Senator the Hon Mathias Cormann
Minister for Finance
LEIGH SALES: Australia's economy grew at half the pace experts expected in the June quarter. Over the past year GDP has been at 2 per cent, well below the growth trend rate of 3.25 per cent. The Australian Dollar plunged to a six year low when the national accounts data came out today, ending up at 70 cents US. With me now from Perth is the Finance Minister Senator Mathias Cormann. Senator, is Australia heading for a recession?
MATHIAS CORMANN: No, Leigh. The Australian economy continues to grow, despite the biggest fall in our terms of trade in about fifty years. While other commodity based economies like Canada and Brazil are in recession, we continue to grow. We're certainly in a stronger position than we would have been if we had not got rid of some of these anti-jobs, anti-investment, anti-growth policies of the previous Labor government.
LEIGH SALES: You bring up Canada, let me draw a comparison. We've got a similar unemployment rate, possible housing bubbles in major cities, both currencies falling more than 20 per cent against the US dollar, ultra low interest rates, which mean monetary policy can't do much more heavy lifting and a similar reliance on commodities as a percentage of exports. As you mentioned, they're in recession, why wouldn't we follow suit given all those common factors?
MATHIAS CORMANN: We came into Government facing a weakening economy, rising unemployment and a Budget position that was rapidly deteriorating. We came into Government with a plan for stronger growth, more jobs and to repair the Budget. We are implementing that plan. That plan is focused on making sure that our economy is as competitive internationally as it possibly can be, bringing down the cost of doing business and improving productivity. That is why we got ...interrupted
LEIGH SALES: But even, sorry, sorry.
MATHIAS CORMANN: That is why we got rid of Labor's carbon tax. That is why we got rid of the mining tax, why we’ve reduced red tape cost for business by more than $2 billion a year. That is why we are rolling out our record investment in productivity enhancing infrastructure. That is why we are entering into those key free trade agreements with key markets, which will help businesses, Australian businesses get better opportunities to grow into those markets and create more jobs here in Australia.
LEIGH SALES: But even with all that you've outlined there, Minister, if not for a boost in Government spending last quarter, this would have been a negative result. Two negative results and you're in recession territory?
MATHIAS CORMANN: Firstly, to pick you up there, spending growth now is lower than what it was when we came into Government. We inherited spending growth of about 3.7 per cent above inflation, now. ... interrupted
LEIGH SALES: But that's actually tangential to what I'm saying. I'm saying if not for the Government's spending in the past quarter, you would have been in negative territory.
MATHIAS CORMANN: If you're suggesting that if it wasn't for the Government's economic plan for stronger growth, more jobs and to repair the Budget we would be in a weaker position, that is certainly true. But we are not ...interrupted
LEIGH SALES: No, I'm not suggesting that. I'm suggesting the economy is generally weak and the Government activity is propping up what is a very weak economy.
MATHIAS CORMANN: The economy continues to grow. The economy is in a stronger position than it would have been if we hadn't got rid of all the lead that the previous government put in our saddlebag at a time when clearly we were facing a set of geo-economic challenges. We are dealing with a significant transition in our economy, given that we are dealing with the biggest fall in our terms of trade in about fifty years. Given all of the external challenges that we're facing, on the back of our economic plan for stronger growth and more jobs, the economy is performing better than other similar economies in other parts of the world and that is surely good news. But what we need to do is we need to keep working to lift productivity, to bring down the cost of doing business and to ensure our economy is as competitive as possible moving forward.
LEIGH SALES: Senator, one of the high profile Budget items this year was the $20,000 cash back for business expenditure. Isn't there a risk that that sort of one off expenditure might prop up figures for a few extra quarters but then it’s going to run out and you are going to be in the dreaded negative growth territory coming to an election.
MATHIAS CORMANN: What you're calling a cash back is actually a tax cut for small business. What we have said in the Budget is that we would let small business have more of their own money and for the Government to collect less of their money from them, so that they can invest it in their future success, so that they can be the most successful they can be and employ more Australians along the way. Small business is the engine room of the economy. They are employing a significant proportion of the Australian workforce and...interrupted
LEIGH SALES: But Senator, sorry to interrupt, you're not addressing my point, which is ...
MATHIAS CORMANN: I am.
LEIGH SALES: That sort of a program is perhaps masking a weaker figure that we could be expecting in a couple of quarter’s time when the effects of that program stop being felt?
MATHIAS CORMANN: You are quite wrong. That program in the Budget is part of a broader, long-term economic plan. It has got a whole series of elements, a number of which I have already mentioned on your program tonight. There is more to this. The next important part of our plan to ensure our economy is as competitive as it can be, is to pursue comprehensive tax reform and in the lead up to the next election we will be putting a tax reform package to the Australian people, which as part of our second term agenda will continue to put Australia on a stronger economic and fiscal foundation for the future.
LEIGH SALES: Senator, one of the key ways that living standards are measured are via real net disposable income per capita, this is the third consecutive year that growth has been negative. Isn't that a clear indication that for the average Australian things are going in the wrong direction?
MATHIAS CORMANN: I don't agree with this. We are dealing with a transition in the economy, given that the terms of trade are falling to the largest extent in about fifty years. Having said that, wages are growing above inflation. That means ...interrupted
LEIGH SALES: But wage growth is very, very slow.
MATHIAS CORMANN: And inflation is very low as well. There is a whole range of developments in the economy. The fundamental point though is that the economy now is in a stronger position than it would have been if we hadn't implemented our plan for stronger growth and more jobs. Our economy would be in a worst position if we had stayed on the bad trajectory that we were on when we came into Government.
LEIGH SALES: On that trajectory that you're on, when Labor left office unemployment was 5.8 per cent, it's now 6.3. Growth was 2.5, it's now 2 per cent. The Australian Dollar was 92 cents now it's 70 cents. On those Labor numbers the Coalition said we were in the grip of a Budget emergency, so what are we in now then?
MATHIAS CORMANN: I think you ignore some very basic realities when it comes to the impacts of economic policy. When Labor lost Government we were on track for an unemployment rate of 6.25 per cent at the end of June 2015. We actually came in quite a bit better than that, at 6.1 per cent. The Reserve Bank ... interrupted
LEIGH SALES: It is going up.
MATHIAS CORMANN: Actually, that is not right. Employment growth, that is actually one of the very encouraging indicators in the national accounts and it has also been picked up by the Reserve Bank Governor in recent times, employment growth is quite strong. Much stronger than when we came into Government. More than 4 times as strong as when we came to Government. Indeed the unemployment rate is now lower than what was anticipated in the past on the back of better labour market conditions. So our economic plan is working. Our plan for stronger jobs growth is working. It is true that we've got stronger workforce participation now in the economy. More Australians are coming back into the workforce. We have got the highest level of female workforce participation since ABS records were kept, which is a very pleasing development but that means that we've got to just continue to work harder to strengthen growth and create more jobs.
LEIGH SALES: Senator, we're out of time, unfortunately. Thank you very much for joining us.
MATHIAS CORMANN: Always good to talk to you.