Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Thursday, 4 June 2020
TOM CONNELL: Let’s go to my first guest on the program. Joining me live is Finance Minister Mathias Cormann. Minister, thanks very much for your time this morning.
MATHIAS CORMANN: Good morning.
TOM CONNELL: So the economy will go into recession. Two quarters of contraction. What sort of confidence do you have that it won’t be three?
MATHIAS CORMANN: We are working to ensure that we can have the strongest possible recovery on the other side. The June quarter is clearly the quarter where we bore the brunt of the economic impact of the global pandemic, which is the coronavirus crisis. But if you look at the way Australia is performing compared to the rest of the world, a 0.3 per cent contraction in the March quarter compared to six times as large a contraction across the OECD at 1.8 per cent across OECD countries. We are in a better position now both from a health point of view and from an economic point of view than we had feared when we were putting all of those various support packages in place towards the end of March, but there is still a way to go.
TOM CONNELL: We saw a lift in the household saving rate in this numbers yesterday up to 5.5 per cent. So theoretically there is money to spend. But would you understand right now if households didn’t have the confidence to go out and spend money?
MATHIAS CORMANN: When a crisis hits like the one that we continue to experience, people are more cautious and that makes sense, that makes intuitive sense. But what we have seen over the last nine weeks is nine consecutive weeks of increases in consumer confidence. In fact, we have recovered 95 per cent of the levels of consumer confidence since its bottom. Things are heading in the right direction. The fact that we are winning the fight against the virus, the fact that we are in a much stronger position from a health point of view than countries all around the world and the fact that economic restrictions are being eased at a faster rate than we might have anticipated earlier this year. All of that is contributing to a return of consumer confidence. We would now like to see that reflected in increased consumption and also increased business investment.
TOM CONNELL: The Treasurer yesterday spoke about looking at JobKeeper and this $1500 rate. If it were to be lowered, would it just be lowered for the people who that is actually a pay boost for. So people for whom that $1500 a fortnight salary is higher than they usually get. Or would it be lowered across the board?
MATHIAS CORMANN: One of the issues that we are going to look at is where people are, through JobKeeper, getting higher pay than they ordinarily would have through their hours worked. But I am not going to pre-empt now what might or might not come out of a Treasury review, which is yet to be finalised, which is yet to be presented to Government. We will also continue to monitor how the economic data evolves. We were dealing with a rapidly evolving situation on the way down in the period since the end of January. We are on the way back up in the sense that we have been able to ease these most severe economic restrictions and we continue to progressively ease those restrictions. So things are looking up. We will continue to monitor how that plays out in terms of the economy as a whole, but also individual sectors across the economy and will make judgements accordingly. It would not be responsible for me to pre-empt what judgements we will make in the absence of having more data about where things are headed and in the absence of actually having those recommendations in front of us.
TOM CONNELL: But for the people for whom $1500 a fortnight might already be a pay cut, or about their salary, so their salary or worse, is it unlikely that you would lower that further?
MATHIAS CORMANN: Again, you are speculating. The objective ought to be to get as many businesses as possible back into a situation where they are able to pay the wages of their employees out of their income rather than having to rely on wage subsidies funded by the taxpayer. Having said that, we are two months into a six month program. We will be sensible in whatever judgements we will make in relation to adjusting the JobKeeper scheme, but I am not going to speculate about what it is that we can sensibly do in the absence of having reviewed the Treasury advice, which we will receive later this month, and in the absence of having reviewed a few more weeks, and perhaps another month or so of economic data to see how things are evolving. You have to remember that the program is due to go to the end of September. We are at the beginning of June. So there is still another four months of this program to go. We are two months in to a six month program. One third of the way. If anyone had told you at the end of March that we would be where we are at the beginning of June in terms of the economic context, I think people would not have believed you necessarily. People would have thought you were too optimistic. We are working to ensure that we get ourselves in the strongest possible position over the next few months. Let’s just assess sensibly where we are and we will make sensible decisions to ensure that we can have the best possible transition into a strong recovery.
TOM CONNELL: Okay, so in terms of taking a fresh look then. What about universities. Job cuts are beginning. La Trobe is even being spoken about as a university that could go broke. Is it time to look at whether they need special assistance whether it be JobKeeper or something else?
MATHIAS CORMANN: Universities are able to access JobKeeper on the same basis as other businesses. There are circumstances in which universities are able to access JobKeeper. They do have reliable revenue flows from Government. It is the non-government revenue side of the equation that is causing many of them concern. We will continue to monitor in relation to that sector and in relation to any other sector whether there are other sensible things that we can do, but bearing in mind that there is significant Government support provided to the university sector already.
TOM CONNELL: Yeah there is, but even with that as I said, job cuts are here right now and the future for La Trobe looking uncertain. So what you are saying there is that there is a possibility of more assistance for universities?
MATHIAS CORMANN: I am not going to speculate. We are providing significant support. JobKeeper is provided across the economy on the terms that people well understand. We will assess the findings of the Treasury review when it comes to us later in June. The objective is not to move more people onto JobKeeper. The objective is to start returning the economy back to normal and to transitioning off this transitional support. This was always designed to be temporary support for the economy during a period which is a one in one hundred year crisis event. Moving forward it is a matter of normalising rather than going deeper into that temporary support.
TOM CONNELL: The construction stimulus package announced today includes home renovations. The minimum amount for the overall renovation though has to be $150,000. It seems hard to imagine someone living in the regions, house value might be $300,000, would go about such a massive renovation. Why is that threshold so high?
MATHIAS CORMANN: It has got to be a substantial renovation. We are working with the definitions of substantial renovation in the GST legislation. The average cost of a new build is about $320,000 according to the ABS data for 2018-19, so this is just under half the cost of a new house. We want it to be a substantial renovation so that it actually achieves the objective. This is about providing support by bringing to the residential construction sector across multiple trades, by bringing forward demand. They are facing a cliff, there has been about a twenty per cent drop in demand. This is about bringing forward demand that would otherwise be delayed. That is what the incentive is for. But it has got to be for an appropriately substantial … interrupted
TOM CONNELL: But couldn’t that demand, sorry to jump in Minister, couldn’t that demand still be stimulated by many more smaller jobs? That threshold will mean the vast majority of people won’t go down that path won’t it. If it was a lower threshold you might get smaller jobs but more of them.
MATHIAS CORMANN: We did not think it was appropriate to fund at this level kitchen renovations or paint jobs or whatever. The starting point here is, this is for new buildings. Extending it to renovations is a stretch in order to broaden the appeal of this program. If you do want to access this sort of support of a $25,000 grant, then it has to be for as close as equivalent to a new build as is appropriate in the circumstances. That is why the threshold was chosen.
TOM CONNELL: Okay. And just finally as you are working through COVID-19, I am sure you are keeping a very close eye on the books. Will the Government be looking to set some sort of debt cap, a debt to GDP ratio to make sure this is manageable into the future?
MATHIAS CORMANN: I do not think that artificial caps are helpful quite frankly in the circumstances. In Australia, our debt levels compared to the rest of the world are comparatively low. They will continue to be low despite the level of spending that we have had to incur through this period. But to put ourselves into artificial fiscal strait jackets would not do anything to assist the strength of the economic recovery on the other side. We will continue to do what we have done over the last six and a half years. We will work as hard as we can to implement our plan for a stronger economy and more jobs. We will focus on repairing the Budget as soon as and as fast as we can. Having returned the Budget to balance in the 2018-19 financial year, we are now going to have to put ourselves back onto a pathway to get back there. We will focus on keeping debt as low as it possibly can be and as low as it sensibly can be, but to impose artificial caps would make that job more difficult.
TOM CONNELL: Finance Minister Mathias Cormann, appreciate your time today.
MATHIAS CORMANN: Always good to talk to you.