Paul Allen: Deficits as far as the eye can see and debt to go along with it and to discuss the budget and the spending involved, I’m joined by finance minister, Simon Birmingham. Minister, thank you so much for joining us today and making time on a very busy day. So when I first started covering coalition budgets, it was talk of debt and deficit disaster. That’s all forgotten now, deficits as far as the eye can see. And there was some concern about this. S&P retaining its negative outlook on Australia, saying its substantial deterioration of fiscal headroom for that triple-A rating. You worried about the triple A?
Simon Birmingham: We’re confident that this budget strikes the right and a careful balance in that regard. The world is faced through covid-19 the biggest economic disruption since World War Two, countries across the globe have had to respond in unprecedented ways, including Australia. But our economy is performing much more strongly than most others. We look at the euro-zone facing a double dip recession, and yet here we’ve got employment numbers back above where they were pre pandemic. It’s a remarkable resilience in the Australian economy, which had twenty nine years of consecutive economic growth coming into this pandemic and has shown its fundamentals are strong in this budget. We’ve managed to make careful, prudent investment decisions to see the country through covid. To invest in the central government services, but all of it against a backdrop where we’ve managed to keep net debt projections over the next decade lower than was forecast in last year’s budget. So when it comes to some of those analysis of our credit stars, we’re confident that having managed to keep that net debt lower than was forecast last year, that Australia continues to have a very sound story to tell to global markets. And indeed, if you look at our position with net debt as a share of our economy, we still have it just a fraction of what we see in the US, the UK, Japan or many other countries.
Paul Allen: Part of what S&P was concerned about was the broader geopolitical picture as well, and the trading relationship between Australia and China. There’s assistance for business to diversify in this budget, but can you foresee relations with China normalising?
Simon Birmingham: We do face a challenging strategic environment. Now the Australian government remains open to dialogue and discussion with China around difficult issues at any time. We’ve always said that we are open to that dialogue and we would welcome it were China to be willing to come to the table in that regard. We won’t compromise on our sovereignty or our values or our principles, but of course, we will have appropriate dialogue there. We’ve seen a resilience again in our trading industries that despite the inappropriate use of trade sanctions by China on Australian barley, for example, our barley producers for the first time ever sent shipments to Mexico using the Trans-pacific Partnership trade agreement as a vehicle and a tool to be able to get new market access there. We’ve seen a lift in exports to the Middle East as well. And so I think there is a strength and resilience there and an ability to diversify that in this budget. We’ve backed with support for our agriculture sector, for our resources industries, whilst also building in our economic strength overall in terms of our digital economy strategy, our advanced manufacturing strategies to make sure we have as much diversification as possible too.
Paul Allen: Of course, Chinese demand for Australian iron ore remains insatiable. We saw record prices above two hundred and twenty dollars a tonne yet, and the budget this year, fifty five dollars a tonne. And it’s been at that level every year that I’ve been covering budgets. I can understand why it’s there. But in a time of trade tension, does it send a bit of a bad message about your expectations around the iron ore price?
Simon Birmingham: Think the consistency, as you acknowledged in the question, is the important thing there. We’ve been consistent in always taking a very conservative approach to those sorts of assumptions. When iron ore prices are higher, it does provide a windfall in terms of revenue gains to the Australian government. That’s well known. So why should people have confidence in the Australian budget? Because in terms of those sorts of assumptions, we continually take a conservative stance in projecting that iron ore prices, for example, will trend downwards towards a fifty five dollar the tonne level once again. Now, if that’s exceeded, that means our budget bottom line will be better than forecast. But we want people to have confidence in these assumptions, a similarly cautious approach as we’re taking in relation to when we think international borders will reopen. And even our Reserve Bank has more ambitious expectations in relation to where unemployment in Australia may go than what we’ve forecast in the budget, as although all of us are certainly seeing strong jobs growth with unemployment trending below five per cent for a sustained period of time for the first time in many, many years for Australia
Paul Allen: They certainly are cautious assumptions. And here, not just the iron ore price, but, as you say, expectations around employment, wages, growth as well. Your expectations in this budget below Treasury forecasts. We’ve seen these prior estimates revised up as things improve. This looks an awful lot like the public’s being softened up for an election very soon. Is that fact?
Simon Birmingham: Well, look, I mean, people would accuse us of cooking the books if we were to make more ambitious assumptions in the budget. Far from that, we’ve maintained the conservative posture that is important to making sure that we actually have a budget that people can have faith in, have confidence in that when the ratings agencies are looking at it. We international investors are looking at the Australian budget. They can have confidence. It is a real and legitimate assessment of Australia’s prospects. And Australia’s prospects are very, very positive coming out of COVID with record jobs numbers in our nation’s history, with stronger economic performance than nearly any other developed nation, and with a trajectory for growth and investment. And it is the envy of many other developed nations.
Paul Allen: Just finally Minister, a return to surplus? When is that going to happen?
Simon Birmingham: Well, that is certainly some distance off and not at a predictable or foreseeable date in that regard. But we do have the debt situation in hand, having been able to make some important government investments in areas like aged care services and mental health services for Australians but still being able to bring the debt projections for Australia in under what had been forecast last year, which is a testament and demonstrates that strength of economic recovery that we’ve had to date and now gives us an improved budget position from which to deliver the those services for Australians.
Paul Allen: Alright. Finance Minister Simon Birmingham, thank you so much for joining us.