FRAN KELLY:
Federal Treasurer Josh Frydenberg joins me in our Parliament House studios. Treasurer, welcome back to Breakfast.
JOSH FRYDENBERG:
Always good to be with you, Fran.
FRAN KELLY:
You can see the economic impact of coronavirus will be significant. What does that mean? How big a hit are we in for?
JOSH FRYDENBERG:
Well, Treasury are doing detailed forecasts and I'm yet to receive their final number. But what we do know is that the bushfires are going to take about 0.2 of a percentage point off GDP in the December and March quarters. This is off the back of the drought which took about a quarter of a percentage point off GDP and, of course, the trade tensions between China and the US have also knocked around the global economy and the Australian economy. So these are economic shocks, Fran, that are occurring outside of the Government's control and the coronavirus is still evolving, but what we do know is we've been calm, we've been considered, we've put in place travel restrictions. 23 people here in Australia have contracted the virus, 15 of those have now been cleared, but the economic impact will be significant.
FRAN KELLY:
Okay, but growth was already weak before then. Should we be bracing for a contraction in the first three months of the year, a negative quarter?
JOSH FRYDENBERG:
Well just to make the clear point here that the International Monetary Fund, as recently as January, said that the Australian economy would grow faster this year and next than the United States, Japan, Korea, the United Kingdom and France..
FRAN KELLY:
But growth is not strong.
JOSH FRYDENBERG:
But let me point to the comments of the Reserve Bank Governor, who said that the Australian economy was going through a gentle turning point for the better, that balance sheets, both corporate and households, had improved, and, in fact, what we saw in December of last year, unemployment fell to 5.1 per cent, we saw retail trade volumes have their best numbers since December and household disposable income, the biggest rise in a decade.
FRAN KELLY:
Treasurer, all I'm asking you simply is given what you said there about the hit from the bushfires, which has already been anticipated, the hit to global growth, the coronavirus is going to hit growth, are you expecting a negative quarter?
JOSH FRYDENBERG:
Look, the December quarter numbers will be received next week on Wednesday. The March quarter where the coronavirus will have its biggest impact will not be received till June.
FRAN KELLY:
Are you expecting it will be negative?
JOSH FRYDENBERG:
Well, this is a significant impact and it's not just in the tourism and the education sectors but it's also disrupting end-to-end supply chains.
FRAN KELLY:
I want to come to that but is that a yes, you are expecting a negative quarter?
JOSH FRYDENBERG:
Look I'm not going to give a number because I've yet to get the number from Treasury but what I do know is we're looking at it very closely, but this virus has continued to evolve and is still obviously spreading well beyond China.
FRAN KELLY:
And it is hitting growth and that's understandable. The Prime Minister says “stimulus options to respond to the crisis were very limited,” that's a quote. Why are they limited? Haven't you been saying all along the reason why you work towards a strong Budget state is to make sure we can deal with events like this? Why not spend it now?
JOSH FRYDENBERG:
Well, the Prime Minister was making the right point that this crisis is different to a global financial crisis. What has been impacted here is those end-to-end supply chains. So, for example, yesterday, I was speaking to someone in the building industry who is concerned about their ability to get materials from China, whether it's tiles and toilets or other materials that go into our buildings. I was speaking to a vitamin producer who employs many people here in Australia and would otherwise put on the plane the vitamins that they manufacture here in Australia to China the next day. But now they can't get a flight to China for 23 days because the flights are not coming in from China so therefore the flights are not going out to China. These…
FRAN KELLY:
…retailers too have been really hard hit.
JOSH FRYDENBERG:
Exactly, and I think that just makes the point, Fran, that this is having an impact across the broader economy, we'll continue to maintain a watching brief but what we do know is that the Australian economy is a lot stronger than any other country going into this situation.
FRAN KELLY:
Okay, but just to get back to the Prime Minister's comments, he says, you know, you're not a Government that engages in extreme fiscal responses, but isn't a virtual pandemic an extreme time? Doesn't it demand an extreme response?
JOSH FRYDENBERG:
Well, this is a health crisis that we have been trying…
FRAN KELLY:
…that's turned into an economic crisis, as you've described.
JOSH FRYDENBERG:
And it's having an economic impact. What we're trying to do is contain the virus. Obviously here in Australia we were one of the first countries to put the travel restrictions in place, we’ve got 23 people who are infected with the virus, 15 of those have been cleared and in that time, importantly, Fran, more than 30,000 people have come since early February from mainland China into Australia but because of our strict quarantine measures and the other measures we've put in place we've been able to protect the Australian people.
FRAN KELLY:
Given the hit that those travel bans have impacted on some of our industries, and we’ve talked about this before, we've talked about tourism, we've talked about education, did we panic? Did we overreact? I mean Canada did not put in a travel ban, it hasn't had the same impact and it's only had ten infections?
JOSH FRYDENBERG:
Firstly, about 50 countries or more have actually put travel restrictions in place and the United States, obviously, had put them in place, Australia has put them in place...
FRAN KELLY:
…and Canada didn't.
JOSH FRYDENBERG:
But we also had a lot more students than a number of other countries from China…
FRAN KELLY:
And now some are thinking about going to Canada to study.
JOSH FRYDENBERG:
Obviously this goes to the point that the Prime Minister, the Health Minister and others have made. Our primary focus has been about taking precautionary measures to protect the Australian people. We've based our travel restrictions on the best medical advice available from our Chief Medical Officer who is also consulting on a daily basis with his state counterparts.
FRAN KELLY:
Given the Prime Minister said yesterday that the measures imposed have stopped, have been successful in Australia, does that mean we could see this travel ban lifted soon?
JOSH FRYDENBERG:
Again, we'll continue to take the best possible medical advice. We made some exceptions for those school students, about 700 in number. Again, that is a different cohort than the international students, which is a much larger number.
FRAN KELLY:
Treasurer, is your precious promised surplus gone?
JOSH FRYDENBERG:
Well, again, the numbers will be updated on Budget night so you will have to switch on there. There's quite a way to go between now and Budget night. As you know, in the mid-year economic and fiscal outlook released prior to Christmas, we forecast there would be a $5 billion surplus but since…
FRAN KELLY:
…a lot's changed since then. The bushfires already the Government's put $2 billion in and that's not even counting the cost of the impact on business and communities.
JOSH FRYDENBERG:
And not even counting the cost of our existing payments and allowances that we provide to the States in the event of normal disasters and, of course, the coronavirus is another hit to the Australian economy. These could not have been predicted at the time of the mid-year economic and fiscal outlook, nor at the time of last year's Budget.
FRAN KELLY:
So it sounds like it won't be surprising if you can't deliver a surplus?
JOSH FRYDENBERG:
There are things that I can control and things I can't control. What I can control is the tax cuts and we've delivered them. What I can control is our $100 billion infrastructure spending. What I can control is what we're doing to cut red tape and to free up business.
FRAN KELLY:
And what you can't control is that things happen and yet you promised last year. In fact you talked about the Budget's back in black already, Australia's back on track and back in black, you produced ads with back in black, the Liberal Party even released back in black coffee cups. Are you embarrassed by that hubris?
JOSH FRYDENBERG:
Well, we're back in balance and no one can ever take that away from us…
FRAN KELLY:
…yeah, but that's not back in black, Treasurer.
JOSH FRYDENBERG:
But what we have delivered, Fran, is the first balanced Budget in 11 years, at the same time we’re cutting taxes and the Budget, to be delivered in May, will update us on what the real impact has been of these fires…
FRAN KELLY:
Do you regret getting ahead of yourself?
JOSH FRYDENBERG:
I made a very clear statement based on the best advice available to us, knowing that Australia is now living within its means, knowing that we're disciplined economic managers and you, like all Australians, will have to tune in on Budget night to find out what the latest numbers are.
FRAN KELLY:
If you don't deliver a Budget will that be a failure of you, the Treasurer? I remember Joe Hockey calling on Wayne Swan to resign because he didn't deliver the promised surplus. Should you resign if you don't deliver as promised?
JOSH FRYDENBERG:
Well, you shouldn't speculate about what's going to happen on Budget night, neither will I. What I will do is point to the inherent strength in the Australian economy. As the Governor has said, Australians can be optimistic about their economic future. It seems only the Labor Party is talking down the Australian economy. What I can point to is household disposable income has been on the rise, the labour market's been strong, the housing market has stabilised and what we have is a record number of Australians in a job.
FRAN KELLY:
It's not really talking it down, isn't it…
JOSH FRYDENBERG:
Well they do.
FRAN KELLY:
… just pointing to what you just described which is, we already know, the bushfires will carve 0.2 per cent off growth, we know coronavirus is going to be more significant than that. What about how we deal with things in the future? You talked about supply chains and businesses. Larry Fink, who runs the world's largest fund manager, Black Rock, says countries are too dependent on China and, you know, he could have been talking about Australia, 70 per cent of our imports of clothes, furniture, telecom commitment comes from China. Is it time to diversify our supply chains?
JOSH FRYDENBERG:
We have a trade surplus with China. We actually export more to them than we import from them and we've been great beneficiaries of China's rise, as hundreds of millions of people have been lifted out of…
FRAN KELLY:
…no doubt about it but is it time to diversify, spread that risk?
JOSH FRYDENBERG:
Well, firstly, we are diversifying in terms of the recent trade deal that we secured with Indonesia. That is a country of 270 million people, our second nearest neighbour, the world's largest Muslim nation. This is a great opportunity for us and we're getting in on the bottom level with the trade deal, just as we have with Japan, with Korea, the Trans Pacific Partnership. It's been one of the great success stories, Fran…
FRAN KELLY:
… Ok
JOSH FRYDENBERG:
… of this Government is the diverse range of free trade deals that we have secured. But let me make this very important point. Australians have benefitted greatly from China's economic rise. You know, one third of our exports are going to China, they're a great source of students and tourists to this country and we welcome their economic rise.
FRAN KELLY:
On another issue, because the other great threat to the global economy is global warming. For the first time ever the G20, you're just back from there, the final communique referenced the final stability implications of climate change. The threat is clear. Malcolm Turnbull has just warned publicly of a quote, "absolutely unthinkable, catastrophic, apocalyptic scenario if the world doesn't get to net zero by 2050." That objective, he says, is quote, "not a nice to have or an interesting target, a would be nice to do if we can afford it." He says the alternative is unthinkable. Do you agree?
JOSH FRYDENBERG:
Well, I do believe that we do need to reduce our carbon footprint and I think one of the clear messages out of the Australian, the last election, was that Australians want the Government to be acting on climate change, as we are …
FRAN KELLY:
…net zero by 2050, that's what Malcolm Turnbull says.
JOSH FRYDENBERG:
But they also want us to properly cost and to properly fund our global commitments.
FRAN KELLY:
So are you looking at the cost of getting to net zero by 2050?
JOSH FRYDENBERG:
Well what I can say is that when Anthony Albanese announced this number, he didn't have any mechanism, he didn't have any costing, he didn't have any funding.
FRAN KELLY:
I'm asking about what you're doing. Are you doing it and are you costing it?
JOSH FRYDENBERG:
Our focus has been on the 2030 target. We went to the election with a $3.5 billion climate solutions package and we are obviously focusing on the adoption of new technologies like hydrogen and obviously the investments in Snowy 2.0 and the links between Tasmania and the mainland. All of those things are about reducing our carbon footprint and stabilising our electricity sector while reducing prices.
FRAN KELLY:
Just on technology, the Government's expected to release the technology roadmap as possibly as early as Friday. It's all about cutting emissions through technology and innovation, yet ARENA the Australian Renewable Energy Agency, which drives that innovation, will run out of funds in a matter of months. Will the road map include new funding for ARENA?
JOSH FRYDENBERG:
Look, ARENA has done a good job, just as the Clean Energy Finance Corporation…
FRAN KELLY:
It certainly has. It's funded one of our most successful global innovation elements at UNSW in photovoltaics.
JOSH FRYDENBERG:
And it's been a great story, isn't it, that we're leading the world….
FRAN KELLY:
… but they're about to run out of money.
JOSH FRYDENBERG:
But what we have done, obviously, is inject an extra billion dollars into the Clean Energy Finance Corporation for the Grid Stability Fund. We're obviously focusing on new technologies, we're funding those, the take up of new technologies, for example, the half a billion dollar hydrogen strategy…
FRAN KELLY:
No money for ARENA?
JOSH FRYDENBERG:
Angus Taylor will have more to say about that investment roadmap where our focus is on technology, not taxation.
FRAN KELLY:
No money for ARENA?
JOSH FRYDENBERG:
Well again, we'll continue to invest in the areas that need it and obviously technology is an important priority for the Government.
FRAN KELLY:
Treasurer, thank you very much for joining us.
JOSH FRYDENBERG:
Thank you.