Press Conference
Parliament House, Canberra
4 March 2009
SUBJECTS: National Accounts, Economic Security Strategy, Emissions Trading Scheme, Interest Rates, Executive Salaries, 2009 Budget
TREASURER:
Thanks for coming. I just want to run through a few of the key components from the release today and make a few comments.
I think as you'd know by now, the figures show that our economy did contract in the December quarter, but by far less than other developed economies. Now this is a sobering but unsurprising outcome, because I think it does illustrate the full impact of the magnitude of the global recession and how it's impacting on this country.
I think it's an unsurprising outcome because it's become very obvious over the past three months how devastating the contraction has been in the global economy. And we need to put this into perspective today.
We have seen in the December quarter the biggest global downturn in living memory, and it does pay I think to just run through what has happened in a few of the economies around the world. You've seen the US, the UK, France, Germany, Italy, Spain, Japan, Singapore, Taiwan, Thailand, Korea and Hong Kong all record negative growth in the three months to December last year. And of course you've seen a very substantial slowing in China. Indeed China has slowed dramatically.
So, let's just run through a few of the figures. GDP contracted by 0.5 per cent in the December quarter to be 0.3 per cent higher through the year. Now, this is a milder contraction compared to most other countries, with GDP across the seven countries falling more than 1.5 per cent in the December quarter.
Household consumption rose by 0.1 per cent in the quarter and of course that has been weighed down by significant declines in wealth and confidence. I think without the Economic Security Strategy payments, consumption would have contracted, as it did in other developed economies in the December quarter.
Business investment growth also moderated to just 1.1 per cent in the quarter and that of course reflected the dramatic deterioration in the global economy and prospects for weaker demand and of course falling profits.
Dwelling investment fell by 1.2 per cent in the quarter, although of course the First Homeowners boost and lower interest rates are helping to support activity in 2009.
And of course the slowing in China and sharp contractions in our major trading partners saw exports fall by 0.8 per cent in the quarter.
Imports also contracted sharply, partly reflecting demand but also reflecting the depreciation in the exchange rate and of course a very large reduction in inventories which are evident in these figures.
Now, of course what the figures show is that we can't completely resist the pull of international forces, but we are still far better placed than many other nations, as this graph here shows.
Our economy has performed far better than each of the G7 economies as you can see in that graph. That's the quarterly figure, but you can see the through the year figure there as well. It once again demonstrates the better performance of the Australian economy compared to other economies in the G7.
And of course there are other strengths that we should look to in our economy; the strength for example of our banking system and financial system more generally. It's weathered this global crisis much better than any other system in any other country.
We should also recall that our housing sector is also much stronger. It's not experiencing the type of problems being experienced in most other developed countries.
And of course the other factor – and this is most important – is that our Government and the Reserve Bank have acted swiftly to stimulate the economy and support economic activity and jobs precisely at the time in the December quarter when there was this very sharp global contraction. And what that demonstrates is the wisdom of moving early and swiftly as the Government did both last October and also again this December. Because the scale of what's occurring internationally does require governments to act to support growth and jobs. And there is absolutely no doubt that things in this country would have been far worse had the Government not acted when we did with the Economic Security Strategy announced last October, but with payments only flowing through the last three weeks of last December.
But even here you can see the impact of what the Government did. If you have a look at consumption growth in Australia, it was certainly larger than it was in other G7 economies. That is, there is a very big difference between what occurred in consumption in this country compared to what occurred with consumption in the other G7 economies. It was about 0.5 percentage points stronger in the December quarter than in the average of the G7 economies. That's a very important point and it shows what could have happened here if the Government had not acted the way it acted. Because it's quite likely that without the stimulus of the Economic Security Strategy, consumption would have contracted in the December quarter in Australia as it did in may other countries.
Now, of course that doesn't mean to say there are some instant quick fix to all of this. There's no doubt that the global recession will get worse before it gets better and of course that will have consequences – human consequences – for many Australians, which is why the Government is doing its very best to cushion the worse effects of this global recession on this economy, to cushion Australians from the worst that the world can throw at us.
Now, it's worth remembering this: that there is a lot of stimulus to flow through the economy in the coming months. We are still yet to see the full impact of the Economic Security Strategy, as I said before. It began to flow for the last three weeks of December. It will flow through the early parts of this year. I think we saw in the retail sales figures for January the fact that they were holding up on top of a substantial increase in December.
Now of course we've got the Reserve Bank which has cut interest rates by 400 basis points since last September and we are yet to see the full flow of that in our economy.
And of course the Government has its $42 billion Nation Building and Jobs Plan which will provide substantial fiscal stimulus over a two year period, first of all through the payments that will flow late March and through April, and then of course the direct investment in schools, energy efficiency and social housing that will begin to flow from the beginning of the year. And recall that almost three quarters of that $42 billion package is that direct investment. I've heard some throwing around a line that somehow the Government has spent all this money and that it hasn't had any impact. Well, the fact is the $42 billion package hasn't begun yet and it is designed to flow through over the next two years precisely, as it turns out, at the time that it is needed. Because any observer of the global economy and its behaviour as we can now see in December will also discern that what's been occurring through January and February is also equally concerning.
So, I understand there'll be a great deal of anxiety in our community about today's numbers and about where things are going globally. And I guess my message to Australians today is that there are two things that are certain. The first one is simply this: that the global recession would have been worse in its consequences for Australia if we didn't act early to support jobs, business and growth. And the second one, and I think this is perhaps more important than anything else: that if we pull together, if we keep doing whatever is necessary, we can come out of this stronger than ever. There are short term challenges but this country has fantastic long term opportunities. We've got some hurdles in front of us now, but as we go about cushioning Australia from the impacts of this global recession we can put in place the policy settings – short term, medium term and long term – that can position us to take advantage of the recovery when it inevitably comes.
So, I say to Australians, your Government stands shoulder to shoulder with you during these tough times. We're in it for the short term but we're all in it for the long term because the long term is full of opportunities for our nation.
Over to you.
JOURNALIST:
Mr Swan, could I just ask you, do you think that the Economic Security Strategy was the difference between the sorts of consumption numbers (inaudible)? And also does the first two quarters (inaudible)?
TREASURER:
Well, there's no doubt that when we published our UEFO forecasts that we said all the risk was on the down side, and I think that has proved to be subsequently the case. In terms of estimates as we go forward, or forecasts as we go forward, they will be provided in the normal way through the Budget process. But getting back to the first point that you made about the Economic Security Strategy and its impact, I don't think there's any doubt that we would be looking at far worse numbers if had it not been for the impact of the Economic Security Strategy and the payments that began to flow for those three weeks during December. You can see it clearly in the retail sales numbers for December, and you can see it clearly again in the retail sales numbers that we received for January.
For there to be a three per cent plus increase in December and then have another 0.2 on top of that in January is not the sort of number that any other country in the developed world would have been really looking to. Maybe there might have been one that exceeded that. You see, there's just been such a savage contraction in global demand, it's impacting and ripping through economies in all sorts of predictable and unpredictable ways.
But retail sales figures of 3.8 per cent in December and a further 0.2 per cent in January are very encouraging.
And we shouldn't forget that there's also the first homeowners boost which I think has seen an increase of something like 43 per cent in applications for finance for first homebuyers but not in these figures. The impact of that comes through this year as the building commences.
I've also indicated up there the relative position of consumption in Australia to other G7 economies – a big difference.
And, of course we haven't yet seen the full impact of the Economic Security Strategy anyway because it was always designed to flow through in the first part of this year and, of course it's for those reasons we also put in place the Tax Bonuses and so on that are coming in March and April – Tax Bonuses in April, other payments at the end of March to buttress consumption until we can get that direct investment going.
And you can see from the company profits data here, you can see from business investment data here, why we constructed the Nation Building and Jobs Plan the way we did back at the beginning of the month.
JOURNALIST:
Household savings have jumped to their highest level in 20 years. …(inaudible)?
TREASURER:
Not at all. Can I make a number of points? This is a really important point. The first thing is you would expect to see in the circumstances that we have experienced over the last six to nine months an increase in the savings rate, and indeed that has been happening. It's been happening well before this particular set of figures. But I would say that the principal part of the increase in the savings ratio that we've seen in these National Accounts relates to those people who have had a very substantial reduction in their interest rates – in the period we're dealing with here, something like 300 basis points – and those people have either chosen to, certainly have not chosen necessarily to take the money in the pocket. They have chosen to pay off debt or they have chosen to do other things. They've kept their payments at the same level and the money has effectively been saved. That would be the principal thing I think you would see here and, yes, it may be that there is some part of the Economic Security Strategy which has been saved. And we said at the time that wouldn't be a bad thing, because to the extent that people save to repair their domestic balance sheet if you like, it takes them one step further towards consuming at some stage in the future.
So I think that there's a fair bit of evidence that consumption has followed the Economic Security Strategy. Some of it will have been saved, but I think the principal cause of the increase in savings rate we're seeing in these sets of figures are people who are at this stage saving the benefit that has come to them through a very substantial reduction in their mortgage repayments, and that's not a bad thing either. Because to the extent that confidence is an issue, and it is a very substantial issue when you've got stock markets behaving as they are and all of the other reportage of what is going on around the globe, anything that buttresses domestic confidence in that environment is also important. So, I think that simply takes you through the savings ratio.
JOURNALIST:
Mr Swan, is a recession in Australia inevitable given the position of our trading partners in the global economy?
TREASURER:
Well, I think what is inevitable is that there will be a dramatic impact of what is going on around the world. We've seen it in these National Accounts today. I don't want to have a definitional discussion about this. When growth contracts it has human consequences. You could see it in the eyes of those people who were retrenched from Pacific Brands the other day. You can feel it and hear it in the voices of people you talk to and rather than have a debate about what technically all this means, what I say is it means a very significant economic challenge for our country. It means that the responsibility is on government to do everything that government possibly can in a responsible way to buttress growth and to support businesses out there and to support employment. That's the way I approach it.
Our responsibility in this environment is to do everything we can to cushion the Australian people from the full impacts of this global recession and if we don't do that it will be longer, it will be harder and it will have even more tragic human consequences and I don't think our children will thank us for that. I want to be able to say that in the middle of this global recession I was part of a Government that was absolutely committed to doing everything it could possibly do, and responsibly do, to support employment and business and Australian families in these tough times.
JOURNALIST:
Mr Swan, the detractors of the emissions trading scheme will use this figure, no doubt, to further their argument for either the abolition or a delay. Is your resolve the same as it was yesterday on the ETS and within the timing?
TREASURER:
It certainly is. The sooner we act on this, the least cost that it actually imposes and the greater certainty it gives to investment in our economy. I talk to a lot of people about this. I talk to a lot of people in business. There's debate about the size of the parameters and so on, but the one thing that I hear from businesses, they want certainty. They want certainty. We've got our legislation, it will be coming into the Parliament, it will be going through the parliamentary process.
JOURNALIST:
Treasurer, can you just explain, you're talking about interest rate cuts and you say they haven't flowed through yet…
TREASURER:
No, no, I'm saying…
JOURNALIST:
You said they haven't flowed through yet. When are they going to flow through and how are they going to …(inaudible)?
TREASURER:
No, well they are flowing through. Some people are choosing to save them rather than spend them, that's what I'm saying. And the positive side of the increased saving rate is that some people are repairing their balance sheet and it's giving them a greater degree of confidence about the future. That's a choice they take. They've taken that choice. There's 300 basis points of interest rate cuts in this December quarter and I think the evidence is a lot of people have decided not to take that by way of lower mortgage repayments but to take it – effectively to save it or to pay off loans or whatever. That's what I'm saying. That's why I think the household savings ratio has gone up and if you were talking to the Governor of the Reserve Bank, and indeed he has said this, he has said this publicly: that's a good thing, because everything that is done in that regard to repair a balance sheet of an individual or whatever, ultimately produces a greater degree of confidence and a better outcome as we go along.
JOURNALIST:
Mr Swan, in terms of the bonus payment you're about to start rolling out in March and April, you would prefer that people get out there and start spending for Australia rather than repairing their balance sheet, wouldn't you?
TREASURER:
Misha, I'll say what I said last time about this, is that people will responsibly make those choices. I think what we saw with the Economic Security Strategy is a lot of people did responsibly make those choices. Many of you, maybe most of you weren't up for that late night debate when the Nation Building Plan went through the Parliament a while back – but even then you had the Conservatives out there saying that these payments will be gambled away, wasted by indolent people. There's no evidence of that when it comes to the Economic Security Strategy because Australians in these tough times, I think, are behaving pretty responsibly. And many of them did spend their payments and they spent it on the basics of life. They spent it on some basic repairs around the home. They spent it on buying some extra food for Christmas. That's what they did. But there's a school of thought out there that says we shouldn't be having any form of stimulus targeted at people with a higher propensity to consume; we should give it all in tax cuts to high income earners. Well, we're not in that camp. And I think the Australian people who are receiving these payments will deal with them responsibly, whether it is to go and buy something, whether it is to help pay off their mortgage or whatever.
JOURNALIST:
(inaudible) …keep some of that manufacturing onshore, if that is desirable, do you think that the Government could be persuaded to give that buyer an incentive to keep the business onshore?
TREASURER:
There's already a whole range of incentives in that area through normal operation of industry policy. This is a question that I know Kim Carr has been dealing with. I don't intend to run across what he's been doing.
JOURNALIST:
Mr Swan, the US Fed Chair Ben Bernanke said today economies won't get better until financial systems stabilise. How confident are you that other countries are willing to take the medicine Kevin Rudd outlined yesterday and do things like nationalise banks?
TREASURER:
Well, both Kevin Rudd and I, through the G20 process, want to do everything we possibly can to further that agenda, as was outlined by the Prime Minister yesterday. And we must do that because it's hard to get confidence back into the global economy when the banking systems in the United States and in Europe are in a state of disarray. And the Prime Minister very clearly outlined the nature of that challenge, why our involvement in the G20 process is important. And that's one of the reasons I'm heading off to the G20 Finance Ministers' meeting in the middle of next week – to pursue that. Because it's even harder for a country like Australia – which has got a banking system which is in good shape – to prosper the way we should when you're getting all those negative influences coming in from offshore.
JOURNALIST:
It's relatively easy for us to say they should take tough medicines (inaudible)?
TREASURER:
Well, I'm sorry, we have taken our tough medicine, and the result is a banking system in far better shape. What we want to do is play our role as good international citizens in our own interests, as well as the global interest, to ensure that we can get a decent system running for everybody.
JOURNALIST:
Treasurer, are you committed to a global initiative financially to soak up some of the bad debts and…
TREASURER:
As you know, we are co-chairing the committee of the G20 on IMF reform. There are a variety of proposals floating around about what could and should happen with the resourcing of the IMF and so on. I can't really comment ahead of all of that, but it depends on the architecture that is established. But I don't see the IMF being directly related to the question over here, which was about toxic banks and what national governments will do in their countries to solve those problems.
JOURNALIST:
Mr Swan, you said last week that the Government was looking at executive salaries beyond the APRA-regulated institutions. Have you made any more progress on this, and if not, what sort of timetable would you expect for these options to be considered?
TREASURER:
Well, as I said last week, we are looking at all the options. I'm not putting a timetable on it. We do take the issue seriously. There's been a fair bit of work progressed in the financial services area. That's proceeding, and that is going actually into the G20 process. As regards the other areas of industry, we're working on options there and we'll keep you posted.
JOURNALIST:
Isn't it the case, though, that there aren't any real options? You can't control what happens outside of the finance industry.
TREASURER:
Well, you are correct to say that there aren't any easy options, and there's no simple solution to this problem where it involves commercial contracts. But despite all of that, Matthew, and the hurdles that you've just identified, we are continuing to work on it.
JOURNALIST:
What about higher tax? Would that be attractive?
TREASURER:
Well, I'm not going to speculate about what the…
JOURNALIST:
Treasurer, with GDP looking weaker than seemed likely only four or five weeks ago…
TREASURER:
Even two weeks ago.
JOURNALIST:
…even two weeks ago, is it also the case that the Government's tax revenue will be weaker than seemed likely four or five weeks ago?
TREASURER:
Well, it's all got implications for the Budget and for revenues and for growth. There's no doubt about that. We can go back and go through the story we've discussed in this room many times. Revenues were written down between the Budget and UEFO by $115 billion. That's a stunning figure. So, there will be further flow-throughs I should imagine. I'm not going to speculate about the quantums. That is a measure of the magnitude of the events we're dealing with. It's really that simple, and that's why we're going into a temporary deficit principally – nothing to do with the spending of the stimulus packages, although that is a small bit on top.
JOURNALIST:
Can you provide any guarantees on the Budget, any of the priorities? Is everything now on the table?
TREASURER:
Well, certainly it does have implications for priorities in the Budget, but over and above that, as you know, Dennis, we don't speculate about what those priorities are as we go through what is a very detailed, long, painstaking process of putting a Budget together, which is the process we're in right now. And I'm not going to speculate about that. But it's just a really tough environment – tough environment for business, tough environment for working Australians, tough environment when governments are trying to put budgets together.
JOURNALIST:
Since last October, you and Kevin Rudd have been saying constantly that you're going to throw everything at this to see Australia through. Given that we have now gone today backwards, what do you say to Opposition claims that the stimulus packages (inaudible) wasn't properly targeted?
TREASURER:
Well, the Opposition's only approach is simply to sit on their hands and do nothing. The evidence is to the contrary. The Economic Security Strategy was well targeted. We would have been looking at substantially worse figures today if it wasn't for the Economic Security Strategy. And if the Opposition had had their way – as it turns out, even though they said they supported it on the day, they have opposed it ever since then – then there would be more Australians unemployed, and the sort of data we're looking at here, which has given us a relative advantage, would not look as good as it did. It's that simple. Australia would be worse off if it wasn't for the Economic Security Strategy put in place. And Australia will be better off because the Government put in place our Nation Building and Jobs Plan in early February, and that also was in place at a time when it was needed, as it turns out. The problem here is you have long lead times, and at least we've managed to get the architecture of the response in place just as these things were beginning to evolve, when many people disputed it.
You see, Mr Hockey and Mr Turnbull have both said that we have over-hyped the global financial crisis and the global recession. Well, here's the consequences. They don't understand the problem, and as a consequence of not understanding the problem, they can't be and won't be part of the solution.
