Senator RONALDSON (2:46 PM) —My question is also to the Minister for Finance and Administration, Senator Minchin. Is the minister aware of recent indications as to the strength of the Australian economy? Will the minister outline how international financial developments could pose challenges to the Australian economy? Will the minister inform the Senate of policies required to deal with these challenges?

Senator MINCHIN (Minister for Finance and Administration) —I thank Senator Ronaldson for that very good question. Last week the ABS released the June quarter national accounts. They indicated that the Australian economy grew by 0.9 per cent in the June quarter to bring about a very good 4.3 per cent growth in the year to June. That return to above four per cent real GDP growth compares very well with the 1.9 per cent growth in the US and 2.5 per cent in the euro area.

Our very good economic performance was underpinned again by a strong rise in investment spending. New business investment grew by 4.6 per cent in real terms in the June quarter to be 13.3 per cent higher than a year ago. Engineering construction has grown by no less than 28½ per cent through the year. That does reflect the ongoing profitability and confidence of Australia’s business sector, which is investing heavily in future growth, particularly in infrastructure to support exports.

Household disposable income rose 7.4 per cent through the year to June. Real disposable incomes are rising faster than household consumption, reflecting increased savings by the household sector. The household savings ratio is now at its highest level since 2002.

Productivity, a subject we no longer hear about from Mr Rudd, has risen substantially, with real GDP per hour worked in the market sector growing by 1.3 per cent in the June quarter alone, and 2.9 per cent throughout the year. There was strong growth in sectors like construction, property, business services, finance and insurance. It was good to see a 4.5 per cent rise in manufacturing output in the year to June.

It is important to note that this strong growth is being achieved with low inflation and low unemployment. Our high productivity and our flexible IR system do allow us to maintain this remarkable set of conditions for Australia.

There are of course challenges posed by the volatility we have recently seen in international financial markets and developments in the real economy. This international credit squeeze has caused borrowing costs to rise. Share markets have been volatile and the Australian dollar has experienced that volatility. US jobs data has suggested a weakening in the world’s largest economy. Real GDP in Japan was actually negative in the June quarter. But fortunately Australia is very well placed to deal with these challenges. We have profitable and well-capitalised financial institutions and negligible direct exposure to subprime mortgages. We have a very flexible economy and stable macroeconomic policies. We have cut taxes, eliminated government debt and we are fully providing for our unfunded superannuation liabilities.

If Australia is to weather the global economic shocks and continue our run of low-inflation sustainable growth, as we did in relation to the Asian financial crisis in 1997, we do need strong, stable and experienced economic management. In particular, we very much need to maintain our flexible economy and our stable macroeconomic settings. That is why our message to the Australian people is and will continue to be that a Labor government, and a monopoly on power in this country by the Labor Party, does pose a risk to our ongoing economic success. If Australia were to be silly enough to wind back our labour market flexibility and return to regulated, union dominated workplace policies, Australia would lose the ability to respond effectively to economic challenges and opportunities. If Labor were to win and raid the Future Fund, embark on the spending spree implied by Mr Rudd’s lavish promises and follow the state Labor pattern of racking up debt, as they did under Mr Keating, then they will damage Australia’s ability to maintain strong growth in the face of economic instability on the international stage.