SABRA LANE:
Josh Frydenberg, thanks for joining the program.
JOSH FRYDENBERG:
Nice to be with you.
SABRA LANE:
What is the risk of Australia falling into a recession, given the Reserve Bank has told Parliament that the bushfires and Coronavirus have each taken half a percentage point off the National Accounts for the first quarter of this year.
JOSH FRYDENBERG:
Actually, the bushfires are likely to take about 0.2 of a percentage point off the March quarter and the RBA said last night that they were looking at half a percentage point from the impact of the Coronavirus. That was the direct impact. What we do know from yesterday’s National Accounts is that the Australian economy…
SABRA LANE:
We will get to that in a tick…
JOSH FRYDENBERG:
But it’s very important because what it means is that we’re going in to this economic challenge from a position of strength and we have seen Australia have a record run of 29 consecutive years of economic growth.
SABRA LANE:
Okay, we don’t want the spin…
JOSH FRYDENBERG:
It’s not the spin.
SABRA LANE:
It is.
JOSH FRYDENBERG:
It’s the fact, Sabra…
SABRA LANE:
People are scared and they want you to take them into your confidence and to tell them what you’re thinking; is Australia at risk of falling into a recession?
JOSH FRYDENBERG:
What I do know is we’re going to do everything possible to ensure that Australian businesses remain in business and Australian workers remain in jobs. That’s why we will be putting out a fiscal response and the Prime Minister has foreshadowed that, the focus will be on cash flow, investment and jobs. We’ve seen monetary policy continue to work with the Reserve Bank reducing interest rates by 25 basis points and the big banks passing that rate cut on in full. So both fiscal and monetary policy is designed to support the economy through this economic shock.
SABRA LANE:
Alright. It is an economic shock. Big business is looking for an investment allowance, small business is looking for cash injections or for BAS payment relief or even wage assistance. Pensioners have been affected by the bank cut in official interest rates. Are you going to be able to help them all out in this stimulus package?
JOSH FRYDENBERG:
We will have a series of measures that is responding in a targeted, scalable way and also in a responsible way. What we’re not trying to do is solve the last financial crisis because that was a very different economic shock.
SABRA LANE:
It was different. We want to talk about what you’re thinking about now.
JOSH FRYDENBERG:
What we are thinking about now is what you heard yesterday from the Deputy Prime Minister that he has written to state and territory leaders asking them to suggest infrastructure projects that could potentially be brought forward. What we are, obviously, giving serious consideration to is an investment type allowance and what we do want to focus on is supporting small business. We’ve also seen a direct impact, Sabra, in key sectors like tourism, like education and like our agriculture sector.
SABRA LANE:
How big will this package have to be to be stimulatory and how quickly will it need to be rolled out to help those businesses?
JOSH FRYDENBERG:
Well, we’re looking to give immediate support to the economy…
SABRA LANE:
Millions? Billions?
JOSH FRYDENBERG:
It’s going to have a ‘B’ in front of it, that’s for sure, because we are in a $2 trillion economy and this economic shock is very significant. To put it in perspective for your listeners, Sabra, in January the manufacturing index in China was at 50 points. Then in February it fell to just over 35 points. That was three points lower than it was during the Global Financial Crisis and that gives a window into how significant the disruption has been to not just the Chinese economy, but also the global economy because China is so interconnected and so significant.
SABRA LANE:
How are you going to ensure that businesses get that help quickly given that we know from the bushfire relief that they’re not getting it quickly enough. How are you going to make sure that actually happens?
JOSH FRYDENBERG:
It depends on the particular measures that are in place. But obviously we are going to be working on a series of measures that are designed to provide immediate support to the economy.
SABRA LANE:
How bad could this get? I know that you had a phone hook-up with the IMF last night.
JOSH FRYDENBERG:
Yes, we did. That was a good opportunity to swap notes with counterparts from around the world. What is clear that economies, not just Australia, are using fiscal and monetary policy to support their domestic economies but we just don’t know how the virus will evolve in coming months. Ultimately, it won’t be the economists that solve this problem, it will be the scientists who solve this problem. And as you know, a lot of good work is being done.
SABRA LANE:
What about nursing homes? They might need to boost numbers and hygiene to respond to all of this. We’ve heard reports that the Sydney nursing home where a patient died that, it’s claimed, that staff collectively called in sick, forcing the state government to send in a hastily cobbled together workforce. Will the Government be helping with those sort of surge staffing costs and better hygiene right across the country?
JOSH FRYDENBERG:
The Health Minister, Greg Hunt, is working very closely with his state counterparts, and of course with the Chief Medical Officer. They are talking on a regular basis trying to ensure that the health sector, and of course the aged care sector, is putting in place the right precautionary measures and is getting the support…
SABRA LANE:
Sure, are you going to help with that cost?
JOSH FRYDENBERG:
What we are doing is working with the states, the territories and of course the chief medical officers, to ensure that Australians are protected through what is a challenging period.
SABRA LANE:
This all means the surplus you promised is gone?
JOSH FRYDENBERG:
Obviously, we predicted through the Mid-Year Economic and Fiscal Outlook in December, that there would be a $5 billion surplus in 19-20. That was on the best available advice to us…
SABRA LANE:
To the question, it means it’s gone?
JOSH FRYDENBERG:
…and so what we will be doing is updating our forecasts as is the case on Budget night. But what we do know, Sabra, and this is a very important point, is that the Australian economy is approaching this shock from a position of strength.
SABRA LANE:
Can you answer the question? It means it’s gone?
JOSH FRYDENBERG:
Well, they are your words. What I do know is that this shock is very significant. It’s already having an impact and you’ll have to wait until Budget night to see how significant that impact is.
SABRA LANE:
The latest growth figures for the last quarter show the economy was in trouble before Coronavirus and the worst of the bushfires. What responsibility does the Government shoulder for that?
JOSH FRYDENBERG:
Actually, I take issue with that. I think that’s a wrong analysis, it goes against what Chris Richardson and others have been saying which was the December quarter numbers were good numbers. What we have seen is that the bottom half of last year, unemployment was falling, it fell to 5.1 per cent in December, we saw household disposable income increasing in the bottom half of last year; the best result in over five years. We saw retail sales volumes increase, we saw strong demands for our exports and we know that lifting from 1.8 per cent to 2.2 per cent was a good result in the December quarter.
SABRA LANE:
Treasurer, thanks for talking to AM.
JOSH FRYDENBERG:
Good to see you.