Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Sunday, 19 July 2020
DAN MURPHY: Mathias Cormann, welcome back to CNBC, thanks for joining us.
MATHIAS CORMANN: Good to be back.
DAN MURPHY: How is Australia contributing to the G20 action to fight the coronavirus and its associated economic impact?
MATHIAS CORMANN: Countries around the world are facing similar challenges. We are all dealing with the devastating impact of this global pandemic on our economies, on jobs, on livelihoods. As part of the G20, along with all the other countries around the world, we are putting forward what we think is required in order to maximise the strength of the economic recovery and the jobs recovery on the other side. We are particularly focused on the need to restore jobs, jobs, jobs and we are also very keen to see the G20 ensure that the global safety net arrangements are robust and viable for developing economies, in particular those in our neighbourhood, here in the Asia Pacific. We are also very keen to ensure that there is proper coordination globally when it comes to the exit out of this unbelievable crisis level, historically unprecedented level of fiscal support into the economy. Support that has been necessary, but support that ultimately will have to be wound back given the fiscal constraints that all of us are dealing with.
DAN MURPHY: The G20 appears to have put a particular focus on debt relief and suspension. Why do you think that this is the right focus for this group in this environment or is it a missed opportunity to prioritise other economic acceleration, economic recovery measures?
MATHIAS CORMANN: Advanced economies and developed economies do have a responsibility in this current circumstance to provide relief and to help provide increased fiscal capacity for less developed economies to be able to deal with the economic implications of this crisis. This is a crisis that has hit advanced economies very hard and it has hit more vulnerable economies even harder. It is incumbent on all of us to look at what we can appropriately and sensibly do to ensure that everyone has the best possible opportunity to come out of this in reasonable shape on the other side.
DAN MURPHY: You mentioned that the focus is going to be on jobs moving forward. Australia’s unemployment rate hit 7.4 per cent last week, that is its highest level in about 20 years. Is this what peak unemployment looks like in Australia or is the worst yet to come?
MATHIAS CORMANN: The June quarter was always going to be the worst quarter for us, that is when most of the economic impact of the coronavirus here in Australia has been felt. Yes, 7.4 per cent is high for us, but it is not as high as we feared it would be. Back in March, when we were looking ahead, our expectation was for an unemployment rate of about 10 per cent. So it has come in quite a bit below that. There are some encouraging signs. Our participation rate has been going up again to 64 per cent, 280,000 additional people going into the labour market, the hours worked have gone up, underemployment has gone down and about 210,000 jobs have been restored into the economy. So we are quietly optimistic, pending getting on top of the outbreaks in Victoria and parts of New South Wales. That is the unknown I guess for the next quarter. Beyond that the Australian economy has certainly yet again proven its resilience in the face of significant challenges.
DAN MURPHY: And I know we are, look four months into this pandemic, but do you also accept that, I guess unpacking what you just explained there, the economic and fiscal consequences of this are still yet to really play out, particularly given that fact that we see, as you say cases spiking in Victoria and parts of New South Wales?
MATHIAS CORMANN: In Australia both on the health front and on the economic front we have fared comparatively well compared to what has been happening in other parts of the world. While every death is tragic and would rather be avoided, if you look at the death rate in Australia at about 4.5 per million people and you compare that with the US, in excess of 400 deaths per millions and in the UK in excess of 660 deaths per million. So in Australia on the health front we are in relatively good shape even with what is happening in Victoria, comparatively speaking. On the economic front, the March quarter, 0.3 per cent contraction in the March quarter compared to 5.3 per cent contraction for example, in countries like France and Italy, 1.8 per cent contraction in that one quarter across OECD countries. So far, certainly what we feared would be the case now, we are not in as bad a position as we had feared, in fact we are in a somewhat position and the outlook is better than what we thought it would be when we planned for this crisis earlier this year.
DAN MURPHY: And I know that forecasting anything at the moment is an incredible challenge for any economy, for any Minister, but what is the July economic statement going to tell us about the state of the Australian economy and the state of the Government’s finances today? I know there are more than two million Australians looking for work right now, the Government also on track for record deficits this year and next. Things aren’t that good right now, right
MATHIAS CORMANN: The work that we have done over the last six years to repair the Budget put us into a stronger fiscal position as we went into this crisis. We had returned the Budget to balance last financial year. We were on track for surplus this financial year. The coronavirus crisis has hit our economy hard and as such it has hit our Budget hard. We have had to make policy decisions with a fiscal impact of $56 billion in 2019-20 and that is just the decisions that we made. On top of that there will be the impact from the economic hit on revenue and expenditure across the board. We will be reconciling the impact of all of these things in our economic and fiscal update on Thursday and it will also show the many measures that the Government has taken to support the economy and to help fight this coronavirus crisis on the health front. People will be able to see how much all of that has cost us and what our expectations are into the future. Accepting what you have just said, there is a high degree of uncertainty when it comes to making predictions in both directions incidentally. The outlook right now is better than what we had feared earlier this year and some of the costings that we made for some programs like JobKeeper at the beginning, turned out to be less costly than initially anticipated.
DAN MURPHY: Is additional stimulus going to be necessary in the second half of the year or early 2021?
MATHIAS CORMANN: We will continue to make decisions to sensibly and responsibly manage the transition into the new normal. Clearly, what we have put in place for the initial six month period was historically unprecedented crisis level support. We will not be able to afford to do that on an ongoing basis over the medium to long term. So there will have to be a transition and ultimately businesses will have to make judgements on what the right size and the right positioning is for them in the new economic context from which to grow. But, there will be a further period of support for those businesses who really need it. Not all businesses are in the same situation. Some businesses have been able to recover somewhat. Those businesses that continue to be on the frontline of the economic impact of this crisis will continue to get some support for some further period.
DAN MURPHY: And as it relates to the JobKeeper and JobSeeker subsidies, obviously these have been very successful, they have been well received in Australia, but there is concern that they will be right sized or tapered back post September. What is your expectation for these subsidies and is it likely that they will have to be right sized or they will have to be tapered back in order for Australia to meet the economic realities of its current situation?
MATHIAS CORMANN: The initial JobKeeper and JobSeeker arrangements were put in place for six months and we always said that we would reassess in good time before we reached the end of that six month period. That is what we are doing and the specifics of all that will be announced in the economic statement on Thursday. But by way of general comment, what we will continue to ensure is that support provided is targeted towards those businesses and those sectors of the economy that genuinely need it. When JobKeeper was first put in place, any business that qualified back in March, early April remained inside the program and remained eligible irrespective of what happened to their turnover over that six month period. So even if there was recovery, they remained eligible to receive JobKeeper. There will have to be a level of reassessment to ensure that the fiscal support provided by the Government genuinely goes to those businesses that genuinely need it.
DAN MURPHY: Mathias, when it comes to the second half of the year, how are you reading the state of the globally economy right now and are you concerned that perhaps, as we see stimulus measures and measures like those that you are talking about starting to be rolled back, are we on track for what could be a tapered tantrum perhaps, as we head into the new year?
MATHIAS CORMANN: That is why it is Australia’s position within the G20 that there has to be a globally coordinated approach to the exit from this transitional fiscal support into all of our economies. It is certainly true that there is a risk here and it is a risk that we have got to be mindful of and that we have got to manage. But by the same token, we do need to get ourselves back into a situation where viable and profitable businesses pay for the wages of their employees out of their income rather than on the basis of taxpayer support. It is not going to be fiscally sustainable to provide the sort of fiscal support at the same level as governments around the world are currently providing it on an ongoing basis. There will have to be a transition into the new normal and yes, we have to try and manage that transition as sensibly as possible. But nevertheless over time we will have to allow businesses to adjust, we have to allow the market to operate and for us to figure out which businesses are going to be viable into the future, which jobs are going to be real jobs into the future. We have to make sure that along the way we support individual people as best we can through that transition.
DAN MURPHY: Mathias Cormann, we will leave it there. Thanks so much for joining us today.
MATHIAS CORMANN: Always good to talk to you.