Media Conference - Sydney
Wednesday, 5 December 2012Errors and Omissions Excepted
The Australian Bureau of Statistics has today released the quarterly National Accounts and the National Accounts reveal the slowest growth in the economy - outside of the Queensland floods - since the Global Financial Crisis. This is the first quarter following the Government's introduction of the carbon and mining taxes. The data suggests that consumers are very cautious and, in fact, in the second last paragraph of the Treasurer's press release - buried deep in it - he uses the term “changed household spending behaviour”. Well it's no surprise because households have been hit with a carbon tax and so with the introduction of the carbon tax, this is the slowest quarter of economic growth since the Queensland floods and - outside of that - since the Global Financial Crisis.
Household spending is weak. In fact it is at its weakest levels since March of 2010. The retail sector went backwards, the household saving rate remained close to historic highs and more than half the growth in the economy was due to the buildup of inventories by business. Now business either builds up inventories in the expectation that there is going to be a huge amount of demand coming down the pipeline or they build up inventories because there is, effectively, a form of buyer’s strike. Quite clearly, given the reaction of the Reserve Bank yesterday, there are deep concerns about confidence in business and consumer groups and their capacity to pay - certainly at a discretionary level - for some of that inventory.
The cost of living is unquestionably having an impact on households. Escalating electricity prices are causing them to have grave concerns. Company profits have been sliding now for 4 consecutive quarters and outside of mining - which is the only industry sector that is consistently doing well - it is clear there is a vulnerability to the economy that has not been dealt with by the Gillard Government. Wayne Swan can spin all he wants but the bottom line is that the economy is facing challenging times and his lack of honesty in dealing with this issue is simply further undermining business and consumer confidence.
He needs to be honest and forthright with the Australian people and Australians need to recognise that the Government has no economic plan. Its forecast surplus: it is doing a crab walk, they are walking away from it and therefore it is exposing the fact that the Government just has no economic plan. If the Treasurer is going to deliver on his forecast 3% growth this financial year, he is going to need some form of miracle recovery over the next few quarters. There are a number of further detailed issues that can be addressed. Obviously there are some positives but the positives are massively outweighed by the fact that the economy is heading in the wrong direction.
The economy is heading in the wrong direction and the Government has no plan to turn it around. It has a plan for re-election, but it has no plan for the economy. Questions?
[Inaudible] Why are banks doing that under the Labor Government but they didn't do that under the previous government. Why is that?
Well if the banks aren't listening to the Government on interest rates, why would you expect the Australian people to listen to the Government on any future economic plans? The bottom line is the Government is warning the banks all the time to pass on rate cuts in full, and on 55 separate occasions the banks have ignored the Government on interest rates. It is no surprise, no-one is listening to the Government anymore. Certainly the banks aren't listening to the Government – on 55 occasions and growing! Today the National Australia Bank has cut by less than the 25 basis points that the Reserve Bank went. The rhetoric from the Government is just empty on this and, from our perspective, they listen to us because we were taking some of the funding pressures off the banks. We were running surpluses. We were paying down government debt which gave the banks themselves greater capacity to pass on interest rate cuts in full. But, more importantly, we had more competition when we were in government. Today the four major banks have around 85% of the home loan market and it was significantly less under us because there was more competition in the financial system under us. Wayne Swan doesn't understand financial services. He doesn't understand how important broad competition is to the financial services sector and to the home lending market in particular. If he understood that, then we'd have more competition and therefore the margins of the banks wouldn't be so great.
Wayne Swan will presumably argue it is overseas conditions that are affecting confidence here. How can Australia change those overseas conditions [inaudible]?
Wayne Swan always blames everyone else for his failures. It just illustrates his incompetence, his lack of judgment, and the fact that he doesn't understand what he's doing. The fastest way to take some of the funding pressures off financial institutions in Australia is for the Government not to be increasing its borrowings - as it will until 2017 - but to start paying back some of that debt, to start to make some room for financial institutions to be able to compete in global wholesale markets more aggressively. The bottom line is, when you have an 800 pound gorilla in the form of the Commonwealth Government with a AAA guarantee, borrowing in competition with the banks, it, inevitably, in one form or another it increases the cost of funding for the banks. There has been competition in savings amongst the banks – there is no doubt about that, but the bottom line is that the Government is a net borrower from the Australian economy and over 86% of all Commonwealth borrowings are coming from overseas. So, in fact, the Commonwealth Government by running deficits and by increasing debt is actually increasing Australia's risk exposure to international capital markets because 86% of its funding is being held offshore.