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Source: Australian Treasurer

ROSS GREENWOOD:

The Treasurer joins me on the program now. Josh Frydenberg, many thanks for your time. 

JOSH FRYDENBERG:

Nice to be with you, Ross. 

ROSS GREENWOOD:

Can you explain why it was, after four years of not reaching this inflation target, you decided to reaffirm it?  Because the talk around town was that you were looking at this critically, you were observing this critically and you may actually reduce the target. Why was it you decided to hold on to it at 2 to 3 per cent?  

JOSH FRYDENBERG:

Well, you’re right we have carefully considered that target and the Statement on the Monetary Policy Framework that is signed between a Treasurer and the Reserve Bank. But after that careful consideration, and after discussions between Treasury and the Reserve Bank of Australia, we decided that, at this time of global uncertainty, we needed continuity and certainty in our monetary policy framework. And it has served Australia very well. As you know, this document came into being after 1996 and the election of the Howard Government, the then new Treasurer Peter Costello put this in place with the then new Governor. What we have seen, over the last 10 years, is that our inflation has averaged 2.1 per cent and over the 20 year average, it’s been 2.6 per cent. So it has been in the band but the experience more recently, as you pointed out in the introduction to your program, has been we have been below that band but Australia is not alone in that, Ross. Countries right throughout the world, in fact, three quarters of the advanced economies throughout the world have inflation rates of 2 per cent or below. And this is a relative new phenomenon and we do think that inflation will rise over time from its current rate at 1.7 per cent. 

ROSS GREENWOOD:

One of the big problems right now, and you and I have discussed this before, is it would seem that monetary policy, in other words, just bringing interest rates down close to zero, which most other Western economies around have the world have done, is not working.  In other words, some people are now arguing whether it’s, in fact, contrary to Australia’s economic interests. We can see, even with your tax cuts, they have not been fully spent, they’ve not really come through the retail sales figures, things are sluggish and the big question now is whether they’ve had the opposite effect to what was desired and that is that people are sitting on that money and not spending it to try and get the economy going again. 

JOSH FRYDENBERG:

Well, when you have lower interest rates, you have winners and you have losers. Those who benefit are those who are borrowing and those who effectively do it tougher are those who are putting their money in the bank and the depositors. And what we have seen, though, since the reduction in the interest rates and the election in May is an improvement in the housing market. And that’s not insignificant, Ross. As you know, that’s the major decision for a lot of people – to buy a property or, indeed, sometimes it can be an investment property, and what we had seen previously is house prices come down for a year and a half but now they’ve picked up, clearance rates have increased and that will play, I think, in over time to Australian’s consumption because it will also play into their confidence. 

JOSH FRYDENBERG:

Isn’t that bit of a sucker’s game, really, Josh?  Because one of the problems is, yes, people might rush back into the property market but we already have some of the highest household debts in the world today; 190 per cent of our income. So, if you’re suddenly saying that the way in which we get the economy going again is to push people back into the housing markets, push up housing prices and, as a result, maybe you do stimulate a bit in the retail sales but isn’t that really just pushing the can down the road a little bit in terms of the debts people have got?  Maybe it’s not a bad thing people have actually saved your tax cuts, saved the interest rate cuts from the Reserve Bank and tried to recognise their situations by bringing their household debts down a bit?  

JOSH FRYDENBERG:

Well, we do know that people have, in many cases, a high level of household debt but their household assets are actually around five times what their debt levels are, so you don’t want to look at the debt issue in isolation from their asset issue, and you’ve also seen the Reserve Bank say that this is actually manageable. But when more people come into the housing market, they’re not just buying existing properties, they’re also buying new properties and that can boost dwelling construction and dwelling investment and that’s important to job creation throughout the economy. So, I would rather have people’s values in their home going up, to be honest, than going down because that does play into the overall confidence across the economy. 

ROSS GREENWOOD:

Is there a spark that you think is needed right now to try and get this sluggish nature of the economy  I mean, you and I can recognise it.  The economy’s not going into recession but the fact of the matter is that many households right now are pretty much there at the moment. They’re tightening their belts. It doesn’t matter whether it’s meat prices as a result of the drought, it doesn’t matter whether it’s electricity prices or whether, in fact, it’s their private health insurance premiums; there’s a squeeze on the household. The fact is, is there a spark that you think is going to get them going again, given the fact that around 60 per cent of Australia’s economy is made up of private consumption?   

JOSH FRYDENBERG:

Well, while my political opponents will continually talk down the Australian economy, Ross, what I will tell you, and your listeners, is that, actually, the fundamentals of the economy are sound. We have a AAA credit rating, we’re brought the budget back into balance for the first time in 11 years, we have a current account surplus for the first time since 1975 and, importantly to your listeners, the labour market is strong. I mean, we have employment growth at 2.5 per cent today, which is more than three times what we inherited. When we came to government, unemployment under Labor was 5.7 per cent. Today, that is well below that at 5.2 per cent…

ROSS GREENWOOD:

I get that but then there are more people who have got dual incomes in their families because they have to; they need that extra job to keep it going. There are more people with multiple jobs ever than in Australia’s history. People are having to work harder. I just wonder whether this is a part of the pressure, the stress of life these days, that, just to really keep themselves afloat, more people are having to work even harder, maybe make some sacrifices about the kids, maybe these are the pressures of life that we hear about that really make things tougher for especially people living in cities where the house prices have been so high for so long?  

JOSH FRYDENBERG:

Well, you’re certainly right that there are some real stresses and strains on household budgets. Cost of living is high, energy prices are still higher than we would like them to be, for example. And, of course, the drought has been punishing particularly on those communities that have been directly affected but we’ve all felt the pain that has befallen those communities. At the same time, you’ve got global uncertainty, trade tensions between the United States and China, which has led people to be, you know, a little cautious because, obviously, that has fuelled a little bit of uncertainty, particularly in the business sector. But, at the same time, when we put out the budget, Ross, we were very conscious of these challenges that the economy faces and our plan was to live within our means, which I hope all your listeners would understand, because if we keep spending not in a targeted and responsible manner, then the only thing that goes up is taxes and, as you know, we’re committed to lower taxes. We’ve also been investing record amounts in infrastructure, we legislated those tax cuts which were the most significant in more than 20 years, and we’re doing the other structural reform, whether it’s deregulation or industrial relation reform or other areas that we’re focussed on. And because you have a strong economy, it’s not a trophy for the cabinet. What it is, is an ability to spend on things that matter to your listeners. That is the NDIS, where we’re going to increase from $8.5 billion today to around $13 billion in three years’ time as that program goes from having 300,000 people to 500,000. As well as record spending on hospitals and schools, more drugs on the PBS. That’s what you get from a strong economy, so we’re going to be stable, we’re going to be certain, we’re going to be considered in our approach. What we won’t do is go down the path of pink batts and overpriced school halls… 

ROSS GREENWOOD:

I thoroughly get that… 

JOSH FRYDENBERG:

That Labor was well known for.

ROSS GREENWOOD:

Given the fact you have the budget back into surplus, we will see more in the Mid-Year Economic and Fiscal Outlook in December and, obviously, in the Budget in May next year, but just in regards to that, it is likely that you may have more money than you previously budgeted for in those surpluses. What would you do with that additional money if you do have extra money through the surplus that you do eventually accumulate?

JOSH FRYDENBERG:

Well, we have already announced some additional funding for drought measures and the Prime Minister has signalled that there will be more to come in coming days. Then we’ve also recently had the interim report from the Royal Commission into Aged Care and we’ve said we will be spending more on that sector because that’s really important to our senior Australians and to their families, and we’re also talking to the States about which infrastructure projects could be potentially brought forward. But it’s really important to understand the reason why the budget is now back on track is actually because we’ve got a record number of Australians in work. When you get people into work, and you move them off welfare, you have less payments because you’ve got less welfare payments but also you’ve got revenues coming in because people are working so they’re paying tax. It’s that combination, on the payment side and revenue side, with having record numbers of Australians in work, which has delivered our stronger budget position. And we’ve also been spending record amounts on schools and hospitals, drugs on the PBS, the NDIS, all the things that matter to your listeners. 

ROSS GREENWOOD:

Okay, so, Josh, as a Treasurer, right now, you have announced tax cuts and you’ve announced a tax plan. It went to the election, people have voted for it. I totally get that. Yes, you are flattening out the tax scales in the future tax cuts. I totally get that. But it’s not really the whole bootstraps, sort of belt and braces type tax reform that many people would like to see of the GST, trying to bring down corporate tax, end of personal taxes as well to really try and stimulate the economy. Inside you as a Treasurer, do you sense that there is that desire for a big, big change to our tax system?  

JOSH FRYDENBERG:

Well, we’re constantly looking for opportunities to improve our tax systems. As you know, it’s not just been on the income tax side that we’ve made changes, we’ve also reduced the tax rates for companies with turnover of under $50 million. We announced an extension of the instant asset writeoff on the budget which will allow the local cafe or the local hairdresser or the local tradie to purchase tools or equipment up to $30,000 and then write it off instantly. There are things we’re doing in the tax system which are improving the bottom line for businesses but don’t understate what we have passed through the parliament in relation to income tax. Over the last two budgets, Ross, we’ve passed more than $300 billion worth of tax cuts. We’re getting rid of one whole tax bracket, the 37 cents in the dollar tax bracket, and if Australians are earning between $45,000 and $200,000, they’ll pay a marginal rate of no more than 30 cents in the dollar. This means that they won’t be hit by bracket creep, if they get a promotion, they work a few extra hours, they take a second job. I think this will be really, really beneficial to millions of Australians who will fall in that big middle tax cut bracket.

ROSS GREENWOOD:

Final one. Did you back the winner of the Cup today?  

JOSH FRYDENBERG:

No, I didn’t but I’m as happy as you are that an Aussie horse got there.

ROSS GREENWOOD:

So did you have a bet on the Cup today?  

JOSH FRYDENBERG:

I didn’t but I was you know, I had… 

ROSS GREENWOOD:

Are you telling me we’ve got a prudent Treasurer, is that what you’re telling me?  

JOSH FRYDENBERG:

Well, as you know, I’m not a big gambler. Surprise Baby was the one I was having belief that could maybe get there in the end but someone who I know is in the horse industry said this horse is from Horsham, it’s been trained in Australia, it’s got a great story, it’s a roughie out there, so I was hoping Surprise Baby would come in but I’m really pleased to see an Aussie horse get there and it sounds like it’s a great story. 

ROSS GREENWOOD:

Vow and Declare. I tell you what the other great Aussie story over the weekend, Ash Barty. Josh Frydenberg, as a former tennis player, how happy were you with that?  

JOSH FRYDENBERG:

What a remarkable story! Three years ago, Ross, she was 999 in the world. Now has had the most wins of the year in terms of the tour, has made records amounts of money, won the French Open, I’m really hoping that Australia can win the Federation Cup against France, which is coming up as well as, of course, hoping to see Ash Barty win in the Australian Open. Don’t want to put too much pressure on her.  

ROSS GREENWOOD:

Let her go deep in the Australian Open.

JOSH FRYDENBERG:

Sounds like she’s a red hot chance. 

ROSS GREENWOOD:

Josh Frydenberg, our Treasurer, and a very keen tennis player, not only as a junior but right now as well. Josh, appreciate your time on the program as always. 

JOSH FRYDENBERG:

Great to be with you, Ross.

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