Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

From the very beginning of the major economic downturn, when we had the collapse of Lehman’s, the government has sought to define this as the worst financial crisis in 75 years. And that argument morphed into a domestic threat, rather than it being an external threat which needed to be dealt with. I cannot help but reflect on two things: firstly, the economic data which was released today; and, secondly, the broader issues relating to the direction of the economy.

Firstly, there was some interesting data that was released today, apart from the headline GDP figure. I want to draw the attention of the House to page 9 of the national accounts, which has a table reflecting the terms of trade. What you will note is that the terms of trade actually continued to grow over 2008 to record levels—so much so that, as of today, the terms of trade are far more favourable to the Australian economy than at any time during the so-called mining boom during the years of the Howard-Costello government. The terms of trade today, on this graph, are more favourable to the Australian economy than at any other time under the previous government. That is today. And that, of course, has helped cushion the Australian economy from the full impact of the global economic downturn.

Secondly, the Australian financial system does not have major financial institutions in distress—in fact, all four of the major Australian authorised deposit-taking institutions are in the top 12 of the world’s performing banks. That is something that has not been achieved before. It would have been extraordinary to suggest that Australian financial institutions would have a bigger market capitalisation than the 800-pound gorilla Citigroup, which has over 300,000 employees and a balance sheet of enormous scale. It would have been extraordinary to believe that the Australian banks would be larger than Citi, but that is what the global financial meltdown has done—it has changed the dynamics. So (1) Australia has had incredibly favourable terms of trade; and (2) it has had extremely well performing financial institutions. And, when it comes to the public finances, it was the coalition that left this government in the very best shape directly as a result of getting the budget into surplus, with hard yards all the way along but particularly in the 1996 budget—which many of us well remember.

Thirdly, this government inherited an economy with strong fundamentals such as low unemployment, even though it has risen dramatically from four per cent to trend unemployment of 5.5 per cent, and they have inherited a vibrant small business economy.

So when the results came out today it was perfectly clear that the government, through its massive cash splash, has not only put Australia into a level of debt that we have not experienced since World War II, but the government may have bought itself a little bit of time to claim that it can get through a technical definition of a recession. But when you actually look at the details of the figures you can identify that even though on this occasion Australia, thankfully, has avoided the technical definition—more the media definition—of a recession the fact of the matter is that there are some fundamental issues that are of concern.

The government has been quoting a number of economists. There are only two economists who, two weeks ago, were predicting that this would be a positive quarter: Barclays and Deutsche Bank. I declare an interest with Deutsche Bank, although I do not often agree with Tony Meare. The interesting assessment from Tony Meare at Deutsche Bank today is:

The things that matter—demand and income—were exceedingly weak in quarter one as the table presented below suggests. While the absence of two consecutive quarters of negative GDP growth will confound the media’s simplistic technical definition of a recession, the detail of the report clearly reveals the progression of Australia’s recession that commenced in the third quarter 2008 and is continuing into mid-2009 as the corporate sector increasingly retrenches.

It is a very interesting piece. To add to it, take UBS, another major global bank. UBS said:

However, the weak state of the economy in early 2009 is evident when extracting the external sector, which added 2.2 per cent to GDP in the quarter. Domestic demand fell one per cent. Non-residential construction was down 4.3 per cent. Housing investment fell 5.6 per cent. Equipment investment was down 9.6 per cent.

The government says that everything is okay—mission accomplished, they have done it all. Yet the fundamentals behind the headline figures are a major ongoing concern.

JP Morgan, another not inconsequential major global bank, said that business investment tumbled 6.1 per cent and that the seven per cent slump in import volumes in the March quarter contributed, as did the overall net export figure, to the very significant improvement in the GDP. The most interesting detail in the JP Morgan advice is that the details of the GDP report painted a rather gloomy picture.

Economists will argue, but the fundamental point is that we are now all arguing today about how deep the hole will be. There is a hole and it is deep and someone is going to have to help Australians to get out of the hole. The only way you can get Australia out of this hole is if you have the capacity to lift people out of adversity when it really matters. It is perfectly true, I think, from this data to now recognise that our economic destiny is closely linked—even more closely linked—to Asia than it is to Europe and the United States. This is the interesting thing that comes out of today’s data. You can have an extreme economic meltdown in Europe and even in Japan and the United States, but Australia’s economic future is very closely linked with our Asian neighbours.

The fundamental point we are arguing about debt rests on our capacity as a nation to come out of this downturn. What we cannot discount under any circumstances is that our friends and our neighbours in Asia, who are both our clients and our competition, will throw everything at the economic recovery: lower wages than anything paid in Australia and lower taxes than anything charged in Australia. They will stimulate their economies aggressively to come out of this economic downturn, and the Australian government will not have any juice in the tank to be able to compete in our region with our clients and our neighbours. Why? Because Australia is a massive importer of capital, and, given that the world got into these troubles by borrowing too much money, it simply defies logic to believe that when governments borrow too much money there is not a consequence. Yet the government here expects us to believe that. There will be a cost. The greatest cost—the consistent cost—the cost that no economic data can wave away is the debt that this government is accruing. The repayment of that debt is the greatest economic challenge over the next few years because we need to have the capacity to repay that debt whilst preserving the jobs that are going to keep Australian families with growing personal wealth.

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