DAN MURPHY:
Treasurer, thanks for joining us at the G20.
JOSH FRYDENBERG:
Great to be with you.
DAN MURPHY:
As we speak there is a global health emergency stemming from Australia’s most critical trading partner. What’s the economic spill over that we’re seeing domestically.
JOSH FRYDENBERG:
It’s going to have a significant impact on the Australian economy, but of course, our first thoughts are with those people around the world, particularly those in China who have been infected with the virus and, obviously, tragically people have lost their lives as well. Australia has put in place pretty strong travel restrictions. That’s obviously having an impact on our tourism market as well as our international students from China. They are the greatest source of international students into Australia as well as the greatest source of tourists into Australia. So, those markets are being impacted. We’ve also started to see a bit of an impact on some of our export markets and interruptions to global supply chains as well as a number of the Chinese factories have been closed. But what we did see previously with the SARS epidemic is that there was a negative impact on tourism numbers and student numbers, but once those issues were resolved, that bounded back very strongly.
DAN MURPHY:
Can you quantify the economic impact that this is going to have on domestic GDP, for example at this point?
JOSH FRYDENBERG:
The RBA have said 0.2 per cent in terms of the March quarter and there’s been some other private assessments by various commentators. Treasury is still engaging in consultation with key stakeholders to get a sense of what the impact will be. But, of course, the length of the travel restrictions will also be a factor in determining what the impact will be across the economy.
DAN MURPHY:
Treasurer, are we underestimating the impact here because, of course, as you point out, China is Australia’s largest trading partner, a key source of external demand, it’s a key source of investment, it’s a key source of tourism flows as well. At the same time, just yesterday we’ve seen the IMF moving to downgrade the Chinese economic growth outlook. So this is going to have a very significant economic impact. Is 0.2 per cent realistic?
JOSH FRYDENBERG:
That was what the RBA had earlier said. But of course we continue to monitor the situation. What we do know is that the Australian economy is remarkably resilient. We’ve now entered our 29th consecutive year of economic growth. We got through the Asian Financial Crisis, the dot com boom and bust, the GFC, without having consecutive quarters of negative economic growth. We continue to grow strongly. What we have in place is the first balanced budget in eleven years, the largest tax cuts in more than twenty years, the lowest welfare dependency in thirty years and the first current account surplus in forty years. So the Australian economy is resilient in the face of these challenges and I’m confident that we will get through this.
DAN MURPHY:
And that resilience is going to be important because, while we have these external headwinds, you also have domestic headwinds as well; the impact of the devastating bushfires, the floods, the droughts, the Coronavirus concerns that we’ve been talking about. Do you think this is really going to impact the budget surplus?
JOSH FRYDENBERG:
In terms of the budget surplus, we’ve said publicly our first priority is to get support to those areas of the community who need it most. When it came to the bushfires, we announced a $2 billion Bushfire Recovery Fund without increasing taxes, significant funding for mental health support, for primary producers, for businesses that have been affected, for wildlife habitat restoration as well as an international and domestic tourism campaign because those sectors of the economy had been hit…
DAN MURPHY:
Is this putting the budget surplus at risk though?
JOSH FRYDENBERG:
Well, the budget forecasts are updated twice a year in the pre-Christmas period, the Mid-Year Economic and Fiscal Outlook, and that did show that there would be a surplus in ‘19-20. The next time they’re updated and publicly available will be on Budget night in May so people will have to turn on then. But right now, we’re continuing to monitor the situation and getting out the support to the people who need it most in those drought affected communities, as well as the bushfire affected communities.
DAN MURPHY:
Looking on from abroad as an Australian, one thing I’ve really noticed in the international community is a big conversation around the bushfires. Obviously this has had a huge impact at home. But at the same time, it’s also shifted the conversation on climate change in Australia. Here at the G20 we’ve heard reports that perhaps the Americans are trying to push back on having this issue of climate change included in the G20 communique. Is that the case?
JOSH FRYDENBERG:
Look, I’m not going to go into the details of communique drafting other than knowing what is most important are the discussions had between nations and yes climate change has been raised here and it is an important issue and Australia accepts…
DAN MURPHY:
Will it be in the communique though?
JOSH FRYDENBERG:
Look, again, those are deliberations that will play out over the course of the day. But what I do know is that climate change is real, that man is contributing to the change in climate, Australia takes its international commitments very seriously. Under the Paris Agreement we’re reducing our emissions by 26 to 28 percent by 2030 on 2005 levels and we’re making good progress on that and we’re on track to significantly beat our 2020 targets and we’re seeing a massive uptake of renewable energy in the Australian economy. So we’ve got a good story to tell and that has been a feature of my discussions at a bilateral level here.
DAN MURPHY:
Back at home in Australia, if the situation does continue to deteriorate economically as the IMF is currently modelling, what resources does the Australian Government have to be able to mitigate some of those economic risks? For example particularly on the fiscal side, given the fact that the RBA is also perhaps running out of some room to move here when it comes to stimulating the economy on the monetary side.
JOSH FRYDENBERG:
Well you’re right there’s been pretty accommodative monetary policy and the cash rate in Australia has come down to a record low at 0.75 per cent, but what we have done at a fiscal level is we’ve brought forward significant infrastructure spending, more than $4 billion of infrastructure spending was brought forward in that pre-Christmas announcement, that’s part of a ten year, $100 billion infrastructure rollout, we’ve announced more than $1 billion extra support for the drought affected communities since the election last year, the $2 billion Bushfire Recovery Fund is on top of the allowances and the payments that we normally provide the states in the event of a natural disaster, such as what we’ve seen. So we are prepared to open the wallet and we have done so, to ensure that the communities get the support that need it most. And let me also say we’ve passed through the Parliament very significant tax cuts, $144 billion worth of tax cuts were passed through the Parliament after last year’s election and that contributed to the biggest boost to household disposable income in a decade.
DAN MURPHY:
Do you expect the RBA to maintain this accommodative stance in this environment domestically and globally?
JOSH FRYDENBERG:
I think globally we’re going to see lower interest rates for longer. That’s been a feature not just of the Australian economy, but that’s been a feature of the global economy.
DAN MURPHY:
Lower for longer in Australia? How much lower?
JOSH FRYDENBERG:
Well again, that’s the remit of the independent Reserve Bank of Australia, the Governor is in charge of monetary policy, I’m helping to direct fiscal policy and that’s the distinction that we have in our country.
DAN MURPHY:
Also wanted to ask you about your conversations with Secretary Mnuchin over the past few days. Interesting dynamic playing out here because you have Australia’s largest trading partner on one side and it’s most important strategic ally on the other side in the midst of this full blown trade and tech war, how is that impacting Australia and how do you navigate those two competing priorities, maintaining an alliance with the United States and maintaining economic ties with China as these two countries do battle on trade?
JOSH FRYDENBERG:
Well I don’t think it’s mutually exclusive to be a promoter of free trade which Australia is and obviously to maintain a very strong alliance relationship with the United States. I don’t think those two goals, those two positions, are mutually exclusive. From tariff wars, there are no winners, only losers, and Australia is a great beneficiary of free trade. One in five Australian jobs are related to free trade and our trading partnerships have increased significantly under the Coalition Government. When we came to Government, just over six years ago, about 26 per cent of our two way trading relationships were covered by free trade agreements, now that’s over 70 per cent and in recent days and weeks we’re looking to secure even more agreements. Recently we concluded one with Indonesia, a very near neighbour of Australia and a dear friend, a country of 270 million people and that free trade agreement builds on such agreements that we’ve developed and concluded with China, with Japan, with Korea, the multilateral Trans-Pacific Partnership as well. So Australia is very much at the forefront of the free trade agenda, and what we say to the Americans privately is what we say to them publically, free trade equals more jobs.
DAN MURPHY:
So we’ve now seen the signing of this phase one deal, how does this move from this point on and do you have a message to perhaps Secretary Mnuchin or Xi Jinping in China as they prepare for the next round of these negotiations?
JOSH FRYDENBERG:
Well we welcome this phase one deal between the United States and China. I think it was very important in bringing a bit of stability to the global trade agenda because what happens when you have these two big players, the United States and China, at loggerheads over trade is that investment decisions get deferred, capital flows start to slow and that’s no good for anyone. For Australia we’re caught in the middle because the United States is our number one investor and China is our number one trading partner so we want to see both those countries get along and of course we want to see more free trade.
DAN MURPHY:
What does this look like in an election year though? Do you think they’re going to be able to get phase two, three, four done before the end of the year or is this going to be a 2021, 2022 story?
JOSH FRYDENBERG:
Well I’ve never tried to anticipate the domestic politics of another country, let alone a close ally like the United States. Let’s see how it plays out but certainly we’re obviously hoping and advocating for free trade and a good economic partnership between the United States and China, like Australia has with both those countries.
DAN MURPHY:
Treasurer thanks for your time.
JOSH FRYDENBERG:
Great to be with you.