6 September 2017
Transcript - #2017170, 2017

Press Conference Q&A, Canberra

Subjects: June Quarter National Accounts; Wages; The Turnbull Government’s comprehensive plan to put downward pressure on electricity prices for households and businesses; Coal-fired power stations.

QUESTION:

So how long do you think it will be until wages turn up – the Reserve Bank Governor last night said he expected them to remain in their current slump for some time, at the same time he said he saw some small signs of them turning up – what do you foresee?

TREASURER:

It was set out in the Budget.

QUESTION:

That’s a very rapid increase over the next two years, when do you expect us to see signs of that? We haven’t seen signs of it since the Budget.

TREASURER:

I expect it to track what our forecasts currently say in the Budget.

QUESTION:

I mean, on a similar point, why do you think wages growth is so low? I note that wage growth fell by 0.3 per cent in the latest quarter which could have to be one of the weakest outside of a recession.

TREASURER:

We’re seeing more people getting into work and that’s a good thing, and that’s the precursor always to seeing wages move. And the precursor to seeing wages move is also an increase in investment and an increase in profitability and we’re seeing all of those measures heading in the right direction and so long as we continue to make decisions and choices that push all of those indicators in that direction, then we can expect to see that flow through to wages.

QUESTION:

You say you expect growth to be better than you forecasted in the Budget…

TREASURER:

Well, it is. I said it is better than what we forecasted in the Budget.

QUESTION:

But further, do you expect it to be better?

TREASURER:

No, I didn’t say that. What I said was what we forecasted in the Budget for this fiscal year represented by these figures in the national accounts today. We predicted 1.75 per cent and it’s come in at 1.9. We predicted 6 per cent growth in nominal GDP, and it came in at 6 per cent. And those forecasts were made in May and that was before we’ve had the last two quarters of data.

QUESTION:

Treasurer, you did say just now that based on the figures you’ve seen, you do expect to achieve a better than budgeted outcome in terms of the underlying cash balance for that year. So would this be handy if you were contemplating tax cuts going to the next election?

TREASURER:

This is for the 2016-17 year so that year’s done and what we were projecting or indeed estimating for the final year outcome for 2016-17 that we set out in the 2017-18 Budget, we anticipate that that result will be better.

QUESTION:

So you think nothing in this [inaudible] would change your forecasts in the Budget for this calendar year coming?

TREASURER:

If there are any changes to our forecasts, we’ll be providing those at the mid-year update in the normal way.

QUESTION:

Does it give you encouragement though?

TREASURER:

This is a strong set of growth figures. It’s consistent with what we’ve seen in other large economies – whether it’s in the US, the UK – we’re back in that range and you’ll recall that there was the negative quarter of growth previously for the September quarter and with this type of trend continuing and that quarter dropping off the back, then that obviously has to point to if we can maintain it in positive territory – which there is no reason to suggest that we wouldn’t – that we continue to see these numbers lift.

QUESTION:

Treasurer, very notable how sharp the fall in the savings ratio has been, do you have any views on what’s driving that and what advice you might give to the household sector if they’re feeling squeezed – wages are weak, prices are going up – is that a sustainable position to keep running down that savings ladder?

TREASURER:

I think it’s a statement of confidence first and foremost and let’s also reinforce that this is a positive savings ratio – it’s not a negative savings ratio. This point has been misunderstood - and I’m not suggesting by people in this room; there are a lot of economic journalists in the room today. But it has been misreported on other occasions that somehow where people were dipping into their savings, that’s not the case. Their savings ratio has come down, but it remains positive and I think that is an indicator that people are still putting a bit away, just not as much as they were putting away before and that often is an indicator of improving confidence in households. But it’s also about how they see things out over the next 12 months, 2 years and so on and how they see things moving. Now, there’s undoubtedly lots of volatility in the global economy but the global economic position, as we’ve been saying now since the beginning of the year, has been improving and that’s a positive thing. So, we are seeing more and more evidence of how things are improving and it’s not surprising that households, families, businesses will reflect that in a lot of their own decisions and the actions that they’re taking in the economy.

QUESTION:

Treasurer, you were talking I think before about a decrease in consumption of electricity, is that household consumption and what’s driving that?

TREASURER:

On consumption, it is household consumption but I also referred to a drop in production also on electricity. Obviously on the production side you had things like the closure of Hazelwood over that period of time. The June quarter fall in consumption of electricity was just over two per cent – that also came off of a steep rise in the previous quarter when air conditioners were running a bit hotter in that March quarter than they were obviously in the June quarter. So, you have some seasonal things that affect this, but at the same time, we have seen those prices begin to move in that area and that’s obviously a key focus concern for the Government.

QUESTION:

Do you think households are seeing the increase in power prices and [inaudible]…

TREASURER:

As Phil Lowe said, the laws of supply and demand continue to operate and where prices increase that does obviously impact on people’s consumption. What I’m saying is, you’ve got that impact, you’ve also got the impact of a reduction in supply into the market which drives prices up, and then on top of that you’ve got those seasonal factors; the strong increase in the March quarter followed by a decline in June. From memory I think it was 1.6 per cent growth of our electricity, gas and fuel over the course of the full year, so if you look at it in a 12 month period, yes it certainly came off in June but it was counter balance by forces earlier in the year.

QUESTION:

Treasurer, can the Budget afford an investment in coal fired power stations?

TREASURER:

I think the focus right now is exactly where the Prime Minister and the Energy Minister have been. That is, we’ve got a report which you’re all familiar with today, which I think has rightly identified where the shortfall is coming into this next summer. It has been the Turnbull Government which has done the work through AMO to ensure that we have that information and we can properly plan. This is how we work as a government. Do the homework, work out what the problem is, and then put the solutions in place to deal with the problem. And that’s what you see the Prime Minister and Minister Frydenberg doing. Now the other issue which has been highlighted and you see it partly in these figures today after the closure of Hazelwood, which was in a very, very, very different situation to Liddell. Massively different station to Liddell. I’ve said on previous occasions, and I’ll say it again now, the challenge is to ensure that we sweat these existing coal assets for longer. That does two things, it continues to provide some baseload certainty and supply, into the National Energy Market and at the same time continues to buy time, for other technologies to develop the stability and dispatchability that our existing traditional resource based assets in coal deliver. So, coal is an important part of Australia’s energy future and particularly its energy present. We’re very mindful of that. We’re going on make sure that these assets are there for as long as they can be.

QUESTION:

And there’s room in the Budget to help that?

TREASURER:

You’re making assumptions about how we’d achieve it.

QUESTION:

I’m just asking if the Budget can afford to help out that endeavour?

TREASURER:

Budgets are in May, MYEFOs are in December. What I am saying is that encouraging investment into our energy sector, and ensuring there’s the certainty and stability for that to occur is critical.

QUESTION:

Treasurer you mentioned the, I think you alluded to the sort of profit share versus wage share debate in your slide there. And you seem to be implying that the profit increases that we’ve seen have been for a relatively short period of time, whereas wages have tended to be growing constantly in that period. Are you saying to people they’re going to have to wait quite a bit longer than they make think before those wages pressures come off?

TREASURER:

No I’m not saying that at all necessarily. We already are seeing, in some sectors where the tightness in the labour market is already producing those sorts of outcomes. We see that in parts of the private health sector, we see it in parts of the IT security sector. Or in some parts of the construction industry where there’s a lot of work going on. Particularly as a result of the investments the Government is making and that is flowing through to wages in those particular sectors already. There’s no chicken and egg conundrum when it comes to wages and profitability in investment. What has to come first is companies have to make money to be able to pay more in higher wages. That’s what has to happen. You can’t get a pay rise in a business that isn’t making any money. And you can’t get a job in a business that’s shut. These are just simple facts. The Government understands and empathises strongly with what’s happening in our economy and the transition that’s been occurring in our economy. There are parts of this country, and there are people in Australia who have been caught up in the real pain of that transition. It’s not the first time that’s happened. Sometimes we can look back with rose coloured glasses with the great reforms of the 80s and the 90s and that was no silver service ride either for many Australians court up in those changes. The same happens every time your economy transitions. What I’m saying is to those people caught up in that, is we’re going to continue to engage them on the economics of opportunity, like we have down in Whyalla by ensuring that we can get a transition of ownership down there in Whyalla, and the work that Rowan Ramsey has done down there to engage the Government and bring us to the table. We’ve seen a transition of ownership which is giving real hope and opportunity to people living in Whyalla. That’s the economics of opportunity. The politics of envy is just engaging in what the opposition is doing. It’s cynical and it will through a wet blanket on our economy.  Thank you very much.