Treasurer Scott Morrison talks about the GDP numbers as Australia breaks the record for the longest time without a recession
Ross Greenwood: I want to go to Australia’s economy right now, and tell you about Australia’s economy which has grown 0.3% in the first quarter of this year. It is to be honest sluggish. It’s not what you would hope; it’s not what you would want. And it certainly doesn’t necessarily live up to some of the forecasts that are out there from the government, from the treasury, from the reserve bank, that Australia’s economy will grow between 23/4% and 3% this year and certainly this financial year.
Let’s try and work out just what is the cause of this and where we go from here. The Treasurer, Scott Morrison, is on line right now. Many thanks for your time Treasurer.
Scott Morrison: Good day, Ross.
Ross Greenwood: Just explain to me in regards to the economic growth. I think everybody would agree that that is subdued. It is below par. There are certainly reasons for that. Do you think this is something that is short term, or something that you are concerned is ongoing?
Scott Morrison: Well, you’re always concerned. You always want growth to be higher. But at the budget, Ross, our forecast for this current year was one and three quarters, and we do it in quarter increments. Today’s figures comes out at 1.7. What the GDP figures show today was pretty much exactly what we are anticipating for this year. When I talked about there being better days ahead, I meant better days in the future.
What we’re talking about today is the March quarter figures, which happened before the budget was even handed down.
The data we’ve seen over the last three-quarters has been what I’d call quite choppy. We had one-quarter which was a negative quarter growth. Then we had in the next quarter in December which was over a full percentage point, which was quite strong. In this latest quarter we’ve seen it at 0.3. Things have been moving around a bit. but within all that though, we have seen something very important and that is the improvement in new business investment.
Now, for 12 successive quarters, new business investment has been going backwards. In the last two-quarters, it has actually gone forward positively, and that is a very welcome improvement.
Ross Greenwood: Take me through a couple of other bits and pieces here because clearly the reliance on the housing industry and housing construction has been an important part of the budget. Now, we do understand that cyclone Debbie will certainly cause some problems for the overall economy, will slow down the economy, in particular coal exports is the problem there.
But given the fact that the government and also the banking regulators have tried to at least cool down and take some of the heat out of the housing market, that is translated into a slowdown in home building. That then plays out into these economic growth numbers which slow down. It’s almost you can’t have it both ways. Can you in some ways?
Scott Morrison: One is dealing with house prices and the other deals with construction. What we do have in dwelling investment is a good strong pipeline, building approvals, residential building approvals have been growing now for some time, so there is a strong pipeline of work.
In particular, in New South Wales where there was weather affected areas. That’s obviously going to have an impact on the on the actual work done in that quarter. In Western Australia, there was particularly a wet season there in the quarter, which really did impact on minerals resources exports. We saw this some years ago.
Ross, you’ll remember when the Port of Newcastle was shut there for a while because of those terrible storms. Now, that had a fairly significant impact on export growth at the time. These things happen from time to time, and they will affect the numbers. Cyclone Debbie will actually probably have more of an impact on the June quarter because it came right at the end of March.
All that means that the numbers have moved about a bit. But the good news is that we are seeing business investment starting to pick up, and the world forecast are continuing to improve. How global organizations like the OECD, the IMF, and even at home, the Reserve Bank, they are all forecasting, not just the government, a return to real growth at about 3% over the next couple of years. There’s nothing fairly startling about where treasury is debating where the economy is going, compared to say the reserve bank, or the IMF, or the OECD or any of those organizations.
Ross Greenwood: What’s interesting today you said we don’t take growth for granted. That’s an important aspect of this, isn’t it?
Scott Morrison: Yes.
Ross Greenwood: Because it is one of these points where you got to work for a growth, and you’ve going to have the innovation in place inside the society and the confidence inside the business community, to invest to create the economic growth. Because generally, the government does not create the true confidence in the economic growth. It only creates environment.
Scott Morrison: Well, your businesses create growth. Businesses have to be growing and expanding and making stronger profits and getting their investments in place. That’s why it was frustrating for the first nine months of this financial year. Remember the tax cuts for small and medium-sized businesses finally got passed right end of March. We had the Labor party jumping up and down about growth, but then every single day in the parliament, voting against tax cuts for small and medium-sized businesses. Now, I’m pleased that we saw that come through at the end of March. And what we saw very soon after that, was a very strong uptick in the business confidence figures and conditions in the NAB surveys. So that’s welcome.
But you can’t take any of this for granted. You’re not going to see the economy growing more by taxing small businesses more. That’s why we’ve got the instant asset write-off, that’s where you can write off $20,000 in new investment in your business in that full tax year. That’s been extended another 12 months. It’s for businesses up 10 million in turnover. That’s five times the turnover it used to be.
Ross Greenwood: In other words, you’d expect a bit of spending between now and the end of the financial year given that incentive that’s out there for businesses up to a medium size.
Scott Morrison: Yes. That extension, even for the current financial year, we couldn’t get through the Parliament till the end of March, so there was a nine-month delay. That’s why today I said, “Look, we’ve got our plan”. Which means more competitive taxes, a big infrastructure spending program over the next 10 years. We’ve got the work we’ve already been doing on innovation startups.
I noticed on your report tonight Ross on Channel 9, you were talking about some of those new technology orientated financial services companies. That is an area of very strong growth. We’ve been doing a lot of work in that area to try and ensure the regulation is a lighter touch so some of these new companies can get up and going and not be weighed down by excessive compliance costs.
Ross Greenwood: Before we go any further, I just want to take you back to one aspect of the household savings right now. Today the chief economist of the Australian Bureau of Statistics Bruce Hoffman, he did point out that the household savings ratio was falling the 4.7% in the March quarter, which is half the rate it was in the March quarter of 2013 so four years ago. Does that imply to me that there is a bit of pressure inside households because we know wages aren’t growing? We know there’s underemployment out there, and as a result, some households are potentially having to dip into their savings to basically keep their lifestyle going.
Scott Morrison: Well, there is a couple of points here. The first one is that the household savings ratio is positive, which means households are saving. They’re now saving at a rate which is about what it was before the GFC. Chris Bowen was making a point today that people were dipping into their savings as if the savings ratio was negative. Well, it’s not; it’s actually positive. It’s been coming down now for a number of years. But it is true people wouldn’t be saving as much as they were previously.
But I wouldn’t say the savings ratio is at an alarming level. It’s at the level it was before that the global financial crisis, before those storms hit. Now, when you see a financial storm hit, you will often see people increase their savings ratio literally. They’re saving for a rainy day. People will retreat into their cave. We’ve seen householders continue to be quite resilient in this economy, and this is a good thing. The Australian economy’s performance has been quite remarkable. We saw that land mark hit today. But what matters now, is what happens for the next 25 hits.
Ross Greenwood: That’s so true. I was going to ask you that question. Because a person leaving tertiary education in 1991, or 1992 let’s say just after the last recession. Let’s say they were 19 or 20, they’re right now 45 or 46 years old. That person or anybody younger has never worked through a recession in Australia in our history.
The question is by the time that person turns 71 or 72, which is another 25, 26 years time, do you think that person will have ever seen a recession during their lifetime?
Scott Morrison: Well, I would certainly hope so. I’m sure 25 years ago — and more people didn’t think what has happened over that period of time was possible. But it is, and it has happened. You’ve probably heard them say, yourself Ross, people go, “All those younger people haven’t known a recession. Well, they need to know one. And the economy needs to go under one”.
Ross Greenwood: Sometimes I say politically that you need a recession to get the reforms done, the big changes that you actually need to do. But-
Scott Morrison: [crosstalk] recession on Australia. That’s what I find that suggestion that when people make that I just shake my head and go, “No, we don’t want a recession in Australia”. Of course, we don’t. We work hard to make sure both the policy settings are right to ensure that that doesn’t happen, and people work hard every day.
Ross Greenwood: Explain why we don’t want a recession in Australia. Why is it that a recession would be a bad thing for this country?
Scott Morrison: Because people would lose their job, and businesses would go out of business, and people’s incomes would fall. There’d be very serious economic hardship. Now, you don’t wish that on the country. What you do is you seek to continue to grow the economy as we are.
Some people suggest that in terms of how more quickly we should be returning the budget to balance. But I think the fact that we’ve maintained a very strict program to get the budget back to balance by 2021, which means we’ve been keeping the pace right to bring us back to balance has enabled the economy to grow in difficult times without actually undermining its performance by some of the measures that others have suggested.
Ross Greenwood: All right, but I will say don’t you imagine sometimes there’s a bit of complacency in the overall community. In others words, they will hold governments to account by voting in minor parties in the Senate and as a result, you’ve got to navigate your legislation through those minor parties. They leave the Senate pretty much hung, so you can’t really govern and make key decisions that could make Australia more productive and better into the future, change the tax system, to do the really bold stuff at the OECD, the IMF, many others are encouraging you to do.
Even the last budget was a concession that you could not get through the Senate some of those big spending cuts that the Government thought were necessary to get us to the next phase of where we needed to be. Isn’t that one of the things that must frustrate you as a politician?
Scott Morrison: Well, things are frustrating, but that doesn’t mean you wish a recession on the country. That I think is a fairly extreme reaction. What you do is you find other ways to get there, which is what we did in this budget. Yes, we had to deal with the fact that $14.7 billion of measures we were trying to get through the Senate, we couldn’t get through, so we found another way to get there. We’re bringing the budget back into balance in 2021, just as we were projecting to before. But we’ve had to go another way. What I did say today was is it important that the parliament I think sobers up to some of these issues.
There was a significant cost of not going down the path we were previously going down, but we found another way to get there. We have a budget in front of the Parliament now, which we are asking them to support because we need the certainty of that. We need the certainty of having those more competitive tax rates for business to come and invest. We need the certainty around energy policy, so there can be some stability in energy pricing and lower and more affordable energy bills for the householders and for businesses in particular, who are facing very steep increases.
The reason they’re facing those steep increases is the real lack of certainty and stability about energy policy which we’re working very hard to try and achieve, but we need the Labor Party, we need the states and territories, we need the Parliament to actually come to the table and agree to these sensible measures.
Ross Greenwood: Yes, it’s a pretty tough game. I got to tell you because trying to be decisive when you’ve got Parliament as it is is very difficult. Just one last one I want to leave you with is off subject in regards to GDP. And that is today that the former US Director of National Intelligence, James Clapper, said he would understand if Australia’s spy agencies withheld intelligence from American counterparts because Donald Trump could not be trusted to keep it secret. But he also talked about rising Chinese influence in Australia. Just let me play this from James Clapper today at the National Press Club.
“But China is very active in intelligence activities directed against Australia, just as they are against us, and that China is increasingly aggressive in attempting to gain influence in your political processes as Russia is in ours. Australia should engage with China with both caution and confidence, eyes wide open, weighing its strategic and economic interests, never forgetting the importance of its democratic institution and values that you share with us”.
Scott Morrison is a senior member of our Parliament and this would go to both sides, all sides off politics in Australia. Are you concerned about the influence of outside parties into our political processes, and in particular into election campaigns?
Scott Morrison: I think we’re very alert towards it. I would agree with everything he just said. I would strongly argue that’s the approach certainly the Australian Government takes in relation to these issues. We are very watchful, but at the same time, we have a very pragmatic and positive relationship with China, but we’re not naive about these things at all. All members of Parliament I think have to ensure they’re very vary about these sorts of issues and ensure they’re behaving appropriately.
Ross Greenwood: That would mean knowing where their bills are being paid, I would have thought as well.
Scott Morrison: Of course, we had the issue with Senator Dastyari which is being brought up again. He resigns, and he went off to the sand bed for a little while. But I’ll tell you what, he’s had a rehabilitation faster than most. I don’t know if that really reflects well with those issues have been taken seriously by the opposition. This is a very serious issue. You have to be very guarded and mindful about it.
My responsibility as treasurer go to the foreign investment decisions that are made, and I’m very careful about these things. I have been criticized heavily on occasion for knocking back investments both by China’s firms, state-owned enterprises and others. I make no apologies for that. But there have been other occasions where I’ve made positive decisions. But I can assure the Australian people that on every occasion, it’s the Australian national interest that’s most paramount in my mind as it always must be.
Ross Greenwood: Scott Morrison, our Treasurer, always great with his time here on Money News. Scott, we appreciate it this evening.
Scott Morrison: Thanks Ross. Good to be with you as always.