Topics: Budget 2021-22;
Tom Connell: We’ve got the Prime Minister and his Ministers across the country right now trying to sell the budget to voters and of course, the media as well. We find Simon Birmingham the Finance Minister in WA spreading the message there, and he joins me live now. Minister, thanks very much for your time. You’re trying to sell the budget are voters there saying. Well, this is all great. You’re just spending the amount of money, that huge amount of money coming in from iron ore.
Simon Birmingham: G’day Tom, well look, it’s good to be with you. Certainly the voters that I’ve met across a number of electorates in WA appreciate that the circumstances around the pandemic have hit the global economy for six, that we’ve seen a situation where the world was dragged into recession. Australia facing our first recession in 30 years last year. In other parts of the world, you’re getting a double dip recession occurring. But here in Australia, our recovery going incredibly well. And people want to make sure we continue to invest in that recovery, in the safety of their lives and the security of their jobs. And that is exactly where our focus in this budget is continuing the economic recovery with strength, with focus to make sure we can get Australia through these tough times and ensure we are well set up for the future. We went into this pandemic with debt levels low by global standards. And despite the spending that’s had to be undertaken and the investments that are being made, we will come out with debt that is still low relative to many of our international competitors.
Tom Connell: The iron ore bounty, if you like, it’s temporary and it improved the state of the budget, but a lot of the money that came in is being spent and a lot of that being spent structurally. So the structural deficit, four per cent and that’s going to last as a structural deficit for years. Why wasn’t it offset with structural savings?
Simon Birmingham: Tom, in fact, we’ve taken a very conservative approach once again to iron ore pricing. Yes, there is a dividend in the current financial year because iron ore has again exceeded budget forecasts. But we’ve again forecast for it to track down to fifty five dollars a tonne from the two hundred dollars approximate that we’re seeing at current pricing levels. That means we are showing a degree of cautiousness and conservatism when it comes to the forecasting and the expected revenue from those types of commodities. Equally, we’ve made sure in this budget that we have deficits tracking down and particularly tracking down as a share of the economy and the debt forecast at a lower level for each of the next 10 years than had been forecast in last year’s budget. So we’ve been able to frame a budget, the second pandemic budget that continues to respond to the Covid situation, focuses on keeping people safe, invests in our long term economic recovery and growth, but also delivers our promises around essential services, all while ensuring that that debt level comes in lower than had been forecast at last year’s budget.
Tom Connell: Let’s go to that point then, actually, because the budget papers explain it’s all sustainable because the economy grows faster than our borrowing costs. And the borrowing costs, of course, are crucial to this. If they change, if they go up. What will your approach be then?
Simon Birmingham: Well, in terms of borrowing costs, we’re relying on a few different factors. One, of course, are the consistency still of international forecasts, our own Reserve Bank and others expecting interest rates to remain at historically low levels. We’re also using this current time to lock in some of that debt at those low levels, so long term arrangements in terms of debt financing to be able to provide some stability and certainty. And, of course, those debts that we already had as they roll over being locked in at a lower interest rate levels as well in terms of the servicing costs. So, again, we’re taking a careful and we believe prudent approach there. And the only way we manage to secure sustainable management of the nation’s finances for the future is by having a strong economy. You’ve got to have a growing economy with record numbers of Australians in jobs to be able to drive our way back to a point of budget balance. That’s ultimately what got us to the point of budget balance in the first place. Coming into this pandemic was record high levels of workforce participation, record lows in relation to welfare dependency, and that achieved the budget dividend. And that’s why in this budget, our pursuit of an unemployment rate below five per cent and the creation of a further two hundred and fifty thousand jobs driven by our strategies, be it our digital economy strategy, our manufacturing strategy, AG 2030 strategy, the tax cuts, particularly to bring forward business investment. All of that is about creating the right circumstances for economic growth, jobs growth and from that, being able to fund those essential services.
Tom Connell: But just on borrowing costs short term, sure, all the forecast will stay low, but they could go up in the medium term, if that happens, it’s going to be very difficult for us to respond in real time. There’s a real chance in the future Australia loses its triple-A credit rating from one or more of the agencies. Right.
Simon Birmingham: Well, the agency’s response to this budget has been very strong and very positive in terms of recognising the fact that we have managed to keep those future date forecasts below what had been expected in last year’s budget, that we are taking a cautious approach in relation to these areas and that we are investing particularly in that economic growth dividend. And this budget is around 40 billion dollars of further temporary measures to respond to COVID and most of those in terms of driving forward economic growth, close to 20 billion dollars.
Tom Connell: What are the billions in structural? You mentioned temporary, but what’s the billions in structural that have been added on in this budget?
Simon Birmingham: Look, there are areas of structural spends, the seventeen point seven dollars billion additional funding in relation to aged care is a structural spend way open and honest about that. But I think Australians expect us to honour our promise, which we took to the last election, to respond comprehensively to the aged care royal commission. And that’s not just about spending. It’s about the reforms that we will enact, as well, reforms to guarantee minimum care time for residents in aged care facilities to step up the auditing and the quality controls the transparency around that and to reform the way in which bed licences are allocated, all of it designed to improve the conditions in our aged care sector. Which I haven’t met an Australian yet who doesn’t think we should be investing in that.
Tom Connell: No side is arguing with that. But what about structural savings to pay for that? Why were they not looked at or were they looked at and you decided not to go ahead with them.
Simon Birmingham: Well, what we’ve looked at carefully is the fact that right now, driving economic growth is the most important way to secure Australia’s strength out of the Covid-19 pandemic, to secure our strength in recovering from the COVID induced recession we faced last year. And that that is the best way to have confidence that we can deliver and fund those services for the future. And the analysis that that has clearly been undertaken does show from be it from the experts in our own economic agencies of the Treasury, the Reserve Bank or those international ratings agencies, that they see Australia’s position as being a sustainable one for the future.
Tom Connell: If we lose that triple-A credit rating. Would you see that as a failure if that happened on your watch?
Simon Birmingham: Well, I’m not expecting that to happen, Tom, and the ratings agencies themselves issued their own statements in their own words last week in which they were very positive about the government’s strategy and this budget and the approach that we are taking. And they acknowledge that a number of our assumptions are still quite conservative, such as the iron ore price that we were talking about, even in terms of the unemployment forecasts, the assumptions and projections built into the budget through Treasury are a little bit more conservative than those of the Reserve Bank. We are taking a careful approach in all of these ways.
Tom Connell: Let me ask you this, the medium term fiscal framework adopted by Peter Costello was for a balanced budget. Are you aiming to return to that at some stage? Because that’s not in this budget, is it?
Simon Birmingham: Look, over the medium term, we certainly hope to see budget improvements that ultimately give us a position to work back towards balance, but that is going to take some time.
Tom Connell: How long?
Simon Birmingham: This has been the biggest economic shock. Tom, I can’t put a fixed date on that at present. We’re dealing with great global uncertainty right now. And we are facing in the eurozone a double dip recession. We’re facing COVID spreading not just through India, but through many other countries right here in our region in ways that we haven’t seen before. And that is certainly threatening aspects of the global economic recovery in Australia. The most important factor is to continue to keep COVID suppressed, which is allowing our economy to function in far more normal ways than much of the rest of the world. And so we’ve got to get through these globally uncertain times. They are the biggest worldwide challenge that we’ve seen in an economic sense since World War two or the Great Depression.
Tom Connell: So on the budget repair aspect, if that ultimately does involve savings and significant ones, would you take them to an election, not just announce them after an election?
Simon Birmingham: Tom, certainly I want to be very clear, we will honour the promises that we make to the electorate. At the last election, we promised that we would fully fund the NDIS, that we would respond comprehensively to the aged care royal commission, that we would take action in relation to suicide prevention in this budget. We are delivering on those promises. We’re fully funding the NDIS to the tune of an additional 13 billion dollars and we’re delivering seventeen point seven dollars billion into aged care, two point three dollars billion into mental health and suicide prevention. We’re doing that whilst keeping the debt lower than had been forecast before. But we will absolutely honour those commitments we’re making into the future.
Tom Connell: Yeah, but it’s sometimes it’s what’s not said. And we remember what happened in a previous government that, so if there were major separate savings somewhere else, would you take them to an election, tell the voters about them rather than just announce them after an election?
Simon Birmingham: Certainly, we are being very transparent in terms of our strategy and our approach, of course, we would wish that we did not face the death pressures that were there, as we would wish that we didn’t face a global pandemic, but respond to it we have had to do, we’ve done so in ways that we think are responsible and measured. It’s been given a tick of approval from global rating agencies and other economic forecasters and commentators the world over in terms of Australia’s response to date. And they’ve all indicated they believe Australia’s position is a sustainable, strong one for the future.
Tom Connell: We’ll leave it there. We’ll let you get back out to the voters there of Perth at sunny Cottesloe. But we appreciate your time this morning, Finance Minister.
Simon Birmingham: Thanks, Tom. My pleasure.