12 May 2021

National Press Club of Australia Address, Q&A

Note

Topics: Budget 2021-22;

LAURA TINGLE:

Thank you very much, Treasurer. You've talked in the speech about keeping the momentum going and we have got a competitive advantage at the moment in that we have suppressed the virus, but the prospects of that advantage being continued is obviously disappearing as countries start to open their borders. For 40 years we've heard about the need to be an open economy. The AI Group's Innes Willox was talking about us being a gilded cage in this Budget that it's basically an economy that's looking in on itself. When will we know, when will we have a clear road map out of how the Government plans to gradually open the economy? 

JOSH FRYDENBERG:

Well, Laura, as we've said repeatedly, we will open the international borders when it's safe to do so and that means basing our decisions on the medical advice. What we have seen is an increase in the global number of cases, new variants and real issues about the transmissibility of the virus and we cannot afford to take the risk right now to open our borders in a way that would compromise the health of Australians. So we're unapologetic about putting the health of Australians first. Ultimately, this is primarily a health crisis with a very severe economic impact and our economic recovery would be put in doubt if we weren't able to successfully suppress the virus. Treasury make a number of assumptions in this Budget, they’re not policy decisions, they're assumptions about how we contain new outbreaks, when the international borders open, when the vaccine is rolled out. But when you speak to Treasury about the impact of those assumptions on their economic forecasts, the most important one is our ability to contain the spread of the virus here in Australia when we have outbreaks, which is inevitable. And so we cannot compromise our health position and our ability to contain that spread by having any more cases than otherwise would eventuate through a proper quarantine process. So from our perspective we have established a working assumption in the Budget that international borders open gradually from the middle of next year. We'll start to take more student cohorts, smaller student cohorts, from the end of this year. But again, they're merely assumptions, not policy decisions, and if the medical advice is different to that on either side of that decision from mid‑next year, then we would follow the medical advice.  But you've seen here recently in Australia, the lockdown in Western Australia from just a few cases. We saw what happened in Victoria.  An extended lockdown would very much damage the recovery and we can't afford to go back there. 

QUESTION:

Just on taxation. When you announced, the Government announced its big income tax plans some years back. The LMITO, the low- and middle-income tax offset, was supposed to expire once stage two was introduced, that it will be baked into the stage two tax cuts. Now you brought forward stage two last year. You gave LMITO as well as a stimulus measure, and in yesterday's Budget you're rolling it over for another year. Now, Labor is making noises today about LMITO, you know, shouldn't be turned off at the end of next year, especially in the light of the stage three tax cuts coming in a couple more years. Will this be the last year the LMITO will be rolled over regardless of the election timing, and are the stage three tax cuts still affordable in your view? 

JOSH FRYDENBERG:

Two questions there. Firstly, we can only make decisions on the facts that we have right now, and that is that we needed to put in place the $7.8 billion additional year of LMITO, the low- and middle-income tax offset, is a fiscal stimulus in order to support aggregate demand and therefore support job creation. And if you are a tradie or a nurse or a teacher earning between $48,000 and $90,000, you'll get just over $1,000 in your pocket at the end of your tax year. That's a significant boost to household income. But it's not a permanent feature of the tax system. What is going to be a permanent feature of the tax system is having one big single tax bracket between $45,000 and $200,000, having abolished the 37 cents in the dollar tax bracket. That is stage three of our tax plan, and it is affordable, and it will create a stronger system. Now, the Labor Party have not said if they're committed to stage three even though at the time it passed through the Parliament, they said they supported our tax cuts. But if, Phil, they were to abandon stage three or propose to abandon stage three, it would mean that somebody on $80,000 a year, so very much a middle-income earner, would be $900 a year worse off. And what we have done with stage three is ensure that the progressive nature of our tax system remains so that the top 5 per cent of income earners are paying a third of the overall tax burden. That is before stage three and that is after stage three. And If you're earning $200,000 a year you are earning four times as much as somebody who earns $50,000 a year, but if you earn $200,000 a year you will pay eight times as much tax after stage three of our tax plan is implemented. So it very much maintains a progressive tax system, but what it does do is ensure that 95 per cent of taxpayers pay a marginal rate of no more than 30 cents in the dollar. So it's a significant reform. It is affordable. It's already legislated so it's in the numbers in the Budget Papers as issued yesterday, but it is a much better way forward than extending the LMITO indefinitely. 

QUESTION:

Treasurer, before the Budget there was a lot of discussion outside and within Government about whether the legislated rises in the superannuation guarantee, the staged rises up to 12 per cent, should remain or be removed or changed. The Government in the end decided not to interfere with those rises. Can you promise that after the election this will be a forever position of the Government? 

JOSH FRYDENBERG:

Well, our position has remained consistent, that these are legislated increases with the nine and a half going to ten per cent, as you know, from mid‑this year. But the think tank, which is your namesake, the Grattan Institute, and also the RBA and others had commented about the adequacy of retirement incomes with a 9.5 per cent SG. And so that debate was happening independent of Government. That debate was also kicked along by the Callaghan Report into retirement incomes, which found that increasingly people are bequeathing quite a large sum of money at the end of their lives, having accumulated it through their lives. And so there was, and there is, a real issue about the adequacy of retirement incomes, whether it's at 9.5 per cent, 10 per cent or even a higher rate. But our position remains consistent, Michelle, that is legislated, and we didn't announce any changes in last night's Budget. 

QUESTION:

You talked a lot about business spending and business investment and what the Government's doing to promote that, and the Budget papers show a big lift in investment in 2022-2023 financial year.

JOSH FRYDENBERG:

Yes.

QUESTION:

But there's been a bit of a lukewarm response from the business community. They think that more should be done to promote longer term investment, to get the longer-term investment that the country needs. So what more can the Government do to make sure that this lift in business investment is not a temporary one? 

JOSH FRYDENBERG:

Well I was just going to read you a quote from the business community last night. This is what Jennifer Westacott from the Business Council of Australia said: "This Budget propels Australia out of the pandemic and lays the foundations for a jobs led recovery". This is what Innes Willox from the Australian Industry Group said about the (inaudible) Budget: "It locks in the recovery from recession and shifts gears from emergency measures to investing in the economy for the longer term". This is what Chris Richardson, noted economist, said: "It is absolutely the right Budget for the times. The fight against COVID has become the fight against unemployment". Now that is what our Budget does. It seeks to drive more Australians into work and the unemployment rate even lower than where it is today. The business investment incentives which we've kicked on for an extra year are actually having an effect and I alluded to this in my speech. Normally in a recession you see a capital strike which has a long‑term effect on the economy and the contrary is true. We have seen, recent data show that there's been a big jump in investment, in machinery and equipment, just over 8 per cent, which is the highest in seven years. And we know that businesses, capital expenditure expectations are now the highest in many, many years. And business conditions, as I said in the speech, are also at record highs. So business is backing these investment incentives. They cover businesses with a turnover of up to $5 billion. There are many practical examples of businesses taking advantage of this ability to write off purchases straight away. And as far as the structural position of the Budget, it doesn't affect it really in the medium term. It washes its way out because it's really a timing issue for the Budget. Businesses are bringing forward expenditure to capitalise on this rather than depreciating these investments over a longer period of time. 

QUESTION:

Treasurer, the Prime Minister yesterday talked about, and this morning, talked about how the pandemic is still raging around the world. 

JOSH FRYDENBERG:  

Yes.

QUESTION:

Yesterday to the Coalition Party Room, from what I'm told, he said that the threat from the pandemic is greater today than it was one year ago.

JOSH FRYDENBERG:  

Yes.

QUESTION:

And in your Budget speech you talked about making Australia more resilient against the pandemic.

JOSH FRYDENBERG:

Yes.

QUESTION:

One of the ways in which to make Australia more resilient is quarantine.

JOSH FRYDENBERG:

Yes.

QUESTION:

You've talked about $500 million for the Howard Springs quarantine centre in the Northern Territory but there are calls for a bigger capacity in quarantine. In last night's Budget, for instance, there's $200 million for the MyGov website, $300 million for an online health record, there's $500 million right there. What's the priority, a bigger website or a bigger quarantine capacity? Why do we not have a commitment in last night's Budget for bigger quarantine? Why do you not build a second Howard Springs? 

JOSH FRYDENBERG:

Well David, as you know the Victorian Government has put a proposal to the Federal Government about new quarantine facilities in that State and the Prime Minister has indicated that we are working through that particular application from them, and we'll respond in due course. But also don't forget that the quarantine responsibilities, as decided through National Cabinet quite early in this pandemic, were going to rest primarily with the States. Yes, we've got Howard Springs, but the primary responsibility had been resting with the States. Now, by and large, our quarantine system has been effective but for the events in Victoria where there was a catastrophic failure. No one wants to see a repeat of that. We had the Jane Halton review. The States have done further work to strengthen their quarantine systems. But with respect to new Federal investments in quarantine and the States, the first proposal that we're looking through is the one from Victoria and we'll respond to that in due course.

QUESTION:

If there were proposals along similar lines from other States would you back those? 

JOSH FRYDENBERG:

Well again, other States can propose whatever issues they see fit.  Whatever proposals come from States we would consider them again in due course through the proper processes. 

LAURA TINGLE:

Treasurer, if I could just intervene there. Given the need for presumably an exponential increase in the quarantine capacity, shouldn't this have been something that was actually sort of considered in the Budget and discussed at greater length with the States to be included in the Budget? 

JOSH FRYDENBERG:

Well Laura, the most comprehensive proposal has come from Victoria and we are working that through our internal processes. But like I said earlier, the State quarantine systems outside of Victoria, and they have obviously worked to improve their system, has been largely very effective and the bulk of the heavy lifting with respect to quarantine has been done in New South Wales, who have been taking two, three, four times the number of people than other States have been yet that is the State that hasn't gone into a lockdown at all across ‑ the whole State hasn't gone into a State wide lockdown - over the course of this pandemic, and it's a real credit not just to their political leadership but also their quarantine system. 

QUESTION:

You've often described John Howard as a mentor. As Treasurer, he worked for a pretty unimpressive Prime Minister. He presided over a recession and he only handed down one balanced Budget, the rest were wall to wall deficits. Are you worried that that could be your fate, or do you see the upside? He managed to, despite a pretty poor Treasurership, go on to become a very successful long‑term Prime Minister once he was able to get his own way on things? 

JOSH FRYDENBERG:

Always a provocative question from PVO. Look, the reality is, Peter, certainly when I took on the role of Treasurer I couldn't have expected or dreamed of the fact that I'd be standing here having just announced the Budget that I did last night, because nobody could have envisaged that we would go through a once in a century pandemic and the biggest hit to the Australian economy since the Great Depression. I mean Australia has been hit by an economic meteor; 1.3 million of our fellow Australians either lost their jobs or saw their working hours reduced to zero. So just as John Howard said to me in times of national crisis, "there are no ideological constraints", we acted and decisively and comprehensively. And the net result of that is we are the first of the major advanced economies to see our employment levels now rise above where they were going into the pandemic. 75,000 more Australians are in a job today than when this crisis first hit. And we have stood pretty firm when it comes to extending programs like JobKeeper, which the opposition asked us to do beyond 12 months, and standing firm on issues like that have actually been the right decision because over 100,000 people have come off income support since JobKeeper ended, and that cliff that some people were speculating on never arrived. So we continue to roll out our plan. We made a decision as a leadership team, as a Cabinet, as a Government, that this Budget was not a time for austerity. We couldn't take our foot off the accelerator. We had to consolidate the gains because if we didn't, those gains could have been lost. This global environment is still pretty fragile and it's a confidence game. And unless people in this room and businesses right around the country, big and small, have confidence that we're successfully suppressing the virus they won't invest, they won't hire, they won't grow. And that's why we are taking those difficult decisions around borders. That's why we are spending in areas like skills and infrastructure. I'm very confident that we have taken the right decisions to support the economy and if you ask me what I think has been the most significant achievement of the Australian public over the last 12 months, and indeed the Government's support in that achievement, has been we've prevented a generation of Australians being lost to long‑term unemployment. That was in question when Treasury said the unemployment could reach as high as 15 per cent and we saw those images of our fellow Australians lining up outside Centrelink and they were reminiscent of the Great Depression, that level of fear was right across the economy and we acted, we acted decisively and now Australia is ahead of the global pack. 

QUESTION:

As you were pointing out net overseas migration is going to be negative 97,000 this year and 77,000 the next. 

JOSH FRYDENBERG:

Yes.

QUESTION:

I'm sure you'd agree that migrants are gold at this stage. You nod there. Well, I'm seeking an explanation as to why in Budget paper no. 2, page 179, why you should be stripping $671 million from the supports that the Government does give to new migrants for services such as the AAT, health, social services, when of course in an economic terms, at least, you should be throwing bouquets at them rather than punishing them? 

JOSH FRYDENBERG:

Well, there are a number of measures in this Budget that are actually providing additional services to migrants, some of whom have obviously gone home. Some of the temporary migrants went home during the course of the pandemic and others have stayed and we do continue to provide those economic supports. But when you reference net overseas migration, Andrew, it does go down 97,000, 77,000, but then it actually rebuilds. It rebuilds to just over 90,000 in 22-23, which is when we said in the Budget, we have an assumption that the border will gradually re‑open, and then it gets as high back to where it was pre‑pandemic at around 235,000 a year. So in the Budget there are a number of measures that are designed to provide additional support to refugees and migrants, as well as of course supporting net overseas migration when it is safe to do so. 

QUESTION:

But what's the public policy behind $671 million saving here, stripping them of this support? 

JOSH FRYDENBERG:

We're not stripping support. What we're seeking to do is to provide the support to those migrants in the same way that we always have, but at the same time, when it comes to net overseas migration, ensure that it rebuilds when it is safe to do so. 

QUESTION:

Press Club last year, I'm sure you remember, you spoke about supply side reform and Thatcher and Reagan type policies. You told the Coalition Party Room in June last year the next election would be about limitless providers versus enablers. I'm going to borrow the vernacular of a former Treasurer and say what is in the Budget for the true believers, the true Liberal believers, the ones who believe in a reforming, conservative government who are better than the other mob at Budget repair? What is the difference between a Liberal and a Labor Government at the moment? 

JOSH FRYDENBERG:

Well, this is a Liberal Budget. Firstly, it stays true to the Menzian tradition of getting more Australians into homeownership. There's the first home super savers scheme. There’s the new measures that we introduced to enable single parents with a deposit as low as 2 per cent to get into their first home. And of course, HomeBuilder, has been an enormous success with more than 120,000 applications. This Budget supports retirees. Remember our political opponents, you referenced Labor having a retiree’s tax - this Budget is enabling retirees to put more money into superannuation by downsizing their home at age 60, not 65, and putting up to $300,000 into their super. It's abolishing the work activity test for someone aged 67 to 74. We've also supported the regions with record amount of support. Whether its infrastructure, that's transport or water infrastructure, or better telecommunications, connectivity, particularly in bushfire prone areas, as well as bio security and our Ag 2030 project. The support for families with the tax cuts because it's only been the Coalition, Andrew, that has delivered around $300 billion of tax cuts in the last four Budgets, and as I said earlier, has put in place a historic reform to abolish a whole tax bracket, the 37 cents in the dollar tax bracket, to flatten out, to strengthen, to create a fairer tax system. And at the heart of this Budget is the concept of backing the private sector. I said it in my speech last night, eight out of every ten jobs in Australia are in the private sector. And we want the private sector to feel confident to invest, to hire and to grow. That's what the business investment incentives are about. That's what the loss carry-back measures are about. That's what measures like regulatory change around the AAT and the ATO are all about. So this Budget stays true to the Liberal Party's values and principles but it also responds in the middle of a pandemic. And again, if you want to quote doyens of the Liberal Party, whether it's Menzies, it could be Howard as Australia's second longest serving Prime Minister and as he said to me very clearly, at times of national crises there are no ideological constraints. And if I walk into the wilderness one day and know that I have done my small bit to help a generation of Australians avoid long‑term unemployment, what the economists call the scarring of the labour market, I will be proud about that. And it's not about me, it's about them. And the fact that we have seen half a million jobs being created since the last Budget alone, the fact that the unemployment rate today is lower than when we came to Government at 5.6 per cent, and the fact that Australia is the first major advanced economy to see employment levels above where they were pre‑pandemic is something that we can all be proud of. But we also know the job is not done and that's why last night's Budget was the Morrison Government's plan to lock in the recovery and ensure Australians are all better off. 

QUESTION:

This Budget bakes in significant structural spending, including on the NDIS, aged care and the stage 3 tax cuts. I appreciate you are still in the first stage of your fiscal repair strategy but eventually you will have to turn your mind to Budget repair, and certainly according to your forecast in the next term of government. So my question is how do you foresee going about that Budget repair task, will it be through raising taxes or cutting spending? And you will be upfront with the Australian people in the lead up to the next election about your Budget repair plans? Indeed, I give you the opportunity to promise no cuts to health, no cuts to education, no change to the GST, no change to pensions and no cuts to the ABC or SBS. 

JOSH FRYDENBERG:

Well thanks, Sarah. Firstly, the Budget has strengthened from the position it was just in last October. So net debt is a proportion of GDP, which is the key indicator of fiscal sustainability, is lower each and every year over the median term compared to what was in Budget just last October. And that the deficit has come down by two‑thirds over the forward estimates. That's not an insignificant change from just eight months ago, particularly off the back of a stronger labour market. And it's Treasury's expectation that over the next decade you will see a growth in GDP which is at a higher rate than the growth in the interest rate. And as long as that is happening then you will see the debt as a proportion of the economy and our servicing costs be manageable. And that's what we've been focusing on. We have two specific stages and phases of our fiscal strategy. We are firmly in phase one where the automatic stabilisers are working, where we are supporting specific areas of need; aviation, tourism, international education providers, the live entertainment industry, the construction sector. But what we have done, Sarah, is taken those emergency payments off where we can, like JobKeeper, like tapering down on the JobSeeker Coronavirus Supplement, like ending the cash flow boost, and we've moved to more broader‑based reforms like the skills, like some of the infrastructure projects and the like. When it comes to, and you referenced, when it comes to those social services that we've invested in, in this Budget, we were responding to a Royal Commission into aged care which found shocking cases of neglect and abuse. And I think every Australian wants to see an aged care system which allows Australians to retire and to live their latter years with dignity and respect. And that's what we've sought to do. And the fact that we are making substantial funding decisions coupled with substantial reforms around residential care and home care and the role of the regulator and the role of the workforce goes exactly to that. And likewise with mental health. I have seen many people who have struggled with this condition and it could be little things in this Budget like helping somebody who attempted their life and went into a hospital and now we're going to provide treatment for them after hospital, so they don't have a repeat. Or the treatment of eating disorders and increased research in those areas that can make the world of difference to so many people. I'm very proud of those reforms. I think they're necessary reforms and I think they'll make Australia a stronger place for it. 

QUESTION:

A big spending Budget and you get a sugar hit in the next financial year in regards to growth but then it tails off to below trend. Wage growth only just creeps above inflation in 24-25. Are taxpayers getting real money for value here? 

JOSH FRYDENBERG:

Well, the answer is yes. With respect to wages growth, as you know, it goes from one and a quarter to one and a half, then to two and a quarter. So it gradually ticks up as we bring down that unemployment rate and you get more competition for labour. But we're also, Colin, in a period with historically low interest rates where inflation has been very modest. So if you look at real wages, real wages are actually at the ten-year average.  And we print a number with respect to inflation in the Budget for mid this year where inflation kicks above 3 per cent, but it's temporary and it's temporary because in last year, 19-20, we saw inflation go negative for the first time in 60 years because we had free childcare in the middle of the pandemic and some other factors that were at play.  So yes, wages growth has been slower than we would like, but real wages are a key measure for you to look at, and because inflation has been modest, real wages has been at the ten-year average. We want to drive wages up.  The way to do it is through driving the unemployment rate down. Treasury print a number saying we'll hit under 5 per cent by the end of next year. That is a forecast which is even more conservative than the Reserve Bank. And with the mountain and wave of money that is now accumulated on household and business balance sheets, about $240 billion before last night's Budget had been accumulated, that money will continue to be spent as long as we keep confidence in the economy. I can see those jobs, those 250,000 jobs being created.  That was our plan last night.  To create those 250,000 jobs. 

QUESTION:

You mentioned the measure just before in relation to helping people who have attempted suicide, so giving them after care support when they leave hospital. There's $158 million in the Budget for that measure. 160 people in Australia attempt suicide every day, so is that money enough and will you commit to extending that if it's necessary? 

JOSH FRYDENBERG:

While such measures as that continue to be evaluated to ensure that the money is getting directed to the people who need it most, it is not the first or the last word that we will have on suicide prevention and treatment. As I said in my speech, a national suicide prevention office. Let's not forget that in this Budget we were responding to a number of major reports. A Royal Commission into aged care, a Royal Commission into natural disasters, a Productivity Commission report into mental health. The measures in this Budget on mental health are very, very substantial, including this head to health concept of extending out the headspace model to people who are over the age of 25, with a national network of 40 of those centres. We're also giving people more access to Medicare for particular services, for example with their families. If their families need to go and see a medical professional to work through mental health issues, we're now providing access through Medicare. Lanai, your question goes to the heart of what this Budget's about, and it's about people. It's not about numbers, it's about people. Whether it's people into their jobs, people getting aged care support, people getting disability support, people getting mental health support. We will take the steps necessary to ensure that those in need get the greatest attention and care. 

QUESTION:

You mentioned that you make no apologies for keeping the international borders closed and that is purely based on the medical advice. Is it purely based on the medical advice or do you acknowledge or does the Government acknowledge that voters seem to like this more cautious approach? We've seen the trends at recent State elections and is that something that is guiding your decision‑making in this area?

JOSH FRYDENBERG:

The key factor, the central factor, the only factor for us, is what keeps Australians safe. It's not simply the roll out of the vaccine that is a factor for the Chief Medical Officer in making decisions around borders. They also need to take into account what is happening with the virus globally, its transmissibility, new variants of the virus and what it would mean for Australians' health and safety. So I can only comment on the circumstances which we are in today where there are more than 800,000 new cases. We have to be very careful and cautious when it comes to opening up our country. We cannot avoid the dangers that that may pose right now, and what we must seek to do is protect Australians, their health, but also their economic recovery, and that is why we'll always follow the medical advice on these important matters. 

LAURA TINGLE:

Ladies and gentlemen, let's conclude on that note and please join me in thanking the Treasurer. 

JOSH FRYDENBERG:  

Thank you.