FRAN KELLY:
A short time ago I spoke with the Federal Treasurer, Josh Frydenberg.
JOSH FRYDENBERG:
Nice to be with you, Fran.
FRAN KELLY:
You've declared that Australia's economic engine is roaring back to life. Notwithstanding the important new money for areas like aged care and mental health, why do we still need to keep the big spending going? The economy's humming along. Hasn't fiscal policy, including that $250 plus billion you poured into the economy last year, done its job? Isn't that what the figures are showing us?
JOSH FRYDENBERG:
Well, we're still in the middle of the pandemic. You've seen more than 800,000 new cases of COVID a day. You've seen Europe go into a double‑dip recession. You've seen Western Australia go recently into a state-wide lockdown and there is a lot of uncertainty around the pandemic. So yes, we are recovering and recovering strongly, so much so that we're the first major advanced economy to see our employment levels now above where they were pre‑pandemic. But at the same time, we have to secure the recovery, that's why we've put in place our jobs plan in this Budget with investment in infrastructure, in skills, in the digital economy and of course tax relief, both for households with substantial tax cuts of up to $1,080 for individuals who earn between $48,000 and $90,000, and business investment incentives to not only create jobs in the short‑term but boost productivity in the long‑term.
FRAN KELLY:
The Budget's overriding objective, as you told us last night, is to secure the recovery. When will that be? What will that look like and what are the benchmarks?
JOSH FRYDENBERG:
Well one of the key benchmarks that we've set is to drive unemployment lower. Unemployment today is at 5.6 per cent and we have talked about trying to get it below 5 per cent. In fact Treasury have forecast that unemployment will go below 5 per cent by the end of next year. And so Treasury have said that the initiatives in this budget will help create 250,000 jobs. That's on top of the half a million jobs that we've seen created between last year's budget in last October and today.
FRAN KELLY:
Okay, I'm going to come back to some of those jobs questions in a moment. It's an important question about, you know, when because, announcing new spending is the easy bit and there was lot of that last night, but when does the hard bit start, the Budget repair?
JOSH FRYDENBERG:
Well, we're in the first phase of our fiscal strategy. That is about locking in this recovery. The Budget's all about securing the recovery and avoiding the fate of other nations and that is something that we've been focused on with our agenda. Once we're able to stabilise our economy then of course we move to the next phase. But in last night's Budget it was our plan for jobs and there are substantial initiatives that are built around that.
FRAN KELLY:
But just looking at in terms of the Budget repair timetable, the Budget paper's show we'll be in deficit for another ten years at least. I mean will you still be in the Parliament when the Budget's back in surplus?
JOSH FRYDENBERG:
Well, I'm not going anywhere but I can tell you that my number one goal has been to prevent a generation of Australians going into long‑term unemployment. The history of recessions in Australia, as recently as the 1980s and 1990s, show that it takes a long time for the unemployment rate to recover to where it was pre‑recession. In the 1990s it took a full ten years, and then for younger people it took a full 15 years. We are now looking at getting our unemployment rate back to where it was in around two years after the COVID recession, which is quite a remarkable achievement.
FRAN KELLY:
Let's be clear here though. I mean you used to taunt former Treasurer Wayne Swan for never delivering a surplus. Is that fate yours now and doesn't it matter anymore?
JOSH FRYDENBERG:
Well, going into the pandemic we had actually balanced the Budget for the first time in 11 years, and despite the terrible drought and the terrible bushfires we were on track for that surplus. And then COVID hit. The size of the economic shock from COVID dwarfs that that we saw during the GFC. To put it in context again for your listeners, during the GFC the global economy shrunk by just 0.1 per cent. During last year the global economy shrunk by a full 3.3 per cent. Our focus has been to stem the tide of job losses, hence the JobKeeper program, the JobSeeker Coronavirus supplement, the cash flow boost and all those other measures that had stabilised the economy. But in last night's Budget we showed that compared to the October Budget, just over six months before, net debt as a proportion of the size of the economy, so as a proportion of GDP, has come down each and every year. That's an important indicator of financial stability and sustainability.
FRAN KELLY:
Treasurer, there's $29 billion in tax cuts, you've extended for a year tax breaks for business and low to middle income earners. Why is that warranted given economic growth is forecast to be a red hot five and a quarter per cent in this calendar year before falling back to pre‑COVID levels? There's a lot of talk about this being a pre‑election Budget. Is this just a transparent move to keep everyone sweet until the election's gone?
JOSH FRYDENBERG:
Well this Budget's all about securing the recovery That's our first, second and third focus.
FRAN KELLY:
It fits handily into pre‑election timing though, whether it's late this year or next year, doesn't it?
JOSH FRYDENBERG:
Well, I'll leave that commentary to you and our focus though has been on ensuring Australians get back into work and that we avoid the fate of other nations. But in terms of those business investment incentives you alluded to, normally in a recession you actually see a capital strike from business and that can hurt the economy in the short and the longer term. So, our initiatives have helped drive higher investment in machinery and equipment at the highest levels in nearly seven years. So we've maintained support for key industries to back business and to allow business to do what it does best, which is to employ people, to innovate and to grow.
FRAN KELLY:
This Budget is all about jobs and you've mentioned that already a couple of times this morning. The forecast for this budget is for 250,000 jobs to be created this year. The centrepiece of last year's Budget, I remember talking to you about it, was the JobMaker hiring credit. That failed. It promised 450,000 jobs, just 1,000 materialised. Why would anyone trust your jobs figures?
JOSH FRYDENBERG:
Because 500,000 jobs have been created since the last budget. That's the incredible achievement of the Australian labour market. Just in ‑
FRAN KELLY:
That was after so many jobs were shed though because of the recession.
JOSH FRYDENBERG:
Well interestingly there are 75,000 more people now in work than there were before the pandemic. We have a record number of Australians in work. Female workforce participation is at a record high. No one can criticise the performance of the Australian labour market. It's been enormously resilient. It's outperformed the expectations of Treasury and the Reserve Bank. What we saw last night was an increase in income tax receipts and a reduction in our welfare bill. That's the key to stabilising the debt situation. You grow the economy, you get more tax receipts and you get a lower welfare bill. That is what we did to balance the Budget ahead of the pandemic and that's what we'll do going forward.
FRAN KELLY:
So I think the key question for a lot of people listening, Treasurer, is when does all the good news on jobs translate into good news on wages?
JOSH FRYDENBERG:
Well what both Treasury and the Reserve Bank have said is in order to get an acceleration in wages you need to see a tighter labour market. You need that spare capacity ‑
FRAN KELLY:
Of course.
JOSH FRYDENBERG:
‑to be eaten up and that's why we're seeking to drive the unemployment rate down with an ambitious target of getting it below 5 per cent.
FRAN KELLY:
Yeah, but how ambitious is that in this new economic sort of order we're in these days? Because the budget forecast has unemployment at four and three quarter per cent by June 2023. The Reserve Bank told us previously that unemployment needs to be comfortably at four or below four for an extended period to bring on wages’ growth.
JOSH FRYDENBERG:
Well Treasury ‑
FRAN KELLY:
Has the bank got it wrong?
JOSH FRYDENBERG:
No. Treasury have said that you need to get the unemployment rate between four and a half to 5 per cent in order to see more competition for labour and pressure starting to build on wages. We do see in these numbers that wages start to increase over time. But our focus is to get more people into work. We've done that so far and we'll keep doing it going forward.
FRAN KELLY:
Treasurer, there's some important assumptions underlying the Budget, the key one is the vaccine roll out. You assume every Australian who wants to be vaccinated will receive both doses by the end of this year. That's a fairly heroic assumption, isn't it, given the current pace of the roll out? It assumes I think more than around a million doses a week from now until the end of the year. Why would anyone have confidence in that?
JOSH FRYDENBERG:
The point is the vaccine roll out is now gaining pace. We saw more than 400 ‑
FRAN KELLY:
Yeah, but it's a long way from that.
JOSH FRYDENBERG:
We saw more than 400,000 vaccinations last week. That was a significant uplift on the week before. Around 10 per cent of the population have received a vaccination, around 30 per cent of those who are aged 70 and over, and in putting together these assumptions we obviously worked with the Chief Medical Officer. But a key assumption in the Budget is that we will continue to be successful in suppressing the virus. While we will have outbreaks, no one is seeking to eliminate the virus because that's not possible, it's how we manage those outbreaks which will determine our economic recovery.
FRAN KELLY:
The Government also assumes international borders won't be opened until mid‑2022, and even then, I think it's described as a cautious re‑opening. Why so late if the population is well and truly vaccinated by then?
JOSH FRYDENBERG:
Because it's not the only consideration for the Chief Medical Officer with respect to borders. They have to understand what is happening globally with the virus and we're seeing new variants, and the challenges that that may pose in terms of transmissibility and the like. So, all of those factors will be built into any decision that the medical advice provides at that time. But I want to underline for you, Fran, these are assumptions. These are not policy decisions.
FRAN KELLY:
I'm sure you'll try me for cynicism, but some might say that the mid‑2022 border re‑opening is a political time frame because recent history tells us voters reward governments that keep the virus out.
JOSH FRYDENBERG:
Well certainly the public and the Government are at one in wanting to put the safety and health of Australians first. We'll follow the medical advice and we'll put Australian's health first.
FRAN KELLY:
Treasurer, I know you've got a million interviews to do, you've got to go, but let me just ask one quick one. I've scoured the budget papers, I can't see new money for extra quarantine capacity in this Budget, but I did find $464 million to increase the capacity of the immigration detention network, including Christmas Island. Isn't quarantine capacity the more urgent need right now? Have you got your priorities wrong here?
JOSH FRYDENBERG:
Well we have been expanding Howard Springs but as you know the quarantine programs have been the responsibility of the individual states.
FRAN KELLY:
But the states are going to need more Federal support if they're going to extend their open-air quarantine capacity, for instance. Are you going to support that?
JOSH FRYDENBERG:
Well as the Prime Minister has said, Victoria has put in an application and proposal to the Federal Government. That's being considered through the normal processes.
FRAN KELLY:
But there's no money in the Budget for it, is there?
JOSH FRYDENBERG:
Well, we haven't made a decision with respect to those particular proposals, but we will give them due consideration.
FRAN KELLY:
Treasurer, thank you very much for joining us on this post‑Budget day.
JOSH FRYDENBERG:
Always a pleasure, thank you Fran.
FRAN KELLY:
That's the Federal Treasurer Josh Frydenberg.