Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
The Hon. Josh Frydenberg MP
Deputy Leader of the Liberal Party
Federal Member for Kooyong
Date: Friday, 25 September 2020
JOSH FRYDENBERG: Well a very good morning, it's my pleasure to be here with my friend and colleague, Mathias Cormann, the Finance Minister, to announce the Final Budget Outcome for 2019-20. This Final Budget Outcome comes shortly after our July Economic and Fiscal Update, and less than two weeks before the Budget. It's important to emphasise that Australia approached this global pandemic, this health and economic crisis, from a position of economic strength. Unemployment had fallen to 5.1 per cent in February, down from 5.7 per cent when we came to Government. The numbers in MYEFO showed that GDP would grow by 2.25 per cent in 19-20, and 2.75 per cent in 2020-21. And we had delivered the first balanced budget in eleven years. Notwithstanding this strength coming into the crisis, our economy has been hit hard. And we saw that GDP fell in the June quarter by 7 per cent. Not as much as it had fallen in France, at around 14 per cent, not as much as it had fallen in New Zealand by more than 12 per cent, not as much as it had fallen in the United Kingdom by more than 20 per cent, but a 7 per cent fall in the June quarter was a record fall for the Australian economy. The outcome for real GDP in 19-20 fell by 0.2 per cent, in line with what was expected in JEFU. Nominal GDP grew by 1.7 per cent, slightly below the 2 per cent estimate at JEFU, and 3.25 per cent that was forecast in MYEFO. The unemployment rate was 7 per cent in the June quarter, compared to 5.25 per cent that was forecast at MYEFO.
Today's 2019-20 Final Budget Outcome, shows a fiscal result that was broadly consistent with the economic and fiscal update that the Government released in July. The underlying cash balance for 19-20 was a deficit of $85.3 billion, or 4.3 per cent of GDP, compared to the forecast surplus of $5 billion, or 0.3 per cent of GDP at MYEFO. This is a half a billion dollar improvement from what was estimated in terms of the deficit at JEFU, but a $90.3 billion deterioration to what was forecast at MYEFO at the end of last year. Total cash receipts were $33.1 billion lower, and taxation receipts were $32 billion lower than what was estimated at the 19-20 MYEFO as economic activity around the world and Australia has slowed. Again, this was broadly in line with what was estimated at JEFU.
Company tax receipts were down by $13.4 billion, against the MYEFO forecast, as the impact of the health restrictions reduced taxable incomes. Total individual and other withholding tax receipts were down by $9 billion as labour market conditions weakened and lodgement and payment deferrals were granted by the ATO. GST receipts were down by $5.3 billion, reflecting lower than expected consumption and dwelling investment and payment deferrals. Excise and customs duties receipts were also down by $2.2 billion lower than the MYEFO estimate, reflecting lower consumption of tobacco and petrol. Net debt increased to $491.2 billion, or 24.8 per cent of GDP, and gross debt increased to $684.3 billion, or 34.5 per cent of GDP in 19-20. These increases in debt levels reflect increased borrowing, due to the impact of our policy responses to the COVID pandemic. Finally, Australia's debt levels remain lower than many comparable nations, with the average net debt to GDP ratio for advanced economies expected this year to be around 100 per cent. I'd like to hand-over to the Finance Minister, but before so, just saying yesterday we announced an update to our fiscal strategy. It is a significant change to our fiscal strategy, it does reflect the economic circumstances that we're in, the Budget in less than two weeks' time will be the next stage of our JobMaker plan and by growing the economy, by getting more people into jobs, we'll be able to repair the Budget. Mathias.
MATHIAS CORMANN: Thank you very much Treasurer. The numbers we are presenting here today are broadly in line with what we presented to you in the July Economic and Fiscal Outlook. This is a challenging set of numbers, as we said then. We know why we are here. We are here because of the economic and fiscal impact of the coronavirus pandemic. We are here because of the cost of the fiscal support we necessarily had to provide to our health system, to the economy, to businesses, to working Australians and to those Australians who lost their job through no fault of their own as a result of this pandemic. We are in a better position though than we would have been without six years of hard work to repair the Budget and to bring the Budget back into balance in 2018-19. We also know where we want to go. We know where we want to get to. We want to facilitate the strongest possible economic and jobs recovery, which will also help repair the Budget again. The Budget on October the 6th will provide the next instalment of our plan to help ensure that happens. Despite all of the challenges that we are facing as a nation, and despite the challenging set of numbers we are formally reporting today in this Final Budget Outcome, Australia remains in a better, stronger, more resilient position than just about any other country in the world. That gives us a very strong foundation from which to rebuild a very strong foundation from which to build the strongest possible economic and jobs recovery moving forward.
QUESTION: Yesterday, with your fiscal strategy, you talked about phase two, where you’d start to tackle debt and so forth, kicking in when unemployment was comfortably under 6 per cent. Do either of you sort of be prepared to estimate when that may be based on what you know now…
MATHIAS CORMANN: Sounds like a Budget question.
JOSH FRYDENBERG: Well that’s right. You'll have to wait for the lockup on October 6, Phil. And obviously we'll print those forecasts for the unemployment numbers. We did see, we will have numbers going out in terms of the unemployment rates and the expectation over the next few years. But what we do know is that the Australian economy is fighting back against the virus. And we've seen that with the employment rate falling by its most significant amount in 32 years, from 7.5 per cent down to 6.8 per cent last month off the back of 111,000 new jobs being created. And 458,000 new jobs being created in the last three months alone. 60 per cent of which have gone to women, 40 per cent of which have gone to young people, with jobs being created right across the country, except of course Victoria, where 42,000 jobs were lost. And where the effective unemployment rate jumped quite significantly from 10.5 to 13.1. And so, what we are seeking to do is have the economy open up, in a COVID safe way, people get back to work, and then that will drive the unemployment rate down. But in the Budget, you'll see a number of measures which are designed to get more people into work, that's by boosting aggregate demand, that’s by boosting business investment and that is by supporting the economy to grow.
MATHIAS CORMANN: There is an important point here though Phil, because there seems to be this perception that it is economic and jobs recovery first and Budget repair later. That is not right. The economic and jobs recovery in itself will help to repair the Budget. As more people get back into work and pay income tax, Government revenue will grow. As fewer people are unemployed and fewer people have to rely on income support and the welfare system, expenditure will come down. This staged approach in our fiscal strategy, this revised approach in our fiscal strategy, should not be read as delaying Budget repair. But, what we have said all the way through for some time now, we will not hinder the strength of the economic recovery either by increasing the tax burden on the economy, or by pursuing excessive austerity measures. We will repair the Budget as result of in the initial phase, a focus and a priority on the economic and jobs recovery, and then beyond that, controlling expenditure growth moving forward.
QUESTION: Can I just say, just following on from Phil, under 6 per cent, that target, last year the Reserve Bank had to take interest rates to 0.75 when unemployment was well under 6, it was around 5.3 when it cut it in October last year and called on extra spending for the Government, there was about $5 billion which you brought forward. You don't have that ballast from the Reserve Bank now do you, you can't rely on the RBA reducing, easing monetary policy much further. Does that make it even more difficult and put more pressure on you to provide fiscal support for longer?
JOSH FRYDENBERG: Well, fiscal policy is the main game in town. We don't have the luxury that governments and banks had in previous crises by being able to reduce monetary policy, or reducing the cash rate substantially, by using monetary policy to provide stimulus across the economy. The best contrast is what happened during the GFC. The cash rate came down by 425 basis points. That was the equivalent of $100 billion stimulus to the economy over the course of 12 months, and Shane, as you know, in the context of this crisis, the cash rate has come down by 50 basis points, down to 25 basis points. A historic low here in Australia. But the Reserve Bank has played a key role in other ways this time. It's injected some $75 billion of liquidity into the banking system, helping to provide a stable financial system through this crisis. And it's been active in the secondary market, for purchasing of bonds to the tune of some $60 billion already. That has been a really important role for the Reserve Bank to play in terms of targeting the yield for the three year bond rate at 25 basis points, and so the monetary policy is working in different ways than it has in previous crises. But fiscal policy is obviously dominant and we are very conscious of the role of fiscal policy and you'll see that in the Budget. You will see measures, whether it's bringing forward infrastructure spending or whether it’s encouraging business investment, it’s designed to boost aggregate demand to get people in work, and as you know we have made a couple of substantial and significant announcements in the last two days. Today, around the flow of credit and the responsible lending laws. Yesterday, around insolvency reform changes, both of which don't hit the Budget bottom line, but both of which help create jobs and encourage economic activity across the economy and will be an important part of our economic recovery.
QUESTION: Just on changes to credit framework; we're entering a period where you're going to have consumers who are probably more vulnerable than they have ever been, isn't this the time to strengthen consumer protection, not loosen it?
JOSH FRYDENBERG: Well the key point is that consumer protection will stay in place. So the Government has made a number of changes, whether it's the best interest duty for mortgage brokers, whether it's the design and distribution obligations, whether it's the product intervention power, whether it's the establishment of the Australian Financial Complaints Authority. These are all in place to enhance consumer protections. Now the flow of credit Andrew, is going be absolutely critical to our economic recovery. It’s going to be important in the housing sector, it’s going to be important in the retail sector, it will be important in the tourism sector. But our current regulatory framework, with respect to lending, is not fit for purpose. It's become overly prescriptive, it’s become increasingly costly, it’s become increasingly complex and responsible lending has become restrictive lending. And the Governor of the Reserve Bank has pointed out that banks have become risk adverse to the point that they don't want to make loans they fear may be going bad. And e need our banks to be extending credit. We need the regulation to be streamlined, we need customers to be able to access credit and we'll have in place through APRA, the Australian Prudential Regulation Authority, the appropriate risk-based, principles-based, framework to protect customers.
QUESTION: Isn't it more behavioural? That they've been castigated, embarrassed, humiliated, the banks, for disgraceful behaviour, and that this is their reaction to it...
JOSH FRYDENBERG: This is not about the banks, this is about the consumer.
QUESTION: …regulation. It's their response to it.
JOSH FRYDENBERG: Andrew this is not about the banks this is about the consumer. This is about when you go to extend your credit card limit, and you're asked to provide your Netflix subscriptions and your Uber Eats receipts and other details that are unnecessary because you've been a long standing customer of the bank, and you, as a well-paid ABC reporter, have money in the bank. But because those assets can't be taken into account by the bank, in assessing the adequacy of your loan, they need to look at other factors and they have to ask for this extra information. We are streamlining the provision of credit. We’re increasing access to credit. We are going to make it quicker, to access credit. But while keeping the consumer protections in place.
QUESTION: Treasurer, how will the changes to these laws work with the SME Government Guarantee Scheme which comes into effect next month?
JOSH FRYDENBERG: Well, the Guarantee Scheme is actually in its place in terms of some SME loan guarantee schemes, and that is very important as it’s helped more than 15,000 businesses access co-guaranteed loans. Responsible lending, as it was established, was not to apply to small business. And there was a move to get Commissioner Hayne to extend responsible lending laws to small businesses. Something that he did not recommend in his inquiry. But the test for responsible lending as it applies to small business has been; what is the predominant purpose of the loan? And this has led to a grey area and some confusion. So our changes will make it very clear that the prudential framework that's in place is not to apply to small business lending. We want small business to access lending. This is going to make it much better for consumers, whether they are getting their first home loan, or increasing their mortgage, or extending their overdraft, or receiving a credit card, this is about personal consumer loan activity and making it easier for them, as appropriate, to get access to credit.
QUESTION: From today, millions of Australians will be $300 per fortnight poorer when JobSeeker is reduced. Business groups are concerned about the flow-on effects of this money being withdrawn to the wider economy. We know here in Canberra, Deloitte Access Economics says the cut will reduce consumption by $504 a person, can we afford to take this money away given the need for stimulus in the economy?
JOSH FRYDENBERG: Well, there's two points that you're raising. You're raising the impact on the broader economy and aggregate demand, and obviously, the issue in respect to JobSeeker. The first thing to say is we have doubled the safety net. We doubled the safety net going into this crisis, with the $550 JobSeeker coronavirus supplement. Now, that is transitioning down, just as the JobKeeper payment is transitioning down, from $550 to $250. What we have said as a Government is that later this year, we will make a decision about the further support for people on JobSeeker, but we were leaning into continuing to provide support as required. What our focus is on is getting people into a job. Now, we've also extended the income free area from $106 to $300, so people won't lose their JobSeeker payment but can now earn more. So $1,115 a fortnight can be earnt, or income can come in, in the context of somebody who is on JobSeeker, without losing their payment. So we've extended that income free area from $106 to $300. The second part of your question was about aggregate demand across the economy. What the question assumes is that's our only initiative to support the economy, and it's not. We have many initiatives and many more that will be in place following the Budget in just under two weeks' time to boost aggregate demand, to put money into the economy, to increase spending and economic activity and create jobs.
QUESTION: In the Budget, will there be a move, as has been mooted in the press from supporting old jobs for the JobKeeper wage subsidy, to subsidising hiring of new employees? And Mathias, if I could ask you for a philosophical reflection as you come towards the end of your seven years as Finance Minister, you generally fought for smaller government, tried to restrain government spending for most of your Ministership. Do you feel a little bit unsettled now that going into this crisis, now that government is inevitably going to be bigger for longer, not just for Australia and the world, and do you think that could play out for years to come in the world? Or do you think we could return to a smaller government that you have aspired to throughout your political career?
JOSH FRYDENBERG: My answer will be short and his may be longer. My answer is you will have to wait for Budget night. There’s lots of speculation, so I'm not going to speculate on the speculation with respect to other initiatives that will be made clear around Budget time.
MATHIAS CORMANN: Look, you are right. I am part of a team that stands for policies that support freedom, free enterprise, reward for effort, encouraging people to stretch themselves, take risks, have a go, underpinned by a social safety net, because we know that that is the proven method to lift living standards and to maximise opportunity for everyone to get ahead. In that context, I am one of those that argues that we should minimise government interference, deliver lower taxes and the best possible opportunity for the private sector to generate jobs and opportunities. But I am feeling very comfortable with where we are, because at a time of crisis, and this is a one in a 100 year event, of course it is the responsibility of government to step up to provide the sort of support that we have provided for the community, for the economy, for business, for working Australians, for people who lost their job as a result of this crisis. These are the moments when governments do have to step up, with a sensible set of measures. Of course that should be temporary. Of course it should only last as long as necessary, and over time, in an appropriate transitional period, we ought to aspire to get back to the situation where we do everything we can to minimise the level of interference of government in private enterprise, so that private sector businesses across Australia can continue to generate jobs and opportunity for Australians today and into the future to get ahead. Nine out of 10 jobs in Australia are generated by a private sector business. So the future job opportunities, job security, career prospects of nine out of ten working Australians, and the opportunities for their families, will depend on the future success of the private sector businesses that employ them. Which is why, as a Government, we have, over the last seven years or so, done everything we can to help set the conditions for businesses to be as successful as possible, to be internationally competitive. That is what I am very confident the Morrison Government and Josh Frydenberg as Treasurer will continue to do moving forward. But at a time of crisis, it is entirely appropriate and justified and necessary for governments to do what we have done and what governments around the world have done.
QUESTION: What feedback have had you from ratings agencies or other advisors on how the massive hit to government revenue reprices the cost of your debt, or is the cost of borrowing just so low that that relationship doesn't matter? And also you mention before about how responsible lending rules would affect house prices, how do you think that would affect house prices and is there a risk that house prices could become a little unbalanced?
JOSH FRYDENBERG: Well, I actually didn’t say that it’s going to have a direct impact on house prices. But, for first home borrowers and people seeking a mortgage, this will increase their access to credit and to the speed of their applications. And it will be a welcome initiative. In terms of the credit rating agencies, as you know, we're one of ten countries in the world to have a AAA credit rating from the three leading rating agencies and our economic response has been praised by those rating agencies over the course of this pandemic. And it's important to underline just how Australia, and Mathias and I have both made this point today, it's important to underline how Australia has performed compared to so many other nations around the world. Yes, the hit to GDP has been enormous. Yes, the hole in the Australian economy is significant. Yes, the road back is going to be long, bumpy, and hard. But we have performed so much better than nearly every other nation in the world. And that has been recognised in the comments to date by the rating agencies, the cost of borrowing has come down, and our bond issuances have been very well covered to date.
QUESTION: If it's easier to get access to credit and the onus is on borrowers to provide accurate information, doesn't this increase the risk of many more ending up with debt they can't afford?
JOSH FRYDENBERG: APRA, as the prudential regulator, will still have the responsibility to ensure compliance across the banking system. It is important for the banks, obviously, to verify the income of those whom they are lending to. But we're moving from a ‘lender beware’ model to a ‘borrower responsibility’ model. And it's critical that this reform, which is so significant, the first time in ten years, which has been welcomed by a whole range of stakeholders, is understood as improving the chances of a consumer, of a mum and dad, to be able to access credit, so that they can buy their home, so that they can spend as we need to, as they need to across the economy, as part of the economic recovery.
QUESTION: Treasurer, the scale of the task coming up, you’ve described it as a long, windy and bumpy road. What's the risk of getting the recovery wrong?
JOSH FRYDENBERG: Well, obviously this is primarily a health crisis. And the trajectory, the speed of our economic recovery will depend on our success as a nation in managing COVID. And that's why the government has placed so much focus on the testing and the tracing ability, and New South Wales has been a stand-out in that regard, they've had daily cases, but we haven't seen the widespread community transmission that we saw in Victoria. That is why the Morrison Government has deployed Australian Defence Force personnel right around the country to assist in this task. This is why we have our Chief Medical Officer working with the State Medical Officers to ensure that best practice is adhered to right around the country. So, if we get the environment in Australia to be COVID safe, and we're able to successfully manage new cases, then our economic recovery will continue to head in the right direction.
QUESTION: You have described it as long, windy and bumpy. What does that look like? For people out there who want to know what the future might bring, what does long, windy and bumpy look like?
JOSH FRYDENBERG: Well, this is not easy. And what I outlined yesterday was the significant impact on the Australian economy from COVID-19. It’s affected consumer confidence, it's affected business confidence, there's obviously been extensive new expenditures, particularly as more people have been unemployed. And it's affected the revenue coming in, the receipts, because profits are not what they were from companies, and individuals are not in the workforce in the same number that they were, so they're not paying income tax. But, we have a plan, and that plan is being implemented, and the next stage of that plan will be outlined in the Budget and in the most recent unemployment numbers, which surprised the economists, which surprised Treasury, were a bit more encouraging than what people were expecting, which showed that as the restrictions are being eased, people are getting back to work. Last question, Phil.
QUESTION: In your home state of Victoria, you've been critical of elements of the Andrews Government handling of what happened down there. What is your view of the collective amnesia so far, before this hearing, that no-one has yet been able to own up to who, or remember who, was responsible for the quarantine?
JOSH FRYDENBERG: Well, the inquiry was established to find answers, to provide the Victorian people with answers as to how that bungle happened, with such tragic consequences. And we know that the second wave can be traced back to the failures in quarantine. So far, the Victorian people haven't got those answers, so we await those answers. We've seen recent correspondence from the Prime Minister be made public to Daniel Andrews; that confirmed what we already knew, which is that the ADF were offered to the Andrews Government but were rejected in favour of private security guards and then the tragedy unfolded from there. But our focus is on supporting the Victorian people get to the other side of this crisis. JobKeeper, through the December and March quarters, it is expected that 60 per cent of those people who are on it, are from Victoria. Already we have seen substantial Federal support going into Victoria, there will be more Federal support going into Victoria, over the period ahead, as a result of the JobKeeper programs and the other economic initiatives that will be outlined in the Budget.
QUESTION: ASIC fought tooth and nail against Westpac, two court cases, lost both times, I understand they only found out about these changes last night.
JOSH FRYDENBERG: That's not true.
QUESTION: Okay. You've still got to legislate these changes. It's not certain they'll get through the Senate. But, what would your message be to ASIC, at the moment, when the laws are still in place. Should they enforce them or should they back off?
JOSH FRYDENBERG: Well, of course, the law is what it is, until it is changed. With respect to ASIC, I work closely with James Shipton as its head, and I’ve had conversations with him about these and other related matters. I've also spoken to the head of APRA, Wayne Byres, and to the Governor of the Reserve Bank, who has been pretty outspoken on this issue as well. And, of course, I've been working closely with Treasury. This is a very important reform. This is a structural reform. This is a permanent reform. This will improve the flow of credit and this will ensure that our regulatory framework is fit for purpose, which is going to be critical to the speed and the trajectory of our economic recovery following the Coronavirus. Thank you.