6 September 2017
Transcript - #2017174, 2017

Interview with Ross Greenwood, 2GB

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

ROSS GREENWOOD:

Are you happy with these numbers?

TREASURER:

0.8 per cent for the quarter, that was more than two-and-a-half times what we saw in March, so a definite pick up, but the bit that has really got my attention in these numbers, apart from the fact that we saw what was paid out in wages go up, particularly over the course of the year by more than 2 per cent was the increase in investment. We’re seeing three quarters now where private new investment has been positive and it’s the first time for many years we have seen private investment over the full year also be positive at 1.5 per cent. There was, particularly in machinery and equipment, and that’s backed in by the strong levels of public investment. Public investment over the year was up 9 per cent, and a big component of that was actually defence spending. In the last quarter it was up over 26 per cent to our investments in defence our investment in infrastructure, the more competitive tax environment, particularly for smaller companies, this is getting the results we wanted to get that is increased investment. That’s what will drive growth, and of course employment, and ultimately the high wages that we aspire to.

GREENWOOD:

So that’s also part of the narrative of the Reserve Bank as well. Just one question, I mean we do understand, just to explain to people, if there is a lack of investment from the private sector, quite often the Government will step in, in this case as you point out it is defence but it’s also state government spending, in particular NSW, Victoria, Queensland to a certain extent.

TREASURER:

Which we fund as well as you know…

GREENWOOD:

Which the Federal Government also does. But the big issue is that that raises the debts of all those governments, is that reasonable to do at this particular time, given the fact that there has been very much a quest to try and control the level of government debt in this nation.

TREASURER:

A big message we have in this year’s Budget was the difference between good debt and bad debt. For the first time for the first of July next year we will not be borrowing money, as a Commonwealth Government, to pay for everyday expenditure – welfare and things like that. The only new money we’ll be borrowing after the first of July next year is to pay for infrastructure works. Things that build value over a generation. Airports, railways, ports, roads and so on. On top of that, it’s to finance the biggest recapitalisation of our defence capability that we’ve seen in generations. That is also building capacity. And with rates at the level that they are, and our ability to borrow at sub-three percent, that really does put us in a position of advantage to do those things. And something that both Reserve Bank governors, former and current, have said positive things about, and to use that phase of the cycle to support increases in economic infrastructure and capacity. That lifts productivity which ultimately leads to higher wages.

GREENWOOD:

Are you as the Treasurer emboldened and encouraged by the fact that even last week, when the Office of Financial Management, Department of Finance, come out to indicate that the actual Budget deficit, or loss that the Government has incurred over the past financial year, $30 billion give or take, was around $8 billion better than what the Budget had previously forecast, so in other words, it did not lose as much as money, to the tune of $8 billion, as was expected in the Budget.

TREASURER:

Well that was those figures, and at that month, that wasn’t a full year’s figures but as I said today, we are expecting a better final year outcome, than what I said back in May, for the last financial year, we are expecting that to be better, and how much better we’ll be in a position to say from before the end of the month.

GREENWOOD:

Does the current energy debate worry you in regards to economic growth, because one thing we continue to hear here, when we spoke to chief executives during the course of the earnings period, over the past month, so many of those with big industrial concerns have said they’re very worried about the fact that their energy bills have doubled or tripled in some cases, and they’re looking overseas at options. They’re also concerned about energy security in this country, particularly if they’ve got big smelting operations, refineries, whatever it might be, if they have advantages, it causes very serious disruptions to their competitiveness and even to the actual damage to their plants, [inaudible] jobs. That must be something as Treasurer you must wake up with cold sweats about?

TREASURER:

Yes, the answer to all of that is yes, that’s why it’s very important that we keep our existing coal fired power stations open and running for as long as possible. The Government is absolutely about seeing that occur to ensure that we don’t have any shortfall over the medium term, which would create the sort of supply shortages that would spike prices. Now, I’m concerned about this from the point of view of families, households, who are under increasing pressure. A power bill is not an optional bill. You can decide whether or not you’re going to buy, go down to Gerry’s, who had a good last year as you had on the program the other day, I was listening, he had a good one, Gerry Harvey. But it’s discretion whether you go and buy it, the furniture or the electrical appliance, but the power bill, that’s one you’ve got to pay. So whether it’s the households, it’s for the lowest 20 percent of income of households, they would pay, of their disposable income, the surveys tell us, about 6 per cent of the disposable income, on those sorts of things. Now, it’s obviously less for people on higher incomes. But the point you’ve put your finger on Ross is really important, that is for businesses, particularly businesses that are energy intensive, this can be a real game breaker for them.

GREENWOOD:

Because you saw Portland, of course when the outage occurred there, $250 million worth of damage was done to try and bail out that particular plant, now in that situation they could have just wrapped up stumps and said `that’s it, we’ll mothball it, and that’s the end of the story’. We don’t want that happening to Tomago near Newcastle, you don’t want that happening to…

TREASURER:

No you don’t, and when Hazelwood closed down, many in the energy sector thought the answer was for Portland to shut down, when we stepped in there, providing support like down there in Whyalla, to keep these jobs in place, which we think is incredibly important for a transitioning economy. It’s people who are working in those jobs, who are the ones who get crunched in the transition and we are stepping in to support them. Just like it’s important that we see these coal-fired power stations like up in Liddell, and I was very disappointed to see Joel Fitzgibbon in particular run up the white flag on Liddell. I mean he’d done it before breakfast this morning. The Prime Minister even called him “no coal Joel” today. That’s very disappointing together with all those Labor members up there in the Hunter Valley, you’ll have listeners to the program up there I’m sure. You can’t just write those things off. These coal-fired power assets currently will generate, I mean if you want to go and build a new one, they will generate power at a cost twice, two-and-a-half times what these older ones are currently generating it for.

GREENWOOD:

Ok, so AGL says it’s at the end of its useful life in 2022. It’s determined it wants it to close unless somebody turns up to buy it. The question is whether ultimately we the tax payer, in some way, shape or form have to subsidise whomever buys it, because quite clearly they’ve got to get a reasonable return on that investment.

TREASURER:

What they call the effective life and what others would call the effective life, they’ll be different opinions about that. I mean Liddell is not like Hazelwood. Liddell is in far better nick than Hazelwood was, and Hazelwood was older. The other problem with Hazelwood was it all came a bit late at the end and there was a massive remediation bill on that plant. Liddell, there is time for other investors to come in and take a position on this and to ensure that we get a continuity of supply out of that station for a lot, lot longer than is currently planned under the current owners. Now I was in the room when Andy made the point that AGL was open to selling it to a responsible buyer. Who they define that is…

GREENWOOD:

What you’re saying is he actually said this sentence – he said we are prepared to sell it to a responsible buyer, because it’s not the tone that’s come out in the tweets that he’s put out subsequently.

TREASURER:

I don’t understand that. Look I’m not looking to get into a debate with Andy about this, we’re closely with AGL on the retail policies to try and get people a better deal. So I’m not having a crack at the fellow, he is running his business and he’s got his shareholders and I understand all of that.

GREENWOOD:

You were in the room.

TREASURER:

I know what he said, but it’s not just me, I mean Barnaby was in there, as was of course Malcolm and Josh and also all the heads of the major retail companies. So, it was open conversation. It wasn’t done in secret ink notes passed between people under the table.

GREENWOOD:

One last one before I let you go, and that is, Australian households. We’ve talked about them today, the level of savings that they are putting aside at the moment is shrinking. Now, there is quite clearly energy bills, there’s private health insurance premiums, there’s a range of costs that you talked about that are really enforced upon families that they can’t avoid that are going up at significant rates and faster than their wages. Given the fact that you can see the level of savings ratio in families declining at the moment, does that give you some cause for pause. Does that make you concerned about the state of Australian families?

TREASURER:

I think there’s a lot of misunderstanding about this household savings ratio. Today’s figures had it at 4.6 per cent. Now it shot up to 10.9 per cent at a time when people wanted to get into their caves, and that after the GFC. At 4.6 per cent, that is higher than what it was for pretty much all of the period of the Howard/Costello Government which were known as good economic years. So when the savings ratio comes down, it doesn’t mean, necessarily, that people are actually losing confidence, in many respects it shows they’re gaining in confidence. And at 4.6 per cent, that is still higher than it was prior to the spike after the GFC. So, a savings ratio decline doesn’t mean people aren’t saving. They’re not dipping into savings, what they’re doing is reducing the amount they are saving, and they’re spending more in the economy. Now when you have low interest rates, the whole point of that voluntary policy setting, is that there isn’t as greater incentive to put the money into the bank, and there’s more incentive to go out there and spend it in the economy. That’s what it’s designed to do. I think that’s what we’ve been seeing. That’s supported things like the household consumption figures today, and those figures over the year were, on year average terms, 2.4 per cent, but we also saw a very strong quarter on that household consumption figure of 0.7 per cent for the quarter, and 2.6 per cent for the year on the other measures, so were seeing the economy I think show a lot of resilience. But as I said, the investment figure was really strong Ross. We’ve been waiting for those non-mining investment figures, those investment figures in the private sector to be kicking in now for the last couple of years. I remember having the same conversations with Glenn Stevens and they were the figures we were looking to see move. We want to see the dial move on those things and that’s why we set the policies in place that we have, particularly around the tax environment and infrastructure spending, and we’re now starting to see that happen, and that’s really good news for Australians.

GREENWOOD:

Also the economy, we should remind people, in its 27th year consecutively, without a recession, which is a world record, and that certainly says something about the resilience of the economy as well. Treasurer Scott Morrison, as always, we appreciate your time here on the program.

TREASURER:

Thanks a lot Ross. Good on you mate.