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Transcript of interview with Haidi Lun: Bloomberg: 13 March 2017: housing market; wages; agricultural sector; National Accounts; G20; trade

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The Hon. Scott Morrison MP Treasurer




Subjects: Housing market; wages; agricultural sector; National Accounts; G20; trade.

HAIDI LUN: Scott Morrison is with us now, Treasurer great to have you with us. Listen I want to get this out of the way first, there have been various reports of this rift between you and the Prime Minister, that you’ve been sidelined, I believe that was the word that was used. Can you address that, there is precedent to be fair with this kind of thing.

TREASURER: There’s a word for that in Australia and you can’t repeat it on television. Let me just say it’s absolute nonsense. The Prime Minister and I work as closely as you’d ever hope a Prime Minister and a Treasurer work together. The Prime Minister is the chief economic spokesperson for a government, just as he is the chief spokesperson on health, on education, on all the aspects of government policy, this is the norm in Australian politics, and he is the chief when it comes to all matters of the Government, and it is my job to work closely with him as I do and the two of us go back a very long time.

LUN: Alright Treasurer, I want to get back to what we started with, are these meetings that you had with the RBA and APRA about the state of systemic risk, I guess, going into Australia’s economy as a result of this property market that we have had. Are more macro prudential measures, or other measures in the offing?

TREASURER: I wouldn’t say that we do have a situation of risk as it currently sits. The latest rises in what we’ve seen as investor growth are still below the 10 per cent mark which was the cap that APRA had put in place recently, and there was a good response to the market to that, but we are seeing it rise again, and it’s only prudent that prudential regulators actually look at these things and I sat down with them last week as well as ASIC and the RBA and my own Treasury officials to look carefully at these things, but our current account deficit now is at less than 1 per cent of GDP, that is the narrowest current account deficit position we’ve seen since 1980, we are consolidating our Budget we are moving back towards balance over the next few years, we’re consolidating at half a per cent of GDP a year. Our financial situation is strong, the bond markets say that as well about Australia’s position, we have been doing very well in the issuing of Government securities and we have no reason to think that is changing. You do have to keep an eye on this, and the regulators do need to keep the tension in the cord.

LUN: Just to clarify are further micro-prudential measures or straight rate decision from the RBA, is that on the table?


TREASURER: Well the rate decisions are an independent matter for the Reserve Bank and you wouldn’t expect me to comment on that, but the prudential regulators in these areas are always looking to ensure that there remains the appropriate tension in the cord, so those meetings we had last week were important, and it was an opportunity for me to be briefed by them about how they’re seeing the situation now I think they’re keeping a close watch on it, but I should stress that the macro-prudential measures that were already put in place, they have had a positive effect on managing this issue. Overall, the household debt position is predominantly, about 80 per cent of it, is around mortgage debt, and in Australia our prices may be high, particularly in Sydney and Melbourne, but they’re real. The issue in housing affordability and housing prices in Australia is the mismatch between supply and demand. It’s not the function of any sort of investor credit bubble or anything like this. They’re real prices, they’re real values, and what we’re working as a Government to do is put downward pressure on those rising prices by addressing the supply challenges that are out there and working with state governments to achieve that.

RISH SALAMAT: So Treasurer what exactly are you doing, by the way it’s Rishaad in Hong Kong, so what exactly are you doing to address that mismatch between demand and supply in terms of creating the right conditions where more supply comes on?

TREASURER: That will be all outlined in our Budget which comes out in May Rish, and what we’ll be outlining in that Budget is measures that deal right across the housing affordability spectrum. That’s right from the social housing end, and the homelessness issues that sadly every developed economy still must deal with, right through to first home buyers who are trying to crack into that market. We’ve already got state governments whether it’s in New South Wales and Victoria, where these issues are most significant who are already starting to free up the supply leavers in their state economies, just recently we’ve had the Victorian Government move to open up a lot more land for development and they’ve also introduced a new measure, which would be placing effectively a tax on laden stock. Now the way that works is there’s an investor, who holds a property which they’re not leasing, so it’s basically stock not available in the market, and then they would place a higher tax burden on that property. We need all the stock that’s there to be out there on the market, that’s what relieves the pressure on the rental market. That’s a good initiative, but we’re looking to encourage all of these types of initiatives.

SALAMAT: Treasurer, just moving from cities to the countryside, and looking here at the agricultural side of the economy, going great guns, massive surge when it comes to growth there, how are you applying that back into communities and also just, perhaps tackling this lopsided growth story that characterises the economy in Australia?

TREASURER: The Australian economy is diverse, and whether it’s the agricultural sector, which has really had a good last half year, I mean we’ve had eight per cent growth plus in the December quarter, 23.7 per cent through the year in our national accounts for the ag sector, it contributed 0.2 per cent to our growth in both the December quarter and in the September quarter which you may recall was a negative one, so they were two strong quarters of growth, you combine that with what’s happening in the service sector, and that was contributing over 0.6 to growth, so our economy is diverse, but you’re right to say about what’s happening in the agricultural sector on the weekend I was up in the New England area, for those of listeners, that’s in the north-western part of New South Wales, Amidale, Tamworth right across moving towards the coast there. This has been a rich


pastoral grazing area, and they are really benefitting from the improved prices and volumes they’re getting in our export trades, now we’ve been working very hard on our export deals, to ensure that our farmers and our producers are being able to get the best prices and best access to markets. And we’re seeing that cash flow through into those regional economies now, and the best thing they can do with that money is spend it in Australia, and spend it in those regional towns, they’re building houses and houses, hundreds and hundreds of them every year in a regional city like Tamworth which now has well over 60,000 people in it, which is a big regional centre.

LUN: Treasurer I put this question to the Prime Minister when he was on this programme a few weeks ago, and I think to a certain extent he did agree with me, this sort of national fixation with the triple-A rating, with retaining that rating, is it getting in the way of making better decisions when it comes to infrastructure and borrowing when the going is clearly good right now in terms of the rate environment. Is the preoccupation which is needing to get the Budget balanced really preventing some of these decisions from being made, on a political level?

TREASURER: It’s not either or, all of these things are achievable, and all of these things must be achieved. We want to retain the standing that we have obviously, and at the end of the day, the bond markets are going to decide our relative risk, and I think they’re assessing that in very positive terms, I think what we’ve seen from the ratings agency at the end of the last year was a reflection of that. The issues have been raised around the rating in the past had a lot to do with the current account deficit, as I said, that’s at one of its narrowest levels that we’ve seen, the narrowest level since 1980. It does mean that we need to continue the growth story, Australia is in its 26th year of consecutive annual economic growth at the end of the September quarter, given that being maintained as we say in Australia, touch wood, I don’t think we will need to touch wood, but that will make us the longest run of annual economic growth in recorded economic history. That doesn’t happen by accident, and it means you get all these things in balance. Fiscal consolidation, investing in infrastructure, ensuring a strong growth story around our services and exports and our trade. All of this is critical and we’re doing all of it.

SALAMAT: Of course you talk a good book about what’s going on with the economy, what worries you most about Australia and the Australian economy right now Treasurer?

TREASURER: The biggest challenge we have is to ensure that what Australians are earning every week is increasing. Our wage price index has been flat for some period of time now, and increasing what Australians earn, whether it’s wage earners or small businesses is what I think is the big challenge now. That will obviously flow through into Government revenues, it will flow through into improved household consumption, and this is the real challenge for us, since the GFC and particularly post the mining investment boom, we had a 30 per cent fall in our terms of trade, and we had a significant drop in the investment in the mining sector which was really driving incomes, now late last quarter, in the last quarter in December, we saw an improvement in some of those prices which supported those sectors. Wage prices, the wage earnings of Australians have been flat, it’s been a while since they’ve had a good pay rise, and that’s what we have to work towards achieving, that they earn more, and you’re not going to earn more if the business isn’t open, you’re not going to earn more if the business isn’t earning a profit, and so the profitability of businesses, small,


medium and large, is critical to Australians earning more, and that’s why we’re focused on that, and on investment to drive that profit growth.

LUN: Treasurer I want to throw it ahead to the upcoming G20 meeting, the U.S. in particular has been pretty vocal about currency manipulation, perhaps less vocal since the election campaign, but are you anticipating any change when it comes to the communique, as it touches on foreign exchange, has there been any proposals that have been floated?

TREASURER: I think there’s a very strong consensus amongst G20 economies that trade is what it’s all about, trade and open markets and foreign investment, I mean that is what has made this country the success that it has been. For an open trading economy like Australia it’s critical that globally we continue to keep the markets open. I know that is the view of economies that have been in very difficult straights like the Argentinian economy for example, and they take on the G20 chair next year, and they need open trading markets, Bill English the New Zealand Prime Minister said, you don’t make money selling stuff to yourself, and keeping markets open and keeping the world trading is the path to global prosperity and lifting incomes whether it’s in a developing economy or a successful economy like ours.


Further information: Kate Williams 0429 584 675, Sonia Gentile 0455 050 007