Senator the Hon. Simon Birmingham
Minister for Finance
Leader of the Government in the Senate
Senator for South Australia
Date: Wednesday, 12 May 2021
Liam Bartlett: Joining us is federal Finance Minister Simon Birmingham. Minister, good morning.
Simon Birmingham: Good morning, Liam. It's great to be with you.
Liam Bartlett: Minister, is this a budget or is this another stimulus package dressed up as a budget?
Simon Birmingham: This is a budget that is a part of our economic recovery plan that at the first stage is about continuing to get Australia safely through the covid-19 pandemic. Things are pretty good in Australia right now, but on the health front, you need only look to countries like India to see how devastating the impacts can still be. On the economic front, you've got the European area facing a double dip recession right now and a huge uncertainty. So pillar number one of this, this economic recovery plan is about keeping Australians safe in their lives and their jobs and their economic and personal circumstances. And then we move on to how we can ensure continued growth in the Australian economy to absolutely deal with the issues of debt that have been created by COVID and to make sure that we have a strong enough employment and strong enough revenue streams in the future to be able to fund what is the third and essential pillar, which is delivery of the key services, the critical services that Australians expect to have in areas like aged care, mental health and disability services.
Liam Bartlett: Yeah, and I think a lot of people in those sectors would be very happy with you this morning. That's the good news. But look, apart from the safety, what about the comfort, and the comfort in paying some of these things back? These numbers make me feel a bit uncomfortable. I don't know how you feel, but this year's deficit, $161 billion, $106 billion the next year, $99 billion the year after, $79 billion the year after that. And still in 2024 - 25, a deficit of $57 billion. I mean, when was it decided that budget deficits were OK? Or did I miss that memo?
Simon Birmingham: Liam, the global shock of covid-19 has been the biggest economic shock since World War Two, and so it's had profound impacts on budgets right around the world. And ours is no different to that. We went into this crisis with debt significantly lower than most other advanced nations. And we're still in that position and we will be in that position coming out of this crisis. Last night's budget saw that deficits over the four year budget period around two thirds lower than had previously been forecast in totality. [indistinct] they are still significant. If we look at what is one of the key measures of whether or not debt is sustainable, which is how nations look at their net debt as a share of the size of their economy. Well, Australia remains in a far better position than the UK, the US, Japan in that regard. And again, this budget has that net debt lower than was forecast in each of the next 10 years from last year's budget. It will peak at a lower level of 40.9 per cent of our economy, compared with 43.8 per cent last year. So we have been very careful in terms of the framing of this budget to make sure that the debt burden and the way it impacts upon our economy and our ability to fund it is actually coming in at lower levels than was forecast last year when we handed down that pandemic budget.
Liam Bartlett: So when we think about trying to pay it back, Minister, now, here's a quick question from one of our listeners on text. Mark says, “When we borrow, who are we in debt to? Where do we get that money from?”
Simon Birmingham: So bond markets work to raise money from all around the world and including Australian institutions, that will buy. We've been able to to use the very low interest rate environment to present, to lock in longer term bond arrangements, that provide greater certainty to the fact that we will be paying lower interest rates for a longer period of time. Of course, debts that we previously had as a roll over were able to refresh in terms of those lower interest rates as well.
Liam Bartlett: And who are most of those bondholders? Where are they? Are they institutions, are they countries, central banks?
Simon Birmingham: They're overwhelmingly institutions.
Liam Bartlett: Okay. And do we do we have, I know you say you were doing better than expected, but we're still obviously racking up the debt, do we have any cushion left? And by that, I mean if we had another economic shock, so, say, a virus, you know, like the one we've been having or or other things, could we, for instance, afford another JobKeeper programme rollout?
Simon Birmingham: Look Australia could, if you look at what our country's position is, compared, as I said, with other developed nations like the UK, like Japan and like the United States, they have debt to GDP ratios that are multiples of Australia's in some cases, many times that of Australia's. And so we went into this in a good position. We've been determined to preserve that good position. But it is essential that we also have a strong economy. If we don't have Australians shifting from welfare to work, if we don't maintain that economic strength, then we end up in a very vicious spiral that's at that stage that you end up with ongoing demands on payments in terms of welfare payments and support without the tax revenue to be able to sustain those and without the economic growth to ensure that your economy grows faster than those debt servicing obligations in the future. And so that's why, again, the types of measures in this budget, some of them temporary, such as the extension of instant depreciation and offsetting for Australian businesses, they're measures that are really designed to bring forward investment decisions by Australian businesses. It creates more expenditure on jobs and economic activity now, but it also makes those businesses more productive for the future. And so in the targeted measures, they're there to make sure that this is more sustainable.
Liam Bartlett: I think our listeners absolutely get it. I mean, the key is, is jobs, jobs, jobs and jobs. The forecast growth figures, though, the forecast GDP in the next few years are not really that strong. Do you do you think there's any chance that we'll have to look at other measures, for instance, jacking up the GST rate to begin paying the debt off down the track?
Simon Birmingham: Ours has always been a government of keeping taxes as low as possible and reducing taxes wherever possible, and that's why we've got income tax reforms that are partway through their implementation that will see the tax rate paid by most Australians being no higher than 30 cents in the dollar. We've got temporary measures being extended to provide low and middle income earners, more than one million of them in Western Australia, with additional benefits in that regard.
Liam Bartlett: But what about the GST Minister?
Simon Birmingham: No. Well, and we certainly we certainly won't be increasing the rate of the GST. What we want to give Australians to do in their households and their personal lives, and particularly Australian businesses, is the confidence to invest and to grow and through growth that we got the budget back to a point of balance before the crisis hit. You know, it was by getting workforce participation to record levels and welfare dependency to record lows that achieved a balanced budget outcome.
Liam Bartlett: But that's all through spending, that's all through spending, all through debt in effect. Do you know what the total debt was when you came to power?
Simon Birmingham: Look, I don't have the figure immediately in front of me for that one Liam.
Liam Bartlett: $420 billion
Simon Birmingham: Indeed
Liam Bartlett: so you'll have increased it by almost 600 billion. That's a lot of money.
Simon Birmingham: It is. And we've had a global pandemic that is the biggest global economic shock since World War Two. We've maintained Australia's relative competitive position compared to other developed nations the world over. And we are the envy of most others, not just for our health outcomes, for our economic outcomes. We've got more Australians in jobs today than were the case pre pandemic. No other developed nation has achieved that type of outcome throughout this pandemic. And that is providing a basis on which we see 250,000 potential additional jobs created in the budget handed down last night.
Liam Bartlett: So just a final question on that sort of group. You keep comparing us to other countries. So we put that basket of other countries together. There is, as you would know, some global concern about inflation. We've been seeing that concern played out on international markets in the last couple of nights. Commodity prices are so high, iron ore, copper, aluminium, governments around the world, the ones you've mentioned, stimulating economies at such a high level. Are you worried about any sort of inflationary effect?
Simon Birmingham: We'll continue to monitor, obviously, those potential impacts very, very closely, and that's why we update our budget during the course of the year and an update all of the assessments. But we think we've been very cautious in the type of approach we've taken. And the budget is once again framed on the basis that iron ore prices fall to fifty five dollars per tonne. They've consistently exceeded that. But we consistently budget in a very careful and prudent way to make sure that that Australians can have confidence that the budget estimates we're putting in place are realistic. And if we get in the end higher iron ore prices, then that provides a dividend that once again reduces that deficit and debt in the future. It's not the only area where we've taken those cautious, prudent assumptions in terms of the planning of the budget. But it's a very important example of the approach we take that give confidence to Australians and to international markets as they look to invest in Australia.
Liam Bartlett: It is a good example. Let's hope China keeps buying.
Simon Birmingham: Well, indeed, we do hope, but that's another reason to take the prudent, cautious approach and equally, we've seen in some other sectors of the economy, such as barley, more resilience, I think, than people had expected. We've invested in helping those markets to diversify. But last year, our barley growers sent their first shipment, I think very early this year, the first shipment to Mexico ever using the Trans-Pacific Partnership trade agreement that we've negotiated and implemented. To do so, they've increased their exports off to the Middle East as well, with we've been able to back our industries to deal with some of those challenges and will continue to do so.
Liam Bartlett: All right, Minister, thanks for your time this morning.
Simon Birmingham: Thank Liam, my pleasure.