Thank you very much to the Australia-Israel Chamber for the invitation to be here today and the opportunity to join you all. Ladies and gentlemen, it’s wonderful to have this chance, and always just at present, when we are able to gather like this, here we are seated together. You think about the circumstances we find ourselves in and the good fortune of the circumstances we find ourselves in, relative to so much of the rest of the world. And there is much for us to be grateful for. There’s always much for us as Australians to be grateful for. In many ways we won the lottery of life by those of us who were fortunate enough to be born here and have the opportunities that Australia accords.
And those who have moved here and contributed, made our nation a richer nation in terms of the diversity, the knowledge, the opportunities created by people coming from all over the world. But at this time, I think Australians are even more acutely aware of the good fortune and the fact that our systems have stood us well through the most trying in 12 months.
It’s been a trying year of 12 months, and frankly, the tests continue. We see that they will continue in relation to our friends across the border in Victoria. As you heard, now facing another lockdown period. And they’ll continue to right around the world as countries grapple with vaccine rollouts and strategies. And indeed, we have been monitoring closely the particular success in Israel. There’ve been discussions between our governments to understand the lessons that are being learnt in Israel. And we are, again, in an incredibly fortunate position in Australia. We’re not at the front of the somewhat desperate queue to get the vaccine and get it done as quick as possible.
And indeed, the manufacturers made clear at the outset as we were negotiating and locked in early contracts to make sure we wouldn’t miss out, but also made it clear that there were pressure points elsewhere around the world, countries in far more dire circumstances than Australia.
We have now, one hundred and fifty million doses of vaccines contracted to be purchased, to be manufactured, 50 million of them here in Australia, for delivery and distribution throughout the year. That obviously can cover our population many times over and also will help us to ensure that we cover our Pacific Island family and friends and are able then to help some of the other larger countries within our region too.
But it’s a time as well for a Finance Minister, where we have to take stock of what has been a remarkable 12 month period and pivot in our nation’s approach financially and think about how we move forward. Temporary economic support was given over the last 12 months at a scale never before undertaken in Australia. $250 billion of economic support rolled out across the country. Highly interventionist programmes like JobKeeper that have never before been contemplated in our country. But it has successfully helped us to avoid the worst of a potential economic calamity. Measures like JobKeeper prevented an estimated 700,000 job losses, according to the Reserve Bank.
But even more importantly, they helped to prevent massive business failure. Business people in this room today, would know the big risk factors we saw at the start of shutdowns last year, were repayments, redundancies and rents. Businesses faced a withdrawal of income due to shut downs, but we’re having to still pay prime rates, having to still repay the banks and potentially had to let go of staff but pay out redundancies. They’re the types of costs that could have tipped many over the edge into insolvency. And in doing so, if that had occurred we would have lost a productive faith in our economy and the recovery would have been so much harder without those productive businesses, those employers able to take people back.
JobKeeper and the other measures we put in place at the time helped us to avert a serious economic disaster.
But it also came at a massive budgetary cost.
The federal government’s deficit for this current financial year will be around 9.9 per cent of the total size of Australia’s economy at about $198 billion deficit.
It’s only two times in the nation’s history when the federal government’s deficits have been such a large share or an even bigger share of the national economy, World War One and World War Two. So it gives a sense of the gravity of the circumstances at a budgetary level we’re facing.
Now, just as on those significant occasions, the ends justify the means. We’ve kept Australians safe from threats to life and we’ve kept Australians more secure in their economic environment. However, the national economy can’t run on taxpayers spending and high levels of debt and deficit forever. Right now, as everyone knows, interest rates are very low, unprecedentedly low, so low that our debt, despite that huge rate of growth, our debt has been getting cheaper to service at a faster rate than the debt itself has been getting larger.
Forecasts show that the government’s net interest bill will actually decline as a share of the economy and net interest payments, as a percent of GDP are forecast to remain at 0.7 per cent for the next two years, but then actually to reduce further to 0.6 Per cent through 2022-23 and 23-24.
In fact, the net interest paid as a share of GDP is actually now lower than it was for most of the period through the 1980s and 1990s prior to the Howard government then more successful efforts to ultimately reverse the debt equation that they inherited.
In the six years prior to the pandemic our own government’s efforts to drive Labour’s deficits towards budget balance helped us to have the fiscal firepower that was needed last year when we really, really needed to be able to spend and invest. And we’re able to do so without having to start from a significant deficit position. Current low interest rates can help us to set us on the pathway of a repair journey, allow us to get the budget repair underway as and when economic circumstances allow without huge pressures because we enjoy that low interest rate environment.
It is important to consider that because we can’t assume that those low interest rates will be there forever. We need to start planning for how we rebuild our resilience and strength now, knowing that at some point we will face the pressure of higher interest rates on a much higher debt.
Last year’s mid-year economic and fiscal update assumed that interest rates would converge towards their long run level over a 15 year period. And that’s probably still a reasonable assumption to make.
If we look at the type of decisions the Reserve Bank has been taking of late and the way in which they are giving guarantees out in the future about the low interest rate environment, but if instead that were to occur over a 10 year horizon instead of a 15 year horizon, then based on the current scale of debt we have that would increase the federal government interest payment debt to a gross debt that would be some $44.5 billion larger in just a decade’s time.
So just that exposure to a change in interest rates over a 10 years horizon instead of a 15 year horizon, can have that type of significant impact. The circumstances obviously necessitated a dramatic shift in budget strategy over the last 12 months. But the fact is, there’s always been the remains that governments should only spend what is necessary. Australians should want our country, including its balance sheet, to be capable of responding to the next crisis, just as we were capable of responding in such a significant way to this crisis.
We always said that emergency interventions to get Australia’s economy through the pandemic would be temporary, they’d be targeted and they’d be proportionate. There were the principles that Scott Morrison outlined when we started to take these dramatic steps and they are principles that have guided our decision making the whole way through the process.
The intervention of JobKeeper in particular was proportionate to the threat at hand, especially in the second and third quarters of last year. The tighter targeting and tapering off we’ve applied to JobKeeper since September last year. Has stayed true to those principles we set, and has kept it proportionate, has maintained the principle of it being temporary and has targeted those businesses increasingly who are in need of it.
As a country that has now demonstrated by and large a consistent ability to suppress COVID and notwithstanding what we’re seeing in Victoria right now. We’ve also, over recent months, shown an ability to crush the clusters that come along and to do so in a reasonably effective manner.
The future outlook is quite different to where it was back when JobKeeper was born in the second quarter of last year.
The IMF’s recalibrated economic forecasts released recently shows that Australia is better positioned than nearly any other country in the world. The IMF forecasts the Spanish economy to contract by 11 per cent in 2020, the UK economy to have contracted by 10 per cent in 2020. The French and Italian economies to have contracted by more than nine per cent. The German, Japanese and Canadian economies to have contracted by more than five per cent. The US to have contracted by around three point four per cent. Australia, our contraction for last year is expected to have been about two and a half per cent. Significantly below, essentially all of those other developed, advanced OECD countries. It sees us and puts us in a much stronger position than nearly anybody else across the world. But it’s not to say that the recovery is complete. 90 per cent, of the one point three million Australians who lost their jobs or had their hours reduced to zero at the height of the pandemic are now back at work. But there is a reality to face as well.
The reality that we acknowledge way back at the start of last year, not every job, not every business can or will be saved, will be able to stay the way it was.
There are structural changes.
The disruption, the size of COVID will inevitably lead to permanent changes to the way people travel, to the way businesses do business, to the way engagement occurs.
But just as Australian businesses have adjusted so successfully to previous disruptive changes. Our economy, our employment mix is vastly different today to where it were decades ago. They’ll need to do so again through this disruption. And although we will move to a different type of support it is important to remember that post JobKeeper businesses and households will still enter the next stages of our economic recovery with still very significant government assistance.
Our income tax reforms, the elimination of an entire bracket of income tax rates by putting more than one billion dollars back into the pockets of Australian households each and every month. The loss carry-back provision that we announced in the last budget will give previously profitable businesses an extra four point nine billion dollars in tax relief to survive and adjust as they take current losses and are able to deducted against prior year profits. And that builds on the highly successful cash flow boost we’ve provided in addition to anything through JobKeeper or other measures supporting employees provided a direct $35 billion cash flow for support straight into businesses.
More than 3.5 million businesses are also being incentivised to pursue an estimated $200 billion of additional capital investment by the instant production expenses now available to Australian businesses. These measures sit alongside other reforms, particularly our manufacturing strategy designed to try to help ensure that we drive more investment and growth across Australian businesses to create sustainable jobs for the future
Amazingly right now, off the latest employment statistics, we already have more older Australians employed now than we did pre pandemic. So the comeback in the employment market there has been quite dramatic.
But we knew that all of the data and the Treasury advice we had indicated that younger people tend to suffer longer in a recession or an economic downturn. So that’s why we targeted the next stages of direct employment support via policies like 50 per cent wage subsidy for apprentices or the JobMaker hiring credit that provides direct financial support to incentivise employers to take on younger Australians.
And of course, as we look to these next stages, we will continue to carefully analyse all the data, all of the evidence to look at where other forms of particularly targeted action may be necessary to help those regions or parts of the economy that will still be facing adjustment or doing it tough.
But ultimately, only a strong economy and strong businesses can give Australians once again the support to generate the taxes we need to provide, the services we want for the future with aged care or disability services or other areas of ongoing cost pressures alongside, of course, giving Australian households the jobs that they need.
And the creation, pre pandemic of more than one and a half million additional jobs across Australia was without doubt the single proudest achievement of our government in the six years that we had been there prior to COVID.
That additional one and a half million jobs being created in that period driven record levels of workforce participation. We had record levels of women’s workforce participation, in particular, record levels of women in jobs, higher levels of employment at that stage, that had driven welfare dependency amongst working age Australians to record lows, this in turn had driven down government spending. And it had created more taxpayers. As the virtuous cycle that ultimately we seek to recreate through economic growth, because that’s how we get budget repair back underway again in a sustainable manner.
We continue to focus especially on how we encourage investment and boost business confidence, because we know that there the ways that will best help jobs growth – why we brought forward some $29 billion in infrastructure projects, develop the popular HomeBuilder programme to make sure that we averted a downturn that was projected in the construction sector. Why we’re investing, as I said before, $1.3 billion more in our modern manufacturing initiative, as well as $1.9 billion to support investment in new and emerging low emissions technologies that will be so crucial to a lower carbon future.
And so on top of other measures, knowing that we have to invest in skills and training that is seeking to create jobs through our job training programme, which will create 340,000 skills and training places and in the way of subsidy, I referenced before, to encourage employers to take on apprenticeships.
It’s also crucial that we help Australians to step up and fill the jobs that are already available, referencing before, already the training for the jobs that are coming through. But we know that in parts of Australia, many employers are actually crying out for employees. Right now.
The overall data is showing that trend. The ANZ Job Advertisements Index, it’s been referenced for decades and has closely tracked unemployment trends as a leading indicator in that regard, increased for the eighth consecutive month in January this year. Showing job ads up in that month by a further 3.2 per cent, up 5.3 per cent through the 12 month period and at the highest level. In fact, in terms of job advertisements being recorded since April of 2019. Here we are still in the midst of dealing with the job advertisement data demonstrating the level of job ads at the highest level since April of the year before the pandemic even commenced. .
We know that we have hundreds of thousands of people currently receiving JobSeeker who are single, have no children and largely have no impediments to work. And a big focus for us has to be on how we help those people pursue the employment opportunities that exist across the economy at present.
Well publicised that there are some in different agricultural industries, some of them seasonal or temporary. But we know that there are many parts of that sector that have been grappling to get Australians to fill jobs. There are other sectors as well, examples in different mining and drilling companies who can’t find workers for drill rigs or parts of the construction industry. Although our tourism industries in parts are doing it really tough right now in other parts of the tourism sector is booming and some of those regions are struggling to get workers to fill roles in domestic tourism. Cleaning companies have openings they may have previously been filled by international workers, and demand continues to grow for employees, particularly in the care sectors. Those sectors like aged care and disability services. So as our economy continues to recover, it’s crucial that we try to encourage Australians to fill those roles, some of which may have previously been filled by temporary or international workers.
And why we’re providing a $6000 incentive to help people to relocate, especially those who may not have the ties to hold them so firmly to a particular location. But for some of these jobs our skills reform agenda will be crucial, particularly in this state where in South Australia we already have more people in full time employment again than they were pre pandemic.
In South Australia you’ve got employment growth already in full time jobs showing, you know, the investments that are occurring in new technology industries, advanced manufacturing industries across space and technology, as well as the growth in this state of high tech science and medical support industries. These are new opportunities that will be created and again where our investment and skills is so crucial.
So can I close by thanking all of you, many of you as business leaders in different fields for the resilience you’ve shown through the last 12 months. For all of the support that I talk about, it’s only worked as well because of the adaptive-ness of Australian business and industry, the willingness to be able to withstand the difficulties that come along and to change to pivot at short notice and the patience at times with the different uncertainty that exists across the landscape, with government decision making.
That’s not all going to go away instantly. This is going to have its ups and downs, as the people of Victoria are experiencing right now, the vaccine rollout across the country with a landmass of our size and rural and regional communities of our type is going to be an incredibly complicated exercise, probably logistically the largest peacetime undertaking we’ve had in Australia to be able to mobilise that distribution across a 12 month period. But we are determined to be able to do so. And our systems that have withstood the crisis of the last 12 months should serve us well in how we respond for the year ahead.
Thank you for your continued support, patience through that time. We certainly know that as a Government we are trying to work, to get the settings right to be able to continue to ensure that our economy keeps growing, that we maintain that confidence, but we do so in ways also that are sustainable for future.
Thanks for giving me the chance to be with you today.