National Accounts; interest rates; global economy; Telstra; Sydney Airport

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Joint Press Release: Federal Treasurer and New Zealand Minister of Finance
March 6, 2002
McMullan: More Misrepresentation
March 11, 2002
Joint Press Release: Federal Treasurer and New Zealand Minister of Finance
March 6, 2002
McMullan: More Misrepresentation
March 11, 2002

National Accounts; interest rates; global economy; Telstra; Sydney Airport


Press Conference


Thursday, 7 March 2002


SUBJECT: National Accounts; interest rates; global economy; Telstra; Sydney



Today’s National Accounts show that the Australian economy grew by 1.3 per

cent in the December quarter of last year and 4.1 per cent in 2001.

By any measure these would be very strong figures, but against a background

of a major global slowdown, these are exceptionally good figures for the Australian

economy. The National Accounts showed that notwithstanding the events of the

last quarter of 2001, September the 11th, pessimism that was around, Australians

showed a sunny optimism and led by private final demand and good corporate profitability,

Australia’s economy continued to grow and is not just one of the fastest of

the developed world, but it was growing faster than most of the other economies

of the developed world by a very large margin. In fact the growth rate of 4.1

per cent through the course of 2001 was about 10 times the OECD average and

about 10 times that of the G7.

So I think all Australians will welcome the figures that are released today,

because they show a continuing resilience and strength in the Australian economy

notwithstanding the Japanese recession and the United States recession, notwithstanding

a German recession and recession in countries like Singapore and Taiwan. The

Australian economy continued to grow.

Economic growth was underpinned by strong growth in household consumption.

As we know, consumers have been very positive and household consumption grew

by 4.2 per cent through the year.

The good, new news in the National Accounts today is that private new business

investment grew strongly. Particularly, plant and equipment rising by a very

strong 11.1 per cent and the good thing is now having two quarters of rising

business investment we are starting to see business investment come back in

and the capital expenditure surveys for 2002-03 are positive. We’ve always said

that the upswing in the housing cycle will begin to work its way out of the

system over this quarter and the next quarter and if private business investment

begins to pick up over this quarter and the next quarter, it may well take its

place. The only area which substantially detracted from the very strong growth

of the December quarter was net exports, which subtracted 0.7 of a percentage

point. This is partly due to falling exports in the quarter and increased imports,

but the falling exports are principally as a result of a synchronised downturn

in all of the major centres of world activity, Japan, the United States and

Europe. And frankly, the fact that Australia’s exporters held up to the extent

that they did through this synchronised downturn, I think is a pretty good credit

to Australia’s exporters, supported of course by a competitive exchange rate

and also the fact that in 2000-01 we took tax off our exports for the first

time in Australian history.

Two other points that I would just point out to you, measures of inflation

are subdued in these National Accounts. Measure of inflation, household consumption,

was around 2.4 per cent which is good news. And there is very strong productivity

growth that has been recorded in these National Accounts rising to be 10.8 per

cent higher at the end of the year than it was at the beginning of the year.

In fact the highest rising productivity since quarterly National Accounts have

been taken.

The rest of the Australian economy as I have been saying now for most of the

last 12 months is the world situation. Japan is still in recession. Europe is

looking weak. The good news seems to be that the US economy may have bottomed.

Although anybody who sees a strong recovery coming in the US in the next couple

of quarters I think is being a bit too optimistic but the good news is that

the US seems to have bottomed and in this quarter seems to have passed out of


If I were to take you back 12 months to March 2001 when we had the negative

December quarter led mainly by transitional effects from the New Tax System,

you would recall that many were predicting an Australian recession. In fact

one of our newspapers, I remember the next day, headlined “Recession Looms”,

back in March of 2001. That was before a US recession, that was before September

the 11th. Dun and Bradstreet said that there would be three negative quarters

through the course of 2001. And yet through the course of 2001 Australian economy

grew at 4.1 per cent. And I pay tribute to our businesses which seem to have

shrugged off a lot of the pessimism; the sunny optimism of the Australian consumer

supported by low interest rates and tax cuts which came on board in 2000. And

Australia can hold its head high as certainly one of the best performing growth

economies of the developed world.


Mr Costello, given the sunny outlook and the fact that the Reserve, and the

figures are so strong, is the fact that the Reserve Bank is so independent and

sets rates in its own right, given that, do you agree that there is a case to

just tap the brakes and put interest rates up a little bit to stop the boom-bust

cycle taking over (inaudible)?


Well, I don’t really see these figures as boom-bust figures. These are figures

of good strong 4 per cent growth. And what makes them exceptional is it’s in

the context of a world downturn.

4 per cent growth wouldn’t surprise us that much in the context of the world

economy of the late 1990s when the US economy was growing at 3 and 4 per cent.

But 4 per cent growth in the climate of a US recession, a Japanese recession,

a downturn in Europe, you know, is just remarkable.

So I wouldn’t characterise these as boom-bust. I would say there is good consumption.

There’s been strong dwelling construction, business investment is now starting

to kick in, profits have been strong and the only negative is the negative which

is coming from the external environment over which we have little control but

maybe it’s bottomed. Well in fact I’ll go further, I think it probably has bottomed.




Sorry I’ll …(inaudible).


Given all of that is it appropriate that interest rates stay at the level they

are in relation to (inaudible)?


Well interest rates at the moment are very competitive and they’re at 30 year

lows in relation to housing interest rates and that’s kept the Australian consumer

happy and sunny and I think that the good news that you see in relation to these

figures is that inflation pressures appear to be quite restrained. Yes.


On the basis of these very good results, would you say that Australia has avoided

the Godzilla of recession which has been stalking the world (inaudible) and

would you on the basis of this say that we are going to escape…(inaudible)?


I think I’d go this far. Knowing what I now know, it looks to me as if the

worst in the international environment is over. And Australia survived the worst

in the international environment. I think that there have been two remarkable

periods for the Australian economy in recent years. The first was surviving

the Asian financial crisis of 1997, which surprised a lot of people around the

world. The second is 2001 where we survived the US recession and grew at 4 per

cent. That is remarkable. Now, I don’t like tempting fate because a thing I’ve

learnt in a volatile world is there could always be another shock around the

corner, but I think this is a remarkable run. This is, the fact that Australia

grew in calendar 2001 at 4 per cent when Japan was in recession and America

was in recession and, and a good deal of Europe was in recession, the fact that

the growth rate was 10 times the average of the OECD and the G7 I think is truly

remarkable. And it is, I think, one of the really good stories of the Australian

economy in a long time.




Look, I, what kept Australian consumers strong in 2001 notwithstanding the

world downturn and September the 11th and war in Afghanistan, I think low interest

rates, the fact that we had income tax cuts in July of 2000, I think another

piece of good news that occurred through 2001 was that the oil price which had

been very high in 2000, came off. And that aided consumers. But that of course

applied to other countries as well. It wasn’t just Australia. So what made Australia

different? I think income tax cuts, low interest rates. What was the significance

of the building cycle? Well, the first significance of the building cycle was

that it led to an increase in the run up to July of 2000 and a fall away which

produced that negative December 2000 quarter. And I remember saying at the time,

well if you abstracted from that then the economy was still growing at 4 per

cent. I think that was greeted with a lot of amusement and chuckling. But, just

as that produced an abnormal result in December when it came back it worked

its way out of the system and gave a lot more strength back through the course

of 2001. Now I have always said that that will come off in, in the, probably

this quarter and the next quarter. So what will take up the slack? I hope two

things. One is business investment. And, the great, new news in these National

Accounts is business investment starting to come back. And the second is, I

hope that the world economy has bottomed.


…capital expenditure…good, but very lumpy…(inaudible)?


Well, the figures in these National Accounts show an increase for plant and

equipment as I said I think, of 11.1 per cent with private new investments growing

by 5.7 per cent. We have now two quarters of growth and we have the Capex which

has given us an expectation for the 2002-03 year which was also strong. Are

there some big projects in there? Yes, I think there are. And actually I am

pleased there are some big projects in there. We have got a couple of big projects

going on at the moment. We have got another train coming on board with the North-West

Shelf, we have got the Darwin to Alice Springs rail link being built. But what

we are also seeing is we are seeing a recovery of business profit and business

confidence, and I believe that is translating for most businesses into new investment

intentions and that’s where you’re seeing the increase in plant and equipment.

See the interesting thing about, and you would have seen this in the profit

results which came out during the week but profits were very strong in the December

2001 quarter. Now when you bear in mind that you had some industries, like the

airline industry, which had a shocking quarter in December of 2001. The tourist

industry which was affected in 2001. You had the Ansett collapse in the December

quarter of 2001. That shows that there is very good profits going on in other

parts of the economy. I think that’s going to work its way out in investment.


Mr Costello, do you think with a result like this that a pick-up in tax receipts

will help ease some of the pressure on the budget?


You wouldn’t, I wouldn’t actually interpret these figures as leading to a pick-up

in tax receipts. You’ve got to remember that corporate profits are up, but the

corporate tax rate is down. Wages are subdued. So I’ve always made this point

that a growth figure doesn’t necessarily translate into tax receipts, it depends

where the growth is.

What would cause a pick-up in tax receipts would be large rises in employment,

but employment is a lagging indicator and although I think that there are signs,

although I think that there are signs that employment may be better than we

were thinking towards the latter part of last year, it’s still lagging obviously.

I would expect if corporate profits stay strong and if consumer demand stays

strong, and if business investment picks up, I would expect later in the year

that you would see some effect in employment, but I wouldn’t expect any short-term



Mr Costello, do you have any concerns about low household savings ratios and

do you think that could place pressure on interest rates further out?


No I don’t think housing, household savings ratios works its way into the way

in which we conduct monetary policy. We certainly don’t target that as part

of our monetary policy. But I think the figures here actually show a slight

up-pick in the household savings ratio. I’ve made this point before that bounces

around a lot and even the statistician himself says it’s not the most scientific

measure. But I think one of the things that you’re finding is that people have

been prepared to borrow against rising property values. You’ve got to remember

this, in the big cities, particularly the big cities of Australia, there’s been

a massive wealth accumulation in the last year with housing prices going up

20 and 30 per cent, a massive wealth accumulation. And what I think we’re seeing

on low interest rates is a preparedness perhaps to borrow a bit more against

assets. And I think the important thing when you’re looking at household savings

ratios and borrowing is to remember borrowing is against assets, not against



Treasurer, given our place in the world at the moment, can this raise a bit

pressure for the Bank to raise rates?


Well I won’t, I never comment on the future directions of monetary policy for

obvious reasons.


(inaudible) if the productivity is (inaudible), Treasurer, it’s a very complicated

economic variable, what’s your take on it?


Oh, strong growth is a big part of it. I think coming through those difficult

quarters in late 2000 when business was probably wary of putting on extra staff,

they decided to cut costs, they took a lot of the growth and the profit in terms

of productivity.

I think that was quite a big part of it. I think that you’ve also got the natural

increase of ICT through the economy. We’ve written a lot about this over the

years, but it is a really exceptional productivity boost and that’s good. What

that means is we’ve had strong growth without seeing our wages break-outs and

a productivity boost which is adding to our national wealth.


We also had a 1.2 per cent fall in (inaudible) which (inaudible). Would you

like to see less productivity growth this year and more employment growth?


Well that’s the point I was making another way, that you’ve had a growth with

employers obviously not following that up with employment intentions and that’s

one of the reasons why productivity increased. Well as I said earlier, employment

is a lagging indicator. If profits are strong, and the consumer feels sunny

and optimistic, and interest rates are low as they are, then you will expect

employment intentions to follow. But they’re not going to follow in the short-term.

You’ve got to remember for many of these businesses they’ve come through pretty

negative sentiment in 2001, a lot of the press saying there was going to be

a recession. They then came through a US downturn, they came through September

the 11th, they’ve come through a war in Afghanistan, they’ve come through a

federal election and it wouldn’t surprise me if they’ve been pretty cautious

in their employment intentions. But these kind of figures continue, it will


Two more questions. Sorry, Fran.


…the figures continue given the growth you’ve had, should we have a stronger,

bigger budget surplus? Are we too close to the bone or is that part of the strategy

to deliver these figures?


Look going back into 2000-2001, the financial year before the current one,

some commentators were saying that we’d been too generous with tax cuts. That

was a frequent criticism in 2000-2001, too generous with tax cuts, you know,

you are going to overheat the economy. That was certainly the Labor Party’s

attack. And we look back at that and we say it was probably in the circumstances

one of the best decisions that could have been made for the Australian economy.

We are coming into 2001-2002, the housing cycle has turned down and there were

some people that were saying, oh, you know, again, too much fiscal stimulation,

and we doubled the first home owners scheme. Again, I think if you look back

I do not think anybody would dispute now, if you look back, it was, turned out

to be a very good decision, very good decision because what it enabled Australia

to do was to grow at 4 per cent when America was contracting, and Japan was

contracting, and Germany was contracting and if you contract your economy you

do not actually save money at the end of the day, on your budget, by the way,

if you contract your economy it affects your budget much more than savings measures,

so, I think we can look back and we can say that we were not making the wrong

calls then, that we were making the right ones.


Treasurer, did the Government express a view to the Telstra Board about its

dividend policy ahead of yesterday’s announcement?


Not that I am aware of. Not recently, no. I mean there are talks between the

Government and the Board from time to time but I am not aware of any in the

recent weeks.

Sorry, last question.


Do you think the Sydney Airport should be sold before June 30?


Well, I would like to sell Sydney Airport, and I would like to sell it as soon

as possible for the best possible price.


So you think the sale process should be expedited?


I would like to sell it as soon possible for the best possible price.


Mr Costello, (inaudible)…


Last question.


Were you tempted today to look at the world growth figures and see whether

we were on top of it?


Whether we are…?


We are on top of the world growth (inaudible)…?


Well, I have got this table at the back of the press release which has got

the G7, OECD averages and non-Japan East Asia. Now, you could find, I am sure

you could find a growth rate which was above 4 per cent, say in a country like

China. I did not actually look at it but we do not regard China as a marker,

you know, as a developed country. So, you know, I am sure you could find somewhere

in the world, a country that had beaten 4 per cent.




But if you want to compare yourselves as we generally do to the industrialised

countries of the world they are either in the G7 or the OECD and that is why

I did a comparison on the G-7 and the OECD. So thank you all very much.