SUBJECTS: National Accounts; ACTU Congress; Joel Fitzgibbon
Thank you. Today in the midst of the worst global economic recession in three quarters of a century we have good news for the Australian economy although we are not out of the woods yet.
Let's go to the core of what the national accounts data has to say to us today. Australia is the fastest growing economy of all the major advanced economies. Australia has the lowest debt and deficit of all the major advanced economies and Australia is the only advanced economy as of today not in recession.
The second point which I believe we should emphasise is how has this come about? I believe the good figures that we see for the Australian economy today, underpin the fact that Australian business, small business, tradies, workers, unions, have been out there doing their bit for the Australian economy, shrugging off the negative sentiment which has come from around the world off the back of the global economic recession and got out there generating economic activity and growth at a time when it's been very, very hard. And that's a tribute to them.
The second point is that the Government's economic strategy has been at work as well. And Government together with business, together with workers and unions has had a philosophy from the beginning that we are all in this together. The Government through its cash payments to pensioners, carers and others has kept the Australian economy going while the private sector is in retreat and until such time as our infrastructure investment kicks in.
Our economic strategy has been in three stages to respond to the impact of a global recession. The first phase is cash payments to pensioners, carers, veterans and to families to inject support into the economy when the global economic recession hit hardest in the fourth quarter last year.
Phase two of the Government's economic stimulus strategy has been to invest in medium term infrastructure, the biggest school modernisation program in Australia's history, and investment in more than 20,000 units of social housing, the biggest expansion of public housing the country has seen. And the large scale investment in energy efficiency measures in Australian homes.
The third phase of the Government's economic strategy is long term infrastructure investment. The National Broadband Corporation, ports, rail, roads as well as our investment in clean energy initiatives as well. And they spread out over into the future.
We have done this deliberately one stage after another to try and provide support by way of investment and injection of activity in the economy while the private sector is in retreat. It's been the right strategy under very difficult, global economic circumstances.
Of course had we pursued a strategy recommended by Mr Turnbull not to invest and not to provide payments, cash payments to pensioners, carers and others, Australia would be in recession today. We are not out of the woods yet. There is a lot by way of difficulty and obstacles which lie ahead of us. This is the worst global recession in three quarters of a century, we will face higher unemployment in the Australian economy and we are not guaranteed that we won't see negative growth in the future. These are tough times.
The Government however has acted early and decisively with an integrated economic strategy to make a difference to cushion Australia from the worst impacts of this global economic recession and today it represents some good news for the Australian economy at a time when the global economic recession is producing mayhem across the wider global economy. Over to you Treasurer.
Yeah thanks very much Prime Minister. Look this is a very strong outcome for our nation and it really does show what we can do when we all pull together. I think it's a tribute to the resilience and the courage of our people in the midst of this global recession, the worst that we've seen in something like 75 years.
Now it's the case that almost every advanced country is going backwards. And in that environment Australia is going forwards. That is something that is very important when you look at these figures. We have the strongest growth of any advanced economy in the world and that's a combination of the national effort that our people have put in as well as the economic stimulus, those cash payments the Prime Minister was talking about.
Now we're not out of the woods yet as the Prime Minister was saying, we are yet to feel the full impacts of the global recession. It has some way to run and it will certainly still be impacting on jobs here at home. And jobs will continue to be lost as we are battered by this global recession, so we are not for one minute complacent about the rocky road that lies ahead.
But what we do know is that we can make a difference and that we can cushion Australia from the worst effects of this global recession and that is why these figures today are so welcome.
I just wanted to spend a couple of minutes running through the figures. GDP rose by 0.4 percent in the March quarter and is 0.4 percent higher over the year. Now let's just put these figures into perspective. This is the strongest outcome of any advanced economy in the world as you can see in the chart there. The strongest outcome of any advanced economy in the world.
Now in the midst of this global recession look what is happening in other countries around the world. Japan's economy contracted by four percent, the UK by minus 1.9, the US by minus 1.5, Germany minus 3.8, France contracted by minus 1.2 and of course this week Canada contracted by minus 1.4. All up the major advanced economies contracted by 2.2 percent.
Now, the stand out figure in today's data is the positive result for consumption, a positive result for consumption here when you consider the weaker results for the rest of the economy. What these figures confirm is that the first stage of the Government's economic stimulus plan, our cash payments to families, to pensioners, to carers and veterans have cushioned Australia from the global recession and they have done this despite the deterioration in the global economy.
What occurred here? Household consumption rose, rose by 0.6 percent. Household consumption rose by 0.6 percent. And without the cash payments Treasury estimate that our economy would have contracted by around 0.2 per cent in the quarter and you can see that in the graph up there before you.
And let's just look for a minute at December. Without the stimulus, in December, the economy would have went backwards by minus 1.1 per cent. It went backwards of course by minus 0.6. That shows you the difference that stimulus made in December and of course look at the March quarter.
It would have been minus 0.2 per cent in the March quarter if it hadn't been for our economic stimulus. So that graph, I think demonstrates more than anything else in these figures, how important the cash stimulus payments have been.
Because essentially what they have enabled us to do is to avoid further job losses and they have saved the jobs of thousands of families, and breadwinners, in our community.
As I said earlier, we are certainly not out of the woods yet and you can see that also very clearly in the figures before us today.
Let's just go through a number of important figures which point to the rocky road ahead. New business investment fell by 6.3 per cent in the quarter, as businesses have been scaling back spending in the face of weaker global demand.
This of course absolutely reinforces the case for our nation building investments. The shovel ready projects that are in the system and the road, rail and port that was announced in the Budget.
But the other stand out figure here is the collapse in commodity prices. That has seen the terms of trade fall by 7.8 per cent in the quarter. That is the largest quarterly fall in 35 years, in 35 years. And of course that has hit our export earnings hard and whilst it is the case that volumes have held up, export earnings fell by $6 billion in the quarter.
That is the third biggest fall on record. Now of course dwelling investment also fell by 5.6 per cent in the quarter but as you know, recent data suggest more support for housing activity in coming months, from our first home owners boost and of course the record low interest rates.
So today's figures demonstrate that the Government's economic stimulus is working and it is positioning Australia as the best performer in the world. And of course much more of our stimulus is yet to flow. The Prime Minister was talking about phase two and phase three of our stimulus. Phase two is rolling out, 35,000 projects across the country in schools and energy efficiency, housing and so on.
So I think it is a pretty important day for Australia and it is not one I don't, I think we ought to be too political about. But I think, if this data demonstrates just one thing, the negative strategy out there of our opponents, to oppose stimulus, is completely shredded by these figures today.
These figures today show what the resilience of the Australian people can do when it is combined with a government that has a battle plan for the future and understands the challenges ahead.
(inaudible) different ways of measuring, I would be interested to know whether you and the Treasurer think that we are in recession or whether we are likely to get into recession?
What we have done today is avoid a technical recession. The figure speaks for itself. As I said before in my remarks, we are not out of the woods yet. Regrettably, unemployment will go up because we are part of a global economic recession.
The Treasurer has also just made reference to the extraordinary corrections in the terms of trade and therefore it is going to be difficult yards ahead. Key thing for us though is to have a battle plan.
Key thing for us is to have a strategy. We have been implementing that strategy amid some controversy in the last six months. We believe that strategy is having effect.
To cushion the impact of this recession, we cannot avoid it in terms of its total effect, but to cushion the impact.
(inaudible) the impact of the stimulus to date. Given that we are looking at a very long period of sluggish growth, what are the forecasts on a quarterly basis for the impact of the stimulus in the period ahead.
Essentially, when does the spending that you have already got in place, run out and will it run out before the economy actually starts to pick up again.
Well I think the boost to GDP from stimulus in the system for '09 – '10 is 2.75 and I would have to check the figure for the subsequent year.
No it is rolled out over a couple of years. If you take our nation building and jobs plan, essentially that really kicks in from about mid year. We have been out there working really hard. We have had a coordinator general who has been driving what is going on in terms of investment in schools and so on.
The social housing is coming on. So there is a very significant stimulus coming through in '09 – '10 and it has a tail in '10 – '11. So there is a very significant stimulus still to come.
It is all accounted for in the Budget, its impact on the Budget is there for everybody to see in the papers. So a lot more of the stimulus is yet to come but it is in that vital area of direct investment.
What the cash payments have done have filled the gap that was caused when the global economy contracted sharply and demand fell through the floor. We have seen now with the payments to pensioners, to families, to carers and to veterans, have actually worked.
And what is clicking in now is that direct investment in shovel ready projects, the 35,000 I talked about before, plus, over the longer term, some of them in this immediate period, the investment in road, rail, port and clean energy.
In our planning of this, going back to when we began deliberating on this in third and fourth quarters last year, we have deliberately introduced our economic stimulus strategy in stages. Remember our earliest advice from the Secretary of the Treasury when the, around about the time of Lehman's week, had given the unfolding dynamics then, what was the responsible course of action for government?
Go hard, go early, go households.
We responded to that advice, amid some controversy at the time. That was phase one. Particularly critical, fourth quarter last year, the first quarter this year and into the second quarter this year.
Then phase two, which we announced primarily in February with an earlier announcement in December on infrastructure. But the February announcement on infrastructure of what we describe as medium term infrastructure projects, schools primarily, but also social housing – all have a lead time in terms of getting the planning right and getting the preparations right, but are beginning to kick in now.
I was in Darwin the other day, looking at defence housing already under construction. A large slice of the houses for that particular estate were coming directly off the back of the February announcement, within about three months.
But the huge surge of activity from this medium term infrastructure will be in the financial year ahead. And of course we then have the tail of the program which follows.
But we have deliberately staged this economic strategy with one level, taking over from another level, taking over from another level in order to provide the best possible protection to the Australian economy on the way through to try and ensure that the impact of this global economic recession is as shallow and as short as possible for Australia and that unemployment is kept to the absolute lowest level possible using every measure that we could possibly deploy.
Prime Minister, were you wrong then to say that Australia had been dragged in to recession when you did just (inaudible)
The global economic recession is out there and it's unfolding. The Treasurer and the earlier data reflected what's actually occurring out there in the global economy with every major advanced economy currently in recession. That will continue to have its effect. That's why we're not out of the woods. I make no apology whatsoever for being conservative in our projections. We need to make...and for the fact that we have from the beginning been very upfront with the Australian people, about the degree of global economic threat we faced and about the urgency of the measures which were necessary to reduce the impact here amidst considerably controversy. We believe that our strategy is right for the times. Always there's going to be controversy about elements of it. We accept that. But in terms of being at this stage of the process and being able to produce numbers like this in partnership with the Australian community shows that we are headed in the right direction, but we are not out of the woods yet.
Prime Minister, the key part of the Opposition's critique of your approach towards this has been the size of debt that you will accumulate. Is it fair to say that you guys see that the debt we will accumulate is a fair price to pay for protecting a large number of jobs and do you after today's figures feel more secure about the level of debt that you raised (inaudible)?
Matthew, we believe our strategy's been right from the outset. And the reason for that is that we have been acutely conscious of the degree of economic challenge here. These have been very focused conversations within the government about how we reduce the impact of this global recession on Australia. It's a word which rolls quickly off people's lips, but when the data is reinforced globally to say this is the worst synchronised economic downturn in three quarters of a century, it is that. Therefore the measures which must be taken in response to it must be extraordinary as the circumstances we face are extraordinary. And therefore, go back to the numbers. As of these national accounts, Australia is the fastest growing economy of all the major advanced economies. We have the lowest debt of all the major advanced economies, we have the lowest deficit of all the major advanced economies and we're the only major advanced economy at present not to be in recession. This I believe is a powerful case.
Can I also go to the negative fear campaign being run by those opposite on the question of debt and deficit. It's - at the end of the day and just rests on a falsehood, a falsehood that if they were in government at the moment that they would do anything substantially different on the question of debt and deficit. You've heard them say it might be $25 billion less. You've heard them say it might be $21 billion less. This is ultimately underpinning the falsehood of the proposition which is being put by them because what are the facts? We have the lowest net debt of all the major advanced economies. We have had our AAA rating reaffirmed since the budget has been brought down. Furthermore, they indicate when pressed that their bottom line on debt and deficit would be virtually the same as the government's. But still, they feel driven to run a negative scare campaign on debt and deficit. This is where it's dangerous. It actually has an effect on public sentiment, the public mood. And therefore when I say their strategy is to talk the economy down, I mean it. That's exactly what its effect would be unless it's corrected against the facts.
We're looking at a world where the international economic rulebook has been torn up. And one of the consequences of that is a revenue collapse to the Commonwealth government of $210 billion. The only responsible thing to do in those circumstances is to borrow to support employment, to support business. And of course the only responsible thing to do is to also put into place economic stimulus as we've done because we do appreciate the enormity of the challenge that we face. The irresponsible course of action is to engage in populous politics. Ignore the fundamental strengths of our balance sheets and ignore the fact there's been a revenue write down of $210 billion including in 08-09 where it was the worst since 1931. If they ought to be taken seriously and they believe that we shouldn't be borrowing, they should outline what services they are going to radically cut or what taxes they are going to radically jack up.
Before I take the next one just here. Let's go again to what the Treasury have said today. They estimate that the Australian economy would've contracted in the March quarter by around 0.2% absence the government's stimulus payments. That is the direct answer to the negative campaign being run by the Liberal Party about cash payments to carers and to pensioners and to families. It is the difference between being in recession and being not. That is the truth here and the other truth is, the ultimate falsehood underpinning what the Liberals would do in the same circumstances were they in government.
That's why ultimately responsible national leadership requires at a grave time of global economic crisis not to engage in fear campaigns which are baseless in terms of debt and deficit. The lowest net debt of all the major advanced economies, AAA rating reaffirmed, I think it's time like the rest of the economy to come together. We are all in this together. Businesses are out there doing the right thing. Small business doing the right thing, tradie's doing the right thing, workers, unions doing the right thing. Pushing the economy forward in partnership with government, local government and state government. We're doing the right thing trying to make a difference. Now I challenge those opposite to get with the program, not talk the place down.
Don't the figures today show that the Treasury forecasts are a bit pessimistic? (inaudible)
We have been kicking around this country for three weeks about our forecast being too optimistic, when they have in fact been absolutely realistic. And of course I believe that the data today shows how realistic they have been. Because the data today points to those areas which are very challenging for us over the next two years, the collapse in business investment. Go back to the CAPEX figures last week and what they predicted in terms of future investment. Look at what's happening to the terms of trade. All of those things indicate the nature of the threat the threat that the country faces for some time to come. And you know, I can go to bed at night and sleep now knowing, knowing that we've made a very significant difference here. The Australian people working with the government have made a big difference.
Look, that's the sunny side but we've got a long way to go yet. And what we have to do is be realistic.
Remember 70 percent of the government stimulus investment is in nation building infrastructure, schools of the future, public housing, rail, road, ports, high speed broadband. These are the things Australia wants to look back on and say ‘here are the things that turbo charged productivity growth in the future.' Step back just for one moment before I take the next question from Phil which is what we sought to do apart prevent an economic cataclysm in this country coming off the back of the global economic recession is at the same time act through our investment strategy to underpin the drivers of long term productivity growth.
That's why there's such a huge emphasis on investment and education skills and training, in universities, in higher educational research, in TAFEs, as well as the infrastructure investment. Why? We know for a fact that infrastructure and skills investment are the two classical drivers of long term productivity growth. And what's been the abiding structural weakness of the Australian economy in the last decade or so? A declining productivity growth factor. That's why we've sought to mesh our long term economic strategy with the stimulus and investment strategy now. But for the first six months it's been necessary to provide support through cash payments in order to underpin the numbers of the type we've seen today.
You'll be addressing the ACTU Congress tonight-
As I'm advised.
With these figures as a backdrop to that speech, will your message still be one of constraint, as it has been before to the union movement, with regard to wages and so forth?
Absolutely, and we have seen restraint on the part of a number of unions in relation to difficulties we face in the economy now. Let me give you one example. Yesterday I was in the Parliament, and I know Senator Carr spoke publicly with the CEO of General Motors here in Australia. What's happened with General Motors has involved a lot of collaboration between unions and management to wrestle with the current economic circumstances, preserve jobs, intelligently work with training opportunities to try and see that industry through, and we've been partners in that as well. So, there's been great examples of restraint, but we must continue to see restraint as well in what's going to be a difficult period ahead. We are all in this together, and that involves the unions as well, and we are working closely, of course, with the business organisations.
Treasurer, could you tell us what you consider to be the greatest external downside risk to the Australian economy at the moment, and how serious you consider that to be?
Well, let me give you some optimistic answers as well. I mean, one of the good things that has happened in recent times is that the financial system in the United States appears to have stabilised, and I think you can see some of the impact of that in financial markets. But the roll-through of this event into the real economy is still occurring and reverberating around the world, and you can see that in the very sharp falls in the March quarter across both developing and developed countries in Europe, but also particularly in Asia, and that all comes back to this country in one form or another.
So, that has a fundamental impact on business investment – down 6.3 per cent in these figures. And I mentioned earlier the CAPEX figures from last week. Big fall in the terms of trade – down 7.8 per cent. That's the largest quarterly decline in 35 years, and as you know, more to come because those contract negotiations are coming up, particularly for coal. So, I think we can expect to see further reductions in our national income. And if you go to the budget estimates there, they are reasonably realistic, but you might call them pessimistic.
So, we've got falling export prices as well, and that's going to impact on our export earnings.
There's been a lot of commentary around about exports and the figures that were out yesterday. They are encouraging, but one of the reasons why those figures were so good yesterday was we saw a dramatic fall in imports, which it in itself reflects the overall weakness in the global economy.
So, all of those things are very big challenges. The very biggest challenge is the withdrawal of private sector investment, and that's why we have moved so decisively and so swiftly through shovel-ready projects in the nation building and jobs program first, and then after that in the Budget into our investments in road, rail and port. And our ambition is to work with the business community and the workforce to make sure that we can ensure as much of that investment that can happen actually happens.
(inaudible) to have a look at what's happened in Australia and mimic some of the policies that you've been undertaking.
We're never in the business of providing public lectures to anybody else. I mean we've got a lot to work on ourselves, and as I've said repeatedly and as the Treasurer's said, we are not out of the woods yet. We have a long way to go. I think the stabilisation of the global financial system remains a key priority. The Treasurer rightly points to evidences of stability in America. We still have significant challenges in Europe. Those of you who were with us at the G20 in London will know that one of the concerns of a continuing nature which we and others have is the stabilisation of financial markets and institutions within Europe, and that represents a very large slice of global financial flows. That's one factor.
Another factor, to respond to your earlier question, Dennis, also we need to be alert to is where China goes in the long term transformation between a growth model resting primarily on export driven growth, a classic East Asian development model, against another model which combines that with increasing reliance upon domestic consumption, and the sustainability of that domestic consumption drive over time.
This is going to be a very difficult transformation for the Chinese leadership, and we should be respectful of it as it's being executed, because its consequences don't just affect China domestically, it affects hugely the unfolding pattern of global demand as well. So, what happens in China in terms of that transformation over time is critical.
What happens also in Europe, and let's just always keep the weather eye on this, to make sure we avoid some outbreak of global protectionism. The great resolution that we had at both the Washington summit and at the London summit was to draw a line under further protectionist measures across economies which represent about 85 per cent of global trade.
The huge lesson from the 1930s is to not allow any such outbreak – so far so good. But let me tell you, political pressures will continue to rise in various countries of the world and we must remain resolute as an international community, which is why I look forward to attendance at the Pittsburgh summit which is now being convened by President Obama for this September. It will be important to reaffirm that global political resolve because we cannot allow an outbreak on that score.
Just on that, I believe that this represents a modest breach of the pecuniary interest guidelines. I'm unhappy about it. The Minister's done the right thing – gone to the Parliament and made a statement and apologised to the House.