ANNABEL CRABB:
Welcome to the program, Treasurer.
JOSH FRYDENBERG:
Nice to be with you Annabel.
CRABB:
Well the ball is in your court, you've made an announcement overnight about deeming rates. Why is it reasonable?
FRYDENBERG:
Well look, we're strengthening the arm of around one million welfare recipients, including about 630,000 pensioners. This is about lowering the deeming rates, which will be good for them. The benefits will start to flow from September. They'll be back dated to July 1. It will cost the budget about $600 million. But pensioners will be better off by up to $804 as a single, or more than $1,000 as a couple.
CRABB:
So you've lowered the top rate from 3.25% to 3%. The cash rate is at 1%. Why is there that disparity, still?
FRYDENBERG:
Well, there are two rates. A lower rate and an upper rate. And the lower rate is being reduced to 1% for financial assets up to $51,800. And the upper rate has been reduced, as you say, to 3%, for those assets above. But what's important to understand is - it's not a linear equation between or comparison between the cash rate and the deeming rate, because the deeming rate applies to a whole suite of assets. So it applies to bank deposits and a term deposit, could be at 1.75% today, but it could apply to superannuation returns, and that's averaging around 5.5%. Or to yields on ASX 200 stocks, which are averaging about 4.5%. So Anne Ruston has gone through the proper process, we think that this is a good outcome. Indeed, the Council of Ageing, Ian Yates has said today that this is a positive outcome and will be to the great benefit of so many people across the economy. But what we will not take is a lecture from the Labor Party after their $45 billion retirees tax.
CRABB:
OK, you say that the rate isn't directly comparable to the cash rate. But through the entire years of the Howard government, the top deeming rate was equal to, or less than the cash rate. So in 1996, the cash rate was 7.5%, the deeming rate was 7%. In 2004, the cash rate was 5.25% and the deeming rate was 5%. It was significantly below or equivalent to the cash rate. Why have we decoupled the two rates? And why aren't pensioners entitled to understand that the cash rate will represent their deeming rate?
FRYDENBERG:
As I said, it applies to a suite of financial rates.
CRABB:
Why has that changed? Why is that different?
FRYDENBERG:
We've actually seen, the ASX 200 is up 12% through the year. So we've actually seen very strong returns for super funds, for managed funds, and in the stock market. And as I said, it applies to a suite of assets. But when it comes to the cash rate, let's not forget the Reserve Bank held it pretty steady for nearly three years. It only came down in June and then subsequent months.
CRABB:
It's come down five times over the course of four years, so quite a long time to wait to catch up. You went through a whole election campaign talking about Labor's retiree tax, but you were kind of skimming off pensioners at the same time, weren't you?
FRYDENBERG:
Well at the 1.75% which it was, and now it's going down to 1% for the lower deeming rate, we think that's a very good outcome. Because as I said, you can get a 6-month term deposit today for 1.75%. So even a term deposit is above the lower deeming rate.
CRABB:
Can you get a term deposit for 3% anywhere, can you name a bank that offers a 3% rate for a term deposit?
FRYDENBERG:
You're more likely to get it between 1.75% and 2%, or just above 2.
CRABB:
So no?
FRYDENBERG:
It's about a suite of assets.
CRABB:
Aren't you pushing pensioners then into more high risk investments? You're saying, don't get a term deposit but go and have a flutter on the share market? Is that really a good signal to send?
FRYDENBERG:
I wouldn't call superannuation a flutter on the share market. I would call putting your money, whether it is in an industry fund or a retail fund, that can be quite a secure investment. In fact that's what most Australians do and it's growing rapidly. So I think superannuation, managed funds, they are providing better returns than putting money in the bank. But this is quite a significant change. This is a $600 million hit to the budget, and….
CRABB:
Over four years.
FRYDENBERG:
Over four years. But it will benefit around one million welfare recipients, not just pensioners but a series of other welfare recipients.
CRABB:
It seems like a massive rigmarole that we've all gone through, it's been years while interests rates have been coming down and pensioners are feeling the pinch and you've now got around to changing the deeming rates. It's a very murky process. Aren't pensioners entitled to know what goes into this decision making process? And do you support the idea of some sort of independent body where there's some sort of clarity to these decisions?
FRYDENBERG:
No, we don't. We think that the appropriate process is the current one.
CRABB:
What is the process?
FRYDENBERG:
It's the Minister for Social Services is the responsible minister. And her and her department receive advice. There's input from other departments, and as required, and it's a process that has served the country well. And I note that the Labor Party have had mixed messages on this, because you've had Linda Burney saying one thing and Jim Chalmers saying another. He supports the current process, just as we do.
CRABB:
You mentioned superannuation, and there's been a bit of chat this week about the program for the increases to the superannuation guarantee. So I just want a quick confirmation - are you still committed to the process of increasing superannuation guaranteed to 12% by 2025?
FRYDENBERG:
We have no plans to change that legislated increase.
CRABB:
That's what will happen?
FRYDENBERG:
We have no plans to change the legislated increase.
CRABB:
You currently have no plans, but you could develop some?
FRYDENBERG:
You're very cynical.
CRABB:
I have experience.
FRYDENBERG:
We have no plans to change the legislated increase. It goes to 12%. But what we saw from the Grattan Institute this week was an interesting report on this very point, because what we need to fully understand with this increase is what is happening to retirement incomes, what is happening to the nation's balance sheet. What's happening to the nation's savings. That's why the Productivity Commission recommended that there be retirement incomes review, and that's something that the Government is supportive of.
CRABB:
So it's important to keep those factors in consideration when you're making your decisions about what's going to happen by 2025?
FRYDENBERG:
Again, it's already a legislated increase. But what is important is that we continually stay abreast of the impact of those changes on retirement incomes, national savings and the national balance sheet.
CRABB:
Can you guarantee it will be at 12% by 2025?
FRYDENBERG:
We have no plans to change it and it is already legislated.
CRABB:
OK. Just wondering if you can explain why it is that you orchestrated this joint media appearance with the Reserve Bank Governor this week? I can't remember another instance of such a thing happening, ever?
FRYDENBERG:
I think you'd find it strange if I wasn't sitting down with the Reserve Bank Governor.
CRABB:
With a bank of cameras, though?
FRYDENBERG:
We had a 2-hour private meeting with senior Treasury officials, and the economy is facing a number of challenges and it's important that we continue to swap notes and to work together in understanding the developments that we're seeing across the economy. Both Phil Lowe and I were recently at the G20 Finance Ministers and Central Bankers meeting. We had a number of engagements there, and it's important that we continue to talk. And where we're absolutely aligned is - while the economy does face some significant challenges, and I'm talking about the impact of the droughts and the floods, I'm talking about the global trade tensions between the US and China, I'm talking about the softness in household consumption. The fundamentals in Philip Lowe's words of the economy are strong. We also know that the foundations are strong, and the Australian economy is in its 28th consecutive year of economic growth. We have a AAA credit rating, one of 10 leading countries to have that AAA credit rating. Philip Lowe said that a record number of Australians are in work, and...
CRABB:
When you say that, it kind of sounds like you're saying unemployment is at a record low but it isn't. Unemployment is at 5.2%, and ten years ago it was at 4.2%. A record number of Australians are in work because there's a record number of Australians, right? But actual hours worked have gone down. So the actual amount of work being done isn't at a record high?
FRYDENBERG:
When we came to Government, unemployment was at 5.7%, so it's come down since we've come to government. We've created over 1.4 million jobs. If you look at the last 12 months, eight out of ten of those jobs created have been full time. And importantly, workforce participation is now at a record high of around 66%. A record number of women who are working, and a record number of young people are getting a job. And that's not by accident. That's actually by creating the environment where employers feel comfortable making extra hires and ensuring that Australians have necessary skills to be hired.
CRABB:
So you've got together with the Reserve Bank Governor. Did you ask him to that meeting?
FRYDENBERG:
Yes, I did.
CRABB:
Was he OK with the cameras being there?
FRYDENBERG:
Absolutely.
CRABB:
Right, OK!
FRYDENBERG:
And you know, the Reserve Bank Governor, Annabel, is of independent mind and independent voice.
CRABB:
And he had agreed with you on nearly everything, apparently!
FRYDENBERG:
I mean, to be honest, I wouldn't be so condescending or cynical about the Reserve Bank Governor. The bank is independent, it sets monetary policy and we don't seek to influence that in any way, and Governor Phil Lowe is a very respected figure. And Treasurers, prime ministers, have productive and constructive dialogue. The fact that we sat down for over two hours, exchanged notes on the economy and went through in detail the infrastructure pipeline, is a positive development, not to be looked at in any other way.
CRABB:
So, is this announcement of yours today on deeming rates, is that the end of your measures that is will stimulate the economy?
FRYDENBERG:
The deeming rates are not about, Annabel, stimulating...
CRABB:
I understand that but they'll have a stimulatory effect right because you are putting more money into the pockets of Australians.
FRYDENBERG:
It's money into the pockets of one million welfare recipients, for someone who has got a home, who is a pensioner who on about $280,000 with financial asset, that person will be about $480 a year better off. So it's money that will flow into the economy. And it comes off the back of the tax cuts, which is $8 billion into the economy, and more than one million Australians have already put in their tax returns - a record number. And the interest rate cuts that Phil Lowe has overseen.
CRABB:
Is that the end of the suite of stimulatory measures? I know that there's been discussion this week about whether that's enough and you and the Reserve Bank Governor seem to feel that it is at the moment?
FRYDENBERG:
It will be interesting to see how the tax cuts play out across the economy. But what's really important is, the Prime Minister and myself and Mathias Cormann and others, we're all very conscious of the challenges that the economy was facing when we put the budget together. The budget handed down on 2 April was our economic plan to take the country forward, and that is what we'll continue to implement, including the $100 billion worth of infrastructure spend.
CRABB:
You have just completed the 2018-19 financial year. You projected a $4.2 billion surplus is that what it looks like it is going to be... Deficit, sorry?
FRYDENBERG:
I wouldn't get your hopes up about a surplus. And we're very much managing expectations around that. What we have seen is very much an improvement in the 2018-19 results.
CRABB:
Will you break even?
FRYDENBERG:
Let's wait and see, because the final budget outcome won't be out until September. But when Scott Morrison delivered as Treasurer the 2018-19 budget last year, what he said is that there was going to be a $14.5 billion deficit. Then as you say, in this year's budget, it came down to $4.2 billion, and we've seen improvements since that time.
CRABB:
Will it be less than $1 billion?
FRYDENBERG:
Well again, I'm not going to put a number on it, other than to say that there has been improvements. Don't get your hopes up for an early surplus. The surplus year we're aiming for a 2019-2020. But the economy has been helped by strong terms of trade and record numbers of Australians in job.
CRABB:
I wanted to ask you quickly about the big story this week about which is about reconciliation and the Indigenous Australians minister Ken Wyatt announced on Wednesday that Australians would go to a referendum in three years. Why wasn't that promised during the election campaign? There really wasn't a mention of it?
FRYDENBERG:
What we have always said is that we will work through the parliamentary joint committee recommendations that Pat Dodson and Julian Leeser co-chaired. Annabel, I think as a country we have a unique opportunity now. We have a Prime Minister who has reached across the political divide and met with Anthony Albanese and has said that he wants to advance these issues. We have the first indigenous minister in the Cabinet responsible for Aboriginal Australians in Ken Wyatt, who has a friend across the chamber in Linda Burney. And then you've got that parliamentary joint committee. But the detail of the so-called Voice has to be fully worked out. But they do need for this process space and time. And we also know that constitutional reform is really difficult. Only eight out of 44 referendums have been successful and we haven't had a successful referendum since 1977.
CRABB:
Do you feel that Ken Wyatt was given space and time this week? A lot of your colleagues have been very vocal?
FRYDENBERG:
I thought that he gave a good, passionate, personal speech at the Press Club. I think he's the right person for the job and I think that he has got that space and time. But as we do know, there are a lot of constitutional conservatives - I would count myself in that camp. The Prime Minister has said that he's in that camp. Many of our other colleagues, so we do need to proceed carefully. Because what we need to do is to build bipartisanship and to capitalise on the good will. And I think that Noel Pearson described it as the "radical centre".
CRABB:
Do you think that this question of the Voice to Parliament is being characterised as a third chamber unfairly?
FRYDENBERG:
I mean, what we haven't got is the full detail on that, and what we need now is the process to have a discussion to work out what the model is. We've got the right people in charge. But we do know constitutional reform is very difficult.
CRABB:
OK, thank you very much. We're completely out of time, I'm afraid Treasurer. Thank you for being with us today.
FRYDENBERG:
Good to be with you Annabel