7 December 2016
Transcript - #2016178, 2016

Press Conference, Canberra

SUBJECTS: September Quarter National Accounts; maintaining Australia's energy competitiveness; Ramsay Review interim report

TREASURER:

Good morning, I will make a statement and then we can get to Questions. Despite 25 years of consecutive annual economic growth, we can never take our growth for granted in this country, ever. This is the growth that supports our jobs, our incomes, our wages, the number of hours we can work, the sales our businesses can achieve, and in turn the revenue that is needed to support our schools and our hospitals, to support Medicare, our pensions and our social safety net. It all comes back to growth at the end of the day. The Turnbull Government will never take economic growth for granted, ever. In the 12 months to the end of September, our economy grew by 1.8 per cent. That's down on through-the-year terms from the 3.1 per cent result achieved at the end of June. In the September quarter real GDP contracted by 0.5 per cent. In nominal terms which has the biggest impact on the Budget, the economy grew by 0.5 per cent in the quarter and 3 per cent through the year. Our annual real growth is still higher than six out of the world's G7 economies, second only to the United Kingdom. Higher than the US, Canada, Japan, Germany, and higher than the OECD average. The contraction in real GDP recorded in the September quarter is not just a reminder, not just a wake-up call or a warning about being complacent when it comes to economic growth. It is a demand to support economic policies that drive the investment needed to support job security, the hours and wages that hard-working Australians need to deal with rising costs of living, especially on electricity costs, and that businesses need to survive in a tough and competitive environment.

Today's National Accounts data demands the support in the national interest for the Government's national economic plan for jobs and growth that we outlined this year. It demands it in the national interests. In the past, when we started the 25 years of consecutive economic growth, the Hawke-Keating Government had the support of the Coalition in that parliament, as they moved through important reforms which helped set up 25 years of prosperity in this country. That work was continued and accelerated and improved upon by the Howard-Costello Government. Today, the Turnbull Government remains committed to those same principles that drove both of those governments, and we're looking for partners in this parliament who want to go on that journey with us so we can set up the next 25 years of growth, and today's data says it's time to join the national economic plan for jobs and growth.

So let's turn to the data. Household consumption was positive at 0.4 per cent, while through the year was still below trend at 2.5 per cent, a drop in the national savings rate once again supported that consumption growth. It is the decline in new business investment of 3.2 per cent that was the dominant cause for the contraction in real GDP in the September quarter. This is the 12th consecutive quarter where new business investment has declined. Through the year, new business investment declined by 8.5 per cent. Increasing business investment to drive jobs and earnings must continue to remain the core goal of economic policy. I, and we as a government, have been highlighting this now for a long time in relation to these accounts, as we've gathered together to pour over what the data says. Now, this is a function, as we know, of the continued transition from the mining investment boom and that's reflected in a further 5.6 per cent fall in engineering construction in the quarter, but that engineering construction figure is now down more than 50 per cent from its peak in 2011. That's the biggest indicator of what you see in the change in business investment occurring as the transition away from the mining investment boom. In this new data, though, released today, new building construction was also down 11.5 per cent for the quarter. That was impacted by some weather events during the course of the September quarter, as we know can affect these figures from quarter to quarter, when you break it down to that level. It was also the result of some larger projects coming to an end. But with such a change in both engineering and building construction, there could not have been a more important time to have passed legislation to restore the Australian Building and Construction Commission than when the Government was able to achieve that in this last sitting week of the parliament. Imagine what could have been avoided if we had been able to do this three years ago and hadn't been subjected to the frustration and delay and the search-and-destroy mission of the opposition when it came to those measures. But we are pleased that it has been able to pass and we are pleased that it has been able to pass with the support of the crossbench to ensure at least that is not one thing that should be holding up the building and construction sector going forward, and will importantly improve their opportunities in the years ahead.

There was also a contraction in dwelling investment and new public final demand. As you know, new public final demand doesn't include welfare payments, however, through the year results were positive at 7.2 per cent and 4.8 per cent respectively. In both areas there is a strong pipeline of activity going forward and at a Commonwealth level that includes our investments in health and communications and defence, the major defence industry procurement plan. As you know, infrastructure and investment, roads and things like that are reflected in the states' public final demand figure, the Commonwealth makes payments to the states but when you look through the numbers you will see that's reflected in what the states are spending. Exports were 0.3 per cent up in the quarter and 6 per cent up through the year, and while net exports were negative for the quarter, overall they did contribute 0.7 per cent to real growth through the year.

On the income side, the terms of trade increased again by 4.5 per cent in the quarter, and were up 1.5 per cent through the year. Now, this is very welcomed and it is having a positive effect on national incomes. Particularly pleasing is that in the September quarter we earned more. I've talked about the earnings problem, the earnings challenge that we as a country have. We all need to earn more. I think all Australians would agree with that sentiment, whether it's in wages or whether it's in the earnings that businesses are able to achieve. We need to earn more. But in the September quarter, both more hard-working Australians were able to get jobs and more hours were able to be achieved which supported the increase in compensation of employees, and private company profits were up 1.3 per cent for the quarter, and that's on top of the 1.1 per cent growth in the June quarter. Of concern though is the contraction in grossed mixed income which includes unincorporated small businesses. That figure was down in the quarter. Real net national disposable income per person which is often used as a proxy or measure of living standards, either perfectly or imperfectly, whatever your statistical bet is, that was up 0.5 per cent in the quarter and up 1.7 per cent in the year. That is the first time we have seen three consecutive quarters of growth in this living standards measure since 2011.

In the states and territories, the impact of the transition from the mining investment boom continued to be seen, particularly with its impact on the resource states of Western Australia and in Queensland. Queensland now has a, through the year growth, excluding exports in this data, that is less than South Australia and is only slightly higher than Tasmania. Victoria, which you wouldn't describe as a resource state, they had a negative result within their economy by a contracting of 0.4 per cent in the quarter. New South Wales remains by far and away the state leader with through the year growth at 5 per cent. That is double that of the nearest state at 2.5 per cent which was Victoria.

All this means, as I said at the start, that driving investment is the challenge. Getting capital out of its cave, getting capital investing in productive, innovative enterprises and activities that drives the hours, that drives the wages, that drives the economy. If you compare what has happened in this quarter back to what happened in 2008, the big difference is business investment. Back in 2008, it was pretty stagnant, basically an increase in net exports which has been totally fuelled out of inventories. There wasn't a lot happening in the economy when this occurred last time. What we are seeing here is household consumption up in one area, we have had good through the year performances on public final demand and on dwelling investment there is a good pipeline. The issue is business investment. This is why we are so adamant about our enterprise tax plan. This is why we are so adamant about our infrastructure plan, more than $50 billion rolling off into the future. We must be competitive. We must attract the capital, both internally, domestically as well as externally.

We have always realised our prosperity by unlocking the value in our economy through the investment that comes to our economy and that is why our Enterprise Tax Plan, that's why improving the resilience of our economy and the strength of our banking and financial system continually is so important. This is the ticket to the next 25 years of growth. But we cannot achieve that if we cannot get the partners in this parliament that will engage with us in the national interest, that won't be engaging in party political games, that won't be engaging in party political games, that won't be engaging in negative politics and wrecking and destroying, but will be engaging to lift the burden on business so they can invest and employ more people. That we can ease the pressure on households and businesses when it comes to energy security and the cost of affordable energy and preferably energy competitive advantage across the world. And a tax system that doesn't leave us stranded behind the UK and the US, where they are taking their tax rates to 17 per cent and 15 per cent respectively. If you want to stay back in the pack when it comes to competitiveness on tax, or competitiveness on investment – don't support the policies of the Labor Party. Our plan, as we laid it out in the Budget, is there to drive us to be competitive and drive the investment which the country so urgently needs for the jobs, for the incomes and for the growth.

QUESTION:

Treasurer, these figures mean inevitably bigger deficits and a slower return to surplus. What, can I ask, is your attitude now towards spending cuts given the economy is contracting?

TREASURER:

I made the point about the difference between real and nominal. It's the nominal growth figures that have the biggest impact on the Budget estimates. This will be worked through over the course of the next week or so, as we finalise the midyear statement, which will be handed down on the 19th. We have always been fairly conservative working up to this MYEFO about a lot of these numbers. While the number that has come out today for the September quarter in particular on the real GDP is not consistent with what you would call the consensus forecasts, that is fairly clear, we have been taking a very conservative approach. We have a trajectory which returns the Budget back to balance in 20-21. We will continue to seek to work to that and that obviously gets impacted by changes in parameters, both negatively and positively. That is what we will finalise over the course of the next week or so. That will all be revealed in MYEFO.

QUESTION:

You mentioned private capital formation but these figures show that the public sector detracted 0.5 from the overall figure. You had huge falls in Victoria, Queensland, WA and Tassie. Do you know what has driven that figure in that particular quarter – why that has occurred?

TREASURER:

There are a lot of timing issues in the public final demand, as you know. This is why I make the point and I separate both dwelling investment and public final demand about what we are seeing in private investment. We have had 12 consecutive quarters of contraction in private investment. At these press conferences on earlier occasions, we have seen the numbers, particularly on public final demand, move up and down based on timing issues and so on. This time around we didn't have the Chinook helicopters in the figures. We didn't have the new drugs on the PBS and things like that which affected last quarter's figures. These things move backwards and forwards. I stress, through the year growth on public final demand was 4.8 per cent positive. So public final demand is not what's holding back growth. There has been a consistent pipeline of activity there and I am not talking about the welfare system, I am talking about investments in defence, in communications, in the health system and equally in the states and territories. New South Wales is out there running at 5 per cent. You can see what is happening in New South Wales with the investment they are making in their infrastructure projects and the like. There is a pipeline on public final demand and that is an important part of the picture but the bit in the picture which needs to be there and isn't there is that private investment.

QUESTION:

You often talk up how much business has become more confident under your Government and yet this message does not seem to be getting through, that this is the time to invest. Why is that mismatch between...?

TREASURER:

If you look at consumer sentiment that is up 13 per cent since last September. That is one of the reasons why I think, in what is a pretty tough economy, household consumption, although it is pretty modest, at 0.4 per cent, nobody will describe that as strong and it is below trend, we are seeing a robustness in the domestic economy at a household level which is always encouraging. This business investment figure Michelle is similar to those we have seen for several years and this is why we keep highlighting that the business enterprise tax plan has not been passed. That is why we put it in the Budget. The reason you put out a 10 year trajectory on tax just like the United Kingdom has or New Zealand has or indeed the United States wishes to is to signal to investors what the future will be for their investments. That is not passing the parliament at the moment. That is why I say to the parliament in the national interest, this is important for peoples' jobs. It is very important for peoples' jobs. To engage in cynical politics about business bashing, I think is not very helpful. That investment is critical. If you're listening today and you are out there and saying why will this benefit you? That will ensure that the business that employs you will keep employing you and invest in your future. We want to pass that through the parliament and we need the consensus of a parliament that is going to work in the national interest to drive jobs and growth.

QUESTION:

Considering that opposition in the parliament and the realities of the last couple of years, you have shown some pragmatism on other policies, on other legislation in recent weeks, is it time to think about other ways to cut spending and increase tax revenues, knowing what the attitude of the parliament is to these central policies?

TREASURER:

I won't give up on this parliament. I have got good reason not to give up on it at this point because we have been successful in passing more than $21 billion in measures that improved the Budget since the last election. If I had taken a straw poll four months ago, I don't think people would have thought that would have been achieved. I think that has been a significant achievement and it has been produced by the process you have referred to, the Government has sought to be pragmatic, sought to be reasonable, sought to be engaging and when we have been able to meet people on that ground, I think we have got things done. Today's data suggests though, Mark, that we have got to take that up a notch and engage not just on issue by issue, but we have to engage about where we're trying to get to and where we're trying to get to is to ensure we are attracting this investment both within the domestic economy and externally. That is going to require a partnership going forward in the parliament of willing participants to drive that investment which supports growth. That is what we will continue to look for. There are members of the crossbench who have engaged with us on that basis. We appreciate that and we want to keep working with them but we need consistency more often.

QUESTION:

[Inaudible] to get the Budget back to balance in 20-21 and that is unchanged. You said the OECD recommended back loading it and changing the… leaving the end point at 20-21 but changing the distribution so that you put in place measures that would have affect over time but when easier now so as not to damage the economy at what turns out to be a weak state. Are you prepared to countenance doing that, to change the nature, the pattern of the trajectory?

TREASURER:

Let's just break that down a bit. Sometimes that, and I don't think this is what you're suggesting by the way, sometimes that suggests fiscal stimulus, putting money in peoples' pockets so they can splash it around and boost the economy in that way. No, that is not what we have an interest in. The previous Government tried that and the results of that don't commend them for being done again at the scale they certainly did at that time. What matters are actually strategic investments in the economy, particularly in the area of infrastructure. That is where the Government is focused. There is good debt and there is bad debt. Bad debt is when you borrow money to pay for today's payments which burn up by night-time. Good debt is when you're investing in things that create productive assets and build productivity capacity for the future and that is what the Government is doing. My interpretation of what the OECD and the IMF is staying is not stimulus. What they are saying is to ensure the composition of your spending, not necessarily its quantum, but its composition is heavily focused on those productive capability capacities that you're investing in over the term. One of the things we struggle with in the Budget is that in the past, we have seen spending rise to meet cyclical revenues. We have seen measures and payments and entitlements and various other things, as nominal growth was running at over 6 per cent and well over 6 per cent – 8 per cent in one period, we saw payments increase to meet that. The cyclical revenues have moved on but the payments are locked in. They are baked into the Budget. What we have been trying to do for three years is un-bake that cake and try to ensure that the expenditure that had been locked in to rise to those revenues which we are now borrowing money for, for supplement payments, for one off this and that - that is not the productive investment that the IMF is talking about. I think they make a good point on that. They are not making the point that they should just let it rip on public expenditure. They are not making that point. If they did, I certainly wouldn't agree with them. The composition of how you spend now is more important than ever because every dollar, every dollar has to work twice as hard.

QUESTION:

One of the larger private investment proposals at the moment is the Adani coal mine. Do you agree in principle with the Nationals, for example, that if their request for a loan from the Government is the difference between the Adani project going ahead, would you have any objection to that?

TREASURER:

I agree that NAIF was set up to make independent assessments about investment proposals. They are the people to make those calls and I don't intend to join in on any commentary about what they should or shouldn't do, because I think that would compromise what is the fundamental purpose of those people who have to make those assessments.

QUESTION:

Treasurer, given the importance you have put on your tax plan and company tax cuts to encourage investment and business confidence and your search for partners in the Parliament, to what extent are you prepared to be pragmatic on your enterprise tax plan?

TREASURER:

I think people always know me as someone who is pretty interested in getting outcomes. We have demonstrated that on I don't know how many occasions. It is the outcomes that matter for Australians and the outcomes we want, that they can work the hours they need to work to support their incomes and to deal with rising costs of living, particularly rising energy prices. Electricity prices are now growing at just around five per cent. That is up. The way that States are constructing their RETs and the way that the opposition seems to cheer on the collapse of places like Hazelwood and so on as a result of the policies that they have promoted, that is of great concern to me. You have to work within the Parliament. You have to look for partners, people who will work with you to the overall end. That is important. We haven't seen enough of that demonstrated yet, certainly from the Labor Party, certainly not in the way that the Hawke/Keating Government got support from the Coalition back in opposition in those days. We haven't had that and that sort of cynical opportunism we see too often on economic policy from the Labor Party, I don't think to date has prequalified them as a willing partner in the national interest for jobs and growth.

QUESTION:

Treasurer, you are going to have to spend it would seem a lot more on the Direct Action Emissions Reduction Fund which is running out of money, given a lot of the other options have been ruled out today. Can the Budget afford to spend more on this?

TREASURER:

I will deal with each of the issues in their turn. We have a MYEFO in just over a week's time and that is dealing with the matters that have been announced since the Budget. We will be addressing those in MYEFO. Remember, MYEFO, as I have discussed many times, is not a mini-Budget, it is an update to the Budget handed down in May to deal with matters that have been announced and to make sure they're offset and addressed and that's what we'll be doing. We will update what the projections are. That will have to take into account a lot of movements in parameters, some of which have been flagged. Chris Richardson's report put his finger on some particular stresses on the Budget there but there are other moving parts which are now starting to fall into place. Today's national accounts were one such important piece of data that has to be taken into account, so we will look at our response to that. I should stress, whether it is on commodities or whether it is on the growth rates, particularly on nominal and things like that, we are already taking a pretty conservative approach going into this MYEFO.

QUESTION:

How confident are you that when we're sitting here in three months' time, the figure will have a plus in front of it and not another minus?

TREASURER:

I don't speculate on those things. I don't think it's helpful for me to speculate on those things. Others do. The market commentary certainly suggests that that would be the case, that we would be in a positive territory in the future. If you look at the sort of components of this set of accounts are and things like dwelling investment, that has a pipeline of projects and there are some timing issues in that September quarter. Barangaroo is winding up and that has been a big feature in the Sydney office market and building market. Other projects are coming on stream. I think that is reason to be optimistic. What we have seen on the terms of trade is encouraging. What we have seen in the OECD and IMF projecting albeit a modestly better global outlook, it's certainly a modestly better global outlook. That is encouraging and I will take this data one quarter at a time. If I want to be more certain of that going over the next several years, then we need to do what is in our national economic plan for jobs and growth. We need to ensure we are addressing the cost pressures on business and one of the largest, if not the largest, is the cost of energy. This is a big deal for our economy and it is something we are wrestling with to get right and to make sure that it is affordable not just for businesses but affordable for households. But the tax and competitive tax environment – I mean, how does the Labor Party say we have to match a tax rate for working holiday makers with New Zealand but not for small business? How on earth do they maintain any credibility now when it comes to resisting what the Government wants to do to make businesses able to invest more in their businesses, employ more people and give them more hours? Their gamesmanship was writ large in that last week. I hope they reflect on that over the summer, I hope that they reflect back to the time of Hawke and Keating and decide to be more like that Labor Party than the cynical opportunists that they have become today, that they take a leaf out of the Coalition, back when Hawke and Keating started those reforms and back this Government in. We are standing by that period just like the Coalition did with Hawke and Keating then. Howard and Costello often had to do it alone, didn't get a lot of support from the Labor Party during that period of time as they will tell you. We are looking for that national project again.

QUESTION:

Is this just a blip? I guess that's what I'm asking you.

TREASURER:

You will find out in three months. I think the consensus forecasts and the other commentary demonstrates that going forward there are a lot of things to be positive about. But I am not one to speculate on those matters. We will wait and see the data.

QUESTION:

If there are two, people will call it a recession, now are they right to do that? You have said we have net disposable income actually increasing, to a lot of people it doesn't feel like a recession. If there are two in a row, would it be wrong to use that term, what people perhaps wrongly call a 'technical recession'?

TREASURER:

You are being entirely speculative. I'm not going to be unhelpfully speculative on those sorts of issues. I will leave that to the economists' dining room and they can debate that ad nauseam. I think, what is important is there are positive signs. Let's not forget, we are growing faster than the United States, Canada, Germany, more than six countries, we are the second after the UK if we're in that group. We have a lot of things to be positive about. So we are focused on that. We aren't countenancing the sort of outcomes that you are referring to hypothetically and so I think you are getting a bit ahead of yourself.

QUESTION:

On energy. The Renewable Energy Target which is driving most change in the electricity sector at the moment – it's [inaudible] in South Australia. What you need to do is to encourage gas generation as a transitional fuel. Why would you not back a policy that would get rid of a bad policy and not focus on an energy intensity scheme that would lift the competitiveness of gas and start to fix some of the problems that you have got?

TREASURER:

As the Prime Minister made clear yesterday and today, I will refer you to his comments on that, there are many ways to get to the point that you have noted, that was one that others have suggested. That is not the path we're taking. That is, on what is an ETS by another name. That is not what the Government has under contemplation at all. But we do understand the need to ensure that we have an affordable energy competitive advantage in the world. As you know, the Treasury is also seeking to support that type of position from our coal mining perspective through the Investment Bank in Asia to ensure that we are not disadvantaged competitively in that process. So we aren't driven by ideology on this, we are driven by ensuring more affordable energy prices for Australian households and Australian businesses which gives them a competitive advantage, a competitive advantage that we have held for many, many, many years and we need to ensure we retain that as we transition.

QUESTION:

Treasurer, are you concerned about the apparent softening in the NSW economy in these national accounts?

TREASURER:

Well, they are growing at 5 per cent through the year. I think there are some quarterly factors that go into the September quarter national accounts State by State. So I'm not going to jump ahead on things in New South Wales or any other State. You could say, 'well, what about Victoria?' They are down 0.4 and Queensland is now growing at a slower rate than South Australia. I think if I was concerned on one quarter's growth rates on these things, they are the two places where I would be very concerned – Queensland in particular. Western Australia is taking some big hits off the back of the resources change but you would expect that to be the case in Western Australia. Their economy has always been affected by those very strong cycles. But in Queensland, that is a matter of concern so we welcome the fact that Adani is keen to get on with it. Just imagine if there hadn't been all the carry on and the cheer squads that have been trying to frustrate that project for so long on the basis of ideology, from time to time cheered on by our political opponents, whether it be the Greens or elsewhere. We have always been a supporter of that project and are keen to see that go ahead. It will be great for central North Queensland as well. We want to see investment, we want to see people get jobs because people are investing in this economy. It's a good investment and we want to make it an even better investment going forward. But to have that, you can't take it for granted. The Labor Party seems to think that the growth will just fall out of the sky. Why else would you say you will tax people more, increase the deficit and hope it all turns up right in the end? What is their alternative policy for growth? We have one. We want to ensure businesses are in a position to invest more and they want to stop us. What is their alternative plan? They haven't got one. They haven't had one. That is why they were rejected at the last election.

QUESTION:

You mentioned the Asia Investment Bank, as the fifth largest, or sixth largest, shareholder, what steps are you taking to ensure that Australia is not disadvantaged competitively on energy projects because of the principles adopting social acceptable...

TREASURER:

Direct representation. Direct representation through the negotiated officers that we hold within that. That is how you do it.

QUESTION:

On the bank victims' tribunal, were you aware whether the PM was talking about a small 'T' tribunal or a big 'T' tribunal?

TREASURER:

Well, we're not going to get into alphabets but what I will get into is outcomes and that is what the Prime Minister is talking about. That is what the Minister for Revenue and Financial Services is talking about. This is the outcome we want. We want people who have had a bad experience with their banks, we acknowledge that has happened, banks in fact, acknowledge that has happened, what they want is they want their claim or their case heard and resolved. We want that to happen. People can set up new legal institutions which become a lawyers' picnic and the lawyers win and the case never gets considered or gets resolved to the satisfaction of the person who has been impacted by this. That seems to be what Bill Shorten wants. First of all, he wants a Royal Commission to run for three years. Then after that, perhaps something happens after that and then it is even more years and all these people he stands next to he is deceiving, in I think a very cruel way. He is not working for an outcome for those people. He is working for a political outcome for himself which is what we see all the time with Bill Shorten. It's always about Bill. It's always about Bill. What we are working to do is to create a new environment in this area where people, through a binding resolution, will get an outcome to their case. They get their case heard. As a local Member of Parliament, I hear this too. And the stories are heartbreaking. So what do we do about it? Do we go off on a lawyers' picnic forever like the Leader of the Opposition is suggesting or do we put in place a system that can work? That is what the Ramsay Review is about, trying to have a system that will work, get peoples' cases heard, which will get them an outcome so they can move on with their lives. That's what we want. Bill Shorten just wants more air time for Bill Shorten.

Thank you.