INTRODUCTION
Good afternoon.
I would like to begin by acknowledging the traditional owners of the land on which we meet, and their elders past and present.
I also want to acknowledge my colleagues Mathias Cormann, the Minister for Finance, and co-author of the Economic and Fiscal Update released yesterday. And Senator the Hon Zed Seselja, Assistant Minister for Finance, Charities and Electoral Matters who are here today.
Ladies and Gentlemen, we are just over half way through 2020 and it has already been a devastating year.
From the drought to the fires and now COVID-19.
Lives have been lost.
Businesses have closed.
Family dreams shattered.
It’s not right, it’s not fair, but it is our harsh reality.
Decent, hard-working Australians from all walks of life, through no fault of their own, are paying a heavy price.
Despite the darkness, we have seen once again the remarkable spirit and strength of the Australian character.
The selfless bravery of the healthcare workers on the front line, our scientists working tirelessly to develop a vaccine and all those quiet Australians who are diligently following the medical advice and playing their part in defeating this relentless and insidious enemy.
This is the source of our hope and our strength that we will get through this.
It is our resolve and resilience that will see us through.
Two World Wars and a Depression didn’t bring Australia to its knees.
And COVID will not either.
Today, I am going to talk about where we are from a health and economic perspective and outline the scale of the challenge we face and the uncertainty it brings.
I am also going to explain the steps we have taken and will take as part of our plan to support Australians through the depth of this crisis and help them back into work.
HEALTH AND ECONOMIC CONTEXT
Around four weeks ago, on 23 June, Australia recorded 20 new COVID-19 cases.
Yesterday, in my home state of Victoria, we had over 20 times that number. Over 5 million Victorians are back in lockdown.
It is a painful reminder of how quickly the virus can spread and the consequences that flow.
However, we need to remember that six out of our eight states and territories have almost no cases and no community transmission.
We must keep a sense of perspective.
In Australia, as of today there are 175 active cases for every million people, whereas in the United Kingdom it is 3,774 and 7,998 in the United States.
Our success on the health front has been due to an early and decisive move to close the international borders, strengthen our health system and put in place the right health measures.
But we are under no illusions.
This is why we must continue to support efforts to develop a vaccine.
There are over 140 vaccine candidates in development around the world, with 24 of these currently in human clinical trials, including four in Australia.
The Morrison Government has invested $333 million to support these efforts.
But as long as there is no vaccine, there will be new cases and outbreaks.
How effectively we manage these cases and minimise the economic impact will determine the speed and trajectory of our recovery.
The economic mountain ahead of us is steep with the Update released yesterday making this clear.
Record falls in household consumption, business investment and GDP with the official unemployment rate to peak in the December quarter at 9 ¼ per cent.
As the Prime Minister and I have observed, given the dislocation in the labour market caused by the pandemic, it is the effective unemployment rate, rather than the official unemployment rate, that currently provides the best indicator of progress in getting Australians back into work.
The effective unemployment rate takes into account those people who left the labour force since March and those who have been stood down.
As we saw from the most recent labour force figures, 210,000 additional people found a job. In addition, a further 130,000 people who are employed but were temporarily stood down, recommenced work last month.
As a result, the effective unemployment rate fell from its peak of close to 15 per cent in April to 11.3 per cent in June.
The shock that we are seeing from the coronavirus is considerably sharper than what Australia experienced during the recessions of the 1980s and 1990s.
The falls in GDP and employment are around twice as big, and occurred over a matter of months, not years.
In those earlier recessions, the impacts were felt more acutely by working-age men in the manufacturing and agriculture sectors.
This time around, women have experienced higher job losses than men.
Young people have also been badly affected, making up more than one-third of the jobs lost.
The youth unemployment rate has jumped to its highest rate in 20 years.
Since February of this year, the economic impact of COVID-19, has cost us three and a half years’ worth of accumulated GDP growth and around three years of hard won employment growth. All gone through no fault of our own.
Australia’s position is not unique. COVID-19 is striking many economies with even more devastating consequences.
The World Bank expects more economies to experience contractions in per capita GDP than at any other time since 1870.
The OECD is forecasting a contraction of six per cent in global growth this calendar year, compared to an annual fall of just 0.1 per cent during the GFC.
Global working hours lost in the March and June quarters, according to the International Labour Organisation, are equivalent to the loss of 480 million full-time jobs.
In the United States, data overnight shows that there are now 53 million jobless claims since mid-March.
I know it may be of little comfort right now to those Australians who have lost their jobs, but Australia is the only developed country to have its growth forecast upgraded for 2020 by the IMF in its June World Economic Outlook.
This gives us confidence that we are better placed than most other nations to chart a path to recovery.
OUR PLAN
In response to COVID-19, we laid out a comprehensive plan.
We moved quickly and decisively to slow COVID-19 spreading in Australia.
We did this by closing our borders and imposing a set of restrictions that would suppress transmission, but allowing large parts of the economy to continue operating.
This was a deliberate strategy.
We didn’t go down the path of countries like Sweden, which put few restrictions in place.
The result is that Sweden has seen over 5,600 deaths from a population less than half the size of Australia’s, while still experiencing large falls in economic activity.
At the same time, we didn’t go down the path of countries like France, which adopted extreme lockdowns, totally shutting down large parts of their economy.
As a result they have seen a huge collapse in economic activity of around 30 per cent, with some sectors including construction down by almost 90 per cent.
Notwithstanding these measures, France still suffered around 450 deaths for every million people.
The French Prime Minister has recently said that they would not be imposing a lockdown like the one they did in March again, because they have learned “that the economic and human consequences from a total lockdown are disastrous”.
Instead, we chose a middle path. We got the balance right.
We have been clear from the outset that we are following a suppression strategy. Not an elimination strategy.
A strict elimination strategy would cripple our economy and require us to shut down many more sectors and not allow anyone to enter the country.
Treasury, using OECD estimates of the economic impact of full lock downs, suggests a six week Australia-wide hard lock down could reduce GDP by around $50 billion.
This is what is at stake.
In contrast, we’ve shown that an aggressive suppression strategy, targeting low or no community transmission can be effective — when implemented well.
We have already seen this occur in seven of our eight states and territories.
The Victorian Government has acknowledged that there were breakdowns in their quarantine arrangements that led to this new breakout.
Provided we learn from the mistakes that have been made, we can get back to where we all want to be as a country. And we can keep our economy moving at the same time.
As COVID-19 started to spread, we also took every step necessary to strengthen and prepare our health system, committing $9.4 billion towards the overall health response.
This was used for the urgent purchase of Personal Protective Equipment and other essential equipment; to build the capacity of our hospital network; to provide Medicare subsidised telehealth services and to boost mental health supports across the community.
Of course, even with these steps, the damage to our economy and to jobs could never have been completely avoided.
That is why we have committed a record $289 billion of economic support or 14.6 per cent of 2019-20 GDP — $164 billion of direct fiscal support and another $125 billion in loans and guarantees.
Carefully designed to cushion the blow for households; help businesses stay in business; and maintain financial stability.
Of our direct measures, around $70 billion of support has already been provided.
Australia’s fiscal response has been in line with that of other countries around the world, with around $US11 trillion being deployed globally to mitigate the economic fallout from the pandemic.
Direct Household Support
The centrepiece of our support measures has been the JobKeeper Payment.
It has acted as a lifeline for over 3.5 million people and nearly a million Australian businesses.
So far, the program has provided payments totalling over $30 billion, providing a much needed boost to individuals, businesses and the economy.
There are thousands of personal stories around the country, like Ashley who runs an audio visual business in Adelaide. As thousands of dollars of bookings were cancelled due to the pandemic, JobKeeper in her words acted ‘as glue’ for her and her employees allowing her to keep staff on and upskill the technical crew with in-house training.
While Peter from Flinders Island Aviation in Tasmania used JobKeeper to keep his four staff employed as he provided essential passenger, freight and logistics support to isolated communities.
Without JobKeeper and our other measures, the unemployment rate would have been 5 percentage points higher than we have seen. It has saved 700,000 jobs.
And like so many of our measures, JobKeeper has been helping lower income households. Around 80 per cent of those people receiving JobKeeper in May, were earning less than $90,000 a year before the crisis.
On top of this, we provided direct support to those low income households who needed it most, including social security, veteran and other income support recipients.
Our $750 Economic Support Payment in April provided $5.6 billion to over 7 million people and our July payment is providing another $3.8 billion to around 5 million people.
Like Jennie from Milang in South Australia who sent me a heartfelt letter last week. Describing herself as a widowed 83 year old renting pensioner, she shared how in one week the power bill arrived, her 19 year old washing machine packed up and her adopted greyhound had a tragic accident leaving her with a $260 vet bill. In her words “suddenly your money arrived and I paid my bills, perfect timing.”
Jennie, like so many others across the community, has benefited from the support that has been put in place.
Other measures include our $550 Coronavirus Supplement which has significantly increased income support for over 1.6 million job seekers.
The Coronavirus Supplement is also being provided to around 600,000 other beneficiaries, including those on the Parenting Payment.
We also allowed those who had lost their jobs or suffered a large drop in their hours to access their superannuation early and tax free, providing further financial relief.
We know that almost 60 per cent of those accessing their super early have used it or plan to use it to meet essential day to day expenses, including paying down debts, with another 36 per cent adding the money to their savings.
Business Support
Second, we provided targeted support to help businesses survive the crisis, retain employees and invest for the future.
Our Boosting Cash Flow for Employers measure has provided over $17 billion to more than 750,000 businesses across Australia.
Some have used this support to help cover their rent or running costs; some have used it to replenish their stock levels; and others have used it to hire or retain staff.
Treasury analysis shows that without the various support measures provided to businesses, including JobKeeper, the cashflow boost, and rent and loan deferrals, another 200,000 businesses would likely have run out of cash by the end of this year.
This unprecedented level of cashflow support was coupled with incentives for businesses to invest in their future – to make them more competitive and more resilient.
This included a 50 per cent accelerated depreciation measure as well as a significantly expanded instant asset write-off.
During the crisis, we also made more than 80 regulatory changes to provide greater flexibility and protections for affected businesses.
While our focus has been on providing support to businesses across the whole economy, we recognise that restrictions have impacted some sectors more than others.
This is why we have supplemented our broad based support with targeted sector-specific responses.
Take the HomeBuilder program which is already boosting activity and jobs in the residential construction market. In June, sales of new houses jumped by almost 80 per cent and the Master Builders Association has said the scheme is delivering the “most effective stimulus in a decade”.
Consider also the specific support provided to the arts and entertainment sector, with $250 million in grants and loans that will support thousands of jobs and a further $400 million to attract film and television productions to Australia.
Just as we have done to date as part of our JobMaker plan, we will continue to evaluate the need for further targeted sector-specific support as the crisis evolves.
Financial Stability
Credit is the lifeblood of an economy. Had it stopped flowing, it would have triggered an even more severe economic shock than the one we are experiencing.
This is why the third part of our economic plan was focussed on making sure that we protected our financial system and kept credit flowing through the economy.
We did this with the Reserve Bank, our other financial regulators and in close and constructive partnership with the major banks.
Thanks to this partnership, since March of this year, banks have provided repayment deferrals on over 900,000 loans covering in excess of $250 billion in borrowings.
The Reserve Bank established a new Term Funding Facility, providing incentives for banks to increase lending to businesses, particularly SMEs.
Similar measures were introduced to enable the Australian Office of Financial Management to support smaller bank and non-bank lenders, with the Government providing $15 billion to support their ability to lend.
To date, around 16,000 loans worth $1.6 billion have been accepted under the first phase of our SME Guarantee Scheme. The Government is extending and enhancing the Scheme as its focus turns to helping businesses recover and grow as the economy continues to open up.
The results are clear to see.
Credit has continued to flow. According to ABA data, the four major banks increased their total lending to SMEs by over $2.2 billion in June.
Taken together, our policy measures have been targeted, temporary and scalable.
They have been effective and achieved what they were designed to do, kept businesses afloat, kept people in jobs, maintained financial system stability and the flow of credit.
NEXT PHASE OF SUPPORT
With restrictions starting to ease across much of the country, and parts of our economy re-opening, we are now moving into the next phase of our JobMaker plan.
Despite the challenges in Victoria, there are positive signs that large parts of our economy are starting to get back to business.
We are seeing this across a range of indicators.
On the jobs front, of the 1.3 million Australians who lost their job or were stood down on zero hours at the start of the crisis, close to 500,000 had again started some form of work in June.
Around half of this recovery was in the accommodation, food and retail sectors.
If secondary outbreaks are contained, Treasury expects around half of those that lost their jobs or were stood down on zero hours early in the crisis will be back in some form of work by the end of the year.
Of course, we know that some sectors will continue to be badly affected.
In transport, for example, a key industry tied to international tourism, there is yet to be a recovery in jobs lost or the number of workers who have been stood down on zero hours.
There are encouraging signs also from early bank data with respect to loan deferrals.
As of June, repayments are now being made either in full or in part on over 20 per cent of deferred housing loans.
As the economic environment evolves, so too must our economic plan to match these changing circumstances.
The initial phase of our plan was focused on preparing our health system for this crisis, saving jobs and protecting the economy.
In the next phase of this crisis, our focus will shift to enabling growth.
Unlike past recessions, monetary policy is constrained and will do much less of the heavy lifting.
During the GFC, the Reserve Bank cut interest rates by 425 basis points. Today, this would be the equivalent of up to $100 billion in fiscal support over a 12 month period.
We don’t have that luxury this time around.
We also don’t have a strong flow of migrants to support growth.
Due to lower net overseas migration, annual population growth is assumed to slow to just 0.6 per cent in 2020-21, the lowest rate since 1916-17.
This time, while we will continue to provide fiscal support through the crisis, sustainable growth will only come from creating the most dynamic and flexible economy we possibly can.
This is what our JobMaker plan is all about.
That is how we can help Australians recover and get more people back to work, more quickly.
As we announced earlier in the week, the JobKeeper Payment will be extended for a further six months.
This will give those businesses additional time to recover, while encouraging those that can re-open to do so.
Treasury estimates that between 1 million and 1.4 million people will continue receiving JobKeeper at an additional cost of around $17 billion.
Importantly, JobKeeper will remain open to new participants. If conditions worsen or restrictions become tighter, more people will become eligible and get the support they need.
While we are seeing early signs of a recovery in the jobs market, the unemployment rate will remain high for some time.
So we are also extending the temporary Coronavirus Supplement to the end of the year.
At the same time, we are making sure that there are strong incentives in the system for jobseekers to take up new job opportunities as quickly as possible, by increasing the income free area and simplifying the taper rate.
Individuals can now earn nearly three times as much, up to $300 per fortnight, before they lose any JobSeeker payment.
We know that the job market will be tighter for new job seekers and graduates.
Treasury analysis shows that Australians graduating into a labour market with high youth unemployment can expect to earn roughly 8 per cent less in their first year of work, and
3½ per cent less after five years.
The new National Skills Commission will help young jobseekers to better understand the skill needs of employers, and target investments to the skills and jobs that will be in demand.
We have worked with the States to deliver $80 million for 80,000 additional VET short course places in priority areas like infection control training.
Our Higher Education Relief package introduced subsidised short courses to help Australians upskill or retrain in critical areas like nursing, teaching and science.
And we are establishing a $1 billion JobTrainer Fund, jointly funded with the States and Territories, which will provide up to 340,000 vocational education and training places for school leavers and job seekers in 2020-21.
We have also extended our 50 per cent wage subsidy for existing apprentices and trainees to 31 March 2021 and expanded eligibility to medium sized businesses.
The extension will help 90,000 small and medium businesses and around 180,000 apprentices and trainees stay in work and prevent them from losing a year of their training.
These opportunities will not be fully realised unless we deal with our inflexible industrial relations system.
The temporary industrial relations changes we have made in response to the crisis have been absolutely critical to keeping more people in work.
Early survey results on the use of these provisions indicate businesses have found the changes to be essential to their ability to adjust and get through these challenging times.
Three out of four surveyed employers used the flexibilities provided for by the provisions.
Almost all surveyed employers that used the flexibilities have said such access was important to keep their business operating and their employees in jobs.
And 80 per cent of surveyed employers support the continuation of the JobKeeper flexibilities for a further period of time, with job losses and business closure being the most commonly cited impact of not being able to use the provisions into the future.
These temporary changes have shown us how big an impact a more flexible system can have.
There is no doubt that our industrial relations system is overly complex and rigid.
For the system to deliver more jobs, it will need to evolve to meet the jobs challenge the country faces.
This is why the work that the Attorney General is leading is so integral to the recovery and why all parties must constantly ask themselves – will the changes they seek create more jobs or less.
Our tax system will also need to play a role in the recovery.
The pathway to recovery is not through higher taxes but through a more competitive and efficient tax system that supports jobs and promotes investment.
The Government is already driving reform in this area by abolishing an entire income tax bracket and delivering the largest personal income tax cuts in more than 20 years.
Over coming months, our legislated tax cuts will see over $7 billion flow into the pockets of taxpayers as millions of Australians lodge their income tax returns.
During the crisis, we have also prioritised tax changes that support business investment and will continue to do so. There can be no sustained recovery without new investment.
I’m encouraged by the early discussions I’m having with State Treasurers about tax issues at our Council of Federal Financial Relations meetings.
We all recognise there is a need and an opportunity for reform in a very complex area with many moving parts.
Our principles are agreed. We are all in favour of tax reform that delivers a simpler, more efficient and sustainable tax system as a pathway to more jobs and investment.
As Treasurers, we have also been tasked by the National Cabinet to take the lead in cutting red tape.
One long overdue area of reform is to improve occupational mobility by reducing licensing and registration requirements between States. Currently, there are over 800 different licences in manual trades alone.
Based on our recent discussions, we are well placed to make substantial progress on this issue.
We need to trust each other across the federation. If an individual is licenced and registered in one jurisdiction, that should be easily recognised across the country.
We also need to tackle planning and zoning and push forward long overdue reforms.
As the Productivity Commission has reported, these reforms could unlock around $1 billion of economic activity each year in Sydney alone.
This shows what practical changes can do to help businesses grow.
FISCAL IMPLICATIONS
The Government has been able to respond to this crisis with unprecedented levels of economic support following six years of fiscal repair and discipline.
This fiscal support together with parameter variations which are seeing higher welfare payments and decreased tax receipts is having a major impact on our Budget position.
This was unavoidable.
The underlying cash deficit is now expected to be $85.8 billion, or 4.3 per cent of GDP, in 2019-20, increasing to $184.5 billion or 9.7 per cent of GDP in 2020-21.
These are daunting figures and reveal the impact on the Budget of COVID-19.
Government debt levels have increased sharply, with net debt expected to reach $677 billion or 35.7 per cent of GDP at the end of June next year.
Even at these levels, our net debt to GDP ratio is significantly below that of comparable countries, with the average net debt to GDP ratio of many advanced economies expected to exceed 100 per cent in 2020.
Notwithstanding our relatively strong position, we remain focused on protecting the structural integrity of the Budget with almost 99 per cent of the spending committed in response to the crisis occurring over 2019-20 and 2020-21.
As our economy recovers, so too will our Budget position.
With historically low interest rates, our debt levels remain manageable.
The weighted average cost of our new borrowing assumed in this update is only around 0.8 per cent, down from around 2.8 per cent only two years ago in the 2018-19 Budget.
Growing our economy will be key to reducing our debt as a share of GDP.
Let me illustrate this.
With the benefit of low interest rates, returning to trend growth and bringing the budget back to balance will see our gross debt as a share of GDP reduce by around 1½ percentage points per year.
We have demonstrated that we can run a balanced budget before and will do it again.
Just as growth will be key to getting more Australians back into work, so too will it underpin our fiscal repair strategy.
CONCLUSION
This is a difficult time for Australians. It will test many of us like we have never been tested before.
No one should underestimate the size of the mountain we have to climb.
But we can be confident that as a nation we have the ability to manage these challenges and the plan to do it.
Underpinning the recovery has been a strong spirit of collaboration across the country.
From the Commonwealth and the States and Territories through the new National Cabinet.
From our big cities to our small towns.
From business to the unions and the banks.
Australians have come together to tackle this crisis.
If we continue to work together in the spirit of cooperation that we have shown in our response to date, we will emerge stronger.
There is hope for the future.