ROSS GREENWOOD:
Treasurer, many thanks for your time. Look, can I just start with interest rates. And I know that you don't have any control over the direction of interest rates, where they go into the future, but, broadly, do you think Australian businesses and households right now should plan for the expectation of higher interest costs into the future?
JOSH FRYDENBERG:
Well, as you know, the market is pricing in interest rates to rise over time, but the Governor's been pretty matter‑of‑fact in his public commentary about what he needs to see before interest rates will rise, namely, continued wage growth, as well as seeing inflation sustainably within that target band of 2 to 3 per cent. Now, headline inflation has come in at 3.5 per cent, higher than what the market was expecting, and underlying inflation at 2.6 per cent. This is the first time that it's within the band in nearly seven years. So it's quite a significant change that we're seeing in the monetary policy settings and, obviously, that will be factored into the Board's decisions in upcoming meetings.
ROSS GREENWOOD:
Yeah. Okay. But given the fact that you've got central banks ‑ the US, the UK, Korea, Singapore ‑ all of those are raising rates or saying they will raise rates, so should Australians at least know these conditions are out there to make their preparations? Because, ultimately, if our Reserve Bank is saying it's two years away before rates rise, a whole bunch of people or businesses could go out there and buy houses or assets that might have a poor outcome for them.
JOSH FRYDENBERG:
Well, Ross, it's not for me to be giving households individual financial advice, other than to say, you know, they've always got to take into account their own situation, but also what's happening in the broader market. And, as you know, there are new settings that ensure that there's a serviceability buffer that's being increased from 2.5 to 3 per cent which takes into account the possibility that rates could rise and families would obviously need to meet those mortgage payments under the new settings. All of that has been factored in to the thinking of our prudential regulators, as it should be, and households should, obviously, take that into account too as they make any decisions about their own financial investments.
ROSS GREENWOOD:
Well, you're the Treasurer. You've also got to create budgets. There's one coming up right now. Does it trouble you that inflation forecasts and employment forecasts seem to be so horrendously wrong on an ongoing basis? We rarely get them correct. So does that trouble you when you're trying to set out the future budgets?
JOSH FRYDENBERG:
Well I think it underlines the fact that there's a lot of uncertainty out there with the global economy. We're in the middle of a pandemic, a once‑in‑a‑century pandemic. The economy's faced its biggest economic shock since the Great Depression. So it is difficult at the best of times to forecast, let alone in the middle of these unprecedented circumstances. With respect to unemployment, we've been very much surprised on the upside as to what has happened in our labour market. The unemployment rate has come down to a 13‑year low of 4.2 per cent. It has come down faster than what market economists, the RBA, Treasury, had been forecasting. And today we know that 1.7 million more Australians are in work compared to when the Coalition came to Government. That includes one million more women who are now in work in Australia. That's something to celebrate, not something to be complacent about. But the labour market has definitely surprised on the upside, and I think that underlines the resilience of the economy.
ROSS GREENWOOD:
So given that full employment would be the time when interest rate rises are firmly on the radar, where do you sense that full employment lies? Because in the past it might have been anything below five per cent, but now unemployment is well and truly below that. So when is it that there's a three potentially in front of it before we see full employment?
JOSH FRYDENBERG:
Well, I think it's possible that we could head into those numbers. At 4.2 per cent it has come down significantly. Bearing in mind that when Labor left office unemployment was 5.7 per cent, underemployment was higher than it is today, youth unemployment was also higher than it is today. So the labour market has been very, very strong, and we've obviously underpinned that with programs like JobKeeper, which saved 700,000 jobs and provided a security blanket for the economy. So I would expect that unemployment continues to stay low. And if we do keep it sustainably in the low 4s, this would be only the second time, Ross, in some 50 years that we've seen that occur in Australia.
ROSS GREENWOOD:
Okay. So can I just ask you one other thing. With JobKeeper, a lot of that money seems to have gone into the public's hands and they appear to have sat on it. You've said that there's some $424 billion worth of household savings out there. So how do you get people to start to spend that money, to actually stick it into the economy to get faster economic growth?
JOSH FRYDENBERG:
Well, the answer to that is the easing of health restrictions. As more people get about the country they'll spend more money, whether it's on a holiday or at a cafe or a restaurant. We're seeing a strong pipeline of investment in housing, among businesses in terms of new machinery and equipment, for example. So that will all drive further economic activity in job creation. But it's an enormous war chest that's been accumulated, over $420 billion, and it's a product of a number of factors occurring simultaneously. Obviously, you've got the Government's economic support, which is focused on low and middle‑income earners. You've got the tax cuts that have been rolled out to more than 11 million people, $30 billion in just the last few years alone. Then you've got a higher savings ratio as people are particularly cautious in the middle of a pandemic. And then the health restrictions, which has meant that people can't travel interstate or overseas, as they otherwise would, or couldn't spend it on services as they otherwise could. And so all those factors have come together to create this enormous pool of money that is going to be spent across the economy and that will provide, I think, extra ballast to our recovery.
ROSS GREENWOOD:
And so, is that part of the reason why you chose not to participate in the New South Wales Business Support Package of $1 billion? Treasurer Matt Kean, a Liberal just like you, he said he's disappointed the Federal Government didn't participate.
JOSH FRYDENBERG:
Well the state governments will take their own decisions about various support packages they want to put in place. And I point out to you and your viewers that just yesterday the South Australian Government announced a small business support package that they didn't ask the Commonwealth to go 50/50 on and that they met completely out of their own pocket. And we welcome that. But we have put over $63 billion into the New South Wales economy through COVID. That is programs like JobKeeper and the cash flow boost and the COVID disaster payments, and we continue to make available payments to households in New South Wales, indeed across the country, through the Pandemic Leave Disaster Payment. You know, Ross, that's a payment of up to $750 a week for those people who are forced to isolate because they're symptomatic and they have COVID, and that is being paid completely by the Federal Government. Now, for small businesses we've got the loss carry back measure, which can allow small businesses to get a cash refund from the ATO against taxes that they've previously paid. We've got the small or medium‑size business loan scheme, which means that there are loans available up to $5 million that the Government works in partnership with the banks to support. And so there are existing processes, existing initiatives that are out there, but certainly what we're seeing in the economy today with Omicron is not as severe as what we saw with Delta.
ROSS GREENWOOD:
So does that broadly mean that the days of big packages, big spending in response to Coronavirus is coming to an end? That you've got to instil some fiscal discipline, just as central banks around the world themselves are reversing some of their very expansionary policies?
JOSH FRYDENBERG:
Well, we certainly can't meet every economic ask for spending that we see from industry or, indeed, from state governments. We've already committed an unprecedented amount of economic and health support totalling just over $300 billion, and that really has supported the recovery to the point where we have now the strongest economic recovery of any advanced economy in the world. And it's particularly pleasing that Australia's avoided the experience of the 80’s and the 90’s recessions, where unemployment stayed elevated for a very long period of time, where this time we've now got an unemployment rate which is lower than what we had going into the pandemic and more people are in work than going into the pandemic. So this is all a result of us having a very calibrated and very measured approach, where our economic support was temporary and it was targeted. We have tried to bring to an end the emergency economic support payments at the first opportunity when it's appropriate to do so. So we ended JobKeeper, the Labor Party criticised us, they wanted to spend more. We ended the COVID Disaster Payments, the Labor Party criticised us and they wanted to spend more. They announced a $6 billion payment, a cash splash to people to get the jab, even though they had the jab, we said no, the Labor Party criticised us. Now we've said no to various state government support programs, the Labor Party criticised us. So they'll always spend more and that's why they'll always tax more. We understand we're moving to a different phase now, Ross, of the pandemic, and that requires us to normalise the economic settings.
ROSS GREENWOOD:
Treasurer Josh Frydenberg, always good to chat. Many thanks for your time.
JOSH FRYDENBERG:
Great to be with you too.