Introduction
Thank you Michael Stutchbury, the Editor-in-chief of the Financial Review and to the Fin for hosting this event. I’m so sorry I’m not there with you all in person this morning but I’m thrilled to be joining you. Particularly for CFO Live. CFOs the quiet achievers in successful business organisation right around the country.
I do want to particularly give all of you a big shout out and a big thank you for what has been a huge period of adaptation getting through the challenges of COVID, the disruption of the last few years and doing so in ways that have kept your companies strong and through that, Australia strong.
A time for optimism
As we hit the silly season and look forward to a well-earned break with our loved ones and hopefully far more reunification across the country between loved ones across different states, there are plenty of reasons to be optimistic given all that we’ve come through.
Business confidence is back to where it was in April before delta struck.
Consumer confidence is also back to pre-pandemic levels.
We saw a 4.9 per cent increase in retail sales in the month of October.
We know there are hundreds of billions of dollars, ready to be injected into the economy, much of which has been saved during the pandemic.
In fact, there is now some $370 billion that has been accumulated on household and business balance sheets – $220 billion of which is on household balance sheets, and some $150 billion on business balance sheets.
This is a strong buffer but also a strong driver in terms of our continued economic growth and recovery.
Job ads are now more than 30 per cent higher than they were at the start of the pandemic and in fact they are sitting at a 12-year high.
The Reserve Bank has upgraded our economic outlook for next year.
From an initial growth forecast of around 4.25 per cent, they expect it could now be as high as 5.5 per cent.
The OECD internationally have upgraded their forecasts for Australia’s growth too.
When it comes to the labour market, we as a nation have appear to have managed to avoid much of the type of labour market scarring that occurred in Australia’s recessions in the 1980s or 1990s.
Following these recessions it took around eight years for the unemployment rate to recover to where it was previously.
Similarly, the unemployment rate never got back to where it was before the GFC.
But since the Delta induced lockdowns occurred, we have seen 350,000 jobs come back just since the start of September.
The RBA is now forecasting that unemployment will be under five per cent by the end of this year and go to the low 4s by the end of next year.
And if we could get it into the fours and hold it there then that will be the first time we’ve sustained unemployment at such low levels for a considerable period.
This is all demonstration that Australia’s economic fundamentals remain incredibly strong and secure.
Thriving, not just surviving
Our economic supports haven’t just underpinned the viability of Australian individuals, households and businesses through the pandemic, they have allowed us to thrive in comparison to much of the world.
We entered this crisis from a position of economic and budgetary strength.
Having brought the Budget back to balance for the first time in 11 years we could afford the fiscal artillery to support Australians and businesses through the pandemic.
As part of our COVID-19 response we have provided more than $300 billion in direct economic support for individuals, households and businesses.
Programs like Jobkeeper, the Coronavirus supplement and cash flow payments avoided business failures or mass redundancies.
This positioned Australia for a strong recovery. Our 3.9 per cent growth through the last year is a top three performance among developed economies, stronger than the UK, Canada, Germany or Japan, for example.
Underpinning this is our Economic Recovery Plan, laid out over the last two budgets.
We have backed Australian business, your businesses, to drive more investment via temporary full expensing and loss carry-back arrangements.
An estimated $320 billion worth of investment is expected to be fuelled by our business tax incentives by the end of 2022-23.
New capital expenditure across the private sector is up 12.9 per cent over the last year, comprising 9 per cent growth in buildings and structures and a whopping 17.4 per cent growth in investment into equipment, plant and machinery.
This investment boom isn’t just good economic news in the short term. The efficiencies, modernisation and growth that comes from capex investment will make Australian businesses more productive and more competitive long into the future.
At the same time as helping business to play its role in our economic recovery, we have also expanded the ability for households to do their part too.
$10.2 billion in tax relief flowed to 11.5 million Australians during the September quarter – the largest tax cuts to flow in a single quarter in 20 years.
Our plan has been about giving businesses and households the confidence to grow, invest and create more jobs and the financial capacity through lower taxes to do just that.
The Budget tightrope
However, speaking to a gathering of CFO’s, as Australia’s Finance Minister, it would be negligent of me not to address the balance sheet implications of getting Australia to this position of economic strength.
We have gone from a position of budget balance, with projected surpluses, to recording now the largest deficits in Australia’s peacetime history.
The federal budget deficit of $134 billion in 2020/21 and forecast deficit of $106 billion in 2021/22 has overwhelmingly been a function of the revenue hits from lockdowns and Covid restrictions, plus the spending required on health measures and economic supports.
There’s no doubt that the costs have been necessary.
Australia’s health response has saved 30,000 plus Australian lives compared with OECD average fatality rates.
Our economic response has saved an estimated 700,000 jobs and delivered a top three global performance.
And we should also keep a sense of perspective.
Australia entered this global crisis with a stronger balance sheet than most developed nations and we will exit it in a similarly stronger position.
Australia is one of only nine countries in the world to have retained its AAA credit rating from the three leading credit rating agencies.
As a share of the economy, Australia’s debt is around half that of the UK or US, and less than a third of that of Japan.
Debt servicing costs also remain historically low. In 2021-22 our net interest bill will be $14.7 billion or 0.7 per cent of GDP.
However, our comparatively strong financial position is something we must protect, so that we can respond just as effectively to future crises and to ongoing pressures.
As outlined in our Budget’s Fiscal Strategy, the first priority remains securing Australia’s economic recovery, which cannot be taken for granted.
To date, our recovery continues to track ahead of expectation, which will and should allow a steady transition to the medium-term strategy.
Our medium-term strategy is to grow the economy in order to, firstly, stabilise and then reduce debt as a share of GDP.
Following the lifesaving investments made to get us through Covid the fiscal path that Australia will tread in the years to come is nothing short of a tightrope.
As we enter an election year Australians must ask themselves two key questions: who will be best placed to maximise our economic growth and who will be best placed to show spending restraint?
As a nation we already face significant expenditure pressures.
We cannot afford not to invest in defence, as we face far greater strategic challenges in our region.
We must invest to own the opportunities of a new energy landscape as we chart a path towards net zero emissions.
Australians expect us to continue to invest in world leading health care, aged care and disability care.
These are the big spending pressures that we must prioritise. Ensuring our economy outgrows these pressures will be challenging enough without adding to them.
Now elections are a choice and forgive me for being a little political. But our political opponents the Labor Party have already announced policy and intention to provide virtually free childcare, regardless of family income. They’ve announced free TAFE, inviting the states to shift billions in costs onto the Commonwealth’s balance sheet. They’ve announced $45 billion of spending from questionable new funds. They’ve made vague promises to double paid parental leave and build high speed rail, with no accounting for the costs of these prices.
Say as you will, as bad as Bill Shorten’s planned $387 billion in higher taxes that Labor took to the last election, at least he was willing to say how he’d pay for his billions in additional spending.
In contrast, without a single word on how to pay for them. Anthony Albanese is racking up promises that will push future deficits even higher and jeopardise the medium term budget strategy to reduce debt as a share of GDP.
This would imperil Australia’s AAA credit rating, risking a vicious spiral of higher debt costs that would further undermine Australia’s finances.
If such a situation were to occur the only other option available to a Labor government in the future to fund such large spending promises would of course be higher taxes, which themselves would risk stifling our economic recovery and jeopardise the GDP growth that our budget strategy also depends upon.
To meet the nation’s essential future spending priorities – the essential ones – and move into the next phase of debt control will require both a disciplined approach to spending and a not-negotiable focus on maximising economic growth.
Our approaches at Government to delivering growth will always be centred on keeping taxes as low as possible, as evidenced by our actions to date.
The lower company taxes our government has delivered are helping small businesses to grow faster.
Full expensing, as I discussed before, are helping all businesses to invest.
Bigger incentives for commercially oriented research and development are backing new innovation. Our patent box tax reforms will back commercialisation.
The elimination of a whole income tax bracket is a necessary tax reform that encourages more workforce participation through greater reward for effort.
Our low tax approach is not only fuelling Australia’s successful economic recovery but is already leading to improvements to our budget position.
With more Australians in work and less on welfare we can make significant indents in that budget position, quite quickly.
Take the final budget outcome for the 2020-21 financial year, which saw an $80 billion improvement on what was forecast in October 2020 and even a $27 billion improvement on what was forecast as recently as May of this year.
These improvements on the budget outcome compared to forecasts, is a demonstration that you can quickly secure stronger results for the budget bottom line when you have a stronger economy.
New monthly financial data that I have released today, is further demonstration of this.
Notwithstanding the costs associated with the Delta induced lockdowns across New South Wales, Victoria and the ACT, our 2021/22 budget is also tracking ahead of expectations.
The underlying cash balance for the financial year to the end of October shows a deficit of $43.9 billion, which is around $7.9 billion lower than we had profiled for this time of year.
This stronger position has mainly been due to higher tax receipts of $15.6 billion.
Both higher company and individual tax receipts is further proof of a resilient labour market, stronger business performance and confidence throughout the economy.
Given the tax cuts we’ve delivered for households and businesses, the strength in government revenue shows that while Australians are getting to keep more of what they earn the stronger economy is helping them to earn more overall.
Driving ongoing growth
To keep Australians in jobs and begin to improve the budget position further we will continue to move ahead with our economic recovery plan.
We are driving productivity gains through infrastructure, boosting skills, deregulation, investing in manufacturing and agriculture, and the digital transformation.
Tax relief will continue to be a key part of this when our stage three tax cuts eliminate the 37 cents in the dollar tax bracket and ensure that 95 per cent of Australians in future pay a marginal rate of income tax no more than 30 cents in the dollar.
Our infrastructure pipeline is creating more than 5,000 jobs through Snowy 2.0, more than 10,000 jobs at the Western Sydney airport and 20,000 jobs on Inland Rail. More importantly, each of these long awaited projects will lift productivity and deliver longer term benefits far in excess of the construction jobs created.
Boosting skills and participation continues to power our economic recovery. In this year’s budget we continued to invest further in the JobTrainer Fund, adding 163,000 places and extending it to 450,000 in total. We have already seen 250,000 enrolments in the program.
The Boosting Apprenticeship Commencements scheme has seen us reach a record 217,000 Australians in trade apprenticeships. That is the highest number since records began in 1963.
Once again, these investments not only providing short term benefits but also long term economic gains from a more highly skilled and productive workforce.
Our Modern Manufacturing Strategy is designed to help Australian manufacturing to scale-up.
Our Ag2030 strategy is pursuing policies to drive agricultural exports towards $100 billion by 2030.
Our Digital Economy Strategy outlines a roadmap to build capability in new and existing technologies where we are backing greater adoption of Artificial intelligence, enhancing Government services to transition to 100 per cent of services available online and helping SMEs to build digital capability, such as through the uptake of e-invoicing.
During my time as trade minister for example we also made advances in the digital trade space by signing a digital economy agreement with Singapore, providing businesses and consumers simplified electronic trade documents, preventing unnecessary data localisation requirements and providing strong protection of privacy and consumer rights.
Conclusion
These are the policies and strategies focused on delivering growth. They are focused, measured and strong.
It’s a plan centred on lower taxes.
As Australia emerges from Covid-19 with one of the lowest fatality rates in the world, one of the highest vaccination rates in the world and some of the strongest economic outcomes we have every reason to be optimistic.
But nothing can be taken for granted but nothing can be taken for granted in a world of enormous uncertainties.
Rest assured, we will continue to do all that we can to create the environment for your companies to continue to grow and create the opportunities for even more Australian jobs and small businesses to thrive off of your success in the future.
Thank you once again for the chance to be with you all today.