KIERAN GILBERT:
Let’s go now live to the Assistant Treasurer Stephen Jones, who joins me. Stephen Jones, thanks for your time. Let’s start with this report by the respected economist Chris Richardson – no budget update, no problem. Basically he’s doing what an MYEFO would do and updating the numbers out of the budget. Quite promising, encouraging numbers there. Is it well received by the government, this boost in commodities?
STEPHEN JONES:
Look, the boost in commodities, Kieran, has an up and a down side to it. Yes, it’s good that our coal and our gas exports are commanding record prices. This, of course, is a result of the war in Ukraine. Of course, the massive increase in coal and gas prices is also the major driving force in the increase in energy prices for domestic users as well, which is why we’re adamant that we’ve got to address all of these issues. It's good for the budget bottom line, but it’s not good for the bottom line of households and businesses throughout the country.
GILBERT:
Why does Treasury consistently underestimate commodity prices so drastically?
JONES:
What Treasury has traditionally done has put in place what they call a technical assumption about commodity prices. And what they do is they’ll take a 10‑year view and not a one‑year view of what they think the average commodity price – price for a particular commodity is going to be, particularly iron ore, but also gas and coal. And over the period of a budget cycle that’s about ensuring for a number of reasons that we don’t wildly estimate – overestimate what our income is going to be, but it also has, I’ve got to say as a member of the Expenditure Review Committee the happy result of ensuring that there is fiscal discipline upon budgets and spending ministers as well.
GILBERT:
The other point that Chris Richardson makes here – and sort of a follow‑on with what we’re talking about with that boost in commodity prices – is essentially that calendar year 2022 is on track for a balanced – essentially a balanced Federal Budget. Is there any chance of a surplus in this financial year or across the forward estimates given this sort of rosier outlook?
JONES:
Look, obviously we welcome these numbers and the fact that we’re getting better than anticipated prices for commodities is good for the bottom line. But we’ve also got significant pressures upon our budget as well. I’ve mentioned the need for us to ensure that we’re helping households and businesses with extraordinary energy prices, short term though they may be. There is a strong desire inside government to ensure that we can mitigate the impact of those record high energy prices, global energy prices. But, look, having the numbers look better than we anticipated they be a month or two ago, of course that’s going to be good news for the government to those of us who are charged with managing the finances and the economic management of the country. We’re not going to get ahead of ourselves though. The same fiscal discipline that we put in place in October has to be seen through into the May budget as well and, in fact, every year of this government’s term. We’ve got to ensure that we’re looking for ways to reduce spending where it’s not being – where moneys aren’t being spent efficiently and ensuring we direct that money towards skills, towards child care, towards things that all Australians agree is necessary, such as aged care, health care, the NDIS. So it’s a monumental task, but we think we’re heading in the right direction.
GILBERT:
And I think you’re alluding to this, but essentially the near term boost doesn’t change the need for some structural reform to the budget in the medium to longer term?
JONES:
Strongly of that view, Kieran. We have a structural deficit in the budget. Big pressures – defence, health, aged care, the NDIA. These are all big pressures. All the pressure is on the up side. People want us to spend more on medicines, on health care, on, you know, national defence, on looking after ageing Australians. We want to do it, too. The pressure is all on the up side on these expenditures. So, you know, we’ve got to look beyond the next few months and over the next few years and see what’s likely to happen with the budget. And, you know, we’re being frank with Australians – although we might get a short‑term boost, there’s a long‑term structural deficit that we’ve got to resolve.
GILBERT:
Will the Federal government have to compensate the states for any cap on coal prices if that is agreed to this week?
JONES:
We’ve got a national cabinet meeting, and the Prime Minister obviously will be taking a plan to the Premiers. We want to do something about gas prices as a lever – as the lever that the commonwealth has to putting downward pressure on wholesale energy prices. But if we do that alone and don’t deal with coal and coal‑generated power then we aren’t going to fix the problem. So we need a Team Australia moment. We need states and commonwealth working together. We want the states coming to the table to say, “What can we do inside our realm of responsibility to help bring down power prices during this crisis?” So for them to meet the commonwealth halfway in the challenge ahead of us, they can deal with coal, we can deal with gas. We’ve both got to work together to resolve this. And, you know, I think a lot of Australians would be saying – will be looking fairly dimly upon any government that said, “We’re just going to take the windfall gains from increases in coal and gas prices and not do anything to help households and businesses.” I think it’s incumbent upon state and Federal government to ensure that we get the balance right there.
GILBERT:
Are you optimistic a deal will be done with the states on that?
JONES:
I’m optimistic that Australians want a Team Australia moment from state and Federal government, and there’ll be a lot of pressure. There’ll be a lot of pressure on both the states and the commonwealth government to get the right sort of agreement, the right sort of intervention in place here. It’s a short‑term issue, not a long‑term issue. We need some short‑term solutions. You know, there’s as much pressure on the state governments, frankly, from their constituents to deal with power prices and there is on the commonwealth government. So let’s work together to resolve the issue.
GILBERT:
What do you say to concerns – you might have heard before our interview a number of industry representatives, the opposition, talking about inadvertent impacts from an intervention in the market, say, the gas market, for example, capping the price ‑ what do you say to those concerns right now?
JONES:
Well, the failure to act will see manufacturing businesses and other businesses in Australia close and thousands of jobs will be lost. So there might be inadvertent consequences, and we're not trying to presume here that whatever we do is going to be a perfect outcome – it won’t. What we’re charged with doing is try to find out how we provide some relief, acknowledging that whatever we do will be the least imperfect response to this challenge. Not the most perfect, but the least imperfect response to this challenge. We know that doing nothing means that households are going to have to make a choice between eating and heating and that manufacturers and other businesses will be closing their doors and laying off staff. That’s not an alternative that we want to contemplate. And we've got to work together, all layers of government, together with the business community to resolve this in the interests of Australians.
GILBERT:
Assistant Treasurer Stephen Jones, just one last question before you go: the AAA credit rating affirmed, reaffirmed by ratings agency Fitch. Should there be credit to the Coalition or at least some credit for the Coalition for where this economy and the budget is right now off the back of the pandemic?
JONES:
I’ve lost sound here.
GILBERT:
All right, well, given that, it’s appropriate we wrap it up. Stephen Jones, Assistant Treasurer, thank you. Now let’s move on to some other news.