Thank you, Chair, and thank you to the Committee for the opportunity to make an opening statement this morning. I’ll focus my remarks on what has changed in the macroeconomy since my last appearance 8 weeks ago.
International economic conditions
There have been significant developments in the global economy since I last appeared before this Committee.
In China, economic conditions have continued to ease, and the Chinese economy is expected to grow by around 5 per cent this year. GDP growth was lower in the September quarter as a result of weaker consumer demand and investment. Data for October points to ongoing broad-based weakness in fixed asset investment. Exports had been holding steady despite the significant contraction in trade with the US, however, more recent data suggests exports may be beginning to ease.
The recent 43-day government shutdown in the United States is expected to weigh on economic growth in the United States. Estimates from the Congressional Budget Office suggest that the shutdown would reduce GDP growth by roughly 0.4 percentage points in the December quarter and raise the unemployment rate by 0.4 percentage points during the shutdown period. The effect of the shutdown on the unemployment rate is expected to be unwound but the loss in GDP will take longer to be fully recovered.
Elevated inflation in a number of advanced economies — including the United States, New Zealand and the United Kingdom — alongside the easing in labour market conditions has many central banks confronting a more difficult balance between their inflation objective and their employment objective.
There remains heightened uncertainty in the global trading environment. Recent trade and investment agreements between the United States and key partners, including the European Union and Japan, have provided some clarity on trade settings. These deals provide lower tariff rates than those initially proposed in April this year. Following renewed escalation in trade tensions between China and the US, in late October, agreement was reached to reduce a range of tariffs and to enable trade to resume between the two countries for products such as soybeans and rare earths. Although it is a positive to see the US and China working together, trade tensions remain elevated, and it is unclear how these will ultimately be resolved. There is also a broader question over the legality of elements of the tariff regime with the United States Supreme Court yet to deliver a decision after hearing arguments in November.
National Accounts
Turning to the domestic economy, yesterday’s National Accounts reported that the Australian economy grew by 0.4 per cent in the September quarter and by 2.1 per cent through the year. There continues to be underlying positive momentum in the economy and a shift in growth from public to private demand. Over the past year, private final demand has grown at twice the rate of public demand and its contribution to growth has been more than four times that of public demand.
Of particular note was the strength in private business investment. There was a sharp pick-up in machinery and equipment investment, which is partly related to the building of data centres. Investment in equipment for information media and telecommunications has increased by around 150 per cent over the past year. Accompanying this investment has been a significant rise in investment in intellectual property products, which has mostly been driven by spending on software. There has also been an increase in investment by the airline industry that has contributed to the recent strength in machinery and equipment investment. The investment in machinery and equipment investment is expected to add to the productive capacity of the economy without having a significant effect on demand because a significant share of that investment is imported.
There was also considerable strength in dwelling investment. Detached housing activity was particularly strong in the quarter and work is progressing more quickly on new builds. Apartment and townhouse construction activity continues to grow steadily, consistent with the recent pick-up in commencements.
Consumption growth has trended higher, albeit more gradually than investment, and remains modest. Higher growth in household disposable incomes has resulted in a pick-up in spending across a broader number of consumption items, with growth concentrated on essential rather than discretionary items. These data are consistent with ongoing modest levels of consumer confidence.
Labour force and wages
Australia’s labour market has been resilient. The unemployment rate was 4.3 per cent in October. Employment grew by 1.6 per cent through the year to October, but growth has eased throughout 2025. Leading indicators – such as job vacancies and business survey measures of employment intentions – suggest near-term stability for the labour market.
Although employment growth has moderated, labour force participation, which was 67 per cent in October, remains near its recent record highs and is 1.3 percentage points above the participation rate in February 2020, just before the pandemic. The increase in the participation rate in Australia stands in stark contrast with other advanced economies, including the United States, where participation is well below pre-pandemic levels.
Wages growth has remained broadly steady over the past year. The Wage Price Index grew by 3.4 per cent over the year to the September quarter. The gradual easing in labour market conditions that we have observed has been reflected in the gradual decline in wages growth in individual arrangements to 3 per cent from its peak in March 2023 of 3.9 per cent. Wages for those on enterprise agreements have grown by 4 per cent over the past year, which largely reflects outcomes in state government agreements, including for nurses, police and public servants. Average earnings per hour worked in the September quarter increased more strongly, in part, due to higher bonuses and termination payments, which we do not expect to persist.
Inflation
Last week, the ABS published its first complete monthly CPI. This is the result of extensive work and consultation by the team at the ABS, brings Australia in line with all other G20 economies and enhances a critical economic statistic. We expect some additional volatility in the monthly CPI compared to the quarterly CPI, and as the ABS has been clear, it is expected to take around 18 months for seasonal patterns to settle. So, we will need to be cautious in putting too much emphasis on month-to-month movements in the CPI over the period ahead.
The last couple of readings of inflation have been higher than we had expected, in contrast to earlier in the year when inflation was a bit lower than widely expected. In part this reflects temporary factors such as the cessation of state energy rebate schemes and some large annual price increases, including council property rates and childcare, which are making it more challenging to read underlying trends. There does appear to be some persistence in inflation for some household services, including rents, travel services and takeaway food and restaurants, although other components of the CPI have continued to ease, including the disinflation in insurance premia we have observed over the past year.
Overall, the macroeconomic picture is one of solid growth in business and dwelling investment, with household consumption recovering more gradually and exports holding up despite a more challenging global environment. The unemployment rate has drifted up over the past year and employment growth has eased, but the unemployment rate remains low, and participation remains high. Underlying wage growth has been stable and household disposable incomes have been growing, but households have been saving a little more of this extra income than they have in the recent past. There have been significant declines in inflation over the past few years, but most recently, inflation has been a bit higher than expected, partly due to temporary factors. All these data are being carefully considered as we finalise the forecasts ahead of MYEFO.
Energy Bill Relief Extension Scheme
Over the past few days, the potential breach of section 83 of the constitution that Treasury disclosed in our 2024–25 Annual Report has been raised in a number of Senate Estimates sessions.
This matter was discussed in detail with Fiscal Group at Senate Estimates yesterday.
I take these matters very seriously and was briefed on this matter in the process of signing off Treasury’s 2024–25 Financial Accounts and Annual Report. While it is never desirable to make such an error, I am impressed with how quickly the Treasury staff identified the issue, advised the Treasurer, took corrective action, reviewed our systems and clearly disclosed the breach.
Of course, I was also pleased to be reassured that at all times, the right amounts were paid to the right entities, in line with the program’s legislation and in line with agreements with the states.
Following careful consideration of this issue, I am satisfied these breaches amounted to an inadvertent oversight — no individuals are suspected of behaving improperly and all individuals cooperated constructively with the reviews we undertook and the corrective action. On this basis, I do not consider there to be any suspected breaches of the APS Code of Conduct.
To provide additional assurance over the corrective actions taken to date and to recommend further enhancements, I have asked for a management-initiated review to be undertaken by Treasury's internal audit provider. The Australian National Audit Office has also advised us that they may include payments to states and territories in its next performance audit. I support this proposal.
Close
In closing, I would like to take the opportunity to congratulate my deputy secretary, Victoria Anderson, on her appointment to the role of Secretary of the Department of Agriculture, Forestry and Fisheries. I would like to thank Vic for all of her contributions to Treasury over the past few years and for the support she provided me in my transition into this role.
Thank you for the opportunity to provide this opening statement. I welcome your questions.