7 October 2018
Transcript - #2018035, 2018

Interview with David Speers, Speers on Sunday, Sky News

Subjects: Mental health; Australian dollar; US dollar; petrol prices; business tax cuts; energy prices; ACCC; Labor’s housing tax; and G20 meeting in Bali.

DAVID SPEERS:

Treasurer Josh Frydenberg, welcome to the program, good to see you there.

JOSH FRYDENBERG:

Nice to see you David.

DAVID SPEERS:

Look, before we get to all of that, this mental health announcement that you and Greg Hunt are making today. Australia’s suicide rate, we know has been climbing despite the extra money that has been spent on mental health.

So what are you hoping the Productivity Commission enquiry will achieve?

JOSH FRYDENBERG:

Well, four million Australians, David, have a chronic or episodic mental health issue every year and 1 in 5 Australians with a mental health issue do not seek support because of the perceived stigma involved.

So it is only appropriate that we are getting the Productivity Commission to look at how targeted and effective the $9 billion a year we spend on mental health, involving both the states and the territories as well, and to see if we can boost work force participation productivity and overall outcomes. Indeed, this was one of the recommendations from Professor Allan Fels who is the Chairman of the National Mental Health Commission.  

DAVID SPEERS:  

Are you aware of any federal money at least that is not delivering the best bang for buck when it comes to mental health support?

JOSH FRYDENBERG:

We are confident that we are spending the money wisely, but that’s the purpose behind the Productivity Commission report – to see if we can improve the overall outcomes. This is clearly a major issue for the community and one that affects so many people close to us all.

So we do need to ensure we put the best brains on the task and the Productivity Commission as you know have had extensive experience dealing not just with purely economic issues but also important social challenges like disabilities. And so this is something that Greg Hunt as the Health Minister has consulted with the states and the territories, I as the Treasurer with responsibility for the Productivity Commission, have come together in making this announcement.

DAVID SPEERS:

Number of things I want to talk to you about today, Treasurer. Bill Shorten is giving a speech in Western Sydney where, he’s going to, it’s called his ‘fair go action plan’. He will be saying that people tell me everything is going up except their wages.

Do you think he has got a point? Petrol prices, gas prices, private health insurance cover and a lot of things are going up, but wages not so much.

JOSH FRYDENBERG:

Well, real wages growth according to the wages price index, which is, you know, the key indicator in the most recent National Accounts was up 2.1 per cent. But we have seen slow wages growth. But the head of the Reserve Bank, Governor Lowe, has said even most recently that we will see gradual increases in real wages as the spare capacity in the labour market is eaten away. And we have also seen increased wages in some sectors already, like in health.

But the economy is strong, we have been creating around 1000 jobs a day, more than a million jobs, female workforce participation is at record highs, 100,000 plus young people got a job over the last year. This is the highest number since records were first kept. We are also seeing more seniors come into the workforce and we are encouraging that with policies that we announced, for example, in the last budget to allow people to keep the pension but also to work more and have greater income. So, we are absolutely focused on ensuring real wages growth going into the future. But, the key about Bill Shorten and his definition of fairness is that always somebody needs to be worse off. He is all about pitting the employer versus the employee; the government school versus the independent; the private health system versus the public. This is Labor’s battleline, it is class warfare and Bill Shorten thinks he is a radical revolutionary and its latest general.

DAVID SPEERS:

But, coming back to this point about cost of living. Yes, wage growth might be 2.1 per cent, as you point out, and that is driven by public sector wages. The point is prices are going up roughly the same amount. Let’s just go through a couple of them: petrol is apparently about to go through $2 dollars a litre in some parts of the country, is there anything you can do to stop that happening?

JOSH FRYDENBERG:

Well we have got the ACCC as the cop on the beat and Scott Morrison gave them a specific mandate to actually focus on this sector to ensure that there is no price gouging and if they make recommendations to us we will act upon them. When it comes to petrol prices, David, as you know it is a function of where the Australian dollar is and where global oil markets are, so it does fluctuate. But we’ve actually…

DAVID SPEERS:

And the Australian dollar has been coming down, it looks like it may go below 70 US cents; that is making petrol more expensive, as well as other imports.

JOSH FRYDENBERG:

It has an impact.

DAVID SPEERS:

Is that a good thing or a bad thing for the Australian dollar to come down that far?

JOSH FRYDENBERG:

Well, I’ll leave that to the Reserve Bank because they are the ones who are overseeing where our monetary policy is and the impact that it is having on our dollar. But, we watch it very closely. Obviously, as the Australian dollar comes down, that does make a difference to the costs of our exports and that supports certain industries. But, it also has other impacts and we will obviously be watching closely. The reason why the Australian dollar has come down a bit is because the US dollar has appreciated as they have had a fiscal stimulus, cutting company tax rates and so forth. That is impacting on their own interest rates and the Fed Reserve recently moved in that respect. But coming back to Bill Shorten…

DAVID SPEERS:

And that is quite right and it comes back to the point that you and many of your colleagues have been making for years, we need to cut our company tax rate to remain competitive with the US. Now, that you’ve basically binned those plans for big business company tax cuts, what is going to keep corporate Australia competitive?

JOSH FRYDENBERG:

Well, we have already indicated that we are going to look to bring forward our already legislated tax relief for small and medium sized enterprises – that is businesses with a turnover of less than $50 million dollars. Don’t forget that’s around 3 million businesses, employing around 7 million people, David. So, it is a huge chunk of the economy. But we are continuing to drive productivity, we are looking to cut regulation, we are looking to invest in infrastructure. We do not want to see a re-regulation of the labour market and an emboldened union movement, which is exactly what Bill Shorten is determined to do. He’s determined to put the ACTU and the union movement at the top table with a seat in Cabinet. And we’ve seen from Wayne Swan, the incoming president of the Labor Party and the Shadow Assistant Treasurer, Andrew Leigh, as well as Sally McManus, all make speeches in recent days which very clearly signal that the unions will have a much greater role in the Labor Party and with the Labor government, should it get to that point. And what is really important…    

DAVID SPEERS:

Just coming back to the…

JOSH FRYDENBERG:

Is that they see an emboldened, militant union movement as the tonic for inequality and we clearly disagree with them on that.

DAVID SPEERS:

Alright, just coming back to the cost of living though right now, so petrol prices are going up, power prices, well at least gas prices too. The ACCC reckons east coast gas prices could from $10.68 per kilojoule to $15 early next year. Is there anything you can do to stop that happening?

JOSH FRYDENBERG:

Well, as you know we have put in place a mechanism to restrict exports to ensure that prices are maintained here domestically and it was through the action of the Coalition Government that we saw gas prices come down by up to 50 per cent, according to the ACCC. So, we will take the necessary action to ensure sufficient domestic gas supply. That is something that Matt Canavan and Angus Taylor will be watching very closely. But, at the same time… 

DAVID SPEERS:

So will you stop prices getting to $15 a gigajoule by keeping more gas in Australia?

JOSH FRYDENBERG:

Well, we will do everything we can to keep gas prices down. If we want to actually get more gas into the domestic market, then some of these Labor governments need to lift their own moratoriums and restrictions, including here in Victoria where there is a forty years’ worth of supply, David, under the ground that is not being developed. But…

DAVID SPEERS:

Sure, but just to look at what you can do within your power as the Federal Government, can you stop gas prices going up 50 per cent?

JOSH FRYDENBERG:

Well, we can take action to restrict gas exports and we have seen already…

DAVID SPEERS:

And will you? Will you stop that happening?

JOSH FRYDENBERG:

Well, that is something that we are monitoring very closely. Prices came down significantly as a result of action we took and, don’t forget, we are taking action in all aspects of the energy supply chain and implementing the ACCC’s recommendation to get more generation capacity into the market, to put in place a default price.

And as a result of actions that we have taken, we saw prices come down in New South Wales, South Australia and Queensland from July 1 this year, as opposed to when Labor was last in government and prices doubled on their watch.

DAVID SPEERS:

Now, those prices, well, gas prices are apparently going to be going back up, petrol prices going up. House prices though are the one area we’re seeing fall – in the value of people’s homes. There’ve been some predictions they’re going to keep falling for another 24 months or so.

Do you think house prices have fallen enough or would you like to see them fall a bit further?

JOSH FRYDENBERG:

Well, they’ve fallen in the capital cities, David, for 12 consecutive months and that is coming off the back of, obviously, five years previous where they did go up quite a large amount, in some cases up to 75 per cent.

What we’ve now seen is prices come down to a more sustainable and healthy level and that’s the view of the Reserve Bank.

DAVID SPEERS:

So, it’s about right now? Is that what you’re saying? That the level they’re at now in the capital cities is about right?

JOSH FRYDENBERG:

Well, they’ve come back to a more reasonable level and let’s just see where they go from here. But what we don’t…

DAVID SPEERS:

Would you want to see them fall any further? Some reckon there’ll be another 10 per cent fall. Would that be too much of a decline?

JOSH FRYDENBERG:

Well, I’m guided here by the Reserve Bank because they’re the ones who are very much watching households’ debt levels and they’re watching what is happening in the housing market. And they say, right now it’s come down, David, to a more sustainable level.

But this is actually a function of action that we have taken at the federal level, including through APRA where they have tightened investor loans quite significantly and when Standard & Poor’s reaffirmed Australia’s AAA credit rating, just a couple of weeks ago, they made the point that there was an orderly unwind in the domestic housing market, so…

DAVID SPEERS:

That’s what I want to get to. I mean, when is it too much? I mean, people will get nervous if prices fall another 10 per cent, surely? Do you regard that as too much of a decline?

JOSH FRYDENBERG:

Well, what I can tell you is that some commentators and analysts have estimated that as a result of Labor’s property tax, mainly their attack on negative gearing and capital gains tax, will actually see a price fall of up to 9 or 10 per cent. Now, people have their greatest wealth…

DAVID SPEERS:

And that would be too much?

JOSH FRYDENBERG:

Of course Labor’s policies are an attack on household wealth and people’s number one asset, which is their home. It’s been criticised by a broad section…

DAVID SPEERS:

So, a 10 per cent fall would be too much?

JOSH FRYDENBERG:

What we are going to see is the housing market continue to moderate. None of us have a crystal ball as to where it’ll actually land. We’ve seen APRA’s changes have an impact, particularly in the dynamic of the housing market as it’s moved away from investors to owner occupiers. But Labor’s property tax will certainly be a bridge too far.

DAVID SPEERS:

On the GST, right now we’re seeing yourself and the Prime Minister argue we need legislation to lock in the new formula for distributing the GST revenue. Can you actually say that no state or territory will be worse off under the new arrangement?

JOSH FRYDENBERG:

Certainly and what we have done is taken a leadership role in providing a national solution to a national problem. And it’s important for your viewer to understand the context here because the current distribution model was unsustainable in the long term and the GST system and its integrity was being threatened when you had a state like Western Australia go down to 30 cents in the dollar.

So, we went to the Productivity Commission, we sought their advice and as a result of their advice and the data, I have to say, provided by the states and territories themselves, we’ve come up with a plan which would put a floor at 75 cents in the dollar under which no state can go below.

And what is more, we’ll open our own balance sheet and provide an additional $9 billion to the states and territories, including a billion dollars plus every year in perpetuity going forward. And under the numbers before us, the Productivity Commission, which are the states’ and territories’ own numbers, every single state and territory will be better off and the system will be a lot fairer.    

DAVID SPEERS:

Well, if you can say that no state will be worse off, which you agreed with initially there, why not guarantee that in the legislation?

JOSH FRYDENBERG:

Because what some of the states are wanting us to do is to run two parallel systems. They’re wanting us to run an old set of books based on what is the current system and a new set of books, which is based on the new system with the floor and the additional $9 billion. And based on…

DAVID SPEERS:

But I think what they want you to do is just guarantee they won’t be worse off based on, you know, the existing model. I mean, even Liberal treasurers are saying this. Dominic Perrottet in New South Wales says there are a number of scenarios where New South Wales would lose substantial funding – that is not an acceptable outcome.

JOSH FRYDENBERG:

Well, what we are guaranteeing is that we’re going to put an additional billion dollars a year into the GST pool in perpetuity. That wouldn’t have been there before. Now, this is a real test again for Bill Shorten. Because he was in Perth just a few weeks ago, campaigning next to a Labor Premier, Mark McGowan saying that he would support Scott Morrison’s legislation and he would support it in the Parliament.

Chris Bowen’s had three positions in two days. Firstly, he’s said that he supported the legislation, then he said he wasn’t so sure and now he wants to it to be more detailed. I mean, the Labor Party can’t walk both sides of the street here. They either support a fairer deal, which will see every state and territory better off or they can shout from the sidelines trying to make a political story where we’re focused on an economic outcome.

DAVID SPEERS:

Alright, Labor and every state and territory though is demanding this guarantee that they won’t be worse off. Are you saying there’s no way you’ll give them that? That’s not on the table?

JOSH FRYDENBERG:

David, our guarantee is in legislation that they will get an additional billion dollars plus each and every year. And the current situation is completely unsustainable in the long term. I mean, when Western Australia went down to 30 cents in the dollar, it was 2015-16 after the end of the mining boom and at the same time New South Wales was getting 90 cents in the dollar and Queensland more than a dollar, more than their own fair share.

DAVID SPEERS:

Just a quick one finally, you’re off to Bali this week for meetings with the International Monetary Fund and the World Bank. The IMF is worried that 10 years on from the Global Financial Crisis debt levels are now much higher, they certainly are in Australia, we know.

Do you believe there is any risk of another financial meltdown?

JOSH FRYDENBERG:

I believe that the world economy is strong and we’ve actually seen growth levels which are higher and unemployment levels which are low. But we continue to be vigilant and that is what I’ll be discussing with my finance ministerial counterparts in Bali at this G20, IMF, World Bank meeting.

The other thing that we will be talking about will be world trade because quite clearly, it’s in no one’s interest to, you know, have a tit for tat tariff war between major economies like the US and China and certainly not in Australia’s interests where we have been great beneficiaries of a rules-based trading system.

And Australia’s very strong economic growth, at 3.4 per cent is much higher than the OECD average of 2.5 per cent; our AAA credit rating from the three agencies is only held by nine other countries; and we’ve got our Budget deficit down to its lowest level in a decade.

So, Australia’s economy is very strong but we are affected by what happens internationally and that is why I will be sitting with my colleagues and working through some of these challenges including international trade and global debt levels.

DAVID SPEERS:

Alright, Treasurer Josh Frydenberg, thanks so much for joining us today. Appreciate it.

JOSH FRYDENBERG:

Good to be with you.