Topics: Budget 2022    


Paul Allen:
I am joined here at Parliament House in Canberra by Simon Birmingham, Finance Minister for Australia. Minister, thank you so much for joining us today. I just want to cut straight to the elephant in the room. There will be an election by May 21. How important is this Budget in terms of the government’s election prospects?


Simon Birmingham: Well, this Budget does frame the choice for Australians between our side of politics who’ve kept Australia’s economy strong during COVID 19, indeed put us in a world leading position with economic growth in recovering from COVID stronger than the US, the UK, other G7 economies where the jobs growth that is pushing unemployment in Australia towards 50 year lows forecast in this Budget to go from 4% down to 3.75%. So these set the contrast with our Labor opponents and we will obviously campaign strongly on our economic management, on our ability for job creation, on the lower tax environment we’ve created, not just through income tax cuts for Australian households, but through driving down company taxes for small businesses in Australia, for regenerating business investment through the tax incentives we’ve put in place in this Budget a real focus on small businesses and ensuring their investment in skilling their workforce and in uplifting their digital and technological capabilities, again, using tax incentives as vehicles to drive that.


Paul Allen: Let’s look into the sum of those numbers a little bit more, though. Yes, the unemployment rate forecast to fall to 3.75%, revenue’s been much better than expected. But we’ve had closed borders, that’s really helped jobs here in Australia and we’ve had a really high iron ore price which has really helped revenue side as well. So how much of this is down to good management and how much was just, gee we got lucky there?


Simon Birmingham: Well, certainly higher commodity prices help the Budget outcome in Australia, but we are continuing the pattern of our Government having been very conservative about forward projections and forecasting when it comes to commodity prices. So we’re forecasting that iron ore prices, metallurgical coal, thermal coal will all trend back down towards previous, longer term lower levels of prices within the next six months by September of this year. And that means that if you look at the Budget improvements that we have demonstrated over the next few years, commodity prices play a very small role, indeed, a negligible role in most of those forward years. The real dividend is a stronger labour market, stronger business performance overall that is enabling us to bank around $100 billion of Budget savings of ensuring that deficits come in lower than previously forecast, around half of what was previously forecast in terms of deficits as a share of GDP. And that will help to underpin the strength of our AAA credit rating, for which we are one of only nine countries in the world, to continue to hold that AAA from all three of the major international ratings agencies.


Paul Allen: I want to circle back to debt and deficit in a moment, but one of the important things in this Budget was these one off measures, some relief for cost of living. Of course, we’ve seen prices rising, particularly for fuel prices. But how do you strike a balance between giving some relief but not stoking inflation and just making those prices rise even further.


Simon Birmingham: By being very careful in that regard and it’s why the vast majority of the Budget upside that we’ve seen from a stronger economy, we have put against Budget improvement and lower deficits into the future. But we could see as well real pressure for Australians in relation to cost of living occurring as a result in particular of oil price spikes that have happened since Russia’s invasion of Ukraine. So we’ve made sure that as we did with COVID 19, where so much of our support was temporary and carefully targeted, we’re doing the same here. Oil prices won’t remain at the ultra-elevated levels forever. So temporary targeted relief, that isn’t just about helping Australian households, farmers, businesses with higher petrol prices, it’s also important to maintain consumer and business confidence, that the impacts of higher petrol prices can shake that confidence and we want to make sure in Australia it remains strong so the economic growth remains as strong as possible.


Paul Allen: If oil prices stay high, would you look at pushing out that reduction in excise beyond six months?


Simon Birmingham: We’ve been very clear this is a six month measure, that is what will be legislated through the Parliament and all of our projections are that we’ll see a stabilisation in those oil prices within that time frame. But it’s about making sure that households who are feeling the pinch right now get the 22 cent a litre dividend of lower prices for a period of time until we see that stabilisation.


Paul Allen: Just returning to that question of debt. Debt is expected to peak around 25/26, above $1 trillion AUD, a very psychologically challenging level for Australians. How are you going to bring that down to levels that we’re more used to? I mean, it is still low by international standards, but it is quite shocking by Australian standards.


Simon Birmingham: We have had to respond through COVID-19 with exceptional measures and have incurred the largest Budget deficits in the nation’s peacetime history to do so. But it’s because it’s been a global pandemic and the evidence of the effectiveness and worthiness of the spending measures we’ve applied is in the strength of the Australian economy, having saved more than 700,000 jobs, more than 40,000 Australian lives and many, many thousands of businesses from going out of business. Now of course, is the time to make sure we consolidate those economic gains. Our fiscal strategy, which we outlined in previous Budgets, has been to say that we are going to clearly grow the nation’s economy in ways to shrink debt as a share of GDP. This Budget is proof that that strategy is working, that we are going to see a peak in the nation’s debt occur sooner and at a lower level than had previously been forecast, that future deficits will be lower as a share of GDP than had previously been forecast, in fact, running around half of previous forecasts. It’s a demonstration the strategy is working, and we have to stick to that strategy to preserve that economic strength.


Paul Allen: What are the missing pieces of the puzzle for the economy? Also for the Reserve Bank of Australia, not to mention is wages growth. It’s to a large extent beyond your control. But what can you do to try and promote wages growth in Australia?


Simon Birmingham: Crucially making sure that we keep the jobs market as strong as it has been and to drive that jobs growth into the territory that’s achieving these 50 year unemployment lows. That will help to apply further pressure in relation to wages. And we can see in the forward estimates of Treasury here that wages growth is expected to run at 3.75% above inflation in the next financial year, increasing over the next couple of years to 3.5% and showing effective real wages growth through that time. Of course, our investments in critical productivity for the nation, record investment in an infrastructure pipeline that is getting more freight onto rail, moved more efficiently around the country, investment in intermodal terminals to again increase that efficiency. All of those things can deliver enhanced productivity to the nation, as well as the incentives in digital economy strategy to get small businesses using tools like e-invoicing more rapidly. These things can all help to drive a more productive economy and from that stronger wages outcomes.


Paul Allen: There’s also $10 billion in this Budget for cyber security. Who’s Australia trying to protect itself against?


Simon Birmingham: We have been the victim of cyber-attacks in recent years and there have been some attributions in relation to those cyber-attacks to countries like Russia. We saw in relation to the war in Ukraine that tragically before the first bullet was fired and the war deteriorated into the terrible humanitarian catastrophe that we’re seeing, there were initially cyber-attacks launched. This is the new modern arm of warfare and just as we have restored Australia’s defence spending to 2% of GDP from levels which we inherited were their lowest since 1938, we now recognise that there’s a need to uplift capability in our cyber security. A $9.9 billion investment over the next year will create around 1,900 new roles in cyber security and create additional defensive and offensive capabilities. We have some of the best in the world already. We were indeed helping Ukraine prior to the invasion in relation to their cyber capabilities, but we want to make sure we remain at the cutting edge because it’s about protecting our energy networks, communications networks are critical infrastructure in a range of ways, our banking systems and so forth, from the threats that other nations or non-state players can play in the cyber space.


Paul Allen: I couldn’t help but notice that you didn’t mention China. I do wonder if that was deliberate and what’s happening to improve relations with China on that front and how would the growth picture look if relations were to improve?


Simon Birmingham: Well, we can still see strong dividends from trade with China, but their more assertive stance in relation to national security has eroded. I think China’s standing in terms of investor confidence around the world, the positions they’ve taken in areas that undermine the sovereignty of other nations or threaten operations through the South China Sea, remain of deep concern to Australia. We have made sure that we invest in the protection of our nation’s defences there, will continue to do that in response to all of the threats that we see. We would welcome the opportunity for effective ministerial level dialogue with China. We’ve said that for a long period of time. We view their trade sanctions against Australia as unfair, punitive and unjustified. We’re not going to give ground to shallow lists of demands that they give to coercion that they apply. But certainly we want to see a peaceful and prosperous region. We will work with all of our partners through the quad, through other mechanisms to do that and stand willing to talk to China and to engage in ways that can reduce some of the aggressions or tensions that have been elevated due to their actions.


Paul Allen: All right, Simon Birmingham, Australia’s Finance Minister, thank you so much for joining us.


Simon Birmingham: My pleasure.