CATHY VAN EXTEL:
Treasurer Josh Frydenberg, welcome back to Breakfast.
JOSH FRYDENBERG:
Nice to be with you, Cathy.
CATHY VAN EXTEL:
Now real wages will fall this year with inflation, and there are still about 1.7 million Australians either without a job or not working enough hours. The economy might be roaring back but aren’t too many people still missing out on the good times?
JOSH FRYDENBERG:
Well, Cathy, when we came to government really wages were falling, unemployment was rising and then real wages actually increased every year under us until we got to the pandemic. Now, last year we had deflation, so we actually saw the biggest really wages increase in a decade. This year we’ve seen inflation more persistent than originally thought, and that was because of supply-side constraints, and that was a global phenomenon. But as you can see in the numbers that I released yesterday, we’ll actually see over the next three years real wages going up according to Treasury. And the best way to drive wages up is actually to get a tighter labour market. So the real story out of yesterday’s numbers were that 366,000 jobs were created last month, the single largest monthly increase. Around 60 per cent of those jobs went to women, a third went to young people, and there are 180,000 more people in work today than before the pandemic began. So we are driving a very strong labour market, and that will lead to an upward pressure on wages.
CATHY VAN EXTEL:
Well, the wages are forecast, as you say, to rise by 11 per cent, according to the budget document. But how many times in recent years has the Treasury been plain wrong with its wages forecast? When we spoke to Katy Gallagher from Labor earlier today she pointed out that Treasury’s got it wrong 52 times out of the past 55 wage forecasts.
JOSH FRYDENBERG:
And they got – and wages had to be updated under Labor as well. It’s obviously…
CATHY VAN EXTEL:
So why should anyone believe it this time?
JOSH FRYDENBERG:
Well, actually the budget in the numbers yesterday performed better than what was forecast. So if anything you’ve seen, for example, when it comes to iron ore prices that we’re being conservative. When you look at the final budget outcome for last financial year, ’20-21, it was $80 billion better than what I had announced in October last year. So, in fact, the recovery, Cathy, has been stronger than Treasury, than the OECD, than the IMF, than the RBA have been forecasting. So there are very good reasons for Australians to be confident going into next year. Of course we’re still in the middle of a pandemic and Omicron is a reminder of that. So there is a great deal of uncertainty. But yesterday’s numbers confirm that the economy is on the right track.
CATHY VAN EXTEL:
Budget deficits of $342 billion over at least the next four years. You’ve previously said that the huge task of budget repair would begin when unemployment fell below five per cent. It’s currently 4.6 per cent. How long will it need to have a four in front of it before you reduce spending, and will you be honest with voters before the election about what you plan to cut?
JOSH FRYDENBERG:
Well, people will see our spending and revenue priorities and initiatives in the context of the budget, which is set down for the end of March, which I’m preparing for now. But actually, again in yesterday’s budget update, you see the underlying cash balance, which is actually a code name for the deficit. It halves as a proportion of the economy of GDP over the forward estimates, which again shows that we’re on the right trajectory. We see net debt as a share of GDP, which is a sign of fiscal sustainability, is actually lower than what was previously forecast - $65 billion better. Again, we’re in the middle of a pandemic. We had to take unprecedented action. Treasury came to me last year, Cathy, and said that unemployment could reach as high as 15 per cent. Now it’s 4.6 per cent. We have one of the highest vaccination rates in the world, one of the lowest mortality rates in the world, and Australia is very well placed for the challenges that are ahead.
CATHY VAN EXTEL:
But, Treasurer, a lot of the concern that’s being expressed in response to MYEFO is that there isn’t even a broad plan to start paying off all of the debt and deficit. When will the budget be back in the black? It’s decades away, isn’t it, not years?
JOSH FRYDENBERG:
Well, again, the way to get a better bottom line is to grow the economy. The reason why there was an $80 billion improvement between what we forecast in October and what was released at the end of last financial year was because more people were in work, paying tax and less people were on welfare. So that’s effectively the secret sauce. Now all our initiatives are designed to guarantee the essential services that people rely on – disability support, aged care, hospitals, schools, mental health – but also to drive growing productivity growth in the economy with investments in infrastructure and skills, in the digital economy, cutting red tape. And you see that through this year’s budget I announced in May and the update we announced yesterday.
CATHY VAN EXTEL:
You’ve given yourself $15 billion to $16 billion to play around with. These are in the section decisions taken but not yes announced. How much of this money will be splashed around as election promises, and can you guarantee safe Labor seats that they will get a fair share of the money?
JOSH FRYDENBERG:
Well, to be very clear for you and your listeners, the $16 billion refers to, as you say, decisions taken and not yet announced. But it also includes measures that we have publicly announced but where the financials can’t be published because they’re commercial in confidence. And examples of that include the booster shots and the vaccines and their treatments, quarantine facilities that we’re building, and aviation support where we’ve entered into commercial negotiations with the airlines to underwrite regional routes, domestic routes, so we can have a level of connectivity around the country. So that’s where the $16 billion comes from. We’ll obviously announce the measures at the appropriate time.
CATHY VAN EXTEL:
There is room for a tax cut, though, isn’t there in amongst that spending. Will you be extending the low and middle income offset at least for another year?
JOSH FRYDENBERG:
Well, I’m not going to speculate what may or may not be in the budget. And I know you’d love me to do that this morning –
CATHY VAN EXTEL:
Well, it would be a nice election sweetener, wouldn’t it?
JOSH FRYDENBERG:
Well, you’d love me to do that this morning. But, again, I point to our track record, and that has been of cutting taxes at every opportunity. At the last election there was a very clear contest and choice for the Australian people between our coalition of Liberals and Nationals that were seeking to cut taxes and our political opponents that were prosing higher taxes. Now they supported our proposal, we subsequently legislated that. And small businesses now have the lowest company tax rates in 50 years. Households have received major income tax cuts, particularly lower and middle income earners. And that has seen disposable income rise and that has boosted economic activity. So we'll obviously look for every opportunity to cut taxes. But we'll do so at the appropriate time.
CATHY VAN EXTEL:
If you’re serious about budget repair, though, wouldn’t money be better spent chipping away at the deficit?
JOSH FRYDENBERG:
Well, philosophically our parties believe in lower taxes, Cathy. And the reason being –
CATHY VAN EXTEL:
I thought you also believed in no debt.
JOSH FRYDENBERG:
Well, we obviously believe in getting the budget back into balance, too, and that’s what we did prior to the pandemic. But no-one can wish the pandemic away. No-one can pretend it didn’t happen. No-one can –
CATHY VAN EXTEL:
No, but then it’s about how we’re going to get it back into the black.
JOSH FRYDENBERG:
Well – and here’s my point, is that when you provide lower taxes you actually stimulate economic activity. You actually create jobs. You encourage aspiration. You reward effort. And that’s why philosophically we believe in lower taxes. I mean, we’ve used, for example, the tax system to provide the largest business investment incentives Australia has ever seen. In yesterday’s numbers I announced that business investment is expected to be its strongest since the mining boom, up 16 per cent this year and next. So that’s quite counterintuitive that you’re in the middle of a pandemic and business investment is actually rising. That’s a very positive sign where we can use our tax system as leverage to grow the economy.
CATHY VAN EXTEL:
Treasurer, the entire document is predicated on no more lockdowns and all the remaining restrictions being lifted by early next year. When we spoke to Simon Birmingham yesterday he said there’s no room for complacency here. Have you modelled the impact on the budget if the Omicron strain alters the reopening plan? Is there still a lot of uncertainty around this outlook?
JOSH FRYDENBERG:
Well, there is absolutely uncertainty, and no-one can be complacent for one moment about the pandemic. And Omicron is a reminder that we will continue to face variants. What we did do Cathy in the update is we modelled two scenarios. The first was a downside scenario where there would be a new variant of concern that could lead to targeted lockdowns, and that could see GDP down by around $20 billion or one per cent and unemployment one per cent higher than what we’ve forecast in our central scenario. The other scenario was more of an upside scenario where you see stable health outcomes and people spending more so, therefore, their savings ratio coming down faster. That would be worth $30 billion to the economy over the next two years and create even more jobs. But what we’ve done in yesterday’s budget update is based our forecasts on the best medical advice available to Treasury. And the Chief Medical Officer has made it clear that while Omicron is more transmissible, the early signs are that it’s not as severe a variant as previous ones are and our vaccines are effective.
CATHY VAN EXTEL:
What we are seeing are rapidly rising case numbers both in New South Wales and Victoria. And there is now a real discussion certainly in New South Wales around local lockdowns. Are you bracing for that?
JOSH FRYDENBERG:
Well, again, my message to Premiers would be consistent and clear, regardless of whether they’re in New South Wales or Queensland, which is: hold your nerve, stay calm, carry on, recognise that we need to keep the economy open, we need to maintain the momentum and that there is no need to panic here. You need to obviously listen to the medical advice, but the medical advice from the Chief Medical Officer has been to date that this variant is less severe than what we’ve seen previously. We’ve heard from Sharon Lewin, the head of the Doherty Institute, that there is no need to panic here, that it shouldn’t automatically lead to a closure of borders. People have to understand that we don’t want to go back to lockdowns. We need to live safely with COVID.
CATHY VAN EXTEL:
Treasurer, thank you for joining us this morning.
JOSH FRYDENBERG:
My pleasure.
CATHY VAN EXTEL:
Treasurer Josh Frydenberg on RN Breakfast.