QUESTION:
Thank you, Treasurer. I don't know if you’ve got a Sir Humphrey in your office, but did anyone say of your growth forecast for 21-22, 4¾ per cent, very courageous Minister?
JOSH FRYDENBERG:
Well if you compare it in the Budget numbers to the global economy, the global economy is expected to grow by 5 percent next year, China is expected to grow by 8 percent next year and our major trading partners by even more than 5 percent and closer to 6 percent. The expectation of our economy growing is obviously based on a number of factors. Firstly, the success the nation is having today in suppressing the virus and containing outbreaks of new cases. But also secondly, the measures that we have announced in last night's Budget and that we have announced since the COVID crisis began are driving the recovery and are helping to create jobs. These are unprecedented, Sabra, responses by the Government. An unprecedented use of the balance sheet of the nation to get people back into work. So the combination of the suppression successfully of the virus domestically with the economic support that we are providing is going to drive that economic recovery next year. Bearing in mind that the economy, this calendar year, is forecast to fall or contract by 3¾ percent. So in that context, next year's economic recovery is based on the sound understanding by Treasury of what is occurring both domestically and globally.
SABRA LANE:
Colleagues, I remind you, long list of people today, shortened amount of time because Question Time is on today. Please one question per person. Peter van Onselen.
QUESTION:
Peter van Onselen, Network Ten. Treasurer, I'm sure you'll get questions on specifics within the Budget. At the heart of the Budget is defeating this virus. Donald Trump says we shouldn't be afraid of COVID-19. You once called him a "drop-kick." What superlative would you use now?
JOSH FRYDENBERG:
I'm going to leave the commentary on other nations' political systems to you, Peter. What I will say is that we take COVID-19 very seriously. It's a deadly virus. It's taken lives and it doesn't discriminate between age groups. Doesn't discriminate between race or religion or backgrounds and that is why we have placed health measures first and foremost in our response and those health measures have been working as we partner with the states in that response. But it's also left a very significant economic impact and the measures in this budget are designed to cushion that blow, but also to rebuild for the recovery.
SABRA LANE:
The President added to that today on Twitter by comparing it with the flu. Twitter censored the tweet, putting a label on it saying that it possibly was spreading misinformation. Facebook removed it. Is it irresponsible?
JOSH FRYDENBERG:
Well, you won't see Scott Morrison putting out those sort of messages. What Scott Morrison, what Greg Hunt, what myself and others have always said is that this virus is deadly and it is creating a massive health and economic challenge for us and we put the health of all Australians first and that is what we have done and the result is that as a nation we have been able to suppress the virus very successful to date. The good news is out of Victoria, the numbers are coming down and that should preface a further easing of restrictions in coming weeks.
QUESTION:
Laura Tingle from 7.30, Treasurer. You're putting a lot of money into getting the economy going again, throwing a lot of money at business, but as you have mentioned in the speech, it's replacing an even bigger system, there’s a huge step down from the first round of measures. You said JobKeeper was estimated to have kept 3.5 million Australians in work and 900,000 businesses afloat. In your estimates of the forecast for the next 12 months, Treasury must have made some estimates about how many of those people who have been protected by JobKeeper and how many of those businesses are going to effectively go to the wall. What's your estimate of the number of zombie businesses that will be created and what's your message for those people who look at last night's budget and say, "There's nothing new and we have got to now close"?
JOSH FRYDENBERG:
Well there will be restructuring across the economy over the course of the next six to 12 months, but Treasury's forecast of the unemployment rate which peaks at around 10 percent at the end of this year and then goes to 7.25 percent by mid next year and then falls to 6.5 percent the year after, 6 percent after that and 5.5 by mid-24 is prefaced on the assumption that JobKeeper ends in March. So we very much take into account the end of the JobKeeper program in our forecasts going forward. With respect to zombie businesses, as you know, there were a couple of thousand or more businesses who would have otherwise gone through the insolvency process, but I put a temporary measure in place which changed the thresholds of which statutory demands could be made both in time frame, but also in terms of the financial amounts. Those businesses will now go through the insolvency process as that temporary measure ends at the end of the year. Our new insolvency processes will be ones that those businesses go through and we're hoping that many of them will continue to survive, but not every business will. That is the harsh reality of the crisis we face.
SABRA LANE:
Surely you must have numbers though on guesstimates on how many you think will go to the wall?
JOSH FRYDENBERG:
Well again, those numbers are wrapped up within the broader Treasury estimates of the unemployment figures.
QUESTION:
Chris Uhlmann, Nine News. Treasurer, unless you have a comorbidity this disease does discriminate between age groups and during this crisis we have asked the young of Australia to make sacrifices for the elderly. We have taken their education, we have taken their jobs and we have taken their liberty. Now, they're being sent a $1.7 trillion gross debt bill that will mature in 2031. How is that fair?
JOSH FRYDENBERG:
Well ultimately it would have been unfair to saddle today's generation and future generations with a higher unemployment rate and that would have been the result if we had not intervened the way we have and we hadn't released the measures that we announced in last night's Budget. And the counterfactual Chris, is that unemployment will rise to 12 percent this year and next, but for the measures that we have taken in this Budget. So already our economic response has helped save 700,000 jobs. JobKeeper, JobSeeker, the $32 billion cash flow boost, the $750 payments, and our measures that we announced last night will continue to save jobs. So for young Australians who will be entering into the job market, it's going to be a lot harder, and that's why we put these extra measures in place. But for young Australians who will have the burden of meeting these debt obligations in the future, they would have been a lot higher if we had not intervened in the way we had to get the unemployment rate down.
QUESTION:
Clare Armstrong, The Daily Telegraph. Treasurer, today New South Wales ended a twelve day streak of no community transmission of COVID-19. Queensland Premier Anastacia Palaszczuk has maintained the state must have 28 days without a local case before the border reopens. Last night’s Budget assumed that every state border, except WA, would be open by the end of the year. A day later, aren't those optimistic projections of growth already at risk if we can't get domestic borders reopened?
JOSH FRYDENBERG:
Well, we're confident that those domestic borders will open by the end of the year as the Prime Minister has discussed with the Premiers and the Chief Ministers at National Cabinet. Western Australia, as you say, there's an expectation that that border reopening won't occur until April next year, but closed borders cost jobs so the quicker those borders are open in a COVID-safe way, the better. Not just for those local communities and those particular states but across the country. Queensland has a very dynamic and large tourism sector, and that tourism sector is being hurt by those border restrictions.
QUESTION:
Hi, Treasurer. Phil Coorey from the AFR. One of the self-described virtues of the Budget was a lot of these measures announced will come and go in a matter of years. You'll be able to turn them off as such, and the Budget papers show that the spending trajectory by the end of the forward estimates pretty much returns to where it was before the crisis, the MYEFO estimates. Given we're going to be in deficit for a decade and the debt figures contained within, is it realistic for your Government, or whoever is in power by then, to keep spending at that level? Or is spending going to be looked at some stage without dampening demand?
JOSH FRYDENBERG:
Well as you know, we set out a fiscal strategy which was in two parts, Phil. The first phase was designed to allow the automatic stabilisers to work freely and also to introduce these temporary and targeted measures. Once we got comfortably below 6 percent unemployment, which is the 5.5 percent number printed for mid-2024. Then we move to the second phase and fiscal sustainability and sustaining the Budget position. But those two phases, they work in tandem, because you cannot have a Budget repair strategy without having a jobs recovery. And importantly, we're seeing payments as a share of GDP come down from 34.8 percent in 2021, down to 26.9 per cent at the end of the forwards. So it's quite a significant fall in payments as a share of GDP, but I just want to highlight one point. Which is compared to the estimates at MYEFO, so the end of last year, the Australian economy by the end of the medium-term will be 8 per cent smaller in nominal terms than what was originally forecast. Now, that's the equivalent of $250 billion. And that is the impact of COVID. What we have seen is not just an increased expenditure in terms of our payments, but we have also seen a big hit to tax receipts. So over the forward estimates, payments increase by $237 billion. Tax receipts fall by $283 billion. So less company profits, less people in work paying taxes, one of the reasons why we're able to get the Budget back into balance for the first time in 11 years is because welfare dependency hit a 30-year low, and more people were in work. The workforce participation rates were at record highs. And so we need to get more people into jobs. That will help grow our economy, but our economy is smaller as a result of COVID-19.
QUESTION:
Mark Riley, Treasurer, the Seven Network. The most important part of this Budget for a lot of Australians will be those tax cuts, how much they'll get, and when they'll appear in pay packets. You said this morning on the Sunrise program that the back-dated element of the tax cuts won't be paid until the end of the financial year in a lump sum. You said the way the Tax Office operates is that the earlier six months will be rebated back to you at the end of the financial year. Isn't it the case that's not the way the Tax Office operates? That those six months of back-dated tax cuts will actually be paid pro-rata in a fortnightly or monthly pay cycle whenever these tax cuts come in, maybe it's in December, that that money will be in the pockets of those Australians? And if that's the case, why don't you know the detail of your Budget centrepiece?
JOSH FRYDENBERG:
Well, what the Tax Office has told us is that they're going to amend the PAYG withholding tax schedules and that will be once we know that the Labor Party is supporting this Bill, and the Bill I'm introducing tomorrow. So that will be from December or November onwards, so before Christmas. Those changes will be made and the first six months will be provided at the end of the year together with a low and middle income tax offset.
QUESTION:
It's not going to be prorated, are you sure?
JOSH FRYDENBERG:
The changes will come into effect at the end of this year, but in terms of what's happening in the first six months, that will be payable at the end of the year.
QUESTION:
Treasurer, Colin Brinsden AAP. You got a fairly fast pace of growth in the next financial year, but given the uncertainty, can you say with any confidence that we're going to have growth in the third quarter or have growth in the third quarter given what happened in Victoria? Or are we going to have a third contraction in a row?
JOSH FRYDENBERG:
Again, we're making the forecast and the assumptions based on what we know today and the fact is that we are expected to have economic growth of 4.25 per cent next year and that is based on the easing of the restrictions and the evidence that we have today.
QUESTION:
What about the answer?
JOSH FRYDENBERG:
Again, it's based on the forecast as they are today, the economy is coming back. The unemployment rate is coming down and that will see more people in jobs.
QUESTION:
Lanai Scarr from the Western Australian. Thanks for your speech, Treasurer. Prior to the Budget release last night, one-in-three economists said that it would be better to delay the tax cuts, bringing them forward, and instead invest in child care and making that more affordable. Australia is sliding backwards in terms of the educational outcomes, many experts say that it is beneficial not only for the children, but also for Australia's GDP to invest in early childhood education. Why was there nothing in the Budget last night for child care? And will there be more to say from this Government in the May budget next year?
JOSH FRYDENBERG:
Actually there were things in the Budget for child care...
QUESTION:
Nothing significant though.
JOSH FRYDENBERG:
Well, hundreds of millions of dollars for child care and obviously that has been very important for example, in Victoria. In terms of child care and our subsidies, around $9 billion a year, it helped drive the increase in workforce participation that we saw at the pre-COVID levels. That's been very important. So we're continuing to support child care in record amounts and that has been a driver of the workforce participation. So there were initiatives in this Budget designed to cushion the blow for parents who have kids through child care.
QUESTION:
Treasurer, Andrew Clennell from Sky News. In May you told the Press Club that we had the second highest company tax rate in the OECD. In July you told the Press Club you wanted to go Reagan Thatcher supply side reforms. Last night where were the big reforms? Was it the deficits? The Senate? The focus groups? Or the PM that stopped you?
JOSH FRYDENBERG:
Well as you know, the company tax battle has been one that has played out in the halls of Parliament House before. We were successful in reducing the company tax rate for small and medium-sized businesses. That's coming down 25 per cent, so that's an important reform. With respect to businesses, what we have decided to pursue in this Budget is boosting investment incentives and that's been the critical focus for us - boosting business investment incentives. That is going to help strengthen the economy in the here and now.
QUESTION:
Treasurer, in Budget Paper number 2-31, it looks like Steven Kennedy and the crew are reassessing what trend growth is, that its basically 2 per cent now, and it doesn't get to 2¾ per cent up until the end of ten years. Coupled with the fact that you have got population that's going to be 1 million people fewer than it was expected to be at the end of 2022, is the sad fact that your kids, my kids, are going to be living in a world in Australia that's poorer, older and smaller?
JOSH FRYDENBERG:
Well, the reality is we are going to see the economy contract, that's one point. The second is because of the health restrictions we have seen an impact on population and, as you point out, Australia's population growth will be the lowest in more than a century. And net overseas migration will be falling in consecutive years for the first time in 46 years. So we are seeing, as a result of COVID-19, Andrew, a significant impact on growth as a result of those population numbers and, of course, we're seeing a smaller economy as a result. But there is cause for optimism and hope and that's our focus.
SABRA LANE:
So not poorer, not older?
JOSH FRYDENBERG:
Well, again, the Australian economy will continue to grow. Population growth will come back. The net overseas migration numbers that are printed in the Budget after those consecutive years of falls will start to come back as restrictions are eased. So the trends will start to turn around for the economy, but certainly the shock is great.
QUESTION:
Hello, Treasurer. Katharine Murphy from Guardian Australia. You mentioned in your speech a minute ago that citing past recessions that you wanted to tip the balance in favour of employment for young Australians, but there's also another lesson from previous recessions and that is older workers struggle to find re-employment if they lose a job during a downturn. So just with your JobKeeper, sorry your JobMaker credit, can you tell me what there is to stop an employer sacking a 50 year old full-time worker, who isn't subsidised, in order to hire three young part time workers who are subsidised?
JOSH FRYDENBERG:
So there's a double-barrel test, Katharine, for the eligibility of a business to receive that JobMaker hiring credit. The double-barrel test is that based on the numbers as of the end of September, the head count has to be higher, and the payroll needs to be higher and so that is the integrity test that is designed to support additional people coming on to that business. And that will ensure that those 450,000 people that we are supporting will get the benefit of those businesses taking those incentives to hire and to grow. And the focus on young people, as I laid out in the speech, is because we have seen with previous recessions, and we have seen in this recession, that there had been particularly hit hard. They don't necessarily have the same experience or the skill sets that some of the senior workers have and so, therefore, giving them this helping hand now is very important.
QUESTION:
Still on Katharine’s question, though, that still doesn't stop someone from sacking a 50 year old and still employing more people and meeting that threshold that you’ve set?
JOSH FRYDENBERG:
So we’ve got those integrity tests in place. The head count has to be higher than as of 30th of September. This is a 12 month initiative and we believe that having that double-barrel test will ensure that we get additionality across the economy.
QUESTION:
Thanks Sabra, thanks Treasurer. David Crowe from the Sydney Morning Herald and The Age. Further to Mark Riley's question about the tax cuts, now I can see a benefit to a Government going to a spring election next year for tax cuts to turn up after somebody lodges their tax return after June 30 next year. However, we are in a national emergency, the economy needs support now. What is to stop you asking the ATO to take those back-dated tax cuts and apportion them, pro rata into somebody's PAYG now so that money hits the economy?
JOSH FRYDENBERG:
Well again, peoples’ salaries may have been, or the income they were receiving in those earlier six months be different to what they are receiving as of November or December because obviously the circumstances have changed across the economy. You also get the low and middle income tax offset. And as you know that comes in once you have put in your return for the year. So you will get benefit as of the end of the year or before, as soon as the PAYG withholding schedules are updated by Treasury. But the advice to us, contrary to what Mark has said, the advice to us is that the way the Tax Office will do this is that they will amend those schedules for going forward and then people receive the money at the end of the year.
QUESTION:
Patrick Commins from The Australian. Despite these large debt and deficits that stretch out for a decade, as shown in the Budget, you say that the country remains on a path that is fiscally sustainable. The forecasts in the Budget appear reasonably optimistic and we know how easily forecasts can be blown off course due to the health crisis. So how far, how much debt, how deep into deficit is the Government prepared to go if these forecasts prove radically too optimistic, if the recovery turns into something like a second recession?
JOSH FRYDENBERG:
Well, again, this is a health crisis that's leading to a very significant and severe economic crisis and there are some scenarios in the Budget documents which, for example, talk about another wave across Victoria or a similar sized state. And in the event that that occurs, you could see a hit to GDP of $55 billion or equivalent of 1 percent of GDP over two years. Now, that's obviously a negative scenario of what could happen if we were to see another wave of cases. There's also an upside scenario in the Budget papers whereas if the vaccine was found six months earlier, that would lead to a $34 billion increase in GDP. So that is what's ahead of us because there is a great deal of uncertainty in this pandemic.
SABRA LANE:
Are you prepared to go deeper into deficit?
JOSH FRYDENBERG:
Again, we are taking the steps today based on what we know today, but we will continue to take temporary and targeted measures, Sabra, to drive down unemployment as we have today. I do want to point out that in the most recent job numbers, unemployment fell from 7.5 down to 6.8 percent. So 111,000 new jobs were created last month, 458,000 over the last three months. That fall from 7.5 to 6.8 was the single biggest fall in 32 years. So we are starting to see a trend in the right direction. Victoria has been different and Victoria, there were 42,000 jobs were lost last month and more will be lost in Victoria as a result of these restrictions, but we are trending in the right direction as an economy and as a country.
QUESTION:
Michelle Grattan from The Conversation. Treasurer, talking about the uncertainties in the Budget, I noticed that both the Prime Minister and you seem to be leaving yourself a bit of wriggle room on that assumption about a population-wide vaccination program being in progress at the end of next year or late next year. I wonder where that assumption came from and was it endorsed by the Australian Health Protection Principal Committee? Was it discussed by them? And if they didn't endorse it, why was it not taken to them?
JOSH FRYDENBERG:
Well, it was worked out by Treasury, working in conjunction with the Health Department. And they worked through the various scenarios. But as you would understand Michelle, these are very uncertain times. And as a Government, we have taken every step possible to give Australia the best possible chance of getting a vaccine. And that means investing in our researchers, joining global supply chains and securing access to 80 million doses of vaccines for Australians. But we're all hopeful in this room and beyond, that we will find a vaccine and we have made that assumption based on the end of next year, but obviously as there are developments in the health and the global community, we'll continue to update our position in subsequent economic documents. But that forecast was based on a Treasury analysis that was undertaken following consultation with the Health Department.
QUESTION:
Thanks, Treasurer. Tamsin Rose from the Herald Sun. The Budget papers show that COVID will massively slow population growth in Victoria and create a GST shortfall of almost $4 billion this year alone. Given the state's already precarious financial situation because of the second wave, would you consider any sort of GST top-up to make up for this shortfall or any other specific measures for Victoria?
JOSH FRYDENBERG:
Well, we have already made a GST top-up which dealt with the situation, particularly in Western Australia, where their GST distributions had fallen significantly below where it should have been. But again, GST is a function of consumption across the economy, and consumption is nearly 60 percent of GDP. Consumption has been hit as the health restrictions have been put in place. Just like our income tax receipts have been hit as people have lost their jobs. Just as our company tax receipts have been hit as businesses have become less profitable or turned up with a loss. So every government, federal and state, is feeling the impact of the COVID-19 crisis and the impact has been felt in GST contributions. If anything my message to the states is that they need to spend more tax. I mean, that was the message of the Governor of the Reserve Bank, Phil Lowe, who said that the states had the capacity to spend an extra $40 billion over the next two years or 2 percent of GDP. I would ask the states to spend more. Talk in Western Australia of a surplus. I mean we have just run the biggest deficit. So I would say to all state premiers and all state treasurers who I have a good working relationship with, please dig deep, support your communities, spend more through this crisis and share some of that burden.