KIERAN GILBERT:
Treasurer Josh Frydenberg, thanks very much for your time.
JOSH FRYDENEBRG:
Nice to be with you.
KIERAN GILBERT:
We’re facing the largest deficit since the Second World War, do you feel at times like you’re fighting a war in the face of this crisis?
JOSH FRYDENEBRG:
Well we certainly are. I mean, this is a flagless and a faceless enemy, the coronavirus, but it continues to spread far and wide. I mean, 1.6 million new cases last week globally, that’s three times the daily rate of new cases that we saw back in April. Now Australia has dealt better than nearly any other country with both the health and the economic initiatives that we have taken. But the harsh reality of what we’re going through has played out in the Budget bottom line and that’s reflected in the debt and deficit numbers we’ve released today.
KIERAN GILBERT:
But as you make the point, we’re in the best position, fiscal position, in the OECD. Are you willing to rack up more debt in order to save jobs?
JOSH FRYDENEBRG:
Well the Coalition under Scott Morrison will do what is necessary to support the Australian people at these difficult times. I mean, given the uncertainty around the labour market and given the second spike of cases in Victoria, that was the context for our announcement just a few days ago about extending the JobKeeper payments. Now, currently it’s supporting 3.5 million workers, 960,000 businesses, 30 per cent of the pre-COVID private sector economy, and we’re continuing it for another six months. That is a reflection of the challenges that we have. It’s currently costing us $11 billion a month, it will cost us less in the next wave, or the next phase, as a result of reapplying the eligibility test. But the support, Kieran, will be there for those who need it.
KIERAN GILBERT:
Some economists are saying that these numbers are optimistic, that they assume the worst is behind us. Is that a fair assessment?
JOSH FRYDENEBRG:
No, I think they assume that we can, as a country, be effective in dealing with new cases when they arrive and New South Wales right now is seeking to do that. In Victoria, obviously there were mistakes made, there needs to be lessons learnt. That state is one quarter of the national economy and it’s effectively in lockdown for more than five million Victorians. The impact of that is very substantial, and we do know that there will be challenges ahead, but we’ve got the plan, we’re implementing it. On the health front other states and territories are opening up, jobs are coming back, we saw that in the ABS data last week, and we’re also obviously heavily investing in skills and infrastructure and in other areas.
KIERAN GILBERT:
Stage four lockdown is very much a realistic proposition in Victoria. So, again, is this the best case scenario we’re seeing in terms of these numbers?
JOSH FRYDENEBRG:
Well again, no decision has been taken, as I understand it, from the Victorian Government. Certainly no decision has been announced and the numbers today reflect the decisions that have been taken.
KIERAN GILBERT:
In relation to the four year forward estimates, that’s been the rule of thumb when it comes to Treasury’s…
JOSH FRYDENEBRG:
For Budgets.
KIERAN GILBERT:
And economic statements. I don’t think there’s been a two year cycle used for 30 years. What did you do it?
JOSH FRYDENEBRG: .
Because there’s great uncertainty at the current time and we heard from Governor Phil Lowe of the Reserve Bank just days ago how difficult it is to provide forecasts in this environment. We’ve provided two year forecasts, we’ll provide four year forecasts in the Budget, which will be delivered on 6 October. I would have loved to have delivered a Budget in May as was the original timing and before COVID hit, even after the fires, we were still on track for that surplus. But obviously this is a very unprecedented time for the economy, for the Australian people, and that has required the Budget to be delayed until October.
KIERAN GILBERT:
When you look at the medium term, medium to longer term, isn’t it important to give Australians a sense of just how tough it is in that period in order to mobilise support for reform? Because presumably you are going to undertake proper reform in October?
JOSH FRYDENBERG:
Well, the first thing to say is that significant reform is already underway. We went to the last election, for example, with three-stage tax cuts worth $158 billion. We legislated that effectively. One of the outcomes of that legislated tax plan is that we’re creating one big tax bracket between $45,000 and $200,000, where 94 per cent of Australian taxpayers, Kieran, will pay a marginal rate of no more than 30 cents in the dollar. Right now that’s 63 per cent of taxpayers. So this is putting money into peoples’ pockets. It’s a comprehensive reform. What the Prime Minister has outlined in terms of industrial relations reform is through five different working groups. Whether it’s on the simplification of the award system, whether it’s in relation to green field sites, casual workers, or whether it’s the compliance side of things. We are focused on dealing with stakeholders appropriately to get the best possible outcomes. Infrastructure, we’ve brought forward more than $4 billion worth of spending. On skills, we’ve announced a $2 billion package, underwriting a 50 per cent wage subsidy of 180,000 apprentices. That is enormously important at this difficult time.
KIERAN GILBERT:
So progress is being made there, but where does the revenue come from? Because…
JOSH FRYDENBERG:
From growing the economy and getting people back to work…
KIERAN GILBERT:
But, you’ve got to broaden the base of revenue too, don’t you? I spoke to your former boss, Mr Howard, a month or so ago and asked him ‘does the GST need to be on the table?’ He said ‘yes it does. Tax reform always has to be on the table’. Is it?
JOSH FRYDENBERG:
Well, in terms of tax reform, I’ve just outlined a significant initiative that we’ve undertaken, and in terms of what we’ve done on company tax, we obviously tried with larger companies, but we were successful in legislating for businesses with a turnover of less than $50 million. And that’s over 3 million businesses benefiting right now from lower tax rates. We’ve also announced the extension of the instant asset write off up to $150,000 purchases, and the accelerated depreciation at 50 per cent…
KIERAN GILBERT:
They’re all cuts. Where is the revenue coming from?
JOSH FRYDENBERG:
No, they’re actually incentives. They’re actually reforms. They’re actually designed to encourage economic activity, and the greater the level of economic activity, the more revenue that comes in. That was how we effectively have grown the economy. We’ve encouraged people, we’ve provided incentives, we’ve reduced red tapes, we’re investing in infrastructure. The economy was 16 per cent greater in size pre-COVID than it was when we came to government six years earlier, and we are determined to get people back in work even after this crisis.
KIERAN GILBERT:
So, but, we’re facing a once in a generation crisis…
JOSH FRYDENBERG:
We are.
KIERAN GILBERT:
And as your colleague in New South Wales says, Dominic Perrottet, it’s not an opportunity, it’s an obligation for reform. Are you willing to take on that obligation? When we’re talking about GST and broadening the base? Because, how else does the debt get repaid?
JOSH FRYDENBERG:
I’m not about to kick-start that debate. And, as you would know, Dominic is one State, and there are other States who’ve said they don’t support that change. So, the States aren’t even in agreement about getting more revenue from a tax that they collect everything. We collect it and they get everything from it. So, in terms of the GST, it supports the States and it’s obviously based on the level of consumption. It’s taken a hit in this update because there’s lower consumption across the economy, as a function or as a feature of, what has transpired with the coronavirus.
KIERAN GILBERT:
Did you consider extending the higher support for businesses in Victoria given the shutdown there? And not to reduce the JobKeeper payments in order to support them given they’re obviously in a much tougher spot than the rest of the country?
JOSH FRYDENBERG:
What we’ve designed with the JobKeeper program is a demand driven one. So, where there is greater demand, there will be more businesses and therefore more employees who are benefitting from those payments. Right now in Victoria, there is about 975,000 employees that are on JobKeeper. My expectation is that as a function of what has transpired now, is that more of those businesses will be eligible for the JobKeeper payment in the extended period after September. We’ll have to wait and see, but some of those businesses, obviously now receiving JobKeeper, will need to continue to receive it going forward.
KIERAN GILBERT:
But did you consider maintaining a higher level of support, given how bad things are in your home state?
JOSH FRYDENBERG:
We were always focused on a transition. At $11 billion a month, this is a program that cannot continue indefinitely at that rate. We are also focused, Kieran, on a two-tiered payment to better reflect what some employers were receiving in the pre-COVID period because, as you know, at a flat $1,500 payment, the money got out the door quickly, but for many there was an over payment or an income transfer compared to what their pre-COVID income was. So we talked to Treasury, they did a review, we’ve come up with some modifications and that is what we have announced.
KIERAN GILBERT:
My understanding is that Victorian authorities are planning, at least at the senior official level, for a possible stage four lockdown. Have you been briefed on that scenario?
JOSH FRYDENBERG:
They haven’t told me that scenario. Obviously, they will take those decisions as they’ve taken their previous decisions and it will be based on medical advice as it always should be.
KIERAN GILBERT:
Would it be better to do that and embrace a short term lockdown, as harsh as it may be, comparable to that as we saw in New Zealand, in order to not see it drag out for months and months and months?
JOSH FRYDENBERG:
I will leave that to the medical experts.
KIERAN GILBERT:
In relation to our biggest trading partner, again John Howard made some comments about that recently. He spoke about President Xi Jinping and called him out as a bully. But he also went on to say ‘we must remember the end game and the end game is to maintain the maximum extent, consistent with our values, a good economic relationship with China.’ As the person who balances the nation’s books, do you agree with him?
JOSH FRYDENBERG:
Absolutely. Values drives policies, it drives approaches, it drives bilateral and multilateral relationships. Our economic partnership with China is absolutely critical to our nation. It’s worth more than $200 billion a year. China benefits greatly from our iron ore which supplies more than 60 per cent of their needs and our LNG, more than 45 per cent of their needs, that helps drive their industrial expansion. At the same time, we benefit greatly from China’s demand from our exports and, obviously from their imports to this country. So, it’s a mutually beneficial economic partnership and I want that to continue.
KIERAN GILBERT:
Is it time for the Morrison Government to try and get things back on an even keel in that relationship? I know that largely the Australian Government hasn’t been the catalyst for a lot of the problems in it, it’s been assertiveness out of Beijing and so on, but do you want to see that cool down a bit?
JOSH FRYDENBERG:
Well Kieran, I think that is the key point, is that our positions have not changed. We continue to seek a strong and a positive and a mutually beneficial relationship with China. Now that does mean defending our interests, making our points of difference clear and consistent and we’ll continue to do that. We don’t have any regrets, for example, for calling for an independent inquiry into the outbreak of the coronavirus. I mean, look at the pain it’s caused on both the economic side as well as on the health side. Countries are not through this and it’s only fair that the appropriate international agency undertakes that review.
KIERAN GILBERT:
Treasurer, thanks for your time.
JOSH FRYDENBERG:
Great to be with you.