FRAN KELLY:
Josh Frydenberg joins us now. Treasurer, welcome back to Breakfast.
JOSH FRYDENBERG:
Nice to be with you, Fran.
FRAN KELLY:
Well, Philip Lowe was clear and blunt, the country must adopt long-ignored reform proposals. Have you got the message?
JOSH FRYDENBERG:
Well, he's absolutely right that Australia must continue to embrace the productivity agenda. As you know, that is in multiple areas from infrastructure, to skills, to deregulation, industrial relations reform, and of course tax reform. We've passed $300 billion worth of tax cuts in the last two Budgets. We're flattening and simplifying our tax system, so that if you earn between $45,000 and $200,000 you pay a marginal rate of tax of no more than 30 cents in the dollar. So 94 per cent of Australian taxpayers will pay no more than 30 cents in the dollar. We also lowered company tax to 25 per cent for small and medium sized businesses, and in our first tranche of measures in response to the coronavirus, we put in place a 50 per cent accelerated depreciation. We…
FRAN KELLY:
Sure, sorry to interrupt you, but that's looking backwards. That's what's already been done. The Reserve Bank Governor is very aware of all those changes…
JOSH FRYDENBERG:
It's not looking backwards…
FRAN KELLY:
No, no, no, but the Governor…
JOSH FRYDENBERG:
It's looking forward…
FRAN KELLY:
...the Governor was clear. He said his way through is, we just heard there, income generation, consumption and land if we're looking at tax reform. He wasn't talking about income taxes. He was talking, if you decode that, it looks, sounds to me like business tax cuts, increasing the GST and abandoning properties' stamp duties in favour of land tax. Is that how you see it? Are you up for cutting company taxes and increasing the GST?
JOSH FRYDENBERG:
Well, in terms of company tax, we do have an un-competitively high rate at 30 cents in the dollar. The United States have 21 cents in the dollar, the UK at 19 cents in the dollar and Singapore at 17 cents in the dollar. We did what we could which was to reduce the company tax rate for small and medium sized businesses. We tried, but unsuccessfully, to do it for larger sized businesses. We'll continue to assess the overall tax framework. We've said we've got no plans to lift the GST. The States are in control of land tax and stamp duty related issues, and Victoria and New South Wales have talked about reforms in those areas. But we will continue to retain an open mind as to how we can go forward to lower the tax burden overall. And, as you know, we have a tax to GDP cap of 23.9 per cent which is an important speed hump to remind everyone that we need to keep taxes lower.
FRAN KELLY:
So just on consumption tax, which is in that list, you said you got no plans to raise the GST, but are you open to it? Are you ruling it out?
JOSH FRYDENBERG:
Well, again, I can't say more than we've got no plans to do it, because it's not on my desk, it's not about to be on my desk. What is…
FRAN KELLY:
No, but it's been put on the list by the Reserve Bank Governor. I'm sure that was no accident?
JOSH FRYDENBERG:
Well, he's an independent Reserve Bank Governor, so I wouldn't imply that we asked him to put it there at all…
FRAN KELLY:
No, no, no. What I'm saying is he suggests you need to look at it…
JOSH FRYDENBERG:
Well, I mean, and he has been talking about a number of important reforms, and in your introduction you referred to infrastructure as well and, again, that is important. And, as you know, we've got a 10 year, $100 billion pipeline of infrastructure reform. So the Reserve Bank and the Federal Government are on the same page with respect to the productivity agenda, growing the economy. That's the way for us to build a stronger economy and create more jobs on the other side. The Australian economy today is 16 per cent larger than it was when we came to Government. We're going to have a higher debt burden as a result of this crisis and the spending that we had to undertake, and the way to meet that higher debt burden is not through higher taxes but is through growing the economy.
FRAN KELLY:
It's a pretty bleak picture and we know 8,000 people, close to, lost their jobs in just three weeks, hours worked across the board dropped by an extraordinary 20 per cent. We're about to hit a period of deflation for the first time in 60 years. Wages growth will remain below two per cent. It's been around there, or below, for a while now. Philip Lowe says no quick return to business as usual. There will be no fast snap back here, will there?
JOSH FRYDENBERG:
Well, he did say that the economy will grow strongly again. They were his words, and that a bridge has been built to the other side, and that Australia's long record of responsible fiscal policy has allowed us to leverage off our balance sheet to smooth out the income shock. That's what his message was, which I saw as providing some confidence for Australians about the road ahead. Now, he also did…
FRAN KELLY:
So you're upbeat? You're upbeat about the road ahead, it's going to be a V-shaped recovery thing?
JOSH FRYDENBERG:
Well, I'm confident that Australia can meet the challenges, and, as you know, the Prime Minister announced yesterday the beginning of the loosening of the health-related restrictions with the changes on elective surgery. I think that's a step forward in the right direction, and we've had great success in flattening out that curve and going from seeing an increase in the number of cases daily of coronavirus, from more than 20 per cent just a few weeks ago to now less than one per cent. And that is through the hard work of the Australian population at large. So I'm confident that we can meet the challenges ahead. I'm focused on the way out. Yesterday, I had long video conference calls with the BCA, the Business Council, and the 20 leading executives together with the Australia Industry Group at a separate call, and the Australian Chamber of Commerce and Industry. And we're all working together, business and government, and of course, the Industrial Relations Minister is talking to the unions as well. And we're all working together to ensure that Australia can be a stronger economy on the other side of this.
FRAN KELLY:
How significant a shake-up of IR are you all talking about there in those calls for instance? Because, haunted by WorkChoices, the Coalition’s been pretty reluctant for major IR reform since 2007. Will this give you cover to do more and are you talking to the union movement too then when you're having these conversations about changes?
JOSH FRYDENBERG:
Well, there's been constructive discussions to date about the reforms that we needed to introduce, consistent with the JobKeeper package and…
FRAN KELLY:
Yeah, but they're short-term.
JOSH FRYDENBERG:
They were short-term. And I thought that was a good sign though of the cooperation that can be engendered between government and unions. We have some legislation before the Parliament, as you know, which will see the lawlessness on some of our building sites reduced and that does mean, at the end of the day if that passes, that will mean lower prices for consumers in the construction of key buildings. I think this is, that would be the first order of business. Let's get that legislation through the Parliament and let the Industrial Relations Minister continue his discussions.
FRAN KELLY:
Let's talk about Virgin. It's headed in, it’s in administration. There is some confidence, it would seem, that Virgin will re-emerge but maybe as a budget carrier, maybe on fewer routes. You spoke with Rod Sims from the ACCC yesterday. How do you hope to stop Qantas post-crisis using its market dominance to stop Virgin regaining a foothold in the market? What riding orders have you given Rod Sims?
JOSH FRYDENBERG:
Well, again, he's an independent and very effective regulator. But we did obviously talk about the voluntary administration process on the other side. There's going to be another airline, Virgin, that will be in a much better shape than it currently is in terms of its balance sheet. I think…
FRAN KELLY:
Well, it might be in a better shape in it’s balance sheet but it might be a lot more curtailed, mightn't it? Are you accepting that?
JOSH FRYDENBERG:
Well, again, there's a process and I'll let that play out with the voluntary administrator. But when Virgin comes out of this process, it will be there to compete with Qantas and other carriers, and we just want to make sure that the other carriers don't use their larger market position to squeeze out competition. I think that's an important role for the regulator and they're obviously very conscious of that.
FRAN KELLY:
There's about 10 potential bidders, apparently, circling Virgin at the moment. Foreign investment decisions are yours to make. If a Chinese airline was to enter the fray to put the best offer on the table, would you approve a sale to a Chinese airline?
JOSH FRYDENBERG:
Well, we're not in the habit of commenting on foreign investment review matters other than to say that a few weeks ago I lowered the threshold, the Government lowered the threshold, for any foreign investment during this crisis to zero. And the reason why is we didn't want any predatory behaviour on distressed companies and we thought it was necessary to run the ruler and an extra pair of eyes over all potential bids, and that continues to be the case. We have a very strict national interest test. We look at issues like taxation, competition and, of course, national security in making those decisions. So, I wouldn't want to pre-judge …
FRAN KELLY:
And would national security come into an asset like this, an airline?
JOSH FRYDENBERG:
Look, I wouldn't want to pre-empt or pre-judge any bid that may or may not come in from a foreign investor. I'll look at each of them on their merits.
FRAN KELLY:
Just finally, with the Government closing the skies indefinitely, or cutting off the oxygen, as Paul Scurrah put it yesterday, there is a flow-on effect on the ground, it would seem. Swissport is the country's largest ground operations company in our airports. It provides security services, baggage handling, aircraft towing trucks. It's about to make 2,000 of its workforce redundant. 80 per cent of its workforce. Will you allow that to happen? It's an essential service, I would have thought. Swissport says it needs a $125 million rescue package. Has it got you over a barrel?
JOSH FRYDENBERG:
Well, again, we've announced a $130 billion rescue package for millions of Australian workers in the form of the JobKeeper payment…
FRAN KELLY:
But these are laid off, apparently, these are not stood down. They're laid off, this workforce.
JOSH FRYDENBERG:
Well, I would say to the company to stand down, if that's what they do, or to maintain their workers and to use the JobKeeper package to keep as many of them in a job. It doesn't make sense for a company to terminate their employees when the Government will continue to support them staying on their books, so that that important employer/employee relationship is continued through this crisis. That was one of the purposes behind the JobKeeper package. It wasn't just to apply to stood down workers, it was also to apply to workers that continued in their jobs. And I would say to the businesses in question, work with your employees, continue to operate, provide the essential service that you do and maximise the opportunities the Government has provided through the JobKeeper package.
FRAN KELLY:
Treasurer, thanks very much for joining us.
JOSH FRYDENBERG:
Always good to be with you, Fran. Thank you.