Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Tuesday, 6 October 2020
MATHIAS CORMANN: Thank you very much Treasurer. This is my seventh and my last Budget. So I hope you indulge me and bear with me for a little bit.
For every one of our first six Budgets, a key Budget message has focused on the importance of our Budget repair effort to underpin our strength and resilience in the face of any global economic headwinds that may come our way.
No one expected the sort of storm of the sort of magnitude Australia and the world had to confront this year. But the hard work we have done as a nation during our first six years in Government has put us in a strong position to do what needed to be done when the pandemic and the COVID Recession hit.
This Budget now is our plan to get Australia out of the COVID Recession.
It is a plan for hope and opportunity and it is, as the Treasurer says, a plan that is first and foremost about jobs.
To keep saving jobs,
To restore the jobs that were lost;
To create as many new jobs across the economy as possible.
As we set out to grow out of this COVID Recession, private sector businesses across Australia will be the key to the jobs recovery and the jobs growth our economy needs and which our Budget needs.
That’s why in this Budget most of the fiscal support is aimed at giving businesses the confidence to invest in their future growth and success.
Because genuinely viable, profitable, growing businesses will hire more Australians.
Those Australians will pay more in income tax, while fewer Australians will have to rely on income support.
Let me make a number of observations about our fiscal position as reflected in this Budget.
It is self-evidently a challenging fiscal position.
It is not the fiscal position we expected to be reporting on in this Budget this time last year.
But when the crisis hit, we had the fiscal firepower to deal with it.
We are now facing significant deficits, and for Australia, historically significant levels of debt.
Our deficit is expected to peak at 11 per cent of GDP this financial year before falling to 1.6 per cent of GDP at the end of the medium term.
Net debt is expected to peak just below 44 per cent, while gross debt is increasing before stabilising at around 55 per cent of GDP.
While this is higher than what we are used to, it remains sustainable and it remains low compared with most advanced economies globally, particularly in this current context.
Debt sustainability as you would have seen from the interest costs reported in the Budget, debt sustainability will be assisted by historically low interest rates.
And as I have said at this lectern before, but it has to be repeated again listening to some of the debates that have been taking place in recent days. We know why we are here. We are here because of the fiscal impact, firstly of the COVID Recession on our tax receipts and on our welfare payments and we are also here because of the fiscal impact of the policy measures we had to put in place to support our health system, to cushion the blow on the economy, and on jobs and now to facilitate the strongest possible recovery.
Just based on parameter variations, so not policy decisions taken by the Government, but parameter variations, the impact of the COVID pandemic on the economy, tax receipts are down by $41.6 billion and payments are up by $18.9 billion in the 2020-21 financial year alone.
Over the forward estimates tax receipts are down by a whopping $227 billion and payments up by $47.8 billion.
Again, not based on a single decision of Government, but because of the parameter variations driven by the economic impact of the COVID Recession on tax receipts and welfare payments.
Importantly, the fiscal impact of our deliberate policy decisions to provide fiscal support is very much temporary.
To illustrate this point and I bet there is not a single person in this room that will spontaneously believe this – the average annual real growth in payments over the four years from 2020-21, over the four years of the current forward estimates, average annual real growth in payments is expected to be just 1.7 per cent per annum.
1.7 per cent per annum.
That is actually very low by historical standards. It is low when compared to the performance of our predecessors and in fact all of our predecessors going back since the historical timeline starts that is reported in the Budget papers.
That is probably somewhat counter intuitive, but that is because uniquely in this Budget, real payments growth is highly variable across the forward estimates years.
It reflects the temporary nature of the policy decisions we made in response to the COVID Recession – with especially significant investment in the 2020-21 financial year.
The combined effect of the economic impact and the impact of policy decisions on our payments in 2020-21 is expected to lead to real growth in payments of 22.6 per cent, this year, this financial year. The highest since 1970-71 – which is how far back the time series published in the Budget papers goes.
However, this is followed by a real reduction in payments of 17.5 per cent in 2021-22 and a further 0.6 per cent real reduction in payments in 2022-23.
As the economy recovers and temporary support measures are gradually withdrawn, the level of payments are expected to continue to decline from the peak in 2020-21, and, over the medium term, and broadly return to levels projected at the 2019-20 Mid-Year Economic and Fiscal Outlook.
There is a graph in the third section of Budget Paper One which illustrates that very well.
This very much demonstrates the targeted and time limited nature of the Government’s response to the pandemic and the resulting COVID Recession.
Finally – let me finish where I started. This Budget is our plan for jobs.
Jobs restored and more new jobs created by genuinely viable, profitable businesses is what our economy needs and what our Budget needs.
It’s what will give Australians hope and the opportunity to get ahead;
And it will ensure we can restore our public finances and continue to guarantee the essential services Australians rely on.
Thank you Treasurer.