3 April 2019

National Press Club Speech Q&A, Parliament House, Canberra

Note

Subjects: 2019-20 Budget.

This is a transcript of the Hon Josh Frydenberg's interview after his press club speech. The main topics discussed was the 2019-20 Budget.

SABRA LANE:

Thank you Treasurer. Before we take questions from the floor; the decision to extend the one-off energy payment to Newstart, which I’d like to focus on, and other recipients: given that it wasn’t in the Budget papers, could you give us some detail of when that decision was arrived that and how that came about?

JOSH FRYDENBERG:

Well obviously, the reason why Newstart was not included in that original suite of payments that people receive, and that were going to get the energy assistance, was because with Newstart, three quarters of people move off it within twelve months. Ninety-nine percent of people on, who are on Newstart get another payment. They get a parenting payment or they get a family tax benefit payment. Whereas when you’re on the disability support pension or the aged pension, you tend to be on it for a lot longer, and that seems to be, that is your principal form of payment. So, we excluded Newstart originally from it. Last night, the Prime Minister, the Finance Minister and myself discussed the issue and we thought it was appropriate to extend it. It’s going to cost the Budget an extra $80 million. Because this payment will be out before the end of the financial year, that hits the numbers for the 18-19 year – doesn’t affect the surplus numbers for 19‑20. I think it’s obviously a prudent decision. It’s one that will provide $75 for singles and $125 for couples from this additional energy supplement to acknowledge that they do face cost of living pressures and ease some of the energy costs.

SABRA LANE:

David Crowe.

DAVID CROWE:

Thank you Sabra, thanks Treasurer for your speech. David Crowe from the Sydney Morning Herald and The Age. The, um, you’ve talked a lot about the projected surplus, the Coalition came to Government in 2013, talking about a Budget emergency. It’s had five years plus to act on that problem and now we get to this financial year and there’s a four billion dollar deficit. At the same time, we can see in the Budget Papers that there’s $2.8 billion in spending in this financial year. You’re tantalisingly close to that balanced budget this financial year but you couldn’t get there. Could you not have been a bit stricter on spending over that timeframe? Why could you not get to a Budget surplus this year?

JOSH FRYDENBERG:

Well David, we’ve actually been very disciplined in spending across the board. If you look at the start of our term from the 13-14 year to the end of the forwards, we have brought the rate of spending growth to 1.9 per cent. That is below, less than half of what we’ve inherited and certainly the lowest of any government in 50 years. When you look at what we’ve done as a percentage of GDP spending as well, that is below the 30 year average and significantly below what we inherited. But when it came to the 18-19 year we faced a number of one-off costs: we had extra GST payments to the states; we had the impacts of flood and drought; we had some one-off expenses in relation to Defence equipment. And all that put pressure on the Budget. So yes, we improved the 18-19 year from what was expected at MYEFO, but we couldn’t bring it to surplus. We would have brought it to surplus if we could, but of course the 19-20 surplus year is $7.1 billion, which is a very significant surplus and one with which, would withstand any challenges in the next year.

SABRA LANE:

Michelle Grattan.

MICHELLE GRATTAN:

Michelle Grattan from the Conversation. Treasurer, the Labor Party has foreshadowed that it will do more for low income people, people earning under $40,000. That it will do this through the tax system. I wonder what you say to critics who argue that you haven’t done enough for these people; that, really, they’re the losers in this Budget.

JOSH FRYDENBERG:

I’d say far from it. In fact, the nature of our reforms, and there are two series of reforms here. There’s the immediate relief with the adjustments to the low- and middle-income tax offset, which will put that money in people’s pockets, $1080, in 13 weeks’ time. But then there is also the structural reform of bringing the 32.5 down to 30 per cent for that particular tax bracket. That is going to create a fairer, simpler tax system. And the people at the lower end of the income scale will actually get a higher proportion of their tax bill reduced as a result of the policies that we have put in place. The Labor Party, when it comes to LMITO have actually got it at $530 in 2018-19; we’ve got it now at $1080, so that’s quite significant. And the Labor Party did not support our structural changes that we passed through the Parliament for stages two and three which will see the abolition of the 37 cents in the dollar tax bracket altogether. So Labor talks a big game when it comes to taxes but they deliver very little; because in fact, they’re taking with one hand, or giving with one hand and taking with the other because they have not committed to all three stages of our tax plan.

SABRA LANE:

David Uren.

DAIVD UREN:

David Uren from the Australian newspaper. Treasurer, over the last two years, changes in the economy which Treasury did not anticipate, or parameter changes, have boosted the Budget bottom line by more than $10 billion a year. In the final year of your Budget, when the second stage of the tax cuts cuts in, the surplus almost halves to just nine billion dollars: how can you be confident that you are not recycling temporary gains in revenue into permanent income tax cuts?

JOSH FRYDENBERG:

Well the recent why the surplus goes down to $9.2 billion in that particular year is because there’s two changes happening at the same time with the tax. You’ve phased out the LMITO and people are still claiming it in the next tax year, but you’re also increasing the 19 per cent tax bracket from $37,000 to $45,000 and that’s both happening in that particular year. So that explains why the surplus goes down to $9.2 billion. But I think in terms of how we are dealing with parameter variation, I mean, for example, public hospitals: an extra $1.9 billion needed to be found because that wasn’t estimated with this particular demand driven scheme. So, while there were changes, for example, around the National Disability Insurance Scheme because the take-up wasn’t as high as first expected, and obviously will as the Scheme transitions to full implementation. But, on the public hospital side we had to find an extra $1.9 billion, so this smooths it out. The other parameter variations that are sometimes hard to predict relate to the interest costs that the Government has on debts, and because the interest rates have come down, that has flowed through as well to some improvements to the bottom line in that respect.

SABRA LANE:

Phil Coorey.

PHIL COOREY:

Hi Treasurer, Phil Coorey from the Financial Review. Um, a bit of a follow-up to David’s question, but when the Coalition came to power in 2013, Tony Abbott, then Prime Minister, and Joe Hockey set a target of getting surpluses to one per cent of GDP within ten years as a buttress against future shocks and those sorts of things. In the MYEFO, you were on track for 24-25; yesterday, you’ve pushed it back another year, presumably because you’re spending so much on tax cuts at that stage on stage three and others. What was the rationale for putting tax relief ahead of a strong surplus? Was it an economic one or a political imperative?

JOSH FRYDENBERG:

  Well this Budget is being driven by the economics of providing for a stronger economy and a better future for all Australians and we hit more than one per cent of GDP with our surpluses in 26-27 and obviously increases substantially so that we can pay off net debt by 2030.  But in terms of the decisions, we’re guided by our fiscal strategy and our fiscal strategy makes very clear that we need to put our surpluses to paying off debt, but we also need to have a sustainable tax burden.  And we have an internal discipline with a tax to GDP cap at 23.9 per cent.  Now in this Budget, it’s 23.3 per cent and when Chris Bowen stood up at the National Press Club after the election in 2013, he set four tests for the Government.  He said, “you gotta have a triple A rating, you gotta have unemployment below 6 1/4 per cent, he said you gotta keep your tax to GDP below 23.7 per cent” and we’ve done all of those things.  The Labor Party has now abandoned any pretence of a tax to GDP cap, we have not and we would’ve hit that cap in 22-23, but for providing for these tax cuts in this Budget.  So philosophically, Phil, the Liberals and National believe in lower taxes and returning the money to people’s pockets when we get an opportunity to do so.  We’ve combined both immediate relief in this Budget with a structural reform with a 32.5 down to 30 per cent.  I think they’re both significant reforms and to think that Australia, by the time this plan if fully rolled out in 24-25, will have 70 per cent of tax payers who are earning between $45,000  and $200 thousand, paying no more than 30 cents in the dollar.  That is a very significant development which will ensure that people, regardless of the jobs that they change throughout their lives, may not encounter bracket creep.  And that will not be a disincentive for them to work a bit harder.

SABRA LANE:

Laura Jayes.

LAURA JAYES:

Laura Jayes from Sky News.  Treasurer, thank you.  Big business is still wondering what’s in this Budget for them.  They’re dealing with countries with comparable tax rates, New Zealand 28 per cent, Hong Kong 16.5 per cent, the US 21 per cent, you know the list.  Even Labor is promising an investment guarantee, is this the signal that you’ve given up on delivering those big business tax cuts?

JOSH FRYDENBERG:

Well, what we’ve delivered for big business is a stronger economy out of last night’s Budget and ultimately they’re the beneficiaries.  So what we’ve done with by lowering the tax rates for more than 13 million Australians, what we’ve done with a $100 billion dollar infrastructure spend over the decade, what we’ve done with the skills package, is actually strengthen the workforce, strengthen routes to markets and supply chains and of course put more money in people’s pockets, so that they can spend more in those businesses.  That’s what big business will get out of this Budget.  I’ll also point out that one of the things that we’re most proud of as a government is also the Free Trade Agreements that we’ve struck.  When we came to government, just over 20 per cent of our trading partnerships were subject to free trade agreements, now it’s well over 70 per cent and when all these free trade agreements are implemented, it’ll be 88 per cent.  And the most recent being Indonesia, but that comes of the back of the Trans-Pacific Partnership with China, Korea and Japan.  The Labor Party doesn’t have the same faith in free trade agreements as we do.  And free trade agreements open up job opportunities, one in five Australians are employed in free trade.  The other thing I’d say to big business is, don’t sign up to Bill Shorten’s industrial relations plan, because it will actually mean chaos on your shop floor.  I mean, bringing back pattern bargaining, some of the other changes to allow all the Unions to basically have a seat at the Cabinet table.  Even this discussion about forcing changes to the minimum wage.  It is bad news for the economy, it’s bad news for business.  So there is a very clear difference between the Labor Party and the Coalition when it comes to what is good for economic activity for jobs and ultimately for the business community.  We’re in favour for more trade, we’re in favour of a sensible industrial relations system, which has seen a 40 per cent drop in industrial disputation since we’ve come to government and we’re in favour of lower taxes.  It’s a very big contrast and when it comes to lower taxes, one of them that will really hurt when Labor’s increasing taxes, it’s really going to hurt the business community, is the changes around franking credits.  Because that goes to capital formation in the economy.  If companies can’t offer the same level of dividend imputations that they now do, to the same number of people, then people in their self-managed super funds have no incentive to invest in Australian companies.  They’ll go and invest offshore, in indexed funds in the United States.  This will make it more difficult for Australian companies to raise capital, and the hard heads in the business community and independent economists have all pointed this out.  This is a dramatic transformation in the way capital will be formed in this country and it will hurt publicly listed companies and ultimately if you hurt publicly listed companies, you hurt job growth in the community as well.

SABRA LANE:

James Campbell

JAMES CAMPBELL:

James Campbell, Herald Sun. Correct me if I’m wrong, Treasurer, but my understanding is that the Budget only includes one years’ funding for four-year-old kinder. Um, is it the Government’s intention that that funding will end after one year, and if not, why isn’t it, the funding, included in the forward estimates?

JOSH FRYDENBERG:

So, every single year that we’ve been in Government, we’ve funded it this way. $2.8 billion for universal access to pre-school for four-year-olds. Now, this has been primarily the responsibility of States, but States do it very differently. Some do it like Western Australia through the school system, others do it through long day care particularly in New South Wales and Queensland. We want to work with the States through the Education Council, Dan Tehan, to effectively get a holistic approach to the country. That will be important, so we are absolutely committed to this program, but we want to work with the States; we’ve asked for a review. The other thing, James, that we’re very concerned about is non-attendance. Currently, you’ve got about 30 per cent non-attendance for pre-school learning. It’s particularly acute in regional communities and Indigenous communities, it can be 40-45 per cent. These are the kids that actually need it most. So we need to work with the States, who have primary responsibility for this program, to get better standards with, in relation to pre-school. That’s something that we’ve put on the table, we’ve asked for the review, we want to sit down with the States, we’re committed to funding it going forward. This is for the 2020 year, the 2020 school year that we’ve funded. So someone going in now who’s in – there in 2019 will also be funded for 2020.

SABRA LANE:

So, James is right, is he, that it’s only funded for one year?

JOSH FRYDENBERG:

It’s funded to the end of the 2020 year.

SABRA LANE:

Ok. Andrew Probyn.

ANDREW PROBYN:

Treasurer, Andrew Probyn from the ABC. Thanks for your speech. Um, political parties of both stripes have been proud over the years of the progressive nature of the tax scales, indeed some are proud of it. Under your plan, by 1 July 2024, people earning between $45,000 and $200,000 will be paying 30 per cent tax rate. What’s progressive, indeed, what’s fair about someone on $45,000 paying the same rate of tax as someone on $200,000?

JOSH FRYDENBERG:

Well the fact is, someone on $200,000 under our plan pays ten times as much tax as someone who’s on $45,000. So they key point here is that we are incentivising people to stay in work, to work longer, to work more. Now, the progressive nature of our system sees the top five per cent of taxpayers currently paying about a third of all tax. When our plan is fully rolled out, by 24-25, that proportion that the five per cent pays actually increases. The system, arguably, even gets more progressive under our plan. It also applies to the top one per cent of taxpayers, paying more under our plan as a proportion of the overall tax burden. But what we need is a simplified tax system, Andrew, and I think that’s what we’ve got, but certainly the low and middle-income taxpayers will benefit out of this Budget, and the fact that if you’re in the at $48-$90,000 tax bracket, you will get the full LMITO , the full $1,080 in your pocket when you put in your next tax return. So if you’re a couple, a teacher and a tradie, earning $60,000 each, you will get $2,160 in your pocket in 13 weeks’ time, whereas if you’re on $200,000, you’re not getting much at all.

SABRA LANE:

Malcolm Farr.

MALCOLM FARR:

Malcolm Farr from News.com.au. Treasurer, thanks for your address. The Budget Papers indicate a pretty rapid and substantial population growth going from something like 25 million in 2018 to close to 27 million in 2022. That’s even with, I assume, the immigration cap that the Coalition Government has proposed. Is that swift and substantial population growth a factor in unemployment continuing to hover around five per cent as the Budget Papers also indicate;  and is it also a factor in wage growth being rather sluggish for the next four or five years or so.

JOSH FRYDENBERG:

Well, wage growth will actually pick up, up to three and a half per cent. And it’s currently, the wages price index is 2.3 per cent, which is faster than inflation. But wages will pick up and that’s the advice of the Reserve Bank governor. And the reason why wages pick up is because you’re getting a tighter labour market, because you’re actually getting more competition for labour and we’re starting to see that in certain industries. With respect to the migration settings, as you know, the Prime Minister’s announced that the cap is coming down from 190,000 to 160,000 for permanent migration. The issue is, I mean, migration does help employment levels; it does stimulate economic activity. But at the same time, we as a country need to better manage population growth. Because you’re seeing Melbourne growing by 2000 or more people a week, and this is putting real pressure on services: health services, education services, public transport. You know, the roads are much more clogged than they ever were. So what we are focussing on, working with the states is to better share data, to better strategise together, to effectively get the infrastructure in place that will alleviate that congestion in the cities and unlock the potential of the regions. So, if you’re in Melbourne and you can travel to Geelong in 30 minutes; that will completely change the way you go about things. Now, when the Intergenerational Report was done in the early 2000’s, it predicted that Australia would get to a 25 million population by 2040. Well, we got to 25 million last year. So we have grown much faster than was originally forecast, and I think it’s fair to say that governments of all persuasions, state and federal, have failed to properly plan for that population change. That is now changing: we’ve got an integrated plan, we’re working closely the States – we’re all in this together – and that’s why we’re funding a lot of this infrastructure.

SABRA LANE:

Peter van Onselen.

PETER VAN ONSELEN:

Peter van Onselen for Network Ten, I wanted to go back to the Newstart backflip, if I can and ask a follow-up, when you were answering that first question from Sabra you gave what were some very cogent, well-argued, well-articulated reasons why through a long Budget process you decided on the position that you took, as a Government, as an ERC, as a Treasurer. Then you told us that you had a meeting last night with the Finance Minister and the Prime Minister and you changed your mind. Why?

JOSH FRYDENBERG:

Well I think it’s very important that we alleviate some of these cost of living pressures and we were focussed on putting this additional $80 million to work and applying it to Newstart, this will also secure the passage of the piece of legislation through the Parliament, and that is important as well, because we want it to be in peoples’ pockets before the end of this financial year. That’s our commitment, and now there’s no excuse not to pass it.

SABRA LANE:

Mark Riley.

MARK RILEY:

Mark Riley, Treasurer, from the Seven Network, also a question on this new Budget addendum. When you were making this decision and laying out, as Peter said, your cogent reasons not to do it in the first place you said that people on Newstart, or three quarters of them are on it for less than a year and transit off and on the payment, and 90 per cent of them have other payments…

JOSH FRYDENBERG:

99 per cent.

MARK RILEY:

99 per cent have other payments, very persuasive. My question is on the detail of how this applies, if someone is qualified or classified on Newstart for a day, a week, a month and a year, do they get the payment? If there are two or three siblings in a family who are all on Newstart for various periods of a year, do they get three supplements, or does a household get one, how does it work?

JOSH FRYDENBERG:

If you’re on Newstart, you get the payment, it’s very simple as that, and the same applies whether you’re on the disability support pension, whether you’re on the carers’ payment, whether you’re on the age pension, whether you’re on certain veterans’ payments, they’re the various payments that are now subject to this additional $75 per individual. 

KATHARINE MURPHY:

Hello, Treasurer. Katharine Murphy from Guardian Australia. A broader question, if I may. If you look at the history of this Government from the first Budget in 2014 that Joe Hockey and Tony Abbott famous austerity Budget to the one you handed down last night, it’s like they could have been delivered by different Government’s. Would you agree that one of the problems of the Liberal and National parties over this term, apart from the leadership revolving door, has been the shape shifting in terms of what you stand for in terms of your policies and your economic program. So, in the event that you are still Treasurer after the next federal election, do you, first of all, agree that it’s important to actually do the work as a major centre-right political party in Australia to be able to tell voters coherently what you stand for on economic terms and if we call this an identity project, call it that, do you undertake to lead it as Treasurer, actually do the work?

JOSH FRYDENBERG:

Well, Katharine, I think it’s always been core business for the Liberal Party to lower people’s taxes, to invest more in infrastructure, to put the skills in place for the workforce of the future. That is core business and what is particularly core business for us is for the country to live within its means because that is the definition of fairness. If you keep running up budget deficits, you are basically handing the next generation an interest bill that will eat into the spending of otherwise important programs. You can’t fund those essential services of health, education, putting drugs on the PBS, the mental health package, the respite care for carers, all of that can be done because you have a strong economy. So, I wouldn’t accept the premise of your question, I would say that this is a Budget that grows the economy while being responsible fiscal managers. I think there is a lot in this Budget for us to be proud of. The fact that we’re investing significantly in our regions, the fact that we are investing in small business as the engine room of the economy. You won’t hear that language from those opposite because we are very much focused on small business and our regions and growing our economy. So, the reason why we’ve been able to spend into those targeted areas is because we’ve been responsible managers over recent years. The fact that spending as a proportion of GDP is now down to 24.6 per cent and it was 25.4 per cent when we came to government and it’s below the thirty year average. The fact that we’ve stayed well below our tax cap to GDP at 23.3 per cent, the fact that we are eliminating net debt by 2030, the fact that we’ve got $45 billion worth of surpluses, the fact that we have turned it around by $55 billion from the last Budget we inherited. That’s our record and you know some people might seek to write that that’s all by accident, that some sort of commodity boom has delivered you this bonanza on Budget night, it doesn’t work that way. It actually works by having difficult decisions, negotiating with the cross-benchers in the Senate, going over the heads of the Labor Party who have tried to stop us every step of the way and the product is now a stronger Budget for the people of Australia. And, they will be faced with a choice at the next election, the choice will be very clear. You can sign up to Bill Shorten and $200 billion of higher taxes and putting the Unions in charge of the shop front and the back office. Or, you can vote for us and we have delivered more than one million new jobs, trade agreements with the booming countries in our region, lower taxes for more than 13 million Australians, a simpler, flatter, more progressive tax system. That’s our record, and at the same time record funding for hospitals and schools and fully funding the NDIS and other important programs. The Labor Party will talk a big game, but they won’t deliver it. We will.    

SABRA LANE:

Jade Gailberger.

JADE GAILBERGER:

Jade Gailberger from the Advertiser. More than two billion dollars of infrastructure spend was announced for South Australia in the Budget. With much of that outside of the forward estimates, and an election next month, what guarantee can you give to voters that these projects will actually go ahead?

JOSH FRYDENBERG:

Well obviously there’s important infrastructure projects that, you know, are shovel-ready right now in South Australia including under our congestion fund with that money being spent. Now the North-South Corridor was a big commitment from us and there are others. Now, obviously, you’ve got to work to timetables, you’ve got to work with state governments, you’ve got to, got to put all the machinery in place to roll out that level of infrastructure. So it’s a ten year plan with money out the door now, and money out the door in the forwards and beyond. South Australia is no different, but South Australia is benefiting greatly from this $100 billion package.

SABRA LANE:

Tim Shaw.

TIM SHAW:

Thanks Sabra. Tim Shaw, Treasurer, from Radio 2CC in Canberra. A lot of suit shops around Australia are ordering black suits today because we’re back in the black according to you and your Government. What’s your message to small business today? One, pay your existing staff more; wages growth has been flat. Two, take an instant asset write off. Or three, hire an Australian. You’ve got a plan for 1.2 million new jobs over the next five years, and you’ve proven over the last five that a million jobs can be grown. But what’s Plan B on jobs; but, importantly, your message to those small business owners today?

JOSH FRYDENBERG:

Well our message is that we’re behind you, and we’re the only party that’s behind you. And look at what we have done: we’ve cut taxes for small businesses to 25 per cent; put in place a $2 billion dollar securitisation fund so you can increase access to finance; we are making changes to the employer share ownership scheme so people can get a buy in at the start of that entrepreneurial approach in small business and get a stake in the outcome. We want small businesses to get paid on time by both Government and big business and we’re leading the way. And this instant asset write off: we’re increasing it to $30,000 and applying it to companies with turnovers of up to $50 million. That, as a result of last night, we’ve applied it to an additional 22,000 businesses employing 1.7 million Australians. So, those businesses were buying a grill for $12,000 for their food businesses. They could have only deducted $800 a year; now they can deduct that $12,000 straight away. Its changes like that that make a real difference to the life of a small business. We stand with them, we listen to them, we’ve heard them, and we’re acting for them.

SABRA LANE:

Quentin Dempster.

QUENTIN DEMPSTER:

Quentin Dempster, the New Daily, Treasurer. Um, there’s been a number of questions on this, from my colleagues today already, and it would be quite historic in 2024 if your structural changes to tax collections are achieved. No more than 30 cents in the dollar paid by, what you said were in your speech, were 94 per cent of taxpayers. You’ve addressed Andrew’s question about denying that this signals the end of the progressive tax system. My question, as Australians have understood it where the more you pay, proportionately you pay more – the more you earn, proportionately you pay more. But would Sir Robert Menzies accept and approve of the wholesale flattening of Australia’s tax collection scales?

JOSH FRYDENBERG:

Well he certainly believed in lower taxes, because he used to say that “it’s not the Government’s money, it’s the people’s money”, and we should always remember that. And we need to return as much of that money to them as possible. So you’ve got the double benefit of the tax cuts: you’ve got the benefit in that you are returning to people their money so that they can make their choice; but also, more money in their hands means more economic activity across the economy. And that economic activity spurs the creation of new jobs. It’s money that’s being spent in the local business; its money that’s spent in the big business; and ultimately, that’s good for the health of the Australian economy.

SABRA LANE:

Thank you, Treasurer, for answering those questions. Everybody please join me in thanking the Treasurer, Josh Frydenberg.