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

by leave—I make a ministerial statement relating to the global outlook and the Australian economy.

Introduction

I have just returned from the G20 meetings in Turkey, where finance ministers and central bank governors from the 20 most influential economies discussed the global outlook. The frank and honest exchange about the real challenges we all face provided me with a sense of cautious optimism. Whilst the global economy faces some headwinds, there is a deep resolve amongst policy makers to implement domestic and international initiatives that help to deliver structural improvements in growth.

The economic reforms that are part of the coalition's plan for a stronger Australian economy are mirrored in many other economies around the world. Reforms in competition policy, the financial sector, taxation and trade to name a few are the big drivers of future growth.

Global Economy

The recent volatility in global financial markets reminds us that this is not a time to be complacent. We have all been affected by the deterioration in business and consumer confidence as a result of significant volatility in currency markets, equity markets and commodity prices. As a result of this, all countries must do more to implement enduring structural reforms that boost growth and create new jobs.

At the meeting, the United States flagged its intention to soon start lifting interest rates. This is a positive signal that illustrates a sustainable improvement in the US economy. It should be noted that when the United States moves to increase interest rates, they will be moving from 'ultra' accommodative monetary policy to 'extremely' accommodative monetary policy. Under this scenario, monetary policy will still be doing a lot to support growth in the US economy. Yes, there may be some volatility in markets as a result of the decision but, like the previous so called 'taper tantrum' associated with the ending of quantitative easing, the transition is definitely manageable. After all, this is the most well-flagged decision pending from the United States Federal Reserve in memory.

Transparency is hugely important to help address ongoing volatility and it is increasingly being embraced across the G20 by other economic leaders, including China. China recognises that their stock market has been in a huge bubble in the last 12 months . It rose by 70 per cent in just six months and its rise was totally disconnected from the performance of the Chinese economy. Even today, after three significant corrections, it is still more than 30 per cent higher than it was twelve months ago. The Chinese stock market is a highly leveraged and speculative market.

Following the corrections in late June, the end of July and in August, the Chinese government introduced a range of rescue packages to stop the free-fall. A number of these measures were counterproductive. That said, it should be emphasised that stock market volatility to date has not had a systemic impact on the real economy of China. Nevertheless, the Chinese economy needs to undertake difficult structural reforms. This is a process that will take a number of years as it moves from being an investment economy to a consumption economy. This will be of great benefit to the Australian economy where non-mining exports represent the greatest opportunity for medium-term job growth.

Our involvement with other economies such as Europe has not waned. The recovery in the euro area will continue, supported by accommodative monetary policy and low oil prices, but at a slower pace. Across the Channel, the United Kingdom is seeing growth lifting and unemployment falling. This is the result of difficult, but necessary, decisions, including measures that have achieved significant budget repair.

And while Japan stumbled last quarter because of bad weather, there are green shoots. A tightening labour market, stronger corporate earnings and greater private sector business investment are all encouraging signs. In particular the determination of the Japanese government to prise open the US$3 trillion in retained earnings in Japanese corporations for investment, innovation and higher wages signals a much more promising outlook for our second-biggest trading partner.

Australian Economy

More importantly, what does this all mean for Australia? For our part, the Australian economy is entering its 25th year of continuous growth, despite all of the challenges in the global economy. The June quarter 2015 national accounts recorded year average growth at 2½ per cent, just as we forecast in the May budget. The key to our success has been the diversity and flexibility of the modern Australian economy. Our economy is incredibly resilient. We have continued to grow despite the Asian financial crisis, the global financial crisis and most recently the biggest fall in our terms of trade in over 50 years. This proves that we must continue to work away at strengthening all parts of our economy because the diversity of our economy has helped to inoculate us against external volatility.

The Australian economy is not solely commodity based. Yes, commodities are important and a significant part of our exports, but they are not the sole driver of growth. The mining sector only accounts for 10 per cent of our economy but 54 per cent of our exports. The agriculture sector represents only three per cent of our economy and 13 per cent of our exports. Each of these sectors is crucial for jobs and growth. They are valuable drivers of wealth creation. But we can build on the traditional export drivers by expanding export opportunities in the services sector, which represents 70 per cent of our economy and 80 per cent of Australian jobs, but still only 17 per cent of our exports. This diversification will help get us through the biggest fall in our terms of trade in more than 50 years.

Other economies with a significant reliance on commodity exports like Canada and Brazil are in technical recession, yet the Australian economy is continuing to grow and grow in line with reasonable expectations. That is not a reason to be complacent. More needs to be done.

We will always face uncertainty in the global economy and bouts of volatility in international financial markets. The fortunes of our trading partners and those demanding our commodities can have a huge impact on an economy that is not diverse. The question is: how can Australia continue to grow and create more jobs? The answer is our economic plan that we have been implementing since coming to government.

Australia's Economic Plan

The Abbott government has an economic plan, and we are sticking to the plan. First, we are ridding Australian business and families of the crippling taxes of the past government. The Abbott government has removed the mining tax. We have removed the carbon tax. We have removed the bank deposit tax. We have removed the car tax. We have removed the unfair tax on untouched savings. As a result of our actions, we have lowered the tax burden on Australian families and businesses by almost $7 billion. This helps strengthen the Australian economy.

And furthermore, this government has delivered the largest tax cut for small businesses in our nation's history. This is more money in the pockets of everyday Australians. This is a lower burden on Australian businesses so that they can invest more and employ more Australians.

Second, we are lowering the burden on Australian businesses by removing 80,000 pages of unnecessary red tape and legislation that was costing Australian business $2.4 billion dollars a year to comply with. That is more time that businesses can spend on growing their companies rather than being buried in paper.

Third, we are opening up the doors to the world for Australian business. This government delivered the Japan and Korea free trade agreements. These have already been implemented and are delivering economic dividends today. For example, Korea's 45 per cent tariff on Australian grapes was almost halved to 24 per cent when the agreement started in 2014, helping our exporters. These agreements also benefit every day Australians by putting more money back in their pockets. For example, the Toyota Corolla, one of the biggest selling cars in Australia, is around $1,000 cheaper as a result of the reduction or removal of tariffs.

The next step is the China-Australia Free Trade Agreement. This the best free trade deal that China has ever offered any G20 country, and we stand at the front gates ready to access one of the largest growing markets in the world. This agreement will eliminate Chinese taxes and regulations that are applied to Australian products and services. They will remove tariffs of up to 20 per cent off our exported dairy products, up to 25 per cent off our beef exports, up to 23 per cent off our lamb exports, up to 20 per cent off our wine exports. China will remove tariffs on commodities such as coal and lock-in zero tariffs for iron ore, gold and LNG.

But equally importantly this is free trade for our services industries. The agreement will provide significantly improved market access for Australian financial services, insurers, law firms, education services and health and aged-care providers. China's Finance Minister, Lou Jiwei, highlighted in discussions with me that the Chinese economy is undergoing a transition that will take time. It is a transition from a focus on investment to consumption. And that consumption will be driven by the demand of 400 million middle-class consumers in China today, which will likely grow to one billion by 2030.

China is our number one trading partner. We currently have a $150 billion a year trade relationship with China. We export around $100 billion to China and we import around $50 billion of their goods. For every $1 we spend, we get $2 back from China. That is a 'no brainer' relationship for our country. Anything we can do to build that relationship is to our great benefit. And anything we can do to grow the relationship will help create more and better paying jobs for everyday Australians.

The fourth driver of growth is our $50 billion infrastructure program. This is the largest infrastructure investment by any federal government in history. We are building the roads and infrastructure for the 21st century including Western Sydney's first airport. Additionally, our $5 billion Northern Australia Infrastructure Facility, along with the entire Northern Australia white paper, will provide the funding and resources to develop our great north and provide a vital link to our Asian regional partners.

The fifth driver of growth is that we are addressing the long-term challenges of this economy by implementing measured structural reform. I have previously stated in this chamber that this government's economic plan will address the intergenerational challenges we face with an ageing population and declining workforce participation. The Abbott government's families policies will improve engagement in the workforce and provide choice for everyday Australian families. Female workforce participation is now at its highest recorded level since 1945 and we want this to rise further.

Furthermore, there are early indications that the government's new Jobactive employment services scheme is helping to deliver improved workforce participation. Our $6.8 billion Jobactive program places an emphasis on ensuring income support recipients who can work are actively seeking employment. This gives them the best chance of finding a job. As a result of our changes, it is likely that some people who were classified as not seeking work in June are now seeking work and therefore counted as part of the labour force. This may create short-term volatility in employment data but it reflects a structural improvement in participation which is a key driver of growth.

And finally, we are putting the Australian budget on a sustainable pathway to surplus. As I outlined in the budget, our budget position is getting stronger each year. We inherited a $48 billion deficit. We are set to deliver a $35 billion deficit this year down to a $7 billion deficit in three years' time. Directly as a result of our action, gross debt in a decade will be $110 billion lower than we inherited. We are on a solid and credible path back to surplus despite the iron ore price more than halving and numerous international growth downgrades. Budget repair is essential to buffer the economic headwinds that may prevail from time to time.

Conclusion

The one common theme across all the countries I engaged with in the G20 is that clear, accommodative monetary policy and big government spending are not sustainable drivers of medium or long-term economic growth. We need ongoing structural reform to deliver quality growth. And this message is as clear for massive economic powerhouses like China and the US as it is for emerging economies like Indonesia and Mexico.

In the future we will all have to earn quality growth through quality reforms. G20 members are putting in place reforms that lift investment in infrastructure, improve competition and regulation, boost employment and facilitate greater global trade. If we make good on these reform commitments they will generate an extra two per cent in economic growth for G20 economies by the end of 2018 compared to business as usual.

I am pleased to say that G20 members are making progress. Early assessments are that after the first year roughly a third of the measures put down at Brisbane have been fully implemented. But more needs to be done and I can promise the parliament that Australia will play its role. I present a copy of my ministerial statement.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I thank the Treasurer for his ministerial statement. It is of course appropriate that he represents Australia at the G20 finance ministers meeting, as he does in this office in many different international forums. The burden of international engagement for a modern day Treasurer is a significant one, taking him away from the country and from his family at much more regular intervals than I am sure he would like. I do note that and thank him for his engagement in the G20, in the tradition of modern treasurers. That is as far as my level of agreement with the Treasurer goes in this contribution, but it is a sincere one with which I start these remarks.

I will deal with some of the matters the Treasurer dealt with in his contribution—confidence, growth, jobs and the budget—and I will touch on the situation in China as I conclude. The Treasurer has dealt with the matter of confidence, but I am afraid the Treasurer has perhaps misled us in relation to the causes of the decline of confidence. It is not accurate for the Treasurer to say that the cause of the decline in consumer and business confidence has been recent international volatility, because the decline in consumer and business confidence has been happening for two years.

The Westpac index, which is out today, did show a decline, but it is 15 per cent below where it was at the time of the last election, and all indexes of business and consumer confidence are on the decline. The Treasurer said during question time today that there are many indexes of confidence—and he is right—and they all are showing a decline, and all have been showing a decline for a substantial period of time. In fact, as Westpac themselves said today:

This print on the Index now marks the 17th out of the last 19 months that the Index has been below 100. A level of the Index below 100 indicates that pessimists outnumber optimists. After acknowledging some volatility in the series the underlying picture is that confidence has been little changed over the last year—firmly stuck below 100 and averaging around 96.

The Treasurer's preferred figure—the one that he has indicated previously that he has the most confidence in—the ANZ weekly confidence figures, were 5.8 per cent down last week. Of course, as I mentioned during question time, the NAB Monthly Business Survey confidence figures are at just plus one. The Treasurer, again during question time, said plus one was not a bad result. It was plus 12 at the time of the last federal election. So far from the adrenalin rush of confidence that the Prime Minister and the Treasurer promised the Australian people before the last election to turbo charge the Australian economy, what we have is quite the contrary. Frankly, for the Treasurer to blame international volatility is an excuse from a government in which we were promised no excuses and no surprises—and we have seen many of those two things.

In relation to growth, which is vital to reducing unemployment and creating jobs necessary to see unemployment come down, the picture is not an encouraging one. Again, the Treasurer was quick to claim credit last quarter for 0.9 per cent growth. He said:

… the Australian economy grew at 0.9 of one per cent, which is a strong figure. The momentum is there in the Australian economy. The best friend of the Australian economy is the coalition government.

He said this growth is broad based. He said:

Growth in exports, household spending, services and new dwellings confirms that the Government’s economic plan is working.

If it is the economic plan that is responsible for 0.9 per cent growth you would expect the Treasurer to come out at 0.2 per cent growth and also link it to his economic plan, such that it is. That is not what we have seen. What we have seen, instead, is the Treasurer taking some solace in the fact that the Australian economy is growing faster than Brazil's. This is not a country with which we are normally compared, in economic terms, but it is the one the Treasurer has grabbed, in his desperation to find countries that we are doing better than.

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

What about Canada?

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

He points out Canada. We are growing more slowly than the United States, the United Kingdom, Europe, Greece, Belgium, Germany, Portugal, Hungary, Mexico, Slovenia—

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

That's not actually right.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The United Kingdom was growing at 0.7 per cent in the June quarter, compared to 0.2 per cent.

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

What's year on year?

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Treasurer was very keen to quote the quarterly figures last quarter. Now he says don't worry about the quarterly figures, just look at the annual figure and average it. Do not take year to year, just average it, he says, in desperation to find a figure that suits him.

We are growing slower than Estonia, the Slovak Republic, Greece—0.9, Poland, the United States—0.9, the Czech Republic, Spain—an economy that has had considerable difficulties—growing at one per cent, and Sweden. It is not a story that the Treasurer or the government can be proud of, when it comes to economic growth, or they can boast about. Every figure I have quoted is correct. I invite the Treasurer to correct any of them, if he can, and I do not believe he will be able to.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Minister for Agriculture) Share this | Link to this | Hansard source

You should table them.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I am sure I will not get to table them so I am not going to try. What we have seen is the impact of this combination of a decline in confidence and declining growth. Annual growth has declined in every quarter since the Treasurer's first disastrous budget. And there is causality here. When you see annual growth—

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

That's not right either.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

You asked me to quote annual growth, and I am happy to. The Treasurer asked us to speak about annual growth and I am happy to do it. I am happy to talk about the decline in annual growth on his watch. There is a causality because, when you have a Treasurer who introduces a budget that attacks the family budgets and the budgets of Australian pensioners, you are going to see an impact on confidence, as we have seen, and we see an impact on economic activity.

The Treasurer is, again, quick to blame international economic circumstances but it was not that long ago that he was claiming credit for international economic growth. Remember the rather ambitious claims of the Treasurer at the G20 meeting in Brisbane? He had convinced all the world's finance ministers to add to economic growth.

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

True.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

He said it is true. They had not thought of it until they came to Australia. They had the Treasurer of Australia tell them, 'Listen, it's a good idea for you to boost economic growth.' They said, 'We're glad we came all this way down to Brisbane to be told by Joe Hockey, the Australian Treasurer, to boost economic growth.' Since then, all we have seen is downgrades in global growth projections.

I pay the Treasurer credit for going to Turkey as he should. I recognise he is away more than he would like to be, and it is a burden on him and his family. In Turkey he said, 'It would have been so much worse, the world economy, if we had not convinced them in Brisbane to add to economic growth.' He said, 'It would be so much worse if it were not for little ol' me, the Treasurer of Australia.' The Treasurer should care more and take some responsibility for Australian economic growth instead of trying to claim credit for global growth, which is on the decline as well.

We have seen unemployment increase from 5.7 to 6.3 per cent—a 13-year high. It is the first time in 20 years that more than 800,000 Australians have been out of work.

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

You forecast 6.3!

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Treasurer said when he was shadow Treasurer how concerning unemployment of 700,000 people was. On his watch we are seeing 800,000 Australians out of work. Consumer sentiment is down.

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

In the PEFO.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I'll get to PEFO in a minute. You have been very naughty, again—not you, Mr Deputy Speaker. The Treasurer has been very naughty again in quoting his figures. I said new taxes and charges, and the budget deficit has doubled in just 12 months. That is the story when it comes to economic growth and confidence.

Then we move to the budget. Again, the Treasury is quoting PEFO. He does not like quoting PEFO in other circumstances, because even in his remarks just a moment ago he asserted, incorrectly, that he inherited a budget deficit of $48 billion.

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

True.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

He is nodding. When he does that, he is, in effect, questioning the veracity of the Treasury and the Department of Finance and their respective then secretaries. He is nodding. He is questioning the veracity of the Treasury and the Department of Finance in the pre-election economic forecast.

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

What was the deficit?

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

As the Treasurer knows, the pre-election economic forecast is not delivered by the Treasurer of the day. The Treasurer of the day reads about it with every other Australian. It is delivered by the Secretary of the Treasury and the Secretary of the Department of Finance. I am happy to inform the Treasurer that the PEFO showed a deficit of $30 billion.

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

But what was it? What did it turn out to be?

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

I said $30 billion, if you were listening, which is not $48 billion. There is a big difference. The Treasurer should stop undermining the Charter of Budget Honesty. The Charter of Budget Honesty is a proud achievement of his Liberal predecessor. I have freely given credit to Peter Costello for introducing the Charter of Budget Honesty. It is a good reform. It was continued by Labor in office. But when they Treasurer goes around questioning the veracity of the then secretaries of the Treasury and Finance—and I acknowledge that the Treasurer did not want the Secretary of Treasury sacked; that was done by the Prime Minister, against his wishes—I am sure the Treasurer argued, as he should, that the secretary should not have been sacked. Incoming governments should not sack Treasury secretaries. It is the first time it has happened in 114 years. I acknowledge that was not his decision, but he should not go around questioning the veracity of two very fine Australian public servants.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Minister for Agriculture) Share this | Link to this | Hansard source

That wasn't the Treasurer's idea.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

It was not the Treasurer's idea, and I do not blame him for that decision. The decision to sack the Secretary of the Treasury was made by others in the Prime Minister's circle and, ultimately, the Prime Minister himself. When it comes to the government's economic record—whether it be confidence, growth or the state of the budget—the rhetoric simply does not live up to the reality. The Treasurer makes false claims about the size of the budget deficit he inherited. He falsely claims that confidence and growth are primarily on the decline because of international volatility when, in fact, it is his own economic mismanagement which is ultimately responsible.

I want to end with a little more agreement with the Treasurer. I said the bipartisanship finished in my opening remarks, but there is actually a little bit more—and this comes to China. Where I do agree with the Treasurer is that, fundamentally, Australians should not be alarmed by recent developments in China. I have publicly agreed with the Treasurer—and I have always tried to be extremely responsible in these remarks—that the Australian people should be reassured about the fundamentals. China is going through a transition. It is a very important transition and, in some regards, it is a painful transition. It is probably the largest economic transition we have seen in a very long time around the world.

It is very important that the Australian people acknowledge and understand that the decline in the Chinese stock market is against a backdrop of very significant increases over recent years—180 per cent in recent times. It is also important to understand that the Chinese stock market is not as systemically important to the Chinese economy as it is to many western nations. The property market in China is much more important. If there was a property market decline, that would be a very serious development. But the stock market is more tightly held in China than in many other countries, including our own. A decline in the stock market does not affect the living standards and consumption ability of most Chinese households—and that will continue. Chinese will continue to increase consumption and, in my view, that will continue to feed positively into the Australian economy.

Yes, China may well not grow as quickly as it has done in the past. But we need to remember that even lower economic growth from China adds more as an increment to the world economy and the Australian economy than it did just a few years ago because it is off a much higher base. So growth of even six per cent in China can add more to the world economy—

Malcolm Turnbull (Wentworth, Liberal Party, Minister for Communications) Share this | Link to this | Hansard source

It won't be anywhere near six.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

Well, I am making the point in a bipartisan fashion. If the Minister for Communications wants to talk down the economy, he can; but I choose not to. Even growth of six per cent—

Mr Turnbull interjecting—

To talk down the economy.

Mr Hockey interjecting—

I am trying to be helpful to the Treasurer here. I am trying to reassure the Australian people, in a bipartisan fashion, that even growth of six per cent in China would add more to the world economy than growth of 14 per cent in China in 2007 because the Chinese economy is now so much bigger than it was at that point. That will continue to impact positively on the world economy and the Australian economy. The important risk for the Australian economy is a contagion to confidence in a further event. That is why I have taken a decision to regularly make similar remarks to the Treasurer as to the impact of the Chinese economy on the Australian economy and the fundamentals of the Chinese economy not being impacted by the recent volatility in China. Of course, there are risks on the downside going forward. A further liberalisation of the Chinese currency would be a positive development but it would create uncertainty and volatility as it happens, and that would have an impact.

The economic record of the Treasurer is not a good one, it is not one that the government can be proud of. There is a yawning gap between their pre-election rhetoric and the post-election reality. There is a yawning gap in economic management on this Treasurer's management. As I have said previously, speculation that the Treasurer will be removed and replaced by the Minister for Communications or the Minister for Social Services is very unhelpful to confidence. I am not the Treasurer's biggest fan but I do acknowledge that uncertainty about the tenure of the Treasurer is not good for the Australian economy. Hence I have pointed out that he should remain Treasurer until the next election, when he will be replaced by a Labor Treasurer.