Press conference, Canberra
JIM CHALMERS:
The Australian economy is slowing in expected ways as an inevitable consequence of higher interest rates and global economic uncertainty. That's why we've seen GDP expand by 0.2 per cent over the September quarter to be 2.1 per cent higher through the year. This is because of higher interest rates, high but moderating inflation and continuing global economic uncertainty, including in China – this is slowing growth in our economy.
Our economy is resilient in parts but we know that these are hard times for a lot of Australians. Household consumption was flat in the quarter with Australians having to make even more room for mortgage repayments. People are stretching their incomes further and we saw the household saving rate declining to 1.1 per cent, the lowest since 2007. This softening in household consumption isn't surprising and the outcome this quarter actually partly reflects the positive impact of the government's cost‑of‑living measures and that's because energy bill relief, our support for early childhood education and other measures have the effect of reducing household spending in the National Accounts measure and they are regarded as government consumption.
We need to put this 0.2 per cent quarterly figure into perspective – we know that people are doing it very tough because of higher interest rates and international uncertainty but we are more broadly making welcome and encouraging progress even as our economy slows in expected ways. Inflation is moderating, wages are rising, we've had two consecutive quarters of real wage growth, the gender pay gap is the smallest it's ever been, unemployment has a three in front of it, we've had faster jobs growth since we were elected than any major advanced economy, we've got the first surplus in 15 years and much smaller deficits going forward, that means much less debt and tens of billions of dollars saved in interest costs as well. Our economy grew faster than most of the major advanced economies through the year to the September quarter – faster than Germany, the UK, France, Canada and Italy. It was also really quite pleasing to see wages growth pick up with the compensation of employees measure growing 8.4 per cent through the year. Business and public investment was also a key driver of growth in the quarter – contributed 0.2 percentage points. New business investment grew by 0.6 per cent in the quarter to be 8 per cent higher through the year. This measure has increased in every quarter since the election and by contrast, new business investment did not grow in any quarter of the first term of the former government. We continue to see a welcome boost from the arrival of tourists and international students with services exports growing 36.1 per cent through the year.
So in these complex and difficult circumstances, our fiscal strategy, our approach to tackling the inflation challenge has been endorsed by the IMF, the OECD, Deloitte Access Economics, Fitch, Westpac, the RBA Governor and others. Despite the hard times for many people in our country and despite our economy slowing, we are nonetheless making some welcome and encouraging progress, particularly in the fight against inflation. Our plan is designed to see Australians through these hard times and to set our economy and our country up for lasting success.
JOURNALIST:
Treasurer, how does the drop in the savings income ratio concern you about how households are coping financially with the current economic conditions?
CHALMERS:
Well, I think the household savings ratio is one of the ways that we know that people are doing it especially tough. People are in aggregate saving a little bit, no longer saving a lot. We have seen that number come down in recent times. We don't need that number to tell us that people are doing it tough, but it's another indication that they are.
JOURNALIST:
Real disposable per capita incomes have now fallen for eight quarters straight and they're back to December 2015 levels. How many years is it going to take for Australian living standards just to get back to where they were before the pandemic?
CHALMERS:
One of the key things there when it comes to household incomes is this welcome pick up in wages growth and some of the measures of incomes and incomes per capita would be much worse were it not for the government's efforts to get wages moving again in our economy and in our country. In a difficult set of numbers, the wages growth stands out as a positive and that's because for too long now, people have found it especially tough. That's why we're rolling out our cost‑of‑living help, it's why we're getting wages moving again and that's why we're pleased to see the strong wages outcomes in these National Accounts.
JOURNALIST:
One of the measures of productivity was the GVA per hour. Small increase in the quarter – is this the start or a trend do you think given the concerns about wages and pressures and costs?
CHALMERS:
This is a welcome uptick in productivity but we're not getting carried away by one quarter's numbers. This productivity challenge is an entrenched one. The decade to 2020 was the weakest out of the last six decades when it comes to productivity growth in our economy – we don't pretend that we can turn this ship around quickly when it comes to productivity growth in our economy but we do believe we give ourselves the best chance of that if we get the energy transformation right, we get better at adapting and adopting technology, we broaden and deepen our industrial base and we get the human capital part right in ways that we've outlined in our Employment White Paper. So we welcome the uptick in the productivity growth figure today, we greet it with some perspective, we know there's lots of work to do to turn around what has been an entrenched challenge in our economy for too long.
JOURNALIST:
Can you give us an update on the multinational tax avoidance legislation – it encountered some problems in the Senate.
CHALMERS:
We're in negotiations in the Senate about our multinational tax package. It beggars belief, frankly, that some of the crossbenchers and the Coalition want to take longer to get to the right outcome on multinational tax. Every dollar of tax avoided by multinational corporations needs to be picked up by ordinary working people – we need to recognise that and we need to do more than that, act on it, and we've put a proposal to the Senate which is based on a lot of work, a lot of consultation. We'd like to see it passed. We're realistic about the Senate, we know that we need to negotiate things through and that's the case here.
JOURNALIST:
Just on the compensation of employees, I guess that's partly because of the superannuation guarantee, the award wage decision and also because of continued tightness of the labour market. Do you expect compensation of employees to continue running at the rate it is now?
CHALMERS:
That remains to be seen but let's not lightly dismiss the good outcome that we got for people on the minimum wage as part of that. I don't see that as some accidental quirk of the figures – that's the outcome that we sought and it's true also in aged care. We make no secret of the fact that we want to see wages growing in responsible and sustainable ways in our economy but we need them to grow more strongly than they have over the course of the last decade where stagnant wages were a defining feature of our predecessors’ economic mismanagement. We want to see wages growing again, we're pleased that we see some indications of that not just in today's National Accounts, but more broadly as well in the Wage Price Index and that's because we have deliberately sought a decent increase for people on low incomes, we've put in place an increase for workers in the care economy. This is part of our overarching cost‑of‑living plan because we see wages growth in our economy as part of the solution to cost‑of‑living pressures, not part of the problem.
JOURNALIST:
During the September quarter, economic growth has slumped. It's gone from 0.4 to 0.2 so it's halved in the September quarter. It's about half what analysts were expecting as well. It's been a really sharp and unexpected slowdown, essentially in the September quarter, and this is before the RBA hiked rates again. So have officials, the RBA and Treasury essentially underestimated the impact of much higher interest rates and the cost‑of‑living crunch on Australians and on the economy more broadly?
CHALMERS:
I will speak to my part of this and then I'll leave the Reserve Bank to explain their part of it. When it comes to our forecasts or the Treasury's forecasts, we have anticipated for some time a substantial slowing in our economy as the inevitable consequence of higher interest rates and global uncertainty. We'll update the forecasts in the usual way in the mid-year budget update, we would have done that regardless of the number that we received today. But broadly, we have expected a substantial slowing in our economy and it is slowing as we expected it to because when you put this many interest rate rises into the system and you have all of this global economic uncertainty, we have expected for some time that that will slow growth in our economy. Now, obviously, this is a backward-looking measure. This is for the September quarter, and the economy was already slowing in the September quarter. Consumption was already flat in the September quarter before the most recent interest rate rise and the Reserve Bank can explain what if anything today's outcome means for their own forecasts, I've explained what it means for us.
JOURNALIST:
Household savings haven't been as low since 2007, are you concerned that at this end of the year period, Christmas-New Year, is really going to push families to the edge and is there anything more that your government is committed to doing before the end of the year to try and help with that?
CHALMERS:
I think in the people-facing part of the economy, these cost‑of‑living pressures are still our biggest challenge and that's why we're rolling out $23 billion of cost‑of‑living relief in 10 different ways to try and take some of the edge off these pressures without adding to inflation. We know from the ABS, whether it's rent, electricity, early childhood education, that our policies are taking some of the sting out of these cost‑of‑living pressures and that's what they're designed to do. The ABS said that our policies took half a percentage point off inflation in the most recent data, and again, that's what we intended them to do. And so it's pleasing to see that, that those policies are helping, but we know that people are still under pressure and we always anticipated that the second half of this calendar year would be where people would be under substantial pressure and that's why we timed our cost‑of‑living relief and targeted our cost‑of‑living relief the way that we did. People are under pressure, they would be under more pressure, were it not for the welcome wages growth and were it not for the government's cost‑of‑living plan. It beggars belief in that context, that the Opposition voted against our cost‑of‑living plan and they voted against our plans for higher wages. That means in the context of a slowing economy and cost‑of‑living pressures if Peter Dutton and Angus Taylor had their way inflation would be higher and wages would be lower.
JOURNALIST:
The tax take is up pretty strongly. Are you alive to some of the squeeze on households from the income tax bracket creep?
CHALMERS:
One of the reasons why the revenue has been stronger is because more people are working more and earning more. And when you've got more people in work, working more and earning more, then that has implications for the tax take. The alternative to that, which Peter Dutton and Angus Taylor seem to be alluding to, is that their policy to get taxes down will just see more people out of work and earning less. No wonder we had the sorts of outcomes that we had that for the best part of the decade, they don't seem to understand that a big reason for the way revenue has recovered in our budget – and you'll see some of this in the mid-year budget update – is because more people are working more and earning more. We want people to earn more. That has implications for the budget but our primary reason for wanting that is so that people can meet the cost of living and provide for their loved ones.
JOURNALIST:
For several months now, the union movement has been telling Australians that the main cause of the inflation has been flowing through the economy for the past almost two years is due to corporate profiteering and margin increase. Your own Treasury and also the Reserve Bank suggest that that's not the case and that the analysis those claims are based on is flawed. Does your government have a particular view on the underlying causes or whether one of those institutions – the Treasury and the RBA, or the union movement is – correct?
CHALMERS:
One of the reasons why we've instituted this Competition Review is to make sure that competition in our economy is one of the ways that we put downward pressure on inflation. There are broadly five different ways that we go about prosecuting this fight against inflation: the Reserve Bank's got their job to do with monetary policy; we've got cost‑of‑living help; we've got budget restraint; we've got investments in the supply side of the economy; and we've got competition policy. We are working across our four fronts simultaneously. We don't want businesses to gouge their customers, not at Christmas, not at any time and so we need to keep the pressure up. The primary reason for that quarterly inflation figure that we got last time was oil prices and petrol but it wasn't the only source of inflation in our economy – that's why we are so dedicated, so determined, and so focused on all of the different ways that we can put downward pressure on inflation. We know that the fight against inflation is not won but we are making welcome and encouraging progress, and one of the reasons for that is the combination of our policies.
Thanks very much.
