Transcript of Question & Answer Session Australian Economic Growth – The How, What and Where

Chris while people are getting organised, somebody is going to ask you this question, so it might as well be me. Given the sluggish growth in non-mining investment that you described there, what are the odds on another interest rate cut?

That's a good question. The best thing I can say there is the Board made it fairly clear in the Governor's media release after the last meeting when they didn't cut rates and they cut rates 25 basis points in February. So they have said that a further easing of policy may be appropriate over a period again, in order to sort of foster sustainable growth. The Board will assess the case on such action at forthcoming meeting, so that's about as clear as they want to be, as clear as I can be. It's a good question but I can't really add much more than that. So you know it may be appropriate, but that's the case when considering it.

Good morning Dr Kent, Kay Wilson from the RSL Services Clubs Association Queensland. I once read a book by Rhonda Hughes called First Abolish the Customer, and the general thrust of that was exporting jobs overseas and you won't have any customers. In view of the fact that a lot of major banks, manufacturing, car industry and others are exporting their jobs overseas, and I know you've really touched on this, in particular when we see the jobs of the future and in view of the declining job opportunities, where are the jobs for the over 50s going to come from do you think? Especially as the Government is looking for us to work till we're nearly 80?

Lots of good material in there. Let me do my very best to address all of them but by all means shout out if you miss what I said. The jobs offshore is a good question I think my response is that we really opened ourselves up to more free international trade over the course of the last few decades and that's happened in a time where we had pretty strong population growth and if we go back to, this isn't quite the right chart, but if we go back here although the unemployment rate is certainly relatively high over recent years it's much lower than it has been and is before. In other words we have managed to generate sufficient jobs by population over the much longer term and that's been a period where we've really opened things up. It's true that some industries have been in decline while other industries have expanded more, particularly as I suggested already in the services sector, those jobs actually can be quite well paid and require reasonable levels of education and skill. The other aspect of the sort of movement of jobs offshore we have to remember to some extent what that's often doing is lowering particular cost for this businesses and often for many businesses and so that helps the businesses that are still here, even some of those that aren't as business we're offshoring each other were really high, but English it doesn't ring true to me. This offshoring helps lower costs for multinationals which makes them competitive in the things they're good at. So that was the first one, I missed your middle question and I said that question should be over 50. Well I think the question about employment and I suggest it's very hard to know exactly what it costs, I think in the near term we're getting quite a lot of growth in the construction industry in housing and actual interest rates are as high as they are now, consumption growth has picked up that's fairly broad based, but still it's better than it has been but still below average and what we are looking for is more growth in the time to come.

In terms of the over 50s I gave a speech on population and aging last year I think one of the market was suggest that the 50 is the new 40 and we're going to extend that bit on there if you like. We are living longer, generally living healthier, probably should be working longer as well, where are those opportunities again I can't be specific for where they are for older Australians, but services as I suggested is kind of where our economy is go, we've still got a very strong resource sector, very strong agricultural sector, manufacturing is less strong than it has been in the past, but that's feature of the time, many developed economies that have become much wealthier than they were 30 years ago notwithstanding.

Okay we've got a question over this side.

Tony Williams Hopetoun RSL. First question, you spoke about the valuation of the dollar, when you look at the population 45 per cent of the population are in the aging group and all self-funded retirees you know we are getting caned by the low interest rates, that's my first question. Secondly you talk about manufacturing, you know a lot of companies went overseas to China because they thought it was cheap labour over there which was a false economy as far as Australia is concerned, because when they got their stuff manufactured over there and the Chinese learned to copy and make a better job of it and selling it back to us the black market, that's hurt our industry pretty heavily. You talk about export of education and so forth and it was our biggest, was more so than all iron ore sales to Asia but when you go to our universities you find that all the positions are taken by Asian students, Indian students, everything like that, where they can pay their way to it, where the Australian students can't get in the door so therefore our economy is suffering because our technology is going down, it's not going up, so there should be some way that the Australian government looks at and says okay we've got to train our own first before we start giving positions to other countries. Then you talked about the housing boom, we've either got at the moment all the houses are being I think chopped up or sold up by you know overseas investment which is the Chinese coming into the country, they're buying houses because they're cashed up, they're buying houses in my street they're going for $1.5 million they're just buying one after another. It's pushing the housing prices up so therefore the Australian families can't buy houses and then Joe Hocking comes out and makes – to say that he is going to stop overseas investment, how is that going to affect the housing boom then when you find out the Chinese and the Indians and all the other countries, Asian countries who are cashed up can't buy the houses here.

Well Tony I'll do my best to speak over these. So low interest rates, we recognise that we understand that amongst older Australians who have their own savings and whether those savings are in interest bearing accounts for banks for example, their incomes are lowered by lowering interest rates. And this comes back to my remark that monetary policy is a fairly blunt tool, it's one interest rate for everyone, for the whole country.

So you'd have to then try and strike a balance between you say low interest rates good for investment, bad for - - -

Well it's bad for some sectors of the household sector, those savers – well there are some savers who are exposed to equities and housing and those assets will benefit from low interest rates. For those who have a heavy focus of their savings is in interest bearing accounts and banks then they are feeling it. The thing is though that the household sector as a whole is still a bit better on average the household sector owes money, the household sector on average benefits from lower interest rates, their disposal incomes go up and that is the sort of thing that leads to the better consumption that we've seen and of course the dwelling and extra dwelling investment that we've seen over the past year or two. I said enough I think about manufacturing, I think maybe just the thing on the house prices I've already just briefly mentioned then that sort of those who own an existing house have benefited from the increase in wealth from that source. In terms of sort of foreign buyers we've made our submissions to recent inquiries about this and our understanding of the data is that they are very active in particular markets, most obvious being Sydney and Melbourne particularly close to the centre of those cities. But this house price growth generally is fairly broad based in terms of looking at what's happened over the past couple of years and most of that reflects the effect of low interest rates.

That other question, but look just before we finish with this housing business, is the extra money that's being put in the housing investment because of inflated prices, reducing the level of money that's available for consumption. I think your graphs indicate that we need to boost consumption in Australia, are we going to be able to do that while so much disposable income is going to housing? [inaudible]

Garry Vincent's been waiting for a question.

Thanks Dr Kent. In our industry the issue of consumption is very important because it's as Peter indicated in his opening, a discretionary expenditure on recreation and dining and entertainment is our business and there seems to a very direct correlation between consumer confidence and spending levels in our businesses. Why – with those things such as interest rates and recognised unemployment although it's creeping up it's still at quite reasonable levels compared to where it has been over the last decade or two decades. Why is consumer confidence still struggling? What have we got to do to get people to feel more confident that they can start increasing their consumption because we need to know this because that's where our businesses are impacted when consumer confidence is quite low and it is a very low figure now compared to where it was 12 months ago, why? What has happened in the economy in the last 12 months that's driven consumers to feel so uncertain that they're not prepared to spend at the levels that they were previously?

Well I think you can come up with a number of plausible explanations as to why consumer confidence is where it is, so the surveys that we have, there are few surveys around essentially just asking households about their own finances, what they think about the economy. They are lower than they have been in the very recent past but they're still only a bit below average. They can't be above average all the time, but they're a bit below average. And that's true too I guess of business confidence, which is a bit below average. Part of it may be the gradual rise in the unemployment rate, part of it I suspect may just be the low growth of labour incomes because of the wages side. So while that means people who have jobs are getting slightly less of an increase in their pay packet every year than they may have been used to. So I suggest that there's a positive side to that there are more people with jobs because of lower growth of wages and more people who are managing to hold on to their existing jobs, and that's very beneficial for labour incomes.

What is it that can be done? Unfortunately we have interest rate lever, we don't have a confidence lever, we do what we can by trying to sort of by having interest rates low and doing so sort of a carefully considered way balances up all of these different pressures and forces go in different directions. But there isn't anything magic to it and it's very hard work. I think confidence will build over time, it tends to build slowly and gradually, it tends to be lost quickly. But as I suggested in my sort of concluding remarks, the prospects for the economy generally are very good over the long term for the economy as a whole because all of the things we have in our favour are generally things other countries don't. So I think the prospects are good when everybody will see that and respond accordingly I can't be too sure.

Okay look our time for this session is up, but we'll take one last question just to round off.[inaudible]

Yeah I mean I think the issue raised is a good one, a lot is discussed about regulation, we discuss a lot about regulations in the labour market, perhaps less so about regulations and deregulation in product markets. I think the Productivity Commission does emphasise the need to have reforms across a wide range of parts of the economy if we're trying to grow as strongly as [we can] as well as sustain growth of wages and profits. But that's about more competition in product markets as well as building on earlier labour markets, it is not just one or the other.