LAURA JAYES:
Live with me in the studio now is the Treasurer Josh Frydenberg. The tax cuts, the package, will it pass by the end of the week with Labor or the crossbench?
JOSH FRYDENBERG:
We're confident that it will, and obviously we're in constructive discussions with the crossbench. The tax cuts are really important, Laura, to the economy. They were set out very clearly in the Budget, they were central to the election campaign, the Reserve Bank Governor has said they'll put money in people's pocket, boost disposable income and that will help the overall health of the economy. But it's clear that Anthony Albanese, in continuing to oppose these tax cuts has learnt nothing from the election defeat and heard nothing from his listening tour. This was his first test, and he has failed it badly.
LAURA JAYES:
Well, we haven't seen how Labor is going to vote yet. We'll start to see that in the House this afternoon. You promised $1,080 on the 1st of July. You're already a couple of days late. When will people see this money in their bank accounts if it passes by Friday?
JOSH FRYDENBERG:
Well, if the legislation passes this week and gets the Royal Assent, I've spoken to the Commissioner of Taxation, he said the ATO staff are already to move it through the system and people will get it next week. So, once they've put in their tax returns, if they put in their tax returns next week, then they'll get it just days after.
LAURA JAYES:
What if they've already put in their tax return?
JOSH FRYDENBERG:
If they've put in their tax return, the ATO will then itself automatically update and then they won't have to put in another tax return. You need to put in your tax return and then obviously that works its way through the system. For those who have put in their tax returns, then the benefits will flow quickly.
LAURA JAYES:
And then how long after that will you expect to see a stimulatory effect on the economy and what signs will we be looking to?
JOSH FRYDENBERG:
Well, the tax cuts are equivalent to two 25 basis rate point cuts. So they're not insignificant. It's billions of dollars into the economy. That will continue just to see our economy grow, that will boost household consumption, and that's what's really important to the overall health of the economy.
LAURA JAYES:
So will therefore, if these tax cuts pass, do you then, from your argument, not see the need to cut interest rates further towards the end of the year?
JOSH FRYDENBERG:
Well, a couple of points. The first is decisions on interest rates are a matter for the independent Reserve Bank of Australia, and that's really important. So it's not for me as Treasurer to be telling them what to do. In terms of the last rate cut, the Reserve Bank Governor made it very clear it wasn't in response to a deterioration in the economic outlook and that they are motivated by a redefinition of what they consider to be full employment. So, full employment traditionally has been around 5 per cent, today it's 5.2 per cent. Now the Reserve Bank is saying that it could have a 4 in front of it, meaning that they could reduce rates and not be worried about inflationary concerns and spur more economic activity and drive unemployment even lower. That's their motivation.
LAURA JAYES:
Labor has pointed to the affordability of the Stage 3 of your tax cut package. The Budget papers, in 2024, assume a growth rate of 2.75 per cent. Are these Stage 3 tax cuts only affordable if you have that growth rate in 2024?
JOSH FRYDENBERG:
Well, they are baked in, these tax cuts, into our forecasts.
LAURA JAYES:
Yeah. If the forecast… if the forecast is wrong are they still affordable?
JOSH FRYDENBERG:
Well we have made these tax cut promises to the Australian people which were central to the campaign, based on the fact that the economy will continue to grow and importantly, will continue to deliver Budget surpluses. I mean, in 2019-2020 we will be delivering the first surplus in more than a decade, we'll be paying back net debt by the end of the decade, and that is a real turnaround in our fiscal position. So we can grow the economy, we can cut taxes, we can spend record amounts of hospitals and schools and we can deliver the Budget to surplus.
LAURA JAYES:
But how credible are those forecasts when, at the moment, you're not even meeting the current forecasts? Growth is at 1.8 per cent, that's a big jump.
JOSH FRYDENBERG:
Well, the fundamentals of the Australian economy are sound, Laura. We have a AAA credit rating, one of only ten developed economies to have that AAA credit rating.
LAURA JAYES:
Surely these figures keep you awake at night
JOSH FRYDENBERG:
Well, in terms of what keeps me awake at night, it's looking at what the global economic outlook is, because the Reserve Bank has said that is their main downside risk, some of those trade tensions between China and the US and it's important for that to be ameliorated. But I am confident that with the plan that we have in place which is tax cuts, which is infrastructure spending, which is more apprentices, the PM's talked about deregulation, industrial relations reform, trade agreements, the record spending on the defence industry, a whole series of initiatives that we have underway across the economy will see the economy continue to grow. And if Labor were so worried about the health of the economy, why were they proposing $387 billion of higher taxes. That's the question they haven't answered. Why is their solution to challenging economic circumstances, higher taxes?
LAURA JAYES:
I appreciate your confidence, I should say, but your confidence isn't bankable. If growth doesn't come back to 2.75 per cent by 2024, can you deliver a surplus and afford those Stage 3 tax cuts?
JOSH FRYDENBERG:
Well, we believe that we can continue to deliver the surpluses, the economic growth, the strong employment growth and we saw 40,000 new jobs being created last month, we've a plan for 1.25 million new jobs on top of the 1.3 million already created.
LAURA JAYES:
So you won't give up either of those things? A surplus or the tax cut Stage 3? If the economy takes a downturn though?
JOSH FRYDENBERG:
We don't see them as mutually exclusive. At the end of the day it comes back to principles and values and our principles and values are about seeing Australians earn more and keep more of what they earn. Our tax cuts are about aspiration, rewarding effort. Now, the Labor Party are, were, is, will be the party of higher taxes. That's why they're struggling with this, Laura. That's why they've had a different position every day. I mean, we heard from Katy Gallagher on Sky on Sunday, say that they can only vote for it if they can't oppose it.
LAURA JAYES:
But you do frame yourselves as the better economic managers but the figures probably betray that a little bit. We're now looking at perhaps another interest rate cut today. The RBA looking at maybe slashing to one per cent. Joe Hockey, at three per cent, said it was an emergency level. I mean, what do you describe one per cent as?
JOSH FRYDENBERG:
So, in terms of growth, we are growing faster than any G7 nation other than the United States at 1.8 per cent. The Labor market has seen strong employment growth, the AAA credit rating is there, the Budget is coming back into surplus. Now, I'm not saying that the economy is not facing challenges. It's facing international headwinds and also some domestic challenges with household consumption and the housing market and the drought. But we have the plan to see us through. Labor will talk down the economy and we will explain to the Australian people that the fundamentals are sound and we have a plan to get through these headwinds.
LAURA JAYES:
Okay, Treasurer, appreciate your time this morning.
JOSH FRYDENBERG:
Good to be with you.