PATRICIA KARVELAS:
Treasurer Josh Frydenberg will today deliver his traditional pre‑budget speech outlining the Government's fiscal priorities heading into the May election. He joins you this morning. Treasurer, welcome.
JOSH FRYDENBERG:
Nice to be with you, Patricia.
PATRICIA KARVELAS:
You're promising targeted and proportionate measures to help with the cost of living pressures. Does that mean a one‑off bonus payment to pensioners and other low income earners? Will that be the best way to offer relief without imposing a sort of structural burden on the budget?
JOSH FRYDENBERG:
Well, Patricia, you may want to ask me that question many differ ways, but I'm not going to get on to the sticky paper just a week out from the budget as to what may or may not be in that important document. I recognise, and the Government acknowledges, that the number one topic around the kitchen table is cost of living pressures. Australia is a price taker with respect to oil and that has obviously been influenced by events in the Ukraine. That's flowing through to higher prices at the petrol bowser. We've also seen supply chains constrained during COVID and during this crisis in Europe and that's flowing through to higher freight costs and, therefore, higher food costs and other goods that people may purchase. So there is a need here for some relief and that is why we'll have some temporary, targeted measures in the budget in just over a weeks’ time.
PATRICIA KARVELAS:
Well, you said temporary, so I think you've kind of answered my question, then, which is, because you don't want to bake it in, right?
JOSH FRYDENBERG:
Well, we have been very careful throughout this crisis that we've faced with the pandemic to ensure that our measures are temporary and are targeted and that when the economy recovers we end those emergency crisis settings. Now, the same cannot be said for our political opponents, and I make that very clear in the speech today, too, because Anthony Albanese has committed over $80 billion in addition to what we had announced during COVID. That would have put extra pressure on interest rates, extra pressure on cost of living as well.
PATRICIA KARVELAS:
You do make that point. Regardless of what you do, whether it's bonus payments, a cut to fuel excise, a small tax cut, won't any modest savings be quickly swallowed up by rising inflation, which could hit 5 per cent by the middle of the year, especially when the Reserve Bank starts lifting interest rates?
JOSH FRYDENBERG:
Well, inflation is more elevated than initially thought at 3.5 per cent here. I do point out to your listeners that it's less than half of what it is in the United States and lower than what it is across the United Kingdom, New Zealand, Canada and other nations. But I will update the inflation forecasts in the budget, again, in just over a week's time but we have put around $30 billion into Australians pockets with tax relief since the pandemic began. And that's focused on low and middle‑income earners, and that has helped alleviate some of these further cost of living pressures.
PATRICIA KARVELAS:
The best form of help a lot of workers would like to get is a real increase in their wages. Is that what you want to see? And, if so, why doesn't the government take the lead and boost public sector wages and support demands for higher wages at the Fair Work Commission for sectors like Aged Care to set the example?
JOSH FRYDENBERG:
Well, the Commonwealth's position has been consistent with those wage cases, which is, we provide advice as to what is the economic environment in which decisions will be taken. But we don't take a side as to what the particular outcome should be. Now, the Labor Party…
PATRICIA KARVELAS:
Do you want to see wages rise?
JOSH FRYDENBERG:
Well, again, I obviously want to see wages rise…
PATRICIA KARVELAS:
But isn't that a good way to set the standard?
JOSH FRYDENBERG:
Well, again, that's why we have an independent umpire…
PATRICIA KARVELAS:
Yeah, but you could also have a view. You could put in a submission and say, "We think that this would set the standard. Our view is that wages should increase." Why not do it?
JOSH FRYDENBERG:
Well, it's been a bipartisan practice not to take a particular position as to what that wage rise could or should be. And that is what we've adopted in this case. But we did for our Aged Care sector make some additional payments, they were retention bonuses. We've done a number of those recognising the pressures that that sector has been under through COVID. You reference what's happening to wages. We do note that the earnings of Australians is up by 3.4 per cent. That was through the year. That was the latest national accounts data. That is obviously just below where inflation is, but the best way to create higher wages is through a tighter labour market. And yesterday we got the unemployment rate, which was at 4 per cent, which is the lowest in 14 years and was particularly good news for females which is the lowest level since 1974.
PATRICIA KARVELAS:
We keep waiting for the dividend of low unemployment to lead to higher wages, and yet we haven't seen it yet, Treasurer. And that's why people are so frustrated. Right? I think that's the concern.
JOSH FRYDENBERG:
Well, those average earnings had actually been lifting. But what is obviously also a relevant factor here is the higher inflation rate. And as I was pointing out earlier, that is as a result of international factors that are beyond our control. That is a result of the international oil price lifting by around a third since the crisis in Ukraine began, and that is a result of those supply chain pressures that came through COVID and more recently because of the geopolitical tensions in Europe.
PATRICIA KARVELAS:
This year's budget will usher in a shift to debt reduction. As you’ll say in today's speech, and I quote from your speech, “the time for large‑scale economy‑wide emergency support is over”. But we're living in such an uncertain world, Treasurer, with the war in Ukraine threatening global growth and the arrival of a new Omicron strain, can you ever really rule out further economic stimulus?
JOSH FRYDENBERG:
Well, you're absolutely right that we are living in an uncertain world. This is my fourth budget and they've been delivered in the face of drought, fires, floods, a global pandemic and now war in Ukraine. But what we need to do as the economy recovers strongly, which is what is occurring right now, is that we do take steps to stabilise and ultimately reduce debt as a share of the size of the economy. And that's what the budget in a week's time will actually reveal. This is the fiscal dividend, Patricia, out of having a strong economy and particularly having more people in work. And obviously when you're in work you're paying tax so there's higher revenue receipts coming in, but also lower welfare payments. We've also seen commodity prices higher than initially forecast, whether it's metallurgical coal, thermal coal and iron ore, all of which are major Australian exports. But we've been very careful not to bake in those higher commodity prices indefinitely. Labor did that when they were last in government. That's a mistake because that affects the structural integrity of the budget. And we've also been very careful to ensure that we stick to it our tax to GDP cap, because that's a form of internal discipline as well around spending.
PATRICIA KARVELAS:
Under the second phase of the budget strategy the government will start reining in spending to try and reduce debt and deficit. Does that mean spending cuts, an era of austerity once the election is out of the way?
JOSH FRYDENBERG:
I'm not calling it austerity. I'm calling it responsible…
PATRICIA KARVELAS:
But when does it happen, and does it happen after the election? This is the big key question, will we know where you're going to be cutting or where we're going to see these savings?
JOSH FRYDENBERG:
Well, what you'll see in the budget is our spending priorities, but also what you will see is new forecasts around revenue as well as economic indicators like growth and unemployment, all of which play in to the overall budget settings. But the key to actually seeing your debt as a size of the economy reduce is to grow the economy. And in the Final Budget Outcome for 2021 the actual bottom line was $80 billion better off than what I had initially forecast in the budget in October 2020.
PATRICIA KARVELAS:
So you won't embark on structural reform?
JOSH FRYDENBERG:
Well, we are embarking on structural reform.
PATRICIA KARVELAS:
More structural reform after the election?
JOSH FRYDENBERG:
Absolutely structural reform.
PATRICIA KARVELAS:
So will we know where that structural reform will come from? Will you make that clear in the election?
JOSH FRYDENBERG:
Well, structural reform is everything from abolishing a whole tax bracket, 37 cents in the dollar tax bracket, which is legislated but yet to take full effect, which will see 95 per cent of Australian taxpayers pay a marginal rate of no less than 30 cents in the dollar, to the changes we've made around insolvency, to the changes we're making around the digital economy, to the changes that we're making around manufacturing and commercialisation of research and various incentives there, all of which have been outlined in previous budgets but will be built on in this budget.
PATRICIA KARVELAS:
I've got to ask you, the extra 3,000 in flood disaster payments have finally been extended to other areas in northern New South Wales, Ballina and Byron, for instance. Given this is emergency support, why did it take criticism from your own side of politics to get the money out the door? I know the state Nationals MP Geoff Provest, for example, says he's disgusted by the government's neglect of flood victims.
JOSH FRYDENBERG:
Well, we have already made hundreds of thousands of payments to the flood‑affected victims and…
PATRICIA KARVELAS:
But for these people in Ballina and Byron is the question, Treasurer.
JOSH FRYDENBERG:
Well, firstly, we have already made a number of payments to people in Ballina and Byron. But what we have seen, particularly in Lismore, is a one‑in‑500‑year event, and this is impacting the scale of the damage and, therefore, the nature of the response. Whether it's category A, B, C or D disaster payments, there is a process in place. We activated them as soon as the crisis hit. The money flowed as soon as it possibly could. But we continue to make additional announcements, like the one we just did yesterday.
PATRICIA KARVELAS:
But it was your own side of politics that had to get pretty cranky with you for you to extend it to those other areas that are in desperate need. With the benefit of hindsight and listening to what they've said, Treasurer, do you concede that that was a mistake?
JOSH FRYDENBERG:
I wouldn't accept the premise of your question. We made…
PATRICIA KARVELAS:
But it's true. They've said it took too long.
JOSH FRYDENBERG:
We made this decision, we made this decision, based on the facts on the ground and the expert advice that we were receiving about the scale of the damage. It's not the first or it's not the last natural disaster that Australia will face. And it's not the first or the last time that the federal government, in partnership with state governments, are making very significant economic support.
PATRICIA KARVELAS:
Okay, I spoke to the New South Wales State Treasurer Matt Kean yesterday and he said that the actual criteria needs to be changed because clearly it was a disaster. Do you agree with him?
JOSH FRYDENBERG:
Well, we already have made some changes around additional payments. But we do have a system, I think, that, you know, does provide for significant payments, whether it's to help primary producers get back on their feet, whether it's to help households meet the bills that rack up while, you know, they are recovering from the disaster or, indeed, the mental health support or the support for childcare centres or, indeed, for other service providers in the area, legal assistance, all of which we've made with respect of Lismore and now we've made some additional announcements about surrounding areas.
PATRICIA KARVELAS:
Just briefly, I know you've got to go, but this $483 million dam, Barnaby Joyce announced it, will that money actually be in the budget?
JOSH FRYDENBERG:
We have made provision for the Urannah Dam. And that is money that will be available. And we…
PATRICIA KARVELAS:
So that $483 million is in the budget?
JOSH FRYDENBERG:
We've already made provision for our various dam announcements, including for Urannah Dam. This is nearly a thousand gigalitre dam, and together it will have a couple of hundred kilometre pipeline network and, most of all, it's focusing on agriculture. And apparently it can enable around 20,000 hectares of irrigated agriculture as a result.
PATRICIA KARVELAS:
Okay, but Josh Frydenberg, why would you commit close to half a billion dollars when there's no business case to back up the project?
JOSH FRYDENBERG:
Well, the point here is that there's already a similar amount that's been committed by the private sector. It's a project that the Queensland State Labor government announced that they supported. So it has bipartisan support…
PATRICIA KARVELAS:
But it doesn't have the environmental…
JOSH FRYDENBERG:
It's got to go through those environmental processes. But what we have done is provisioned for this amount of money so that once the business case comes in it can be built, it can support agriculture, it can support urban use as well as mining and industrial use.
PATRICIA KARVELAS:
Treasurer, thanks for coming on the show.
JOSH FRYDENBERG:
Always a pleasure.