Senator the Hon Mathias Cormann
Minister for Finance
Senator for Western Australia
STEPHEN SEDGEWICK: The Australian economy has been affected by the slowdown in another part of the BRIC acronym. That is China of course. Australian consumer sentiment in the last twenty-four hours dropping in January due to recent global market turmoil and worries over China. This according to a survey by the Melbourne Institute. The index showed a 3.5 per cent fall in December. However the reading stood higher than a year ago. And the Aussie Dollar I’m afraid has fallen probably 16 per cent against the Greenback in the past twelve months. And Geoff’s half introduced Mathias Cormann. So we’ll do it properly, Mathias Cormann, Finance Minister of Australia, very nice to see you sir.
MATHIAS CORMANN: Good to be here.
STEPHEN SEDGEWICK: How do things stand? I mean look, Karen Tso your fellow countryman was talking about the basic resources at the wall and the concerns there. Geoff was talking about some of the concerns from China as well. How do things stand from your point of view?
MATHIAS CORMANN: The Australian economy is clearly an economy in transition from resource investment driven growth to broader drivers of growth. We are in our twenty-fifth year of continuous growth. So that is a great achievement by the Australian economy. Despite all of the challenges, with significantly lower prices for our key commodities, our economy continues to grow. 2.5 per cent over the past twelve months, which is above the OECD average. Employment growth is pretty strong at 3 per cent, with an unemployment rate of about 5.8 per cent, well below the OECD average of 6.5 per cent and below what was previously anticipated.
STEPHEN SEDGEWICK: But what is interesting from my point of view, you mentioned that Australia is an economy in transition away from just resources and I thought that was interesting because some economies want to get away from manufacturing and industrials and resources and I think this has been forced upon Australia. I don’t Australia wanted to diversify away did it?
MATHIAS CORMANN: We’re not diversifying away from resources. Part of the reason why our economy continues to grow strongly is that our export volumes when it comes to resources have actually increased very strongly. That is on the back of significant resource investment in recent years. But the automatic stabilisers in our economy are kicking in. Lower commodity prices means, among other things, a lower value for the Australian Dollar, which helps make other parts of the economy more competitive internationally. On top of that the Australian Government is very focussed on improving our competitiveness by pursuing a growth friendly tax reform agenda, by pursuing reductions in costs for business through an ambitious deregulation agenda, we have been pursuing an ambitious free trade agenda, entering free trade agreements with China, Korea and Japan and pursuing a very ambitious infrastructure investment program. So there are a whole range of things that are happening in the Australian economy that are all facilitating the transition, which will help ensure that growth continues.
GEOFF CUTMORE: Policy wise is it time for a change though, because governments previous to this one have increasingly tied Australia to China’s growth and China is starting to slow. So is it time for you and other Ministers to get on the road and tell the world that there is another strategy that’s not just China.
MATHIAS CORMANN: China will continue to be very important to the Australian economy. And 6.9 per cent growth in 2015 is broadly in line with what was anticipated. The IMF in Lima in October last year projected 6.8 per cent growth. China said they could do slightly better. They came in at 6.9 per cent for 2015. By international standards that is still very strong growth. We understand what China is working to achieve. They are going through a transition, which was always going to be difficult along the way, from infrastructure investment driven growth to domestic consumption and services driven growth. We understand what they are working to achieve. And of course the China-Australia Free Trade Agreement is very much trying to take advantage of those opportunities of increased domestic consumption, increased reliance on services growth by pursuing exports into those areas beyond resources, in particular when it comes to agriculture and services.
GEOFF CUTMORE: But was it a mistake to tie Australia too closely to the resources story in China?
MATHIAS CORMANN: Absolutely not. The Australian economy is an open trading economy. We take advantage of the opportunities that present themselves to us. There was a very strong demand for our key resources and strong demand leads to higher prices at any particular point in time. So our iron ore exports, our coal exports, our LNG exports and the investment that came into the productive capacity of Australia in those sorts of industries has been very important to our economic growth for some time. Looking forward, as the global economic outlook changes, as the demand in the global economy changes, we are nimble and agile enough to adjust and to take advantage of those opportunities as they present themselves.
GEOFF CUTMORE: But would easier monetary conditions assist the economy at this time where we see the resources sector slowing so quickly?
MATHIAS CORMANN: Our official cash rate is at a record low. We do have low interest rates, we have low inflation, we have low wages pressure. The Government is very much focussed on improving our international competitiveness across the economy, we are pursuing an ambitious innovation agenda. We believe we are doing all of the things that we need to do to ensure we are as resilient as possible in the face of external shocks, but also in the best position to take advantages of opportunities in our region.
STEPHEN SEDGEWICK: Mathias we have got to leave it there. Really nice to see you. Thank you very much indeed for taking all the questions. Mathias Cormann the Finance Minister of Australia.