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Labor avoids doing the hard yards on the economy

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Joe Hockey, MP 

Shadow Treasurer 

Member for North Sydney



The latest National Accounts show Labor continues to shirk the hard decisions and refuses to do the heavylifting required to restore strong growth to the Australian economy. It is failing to capitalise on what is for Australia a very strong international environment.

Overall GDP rose by just 0.2% in the September quarter, the weakest quarter of growth since the negative result in the December quarter of 2008. The annual rate of growth was a below trend 2.7%.

There were big detractors from growth - net exports (-0.4%), inventories (-0.2%) and dwelling investment (-0.1%). Positive contributions came from household consumption (0.3%), private business investment (0.3%), and small contributions from public consumption (0.1%) and public investment (0.1%).

The small contribution from public sector investment shows that the government sector is not doing enough to invest in essential infrastructure to improve productivity and lift the speed limits to growth.

Dwelling investment fell 1.8% in the quarter and household consumption cooled to 0.6% from 1.4%, suggesting higher interest rates are biting on growth - even before the outsized increases in November. Since the June quarter 2009 household interest payable per quarter has increased by a massive $5.3bn or 46%! This reflects the impact of the then six increases in the official cash rate (the seventh increase was November, after the period to which the accounts relate) plus the additional rises imposed unilaterally by the banks.

Labor must immediately rein in its reckless spending and reduce its budget deficit to take pressure off interest rates.

Labor is getting a free kick from high commodity prices. The terms of trade rose 0.8% in the quarter to the highest level in 50 years, some 20% higher than when Labor gained office in the December quarter 2007, and much higher than during the Coalition’s term of office.

The household saving ratio remained high at 10.1%, well above the cyclic lows when it was negative through the middle years of the decade. While higher savings are generally a good development, it seems households hurt by higher interest rates are desperately trying to rebuild their family finances and are keeping their hands in their pockets.

The government’s efforts to lift productivity have been a dismal failure. Productivity (GDP per hour worked) fell by 0.8% in the quarter and by 0.8% over the year. This is an area which requires urgent policy attention and reinforces the critical nature of the strong productivity agenda which the Coalition took to the election.

By industry, the standout was a huge rise in agriculture forestry and fishing (18.5%) reflecting the ending of the drought. This was the only industry sector to make a meaningful contribution to growth. There were small declines in mining production (-0.7%), construction (-0.9%), and transport (-0.3%). Financial and insurance services rose 0.4%, so the banks continue to do well.

Performance across the country remains variable. The strongest growth in state final demand in the quarter was recorded by the ACT (2.2%) and NSW (1.4%), while declines were experienced by Northern Territory (-1.4%), South Australia (-0.5%), Queensland (-0.5%) and Victoria (-0.1).