Treasurer Scott Morrison talks about the state of the economy, and the RBA keeping the cash rate on hold at 1.5%
Introduction: Treasurer Scott Morrison RBA Decision
Ross Greenwood: Treasurer, there’s no surprise the Reserve Bank has left interest rates on hold today. There’s also its forecast about the gradual improvement in the Australian economy. Do you take confidence from that?
Interview: Scott Morrison, Treasurer
Scott Morrison: Yes, I do. It’s consistence with what we’re seeing as well. What we’ve seen from the bank today in their decision to keep rates where they are is not just a continuing stability, I think, where things are at, but an oRoptimism about where things are headed. They’ve reinforced that view that we’re coming right now towards the end of the ‘pull out of the mine’ investment boom.
We’re seeing good conditions for businesses which they’ve acknowledged. On top of that, we’ve got an improving labor market. Some 175,000 jobs was recorded in the most recent monthly statistics. We’ve had that very strong month in May of employment. We see in the employment situation improve.
You put that together with the strong retail sales figures that we saw today as well. I think there’s great cause for the view that there are better days ahead as I’ve said in the budget, but you can’t take them for granted. You’ve got to keep making the right choices to secure them.
Ross Greenwood: Given the fact the Reserve Bank and the Government are forecasting better days ahead, do you think now that it would be prudent for people with loans and mortgages, if they were paying off those loans as though the rates already were higher today on the off chance, of course, that rates in the future will be increased?
Scott Morrison: One of the things that we’re addressing also, Ross, is the high level of household debt. That’s one of the reasons for the changes that the regulator made on interest only loans that not only takes a bit of the heat out of the top end of the housing markets in Sydney and Melbourne, but getting the focus back on paying down principal on debt is a very important one.
I think that’s always a good decision. That’s what your mom or dad had tell. It’s pretty good advice whether is for a country or it’s for someone paying down a mortgage. To be able to do that where you can is always a good call.
Ross Greenwood: Can you describe for me where you believe the Australian economy is right now? It’s not paring along. It’s certainly not going backwards. How would you describe the Australian economy?
Scott Morrison: Well, Australia’s being fighting for every inch of growth since the GFC. We’ve done that against some pretty tough conditions. The most significant being we’ve had mining investment in this country have as a share of GDP in a very short period of time. The Reserve Bank government the other day has said that we’re really coming to the end of that episode in our economy. We are diversifying pretty significantly.
We’re seeing good strong performance in our services sector whether here at home or particularly overseas with our exports. We are seeing some real vibrancy in some of our new technology sectors. It’s that diversity that is really becoming the source of growth for us into the future. You also see new sectors particularly in the human services area, the health sector, the education sector.
Again, all of these, providing very important sources of employment for people, but at the same time, important sources for growth in our economy. Today’s resell sales figures were encouraging because it wasn’t just on the basics, it was on things like household items, it was on cafes, and restaurants, and things like this.
Which does show a bit of a confidence coming back, and people being prepared to go out there and participate in the economy. I know businesses will welcome that particularly in the hospitality sector.
Ross Greenwood: Normally, you’d be critical of the banks if they were moving interest rates out of cycle. Do you think right now that the banks are acting in sync with the regulators and the Government’s policies? Are you happy with the bank’s performance?
Scott Morrison: Well, over the last 18 months or so, what you’ve seen is a real increase in the spread of rates between interest only loans and principal in interest. That’s a deliberate action of policy from the regulators. We know why that’s being done. We had some overheating markets because of the imbalance between supply and demand, particularly in Sydney and Melbourne.
When you have that as the principal cause of why house prices are rising, and then you’ve got a factor on top of that with investors, making the right choices to limit that interest only loan growth has been a smart one from the regulators. We’re seeing it is having an impact.
It’s having an impact without having to sledge hammer a cost to the economy that more extreme measures like abolishing negative gearing and things like that we know would have. Not just in Sydney and Melbourne. In Perth for example and Adelaide where prices have either being going backwards or flat, the impact on their economy is there, for things like that would be dreadful.
I’d note for principal and interest only mortgages, there are banks which are now cutting their rates, five, six basis points. I’d welcome more of that, and see the people paying down on the principal. That means the pendulum is swinging back in the favor of owner occupiers as well.
Ross Greenwood: Treasurer as always we appreciate your time.
Scott Morrison: Good on you, Ross, thank you mate.
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