Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Thursday, 23 July 2020
BROOKE CORTE: We were prepared for it, but it was still shocking to hear today. Australia recording its biggest Budget deficit since World War II, around $86 billion and the deficit will blow out further still, to an eye-watering $185 billion this financial year. Essentially this is reflecting a huge cost of plugging this economic sinkhole that has been created by coronavirus. It is the necessary cost of the Government keeping business open, keeping people in jobs. As for the debt, well it’s climbed to $684 billion this year, it sores to $852 billion next year. The most tragic legacy of recession of course is damage to our jobs market. On that today the figure forecast unemployment hitting nine and a quarter percent by December. But possibly as high as 10.75 per cent. Confirming that hundreds of thousands of people more will lose their jobs this side of Christmas. And at 10.75 per cent you will have 1.4 million people out of work. So this is not even including the countless people on reduced hours, meaning less money coming into their households. Earlier today Treasurer Josh Frydenberg and the Finance Minister Mathias Cormann stood together and delivered this historic set of numbers. I am pleased to say the Finance Minister joins me. Mathias Cormann, welcome back to Money News.
MATHIAS CORMANN: Good to be back.
BROOKE CORTE: Well there are so many variables at play and we all feel that at the moment. This probably was the worst time to have to release an economic update. Melbourne has just gone back into lockdown. I think everything really depends on what we see there over the next few weeks. Ultimately what is the use of these forecasts?
MATHIAS CORMANN: It is an update on the fiscal impact of the coronavirus pandemic so far, both in terms of the impact on our revenues and expenditures and consequently the budget bottom line but also the cost of the necessary crisis level support measures that we have had to put in place to boost the health system, to support our economy, to protect and support jobs and livelihoods. But you are right, we are releasing this information against a backdrop of significant ongoing economic and fiscal uncertainty. The outlook remains uncertain. The situation remains fluid. Which is why we have only provided an update over two years. We will be providing the usual four year forward estimates forecasts and the medium-term projections as part of the budget in October. The level of uncertainty in terms of the outlook is the reason why we delayed the Budget in the first place. But nevertheless this does provide Australians with some information about where things are at.
BROOKE CORTE: Yeah and just a moment in time could be junk by tomorrow as we all know, but that’s the same with a lot of forecasts. It just seems more the case then ever at the moment. I think overall the assumptions underpinning the forecasts have been broadly judged as too optimistic. You’ve got next year’s budget deficit not even factoring in the spending commitments that you haven’t announced. I assume your announcing more spending. Also assuming things like the international borders reopen on the first of January which I think we all think it won’t. And then as we said that Victoria lockdown, it’s got another four weeks and that is assuming in these forecasts that’s all we have. I think all of which is just to say people mostly think while these figures seem big today – they are eye watering, in reality the deficit if probably going to be a lot bigger than what we are even talking about now.
MATHIAS CORMANN: No. What we are putting forward right now is based on the best available information at this point in time. Clearly you cannot factor in decisions that you have not made yet. What I would remind you and your listeners of is that earlier this year when we were fearing the worst and planning for the worst we expected the JobKeeper program to cost $130 billion at a time when we thought there would be a serious lockdown over a six-month period. Ultimately the situation ended up less bad than what we had feared. The cost of the JobKeeper program was downgraded from $130 billion to $70 billion. So there is volatility, but volatility works both ways. We are providing this update now based on what we know today. As the situation continues to evolve and as we get a clearer picture on what happens in the future and what other measures we may or may not need to take, of course then we will provide further updates to these numbers. But you should not assume that it is necessarily all going to be in the same direction. The unemployment rate is lower than what we thought it would be. The easing of restrictions started sooner than we thought we might. So it’s not all bad news. Australia in an international context is in a much better, stronger, more resilient position than most.
BROOKE CORTE: Yeah, you were very keen to point that out – that we were in a better position than other countries. It was almost a constant reference at the media conference that you gave today.
MATHIAS CORMANN: It is a fact.
BROOKE CORTE: But why is that important? Someone who has lost their job, someone who is working a fraction of the hours they used to have, someone whose business has gone from 100 per cent revenue to zero overnight in some instances. I mean it’s a cold comfort. Why does that matter?
MATHIAS CORMANN: I will tell you why it is important. Of course we understand that this has been a very difficult period for many. We are doing our best to provide the appropriate levels of support to keep as many Australians connected to their job as possible, to provide increased income support to those who sadly have lost their job. But I tell you why it is important. It is important for the future and for our future opportunities and our future prospects. Being in a better, stronger, more resilient position gives us a better foundation from which to maximise the strength of our economic and jobs recovery on the other side. We were in a stronger fiscal position going into this period, which means we still have fiscal capacity to provide more support if and as required into the future. This is important for Australians. It is important for Australians to know that even now, our debt position with all of the expenditure that we have had to incur, our debt position compared to the debt position of other countries is still better even compared to their position before we all went into this coronavirus pandemic.
BROOKE CORTE: Hearing that doesn’t help businesses want to take on more risks though either does it? I mean again, practically speaking what’s the use of pointing that out. Ultimately, all the economists are talking about this today. Businesses have got to take on more risks to get those jobs back. I was looking at some figures from the early 1980s. The recession, the last couple of recessions we’ve had. Early 1980s, it was six years before we got unemployment back to where it was before the recession. In the early 90s it took 15 years to get back to pre-recession levels of employment. So it’s great comparing to other countries but this is massive.
MATHIAS CORMANN: So what are you suggesting? Let me put it to you this way… interrupted
BROOKE CORTE: No I am asking how do we get a million jobs back? This is what everyone wants to know.
MATHIAS CORMANN: …the way to do it is by ensuring business can have the confidence to invest in their future growth and success, so they can hire more Australians again. In that context it is important to note that Australia is in a comparatively better, stronger, more resilient than others. We have achieved better health outcomes, as well a better economic and fiscal outcomes, which means this all goes into why businesses can and should have the confidence to take on those risks that you are talking about. To invest in their future growth and success, because we do want them to get back as soon as possible, into hiring again, into bringing those jobs back, into creating new jobs into the future.
BROOKE CORTE: And I am not against highlighting that because I mean you’ve used the word confidence and I think all of us know confidence, managing confidence at a time like this, that’s a huge part of what you have to do right now too.
MATHIAS CORMANN: Indeed.
BROOKE CORTE: Because that can be self-fulfilling.
MATHIAS CORMANN: Which is why we are pointing to the fact that in Australia, while its tough period, we are in a better, stronger position than others.
BROOKE CORTE: Something else that slipped under the radar I think today was that your Government has extended the deadline for the early access to super scheme until the end of the year. So the deadline was September and that’s now December. So you are clearly happy with how that schemes working. Will there be a third round?
MATHIAS CORMANN: No we are not. We have not announced a further round. We have just said that people have more time to make judgements on what it is in their own interest. This is about providing support … interrupted
BROOKE CORTE: So there won’t be a third round?
MATHIAS CORMANN: We have not made any decision on a third round. That is not something we are looking at. But we do want people to have flexibility to manage their financial affairs in the context of a crisis that is continuing. The same reason why we have extended the JobSeeker and JobKeeper arrangements, is the same reason why we have extended the time that people have to make judgements in terms of any early access to their superannuation.
BROOKE CORTE: Thank you so much, Finance Minister Mathias Cormann for your time.
MATHIAS CORMANN: Always good to talk to you.