Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

My question is to the Minister for Finance and Administration and Minister representing the Treasurer, Senator Minchin. Will the minister inform the Senate of the result of today’s national accounts and update the Senate on the growth of capital expenditure, including investment in the manufacturing and mining sectors? What does this latest data indicate about the strength and underlying health of the economy?

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

I thank Senator Ferguson for that very good question. Today’s national accounts from the ABS show that the economy grew by 0.5 per cent in the December quarter and 2.7 per cent through the 2005 calendar year, which is broadly in keeping with the budget forecast of three per cent growth for the 2005-06 financial year. It is particularly pleasing that the growth figure is driven by very strong private business investment, up a spectacular 14½ per cent during the 2005 calendar year. That is a very important ingredient in our ongoing economic success. We are now in our 14th year of continuous economic expansion, and that means high levels of capacity utilisation. The investment boom that is currently under way across Australia is adding to our productive capacity for the future.

As with recent quarters, household consumption has grown more slowly than in the previous two calendar years. The ABS’s measured household savings ratio improved further in the December quarter, but household consumption continues to make a positive contribution to GDP. In keeping with the slowdown in the housing market, which we have welcomed, dwelling investment fell by 2.7 per cent through the year. Today’s figures also confirm that inflation is in check: the final consumption deflator rose by 2½ per cent throughout the year. The ABS also supplies a measure of real net disposable income, which captures the impact on incomes of Australia’s high terms of trade. On that measure the Australian economy grew by five per cent through the year, which you would normally consider a very strong growth rate. I think that illustrates the extent to which real incomes are rising, even at a time when real GDP growth has moderated.

There are some specific state-by-state variations in today’s growth figures. Western Australia, with its resources boom, continues to lead the pack with a 2.8 per cent trend growth just in the quarter. There are two states lagging behind the rest of the country: New South Wales and my own state of South Australia. I made the point to the Senate earlier this week that South Australia was heading down this regrettable New South Wales path. Indeed, while investment across the national economy is booming, private capital formation in New South Wales fell by 0.3 per cent and by 0.5 per cent in South Australia in the quarter.

The sustained economic growth that we are experiencing across this nation is the result of sound but often very difficult policy choices. They have been consistently opposed by those opposite, who have made no contribution to better policy outcomes for this country. But they are reforms that we have introduced despite that opposition that are generating this current strong economic growth. It remains quite a big challenge for Australia to sustain this growth and properly manage the impact of the resources boom which we are enjoying. A Treasury paper today discusses the fact that the last resources boom, in the seventies, ended very badly for Australia because of economic rigidities like a fixed exchange rate and centralised wage fixation. So the real message out of that is the flexibility of the economy is critical.

Robert Ray (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

Who floated the exchange rate? Not you!

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

And I give credit to the Labor Party for floating the exchange rate. That is one thing they did in their 13 years in government which we have praised on many occasions. But there can no longer be any reason for complacency. The Australian economy is well placed to continue its run of low inflation growth, but we cannot afford to drop the ball on vital economic growth. We continue to look to those opposite to work with us to continue to reform this great economy.