6 June 2018
Transcript - #2018107, 2018

Interview with Steve Austin, ABC Brisbane

Subjects: March Quarter National Accounts

TREASURER:

We've got a plan for a stronger economy and that's what is being delivered. Not just jobs but growth as well and that is, I think , good news for the Australian economy as a New South Welshman, I'm hoping New South Wales will get as good of a result tonight but for Queenslanders, if they get a good as a result as the National Accounts today as well, they'd be very happy.

AUSTIN:

Were you surprised at how strong the GDP figures were? They appear to be a bit in advance of Treasury forecasts I think.

TREASURER:

Well, they were better than Treasury forecasts but also really beat the market expectations as well. They were several points up on that. You take these numbers from quarter to quarter and this puts us back on top of the global pack ahead of all the major advanced economies in the world. Better than all the countries in the G7, higher than the OECD average, it gets us back above our longer run average of three per cent so that is a very welcome result but we've still got another quarter to go in the current year and so, we never count things until they're there.

AUSTIN:

Will this mean, what, 27 consecutive years of economic growth?

TREASURER:

We're still in that 27th year now and if we get to the end of this financial year that will be that 27 but we need to keep this going. There's no reason it has to cease, there's no rule that says an economy has to have a recession and we're certainly not going to have one. That's not our plan. That's why we've got a plan for a stronger economy in this Budget.

AUSTIN:

You only just recently delivered the Federal Budget. What does this mean? How strong is the current Budget, given the figures?

TREASURER:

These figures affirm, they validate the figures and the forecasts and the estimates in the Budget but they also affirm and validate the plan that the Budget represents for a stronger economy. You can't do anything without a stronger economy. You can't fund roads, you can't fund hospitals, you can't fund schools, Medicare, Pharmaceutical Benefits Schemes, aged care and the list goes on. And the commitments we're making in all of those areas going forward, they are all backed up by our plan for a stronger economy and to people listening in Longman this afternoon, I mean, you'll hear people make all sorts of pledges. Well, our Liberal Party's plans are backed up by a stronger economy.

AUSTIN:

When will we see then an increase in wages growth?

TREASURER:

We've already seen, in this set of National Accounts, a further improvement in the average – what's called the average compensation for employees – so the average of what an employee would receive. That's been growing now for several quarters and it's been picking up each time and that shows that the labour market is tightening. It shows that after having more than 1,000 jobs created everyday last year on average that that is really starting to put pressure on the wages side and the Reserve Bank has said the same thing so we're expecting to see that continue to build going forward.

AUSTIN:

My guest is Australia's Treasurer Scott Morrison. This is ABC Radio Brisbane, Steve Austin's my name. Consumption grew a small amount but troublingly, households' savings continue to fall. What can you do about that? Or what can we do about that?

TREASURER:

I don't think that's the way I'd describe it. Australians are saving and they're saving at a rate of more than two per cent…

AUSTIN:

But the rate at which they're saving is dropping.

TREASURER:

Yes, and when it was at a very high rate – about 10 per cent – we were in the middle of the GFC because that's what people do when the economy is going badly. They take all their money and they put it in the cave and they sit in there with it. When the economy is going more strongly then savings ratios tend to be lower. They were even lower than that during the entire time of the Howard-Costello Government. So, the savings ratio is also a function of where interest rates are at. The Reserve Bank has a very accommodative monetary policy setting at the moment and that is designed to ensure that people actually consume more.

AUSTIN:

But given that the interest rates are – what used to be called – the emergency levels, I mean, so low. Shouldn't we be saving while the sun shines?

TREASURER:

The 1.5 per cent cash rate is actually designed to encourage people to actually participate more in the economy…

AUSTIN:

So it's designed to make them spend?

TREASURER:

That's exactly what it's designed to do…

AUSTIN:

Really? Okay.

TREASURER:

So that's the setting that the Reserve Bank has in place and it's remained at that level for a very long time. So that's where they're sitting and so to see savings rates still sitting around two per cent shows that I think Australians are being prudent and cautious – particularly when it comes to their home loans, on average, there are about over two years' worth of mortgage payments and offset accounts sitting out there around the country and that does quarantine as somewhat from the impacts that can come from a softer housing market.

AUSTIN:

So I asked you originally how strong is the current Federal Budget, how strong is it compared with last month even – in terms of forecasts?

TREASURER:

The Budget was only a month ago so we already had a reasonable idea about where things were heading but they've obviously firmed up even more than that but we'll see what happens at the end of the June quarter. But that will mean that if we are able to better those forecasts, that revenue, that resource will go straight to the bottom line and pay down the deficit.

AUSTIN:

My guest is Federal Treasurer Scott Morrison. This export growth was driven largely by mining commodities. Does this mean we're back in some sort of mining boom?

TREASURER:

No.

AUSTIN:

Or resources boom?

TREASURER:

No, what we're seeing now is the sector has moved from the construction and investment phase into the production phase so there's a lot of resources going out on ships which is coming out of the mines that were being built and when you get a strong period of prices which we have had relative to where they had been then that's going to boost your export performance – that's the volumes – but when you look at what that means for company profits as well, that's been affected by those better prices as well. So, yeah, it's had a positive impact but I also wouldn't, though, dismiss the strong result we've had on services exports as well.

AUSTIN:

Like what?

TREASURER:

That's been up in this quarter as well so we welcome that. So those service exports are the fastest and biggest growing component of our overall exports and our export trade agreements – whether it be with China or Korea or Japan or elsewhere – are all designed to see that continue to grow and expand.

AUSTIN:

Alright, so given this good news, you're not concerned at the rate in which people are saving, household savings has dropped slightly. What about house – we have high levels of household debt and slow wages growth. You're not concerned about that?

TREASURER:

I always want to see wages improve, that's absolutely what I want to see happen but let's – on the household debt issue, one of the things that we have in our advantage as opposed to many other countries, Australia's household debt is high but the assets coverage on that debt is five times so we also have real assets which are backing up those debts…

AUSTIN:

Is it still five times higher when the housing market's looking a little bit unstable – particularly in Sydney and Melbourne?

TREASURER:

About five times – I mean, if you have, for example, a housing debt right? and your house is worth five times what you owe on it, well, you're pretty well insulated.

AUSTIN:

My guest is Federal Treasurer Scott Morrison. Queensland next week gets its State Budget. It looks like we'll have less GST funds coming in to deal with it. Why is that – given how strong the economy appears to be?

TREASURER:

I don't know what that's based on.

AUSTIN:

As I understand it, the plan is or the expectation is that there'll be less of a GST take for Queensland this year.

TREASURER:

Well, someone will have to back up why they think that's the case. The Grants Commission only provides estimates of what states will receive in GST one year in advance and that was provided for Queensland in the 2018-19 year. There have been no indications or assessments made of what would be paid in subsequent years so that's how it's always worked.

AUSTIN:

Alright…

TREASURER:

So Queenslanders are receiving more than $1.10 back from all the other states for what they are actually paying in at present – and that's above historically where they've been in the past so at the moment, Queensland is basically a subsidy state under the GST.

AUSTIN:

My guest is Federal Treasurer Scott Morrison, this is ABC Radio Brisbane. When do you expect unemployment to fall to the Reserve Bank's expected forecast of 5.25 per cent nationally?

TREASURER:

We do expect to see, over the forward estimates, the unemployment rate continue to fall and that's a very important point because it says that the economy is not yet back at where we need it to be and for that to be happening, we need unemployment to be around about the five per cent mark and so there's a bit more distance to travel on that. Now, we have a similar view to the Reserve Bank about that but we assess those things every six months but there's a lot of commonality between what the Reserve Bank is saying, we're saying, what the OECD is saying, the IMF, there's a lot of consensus about the strength of the Australian economy and including the outlook that the Government has put in our Budget.

AUSTIN:

Alright, actually one other question if I can. What are the downside risks – so this is a very good economic result in the National Accounts released today – but what are the downside risks that Australia faces? I'm thinking of Chinese Government debt or perhaps even Italy's political woes.

TREASURER:

I'm not as concerned about the latter, I mean, that has more of an impact over there – Europe more broadly has been a lot stronger and that's been good as the United States has and the UK and others so that's good for us, particularly if you look closer to home in Asia, not just to China but we've seen better results out of Japan and in south-east Asia in the ASEAN states, they've been seeing some really good growth. I mean, the risks around China are well articulated but I think there's a consensus that they're well-managed and under control, you don't take them for granted, you watch them but I think we've seen a fair bit of action on the part of the Chinese Government and their Central Bank about how those things have been managed…

AUSTIN:

Are they transparent enough? The amount of debt they're carrying?

TREASURER:

All these things are relative but certainly more transparent than was the case three years ago. No doubt about that. I gave a speech back in 2016 where I highlighted – was one of the first to highlight this real risk in China about the growing level of the shadow banking sector and the level of credit risk that was there and since then, I've seen a very open and very clear acknowledgement that that's a risk that has to be managed within China but that's been acknowledged by Chinese authorities themselves. So, you welcome that and I think there's a bit of consensus around the place, that is not an unknown risk either in the global economic community or within China but the real risk to our economy is taking it for granted, Steve. That's the real risk. I've been answering questions today from journalists and others, people go, "We've got too much investment, we shouldn't be making our taxes more competitive because we could get too much investment." What's that about? We need more investment. We need more investment in Queensland because that's what's going to support people's jobs and higher wages. You're not going to get more investment by having higher taxes. It just doesn't work that way.

AUSTIN:

Scott Morrison, Federal Treasurer, thanks for your time.

TREASURER:

Thanks a lot, Steve. Good to be with you.