FRAN KELLY:
Treasurer Josh Frydenberg is in our Parliament House studios. Treasurer, welcome back to Breakfast.
JOSH FRYDENBERG:
Nice to be with you, Fran.
FRAN KELLY:
You've got the Treasury looking at different scenarios around the economic impact of coronavirus. What's Treasury told you?
JOSH FRYDENBERG:
They say it's actually too early to tell what the full impact will be but the impact will be significant. That's because, as you say, the virus is evolving. Around 25,000 people have been infected, more than 400 deaths. Here in Australia we've had 14 people that have been infected and obviously our economic relationship with China is very close. They're the number one source of international students to Australia, more than 200,000; the number one source of tourists to Australia, more than 1.4 million. Together those two sectors represent about $16 billion for the Australian economy and they're the source of about 30 per cent, they’re the beneficiaries of about 30 per cent of our exports. So it's a very close economic relationship. Now SARS is a guide, in some respects, as to what happened back in 2003 when the number of tourists and the number of students from China fell but it did rebound quite strongly after that. But at the same time, the Chinese economy today is four times bigger than it was back in 2003 and our relationship is much stronger than it was back then, with tourists increasing by sevenfold and students increase doubling since the numbers we saw back in 2003.
FRAN KELLY:
Okay, so all of that is pretty bleak because 17 years ago, the SARS outbreak shaved about 0.2 per cent from the economic growth. As you say, we are much more closely linked with the Chinese economy - it's bigger and their economy, the Chinese economy, is much more exposed to this new virus, the elements of the economy. So it's beyond doubt that the economic shock this time around will be bigger and longer lasting. We just don't know yet how much. Is that what you're saying?
JOSH FRYDENBERG:
We don't know how much but we also don't know how severe and sustained the virus outbreak will be. Like I said, with SARS, we saw a fall in tourist numbers, we saw a fall in students, we saw a fall in exports but then after a number of months, it rebounded and rebounded very strongly. So we would hope that would be the case here, too.
FRAN KELLY:
If it doesn't, what's going to happen? I mean we don't know the size of what will be wiped off the growth figures, that's one question. But we do know, for instance, that universities will have billions of dollars wiped off their bottom line. Is the Government looking at stepping in to support universities if they lose much of their Chinese student intake?
JOSH FRYDENBERG:
We're actually talking directly to the universities to work out how they could possibly mitigate the impacts of these viruses.
FRAN KELLY:
And how could they? What are they telling you?
JOSH FRYDENBERG:
Well firstly, you could do more online education for this immediate period. There might be opportunities for some of the universities to provide quarantine for those Chinese students who are coming to Australia. There are various things that we're talking to them about but our first priority is to ensure that we protect the Australian community from the spread of this virus. That's why we've taken the precautionary measure, putting in place the travel bans and putting people on Christmas Island…
FRAN KELLY:
I understand that but in your conversations with the universities that they are, we've spoken to them this week too, on the program, they are talking about trying to help students maintain their studies. But if they can't and if they lose, you know, more than 100,000 of their Chinese students, is the Government prepared to step in and offer them some financial support?
JOSH FRYDENBERG:
Well, we're maintaining a watching brief across the whole economy in terms of the impacts but what we do know is we have the flexibility to respond to these crises, whether it be drought, whether it's the fires or whether it's now the virus because we've been responsible and disciplined economic managers. We inherited a budget deficit of $48.5 billion. We've now bought the Budget back into balance for the first time in 11 years. We're not putting in higher taxes as our political opponents took to the Australian people at the last election. That means our budget position is a lot better today than it was when we came to Government which means we have the flexibility, for example, with the $2 billion Bushfire Recovery Fund to put that in place.
FRAN KELLY:
Sure. Let's talk about the impact on the economy. Some analysis by the ANZ Bank puts the likely impact of the coronavirus as very severe in this quarter, as much as 0.5 per cent. It comes on top of the bushfires, you've already mentioned the drought. ANZ is forecasting the economy will go backwards in the three months to March. Are you bracing for a negative quarter?
JOSH FRYDENBERG:
Well, the negative quarter you're talking about would be the March quarter that some of the commentators are speculating, I won't speculate on that, but we wouldn't have those numbers anyway until June. What we do know is the Australian economy has been remarkably resilient. In fact, the Governor of the Reserve Bank yesterday, in his speech to the Press Club, said that the fundamentals of the Australian economy was very strong and Australians can be optimistic about their future. That wasn't me talking, that's what he has said and that's no surprise, Fran, when the unemployment rate has fallen down to 5.1 per cent.
FRAN KELLY:
Sure, I understand that, it may have been resilient but we have these hits coming at us. Are you bracing for a negative quarter? Is that what we should all be expecting?
JOSH FRYDENBERG:
Look, I'm very confident that the Australian economy is resilient to withstand these shocks which are outside of our control. What I do know is we're not increasing taxes. What I do know is we've brought the Budget back into balance and what I do know is we're seeing records jobs growth. All of those things should give Australians confidence about their economic future and how well we are prepared for whether it's fire, floods, now disease, but also those ongoing trade tensions which have hit our bottom line as well.
FRAN KELLY:
The Budget is facing, though, the triple threat of coronavirus, bushfires and drought. You've been promising a surplus, you said nothing will jeopardise the surplus. Is a surplus this year now impossible?
JOSH FRYDENBERG:
Well, the last time we did our forecast we were in MYEFO, which was just pre-Christmas…
FRAN KELLY:
Yeah a lot's happened since then…
JOSH FRYDENBERG:
That's right. And it said we would have a $5 billion surplus and that already included the bring forward of infrastructure spending of $4.2 billion, the additional $1.3 billion we've committed to the drought response since the election as well as…
FRAN KELLY:
Since then, since MYEFO, we've had the fires really increase, especially the fires in Gippsland, Mallacoota and down in New South Wales and we've also had the coronavirus.
JOSH FRYDENBERG:
And we think the fires will probably take 0.2 per cent off GDP, which is what the Reserve Bank said yesterday. We think the drought will take about 0.25 per cent off GDP because we've seen farm output go down significantly in the last two years - no surprises there and we do not know what the full impact of the virus outbreak will be but we do know it will be significant because of our connectivity with China on trade, on students, on tourists, the importance of China to the global economy.
FRAN KELLY:
So as the Treasurer, are you preparing us to, for the fact that you might not be able to deliver a surplus?
JOSH FRYDENBERG:
Well, our, delivering a surplus has not been our priority in the face of these crises. Our priority has been on delivering the support to the people who need it most. That's why the Prime Minister and I stood up and announced the $2 billion Bushfire Recovery Fund which was initial and an additional commitment on top of what has already been paid through the States to the bushfire affected victims. So record amounts being spent on habitat restoration, on mental health support, on the support for the tourism industry and direct grants to primary industries.
FRAN KELLY:
No one's arguing with the spending in fact, I think Australians support it. We're just wondering what is it going to mean to your projected surplus. Dr Lowe said yesterday, the Reserve Bank Governor said yesterday, that whether the Government recorded a small budget surplus or deficit was quote, "not really economically important.” Do you agree with that?
JOSH FRYDENBERG:
Well, what is important is that Australia lives within its means and that's why we have ensured that we have now balanced the Budget. That's banked. That’s…
FRAN KELLY:
So do you agree, then, that whether we're in surplus or small deficit, it doesn't really matter?
JOSH FRYDENBERG:
Well, I believe in disciplined economic management for exactly what we're seeing right now, which is crises that are affecting the economy that are outside of our control. We can't control the US China trade relationship. We can't control the outbreak of these bushfires. We can't control the spread of the virus through China and the rest of the world. But what we can control is our ability to spend through those crises to get the support to the people who need it most and when we went to the last election, we promised the Australian people we wouldn't be increasing taxes, in fact, we're reducing taxes, whereas our political opponents had $387 billion of higher taxes. Could you imagine, Fran, right now whacking superannuants, family businesses, income earners, retirees with higher taxes?
FRAN KELLY:
Treasurer how long are you going to keep talking about Labor's tax promises from the last election?
JOSH FRYDENBERG:
Because they talk about the Australian economy, they talk it down. They talk down the Australian economy, that's irresponsible, it's reckless, it goes against what the Governor of the Reserve Bank said. So I will call out their lives every day of the week.
FRAN KELLY:
You’re listening to RN Breakfast, our guest is the Federal Treasurer Josh Frydenberg. The Reserve Bank Governor, Philip Lowe, has been urging people not to catastrophise the coronavirus but he in fact, seemed more concerned about the ongoing drought and the bushfires and he said yesterday the economic effects of these climate events on the economy were now material and profound. He talked of climate change, he talked of the financial stability implications over time of climate change and said some businesses will be left with stranded assets. It's a pretty chilling statement by the Governor. Why isn't the Government heeding that message and setting more ambitious targets for emissions reductions?
JOSH FRYDENBERG:
Well Fran, I don't accept the premise of your question. We are setting an ambitious targets. It's more than a 50 per cent reduction on a per capita basis. It's a 26 to 28 per cent reduction in absolute terms by 2030…
FRAN KELLY:
Which is we keep going at that level and all the other countries did what they're doing, the world's going to end up three degrees warmer - that's not going to help us.
JOSH FRYDENBERG:
Fran, these are the facts. Since 2005, our emissions are down around 13 per cent. In that same time, Canada's emissions are down by 2 per cent.
FRAN KELLY:
Let's not worry about global…
JOSH FRYDENBERG:
No, but if you ask me a question…
FRAN KELLY:
Let's talk about Australia getting to zero emissions by 2050.
JOSH FRYDENBERG:
Fran, with the greatest respect, if you ask me a question, let me please provide the answer.
FRAN KELLY:
But it's the answer we've been hearing for the last week or three and…
JOSH FRYDENBERG:
Maybe they're inconvenient truths for you.
FRAN KELLY:
No, no, what I'm getting at is that scientists keep telling us that the level of ambition in Australia and globally is not high enough to cut warming that is banked into the system, that we need to do more and I'm wondering why the Australian Government doesn't seem to agree it needs to do more when the Reserve Bank Governor is warning that climate change has financial stability implications over times and we're looking at stranded assets.
JOSH FRYDENBERG:
And we accept the science, climate change is real. It is having an impact and what we've seen is hotter, drier, longer summers and as I said earlier in the interview, the impact on the economy of the bushfires is about 0.2 per cent of GDP. What we've seen from the drought is about 0.25 per cent hit to GDP. But the reality is we are tracking to beat our 2030 targets while New Zealand, China, India have all seen their emissions go up. We've seen one in five Australian households get solar panels on their roofs. We've seen record investment in renewables and we're investing in the new technologies like hydrogen, microgrids, we're putting more money into pumped hydro with Snowy 2.0. There's an amazing transition that's occurring in our energy system so much so that what we will see is more than 26 per cent reduction in emissions in the electricity sector, which is about a third of the overall emissions in the economy by 2022. That's eight years earlier than 2030. That's what we're supporting without increasing taxes.
FRAN KELLY:
Okay, the fact remains Australia is still number one in the world for per capita CO2 emissions. That is the truth, isn't it?
JOSH FRYDENBERG:
The truth is we're 1.3 per cent of the world's emissions and the truth is we will meet and beat our 2030 target as we met and beat our earlier targets.
FRAN KELLY:
Can I just ask you finally, some in the National Party are calling for greater investment in coal. Matt Canavan wants the Government to underwrite coal-fired power stations right around the country. You're not just the Treasurer, you're also the MP for the seat of Kooyong in Melbourne where many people are concerned about climate change - that was made clear to you at the last election. Would you, as the Treasurer, be prepared to pay for even one coal-fired generator? Would your constituents support that?
JOSH FRYDENBERG:
If you turned off the coal-fired generators we wouldn't be speaking on air because we would run out of electricity.
FRAN KELLY:
I'm not saying you’re turning them off. I'm saying would you be prepared to pay for more?
JOSH FRYDENBERG:
What I'm saying is that the Government is focusing on a transition to a smaller carbon footprint. At the same time, what we want to ensure is our big industrial customers have the reliable, stable, low-cost energy that they need because otherwise, we won't have the jobs in our manufacturing sector, in our heavy industry sector.
FRAN KELLY:
Sure. Does that mean more coal-fired power stations with government underwriting?
JOSH FRYDENBERG:
Well, it means lower emissions in the energy sector. What we haven't taken is any decisions in that regard. What we have seen, though, is an amazing uptake of renewables and on a per capita terms, more than double France and Germany and greater than the US and the UK. That's something Australians can be very proud of. The fact is that our energy system is transitioning to a lower carbon footprint.
FRAN KELLY:
Treasurer, thank you very much for joining us.
JOSH FRYDENBERG:
Good to see you.
FRAN KELLY:
Treasurer, Josh Frydenberg.