PATRICIA KARVELAS:
Amid all the heartbreak over the catastrophic flooding and the war in Ukraine, one nugget of good news has burst through the darkness with the economy growing by a strong 3.4 per cent at the end of last year. Now the rebound largely driven by consumers who spent up big following the end of COVID lockdowns in several states. Treasurer Josh Frydenberg, good morning.
JOSH FRYDENBERG:
Good morning. Nice to be with you, Patricia.
PATRICIA KARVELAS:
The headline figure looks good, but would you concede people are feeling quite lousy at the moment? The National Accounts would be a set of pretty meaningless numbers to many.
JOSH FRYDENBERG:
Well the December quarter, as you say, saw 3.4 per cent growth, which was the equal strongest growth that we've seen in a quarter for 46 years, so that is a real achievement for the Australian economy. But if you look at overall where our economy has gone over the course of this pandemic, there's now more people employed and we are a bigger economy than we were back in 2019. The same can't be said Italy, the United Kingdom or Japan. We've actually outperformed, Patricia, all major advanced economies over the course of this pandemic. And a good example of that is what's happened in our labour market with 260,000 more Australians now in work than at the start of the pandemic, whereas in the United States there are 2.9 million fewer Americans in work today than at the start of the pandemic.
PATRICIA KARVELAS:
Okay, but the economy contracted by almost 2 per cent in the previous quarter. So the bounce back is really, realistically, from a really low base. Business investment and construction are still lagging, as is productivity. When you take a closer look under the bonnet, Treasurer, are we really faring that well? People's wages are stagnant, people are feeling the pinch with inflation. A lot of people are struggling, right? That's the experience of people in households.
JOSH FRYDENBERG:
Well, a couple of things just to correct you. In terms of investment, both in terms of housing investment and business investment, that's been up through the year. And in terms of the full economic year, economic growth back in 2021, it was 4.7 per cent. So it was very strong. But you're right, there are issues with wages, particularly as inflation has been persistent and higher than initially thought. People are very concerned, as we are as a Government, about the international developments in Ukraine, what it means for the geopolitical settings, for the national security of Australia as well as for supply‑side constraints, as well as the floods that are ongoing now in New South Wales and Queensland, which will impact on our economy as well as [indistinct].
PATRICIA KARVELAS:
Yeah, the 3.4 per cent growth figure is for the December quarter. Since then we've had what Shadow Treasurer Jim Chalmers is dubbing ‘the summer from hell’. The lack of COVID rapid tests, the work shortages, now the floods that you've just mentioned. Is the economic recovery locked in or could it have already run off the rails?
JOSH FRYDENBERG:
Well, Labor always looks for an opportunity to talk down the economy. That's been the experience over the last two years. This is no exception. In fact, they said the biggest test for the Government of the management of the pandemic would be what happens to the unemployment rate, bearing in mind it was 5.7 per cent under them, now it's 4.2 per cent under us. But what we've seen in the first two months of this year, Patricia, is that actual consumer spending data is 4 per cent up on the prior year, the corresponding period. We've seen business conditions improve and business confidence come back. And job ads are still more than 30 per cent higher than at the start of the pandemic. So Omicron has not derailed our economy. Yes, there have been issues around work force absenteeism, but that's starting to ameliorate. And our best defence against that is our high vaccination rate, which is one of the highest in the world.
PATRICIA KARVELAS:
Treasurer Josh Frydenberg is my guest here on RN Breakfast. Food and petrol prices are already under pressure due to the war in Russia. And now a key inflation measure in the national accounts jumped by its highest level since 2008. Doesn't that mean the cost of living is going up even higher without matching wages growth?
JOSH FRYDENBERG:
Well, firstly, disposable income has been up more than 11 per cent since the start of the pandemic, and that's been a function of both the direct economic support we've provided as well as the tax cuts, some $30 billion, which has flowed to low and middle income earners over just the last few years. And as you know, we made significant changes to childcare, $1.8 billion in the most recent Budget. That's particularly helpful for couples with two or more children. And then, of course, the work that we've done on electricity prices, which are down by 8 per cent over the last two years. But in terms of petrol prices, yes, they are high. But Australia is a price‑taker when it comes to petrol prices, Patricia, because we import so much of our fuel and because of the global instability the price of a barrel of oil has gone above $100 for the first time since 2014‑15.
PATRICIA KARVELAS:
But if, indeed, Treasurer, inflation keeps rising, won't that mean a lot more pain for people with big mortgages when the inevitable interest rate rises are brought forward?
JOSH FRYDENBERG:
Well, again, interest rates are decided by an independent Reserve Bank. They’re at an historical low now…
PATRICIA KARVELAS:
But we know that they're on the rise and there's predictions of that happening later this year, so this is an economic reality that people are facing. People are nervous. Do you agree?
JOSH FRYDENBERG:
Well, cost of living is a major issue.
PATRICIA KARVELAS:
Huge, right?
JOSH FRYDENBERG:
I fully, fully understand that. And a number of families are doing it tough. But we as a Government have tried to do everything possible, whether it's through tax relief, whether it's through JobKeeper and other income support, whether it's through the ongoing measures, to stimulate the economy. And that is now reflected in that very strong economic rebound. And I don't think you want to understate that. But when it comes to inflation it is at 3.5 per cent, higher than was initially thought, but it's still less than half of what it is in the United States, and key indicators of cost of living like electricity prices have come down.
PATRICIA KARVELAS:
Yeah, but Treasurer, people don't live in the United States here. They live here. So when they go to the supermarket and their wages aren't growing and their bills keep getting higher, it hurts them, right? That's the issue. You can mention the United States, but ordinary Australians think, well, a lot of them haven't even been there.
JOSH FRYDENBERG:
And that's why we're focused on putting more money into the pockets of middle‑income earners here in Australia through the tax relief. That's why we've made changes around childcare. That's why we keep investing in the energy sector so that electricity prices, which are a key cost of living expense, have been coming down. No‑one is understating or dismissing the real challenges with cost of living. They are there. But you also have to understand when it comes, you referenced the interest rates, they are at an historic low level today at just 10 basis points…
PATRICIA KARVELAS:
Right now they are, that's right.
JOSH FRYDENBERG:
And the market is pricing in a rise, but that underlines the importance of strong economic management to keep those interest rates lower than they otherwise would be.
PATRICIA KARVELAS:
Okay. Treasurer, let's get to some other issues, I know you need to go. The floods have really smashed the eastern states and are now threatening Sydney. Do you have any idea what the clean‑up bill will be?
JOSH FRYDENBERG:
I think it will run into the billions of dollars. And that's because there are many people who have been, in fact, impacted by these devastating floods. And my thoughts and prayers are with those families and those business owners, as well as with our selfless volunteers who are helping, and there are some 900 ADF personnel who are on the ground in response to this disaster. But we've already seen 145,000 claims being made for the disaster recovery payment. We're processing them as fast as possible. And we've also announced that the disaster recovery payments will be available, that is also going to be of benefit. And then there's other arrangements that we'll partner with the states and local government on.
PATRICIA KARVELAS:
And how much will the disaster be a drag on the economy?
JOSH FRYDENBERG:
Well, that does depend on how significantly the broader supply chains are impacted as well as critical industries.
PATRICIA KARVELAS:
And what advice are you getting on that? What will the impact be?
JOSH FRYDENBERG:
For example, it's different to the 2011 floods in Queensland where you did see major mines close down, you saw three of the ports impacted severely. And that had a $4 billion‑plus cost in terms of the impact on agriculture, tourism and mining. These are different types of floods and in different areas, if you like. But it's still going to have a very significant impact, and the terrible loss of life and the impact on people's livelihoods is real.
PATRICIA KARVELAS:
Will your Federal Budget reflect the rebuilding effort? Will there be commitments in that Federal Budget to rebuild these areas that have been smashed?
JOSH FRYDENBERG:
Well, firstly, we are paying out money as we speak right now. So we'll continue to do that. But we're always investing in flood mitigation. We're always investing in disaster resilience. We're always investing in ways to improve the strength of our economy to withstand these disasters.
PATRICIA KARVELAS:
All right. There's criticism that not enough of that money has been spent. I'm going to park that criticism, because I just want to finally go to your war chest, so to speak. The Government still has $5 billion in your war chest to spend in the lead‑up to the election. How much of that money will be invested in vital areas such as manufacturing and infrastructure?
JOSH FRYDENBERG:
Well, firstly, that $16 billion that was initially mentioned at the Mid‑Year Economic and Fiscal Outlook at the end of last year characterised both decisions taken but not yet announced, which some have been already. For example, more than $2 billion on the commercialisation of research (inaudible), industries with our universities to help make the CSLs of the future, but it also involved decisions taken and announced but the commercial details couldn't be released because they were sensitive. For example, the procurement of vaccines or the procurement of a new, or the building of a new quarantine facility. So that information, obviously, will be reconciled in the Budget and when it can be made available and public it will. But I wouldn't characterise that $5 billion as purely decisions that have yet to be announced.
PATRICIA KARVELAS:
Just quickly, will it be a big‑spending pre‑election Budget, Treasurer?
JOSH FRYDENBERG:
Well, we've actually looked to cut back the emergency economic support that's been provided as the economy has recovered. But we'll invest in the key areas of skills, infrastructure, regions, digital transformation, manufacturing and energy. That's where our focus is going to be. That's our economic plan. That's obviously what is working. But we also want to improve our Budget position. And the best way to do that, Patricia, is to grow the economy so that more people pay tax and less people are on welfare.
PATRICIA KARVELAS:
You've got to go, Treasurer. Thank you.
JOSH FRYDENBERG:
Always a pleasure.