6 March 2019
Transcript - #2019043, 2019

Press conference, Parliament House, Canberra

***CHECK OPENING STATEMENT AGAINST DELIVERY***

Subjects: National Accounts

JOSH FRYDENBERG:

The Australian economy is in fundamentally good shape.

We are on track to record our 28th consecutive year of economic growth, a remarkable performance.

The unemployment rate has fallen to 5.0 per cent, the lowest level in seven years, and to a remarkable 3.9 per cent in Australia's biggest state, New South Wales, the lowest level on record. More than 1.2 million new jobs have been created under the Coalition Government, with the number of women in the workforce at a record high and the gender pay gap at a record low. The number of young people who got a job in the last financial year was the highest on record.

The growth in government spending has been reduced to its lowest level in 50 years and the proportion of working age Australians on welfare is at its lowest level in 30 years. Tax cuts are being provided to more than 95 per cent of taxpayers and around three million small and medium businesses. New opportunities for businesses have been created through Free Trade Agreements including the most recent signed with Indonesia this week. Since the Coalition came to government, the coverage of Free Trade Agreements has gone from around 26 per cent of our two way trade to over 70 per cent.

Our AAA credit rating has been reaffirmed, with Australia only one of ten countries with a AAA credit rating from the three leading agencies. Significantly, next month we will deliver the first Budget surplus in over a decade, while continuing to provide record funding for the essential services including health, education and infrastructure projects that Australians need and rely on.

Today's National Accounts show that the Australian economy grew by 2.7 per cent in calendar year 2018, consistent with trend growth. Australia continues to grow faster than all of the G7 nations except the United States. 

For the December quarter 2018, real GDP grew by 0.2 per cent, within the range of market expectations. At a through the year rate of 2.3 per cent, this represents some moderation in growth on the back of the strong results observed in the first half of 2018. The moderation in part reflects the impact of the drought, lower mining investment, as we continue to move from the construction to production phase, and a decline in residential construction activity from record levels.

Nominal GDP continues to be strong, growing by 1.2 per cent in the quarter to be 5.5 per cent higher through the year, benefitting in part from an increase in the terms of trade. The terms of trade is up 3.1 per cent in the quarter and 6.0 per cent through the year.

Household consumption continued to contribute to growth in the economy. It grew by 0.4 per cent in the quarter and by 2.0 per cent through the year, with 12 of the 17 consumption categories recording growth in the quarter, including health, education, food, clothing and footwear. Households are benefiting from solid gains in compensation of employees (COE), which measures the national wage and salary bill, increasing by 0.9 per cent in the December quarter to be 4.3 per cent higher through the year. The Australian Bureau of Statistics notes that this is higher than the five year average growth rate of 3.4 per cent. Through-the-year growth has been above 4 per cent for the past 5 quarters. The through‑the‑year increase in COE was driven by continued strong employment growth. Over the past twelve months, more than 270,000 jobs were created and more than eight out of ten of these were in full‑time employment.

Strong employment outcomes have been accompanied by high participation rates, particularly for women, with female participation now at a record high. With the unemployment rate declining to 5.0 per cent, the proportion of the working age population aged 15 to 64 in work is also at a record high.

New business investment increased by 0.7 per cent in the quarter.

New non-mining investment increased by 2.4 per cent and is 4.0 per cent higher through the year. New non-mining business investment has benefited from strong business conditions over the past several years and the Government's legislated tax relief for small business. There is also continuing evidence that private business investment is benefiting from increasing public infrastructure investment, as firms invest in machinery and equipment to deliver these major projects.

Last week's CAPEX survey showed firms upgrading their outlook for non-mining business investment.

Mining investment fell in the quarter, detracting 0.2 percentage points from growth, with the last of the major LNG projects nearing completion, notably in the Northern Territory and Western Australia. As these large projects are completed and production ramps up, exports will continue to support growth.

New public final demand, across all levels of government, rose by 1.6 per cent in the quarter to be 6.3 per cent higher through the year, contributing 0.4 percentage points to real GDP growth.

Public consumption grew by 1.8 per cent to be 5.6 per cent higher through the year. Growth continues to be supported by the transition to the National Disability Insurance Scheme, as well as increased spending on health services and residential aged care. The Government continues to guarantee the essential services that Australians rely on.

New public investment grew by 0.8 per cent in the quarter to be 9.0 per cent higher through the year. This strong growth in public investment reflects ongoing work on major infrastructure projects to support the needs of a growing population. Public infrastructure investment will continue to be underpinned by the Government's record $75 billion transport infrastructure rollout. A strong pipeline of public engineering work is expected to support activity.

Inventories contributed 0.2 percentage points to growth over the quarter, partially reversing the 0.3 percentage point detraction in the previous quarter.

Dwelling investment reached a record level in the September quarter before falling 3.4 per cent in the December quarter, with the softening observed in building approvals starting to flow through to construction activity. Dwelling investment is 2.5 per cent higher on a through-the-year basis.

Net exports detracted 0.2 percentage points from growth in the quarter, with exports falling 0.7 per cent in the quarter due in part to the impact of the drought. Farm GDP fell by 5.8 per cent through the year, with the Australian Bureau of Statistics noting that drought conditions also affected food manufacturing in the December quarter. Exports continue to make an important contribution to Australia's economy, with exports 4.7 per cent higher through the year. This was driven by strength in services exports as strong demand for tourism and education services continues. Services exports are now 9.7 per cent higher through the year, the fastest growth since the June quarter 2017.

Company profits increased by 3.2 per cent in the quarter to be 9.8 per cent higher through the year, largely reflecting strength in mining output and commodity prices. Commercially viable and profitable companies are critical to job creation and the health of the Australian economy, particularly given almost nine out of ten jobs are in the private sector.

Improving the incomes of wage and salary earners remains a core focus. Average earnings in the National Accounts increased by 0.5 per cent in the quarter to be 1.7 per cent higher through the year, an increase from 1.5 per cent through the year in the September quarter. The Wage Price Index for the December quarter is up 2.3 per cent through the year, the equal fastest rate in three years.

Wages can be expected to rise further as strength in labour market conditions continues. This view was reinforced in a recent statement by the RBA Governor who said "Wages are rising more quickly in almost all industries and in all states than they were a year ago. This is good news and we expect this gradual lift in wages growth to continue. Disposable income will also be boosted by the announced tax cuts." 

In the December quarter, real net national disposable income per capita was up 0.8 per cent and 2.1 per cent through the year. This is faster than the 20 year average, of 1.7 per cent.

The strength in the Australian economy is the result of sound economic management. This has been recognised recently by the IMF, OECD and the major credit rating agencies who have praised Australia for our "robust economic performance". It is now more important than ever for Australia to stay the course with the Government's economic plan of lower taxes, more trade and record spending on infrastructure. A plan which is delivering more jobs, a stronger economy, a Budget which will be in surplus and the essential services that people rely on.

I will now just briefly turn to the slides, to take you through some of the things we have referred to.

The first is real GDP growth for the calendar year, and as you can see 2.7 per cent for 2018, which is pretty favourable compared to recent years and above the 10-year average. It really has been a calendar year of two halves when it comes to growth; strong quarters in March and in June, and less than that in the September and December quarters. As I said, off the back of a slowing in housing and construction and also the impacts of the drought.

The next slide is the contributions to real GDP growth, and as you can see, the dwelling investment, the fall in construction activity, is having an impact on the overall GDP numbers and the net export numbers with farm GDP down nearly 6 per cent is contributing to that. And, the other positives that contributed, though, to the GDP growth were obviously public final demand, new business investment, and that's the non-mining side, household consumption was up and obviously the change in inventories. 

The next is a more granular breakdown in terms of the industry contributions to growth. As I mentioned in my opening statement, the ABS has acknowledged that what's happened in terms of the drought has not only impacted agriculture, but it has also actually impacted on food manufacturing, and therefore that part of the story. Services continue to be strong.

The next slide is the consumption by category, the 12 out of the 17 that is up. As you can see, they're predominantly non-discretionary, but there is also some discretionary there in terms of hotels, cafes and restaurants are up, a little bit in terms of recreation and culture.

The next slide is the story about dwelling investment which fell 3.4 per cent in the quarter and coming back to where it is in terms of the 10 year through the year average.

The next slide, this is the story of mining and non-mining. As you can see, non-mining investment continues to be through the year pretty strong at four per cent, well above what the 10 year average is and not bad, strong, quarterly growth at 2.4 per cent. Mining, as we move away from the construction phase in to the production phase, those big LNG projects in Western Australia and in Queensland and the Northern Territory.

The next slide is the new public final demand. This has been a strong contributor to growth and as you know new public final demand reflects both consumption, which is what I was talking about with the NDIS, as well as investment, where we are seeing infrastructure investment. This is quite telling for the upcoming Budget, this shows you that nominal GDP, which is obviously determining government revenues, taking into account the terms of trade and the commodity prices is pretty strong, is pretty strong; 1.2 per cent for the quarter, well at 5.5 per cent, well above the 10 year average.

The next slide shows that wages and profits have tended to be pretty consistent as overall share of income, obviously the wages are the bulk of that.

And, then the last slide shows where we compete. Now, it is important to point out here, both on a through the year terms and on a calendar year terms, Australia is second only to the United States, in terms of our growth, in terms of our growth compared to other countries who maybe in the G7 like the United Kingdom and Japan.

QUESTION:

Treasurer, why would people have confidence in the Government, given that since Malcolm Turnbull was been replaced, the economy has grown by half a percentage point and it is now in a GDP per capita recession?

JOSH FRYDENBERG:

Well, the economy and its fundamentals are strong. The fact that we are growing at a faster rate than any G7 country, except the United States, is testament to that. There are some positive stories out of this set out National Accounts. I referred to nominal GDP at 5.5 per cent, terms of trade up at six per cent through the year, you're also seeing the compensation of employees being above four per cent and you've also seen non-mining investment at four per cent through the year. They're some good stories. But, Shane, what the economy needs is a steady hand. What the economy needs is to continue with the strong economic plan which is delivering record jobs growth, and our plan which includes more trade, and our plan which includes more jobs and more infrastructure investment. That is what is delivering a strong set of growth numbers compared to other countries in the world. What the economy cannot afford, what Australia cannot afford is $200 billion of new taxes, which is what the Labor Party is promising to do. Could you imagine the impact on household consumption of Labor's retiree tax ripping $55 billion out of the hands of retirees and therefore affecting their disposable income, as well as the impact on construction activity which will come from Labor's housing taxes.

QUESTION:

The only number that people care about in these figures, ordinary people, will be the wages figure. We see company profits going up by 9.8 per cent, you said that yourself, wages by 1.7 per cent. Aren't we in a wages slump at the moment and what can the Government do about that?

JOSH FRYDENBERG:

Well, the truth is that wages have had the biggest jump in three years, a wages price index of 2.3 per cent. And, you've heard from the Reserve Bank Governor that they are beginning to pick up more quickly than they were in the previous year and he is seeing that in all states and in all industries. And, in particular industries like health, we have started to see higher wages. What is really important out of these numbers is the average earnings picking up again from the previous quarter. But, the story for the Australian economy is not only that wages are starting to pick up and that the compensation of employees has increased, but also that there is strong jobs growth. We have seen 1.2 million new jobs being created, and as I refer to, Chris, more women getting into the workforce than ever before, more young people getting a job than ever before. That is a very positive story. And, what we would like to see is wages increase further and what the Reserve Bank Governor has said is we are on the right track.  

QUESTION:

But, what he said today though, Treasurer, is quite interesting because he did talk about, saying that he expected wages to increase, but then he also said this is similar to what we have seen internationally in a number of countries, including our own, there is a growing tension between strong labour market data and softer GDP. He is effectively saying that you can no longer expect a tightening employment market to produce the GDP benefits that we have expected traditionally, and that goes to wage growth. So, it's not quite as rosy as you say.

JOSH FRYDENBERG:

Well, what I'm saying is that we want wages to increase. The Reserve Bank Governor has said that is the trajectory that we are on and we saw the biggest jump of 2.3 per cent…

QUESTION:

…he's saying that something is broken…

JOSH FRYDENBERG:

…in three years. But, the key here is as the jobs market does tighten and there is more competition for labour, and we have seen very strong jobs growth, you will see that impact on wages. But, what the workers of Australia can't afford is Labor's $200 billion of new taxes which actually will drive their wages down, that is an absolute critical point. If you are going to hurt construction in the housing sector, if you are going to hurt retirees by giving them less disposable income to spend on consumption, you are going to affect the overall health of the Australian economy. So, this is exactly the worst possible time for Labor's $200 billion of taxes.

QUESTION:

Treasurer, do you concede now there's a credible argument for an interest rate cut?

JOSH FRYDENBERG:

Look, the issue of monetary policy is one for the Reserve Bank Governor and he has spoken numerous times about that dynamic.

QUESTION:

Treasurer, just back to Shane's earlier point, two consecutive quarters of negative per capita GDP growth, does that mean a per capita recession, and does the economy need stimulus?

JOSH FRYDENBERG:

The economy, the fundamentals, David, are in good shape, and as I said, GDP growth is at 2.7 per cent for the calendar year. And whether it's on the through the year terms, or on the calendar year terms, it is stronger than what we see from any G7 country…

QUESTION:

…It's not a per capita recession?

JOSH FRYDENBERG:

...We're not heading for that, what we are heading for is a continued economic growth. But if the Labor Party have their chance to implement $200 billion of taxes, that's nearly the size of the New Zealand economy. $200 billion of new taxes is nearly the size of the New Zealand economy, and that is what they're going to layer over the Australian economy. The Labor Party used to believe in a tax to GDP ratio, they used to believe in a cap to the amount of tax you could spend…

QUESTION:

…Treasurer…

JOSH FRYDENBERG:

…but now they no longer, they no longer believe in that. This is the worst possible time, the Australian economy cannot risk $200 billion of new taxes which will hurt people's wages, and hurt people's jobs growth.

QUESTION:

Treasurer, uncertainty drives down confidence and it drives down growth. What responsibility do you and the Government take for driving down that certainty and confidence?

JOSH FRYDENBERG:

Well as I've said, we've seen the fundamentals of the Australian economy remain strong. We have seen 2.7 per cent GDP growth for the calendar year. What we have seen is the impact of the drought, and the impact that that has had not only on our exports but also, as the ABS have pointed out, in terms of our manufacturing. But, with compensation of employees above 4 per cent...

QUESTION:

So, you're not taking responsibility for that, toppling a leader at all? That responsibility for driving down…

JOSH FRYDENBERG:

…Well, as I said, our strong jobs growth is something that is very significant. When we came to Government, and took over from the Labor Party, they left us with 5.7 per cent unemployment. Today it's five per cent, and it has fallen even faster than the Reserve Bank Governor said he expected it to do. We have seen Free Trade Agreements expand the coverage of our two-way trade from 26 per cent when we came to office, to over 70 per cent today. If the Labor Party, with their high-taxing agenda get their chance in Government, what you'll see is lower wages, and what you'll see is less jobs, and a weaker Australian economy. 

QUESTION:

Treasurer, are you making the economy a hostage to your election campaign? The Prime Minister has been dancing around the question of whether Labor will drive the economy into a recession, he's avoided saying that, but he's hinted at that repeatedly. Isn't that putting future growth at risk?

JOSH FRYDENBERG:

The Australian economy will continue to grow under this Government. But what the Prime Minister has rightly pointed out is the stark contrast between us and the Labor Party. We're all about enterprise, they're all about envy. Look at them, every day bashing business, not recognising the fact that business creates nine out of every 10 jobs in this country. Trying to whack retirees who've done nothing wrong with a $55 billion tax. The Labor Party pose a huge risk to the Australian economy. Take the housing market, as we've seen, construction activity has fallen, and what we've heard from the Master Builders Association, is under Labor's housing tax you'll see 32,000  fewer homes being built, and less jobs being created.

QUESTION:

Treasurer, these claims are a risk to the Australian economy, surely the fact you're painting the possibility of a Labor Government coming to power… 

JOSH FRYDENBERG:

…The Australian people need to know the truth, and need to know how we are for a stronger economy, and Bill Shorten is for a weaker economy. What this country needs, Michelle, is more jobs. What this country needs is lower taxes, what this country needs is more investment and more infrastructure. They're things that we are rolling out for the country, and with the right results.

QUESTION:

Treasurer, on your point of "the Australian people need the truth," do you accept that you've been misleading in your use of Treasury advice on Labor's housing policy?

JOSH FRYDENBERG:

Well Mark, let me tell you the truth. Five days ago, this story appeared in the Financial Review. Under a headline with the same information, "Negative gearing change could hurt property prices - Treasury." This is what Treasury said, ALP policies, and this by the way is a few years ago they provided the advice, in a different housing market, "ALP policies could introduce some downward pressure on property prices." Treasury went further and said, these are their words, "could be particularly problematic if it coincides with weakness in the housing market". So, the Labor Party have come up with a policy, when the property market was going up. Now the property market is coming down, and Treasury have underlined the exact problem with Labor's policy. At a time when we're seeing 10 per cent falls in key markets like Sydney and Melbourne, the Labor Party is promising to put in place a $32 billion housing tax which will abolish negative gearing as we know it, and increase the capital gains tax by 50 per cent, giving Australians a higher capital gains tax rate than they do in New Zealand or Canada, the US or elsewhere. Chris Bowen, who has been the master of this policy, yet to tell us when it will start date even though it's been their policy for a number of years, bizarrely can't tell us when it's actually going to start. Again, providing uncertainty to the market. These are his words in a doorstop last year about the policy, quote "what we said consistently was that this was a policy designed to put downward pressure on prices." They're his words. The architect of the policy tells you that the policy was designed to put downward pressure on prices, and Bill Shorten has said the same thing. So, if Australians want to see the value of their own home go down, and their rents go up, vote for the Labor Party. Because that's what they're going to do.

QUESTION:

Treasurer, just back on wages, we've had Bill Shorten today indicate his support for a minimum wage, saying the minimum wage is not keeping up with the cost of modern day living expenses, are you at risk of being outgunned on wages policy, given that so many people are craving for a pay rise?

JOSH FRYDENBERG:

Well, Bill Shorten is lying to you about wages. Bill shorten is lying to the Australian people about wages, because his policies will see their wages fall. That's the view of the Centre for International Economics, the independent economic think tank, which found that their capital gains tax policy would drive wages down. We've seen from economic modelling about their energy policy, it will drive wages down. I mean, just think about it, Andrew, $200 billion of new taxes across the economy, a size of taxes which is not too dissimilar to the size of the New Zealand economy, that is going to dampen economic activity. When is Bill Shorten and Chris Bowen going to tell you about the secondary effects of their $200 billion of taxes? When are they going to tell you the impact on construction activity in the property market from their housing tax? When are they going to tell you the impact on capital formation in our publicly listed companies by their changes to the franking credits scheme? I mean, these are policies that are going to rip money out of hardworking mums and dads and retirees. They're going to see Australians paying more for their rent. I mean a one per cent increase in the public's rent could be a $250 a year increase. I mean, that's the purpose of their policy.

QUESTION:

Treasurer, there's concerns about global trade weakening, which is essential for nominal GDP, which is essential for you getting the budget in surplus. Do you have any concerns about that and are you relying too heavily on that part?

JOSH FRYDENBERG:

Well, in terms of trade as you've seen, we continue to trade strongly. What is impacting on our exports is the drought and particularly the impact that's having on farm GDP. Globally, our Free Trade Agreements have created more opportunities, in fact we've been in surplus in terms of our trade account for more than a year now, and that is a direct result of the Free Trade Agreements that we've actually put in place. The US-China trade tensions obviously concern everybody, but that has started to be reduced. If US-China trade tensions were to increase, then that would impact on the global trading system. That's why we have always called for a rules based open trading system, that's why the Coalition stands for more Free Trade Agreements, that's why we've signed them with China, with Korea, with Japan, the Trans-Pacific Partnership, which Bill Shorten said was dead, and now with the Indonesia FTA. You can't trust the Labor Party when it comes to trade, they don't believe in them, they won't sign them, they won't create jobs, and as a result our economy will be weaker. Thank you very much.