Subjects: March Quarter National Accounts; foreign donations.
TREASURER: Today's National Accounts show that real GDP rose by 0.3 per cent in the March quarter to be 1.7 per cent higher through the year. The results today demonstrate the continued resilience of the Australian economy. 17 of the 20 industry sectors in the economy grew in the March quarter. The results also demonstrate the need to continue to make the right choices, to support more and better-paid jobs, through economic policies that encourage investment, that increase earnings, and responsibly manage the nation's finances, as was set out in this year's Budget. The Government's economic plan acknowledges the challenges that are evident in these figures today, and that were anticipated in these figures today, in the Budget. It means we remain determined to get on with that plan that we outlined in that Budget, and get on with the job of implementing our plan to secure the better days that are ahead.
I note yesterday the Reserve Bank Governor also restated his expectation for growth to increase above 3 per cent in the next couple of years, and I also note that what I would describe as modest growth in the figures today, for the March quarter, were anticipated in the Budget and had been factored into the Treasury's forecasts by revising down their 2016-17 forecast to 1¾ per cent.
Now, turning to the numbers, more specifically contributions to growth from household and general government consumption and increases in inventories, and non-dwelling construction offset declines in net exports and dwelling investment. Household consumption expenditure increased by 0.5 per cent in the quarter to be 2.3 per cent higher than a year ago. And growth in household spending continues to support the economy, while household savings remain positive, although at a lower level. The consumption growth was driven by what I would call the essentials in household expenditures. This emphasises the understanding that we outlined in the Budget that many households continue to do it tough, and why it is so essential that in the Budget we move to guarantee the essentials and to put downward pressure on cost of living in the policies we outlined in this year's Budget, guaranteeing essentials like Medicare and needs-based schools funding, while working to put downward pressure on things like rents, childcare and electricity prices. New private business investment expanded by 0.7 per cent in the quarter, and strength in new business investment was led by engineering construction which expanded for the first quarter since September 2013, up 4.3 per cent.
Investment in new buildings also increased and this is the second quarterly increase in new business investment following 12 successive quarters of decline. Inventories rose in the quarter and contributed 0.4 percentage points to GDP growth, driven by build-up in mining inventories, as well as increases in wholesale trade, retail trade and farm inventories. This can be partially attributable to the impact of wet weather, particularly in the west, a bumper crop in the March quarter, and mining companies replenishing their stockpiles after taking advantage of the temporary spike in commodity prices. Dwelling investment fell by 4.4 per cent in the quarter to be 2.5 per cent lower through the year. However, the level of investment remains high by historical standards and there remains a very strong pipeline of dwelling construction.
Wet weather during the quarter would not have assisted in the states where there was a decline in dwelling investment. Building more houses remains, as ever, an important national task to improve housing affordability, and as you’d know, the Budget contained a comprehensive package of measures to address that objective. Now adverse weather conditions during the March quarter did affect exports. I'm advised particularly on iron ore exports in the west. Exports declined by 1.6 per cent in the quarter, detracting 0.4 percentage points from GDP growth. Now weather impacts, I suspect, are likely to affect next quarter’s results also particularly in coal in the aftermath of Tropical Cyclone Debbie. However the decline in exports this quarter also follows on from a strong result in the December quarter which was revised up to a 3.7 per cent increase. Exports of rural goods were up 8 per cent and service exports rose by 2.5 per cent in the quarter, combined with a moderate rise in imports, net exports detracted 0.7 percentage points from GDP growth in the quarter. Demand rose or was flat in the states and territories except Western Australia, with growth particularly strong in Victoria and South Australia which each grew at 1.4 per cent for the quarter. The terms of trade rose strongly by 6.6 per cent in the quarter, to be up 24.8 per cent through the year on the back of the strong commodity prices we've seen. But as you know, in the Budget forecasts, we are not anticipating that to continue.
Company profits were strong again during the quarter, but the lift was largely driven by the mining sector and reflected another increase in our terms of trade. It's important to make that point. What we've seen in company profits has been largely restricted to the mining sector, and it has been heavily driven by what has happened on the terms of trade. People shouldn't make the mistake of assuming a broader-base position on profits, based on those numbers. It is highly concentrated on that sector. Again, this change in commodity prices was foreshadowed in the Treasury Budget forecasts. Compensation of employees was positive in the quarter, which is welcome, but it was still very modest, especially in the private sector, and modest to low wages growth remains our most important challenge economically. At the same time, almost 200,000 jobs have been created over the past year, with almost 70,000 coming in the March quarter alone.
All these figures show that the challenges facing the Australian economy remain, but so do the opportunities that are ahead. This is the March quarter we are talking about at the moment, we are not talking about next March quarter or next June quarter, or next September or December, and the years that follow. We must continue to focus on the policies that increase investment, wages and jobs. We made the right choices in the Budget to invest in productivity-boosting public infrastructure and to deliver further support to small businesses to invest in their future. We have made the right choice to make our corporate tax system more competitive in a highly competitive global environment. We have made the right choices to invest in advanced manufacturing through our defence industry plan, to expand our export frontiers through our trade agreements and to invest in our national innovation and science agenda in areas like fin-tech financial technology which I was only speaking about yesterday. We have made the right choice to reduce cost pressures on households and guarantee essential services to support confidence as we did in the Budget, and we have made the right choice to return the Budget to balance at a responsible and measured pace with well-timed measures that do not drag on economic growth. We have the national economic plan to address the challenges that we face and to secure the better days ahead. What we need now is the Parliament to meet us in the middle, and work with the Government to provide the policy certainty and stability that will encourage and support investment, whether that's on energy policy or on tax, housing policy, or delivering on essential services such as needs-based school funding or the National Disability Insurance Scheme. That will be an important task of the Parliament as it returns next week.
QUESTION: Treasurer, without inventories, this would have been a negative result. You've mentioned what has gone on in the mining sector, but the other two big contributors were wholesale and retail trade. Are you concerned that that might be a sign that the retail sector is having trouble moving stock and they're building up inventories involuntary?
TREASURER: Well, the points I made about inventories, and you've got to look at the inventory movements along with the movements in net exports. These are not unrelated and there is some interplay between those two numbers so I don't think you can necessarily just single one of them out in that way. What has happened largely in inventories is a) in the agricultural sector, you had a bumper grain crop in the previous quarter and so obviously some that have has gone into store. On top of that, in the mining sector, you had those very large stockpiles being run down in the previous quarter, taking advantage of what were some very good prices which the sector knew very well were not going to last, so they ran down those inventories over that period of time, and now they've been building them up again in the quarter that followed. You've also got arguably the difficulty in the west where it has been wet, that sometimes you can't get these things onto the ship, and as a result your inventories increase. Now, that in turn will have an impact on what goes out the door on your exports and that will drag down on your export figures. So I think what we're seeing in inventories is the ebb and flow of what is happening in the economy when I think there is a lot of lumpiness in this data. I mean, over the last three quarters, we've seen this modest result, we saw quite a strong result the quarter before, and we saw a negative result the time before that, so I think it has been very lumpy in what we are seeing, but that's not extraordinary when you look around the world.
QUESTION: Are you still anticipating a drag from cyclone Debbie in the June quarter? And do you think that will reflect at all in the March quarter?
TREASURER: First answer is yes, I’ve been making that point for some time about Debbie. Debbie’s impacts on this quarter will obviously not be as pronounced on the quarter we’ve just been looking at. But obviously you have lead up weather to a cyclone as well and so it wasn’t just a few days that fell into this quarter where that would have impacted. But, I think it’s common sense to expect it to have had an impact. I mean, if you go back many years to when the Port of Newcastle had to be closed because of the significant storms, you saw what the impact of that was on exports, so this is why I started off by saying that this is a very resilient economy. Yes, there had been some weather events that have occurred over the first half of this year, not just that first quarter. But despite that, despite the headwinds, despite the challenges, the Australian economy has continued to be quite robust.
QUESTION: You spoke about measures in the Parliament, you don’t need the Medicare levy increase for obviously quite a long time, what is your desired timetable in trying to deal with the legislation and have you made any progress with the crossbenchers on that measure?
TREASURER: The priority, obviously, is for the bank tax to go through. The only entities paying more tax on 1 July will be the banks and multinationals as a result of the measures we’ve put in place. We obviously anticipate those measures passing the Parliament. There are many other measures – the needs-based school funding is a very important measure which has already gone through the House and will be before the Senate. There’s also the small business measures with the extension of the instant asset write-off and a number of those related measures. That will keep the Senate more than busy over the next fortnight as it will indeed keep the House busy on the Medicare levy increase two years from now. But let me make this point, the Medicare levy is not going up on 1 July this year. It is not going up. It’s not going up for another two years – another two years – and so, I just want to assure Australians that that is a prospective measure two years from now. And from 1 July, as I said, the only people paying more tax will be the big banks and multinationals. So, the other measure, Michelle, we will continue to work with the crossbench on. The feedback I get from Australians when it comes to the Medicare levy is that this is an assurance levy for the National Disability Insurance Scheme. There is enormous support for this scheme but the other piece of feedback that I get on the NDIS is they now want the Government and the Parliament to focus on making sure it delivers the right services, at the right price to the people who need it. And that’s why I think it would be very disappointing if the Parliament and the Labor Party – well, the Labor Party have set their course on this, they want to play politics with it – but I think it would be very disappointing if the Parliament didn’t take the opportunity to secure giving certainty at an earlier opportunity on funding of the NDIS.
QUESTION: So you’ll do it sooner rather than later?
TREASURER: It will be when the Parliament passes it.
QUESTION: Treasurer, the economy has now matched the longest uninterrupted growth in the developed world, but you haven’t mentioned that this morning. Are you frustrated that the economy is not performing as well as it should be or could be when it’s a moment when Australia really should be celebrating?
TREASURER: I don’t take growth for granted and no one should. There have been plenty of occasions where I’ve made mention of the long run of annual economic growth we’ve had as a country. There have been economists debating points about in which quarter that is actually reached or not. But for Australians sitting at home, those sorts of things are less important to them than what’s going to happen to growth in the future. It’s great to have had this growth in the past, a generation of Australians have now grown up, as I’ve said previously, a generation of Australians have grown up without ever having known a recession. I think that’s a tremendous national achievement, but it’s not one that can be taken for granted. It’s one that’s been achieved by every Australian going to work every day, every Australian that’s started a business, every Australian that’s made an investment, every Australian that’s made a contribution – and I think that should be acknowledged, but what matters is what’s going to happen from here, and I don’t want another generation to ever know a recession.
QUESTION: What is going to happen from here? In the light of today’s report what is the outlook for the future?
TREASURER: I remain absolutely of the view, as does the Reserve Bank Governor as recently as yesterday, the Secretary of the Treasury at estimates just the other week, the world economy is turning. The outlook around the world is improving and that means Australia is well-positioned because of the decisions we’ve taken to grow into that growth. And so, while still now there are challenges and there are frustrations, if we take the same attitude in the future that we don’t take growth for granted, if we continue to apply ourselves in the determined way that we have, if we continue to focus on policies that seek to make us more competitive not less, then we can expect to secure those better days ahead. But you won’t get there through policies that just seek to raise taxes and to have inefficient spending or that don’t take a responsible approach to public finances, if you go down that path you can’t assume anything.
QUESTION: Treasurer, do you have a view or any concerns about the conduct of the CPA and its Chair, Alex Malley, including his salary? Do you have any opinion on that?
QUESTION: Treasurer, Andrew Robb – the former senior…
TREASURER: Just before we start going a bit off topic, I’m happy to take other questions but on national accounts or the economy…
QUESTION: We have already gone off topic.
TREASURER: On the economy, let’s deal with that then we’ll deal with other things.
QUESTION: For the Australian people, are there better times ahead?
TREASURER: Yes, there are. As I said in the Budget, there are better days ahead but they must be secured. And you need to have the right economic plan which the Turnbull Government has to secure those better days ahead. Growth cannot be taken for granted, we have not taken growth for granted for a generation and we should continue not to take it for granted in the generations ahead. We have the national economic plan that is focused on driving investment that drives jobs and better paid jobs. That’s what we set out in this Budget and that’s what we are now implementing as a Government.
QUESTION: Treasurer, [inaudible] in the Budget forecasts. But a couple more 0.3s and 0.2s, you’re not going to make those surpluses that you forecast are you?
TREASURER: Well, I don’t know what you’re basing that off. It’s an assertion that you’re making.
QUESTION: Fair enough. The economy just feels like it’s just sputtering ahead, doesn’t it?
TREASURER: We revised down this year’s real GDP forecasts in the Budget and we made other adjustments to other parts of the forward estimates as well, and that’s what you’ve seen from us as a Government. The position we take on commodity prices, I think, has been very conservative. We didn’t ride the rollercoaster. You’ve seen what commodity prices have done in the last six to 12 months. We didn’t go along that path. We took a very sober, modest view and as a result, we didn’t experience the sort of shocks that might otherwise have come to your accounts. So, we continue to do that and I think every six months you’ll see us look at these things very carefully. Now, what we’ve seen in today’s accounts was anticipated in what we put in the Budget. These accounts are a rear-view mirror today. We’re looking back at what happened in March, we’re not looking at what’s going forward and whether it’s the Governor or myself or the Secretary of the Treasury or the IMF or others who are looking at the Australian economy – and remember that the Australian economy is looked on around the world with envy and there’s good reasons for that, you don’t get to where we’ve got to over the last 26 years by accident. It requires determined application at both the policy level and then through the exertions of the Australian people which have been extraordinary.
QUESTION: Treasurer, just on Daniella’s point though, you’ve been conservative in this year’s growth forecasts, but in the out years of the Budget there are, what some commentators have called, fairly heroic assumptions, particularly regarding wages growth. Where is that growth going to come from and are you 100 per cent sure that we’ll actually reach those targets?
TREASURER: Well, they are the Treasury’s best assessments of the situation out over the forecasts and projection years – and that was reinforced by them at Estimates so they obviously stand by those. We will monitor them every six months and we’ll look carefully at them, but whether it’s the improved global environment – I mean, one of the things we’re seeing is a pick-up in new business investment, which is something I’ve spoken about from this platform when we’ve been looking at national accounts now for the past two years. This is a welcome improvement and we’re starting to see it build. We want to see that extend more broadly into the non-mining sector. The Governor of the Bank has made the point that previously we’re 90 per cent of the way through the downturn from mining investment, which has had an enormous impact on Australia’s growth performance in recent years, and coming out the other side of that and the engineering construction figures that you’d see in this set of accounts demonstrates that we’re probably well past 90 now, as well, as we’re starting to see some of that. That engineering construction figure that you see in those investment figures, that largely is attributable into the mining sector. That is all very welcome and as we look forward and we see the global growth, our trade agreements, the areas where the economy is transitioning from and to, the performance of the services sector, our agricultural sector, our technology sectors. Yesterday, Data61, I know it’s an issue I am interested in, I would love you all to be interested in it as well. The revolutions in financial technology in Australia is incredibly well placed and we now have, arguably, I would argue, the most competitive regulatory environment for new FinTech arrangements in the world. Now, this is going to transform Australian business. Not just financial service industries but all sectors of the economy. We are well placed to pick up on this but we have to pick up on it. We have to act on it. You can’t take it for granted.
QUESTION: Treasurer, over to Andrew Robb now, you’ve got a former senior economic minister taking on a job with Landbridge group, do you have any ethical discomfort over that?
TREASURER: Well, they are not decisions that I made, they’re decisions that Andrew made and I think you should direct those questions to Andrew.
QUESTION: Do you have any ethical discomfort over his decision? Over seeing a former Minister in your government taking that position?
TREASURER: Well, I am not privy to all the information Andrew has, all the details of what his arrangements were. This is a matter for Andrew Robb.
QUESTION: Is the fact that he took that job mean that there are potentially some problems with the rules that govern what former ministers can do when they leave government?
TREASURER: I would simply ask where there is any suggestion that any inappropriate decisions had been made by the Government?
QUESTION: That doesn’t really go to the question, Treasurer. The question is there is a set of rules around where former Ministers can work and lobby…
TREASURER: And each and every Minister is responsible to the Prime Minister.
QUESTION: In terms of Australians’ perceptions of what he has done or been able to do. An $880,000 job the day before the federal election was held last year. People potentially…
TREASURER: An election that he wasn’t contesting. He had already stood down and he technically was no longer a member of parliament and he was moving off into a private career. Now, I am not here to offer an explanation for Andrew. What I do know about Andrew is that when he served as a Minister in both the Abbott and Turnbull Governments we achieved the best outcomes for trade that I think a Trade Minister has ever achieved for this country. So, when it comes to Andrew Robb’s service to the country as the Trade Minister there were few who would challenge him for that title as being one of our most outstanding Trade Ministers. I am not privy to any of the discussions that he had with that company or what decisions he took or what issues were relevant. They are entirely maters for Mr Robb and if there are other issues that need to be addressed then they obviously need to be addressed in other places than by the Treasurer.
QUESTION: As a senior Member of the Government do you think you will be able to carry the backbench on climate policy after Friday – Dr Finkel’s report? Given that there now seems to be acceptance there will have to be some sort of price signal even if only slight to manage the energy transition?
TREASURER: I made reference at the back end of my remarks on the accounts to the Parliament coming together when it comes to issues of energy policy. Uncertainty around energy policy has become a really significant issue when it comes to investment in this country, and not just here but in other parts of the world as well. It is important that the Parliament come together to ensure that we have a landing that delivers on the trifecta of certainty, of energy affordability and sustainability of energy. That is exactly the plan that the Prime Minister has been articulating and I referred to in the Budget. That type of an environment will make investment in any form of energy more productive, more certain, and until we can get to that certain place on energy policy then we really are putting a lot at risk and so I think there is a very big national interest here. It is for all Parliamentarians to focus on that regardless of which Party they are in or what ideological perspective they have on this issue and there are many and they should all be respected. What the country needs is certainty. Certainty of the arrangements around energy policy and that is the best way to deliver, I think, the affordability and the sustainability of energy supply in this country. Now, the Prime Minister has already acted, particularly on the issues of gas. The most immediate thing that can be done to address prices is to ensure access to gas for domestic use and the Prime Minister has certainly not been shy in addressing that issue. I think he has shown real leadership on that. In the longer term, our investments in storage, particularly what we are seeking to do with Snowy 2.0, all of this articulates a path forward on energy. It does require the Parliament to come together on this and for too long the Parliament hasn’t.
QUESTION: Mr Morrison, you made some important foreign investment decisions affecting Chinese interests. Do you have any concern especially with what we have seen this week about untoward [inaudible].
TREASURER: Well, the decision is made by me Michelle at the end of the day and I am totally satisfied in the decisions that I have taken around all of these foreign investment matters. From time to time…
QUESTION: [Inaudible] interests in politics, Chinese influence in Australian politics in the Australian political [inaudible]?
TREASURER: I think it is important to ensure and to give confidence to the Australian people about the integrity of our political system. It is important that there is not even in the appearance, let alone the substance, of any untoward influence. I have not personally come across that in my responsibilities as a Minister and I have always sort to discharge my duties, particularly in relation to foreign investment, very carefully when it comes to these issues. People will make representations they will do that properly through the process. At the end of the day when I make a decision on foreign investment it is about the national interest. That is what the legislation requires of me and that is what I deliver in my view on every single occasion.
QUESTION: Treasurer, just following up on that, you just said there that it is very important that [inaudible] that goes directly to the issue of Andrew Robb taking that job with Landbridge. Do you see that as [inaudible] perception of the public, that is a conflict of interest or [inaudible]?
TREASURER: That is something other people will make judgments about. It is important that all politicians conduct themselves in a way as to not give the suggestion or appearance of undue influence. Certainly it’s what I seek to do as a practice, on this matter, the activities of Senator Dastyari, for which he actually stood down from his previous roles. I notice he has subsequently been restored to roles in the Labor Party. It wasn’t a very long time in the freezer for Sam Dastyari when it came to these issues. He was on a rehabilitation program in the Labor Party following this that I suspect that many sports people would hope as a quick a restoration as he has had. It is important for all members of Parliament to conduct themselves in the appropriate way at all times.