17 December 2020

Doorstop interview, Parliament House, Canberra


Subjects: 2020-21 Midyear Economic and Fiscal Outlook; Reserve Bank appointments; 


A very good morning to you for this book-end to what has been a remarkable and trying year for all Australians and a pretty tumultuous one too for the Australian economy.

It is my great pleasure to be joined, for the first time at MYEFO, by Australia's new Finance Minister, my good friend and Parliamentary colleague, Senator Birmingham. I will make a short statement. Senator Birmingham will also have words to say. Then we're very happy to take some questions.

Today’s Budget update confirms Australia’s economy is rebounding strongly.

Following the biggest economic shock since the Great Depression, Australians are now back working, spending, and moving freely across the nation.

The updated numbers are encouraging and better than what was expected at Budget just ten weeks ago.

Unemployment is lower, GDP growth is higher, and there are improvements to the bottom line.

But the road ahead is challenging, very challenging.

We have not yet defeated the virus - it still is with us.

Our recovery is very much dependent on our continued success in containing COVID-19.

While a number of comparable nations are facing renewed virus outbreaks and new lockdowns, Australians are approaching Christmas with optimism and hope.

Consumer and business confidence are back at pre-COVID levels.

Eighty-five per cent of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the crisis are now back at work.

The September quarter saw an increase in GDP of 3.3 per cent - the biggest quarterly rise since 1976.

Australia’s economic recovery from the COVID crisis is now expected to be faster than our recovery from previous recessions.

The unemployment rate is expected to return to its pre-COVID level in around four years. I repeat, the unemployment rate is expected to return to its pre-COVID level in around four years. This compares to around six years for the 1980s recession, and ten years for the 1990s recession.

In today’s update, real GDP is forecast to grow by 4½ per cent in 2021, following a reduction of 2½ per cent in 2020.

There is an upgrade to the Budget forecast of 4¼ per cent growth in 2021, and a 3¾ per cent fall in 2020.

Australia is outperforming all advanced economies.

The Euro area is forecast to contract by 7½ per cent; Japan 5¼ per cent, and the United States 3¾ per cent this year.

With 734,000 jobs created over the last six months, the labour market has performed better than we expected.

Unemployment is now forecast to peak at 7½ per cent in the March quarter 2021, down from a peak of 8 per cent forecast at Budget.

The unemployment rate steadily declines to 6¼ per cent by mid-2022, 5¾ per cent by mid-2023, and 5¼ per cent by mid-2024, when it approaches the level it was at the start of this year.

We have come a long way. A long way from Treasury’s initial estimate that the unemployment rate could hit 10 per cent by year-end or 15 per cent without JobKeeper.

This improved outlook is off the back an unprecedented levels of economic support.

The Morrison Government has committed $251 billion in direct economic support committed, already over $138 billion has flowed to households and businesses.

JobKeeper, the Coronavirus Supplement, the Cash Flow Boost, and three Economic Support Payments to pensioners and others on income support have been an economic lifeline for millions of Australians.

The faster-than-expected rebound is flowing through to the Budget bottom line.

The underlying cash deficit is expected to be $197.7 billion, or 9.9 per cent of GDP in 2020-21. That’s an improvement of $15.9 billion of what was expected at Budget.

The total improvement across the forward estimates since Budget is $23.9 billion.

Payments are expected to be $6.5 billion less in 2020-2021 than at Budget, and receipts $9.4 billion better.

There is new expenditure on a range of initiatives including an additional 10,000 home care packages, the rollout of vaccines, and the temporary extension of the Coronavirus Supplement.

The improved economic outlook has led to an expected increase in company tax receipts and GST collections, and around 640,000 fewer people on JobKeeper so far in the December quarter than expected at Budget.

The gross and net debt projections are broadly in line with those at Budget, with gross debt stabilising at 53 per cent and net debt declining to 38.3 per cent over the medium term.

Australia’s debt levels, even at their peak, remain less than half the average seen across advanced economies.

Underpinning the MYEFO forecasts are our continued prudent commodity price assumptions with an iron ore price assumed to fall from high levels to $55 a tonne in the September quarter of next year -  a quarter later than assumed at Budget.

Assumptions around slower population growth, negative net overseas migration, and the timing of the opening of international borders are unchanged since Budget.

So too, the timetable for the national rollout of the vaccine, which is expected to be fully rolled out by the end of next year.

There do however remain downside risks to Australia’s economic recovery.

These include the timing, distribution, and effectiveness of the vaccine in stopping the spread of the virus globally;

Trade tensions that limit Australia's access to international export markets;

And domestic economic uncertainty that could lead to higher household savings and lower consumption.

So there is a very tough road ahead, there is a light at the end of the tunnel but there is still a very long way to go in Australia’s economic recovery. That all being said, today’s Budget update provides further cause for optimism that Australia’s economic comeback is underway.

Tax cuts, business investment incentives, the JobMaker Hiring Credit, HomeBuilder, and a record spend on infrastructure and skills are all part of the Morrison Government’s JobMaker plan.

Household and business balance sheets have been substantially supported throughout this crisis providing the foundation for recovery in consumption and investment.

With confidence returning and Australians getting back to their normal lives, we are placed better than virtually any other nation in the world to emerge stronger on the other side of COVID-19. Simon.


 Well, thank you very much, Treasurer. This Budget update tells a story of resilience, of recovery and of Australians getting back to work.

Stronger business and consumer confidence means more Australians are in jobs.

There are fewer demands on government programs and stronger than expected revenue.

The Budget deficit is now expected to be $24 billion less than had previously been forecast. This year's deficit will now come in at under $200 billion or at $197 billion, as the Treasurer said, or 9.9 per cent of GDP.

The economic lifelines provided through COVID and through the economic recovery plan outlined in the Budget are working. But there is no room for complacency.

Australia's health and economic resilience is stronger than almost any comparable nation.

Australian experience demonstrates that health and economic success go hand in glove together.

This update reflects measures to further strengthen Australia's health and economic success, with $6.8 billion in additional COVID economic and health support provided by our Government since the Budget.

This includes $1.6 billion of investment in our vaccine strategy, $500 million towards vaccinations across our region. $3.2 billion in extension of the temporary Coronavirus supplement, $306 million to further boost infrastructure investment, $241 million of extension to the HomeBuilder program and $128 million in targeted support to travel agents.

The update also reflects government decisions on continuing to support the essential services that Australians rely upon.

We are funding a further 10,000 home care places at a cost of $859 million, bringing to almost 50,000 the number of additional places released since late last year. We're supporting some $682 million in additional costs associated with the Pharmaceutical Benefits Scheme, reflecting the ongoing commitment of our Government to give Australians timely access to the best medicines at an affordable rate.

Reflective of the stronger economy since the Budget, expected receipts have been revised up by $9.4 billion in the current financial year, or by $20.3 billion across the forwards.

Expected payments have decreased by $6.5 billion over the current financial year and $3.6 billion over the forwards.

The debt outlook over the longer term, as the Treasurer indicated, remains broadly consistent with Budget expectations. Net debt is expected to peak at 43 per cent of GDP in 2024. Gross debt is expected to stabilise at 53 per cent of GDP over the medium term.

These forecasts, along with the other economic forecasts, stand Australia in incredibly good stead, relative to many other comparable nations.

In summary, Australia's economic and fiscal strength enabled us to enter the COVID-19 crisis with resilience.

Our COVID-19 responses have kept Australians safe and secure.

Our economic recovery plan is getting Australians back to work, notwithstanding the many global risks and challenges that lie ahead.


Treasurer, you said in September that the focus would shift firmly to budget repair once unemployment was comfortably below 6 per cent. The numbers today show we're now getting below 6 per cent a year earlier than  anticipated in the Budget 5.75. Does that qualify as comfortably below?


Probably not. I'm thinking more of the 5.25 per cent that we get in mid-2024. The economic environment, Phil, is very uncertain. These are, of course, forecasts and next year some of our income supports are tapering down and there's other economic support coming into the economy and we're all hopeful about a vaccine, but a lot does depend on a vaccine being successfully rolled out across the world in terms of international borders and the like. But we set out very clearly at Budget time a two-tiered fiscal strategy. The first tier was obviously about getting that unemployment rate comfortably below 6 per cent. Our thinking at that time was around 5.5 per cent being comfortably below. The second is when you can start to see your debt levels start to stabilise and unemployment remain close to where it was at pre-pandemic levels. But certainly, the labour market is stronger than we expected. Today's labour force data reaffirms that. 90,000 jobs created in the month of November. 90,000 jobs. 84,000 of those were full-time jobs. 74,000 of that 90,000 were in Victoria, where the effective unemployment rate has come down to around 7.6 per cent. It was 10.5 per cent. It's come down substantially to 7.6 per cent. That's encouraging with Victoria coming back after its lockdown. We're now seeing an alignment between the effective unemployment rate and the normal unemployment rate, or the official unemployment rate, and that is the first time that we've seen that since the start of the pandemic. As you know, the effective unemployment rate takes into account not just those who have lost their jobs, but those who have seen their working hours reduce to zero and have left the labour force all together. So, Phil, we continue to watch the labour market very closely. But our thinking still remains comfortably below 6 per cent is around 5.25 per cent, or around 5.5 per cent. Lanai?


You said one things that could derail the numbers for the economic recovery was trade tensions. How concerned are you that China's current action will ultimately cost Australian jobs and what's your plan to combat that?


Well, I have no doubt Simon will want to also speak on this topic. These are very serious issues that are currently occurring with China and around trade. They are our most significant trading partner. That being said, Australia has worked very hard in recent years to diversify our markets and to provide new opportunities through free trade agreements. So, Simon has announced what we will be doing in terms of the WTO. Of course, our preference would always be to resolve these issues bilaterally, but if not, we reserve the right to use the multilateral system to resolve these disputes. But these are no doubt serious issues, and Australia is continuing to work very hard. The Government is continuing to work very hard to identify new markets for our exports. Simon?


So the Budget update appropriately reflects updated data and evidence from ABARES and the Department of Resources to ensure that decisions that may have been taken by China are reflected in terms of future budget forecasts and the impacts that may flow through. Of course, we don't underestimate the impacts of some of those decisions by China on individual businesses and sectors. And, indeed, right across the Australian economy, although Jobs growth and economic growth is very strong relative to expectations and relative to the rest of the world, we know that many individual businesses are still doing it tough and facing particular pressures - some due to ongoing COVID restrictions, some, indeed, due to some of the actions of China. The main support for Australian businesses faced with disruption in their trade and export relationship caused by China's decisions is, of course, to help them drive into other markets. Even during the course of this year, we've seen strong growth in terms of agricultural exports to other major economies, such as the United States. We've seen new contracts been able to be secured into markets in the Middle East, for grains and barley that are being affected otherwise by China's decisions. So, we continue to work very hard to use the network of trade agreements that we've negotiated in addition to China, the network that includes Japan, Korea, the TPP encompassing, Canada, Mexico, Vietnam, the new agreement with Indonesia, the economic strategy with India, the opportunities presented through negotiations with the EU and UK be able to keep farmers and our exporters seize new opportunities. This Budget update reflects the fact there are disruptions, it acknowledges the risk that is there, but, of course, we also seek to minimise that risk by seizing the other opportunities available to exporters and farmers.


The other thing I can add Lanai, to that is in this Budget update, the forecasts for resources exports is for about a 5 per cent increase in 21/22, and about 2.5 per cent for regional rural exports, farm products and the like. As Simon says, we've taken into account some of the current trade tensions with China. But even that being said, given our access to other markets, the volume of our exports can continue to increase in the years ahead.


You have talked about how the economy is bouncing back; you're still running $453 billion in deficits over the forward estimates. What do you say to those people who are worried about the level of debt the country is carrying and it’s only because global interest rates are so low and manageable? And separately for Senator Birmingham, the biggest increase in revenue over this year and next are dividends. 28 per cent this year, 37.5 per cent next year. Which quango are you taking so much money out of to help the bottom line?


Let me first answer your first question. The Australian economy has been hit by the biggest shock since the Great Depression and certainly the first pandemic we've faced in 100 years, and we know that the impact on the economy dwarves that that we saw during GFC, with the IMF expecting the global economy to shrink by about 4.4 per cent this calendar year, compared to just 0.1 per cent during the GFC. So that was the context, Shane that we were operating in. That is what has required an unprecedented level of economic support and spending. That being said, our net debt gets to about 38.3 per cent over the medium term and our gross debt to 53 per cent of GDP over the medium-term. Even when it peaks, as I said, it is less than half than comparable advanced economies around the rest of the world. So, Australia is very well placed to not only respond to this crisis, but to manage those higher debt levels in the future. Simon.


Thanks. Look, in relation to growth in receipts, there is $9.4 billion demonstrated in growth in receipts. The largest single element of that relates to 5.4 per cent, $3.2 billion in GST receipts, which is a pass-through to the States and Territories. That is good news for the States and Territories. There is a $3.4 billion lift in relation to company tax receipts. Indeed, the biggest elements that exist in terms of growth in revenue coming in, relate to those tax receipts, which is driven by stronger business activity, stronger consumer activity, driving higher GST and company tax receipts.


Your increase in dividends is absolutely substantial. I think that apart from when you owned Telstra, the proportion in dividends is the highest on record. Just looking at the raw figures of $10 billion this year.


Over time, the nature of some of the assets that the Commonwealth owns has changed, particularly in relation to Snowy Hydro, as a source of dividend payments to the Commonwealth, that previously the Commonwealth didn't have the 100 per cent ownership structure there. There is a range of other factors driving some of those considerations.


The statement of risk acknowledges there are a number of royal commissions due to report back that will have probably an impact on expenditure. You have spent $850 million on 10,000 home care packages, but the Royal Commission has already recommended that full waiting list of 10 times that being funded. Why not factor that into your the forwards now and can you guarantee that the pursuit of budget repair at the back-end of the forwards isn't going to come at the expense of this very clear recommendation to clear those 100,000 waiting list for the home care packages?


Well as you know, Clare, we get that Royal Commission Report in February of next year. The Prime Minister's made no secret that we will be acting on that report, there are substantial challenges with an ageing of the population in our aged care sector. But if you look at what we have done, not just in this MYEFO but at Budget time and in previous MYEFOs, we have continued to increase the number of home care packages. Around 50,000 since the end of last year alone. So there will be more spending on aged care. I think that's your point. There will be more spending on aged care. But we will wait and see what that Royal Commission report shows before making those decisions.


You talk about debt as a percentage of GDP and that goes over a lot of Australians' heads. How much debt is the nation currently in and when can we reasonably expect that figure to be paid back? Can you give a year or a decade?


Yes, well, in terms of net debt, you are talking about $690 billion today and about $850 in terms of gross debt. But obviously this continues to increase over time. The peak of the debt is very similar to where it was at Budget time. But in terms of paying it back over time, Australia has done that during the years of Howard and Costello and they ran successive Budget surpluses. Obviously we tried hard and we got very close and then we were hit with a once-in-a-century pandemic. But Australians should know that the money that has been borrowed and spent during this crisis have helped save hundreds of thousands of jobs. Now, it was an RBA forecast that around 700,000 jobs at least was saved by JobKeeper. So JobKeeper has been that economic lifeline and as you know...


Treasurer, what decade roughly are we talking about here in terms of paying debt back?


Well, again, I think it would take a long time. It's going to take a long time to pay back that debt, but as I said, that net debt to GDP number does come down and it reaches 38.3 per cent over the medium-term.


What decade roughly are we talking about here in terms of paying it potentially back?


Let's just understand in relation to the impact of the support measures, like JobKeeper, like the measures in terms of support for small and medium businesses, through the course of this year, all these measures have ensured business viability is maintained. If Australia had seen a massive rate of failure of businesses during the course of this year, it wouldn't have just resulted in higher unemployment levels, it would have left structural problems across the Australian economy in terms of the pace of recovery for years to come. So, the increase in spending that has been undertaken during the course of this year has absolutely been essential, not just to keep people in jobs right now, but to ensure the strength of the recovery and that those jobs are there into the long-term as well.


Treasurer, a lot of the stimulus in the October Budget like instant expensing and the JobMaker Hiring Credit rely on businesses having an appetite to invest. Are those tracking as you expected to get enough cash out of the door? As you have noted, youth unemployment does still seem quite high.


Yes, there is an interesting statistic that for those who are aged between 15 and 34, employment levels are around 3.1 per cent lower today than they were at the start of the pandemic. But surprisingly, for some, those aged over 35 and above, those employment levels are even marginally higher than they were at the start of the pandemic. So, getting young people into work is a real challenge. That's why we have successfully legislated the JobMaker Hiring Credit, because that is designed to get young people from the unemployment queues into work. When it comes to our investment incentives, I will take the housing sector. HomeBuilder has been a remarkable success and there's been tens of thousands of applications for that program and it has provided a spark for the housing industry. So you'll see in your numbers that there's been an improvement in the forecast for dwelling investment, which was expected to fall by around 11 per cent at Budget and now is expected to fall this year by 2 per cent. A substantial improvement. When it comes to business investment, there's also been an improvement in the forecast, particularly in the non-mining investment side. That has improved as well. It was expected to fall, I think, by 14 per cent in 2021 and now expected to fall by about 11 per cent to grow in the years after. So, the answer to your question is those incentives are now in place. We've legislated them. We’re continuing to roll them out.


Treasurer, given the strength of the labour market you have noted today, do you think, then, that the JobKeeper scheme will end in March, is that, are you reasonably confident that will happen?


There's been no change to the planned end to JobKeeper at the end of March, but I do want to point out what a successful program this has been, supporting 3.6 million Australians through the September quarter, and there are two million fewer Australians who are on JobKeeper today compared to the numbers that were on JobKeeper in September. This is a function of the labour market improving. This is a function of businesses now getting customers back through their doors. That is a very positive thing. But JobKeeper was always meant to be temporary, it was always meant to be targeted and it was always meant to ensure that there was a transition to other support. As I said in my opening statement, the tax cuts have started to flow to 11.5 million Australians. HomeBuilder is in place. The investment incentives that cover around $200 billion of business investment, the JobMaker Hiring Credit, the extra $250 payments, two of them, that are going to pensioners and others on income support, the apprentice wage subsidy, 50 per cent wage subsidy to help create 100,000 new apprenticeships. That's all very positive for the economy going forward.


Treasurer, just given the strength of the labour market, is the Government now minded to return the unemployment benefit after the coronavirus,

the JobSeeker. Is the Government now minded to return that to the pre-pandemic Newstart level? Or is the Government minded to supplement that as business has called for, the welfare groups have called for? And when will you make a decision?


Well Katharine, as you know, we've extended that coronavirus supplement again. That goes out to the end of March. So we will continue to monitor the labour market situation. But what we want to do is to get people from JobSeeker into work and that’s why we have targeted programs like the JobMaker Hiring Credit so specifically, which is designed to support young people. I’ll take one more question.


Treasurer, just on the key assumptions here, a vaccine in March, a population wide program by the end of next year, localised outbreaks that are contained and no state border restrictions, how confident are you that all of those things will happen and just quickly, inbound and outbound international travel, low until the end of 2021, does that mean no international travel until at least 2022?


Well again, they are the same assumptions that we made in Budget. The one difference, and this is probably for Lanai’s attention, is that at Budget we assumed that Western Australia would open up in terms of its state border in April next year, we have now assumed that there will be no interstate border restrictions next year and that’s because we’ve seen Premier McGowan making a statement now about opening the borders. I’ve seen the recent cases today in New South Wales, it would be premature for any state to act in any way on their borders. Because the one week in the last 15 where consumer confidence fell, was when South Australia put that lockdown in place for those few days. That is the one thing that dents confidence, if you have stop start restrictions, lockdowns, border closures. Australia is opening up and the recovery is underway and Australians are back spending and Australians are back investing and Australians are back travelling and most importantly of all, Australians are back at work and this is because we have been much more successful than any other nation in, not only suppressing the virus, but getting the economic recovery underway. Now just before Simon and I depart, I wanted to make one other announcement around two new appointments to the Reserve Bank Board of Australia. I am announcing today the appointment of Alison Watkins and Carolyn Hewson to the Board of the Reserve Bank. Carolyn Hewson is a very distinguished business figure, she is a director of CSL, she has been a director of BHP, Westpac, BT Investment. She served on the Murray Financial Systems Inquiry, she hails from South Australia. Alison Watkins is the current group managing director of CocaCola Amatil. She has been a previous managing director of GrainCorp, worked at the ANZ Bank, been a partner at McKinsey & Company and a board member of the Business Council of Australia. This is the first time in the history of our central bank there is a gender balance on the Board. Of the appointments that the Commonwealth could make, we now have Carol Shwartz and Alison Watkins and Carolyn Hewson and Wendy Craik. Four women of outstanding quality, and of course we’ve got Mark Barnaba as well and he has also made a very significant contribution. So too Ian Harper and Governor Phil Lowe and Guy Debelle, also make up that Board as the Governor and Deputy Governor and we have Steven Kennedy as the Treasury Secretary who sits on that Board as an ex-officio effectively. So it’s a very significant announcement, Alison Watkins and Carolyn Hewson are being appointed to the Board of the Reserve Bank. I wish them well, couldn't be a more important time to be on our central bank as the Australian economy continues to recover from the first pandemic of such a size in a century and the greatest economic hit since the Great Depression. Certainly today, these economic numbers are very encouraging. Thank you.