Topics: Budget 2021-22
Kathryn Robinson: Well, the budget bottom line is much better than forecast last October, the deficit is expected to be one hundred sixty one dollars billion this year. That’s all thanks to more Australians in work than ever before. Less people on welfare and record iron ore prices, which have delivered a $52 billion windfall to the nation’s coffers. The economy is now predicted to grow by four and a quarter per cent in the next financial year, and net debt will rise to just under one trillion dollars by 2025. And the Treasurer wants to drive unemployment down to its lowest level since before the financial crisis. But Treasury still expects wages growth to be a modest at best. Well, this year’s budget shows a marked shift in strategy from the Coalition aiming to drive down the unemployment rate before committing to budget repair. The focus is building key drivers of jobs and higher wages. I spoke with the Finance Minister, Simon Birmingham, just a short time ago. Simon Birmingham, thanks for your time and welcome to The Business.
Simon Birmingham: Great to be with you.
Kathryn Robinson: Senator, you’d almost be forgiven for thinking this was a Labor budget with this pivot to big spending. Will this be the new mantra and philosophy for the coalition, debt and deficit?
Simon Birmingham: No, what we’re doing in this budget is delivering very much on the promises we took to the last election, of course, against the landscape of COVID-19. We said at the last election that we would drive a strong economy to create jobs for Australians and to fund the essential services that Australians rely on. And tonight, yes, we’re funding those essential services. The funding in relation to the NDIS, aged care, royal commission response, support for mental health, these are all things that we had foreshadowed we would do and would respond to as necessary. And tonight we’re doing that consistent with those promises that we took. Yes, we do it with the huge disruption of COVID-19 and the hit that that had to our economy and to our budget. But we’ve managed to fund all of these additional essential services for Australians while bringing net debt, both in absolute terms and as a share of the economy in at a lower rate for each of the next 10 years than had been forecast in last year’s budget. And that’s a factor of having that stronger economy, that more Australians in jobs and the ability now for us to be able to plan and invest in those services without any further deterioration of that debt situation.
Kathryn Robinson: On those jobs. Senator, the budget is very much so framed around creating jobs and getting the unemployment down to 4.5 per cent, but wages growth at this level is 2.75 per cent, which is still pretty low. Does this suggest that the relationship between unemployment and wages growth has changed? And can you guarantee that one necessarily leads to the other?
Simon Birmingham: So we’re continuing to operate in a very low inflation and very, very low interest rate environment. And so with that, you would expect to see relatively low wages growth occur as well. But equally, I think it’s important to realise that the Reserve Bank of Australia and the Treasury have both undertaken analysis that shows that the effective full employment rate at the point at which you’d start to see employment levels in the economy start to trigger higher levels of wages growth is probably now below five per cent. But pleasingly, tonight’s budget does indeed show a forecast that gets unemployment below five per cent, a further 250,000 jobs forecast to be created over the next two years. And that’s off the Bank of Australia already having a record level of employment. We’re the only developed country in the world to have been able to secure higher employment outcomes now than we had going into the pandemic. And that’s a testament very much to Australian business and their resilience.
Kathryn Robinson: Just on wages growth. The RBA says that that should be around three and a half per cent as a standard. So should the government be going harder on driving down unemployment or indeed target wages growth differently?
Simon Birmingham: We are going very hard on driving down unemployment. The fact that we’ve extended now further the full depreciation, the full expensing measures in the budget, extended further the loss carryback provisions in the budget brought in place the patent box reform for medical and biotech companies to be able to look at how they innovate and commercialise in Australia. These are all measures designed along with our skills agenda to encourage further growth and employment in the Australian economy. And the fact that we do have forecasts pointing to the fact that unemployment is going to get below five per cent shows that these mix of policy measures are working. They’ve got us to record employment and they are clearly projected to see that two hundred and fifty thousand further growth in Australian jobs.
Kathryn Robinson: You mentioned some of those business incentives there you’ve extended the instant asset write off for businesses. But is the impact of this measure somewhat diminished given that many businesses have already bought their assets? The farmers have bought their tractors, the traders have bought their utes. I mean, how many more assets can they bring forward for this to be impactful?
Simon Birmingham: We think that this extension, particularly on the timeline that is there now provides for a clear window for businesses to make investment decisions that perhaps when the measure was handed down in last October’s budget was a narrow window for those businesses to make those decisions. Now they’ve got a bit longer to plan to prepare to be able to bring forward big, significant investment decisions that will boost not only employment outcomes in the short term, but the type of investment in businesses that lifts their productivity and therefore helps their competitiveness and, of course, the opportunity to employ more Australians over the longer term as well.
Kathryn Robinson: Finally and very briefly, Senator, when do you expect to return to fiscal repair?
Simon Birmingham: So fiscal repair will come once we see that employment rate at levels that indeed are driving some of the things that we’ve seen in terms of stability in those employment levels that are seeing and pointing to growth in wages, a strong economy at that stage. And we are very pleased with the economic strength and resilience Australia has shown. But the global uncertainties are enormous right now. The risks that we face is still significant, and that’s why we’ve had to continue to invest to drive that jobs growth and to manage the COVID pandemic.
Kathryn Robinson: Senator Birmingham, thanks for your time.
Simon Birmingham: Thank you. My pleasure.