ROSS GREENWOOD:
Hello Josh.
JOSH FRYDENBERG:
Nice to be with you and we will take a Daniher at Carlton any day of the week.
ROSS GREENWOOD:
Yeah I know you will. I know you’re a big Carlton supporter and I mentioned a couple of Carlton players there who are either coming or going. But it’s crazy. Can I just bring you up to speed on a couple of bits and pieces. One of the foremost economists in this country - noted internationally, written a number of papers - is really tonight coming out and saying that Australia is in a mess. That man is Professor Warwick McKibbin. I interviewed him just a short time ago, was a Reserve Bank Director for ten years. I just want to, as we go into this conversation, just pick up what he told me a little while ago.
WARWICK MCKIBBIN:
The problem is, I think, if you keep cutting interest rates below a certain level, its counterproductive. I think that’s clear in all of the countries that have gone down this road. The final point I would stress is that anyone who has gone into quantitative easing policy has done so in a crisis. We are not in a crisis. We are in a gradually slowing global economy. We’re slowing ourselves. We need policy reform, we don’t need this last minute, really serious surgery on a key part of the economy when in fact, we can fix it with less dramatic means.
ROSS GREENWOOD:
There you go. So he says we can fix it with less dramatic means. But that points the finger straight back at you, Josh Frydenberg, as the Treasurer of this country to roll out more infrastructure, to roll out more tax cuts and or tax reform to try and get this country turned around without having to go to the emergency levels of quantitative easing. Which way does it go? Do we go down that path or do we not?
JOSH FRYDENBERG:
Well, in terms of monetary policy which was what Warwick McKibbin, who I do respect as an economist and as a former member of the Reserve Bank Board, was commenting on, that is a matter for the Reserve Bank, it’s not for the Federal Government. As you know, we’re responsible for fiscal policy now. Today’s IMF report, Ross, does show that the global economy faces some significant challenges and the term ‘synchronised slowdown’ was used by the IMF. Here in Australia, we’re not immune from what is happening abroad. But at the same time, our economy is now in its 29th consecutive year of economic growth, we’ve seen a strong labour market, we’ve maintained our AAA credit rating and the full impacts of the tax cuts that passed the Parliament have actually not been felt right across the economy…
ROSS GREENWOOD:
That’s because people are too frightened to spend the dough, Josh. You and I both have talked about this that people right now have not passed on or spent the money from the interest rate cuts, they haven’t spent the money from the tax cuts, they’ve effectively either saved the money or put it down on their mortgage. Mainly because a) they can’t get a decent enough return because the interest rates are so low and or b) they’re just too damned frightened to spend it.
JOSH FRYDENBERG:
Well, there’s no doubt, I think, when people look globally, the trade tensions particularly between the US and China, that is affecting their level of confidence and when the interest rates are cut quite significantly as they have been, that is also giving them a reason to…
ROSS GREENWOOD:
Seriously, Josh. I’m going to pull you up right there. Do you seriously tell me that the ordinary person sitting at home sits there and looks and goes ‘Oh, there’s a trade war between the United States and China, I think I’m a bit frightened about the world right now, I won’t spend.’ It’s something more fundamental than that, isn’t it affecting them? Businesses at the high end of town, maybe, but the small business and medium sized businesses that you’ve preached to all the time, no way no they’re thinking about the trade war unless actively involved in exporting and in many of their cases, they’re actually getting a benefit as a result of the trade war. So do you really think it’s spooking people in Australia that much?
JOSH FRYDENBERG:
Certainly, you refer to business confidence, so I certainly think it has an impact there. But in terms of the Government, you won’t hear me talk down the Australian economy as we hear from our political opponents. What you will hear from me is the importance of tax reform, the importance of our infrastructure spending, of our work to cut regulation, of our push in order to ensure we have properly skilled workforce to meet the needs of today and tomorrow. They’re the structural reforms Peter Costello was talking about today. They’re the structural reforms that we’ve heard from the Reserve Bank Governor as being important. Even Peter Costello, Australia’s longest serving and most successful Treasurer, said today that when you’ve got unemployment at 5.3 per cent, when you’ve got inflation at 1.6 per cent, when you’ve got a balanced budget, when you’ve got a trade surplus, on all those indicators, that is a sign of a good economy. So we need to be absolutely realistic about the challenges we face and we don’t downplay them. At the same time, we can’t lose sight of what our goal is, which is of course strong budget management and a strong economy.
ROSS GREENWOOD:
Okay. Peter Costello also said this today in that address about monetary policy and as a result saying, effectively, the help from the Reserve Bank has pretty much run its course.
PETER COSTELLO:
I believe that monetary policy has now run its race. Whether the cash rate is 0.75 per cent, whether its 0.5 per cent, whether it goes lower than that. I just don’t think there is much stimulation left in monetary policy.
ROSS GREENWOOD:
So if there is not much monetary policy stimulation left to go according to the man you just referred to as one of Australia’s great Treasurers, then it comes back to you, Josh Frydenberg. It’s up to you to stimulate the economy by tax cuts, by more infrastructure being rolled out. The question is are you prepared to do it? Because I know you’re beholden to a promise to make certain you balance the budget and get back into surplus.
JOSH FRYDENBERG:
Well, I don’t believe they’re an either or proposition because when it comes to infrastructure spending, Ross, what we’ve said is we’re prepared to consider bringing forward particular projects if we can align new spending with construction timetables. Now, we’ve already heard from the Labor Treasurer in Victoria that there are real capacity constraints in that state. And we’ve seen also in Sydney with major infrastructure projects being rolled out, that again, there is cost inflation with projects if you can’t get cement, you can’t get bitumen, you can’t get the right skills among workers or you can’t get the right boring equipment. All those things are relevant. Now, we have a ten-year $100 billion spend on infrastructure; that’s on top of what the states are doing. But we are prepared to consider bringing particular projects forward and that is why the Prime Minister has written directly to his state counterparts.
ROSS GREENWOOD:
But what I’m sort of thinking here is that we think about the electoral cycle, and admittedly, I’ll give you credit, you are thinking ten-year stints, but what I’m thinking is fifty year stints. The interest rates are close on zero and I know about the capacity constraints you’re talking about, but if all of the sudden, where we’ve got interest rates close on zero, surely we have almost a generational opportunity to build the types of infrastructure which will last the fifty, eighty, one hundred years that Australia needs. I mean, you know, isn’t right now the time to be trying to press that button and if it has to go from $100 billion to $200 billion because that provides the support to the economy at this particular point in time, isn’t that one of the great ways to go?
JOSH FRYDENBERG:
Well, certainly infrastructure is because it boosts productive capacity across the economy. It can get people home sooner and safer to their families, it can get goods from the paddock to the plate faster and it can actually make us as a country, more competitive. And as you know, we’ve taken projects that sat on the drawing board for half a century, Ross, and I’m talking about a second airport in Sydney, I’m talking about a Melbourne airport rail link, I’m talking about Snowy 2.0. Governments for fifty years or more…
ROSS GREENWOOD:
In-land rail projects is another one as well that’s sitting there.
JOSH FRYDENBERG:
Exactly. And Melbourne-Brisbane in-land rail project is creating thousands of jobs, its going to double the freight capacity and it’s going to ensure that in the process we become a more competitive trading nation. That’s a good thing. So I take your point we need to continue to invest in infrastructure and we are looking for every opportunity to do that. But we’re not going to go down the path of pink bats and overpriced school halls or cheques to dead people which was what was characteristic of the Labor Party…
ROSS GREENWOOD:
No, Josh, I don’t think anybody would expect you to. But the issue here is if the Reserve Bank has run its course, you can do it through infrastructure. But surely at some point you might need to put some money back in people’s hands. That’s one of the issues. If you have the capacity to do that, maybe that is something the Government has to consider. Now, my point here is maybe this is also the time that a bold Government, a Government that has an eye to the future makes some bold decisions about tax reform, maybe looks at the GST, maybe looks at the overall rate of company tax in Australia to see whether there is an ability to be able to cut taxes, to make us a more competitive nation and to really try and get the productivity lift that we got not only through the implementation of the GST but previously through compulsory super, industrial relations reform that we saw during the Hawke and Keating Governments. Maybe this popular Government, one that has been elected because of its economic track record, could really be that bold and try and make some changes, long term changes, to our nation.
JOSH FRYDENBERG:
You’re absolutely right, Ross, that structural reform is the holy grail of economic policy and the reason why it is so hard is because you’ve got to bring vested interests to the table and you’ve got to sometimes clash heads. You can actually undertake quite a number of reforms to the supply side of the economy which don’t necessarily cost money. What I’m talking about there is cutting red tape. What I’m talking about is moves to boost competition and we’ve done that in the banking sector with the passage through the Parliament of our Consumer Data Right which is going to encourage people to switch between banks. Of course, there is infrastructure projects and other things we can do to break the bottle necks across the economy. So, I think you need to have a full court press in a modern economy, both demand side activities as well as supply side activities and certainly that is what we’re committed to.
ROSS GREENWOOD:
I have to say sitting here that Australia right now needs that bold economic reform. It needs to have that tax reform coming and I know you have got some changes coming as part of a plan. But I just sense that the public really right now would be open to the idea knowing that wages growth is slow to something that is a bit more aggressive, a bit bolder. But the second thing is an energy policy. And as Warwick McKibbin said, some sort of a climate policy. We need to have something which is drawn up that’s agreed between the political parties that actually takes us out for twenty and twenty-five years. This is the certainty the country has lacked for ten years that you’ve got a Government that has been elected on this track record that you’ve got a capacity to deliver. The frustration for many people right now is that they don’t sense you’re delivering that.
JOSH FRYDENBERG:
Ross, also when we do significant reforms, we shouldn’t just move on to the next thing as quick as you can say Jack Robinson. What I mean there is we’ve just passed through the Parliament more than $300 billion of tax cuts. We’re getting rid of a whole tax bracket. You’re going to have 94 per cent of Australian tax payers paying a marginal rate of no more than 30 cents in the dollar and you’re going to have one big tax bracket between $45,000 and $200,000. That is really significant reform which will change the nature of our tax system to become more competitive, to become simpler and stronger. Now, on energy policy, we are taking action. We’ve introduced a lot more transparency into the bills, we’re investing in new generation projects, we’re putting storage projects like Snowy 2.0, we’ve put in a gas security mechanism to ensure we don’t have shortfalls domestically. There are significant challenges in energy, nobody is understating those but I want you to understand we are taking action on a number of fronts and we will continue to take more.
ROSS GREENWOOD:
I’ll tell you what, I wish I could take you down that path but I don’t have the time. But I can also tell you as we finish this interview up, it has just gone past the deadline for the trade time in the AFL and it would appear as though Joe Daniher is still a Bomber at this point time. Josh Frydenberg is our Treasurer and I appreciate your time on the program, Josh.
JOSH FRYDENBERG:
Always good to be with you and your listeners. Thank you, Ross.