Barry Wakelin (Grey, Liberal Party) Share this | Link to this | Hansard source

My question is addressed to the Treasurer. Would the Treasurer inform the House of the results of today’s balance of payments release? What does this data indicate about Australia’s economic outlook?

Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Link to this | Hansard source

I thank the honourable member for Grey for his question, and I can inform him that the balance of payment for the December quarter of 2005 was released today. The current account deficit widened slightly, by $0.8 billion, to be $14.45 billion. This mainly reflects a widening in the net income deficit, which increased by $0.7 billion, and this is being driven by high profits earned by foreign owned Australian based companies, particularly those in the mining sector. The trade deficit was largely unchanged. There was a welcome increase in exports of around 4.1 per cent, due largely to a strong rise in metal ores, and a 3.9 per cent rise in imports which offset that, driven by increases in capital goods import, particularly civil aircraft, which is a volatile series. The terms of trade rose 2.1 per cent and are now 13.3 per cent higher through the year, at their highest level since the March quarter of 1974.

Australia’s net foreign debt increased to $473 billion in the December quarter. Nearly all of that comprises private debt. The general government share of net foreign debt has fallen sharply since the coalition came to office. It is now 4.6 per cent, down from 17.2 per cent in March 1996. Australia’s ability to service its net foreign debt has also improved. The debt servicing ratio fell to 9.1 per cent in the December quarter, well below the peak of 20 per cent in the September quarter of 1990.

There are a number of reasons we can expect an improvement in the current account deficit in the near future. ABARE’s latest crop report forecasts winter crop production upgraded to 40.6 million tonnes, and Australia’s mining industry has invested around $31.6 billion in the expansion of productive capacity. With rural exports recovering, with the very, very high terms of trade and particularly with the buoyancy of minerals exports, we would expect through the course of the year the trade deficit to narrow. Given those matters, Australia cannot afford to be complacent about its current account deficit. A lot of that represents borrowing, and whilst the business sector is borrowing to invest in new capacity—something that is good for the economy—it is important that the Australian government save, because it is the only sector that is saving at the moment and therefore adding to national savings or, conversely, detracting from the growth of debt. It is important in these circumstances that Australia maintain a strong fiscal position—the fiscal position which the government has set out.