ROSS GREENWOOD:
Treasurer Josh Frydenberg joins us here on Business Weekend. Treasurer, as always, thank you so much for your time.
JOSH FRYDENBERG:
Good to be with you Ross.
ROSS GREENWOOD:
That's the dilemma right now. According to the latest numbers coming out of the Department of Finance at the end of January, the budget position was around $13 billion better off than it was in December when the MYEFO numbers came out. Now this is your point, there is more money coming through the door, and you've got to make a decision as Treasurer as to what to do with that money.
JOSH FRYDENBERG:
Well, Ross, what you'll see in the budget in just over a week's time is the fiscal dividend from a strong economy. As you're aware we changed our fiscal strategy, our budget strategy, when the pandemic hit. This allowed us to respond on the scale that was required; JobKeeper, the cash flow boost, the $750 payments to pensioners, carers, veterans and others on income support, all of which helped to stabilise the economy and prevent the high levels of unemployment that Treasury initially feared at some 15 per cent. Just yesterday we've seen the ABS come through with the latest unemployment data and the unemployment rate is at 4 per cent, the lowest in some 14 years. So now is time for us to change our fiscal strategy and to see debt stabilised over the medium term and then to reduce over time as well. And what you'll see in the budget is that gross debt as a share of the economy will peak now earlier and lower than what was forecast at MYEFO as recently as December. And that is because more people are in work paying tax and less people are on welfare.
ROSS GREENWOOD:
Okay. I want to, I'll come back to debt in a moment, but the first thing is I want to go to families, in particular voters, this is the key, whose real wages right now are going backwards as a result of rising costs, who are feeling the impact. And so as a result they're starting to feel stress. Now the question is, they're going to turn to you as the Treasurer, as the government, in this budget and say "Well, what are you doing for me to take some of that stress away?"
JOSH FRYDENBERG:
Well, cost of living pressures are real. This is the number one conversation occurring around kitchen tables right now. And that's because international inflationary pressures have been felt here at home with petrol prices significantly higher given the troubles in the Ukraine and also the impact of the pandemic and the Ukraine issue on supply chains putting real constraints and pressures on supply chains which then increases freight costs, which can be felt in everything from the purchase of a motor vehicle to the purchase of food and groceries. So we are now seeing those pressures play out here in Australia. We've made a number of, taken a number of steps, to alleviate those pressures, like the tax cuts which have seen some $30 billion go into people's pockets since the pandemic focusing on low and middle‑income earners. We've been able to cut electricity prices by about 8 per cent in the last two years. We've invested more in childcare, all of which is making a difference. But in the budget in just over a week's time, Ross, there'll be further measures designed to alleviate those cost of living pressures for families.
ROSS GREENWOOD:
But I presume they'll be one‑off measures, they won't be something that will be baked into the budget, because you're trying to repair the budget right now, as you've acknowledged. It's a situation where to have something that is baked in long term when income in the future might be uncertain for government, that that's not something, I presume, you would be prepared to do.
JOSH FRYDENBERG:
Well, Ross, we're very focused on the structural integrity of the budget and not baking in long‑term spending, particularly when it's designed for a targeted and temporary purpose, namely to alleviate the immediate cost of living pressures. So that is first and foremost in our minds. And throughout this whole pandemic we have not baked in long‑term spending. What we've focused on is putting in place emergency fiscal support like the JobKeeper program, like the cash flow boost, and when the opportunity came to remove that economic support as the economy strengthened, we did so. Now, we were criticised at the time. Anthony Albanese said the economic roof would come crashing down if we ended JobKeeper last March. That was a false prophesy. 120,000 more jobs were created over the following three months. So, too, with the COVID Disaster Payment after the Delta outbreak. We brought that to an end last October. The Labor Party said we should have kept the spending taps on. Net result was that we saw the biggest increase in jobs in a month on record after we took that decision. So we've made the right calls, the big calls, that has helped end that emergency economic support, and now we're going to start to see improvements in the budget bottom line.
ROSS GREENWOOD:
Okay, so I presume one of the measures you won't undertake is to try and take some of the excise on fuel away. And the reason for that is because if you take money from there it's simply taking it from a different part of the budget. I mean, it's only one pot of money that's coming in. So if you take a few dollars out of fuel excise it's got to come from somewhere else.
JOSH FRYDENBERG:
Well, I'm not going to get into the budget speculation or get on that sticky paper with you…
ROSS GREENWOOD:
That's not budget speculation, that's just purely the way in which these things work, right? It's one pot of money that you've got, so if it's not coming out of fuel excise, it's coming out of somewhere else.
JOSH FRYDENBERG:
And obviously fuel excise and the money generated from that goes towards transport infrastructure. But I'm not going to rule in, rule out specific measures other than to say the budget will help address the rising cost of living pressures that people are under. But we're also going to do so in a way that doesn't overheat the economy. Labor, they've promised $80 billion of extra spending. That would put upward pressure on interest rates. That would put upward pressure on inflation. Our alternative is temporary, targeted support to help those who need it most.
ROSS GREENWOOD:
Okay. I want to go to debt. Gross debt was expected in MYEFO to peak in June 2025 at $1.18 trillion. The whole point about this is that now, coming back, if I go to net debt, in June this year it was expected to be about 30.6 per cent of GDP, $673 billion. Can I just make a suggestion, why wouldn't you simply put the NBN Co on the block right now, enterprise value of $100 billion, $30 billion worth of debt gives you $70 billion in the pocket, which could bring the debt down to $603 billion or 27.4 per cent of GDP. I mean, surely that would be responsible as a government when you're under some pressure with debt to sell assets, which a family would do, which a business would do, to try and ease up that balance sheet?
JOSH FRYDENBERG:
Well, as I said, the way that we're going to reduce debt as a proportion of the economy is to grow the economy, and that's what you're going to see in the budget. And, by the way, that's what you saw in the Final Budget Outcome for 20‑21, which was an $80 improvement on what I initially forecast, mainly because more people were in work and less people were on welfare. When it comes to the NBN, there's a very clear process that is set out in the act about how privatisations could take place. We've said very publicly that we have no intention of proceeding down that path in this term. It's a complex process. It's a multi‑year process. It involves the Productivity Commission, it involves the parliamentary process as well…
ROSS GREENWOOD:
A pretty simple thing to ask you, what about the next term of government? What about the next term of government if you got into power? What would you do then? Because, again, there's $70 billion‑odd sitting there just like when Telstra was sold, the Commonwealth Bank, all these things were sold in the past to help shore up the balance sheet of the government.
JOSH FRYDENBERG:
Yeah, we don't have a plan to do that. But, as I said, it's in the act, the stated process. It's multi‑stage, it's multi‑year, it involves different institutions like the Productivity Commission and, of course, our parliamentary committee process being involved, too. But the best way I can reduce the overall debt burden is to maintain a prudent responsible approach to spending, to also ensure that we keep taxes low, and that is why the tax to GDP cap is so important at 23.9 per cent. Labor doesn't have a tax to GDP cap because they don't believe in keeping taxes low. We do. That's been an important fiscal discipline. And the other thing to say to you is that we're focused, Ross, on having conservative assumptions about commodity price forecasts. Right now, iron ore, metallurgical coal, thermal coal are all at very high levels, but we're not baking into the budget structural spending based on what could be temporary increases in those commodity prices. Labor made that mistake when Wayne Swan was the Treasurer and iron ore was hovering around $180 a tonne. We're not making that mistake. We're much more conservative with those commodity price assumptions.
ROSS GREENWOOD:
I can't let you go before I ask you, how did you, the government, the Reserve Bank, allow Guy Debelle, the potential next governor of the Reserve Bank, to go and work for Twiggy Forrest? How did that happen?
JOSH FRYDENBERG:
Well, obviously that was an individual personal decision that Guy has taken. And he's done so to go and work in the private sector with an exciting new company, and I wish him the best of luck in those endeavours. As I said in my statement at the time of his announcement, Guy Debelle has been a very significant figure within the RBA, a substantial figure, someone who can be proud of his achievements. And I've certainly enjoyed working closely with him through this pandemic and before. But he and Phil Lowe have played a very important part in ensuring monetary policy and fiscal policy are in sync as Australia has one of the strongest economic recoveries anywhere in the world.
ROSS GREENWOOD:
Many thanks for your time.
JOSH FRYDENBERG:
Great to be with you Ross.