compensation of employees, what people get paid, was up 4.8 per cent through the year. And it was up 1.1 per cent for the quarter. Now, it's worth noting that one-third of that 4.8 per cent growth through the year on compensation of employees actually came from the level of average wages, and two-thirds came from more people being in jobs. So, it's a two-third, one-third split. So, it wasn't just the fact that we had a record year of jobs growth, there were improvements in average wage outcomes, we're not overstating those, we still think we've got a long way to go on that front. But it would not be true to say that that growth in what people have got paid, the total wages bill, was not driven in part, or at least was by one-third over the last year, I stress - over the last year - was driven by changes in average wages.

Growth in company profits during the quarter were more modest at 0. 9 per cent, up around 5 per cent through the year. Now, that's down from what I described at the time as the commodity price-driven profit shock of what was over 12.1 per cent. Now, that led to a through-the-year growth figure shortly after of over 20 per cent. Now, I warned at the time that that was not a number that you could consider to be typical. It didn't stop the Labor Party running out there and making a whole bunch of assumptions about what should be happening elsewhere in the economy, and there's a great danger in them just running off like that all the time. I think when we give our commentary on these numbers, we've got to have them in perspective, which is why I might be a bit tedious in showing these charts. But what we saw was profits rising for companies in the same quarter last year, in the end of 2016, and that was predominantly in the mining sector and predominantly driven by commodity prices. Now, that eased over the course of the year and it returned to a more normal level. But if you want to look at the comparison between what's been happening with company profits and compensation of employees, this is what's been happening. As you can see, for a prolonged period there, for several years, around five years, company profits - well, in some years, were negative and they were certainly growing at a much slower rate in terms of what was happening with the national wages bill. In more recent times, they've come back together. And that's why I talk about, when it comes to wages, normal transmission being resumed in the supply and demand in the tightness of the labour market. That's why I have more optimism today than I may have had two years ago about where that was sitting. If you've got company profits sitting down here, then as I said, I think, in this room, you're not going to get a wage rise in a company that's not making any profit or is going backwards or out of business, and you're not going to get more hours in a business that is closed. We are seeing that improve and I think that gives us cause for optimism, as we go forward.

All of this has translated into a slight uptick into the savings ratio, but I'd describe it more as stable. And an uptick again, a good strong result on gross household disposable income of 1.6 per cent in the quarter, as you can see there, rising to 3 per cent through the year.

So, overall, I would say a sound set of numbers demonstrating the resilience in the Australian economy. The top-line numbers don't emphasise, or can't, because they're top line, the underlying strength and resilience of the domestic economy. The overall numbers have been pulled back by what's been happening with net exports. When you look at consumption, when you look at non-mining investment, when you look at compensation of employees, when you look at the profit position, all of those indicators, I think, indicate a soundness, a soundness and a strength to the domestic Australian economy. And we have been working hard, as an economy, Government has its job, businesses have their job, to keep building that strength. That's why sentiment is up. That's why confidence is up. That's why we're seeing those results. But we can't take it for granted. We need to ensure that we stick to the plan, that national economic plan for jobs and growth that we outlined several years ago. Staying the course on that plan and ensuring that we continue to do what we need to do to drive this into the future. That plan is getting results, there is clear data in today's results that indicate that. That is what we intend to do as we work towards this year's Budget, to secure the future of all Australians.

QUESTION:

Treasurer, the household saving ratio for December 2017 came in at 2.7 per cent. The last three quarters have the lowest rate of household savings since the GFC. How much debt do you think households can take, and what happens when interest rates go up?

TREASURER:

Firstly, a savings ratio when it's positive is positive. It doesn't mean Australians are dipping into their savings, I'm sure you know that. Australians are saving, this is important, they continue to save and they've been saving all the way through. The most recent data has shown, I would call it more of a stabilisation because it had dropped over the last few quarters and it has slightly upticked. So Australians are saving is the point. The other point is one that Michelle Bullock from the Reserve Bank has made. The Reserve Bank Governor has restated it just in the last 24 hours. That is, that Australians have been getting ahead of their mortgages. So he's spoken about the buffers that have been built up over the last five, six years. That's why the bank is far more confident about that level of vulnerability. The other thing to stress is where the vulnerability may exist within the population and that is largely geared towards those on higher incomes, in terms of where the debt levels are, and that's the analysis. So it's not something we can be complacent about. But the big difference between Australia's housing finance and what exists in many other parts of the world, is these mortgage offset accounts, and for people to get ahead of their mortgage. Australians have been quite sober and wise when it comes to managing these issues. That means that they've built up some resilience.

QUESTION:

Treasurer, wages per person were completely flat in the quarter, are you confident that spending consumption can be sustained at the rate that we've seen?

TREASURER:

I think it's important that we continue to do all things that we can to ensure that Australians can earn more. If Australians continue and can earn more, then obviously they're going to be more confident about their spending. Australians are only going to be able to earn more if businesses invest more. These are all related. That's why the investment figures have been the ones that we've been focusing on so strongly. I've been tedious on this point for several years. Those private investment figures, particularly in the non-mining sector, businesses we've seen here, investing in new plants, new equipment, new machinery. That's what lifts productivity. When productivity rises then that means that businesses can pay their employees more. So our plan is absolutely right to get the outcome you're talking about David. But there are many things that impact on this. I do know this, if we don't do the things that we need to to keep our businesses competitive, then they won't invest more. There were some comments today, I understand, from KPMG. They talked about the impact of us as a country, not keeping up with what was happening with tax changes around the world, particularly for business. They said it would cost 25,000 jobs, they'd be a $5 billion cost to the economy, in what was effectively lower wages, and less consumption in the economy and a 0.3 per cent cost to the overall economy in terms of GDP. Similar figures have been produced by other agencies. If we think that somehow here, at this end of the world, we can be complacent about our tax settings for business and where investment goes, then we're kidding ourselves. The Government isn't kidding itself. Businesses aren't kidding themselves about that. But I can tell you what, Bill Shorten and Chris Bowen are. What makes it all the more disappointing, is that they know better. If they didn't know better, well that would be a whole different commentary. But they know better and they are still going down this path out of populist economics. It's going to cost Australians, if they are given the opportunity to run this country.

QUESTION:

We're not exempt from Donald Trump's tariffs and there are fears of a trade war, how do you think it is going to impact the imports and the exports sector, and of course growth going forward?

TREASURER:

The first thing you do is make sure your businesses are as competitive as possible. That is why we are sticking to our plan to ensure businesses are more competitive. As the Prime Minister has said today, you keep your head in times like this. You stay the course and you keep your head. That's what sound economic management and leadership does in these circumstances. That's what the Government intends to do. Australians can clearly see the Prime Minister has a keen handle on what is occurring in the United States and is probably better placed than anyone to best read the situation. I think that should give Australians a lot of comfort. He has worked hard on that relationship and working hard on that relationship means that right now our Prime Minister has got to be, if not the best placed leader in the world today to understand how best to respond to what's happening.

QUESTION:

Does that mean Treasurer that you're ruling out any kind of retaliatory measures?

TREASURER:

The Prime Minister, I think, made it pretty clear that the Government is keeping its head.

QUESTION:

Can you explain what that means?

TREASURER:

It means the Government is keeping its head.

QUESTION:

But what does that mean?

TREASURER:

It means exactly that.

QUESTION:

Just on the net trade result, worst one since March 2012, given the events in the US are you worried that we're in for a sustained period of similar results now?

TREASURER:

It's not my job to worry, it's my job to plan. It's by job to make decisions along with the rest of my colleagues and the Prime Minister. The decisions that we are taking are to ensure that our businesses remain competitive. That we can ensure that we are investing in infrastructure that Australia needs to both manage growth and to increase growth. That we're delivering the services Australians rely on in these sorts of times. So they can be confident about the Pharmaceutical Benefits Scheme. They can be confident about Medicare. They can be confident about the National Disability Insurance Scheme. We're taking the decisions to guarantee those essentials to ensure that we keep the focus on growing the economy, that we keep the Budget getting back into balance, that the Government is living within its means, that we're putting downward pressure on rising costs of living whether it's on energy or housing or child care of any other area. It's the Government's job to make decisions, plan for the future, to secure Australia's future. That's what we are doing.

QUESTION:

Treasurer, the non-mining investment change, do you think that the instant asset write off [inaudible]. Is that an argument to make that permanent?

TREASURER:

I agree that the many incentives we've put in place for investment including the instant asset write off have had the desired effect. I like doing things that have the desired effect, Shane.

QUESTION:

Is there enough economic growth in today's figures to justify a wage increase?

TREASURER:

Again, what we've seen is company profits now and compensation of employees come back into some form of alignment. Where that goes in the future is what businesses and employees will I think reconcile. In order to grow wages, there needs to be growth in the economy, and there needs to be increases in the productivity of the overall economy. The more value that can be created in each day we go to work, the more value that's created in the company, that means the more wage earners can share and receive the benefit of creating that value. So what I mean by that is we're on track for that type of outcome. How it happens, when it happens is going to be different in every single company, in every single sector of the economy. We're already seeing higher rates of growth in wages in sectors like health, in construction, things like that. Lower rates in other areas. But where the labour market is tighter, and where there are opportunities, let's say in the technology sector, where wage growth has been very strong in some sectors. Where there's real value that is created then that's where the wages come from and so that's why – I mean, there was a figure, many of you may have missed it a couple of weeks ago but it was reporting on the additional investment we saw from the angel investing and the early stage venture partnership changes we made a couple of years ago – $300 million extra going into new companies, creating new value. Now, that's exciting, that is really, really exciting. The things that we are doing to grow the economy and to support more and better paid jobs, which means better wages, are really beginning to work.

QUESTION:

You said that company profits are going up, how important is it that wages increase [inaudible] well in order for you to win the argument for company tax cuts? That they will benefit workers?

TREASURER:

The argument for tax cuts is right there, right now and if frankly the events of the last 24 hours or more can't wake the Parliament up to the very real risk that Australian businesses and employees face by not remaining competitive in this world then that is very disappointing. I think that just shows a wilful obstructionism to Australians' prosperity. So I think the argument is right there. It's just a question of whether the Parliament is prepared to step up or is prepared to step back and just give us.

QUESTION:

What's your reaction to the resignation of US chief economic adviser Gary Cohn?

TREASURER:

I haven't been briefed on that today so it's not for me to comment on people in other jobs and what they do, I'm very focused on the responsibilities I have…

QUESTION:

It's rattled the market…

TREASURER:

You're commenting on things that I haven't had much time this morning to reflect on.

QUESTION:

How concerned are you in regards to global trade, we might start to head down the path to recession and you talk about being optimistic and …

TREASURER:

Can I just stop you there? Because there has been a lot of these questions about this. I would encourage you all to keep your heads when it comes on this issue of trade…

QUESTION:

It's a valid question…

TREASURER:

It's a valid question and I think I've addressed it by saying the Government is keeping its head and I think it's very important that everyone else keep their head on this. And I don't think we should be alarming Australians about this, I think this should be seen in a context – there are some comments that have obviously been made, there's been some other actions that have happened today – the resignation as you've mentioned. All of this is true, all of this is true but the Prime Minister, the Government is well-placed to deal with these challenges and I want to reassure Australians that is exactly what we're doing and the numbers that you've seen today show that there is reason to have confidence. There is reason to trust in your resilience as Australians. We have the longest run of consecutive economic growth in Australia's history, we've had the strongest jobs growth last year in our recorded history, we've dealt with GFCs, we've dealt with the end of the mining investment boom, we've dealt with global terrorism, we've dealt with all of these things and we've continued to grow as an Australian economy when so many others did not. The reason we do that is because of the resilience and the strength of Australians to keep their head, to focus on what they can change, what they can influence and the Government is no different. We're with them, we're on their side and we're delivering for them in the best way we know how.

QUESTION:

The Reserve Bank Governor this morning specifically warned about the threat of a trade war and …

TREASURER:

I'm not discounting the threat. I'm just simply saying that the Government will keep its head and I think Australians are best advised to do the same and we will continue to work with all the various parties around the world on this issue. There's a G20 meeting of Finance Ministers coming up in a few weeks' time. We will get on and do our job, Australians I know will get on and do their job and they can have a lot of confident in their own ability, in their own resilience and what they have achieved. Australians have worked incredibly hard over many years now – in difficult circumstances – and look what they have achieved. I'm backing them. Thanks.