7 September 2017
Transcript - #2017173, 2017

Interview with Geraldine Doogue, ABC Radio National Breakfast

SUBJECTS: National Accounts June Quarter 2017; The Turnbull Government’s comprehensive plan to put downward pressure on electricity prices for households and businesses.

GERALDINE DOOGUE:

Welcome back to Breakfast Treasurer.

TREASURER:

It’s good to be here Geraldine.

DOOGUE:

So you were very clearly pleased with the economy picking up, but the annual growth rate was just 1.8 per cent. Several commentators have said when you really, quietly sit and look at it, that is the weakest in eight years – since 2009. You are sure it is a strong set of figures are you?

TREASURER:

What I am pleased about is the stronger growth that we have seen in business investment. Now, we have been waiting for those sorts of pick-ups in business investment figures now for many years, since the back of the peak of the mining investment boom. Now, our policies have all been driving towards increasing investment and so with machinery and equipment and things like this we have seen that pickup 1.5 per cent growth through the year and we had good growth in the quarter in business investment and that comes off the back of a whole range of other really good data we saw on CAPEX and we are seeing that go up an expected 5 per cent this year and it wasn’t that long ago that this year was expected to fall by 2 per cent on previous estimates. On the overall growth number, the 1.9 per cent year average number, and that is the figure that you use in the Budget. We had forecast that back in May to be 1.75 per cent. So it has come in better than that. Nominal growth which is the thing that really does drive revenue for the government. That came in bang on 6 per cent which was the forecast growth for nominal GDP growth. So, you have got good growth in exports, you have got good growth in investment, you have got public investment in particular and that’s things like infrastructure in our defence spending and the industry plan which saw growth in that sector go up over 26 per cent in the quarter. So, that is where that encouragement comes from and the better days ahead that I said we are now starting to see emerge.

DOOGUE:

Yes, it’s just that, as I think The Australian sub-headlined by David Uren’s piece today says ‘like the rest of the world our household incomes are at a curious standstill and this is something that is really complexing people around the world. And this dipping into savings in order to fund spending – that is not something that a treasurer would really like to see. Would he?

TREASURER:

Well, I think these figures, that one in particular has been constantly misanalysed. Let’s go back to the Howard Government period. The household savings ratio was on average 1.8 per cent. In these figures today it is over 4 per cent. So, what you see when you have a monetary policy setting and you have got the cash rate where it is; that is designed to have people not go into their cave as consumers. It is designed to have them out there in the economy. That is what we are seeing. Even where it is at just around 4.5 per cent, that is still higher then what we saw the pre-GFC period. When people are worried they will go put money in the bank. When they are more confident about the future of the economy as we saw during the Howard period the household savings ratio comes down. It is not that they are drawing on their savings. They are still saving. It is still a positive savings ratio. They’re just not saving as much as they were, say two years ago, and it spiked at well over 10 per cent when the GFC hit. So, I think there has been a bit of misanalysis, a bit of glass half empty analysis that has gone into those figures.

DOOGUE:

Philip Baker for instance, who writes in the Fin Review, talks about this key indicator sometime called AENA which measures average earnings per employee from the National Accounts. It has actually gone backwards, he says, with the latest report showing the annual growth rate falling from 1.1 per cent to a record low -0.3 per cent which is clearly what worries people like the Reserve Bank Governor.

TREASURER:

Household incomes and particularly when you look at them; one of the things our tax system and our welfare system does, they are both well targeted and we have sought to make them better targeted is that protects against rising inequality, but household incomes have been flat. The Government acknowledges that. In order for household incomes to rise we need to see business investment increase. We need to see a sustained increase in profits in the economy and that is what will lead to wages. We have had 240,000 jobs created last year. That is why the overall bill for wages and salaries – compensation of employees in the National Accounts – rose in what we saw yesterday. That was driven off the back of more people being in work. Now, that is a good thing as you continue to see the labour market tighten then you will see that flow into wages which is what the Reserve Bank Governor has said. I agree with David Uren in his analysis. We do want to see an improvement in wages because that is what is going to lift people’s household incomes and enables them to deal with the fixed costs of life and they include electricity bills.

DOOGUE:

Well, let’s get onto that right now then because the clear concern is that one estimate puts the increased electricity bills flowing through the broader economy at upwards of $9 billion which clearly will affect jobs and investment. How does the government … this must be terribly, terribly disappointing for you to preside over when you want to preside over altogether good figures and you have got this sitting there as a giant elephant in the room.

TREASURER:

Well, it is a major economic challenge and it is one that we are addressing and taking on the full complexity of it as well. There is no…

DOOGUE:

But it is a failure of policy, isn’t it? Generally to have to talk like this?

TREASURER:

I think it is a failure of politics over the last decade when it comes to dealing with the energy issues and we are seeking to put all of the politics and ideology aside and the religion around climate and all the rest of it and just get focussed on all the practical solutions. Now, we have got five things that we are doing here and I think we are very focussed on them. We are going to ensure that our gas remains available; available for domestic use. We are ensuring that we are getting a better deal for retail customers in the energy sector particularly for households and small businesses. We are changing a lot of the regulations to ensure that those regulations are not pushing prices up. We are investing in low emission technology through the ARENA program and importantly we are investing, facilitating and encouraging investment in storage, in new generation capacity and in transmission. And part of that is this whole issue of keeping our coal-fired power stations that we have now, open.

DOOGUE:

Now, we have a text from Phil in Orange – all of this is a result of privatisation of the electricity generating and distribution system. If this power station in the Hunter is kept open then its capacity depresses the overall price of electricity so it is in AGLs interest to close it and benefit greatly from the increase in the price of electricity that they generate elsewhere by other means. We should never have privatised these assets and we are now seeing the result. Do you have any symphony for Phil in Orange?

TREASURER:

I do in terms of his comments about trying to shut down coal-fired power stations. I agree with him completely on that. But you need to also remember that in Queensland where the Queensland Government runs them all, they are the ones who have been forcing up power prices for the way they have been playing the energy market in exactly the same sort of way that the accusation has been made against the private company. Those gaming the system who are generating power there seems to me to be no difference between those doing it in the government sector and the private sector.

DOOGUE:

So it is a transition. You are saying that this is all the result – although I think we should be handling it better – of this epic transition between a different form of power generation that we are underway with.

TREASURER:

That is true and in that transition and well beyond. It is not a choice between keeping coal and particularly the existing assets that we have and transition to potentially new coal assets or other forms of resources and renewable resources to drive our energy market. It is all of the above and that has been the approach of the Turnbull Government. Look, it is a difficult problem. It is a wicked problem as someone would have probably said previously and they would be right about that. You have just got to apply yourself to it. That is what the AEMO report was all about this week. Get the facts and then respond.

DOOGUE:

The Government is very keen for AGL to sell its Liddell Power Station to another generator willing to keep it open at least a further five years.

TREASURER:

At least.

DOOGUE:

Ok you are saying at least. Would the Government be prepared to take a stake in Liddell? Is that even being foreshadowed?

TREASURER:

It is not an option that is currently before us but there are quite a number of permutations of this. What we have to, I think, understand at the first order of this is that they have to stay open. This is why we are amazed frankly…

DOOGUE:

Liddell has to? Not necessarily by AGL but Liddell has to?

TREASURER:

Yes, Liddell has to stay open and there are others that will close over the next 10-15 years and we need to keep them open too. Because it continues to provide baseload stability to our grid and the longer they stay open and deliver that it gives more time for the renewable technologies which frankly can’t match coal in the short to medium term, at the very least, on the reliability and dispatchability. All those who have championed these targets and our opponents want to have a 50 per cent target in all of this. They have not done anything on the issues of storage. Now, we are acting on storage with the biggest storage project in Snowy Hydro 2.0 that has been seen since Snowy 1.0.

DOOGUE:

Now, I just want to clarify one little thing before we move around to our final question. Now, you said you were in the room when the AGL Chief Andy Vesey basically said, and I see Josh Frydenberg also agreed with you, I was watching Lateline last night, that they would be prepared to sell to another entity or whatever phrase you used…

TREASURER:

To a responsible buyer.

DOOGUE:

To a responsible buyer.

TREASURER:

That’s what they said. He said it out loud.

DOOGUE:

He said it out loud. So you are adamant that that is what he said because clearly this is the next stage of the story because he doesn’t seem to be saying this in reported to the Stock Exchange.

TREASURER:

It was in a room with four ministers, note takers and all of the retail energy bosses. It wasn’t said behind the outhouse.

DOOGUE:

And that would be your ideal scenario, I take it, that somebody who liked the idea of running Liddell would take it over?

TREASURER:

Absolutely and would keep it open. It was a funny line, I have got to say, when the Prime Minister called Joel Fitzgibbon ‘No Coal Joel’. I found that amazing yesterday. These guys are supposed to be standing up for people working in the coal and related industries in the Hunter Valley and Joel Fitzgibbon and the other members up there from Labor in the Hunter Valley are just selling them out. They put the white flag up before we had even had breakfast yesterday.

DOOGUE:

Look, I must ask you about crossbencher David Leyonhjelm getting some costings from the Parliamentary Budget Office – the PBO – suggesting that scrapping the GST from power bills would save households at least $200 a year. Now, would you consider providing such, even temporary, relief? Households would surely welcome it.

TREASURER:

It would be a tax merry-go-round. It would cost $2 billion a year. So $8 billion over the forward estimates. So, the states would then have to raise payroll taxes or stamp duties or land taxes to compensate for that loss of revenue. Or they would come to the Commonwealth and say you have to increase income taxes or other taxes to compensate for that $2 billion because I have no doubt that they would be running around saying, “we have to now shut hospital beds and schools and all the rest of it because you have ripped $2 billion a year out of the GST.” The GST base is already fallen from over 60 per cent since it was first started of consumption, coming down to almost 50 per cent now. So, we are seeing a decline and a contraction in the GST base as it is. So, creating a tax merry-go-round like that where it gets given away in one hand and taken back in another. I think it is a bit of smoke and mirrors.

DOOGUE:

Alright, I will be taking that up when I talk about the West Australian Budget that is being delivered this afternoon. The GST is front and centre there. Thank you very much for joining us.

TREASURER:

Thanks Geraldine. Good to be with you.

DOOGUE:

Treasurer Scott Morrison.