5AA – Breakfast with Will Goodings and David Penberthy

Simon Birmingham: Good morning, Will, Penbo, listeners, it’s good to be with you guys.

 

David Penberthy: Thanks for joining us Birmo. Well, no one can accuse the federal government of undercooking it in spending terms. My impression of all this, though, and maybe it’s guided by my stint in the Canberra press gallery, coincided with the election of John Howard, Peter Costello as Treasurer where it was all about paying down debt, reducing the deficit- Very frugal, period. Clearly, you have to govern for the times that you’ve been dealt. But longer term, how does Australia get things, you know, back in respectable financial order? Because that’s your job now as Finance Minister, are you, were you watching Josh Frydenberg madly scribbling on the notepad going “Jeez mate, calm down.”

 

Simon Birmingham: Well Penbo you’re right that there’s a huge task ahead of the nation. And that task is not unlike what had to occur after World War II. The economic shock to the globe of the COVID-19 pandemic is the biggest global economic shock since the Second World War. So we’re facing absolutely a circumstance where the measures that were put in place as emergency provisions, both to keep health safe and to keep jobs in the economy secure, have come at a very significant cost. And that cost is now there as debt going forward that we have to deal with. Last night’s Budget was one framed where we were able to make the commitments we’ve made, but still have net debt lower than was forecast in last year’s Budget in each and every year across the forward estimates and net debt, both in absolute terms and also its share of the economy. So if the next 10 years we can see we’ve been able to make these investments in targeted areas, firstly is still keeping a strong and safe some $40 billion worth of further temporary COVID economic and health measures that we’ve put in place, but also then in some essential areas of social infrastructure and capital, like aged care.

 

David Penberthy: For your kids and for my kids, they’re about the same age. Is it, are we kicking the can down the road a bit? Is there a danger that we’re doing that? I mean, what’s Australia going to look like in a fiscal sense in 2035 when they are all trying to sort of, you know, really establish themselves in the jobs market, buy houses, all that sort of stuff?

 

Simon Birmingham: We are able to contain, you know, the important measure that is used around the world, really, is that debt relative to the size of you economy. And we are able to contain that over a period of time. And the faster our economy grows, the less that becomes an issue. And that’s why so much of the plan in this Budget is built around how we grow the economy to recover from the shock that COVID, to deal with the immediate consequences, but also the long term ones. And so for our kids know, that’s about making sure that when they finish their education and their training, there’s actually an economy with the jobs for them, that means that they become tax payers and that we’re actually in an environment where we’re able to fund and pay for those ongoing services that Australians expect. And our investments, be they in tax cuts, immediate term to South Australians to keep the COVID recovery strong, 720,000 South Australians will benefit from those immediate shorter term tax cuts. But then the longer term tax reforms, the measures that really bring forward investment by Australian businesses that make them more productive. And then really important niche things like our investment in new patent box for medicine and biotechnology and so on, which is about ensuring that as part of our manufacturing strategy, we don’t just have investment occur in Australia, also our innovation in Australia. We also have the investment in commercialisation and manufacturing happen here too.

 

Will Goodings: Be one of the really exciting data points and projections in the federal Budget is in relation to employment forecast to stay below 5 percent for 3 years, 4.75 percent in 2023, then being 4.5 per cent through 2024 and 2025. That said, doesn’t seem to correlate in your own data with any change to wage growth. Then historically there’s a link between those two. Why is low unemployment not necessarily going to lead to increase in real wages?

 

Simon Birmingham: It’s a link, but one comes after the other in that sense. We also, the updated advice from the Reserve Bank of Australia, Federal Treasury and all the economic leading agencies is that you’ve got to get unemployment now below 5 percent and have it sustained below 5 percent to be able to really trigger those sorts of points that deliver wages growth. And pleasingly, the forecast do point to us getting unemployment below 5 percent and it’s a long time since we had unemployment sustained at that sort of level and again against a global backdrop, we’ve got more people in Australia in work today than we had pre pandemic. We’re the only advanced country in the world to have achieved that type of outcome for their economy as quickly as we have. And that’s allowing us to keep our debt at many multiples lower in other countries around the world, having Australian jobs and the forecast is for a further 250,000 jobs to be created over the next two years. And importantly, that’s supported by things like skilling plan, which sees direct incentives for employers to take on more apprentices, 100,000 additional apprenticeships that we’re going to support being created as part of that plan.

 

Will Goodings: Is this the part now for the next couple of years where you’re dancing on the head of a pin, so to speak, with regard to the pressures between inflation and the fact that we’ve got zero per cent interest rates and so much of the good and positive economic story in Australia at the moment seems to be about the fact that there is A) real interest rates at historic lows and that’s been locked in by the RBA for a couple of years, but B) you’ve got all this extra money sloshing around that the federal government’s spending. Is there a danger that you can fall off one side or the other and whereby the interest rates have to get jacked up and inflation starts becoming a real issue and you start to stifle some of that growth?

 

Simon Birmingham: Well interest rates are very low and they’re forecast to stay very low for a considerable period of time. And again, it’s why some of the heavy lifting in terms of economic support has to be done by the Budget because that traditional lever that’s been there of the Reserve Bank being able to do more is now reduced by virtue of those interest rates being at such historic lows. But do we think that the projections in this Budget and the assumptions underpinning it are all relatively cautious and conservative? And we still project iron ore prices to go back down to $55 per tonne and notwithstanding the fact that they have consistently in recent Budgets exceeded those expectations and delivered improvements in those Budget bottom lines when final results are forecast, but we’re making those conservative projections. Even in terms of unemployment forecasts, the Reserve Bank’s projections are more ambitious than what we’ve put into this Budget and see as the likely forecast there. So we think we’ve taken a careful and cautious pathway there to try to get, make sure that people can have confidence that the budget settings are genuine and that they are going to support that economic recovery, that jobs growth that is so essential as part of our plan to be able to fund then the extra investments in fixing aged care, in fully delivering National Disability Insurance Scheme and implementing important new measures in mental health support for Australians.

 

David Penberthy: Birmo, just finally on a local issue and one that we think has got some very exciting national applications, we’ve been talking this morning about this joint venture between the US biotech giant BioCena, the University of Adelaide and SAHMRI to achieve what would be full sovereign capability and self-reliance in terms of mRNA vaccine production, making the vaccines for companies such as Pfizer and Moderna under licence right here in Thebarton at the old Pfizer factory. There’s talk of seeking federal assistance to help get this up and running. Is that something, on the basis of what seems to be such an exciting idea, is that something that the Commonwealth would entertain?

 

Simon Birmingham: There’s a distinct possibility, it’s certainly our intention to secure mRNA vaccine capability and manufacturing capability for Australia. This is a new technology as to how vaccines are made, that only came about from the surge in research that COVID drove around the world, and Australia didn’t have the capability and doesn’t have it at present to manufacture that vaccine. But we have been talking to the big companies like Pfizer and Moderna about getting the technology transfer of their vaccine patents to an Australian manufacturer to enable that. We’ve put a measure in the budget to be able to fund that tech transfer, which is the first commercial negotiation, and then manufacturing, which is the second commercial negotiation. Now, I understand that our health department officials have had discussions in the past with BioCena. We’d certainly look forward to them being part of the process as we determine how we will best get that manufacturing capability into Australia and I’ve certainly had representations before the last 24 hours from Premier Steven Marshall and from SA’s Industry Minister, Stephen Patterson, who have been highlighting this potential to us. And it’s one part of the options available as we seek to deliver that vaccine manufacturing capability in Australia, knowing that the COVID vaccine probably won’t just be the ones people are getting over the next 12 months, but will necessitate likely booster shots that we would like to have made in Australia. And, of course, that this new technology will probably be used for other vaccines in the future that we want to have manufactured here, too.

 

David Penberthy: It’s exciting.

Will Goodings: Senator, just lastly, as Australia’s Finance Minister. Would you like to see states that received a GST windfall like South Australia of somewhere in the order of a billion dollars to spend that as opposed to using it to pay down debt or tidy up the bottom line?

 

Simon Birmingham: We certainly want to see states do as we are doing, which is drive the economic recovery for Australia by helping to support job creation. And I know that in areas like investing in creating more apprenticeships, we’ve got good partners in South Australia that have worked with us at every step of the way. And I hope that that’s what we’ll see in relation to that GST windfall that’s flowing through to states and territories.

 

David Penberthy: Good stuff. Senator Simon Birmingham, the Minister for Finance, thanks for joining us this morning.

 

Simon Birmingham: Thanks, guys. My pleasure.