Topics: Budget 2022
Wednesday 30 March 2022
Holly Stearnes: Minister for Finance of Australia Simon Birmingham joins us now. Minister, thank you so much for your time today on Ticker News.
Simon Birmingham: Hello, Holly. It’s great to be with you again.
Holly Stearnes: Lovely to have your company. Now, tell us, how is this Budget going to help Australians?
Simon Birmingham: Well, it’s the Budget that first and foremost delivers on our economic plan and solidifies it for the future, making sure that Australia’s world leading economic recovery from COVID-19 continues, ensuring that our record job breaking run continues that is forecast to drive unemployment down to 3.75%, the lowest levels Australia has seen in 50 years. We’re ensuring that we take the dividends of a stronger economy and deliver lower deficits and lower debt than would have otherwise been the case. More than a $100 billion reduction in forecast deficits as a result of the economic strength that Australia’s enjoying, but also ensuring that we help Australians with immediate cost of living pressures, that we’re responsive to the fact that the war in Ukraine has seen a huge spike in oil prices. That of course is hurting many, many Australians. And so, as we did with COVID-19, temporary targeted responses to unforeseen events, we’re doing the same here, cutting fuel excise by 22 cents a litre, ensuring that there’s additional payments for low and middle income earners and fixed income earners on government payments. That’s all about ensuring we maintain consumer confidence and help people with those cost of living pressures.
Holly Stearnes: Now, the defence of course says this is a short sighted Budget to get through to elections, for example, on the plan to remove the fuel cut after six months. They also say it’s an act of political desperation. What do you say to that? And I guess my question is, would a fuel excise still be on the table if an election wasn’t just around the corner?
Simon Birmingham: Well, it definitely would be because of the extreme spikes we’ve seen. And as I alluded to before, the fuel excise cut isn’t just about the immediate help for Australians with cost of living. It’s about maintaining consumer confidence and business confidence because we know that fuel prices have a direct impact in terms of the way Australians feel, and if we don’t maintain that confidence, then it can disrupt the economic growth for Australia. We showed during COVID-19 a long, long way away from elections at that time that where unforeseen global events had a direct impact on Australians or Australian businesses, we would respond in targeted, temporary and responsible ways, in this case oil price spikes, which aren’t expected to stay at these elevated levels forever. We are again responding in temporary, targeted ways that are responsible in terms of not undermining the long term structure of the nation’s Budget, but do help Australians with those pressures right now and also help to ensure our economy remains strong.
Holly Stearnes: Minister, so far we’ve seen the government’s stimulus strategy be a winner, but ongoing deficits ultimately have to be financed with debt. We’ve seen debt rising while the price of that debt is also rising. Is this a concern for you?
Simon Birmingham: Look, it is a concern in the sense that we must always be mindful of keeping deficits as low as possible and as manageable as possible. And it’s why we’ve taken the vast majority of the dividend from a stronger economy and put it towards having lower deficits and achieving lower debt than had previously been forecast. In fact, the estimates going forward for deficits as a share of the nation’s economy, as a share of GDP are that they’ll now be running around half of what had previously been forecast. So, this is a substantial improvement in the nation’s finances. Delivering that is critical to maintaining our triple-A credit rating. We’re one of only nine countries in the world to have that triple-A rating from all three of the major international ratings agencies. That’s a demonstration of the confidence they have in Australia’s Budget management. And again with this Budget those ratings agencies will see a very conservative and cautious approach taken where we assume that commodity prices drop back to historic lower levels within the period of six months. So we’re not banking any element of higher commodity prices into the future. We’re ensuring that we take the very cautious approach that has ensured Australia’s borrowing costs can stay as low as possible thanks to that triple-A credit rating.
Holly Stearnes: Now Australians will be showered with one off cash payments and cuts to petrol as we spoke about, as well as income taxes, all designed to lower the cost of living. But will that extra money eventually result in higher inflation fuelling the Reserve Bank to raise interest rates?
Simon Birmingham: Well, Treasury’s very careful modelling shows our projections for inflation and that takes account of all of the Budget decisions that have been made. In relation to the decision of our petrol excise, a very important element there is that yes, when petrol prices are rising, they add very directly to inflation. This is going to reduce petrol prices by 22 cents a litre, so that will actually take away from inflation for a period of time and that will be of benefit, not just to cost of living for households, not just to areas of consumer confidence, as I spoke about before, but it will also have knock on benefits in terms of business costs, elements in the economy, too. So we’ve been very careful in making sure the measures we apply here don’t add to those inflationary elements. We know that overseas there are significant pressures on interest rates globally, and central banks have indicated that there will be a normalisation of those rates. But to date, Australia has managed to better manage inflationary pressures than anywhere else in the world, with inflation running around half that of the United States or other nations. And this carefully structured Budget is about keeping those inflationary pressures as low as we can. We can’t avoid all of them from a global economy, but we can be very careful and targeted as we have been.
Holly Stearnes: Okay. Now a question on most people’s minds at the moment. Are Aussie wages rising fast enough to keep up with the cost of living? And in regards to the low unemployment rate, as more people get into work, they’ll see upward pressure on wages. So will people be competing for workers?
Simon Birmingham: So indeed, we do see a recovery in terms of growth in wages over the next few years. That from one July this year we’re forecasting three and a quarter per cent wages growth ahead of inflation. So real wages growth and that growing over the Budget forward estimates to three and a half per cent growth. This is the dividend of having a strong economy in the labour market and having these record low unemployment rates that we do see the pressure that achieves real wages outcomes across the economy. They’re not the only factors our investment in productive infrastructure around the economy, initiatives to achieve higher uptake of skills, particularly in small businesses, but also with apprenticeships, investment in our digital economy strategy and driving higher uptake of digital technologies, particularly across small businesses, are tax incentives for all businesses to bring forward investment have been achieving higher levels of investment in the economy, business investment and non-mining sector investment in Australia. They all add to the productivity of the country in different ways and again can help to achieve a sustainable, improved wages outcome into the future.
Holly Stearnes: And we do have to wrap things up. But I lastly wanted to get your justification on this as well. We know that a significant amount of money will be going towards Defence Force and military as well and also moving forward, a significant amount of money will be going towards cyber security moving forward. How do you guys justify this? I mean, the world is in a pretty volatile spot at the moment as well, with the war in Ukraine.
Simon Birmingham: The world is in a very volatile position. The uncertainties of the globe from the aftershocks of COVID, disruptions to global shipping and transport, Russia’s horrific invasion and actions on Ukraine, and China’s more assertive posture in a range of different ways have all had destabilising impacts around the globe. We have taken the decision long ago to restore Australia’s defence spending, which had eroded on our election by the previous government to the lowest levels since 1938 as a share of the economy. We’ve restored that to 2% of GDP, that’s enabled us to invest more in defence capability in our Navy, our Air Force, our Army. We’ll continue to do that through investment in new technologies and missiles and artificial intelligence, through the AUKUS pact that we struck with the US and the UK. But in this Budget, we have particularly identified the new area of warfare, cyber warfare, as being an important sphere for investment, a $9.9 billion investment over the next decade to enhance both defensive and offensive cyber capabilities, which is about ensuring that our banking sector, our telecommunications sector, our energy sectors, all of our transport and logistics, all of the areas of government operations, can be effectively protected from cyber-attacks, which Australia has seen in the past. And if we look at what happened in the Ukraine, before a single bullet was fired, we saw Russia launch cyber-attacks on Ukraine, and this area of new warfare is something we have to be well prepared for. Thankfully, we are with a world leading capability in the Australian Signals Directorate already, but this investment will keep us ahead of the game.
Holly Stearnes: Minister Simon Birmingham, thank you so much for your time today and breaking this down for us. Take care, thank you.
Simon Birmingham: Thank you. My pleasure.