Topics: Economic recovery; tax increases; tax receipts; GDP; Monetary policy settings;
06/12/2021
9:10AM AEST
Question: The Minister as Michael Stutchbury mentions has been generous enough to give us more of his time for questions. Minister, thank you very much for your address and as you mentioned considering the audience in the room we might start with the balance sheet if we could, the balance sheet of the country. Budget repair, the significant budget repair that is going to have to take place over the coming years to balance the book. You touched on it a bit but could you just give us a bit more of an idea, just spell out exactly how you plan to prepare the budget, how you plan to bring down the significant deficits over the coming years.
Simon Birmingham: Thank you, and as I said we outline very clearly two stages to the Government’s fiscal strategy, to our budget strategy. The first one, right now continues to be the focus on the economic recovery because we know without a strong recovery we will end up in a far worse budget situation. One of the drivers of our improved budget performance that has been beating expectations both last financial year and now this financial year is having more Australians in work and less on welfare.
That we get from around 200,000 Australians not being on JobSeeker that we save several billion dollars in terms of the payments out and we earn a couple billion dollars in increased revenue in taxes collected. So the focus on recovery first and foremost is essential.
But, we identify as well the future stage which is to very much focus on how we ensure that we keep the economy growing faster than Government debt so that we can over time stabilise and then reduce government debt as a share of GDP, as a relative share to the size of the economy. Now, that is to make sure that we maintain what is still a relatively world-leading position in relation to Australia’s debt profile. So we still hold our AAA credit rating, we are only one of nine countries in the world to be AAA rated by all of the world’s leading three major credit rating agencies. We want to make sure that we hold onto that. That as a country we where we have far lower share of debt to GDP compared with many other countries, we keep that low and we drive it lower. How we do that? Well, it is all about spending restraint. It’s why I identified the priorities that we’ve outlined as a Government for spending pressures in the future – disability services, aged care, national security – these are obvious and evident pressures where we have to meet those costs. That means you have to show restraint elsewhere to be able to meet those costs, you can’t promise everything to everyone or else it will blow out faster than the economy grows.
Question: That’s going to be one side but the revenue is going to be pretty critical as well, considering just the size of the deficits that we’re looking at. What about tax increases? You’ve been pretty careful to make sure to not pledge any sort of tax increases, but there seems to be a view out there in the market that they’re going to have to be inevitable to make significant inroads into the budget position and get it back to black.
Simon Birmingham: We don’t accept that. And the lived experience we’re having at present is that the tax cuts that we’ve delivered and continue to deliver, be it through an effective lower company tax rate by full expensing measures, albeit through the actual reductions in income tax. We’ve outlined and we’ve delivered on those policies and the lived experience we’re seeing today is that Australian businesses and Australian households are getting to keep more, a greater share of what they earn and to reinvest it themselves, but because it’s delivering a stronger economy overall. We’ve still seen government revenue exceed expectations and that we are collecting more company tax and more income tax than we had forecast or expected, notwithstanding those lower taxes that we’ve rolled out to businesses. So our position is going to continue to be one of backing lower taxes and seeing that as being an essential way to keep that economic confidence, business confidence, consumer confidence to drive investment. There are all the essential parameters of delivering that growth. So we certainly won’t be looking at ways to increase tax on business or households in the future because we see that as very much a counterproductive thing that will only dampen confidence and hurt growth. And if you do that, that’s when you enter that type of vicious spiral situation where you ever chasing your tail, you’re not getting the growth that you need and you’re not getting the budget outcomes that you want, either.
Question: Aren’t a lot of those receipts that you’re getting a bit from tax receipts, from corporates or income tax predicated on an economy that is in flux? I mean, we’ve had huge stimulus pumped into the economy. Obviously a lot of spending in retail shops and so forth. You’ve had iron ore doing well. That’s coming off. You’ve got China suggesting that they’re looking to diversify away from Australia as well as Brazilian iron ore. I mean, there is a lot of uncertainty as far as the major revenue drivers for the Australian economy. So isn’t that going to potentially leave a bit of a question mark over the ability to maintain that level of tax receipts?
Simon Birmingham: You’re right that there are serious uncertainties that we face and that’s why nothing around our economic recovery can or should be taken for granted and why we do need to ensure that we continue to pursue very carefully some of those strategies that I outlined towards the end of my remarks. Our manufacturing strategy, our Ag 2030 strategy, our digital economy strategy focussed and targeted on the areas that we see as having the greatest prospects of driving growth. We have to support key industries to transition. Our critical minerals strategies and policies are about growing new areas of the resources industry in Australia. Our investment in relation to hydrogen energy and its potential in the establishment of seven hydrogen hubs around the country is again about recognising that for our export sectors, we do need to help them to transition to a new economy world and to make sure that they are as best placed as possible to guarantee those-
Question: That’s decades away though isn’t it? I mean, the idea of these hydrogen energy hubs and so forth and the transition, I mean, that’s years and years away.
Simon Birmingham: And we’ve got to be making that investment now for where Japan or Korea or others decide in the decades to come that they want to transition from using our LNG to using new fuels. We want to make sure that we retain our position as their preferred energy supplier of choice into the future. We have been for the decades past be that iron ore, or coal or LNG, and we want to be as strongly positioned as possible in the future to continue that. And the great thing particularly about countries like Japan and Korea, is that they want to be investment partners with Australia in developing those new industries because they have long benefited from us as being a reliable, dependable supplier of affordable, quality energy and resources. And that’s precisely what they want us to be in the future for their new and future needs.
Question: We just had a negative quarter of GDP. No one’s talking about a recession, obviously, at the moment. But what from your perspective, what is the December quarter look like particularly considering the RBA governor very much describing the recovery in the Australian economy as uneven. What are you seeing and expecting for the next quarter?
Simon Birmingham: We are seeing every reason to be optimistic about the December quarter. That the recovery in jobs from the ABS payroll jobs data showing that 350,000 employment surge happening post September, the strength of consumer and business confidence, the strength of retail trade spending that we’ve seen so far. Put that on top of the strong terms of trade that continue to exist. And whilst iron ore prices may have come down quite a bit in recent times, we’ve seen the increase in terms of prices in relation to coal and to LNG, providing a strong uplift in terms of benefit to Australia from those commodities. So that alongside what notwithstanding, some of the recent weather events still looks like being a very strong harvest and an agricultural sector performing strongly. These all point to really strong fundamentals. The fact as well that we’re seeing states, broadly speaking, continue to move with the national plan and not be panicked by Omicron. The decision in my home state here over the weekend of Steven Marshall, who was the first premier to decide from a COVID-free state to open borders to New South Wales and Victoria. Steven Marshall’s decision to keep those borders open is a really important signal. It’s a sign of strength and it’s a sign of confidence in the reopening agenda. And pleasingly, Anastasia Palaszczuk now looks like they may well proceed with their reopening at 80 per cent double dose, which could be even sooner and earlier than expected. And so that again, is only going to help to provide some of those parts of the economy that have struggled the most during COVID, the travel and tourism and business events sectors with an opportunity to plan for next year with confidence.
Question: Considering some of those strengths and some of these strengths you mentioned during your address. Our monetary policy settings, too loose at the moment, do you think? You’ve had the [indistinct] lift, there’s talk of other central banks as well, moving beyond emergency rates. The RBA at the moment is not saying move until 2024. Do you think, as it stands, it’s too loose, settings?
Simon Birmingham: No, not at this stage. The RBA has sought to provide a real confidence to Australian business and households through those longer term expectations around interest rates. That, of course, in terms of monetary policy having reached such lows, they had fewer levers that they could pull to provide that type of confidence and support across the economy. One of them has been to make those longer range predictions and commitments around keeping rates low, and that certainly does appear to have worked in terms of providing households and business with more confidence to borrow to invest. Although, as you can see from the savings figures that I outlined as well, you know, we’ve got Australians who are still taking a cautious, careful approach to in relation to their household savings and their investment profile and businesses doing likewise. And if you sit down and I’m sure, as you will over the course of this summit, talk to the banks, they’ll tell you about how far ahead of repayments many Australians are, the rates of savings that they’re seeing business and household balance sheets. And that shows, yes, both a real potential to be able to underpin future growth as perhaps households when they see COVID more squarely in the rear-view mirror and start to unleash their potential with some of those savings from households and businesses. But it also shows a holding of reserves to guard against any potential uncertainties. And I think that shows a sense of caution. That means the bank is right to continue to try to provide that longer term confidence for the economy.
Question: Minister, as mentioned, we do appreciate you joining us today and being so generous with your time. Thank you very much.
Simon Birmingham: Thank you very much. Thanks, everyone.
[END]