5 December 2018
Transcript - #2018084, 2018

Press Conference, National Accounts, Parliament House, Canberra

Subject: National Accounts

JOSH FRYDENBERG:

The Australian economy is strong and is in good shape. We are in our 27th year of consecutive economic growth. Unemployment is down to 5.0 per cent and over 1.1 million jobs have been created under the Liberal and National Government.

Business conditions and consumer confidence remain strong. Our AAA credit rating has been reaffirmed and next year we’ll deliver the first budget surplus in over a decade.

We’ll do this without increasing new taxes and by providing the essential services that people need and the infrastructure that Australians rely on.

Yesterday, the Reserve Bank Governor in his monetary policy statement said the Australian economy was performing well. Today’s National Accounts for the September quarter show that the Australian economy grew by 2.8 per cent through-the-year and continues to grow faster than the OECD average and faster than all G7 nations except the United States.

According to the Australian Bureau of Statistics, real GDP grew by 0.3 per cent in the September quarter, which was slightly below market expectations. This comes off the back of strong growth in the first half of this year.

Growth continues to be broad based, with household consumption, dwelling investment, net exports and new public final demand contributing to economic growth. These were partially offset by inventories and a significant fall in mining investment, following the near completion of the construction phase of key resource programs including in the LNG sector.

Households continued to demonstrate their confidence in the economy, with solid spending growth of 2.5 per cent through–the-year. Households are benefitting from strong employment growth, with more than 300,000 jobs created over the year and more than half of the 17 consumption categories recorded growth in the quarter.

Strong employment outcomes have been accompanied by record high participation rates, particularly for women and seniors. The unemployment rate has declined, as I said, reaching 5.0 per cent in October, its lowest level since 2012.

Dwelling investment has been increasing over the past year and reached a record high level in the September quarter. Dwelling investment increased by 1.0 per cent in the quarter, to be 7.1 per cent higher through-the-year. The pipeline of residential construction is expected to continue to support a high level of activity in this sector.

Net exports contributed 0.3 percentage points to real GDP growth. Exports rose by 0.1 per cent in the quarter to be 4.1 per cent higher through-the-year, while imports fell by 1.5 per cent in the quarter.

Growth in exports was driven by our strength in our services sector as strong demand for tourism and education and financial services continues. Service exports are now 10.7 per cent higher through-the-year, their fastest rate of growth since June 2017.

New public final demand across all levels of government rose by 1.4 per cent in the quarter to be 4.6 per cent higher through–the-year and contributed 0.3 percentage points to real GDP growth.

New public investment grew by 5.1 per cent in the quarter to be 4.0 per cent higher through the year. Public investment will continue to be underpinned by the Coalition’s record $75 billion rollout of infrastructure across the country.

Public consumption grew by 0.5 per cent to be 4.8 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 childcare and residential aged care. Through these programs, the Government continues to guarantee the essential services that Australians rely on.

New non-mining investment was broadly flat in the quarter and is 3.6 per cent higher through-the-year. New non-mining business investment has benefitted from elevated business conditions and the Government’s legislated tax relief, particularly for small business. There is also evidence that private business investment is benefitting from increased public infrastructure investment.

New mining investment fell significantly in the quarter, detracting 0.4 percentage points from growth. This follows the completion of large LNG projects, particularly in the Northern Territory and Western Australia. The unwinding of investment in large mining projects is nearing completion and exports will continue to support growth as these projects scale up production.

Compensation of employees, which is wages and salaries across the economy, rose by 1.0 per cent in the quarter to be 4.3 per cent higher through–the-year. Growth was driven by strength in employment. Improving the incomes of wage and salaries remains a core focus.

Average earnings in the National Accounts increased by 0.2 per cent in the quarter, to be 1.2 per cent higher through-the-year, and the Wage Price Index for September is up 2.3 per cent through-the-year, the fastest and largest jump in three years.

Wages can be expected to rise further as labour market conditions continue to be strong. This view was reinforced yesterday by the Reserve Bank Governor who said, the labour market has led to some pick-up in wages growth, which is a welcome development.

The improvement in the economy should see some further lift in wages growth over time although this is expected to be a gradual process.

Company profits increased by 1.9 per cent in the quarter to be 7.1 per cent through-the-year and commercially viable and profitable companies are absolutely essential to employment across the economy, particularly when one considers around nine out of every 10 employees are to be found in the private sector.

The strength of the Australian economy is the product of sound economic management. The Australian economy doesn’t run on autopilot. Difficult decisions have been taken over the past five years. Record jobs growth and the strong numbers we’re seeing across the economy are an indicator that our economic plan is working.

This has been recognised recently by the IMF, the OECD and the major credit rating agencies and today’s set of numbers confirms the strong performance of the Australian economy.

Now, just very quickly, I’ll just take you through some slides.

The first slide relates to real GDP growth and as you can see, it’s 0.3 per cent for the September quarter and through-the-year is 2.8 per cent. This is above the 10 year average of 2.6 per cent. And I have to point out that when we came to government in September 2013, under Labor, the growth was below that at 2.1 per cent.

Second slide, this is where the contributions to real GDP growth have come from. As you can see, household consumption is up, dwelling investment is up, new public final demand is up and net exports are up. The drag on GDP growth has come from the fall in new business investment and that’s particularly what’s happened in the mining sector as well as a change in inventories.

In terms of household consumption, it’s up 0.3 per cent for the September quarter and 2.5 per cent through–the-year, which is just below the 10 year average. What’s important to understand is, over half of the 17 categories in household consumption are up through this quarter, that includes transport services, food and health.

Next slide, in terms of dwelling investment, it’s a very positive story, up 7.1 per cent through-the-year, which is a record level, up 1.0 per cent for the quarter. This is both alterations and additions as well as new construction.

New business investment, this is the why behind today’s numbers, and as you can see, business investment is down 1.9 per cent in the quarter and 0.8 per cent through-the-year.

It’s important to understand the breakdown. Mining investment is down 7.5 per cent for the quarter and 13.6 per cent through-the-year. Non-mining investment has been relatively flat at just 0.1 per cent down for the quarter and is up 3.6 per cent through-the-year.

In terms of new public final demand, this is a reflection of the strong investment, particularly in infrastructure, that we’re seeing across state and Commonwealth governments, 1.4 per cent up for the quarter and 4.6 per cent through-the-year, well above the 10 year average of 2.9 per cent. Public investment is up 5.1 per cent in the quarter and public consumption just 0.5 per cent in the quarter.

Wages and profits as a share of income, this is very important to understand that unlike other economies like the United States, over the last decade, wages have remained a pretty consistent and stable level as a share of overall income and profits at a relatively stable level as well.

As I said earlier, compensation of employees are up 1.0 per cent in the September quarter, which is effectively the wages bill across economy, and 4.3 per cent through-the-year. This is pretty much its most sustained level since 2012.

In terms of the household savings ratio, this is now at 2.4 per cent in the September quarter and as you will see from the National Accounts release today, that the previous quarter, the June quarter has been revised upwards in terms of the savings ratio to 2.8 per cent, it was 1.0 per cent at the last National Accounts.

This number of 2.4 per cent reflects pretty much two things that is happening in the economy. The first is historically low interest rates and secondly people’s confidence in the economy, their confidence to spend. As you can see what happened during the global financial crisis, people’s confidence fell and their savings ratio dramatically went up.

This is the international comparison. Australia’s real GDP growth numbers compared to other major economies and we are performing very, very well, second only to the United States, who are around three per cent.

So that’s the end of the slides, happy to take a few questions.

QUESTION:

Treasurer, just to the household savings ratio, another explanation of what also is going on, is that people don’t have enough income or income growth for their spending. And we saw that in the household consumption the increases in necessities as opposed to [inaudible]. Does Australia really need a pay rise for that to address that issue of household savings and household consumption?

JOSH FRYDENBGERG:

Well, as I said the savings ratio is reflecting the confidence in the economy, but it also reflecting relatively low interest rates. In terms of real wages, what we did see with the wages price increase was a recent jump to 2.3 per cent, which was the single biggest jump in three years. And we are very conscious of the fact that wages growth has been slower than we would have liked, but at the same time the Reserve Bank Governor, Governor Lowe, has said that as the economy continues to grow, that spare capacity in the labour market will be eaten into, the labour market outlook is positive and this will see gradual increases in real wages.

QUESTION:

Treasurer, if households are confident about the state of the economy, why are retail inventories exploding?

JOSH FRYDENBERG:

Why are?

QUESTION:

Why are retail inventories increasing in size, companies are finding it harder to shift stock, they’re meant to be the ones spending on discretionary items?

JOSH FRYDENBERG:

Well, inventories actually are contributed a bit to the decrease of the overall GDP numbers. There is a steady increase in the inventories. But, we saw particularly in manufacturing a decline in the inventories in that area. This fluctuates in terms of inventories. It goes up and down. It is one of those indicators that hasn’t tended to be as steady as others. So, if you look at business confidence, if you look at consumer confidence, both are up, both are performing well. When you look at inventories, I think the impact on the GDP numbers were 0.3 per cent and what we did see was coming down, particularly in manufacturing inventories and also some in the mining.

QUESTION:

Very good. Since the Coalition was elected, you have always waited for the release of these National Accounts before you have put together MYEFO. Do you anticipate a slowing in the [inaudible] will affect your surplus target?

JOSH FRYDENBERG:

Well, no. The surplus will be delivered next year in the budget on April the 2nd. But in terms of MYEFO, obviously these numbers play into the final MYEFO numbers that will be revealed on the 17th of December.

QUESTION:

Just though Treasurer in that the budget prediction of 3.5 per cent GDP growth are overstated, then you will need to pull that back?

JOSH FRYDENBERG:

Well, actually, the budget forecast for ‘18-‘19 is 3.0 per cent. So, I think that is really important to understand. And, Mark, the Australian economy is performing very well by international comparison, by our own comparisons. The record jobs growth and the fact that over the last financial year, more than 100,000 young people got a job, the highest number on record, the fact that more women are coming into the workforce, the fact that we have encouraged through the last budget a number of initiatives to get more seniors into the workforce, like the Pension Work Bonus which will allow them to earn up to $7,000 extra without affecting their pension.

So, we are seeing strong growth across the economy. We are seeing strong confidence across the economy. We are seeing our AAA credit rating reaffirmed. But the why behind some of these numbers today is a reflection of what has happened in the mining investment sector in particular, an over seven per cent fall for this quarter and over 13 per cent through-the-year. That is a reflection of some major projects, like the Ichthys project in the Northern Territory, projects in WA, particularly the LNG that have ended completion of their construction and are now coming to the production stage.

QUESTION:

Treasurer, given the market was expecting a 3.3 per cent result and politically, heading into the summer break, would you have liked to deliver a better set of numbers today?

JOSH FRYDENBERG:

Look, these numbers reflect the strong performance of the Australian economy, the strong performance of the Australian economy that we have seen since we came to Government. And the fact that Australia is growing faster than any G7 country, except the United States, the fact that we are growing faster than the OECD average, the fact that we have created more than 1.1 million new jobs, the fact that the budget is coming back to surplus, the fact that we have had our AAA credit rating reaffirmed by the leading rating agencies and our economic plan supported by them is very important. And the biggest risk to the Australian economy does come from the Labor Party, because the Labor Party is proposing an alternative economic plan. Their plan is $200 billion of new taxes. If you are in the property market and you are an investor, you will be hit hard. But even if you’re not, you’re a renter, your rent will go up. If you are a retiree, you will be worse off as well, with their changes to franking credits.

Right across the board, the Labor Party have a set of policies which are going to increase taxes and hurt Australian families…

QUESTION:

But are the numbers disappointing themselves?

JOSH FRYDENBERG:

No. The numbers reflect the health of the Australian economy and they show that we are continuing to grow strongly.

QUESTION:

You did say that you expect wages to rise further. What in today’s data tells you that?

JOSH FRYDENBERG:

Well, that is the prediction of the Reserve Bank Governor and what is an indicator of that, David, is the continued job growth because as jobs and employment continues to grow you do start to get tightness in the labour market. And we have started to see that in some sectors of the economy, for example in the healthcare sector, where it’s starting to put pressure on wages. And it is the view of the Reserve Bank Governor that what we’ll see is a continued tightening in the labour market and in his words, the outlook for the labour market is positive.

QUESTION:

Is your strategy to get wage growth up simply to wait? Or do you have something in which you can do given you’re way below the budget forecast, at least for compensation for employees, 0.2 per cent in the quarter, in a quarter where the minimum wage was increased 3.5 per cent. Do you have a strategy? Is there anything you can do or is your strategy just to wait until, perhaps because of employment, that things come good?

JOSH FRYDENBERG:

Well, certainly the strategy is to lower taxes, which is starting to play out already, households are starting to get the benefit…

QUESTION:

It’s not quite a substitute for wage increases though.

JOSH FRYDENBERG:

The tax cuts that we have delivered for small business, the whole set of initiatives that we’ve delivered for small business are very, very substantial. Now, when you pointed to compensation of employees, it’s up 4.3 per cent, I have to point out, Peter, through-the-year. This is its most sustained level since 2012. In Labor’s last year, compensation of employees was 3.2 per cent. So, we are substantially above that and we will continue to see the economy strengthen as more people get into jobs as a result of what the Government is doing and what the private sector [inaudible].

QUESTION:

Treasurer, you talked about confidence, but car sales, which are a fairly good indicator, that number, the value there is down to its lowest level since the March quarter of 2016. If people are confident, why aren’t they going out and buying a new set of wheels?

JOSH FRYDENBERG:

Well, in terms of, if you look at the Westpac confidence index, you’ve seen all the comments from the RBA yesterday, there is good business confidence, there is good consumer confidence. It will vary in different sectors. But as I said, the household savings ratio is a reflection of people’s confidence in the economy that they feel like they can spend and it is also a reflection of the historically low interest rates.

QUESTION:

On the divestment legislation. The Queensland Treasurer [inaudible] this could be power of exercise in privatization in Queensland generators. Is there a plausible scenario?

JOSH FRYDENBERG:

Absolutely not. You obviously didn’t read the press release yesterday and I hope you would have too, Phil, because in the press release, it made it very clear that where there are government owned assets. And if you went to the last resort, which was a divestment, that would be into another government entity that could compete. So, as you know in Queensland, they made a decision to create a second company, they’ve had Stanwell and CS Energy which are the dominant players there, but they have also set up another generator company, if you like, which brings in some of their renewable projects. As long as they’re competing against each other in a transparent way, that’s where the divestment would hit. So it is not, at all, about privatizing Queensland assets, that debate is being had in Queensland. 

Thanks very much.