Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Thursday, 23 July 2020
WILL KOULOURIS: To go through all the details, I am very pleased to be able to welcome the Finance Minister, Mathias Cormann. He is joining us live from Canberra. Minister thank you so much for joining us. Just in terms of the debt, it is a very big number, big deficit forecast, but I suppose it is very manageable aside from perhaps the sticker shock. But considering the situation that Australia finds itself in and especially the impact that the global economic recovery might have. Do you foresee that it is outside of your control, in terms of we can improve the situation here? You have announced a number of measures but at the same time we are still dependant on what happens elsewhere as well.
MATHIAS CORMANN: Well clearly there continues to be a high level of uncertainty about the global economic outlook and consequently a high level of uncertainty around our domestic economic outlook here in Australia as well. What we have presented today is an update on where things are at so far. Inevitably this situation remains fluid and there will be further updates down the track. Today we released a challenging set of numbers, but by the same token, we know why we are here. We know that these numbers are the result, overwhelmingly, of the impact on our economy of the coronavirus pandemic. We also know that Australia continues to be in a better, stronger, more resilient position both economically and fiscally than most other countries around the world.
WILL KOULOURIS: Minister, as well, you announced those wage subsidies a little bit earlier on this week. That the extension of those you also flagged that in terms of that JobSeeker payment that there is going to have be that mutual obligation and that is only really guided until December. Now in terms of that job creation push that you are hoping to achieve, do you need to perhaps take up the BCA when it comes to business incentives or do you think that you have provided enough stimulus in that respect to push people back in the workforce?
MATHIAS CORMANN:Our track record is one of lowering taxes, providing tax incentives to encourage businesses to invest to grow, so that they can hire more Australians moving forward. As we seek to maximise the strengths of the economic and jobs recovery. We will continue to look at ways that we can incentivise businesses to invest more into their future growth and success. What precise form that will take, that will be a matter for the Budget. Whether that is in terms of tax incentives, or lowering the cost of doing business through deregulation, our infrastructure investment agenda, right across the board, getting better access to markets around the world for our exporting businesses, we will continue to try and make every post a winner to put the Australian economy in the strongest possible position.
WILL KOULOURIS: Do you think though that we are going to be able to grow out of this debt fast enough in terms of the situation that we are currently facing? The economic situation is pretty dire looking when it does comes to the coronavirus impact in Victoria, it could potentially spread out. Do you think there is going to be that growth that you have forecast or again is it just too uncertain?
MATHIAS CORMANN: By any measure, whether it is in relation to the health challenge, whether it is in relation to the economic challenge or in relation to the fiscal challenge, Australia is performing better than most. Yes, we are going through a difficult period and we are going to have to continue to work very hard to put ourselves in the best possible position for the future. But we are quietly optimistic that we will get back into a strong economic recovery on the other side, we will get back into a strong jobs recovery on the other side. Yes, we will have to manage risks and issues along the way, including the risk of further localised outbreaks but we will be doing precisely that.
TANVIR GILL: Minster Cormann, good morning Tanvir joining in this conversation. We wish you the very best in your endeavours to tackle the situation because these are unprecedented times. I do want to understand from you sir, how long are you willing to run the wage subsidy program because we heard Treasurer Frydenberg say that it is not sustainable. How much more are you willing to incrementally spend to support the program?
MATHIAS CORMANN: We are currently working, as you know, carefully through the transition out of the crisis level temporary support. The JobKeeper program initially was put in place for a six month period. We have extended that for six months but at a lower rate. The businesses will have to be retested in terms of their eligibility to make sure that they still qualify based on what their actual turnover is. What we found is that quite a lot of businesses have recovered compared to March and April. A number of businesses are still very much hurting, because they are on the frontline of this coronavirus crisis. But we do expect that there will be quite a marked reduction in the number of businesses that will qualify over the next six months and then the program is scheduled to come to an end at the end of March next year.
TANVIR GILL: Sure, and how effective do you think this program has been sir, in supporting the jobs market because when we look at the numbers on the unemployment side, things have been escalating, still picking up, that is the jobless rate. Unemployment rate being at a 22 year high. And the job labour participation rate has also been inching higher.
MATHIAS CORMANN: Well firstly the unemployment rate again on an international basis is relatively low. It is higher than what we have experienced for some time, but it is lower than where we feared it would be. It is lower than where it is in many other parts of the world and it is five per cent lower than it would have been if we had not put the JobKeeper program in place. There are about 700,000 jobs that continue in our economy today as a result of the decisions that we have taken.
WILL KOULOURIS: Minister, realistically in terms of the unemployment rate we are going to be set up for a pretty interesting situation when it does come to the fourth quarter. I know that you have projected over nine per cent when it does come to that rate, but there is going to be an excess competition for jobs, especially older people and younger people at the extremes of those ends are going to probably be the most impacted by this. Do you think that by not providing that certainty for JobSeeker past December, there are going to be a lot of people that are going to be insufficiently able to find a way through COVID19 because of the economic impact?
MATHIAS CORMANN: What we have seen in our economy is that to the end of June, 280,000 Australians returned to the labour market. The participation rate went back up to 64 per cent. Hours worked increased, underemployment decreased, and 210,000 jobs were restored in the economy. So we are headed in the right direction. We are dealing with some localised challenges now that we need to do our best to get on top of. The key here is to put ourselves in the best possible position to get these businesses growing and hiring again so that we can bring that unemployment rate down as fast as we can. Importantly, the effective unemployment rate is falling sharply. The effective unemployment rate and the assessed unemployment rate are on a pathway to converge. We want to make sure that as many Australians as possible can get back into work as soon as possible.
WILL KOULOURIS: By that token Minister, would you be hoping to be able to push through the IR reform that you are looking to in terms of the Government, to really ensure that the labour market issues that have been faced here in Australia are rectified?
MATHIAS CORMANN: There are a number of short-term reforms that we have to pursue in order to make sure that the JobKeeper and transition arrangements remain effective, to ensure that employers have the appropriate levels of flexibility to work with their employees through this period. The Minister for Industrial Relations, Christian Porter, is working with employer groups and with unions on a set of longer-term reforms and yes we want to see those pass once they are finalised.
TANVIR GILL: Sure, Mr Cormann, before we come back to talking about the state of the Australian economy, I do want to get your reaction to the news at hand, which is essentially what would Australia’s stand be on rising US-China tensions, political, geopolitical tensions at present and these allegations of data theft coming in for China?
MATHIAS CORMANN: Look that is well beyond the area of responsibility for a Finance Minister. We are taking any issues around cyber security very seriously and we will always take the appropriate actions to protect our national security where that is required. I will leave it to my responsible colleagues to make specific comment in relation to these matters.
TANVIR GILL: Sure, appreciate that. Just one follow up on Australia-China relations because this has been something that has been heavily debated about how Australia will be able separate its trade relationship with China, which is a core relationship, against broader trust issues that may be developing between the two countries. We have seen how the trade numbers have improved for Australia and the shipments to China because China’s economic recovery has been picking up.
MATHIAS CORMANN: It is not a matter of separating different parts of the relationship. We have an important relationship with China. Yes, the trade relationship is a very important component of that. It is a mutually beneficial relationship and it has to be a mutually respectful relationship. From time-to-time there are issues that come up on which we have a difference of opinion and our view would be that we need to work through those issues constructively. Australia will deal with issues based on our assessment of our national interest. Ultimately we want to have the best possible relationship with China, as we want to have the best possible relationship with countries all around the world. We will continue to deal with issues on their merits and work through any issue that arises on its merits.
WILL KOULOURIS: Minster, staying a little bit on the topic of trade. The Australian dollar in your forecasts was based at around that 68 level. We have seen it increase substantially, obviously the RBA is not really engaging in that much quantitative easing now, but not getting you to directly comment on the RBA activity, if we do see the Australian dollar go on a little bit of a run, perhaps around that 75 level, how much of an impact is that going to have on these forecasts that you have presented today?
MATHIAS CORMANN: Well I am not a commentator either on monetary policy or on the expected future value of our currency. We have a floating exchange rate, the value of our currency is set by the market. We are making assumptions and we report in our Budget papers on what the sensitivities are, in terms of what the potential scenarios would be if there are relevant changes to the value of the currency. We have to remember what we have done here today is provide a fiscal update. It is not a Budget. It does not include four year forward estimates or medium-term projections. It provides an update for the two financial years of 2019-20, 2020-21. In the next instalment when we deliver the Budget in October, we will go back to providing these longer-term projections.
TANVIR GILL: Sure, Minster one final question sir, on S&P’s statement that just came out saying that Australia can withstand a growing budget deficit with its AAA rating. How much flexibility that does offer you to borrow more in these tough times?
MATHIAS CORMANN: We undertook a very significant Budget repair effort here in Australia over the last six and half years. That is standing us in good stead as we continue to work through this crisis. The truth is yes, we had to spend a lot of money. We had to incur crisis level temporary expenditure. But we are only committing expenditure for this purpose over a two year period. More than 99 per cent of the expenditure is limited to two financial years. We have not baked in structural commitments, we have not baked in structural burdens into the Budget bottom line beyond a two year period and even after all of this additional expenditure our debt levels are still lower than the debt levels of many other countries before they went into this coronavirus crisis period. We do have fiscal capacity to continue to respond and that is a function of the hard work by Australians across the economy but also a function of the Budget repair effort that we have undertaken over the last six and a half years.
TANVIR GILL: Mr Cormann, great to have you sir, on the show. Thank you very much for your time and your insights.