Senator the Hon. Simon Birmingham
Minister for Finance
Leader of the Government in the Senate
Senator for South Australia
Date: Tuesday, 29 March 2022
Kathryn Robinson: I was joined by Finance Minister Senator Birmingham earlier. Senator Birmingham, welcome to The Business.
Simon Birmingham: Hi, Kath. Great to be with you.
Kathryn Robinson: Now, the government is spending around $8.9 billion in these cost of living measures the cash payouts, the tax offset, and the cut to the fuel excise. Would this money have been better spent in areas that contribute more greatly to productivity, areas which would structurally change our economy to make us more competitive?
Simon Birmingham: Kath, we are investing billions of dollars in skills, making sure that businesses are encouraged to take on more apprentices and that the support is there to drive that transformation in the skills of Australians. We're investing in helping small businesses, particularly to upskill their workforce, but also to invest in digital technologies that make them more productive, competitive for the future. We've got a $120 billion infrastructure pipeline that is rich in areas that are seeking to lift productivity across the economy. So there's a range of productivity enhancing parts in this budget, but it is also appropriate to recognise for reasons of consumer confidence and otherwise that households are doing it tough right now and that with the dividend of a strong economy, we're able to make deficits lower and debt lower than it would have been in the future and invest elsewhere in business that we also help those households out with their rising costs.
Kathryn Robinson: If I can maybe just speak to you about the fuel excise, we know that it costs about $3 billion after the rebates. I mean, could that money have been better spent, say, on rolling out EV infrastructure, which would leave Australians less reliant on the oil price and the petrol bowser in years to come?
Simon Birmingham: Well, again, we are rolling out electric vehicle infrastructure. We're doing that through work of the Clean Energy Finance Corporation, Arena and support there in that sector. But this is about recognising problems that people face right here, right now. The oil price spikes, thanks to Russia's war on Ukraine, are real. They're spikes that are forecast to come down over time, but it's hurting Australians and hurting households. And with that we know comes real pain that also would have flow through implications for consumer confidence or the like if we didn't act. So it's why we're acting to make sure we respond in a temporary, targeted and responsible manner to give people the help now, while it's hurting, recognising that those broader issues we're equally addressing.
Kathryn Robinson: So do you expect these cash payouts and the tax cuts to be spent, or are you concerned that if like during the pandemic, the payments are saved or put on to the mortgage or tucked under the mattress, because then that won't be a consumer led recovery with respect to growth. But if indeed they do spend that money, it could have inflationary impacts on the economy, which would lead to rate rises and therefore crimp growth. So you went a bit of a tricky position?
Simon Birmingham: Well, Kath dealing with those two aspects. One, in terms of the inflationary element, we've taken careful advice around structuring this. And just as higher petrol prices add directly to the impact of inflation, this action, which will see $0.22 a litre come off the price of petrol, will actually decrease inflationary pressures. In terms of spending for many households they don't have a choice but to buy petrol and meet the higher costs of living, to get to work, to get the kids to school, to do the shopping, to go to weekend sport, all of those other pressures. So yes, we expect many Australians need this money right now, but for some they may choose to save it for a different rainy day. And that has worked well during COVID, where again we kept our measures in response to COVID temporary and targeted. And that's precisely what we're doing here in responding to these shocks from the Ukraine and other global events.
Kathryn Robinson: If we can just briefly talk about the debt repayments with the deficit, gross debt as a share of the economy is forecast to peak at around 44.9% of GDP in 2025. What are the assumptions behind that with respect to borrowing costs?
Simon Birmingham: So what we've recognised there in terms of borrowing costs is a mild increase. We have managed to lock in long term low interest rates for borrowing costs, but we take the expert advice there and reflect that in terms of the future projections. Importantly, though, debt is lower than previously forecast, peaking earlier than previously forecast. We have more than halved the future projections of deficit budgets and we've been able to do that because with the stronger economy, with higher levels of employment, we have been banking the vast majority of the dividend from that against achieving lower deficits into the future.
Kathryn Robinson: Just finally, Senator, I know that you say that you take this expert advice, but I noticed in MYEFO there was an assumed ten year bond yield of 1.8%, it's now almost 3%. The budget assumes a nominal borrowing rate of 2.3%, as I just said. But the ten year Treasury yield is at about 3%. So isn't this going to make debt repayments a lot harder and doesn't it expose Australia then to vulnerabilities of external shocks?
Simon Birmingham: That Kath is, is why the vast majority of the extra benefit we've achieved in terms of higher revenue and therefore windfall gain to government, we have banked as savings into the budget bottom line. So we have ensured that we are reducing deficits faster than was going to be the case and we've taken the vast majority of that extra revenue out into the forward estimates years to do that. They're still conservative projections because we still assume that commodity prices will come down over a six month trajectory. And there is a significant upside that could be achieved if those commodity prices stay higher for longer. But this is about making sure we maintain the triple-A credit rating with which Australia is one of only nine countries in the world, to have that from all three major international ratings agencies.
Kathryn Robinson: Senator Birmingham, thank you for joining us.
Simon Birmingham: Thanks, Kath. My pleasure.