‘It’s time to fuel our engines of growth’, says Frydenberg

Josh Frydenberg believes the economy needs a kick start and is developing strategies to achieve it.

Treasurer Josh Frydenberg in Sydney yesterday. Picture: AAP

Josh Frydenberg has declared the economy needs a “pro-growth strategy” as construction work and home building continue to fall across the country and leading ­indicators of employment growth hit record lows.

The Treasurer, who yesterday met the nation’s top financial regulators in Sydney, said the economy still faced headwinds, international trade tensions between the US and China were weighing on growth and drought and floods in recent months had had a “significant impact” on economic activity.

Mr Frydenberg met Reserve Bank governor Philip Lowe and the deputy chairs of the banking regulator after the central bank this week signalled two imminent cuts to official interest rates that would put the cash rate at a new low and after the Australian Prudential Regulation Authority launched a shake-up of rules that had kept lower-income borrowers out of the housing market.

“The Australian economy faces headwinds both internationally and domestically,” Mr Frydenberg told a conference in Sydney.

“The housing market has slowed. We’ve seen the budget forecast for dwelling investment, which had been growing at about 5.5 per cent per annum on average over the last five years, forecast to be down 7 per cent in 2019-20, then another 4 per cent the year after.”

His comments came as the Australian Bureau of Statistics said construction work done over the March quarter fell 1.9 per cent — a slide that was led by falling rates of home building and engineering work.

“There was confirmation that the home building sector is in a sharp downturn, after work peaked in mid-2018,” Westpac economist Andrew Hanlan said.

“This follows a strong and extended upswing over recent years which saw supply largely catch up with demand.”

Westpac’s leading index, which indicates the likely pace of economic growth into the near term, also fell further over the past month, driven by further declines in approvals for dwelling construction. The result was “a clear signal that economic growth through the three quarters of 2019 is likely to be below trend”, Westpac chief economist Bill Evans said.

Meanwhile, official data revealed the weakest rate of growth in skilled jobs vacancies in five years as the Department of Jobs and Small Business figures fell to their lowest point in two years.

Mr Frydenberg said the “impact of a slowdown in the housing market is also being felt, so it’s not the time for higher taxes; it’s the time for a pro-growth strategy”.

Dr Lowe this week urged ­Canberra to drive reforms to tax policy, infrastructure spending and the education sectors to help support longer term economic growth.

Mr Frydenberg cited his planned tax cuts for lower and middle income earners, which is due to provide relief for households over coming months, the Coalition’s $100 billion infrastructure spending plans and its support for ­apprenticeships as key reforms to be launched by the government.

“Tax is really important, so we have not just immediate relief but we also have a long-term structural change,” he said.

He noted the Coalition government’s plan to remove some income tax brackets and address bracket creep.

Citi economist Josh Williams said the disappointing construction figures meant annual GDP growth would likely slow even further to 1.7 per cent, down from an already sub-par 2.3 per cent.

“The leading indicators of employment growth such as job advertisements and vacancies are weakening,” CommSec chief economist Craig James said.

“With … unemployment rates ‘stuck’ at around 6 per cent in Tasmania, Queensland, Western Australia and South Australia, the Reserve Bank appears likely to pull the interest rate lever at its June 4 meeting,” Mr James said.