Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 3 September 2015
JOHN MCGLUE: Now those economic figures released yesterday. Pretty sobering. If we didn’t know it already the Australian economy is slowing and is now barely in positive territory. Economic growth of just 0.2 per cent for the June quarter. The economy now perilously close to moving into negative territory. The Government spending has kept the economy above the water for the June quarter, for the time being. But a critical factor in all of this, the broader measure of economic wellbeing for individuals, what they call this real net national disposable income. That’s fallen again, in negative territory. Down 0.3 per cent in the June quarter, down 0.7 per cent over the past year, seasonally adjusted and its 1.1 per cent. Of course sitting behind all of this, private sector investment has gone into reverse. With me is the Federal Finance Minister, Mathias Cormann. Welcome to the program.
MATHIAS CORMANN: Good morning.
JOHN MCGLUE: How concerned are you now that Australia is heading for negative economic growth in this quarter or in subsequent quarters?
MATHIAS CORMANN: We’re optimistic about the outlook moving forward. The Australian economy continues to grow despite the biggest falls in our terms of trade in fifty years. Where other commodity based economies like Canada and Brazil are in recession, we continue to grow. Western Australia in particular this last quarter has performed quite well. 1.5 per cent growth, the second biggest growth in the country, just after the ACT. I would also like to correct one of your statements in your opening comments. Government spending growth is lower than what it was when we came into Government. What we’ve been doing since we came into Government in 2013 is implement our plan for stronger growth and more jobs. That has involved making the economy more competitive, bringing down the cost of doing business and getting rid of some of that lead in our saddlebag that the previous Government had put in, like the carbon tax and the mining tax, reducing red tape costs for business by $2 billion, rolling out our record investment in infrastructure across Australia, including in Perth, with the $1.6 billion investment in the Perth Freight Link project. That is why we are pursuing the free trade agreements with China, Japan and Korea, to enable Australian businesses to get better access to these key overseas markets and be more successful and employ more Australians.
JOHN MCGLUE: The broad indicator of economic wellbeing, not my words, that’s what the bureau of statistics calls it, the real net national disposable income, it’s now falling. It’s down 1.1 per cent year on year, seasonally adjusted. It was rising when Labor left government. Why has it fallen like this over the past two years?
MATHIAS CORMANN: When we came into Government, we inherited a weakening economy, rising unemployment and a Budget position which was rapidly deteriorating. So the forward trajectory that we were on was very bad. We have been working to turn that situation around. If you look at the indicators, there are actually a lot encouraging indicators in the national accounts and in the economic data recently released by the RBA as well. Employment growth for example is stronger than had been anticipated. The unemployment rate is lower, it is now forecast to be lower than had been anticipated. Indeed wages growth is now growing stronger than inflation again, which means that wage earners are now getting into a better position in terms of their living standards.
JOHN MCGLUE: But Mathias Cormann, the figures don’t lie and they are saying that Australians are less well off now than they were two years ago. That is indisputable. That is what the bureau of statistics is saying. That is that broad measure of economic wellbeing and we’re worse off now than we were two years ago. That’s what the figures seem to say.
MATHIAS CORMANN: We are going through a very significant transition in our economy. Our terms of trade have fallen the worst in fifty years. We are a trading nation. Western Australia is a trading state. What happens to global prices for our commodities, which we don’t control matters to us. When you’ve got exports like for example our iron ore exports, which represented 21 per cent of our national export income and the price goes from a high of $180 a tonne down to in the $50s, that is going to have flow on effects on the economy of course ...interrupted
JOHN MCGLUE: But you’ve been saying for the past 24 hours that Australians are better off now than they were two years ago. How is that justifiable?
MATHIAS CORMANN: No, you are actually misquoting me there, you are verballing me there with all due respect. What I have been saying over the last 24 hours is that Australia today is in a better position than we would have been if we had not shed some of that lead that the previous Labor government put into our saddlebag. If we had not focussed on making sure that we were in the most resilient position possible to deal with the external challenges coming our way. External challenges will come our way from time to time. Largely they are beyond our control, whoever the Government of the day is. What we need to do and what this Government is focused on doing, is to ensure that we are in the strongest possible position to deal with those challenges and in the best possible position to take advantage of opportunities that will no doubt come our way down the track. That’s why we have to continue to work on improving productivity, improving our international competitiveness, bringing down the cost of doing business and that is exactly what we are doing.
JOHN MCGLUE: It’s nineteen to nine you’re with John McGlue ABC local radio and Mathias Cormann the Finance Minister my guest. 1300 222 720 and what Senator Cormann is saying is that he believes that Australia is in a better position now than it was two years ago, to withstand ...
MATHIAS CORMANN: That’s not what I said John, what I said is that we are in a better position now than we would have been if we had not made some of the changes that we have made. Given the challenges we are facing that are beyond our control, the challenges that we would have faced whoever was in Government, we are now in a better position than we would have been if we had not got rid of the carbon tax, the mining tax, reduced red cost tapes for business and so on. That is the important point here, because other commodity... interrupted
JOHN MCGLUE: Well I tell you what, let’s test that with our audience Senator, let’s see if our audience agrees with you. 1300 222 720. You have set out very clearly your position on that. I am curious on this though, Labor left the building two years ago. How much longer are you going to continue to blame them for the stuff that is happening on your watch? This is all on your political balance sheet now.
MATHIAS CORMANN: I’m not blaming them at all. It is a matter of historical record that when we came into Government in September 2013, the economy was weakening and unemployment was rising and the Budget position was rapidly deteriorating. Since then, it is also a matter of public record that the price for example for iron ore has fallen dramatically from $120 per tonne when we came into Government to in the $50s per tonne around about now. That has had massive implications in terms of economic growth as well as in terms of revenue for the Government ... interrupted
JOHN MCGLUE: But hasn’t, but...
MATHIAS CORMANN: We are working our way through these things. These are things that would have happened irrespective of who is in Government. The point is if we hadn’t made sure that we were more match fit, if we hadn’t made sure that we shed some of that lead in our saddlebag we would now be in a worse position than we are. Our economy continues to grow, where other commodity based economies facing the same challenges we are facing like Canada and Brazil are now in recession.
JOHN MCGLUE: What you did say before coming in is that a Liberal Government would be a shot in the arm for business, a shot in the arm for investment, but the reality, and again, we have the ABS statistics last week showing that private sector investment in Australia has gone into reverse. There is a mountain of cash in Australia privately held, held in super funds, big investment funds, but it doesn’t have the confidence to go and invest. Now the Liberal Government was supposedly really good for investment confidence, for investment sentiment. Why has it dipped so much again, on your watch?
MATHIAS CORMANN: Again, I guess I can say it again. The reality is this, we have faced some significant external challenges. We are a trading nation and prices for our key commodities like iron ore, coal, oil and gas and others have fallen dramatically in recent times. Now, whoever was the Government today, that would have been the same circumstance because in Australia, as a trading nation, we don’t control what happens to global commodity prices. The point that I am making is ...interrupted
JOHN MCGLUE: But what you do has a big impact on investor sentiment here in Australia. I mean, the biggest fund manager based here in WA is a company called Packer and Co., you’d know the principal of this company well, Willy Packer, fine fellow, used to sit beside him on the dealing desk.
MATHIAS CORMANN: He’s a very fine fellow. I know him very well.
JOHN MCGLUE: Yeah okay. He’s a big Liberal party supporter. In his latest investment report he lists where his money under management is invested. $1.3 billion of it, almost all Western Australian people who have invested with him, $1.3 billion, and almost all of that money is invested offshore. Not in Australia but offshore. Which is where he believes the best returns are to be had. What does that tell you about the level of confidence in the Australian economy?
MATHIAS CORMANN: I’m not going to talk about specific financial advice provided by individual fund managers. But what I would ...interrupted
JOHN MCGLUE: No, it’s not advice, that’s where he’s put the corpus of money on behalf of West Australians, and almost all of it overseas.
MATHIAS CORMANN: I was about to answer your question, John. I was about to answer your question. Again, I’ve gone through this on a number of occasions now this morning. There is no doubt that we’re facing some external global economic challenges, given that prices for our key commodities are very low. If you take iron ore and if you take a resource which represents, a fifth more than a fifth of our national export income, with nearly 100 per cent of it coming out of our state here in Western Australia, and the price of that resource goes from a high of $180 a tonne to in the $50s per tonne, actually it was in the $40s at one point, that’s going to have an impact. In the context of making comparative assessments, when you’ve got trading economies, when you’ve got resource based economies, when the demand for resources is high, when prices for these resources are high, everything is going very well. When prices for these commodities are not going so well then you are facing a more challenging period. The important point is that you’ve got to make sure that in the good times, you prepare yourself for the more challenging times. That you ensure that you are as competitive as possible. The previous government, instead of making sure that we were as competitive as possible and you can try and say that this is me trying to blame the Labor Party but it is true, they put more and more lead into our saddlebag, making us less competitive by imposing a tax on the mining industry at the worst possible time, by imposing a carbon tax which made us less competitive internationally at the worst possible time, by imposing more than 21,000 new pieces of regulation, which pushed up the cost of doing business in Australia. So all the while taking our past performance for granted by the previous government, they put our economic future in jeopardy. We’ve been working over the last two years to turn the situation around. What I’m saying to you is that the position that we’re in today would be much worse if we hadn’t done all of the work that we’ve done over the past two years.
JOHN MCGLUE: Final question for you Mathias Cormann, you mentioned the productive infrastructure the Government is investing in. The second stage of the Perth Freight Link, controversial, bit of a cloud over it. As best you understand it, as best you know it and you controlling the purse strings in many regards, is it going ahead, the second stage of the Perth Freight Link as it’s currently contemplated.
MATHIAS CORMANN: Absolutely. I’m very confident. I’ve had a lot of conversations with the State Government in Western Australia. I take a very close interest in that very important infrastructure project for Western Australia. I’m very confident that both stages of that project will be proceeding by next year.
JOHN MCGLUE: Good to talk with you, thank you for your time.
MATHIAS CORMANN: Always good to talk to you.