MONDAY, 16 DECEMBER 2019
SUBJECT: Mid-Year Economic and Fiscal Update.
JIM CHALMERS, SHADOW TREASURER: Growth downgraded, unemployment higher, wages growth weaker, business investment dismal, the Government's economic credibility destroyed. That's the mid-year Budget update in a nutshell. At its core are two humiliating concessions: the economy is much weaker and the Government has absolutely no idea and no plan to turn things around.
The Morrison Government ends the year on a humiliating note. The workers and families of Australia didn't ask for higher unemployment for Christmas but that's what Scott Morrison's got for them. The families, workers and pensioners of Australia didn't ask for weaker growth, higher unemployment and weaker wages but that's what Morrison and Frydenberg have put in the stocking for Australia.
Everything has been downgraded in this my MYEFO especially the Government's economic credibility. The Government has got the economy wrong at every single turn and this MYEFO document is proof of that. Economic growth has been downgraded, wages have been downgraded, the unemployment rate has been revised up, employment growth forecasts are relatively unchanged but the business investment number has taken a massive hit this year. A combination of these things show that the economy has deteriorated substantially this year. A central part of Scott Morrison and Josh Frydenberg's election pitch was that they would make the economy "even stronger" but instead the economy has gotten substantially weaker on their watch.
This is not about abstract numbers on a page or the spreadsheets that sit behind the mid-year Budget update. We're talking about people's jobs, wages, and livelihoods. While ordinary Australians suffer, Scott Morrison and Josh Frydenberg continue to sit on their hands. Morrison and Frydenberg couldn't give a stuff that Australians are facing higher unemployment, weaker wages and slower growth. If they cared about the workers and families of this country they would stop sitting on their hands and they would come up with an actual plan to turn around the economy which is floundering on their watch.
The test for this mid-year Budget update was whether it contained a plan to turn the economy around and they have failed that test. Instead of a plan for the economy we get one excuse after another and more of the same blame-shifting, finger-pointing and banging on about the Labor Party which has been a recipe for slowing growth, weaker wages and higher unemployment.
This Government has put up the white flag on growth, employment and wages. That they've been forced to revise down so many of the indicators in the economy shows that they have put up the white flag on the economy. They have fumbled another opportunity to come up with a comprehensive plan to boost growth, to boost wages and to turn around an economy which is floundering on their watch. We'll hear a bit more from Katy on the fiscal side of things and then we'll take your questions.
KATY GALLAGHER, SHADOW FINANCE MINISTER: Thanks, Jim. In the MYEFO today we see significant revisions back of the Government's projected surplus. We see these revisions back because it’s the direct result of a struggling economy and the failure of this Government to have a plan to address the fundamental weaknesses and challenges which Jim has just outlined. We're seeing a lot of finger-pointing today from both the Treasurer and Finance Minister. The usual "it's all Labor's fault" - still addressing Labor’s problems. When you look at debt, and this is an area in particular that I have been looking at pretty closely since taking on this portfolio, this Government likes to blame debt on Labor. Well the record of what you can see in the numbers in the MYEFO today is that net debt is up to $392 billion on their watch. This is the seventh year. This is their Budget, their MYEFO, their updates that they put out. Gross debt has more than doubled to $556 billion. In this update they have chucked away their promise of eliminating net debt in 2029-30. That promise is gone. And in every single Budget and Budget update since they formed Government they have underestimated debt and their debt requirements and then had to address them. They have done that in this MYEFO today where they have had to increase debt by $120 billion across the forward estimates. That's linked, of course, to the surpluses that have been revised back and shows that it is their record on debt which has got them into this strife and we can see that clearly in MYEFO.
I also want to make a couple of points about the impact of GST receipts for the States and Territories. There is no plan in this MYEFO to address some of the challenges that the economy faces and a complete indifference from both the Finance Minister and the Treasurer today about dealing with consumer confidence. What are they going to do to address consumption in the economy? Their response on GST was that the States have factored some of this in. The GST receipts are down because confidence is down and what that will do is flow on to States and Territories who will have to make decisions based on lower GST receipts about services that they deliver to the Australian people. This goes to Jim’s point. These aren’t just numbers or spreadsheets that flow through, this will impact at the household doors, at the school gate, at the hospital. You can't pretend that just because you're not delivering those services that they don't matter. They do matter and the government should be addressing them.
The other issue in the MYEFO today is the acknowledgement of the “big save” which is being drawn out of the APS. The save included in the MYEFO includes their $1.5 billion of savings from the Australian Public Service. Over the last term of this Government and in the last seven years $8 billion dollars has been taken out in efficiency dividends and other savings from the APS and we will see that translate into service failures. We have already seen Robodebt, high Centrelink wait times, ABS and ATO failures. All of these issues that the Government is failing to address these issues and have done nothing in this MYEFO to address the challenges faced by the public service and how that will impact on people in this country.
JOURNALIST: What do you want to see in the May Budget to address this?
CHALMERS: The economy needs a boost. We've seen again in the numbers today that whatever is in the system in terms of tax cuts, interest rate cuts and other measures has not been sufficient to turn around a substantially underperforming economy. What we would like to have seen by now but if not now then in the Budget, for example, is a tax break for businesses who invest onshore. We have called in the past for a responsible increase to Newstart, a change to the timing of the tax cuts, more infrastructure to be brought forward. The absence of a wages policy is doing damage. The absence of a settled energy policy has been a handbrake on growth in this economy. There are a range of things that the Government should have already been working on and doing but they haven't and they don't have a plan. We think it's possible for the Government to take some further action without jeopardising the surpluses that they have promised. We've been saying that for some time now. The Reserve Bank, the business community, credible economists and other peak industry groups have been calling for the Government to do more. The Government in a pig-headed way has refused to do more and that is one of the reasons that we have these very disappointing numbers in the MYEFO today.
JOURNALIST: Should public sector wage caps be revisited in light of the sluggish wage growth?
GALLAGHER: I was about to answer the other question. If I could just address Phil's question quickly. Jim has covered it and I agree with him entirely. The only other thing I would add in is that they should show some leadership and take on the challenges that are so clearly writ there in all the numbers and tables we see and seriously take on some of these challenges instead of no plan or just sit there and tell everyone it's all going well and hope for the best. That's what Federal Governments are meant to do. Take on some of those big issues and make sure you are fixing aged care; make sure you are taking climate change seriously. You hope to get into Government so that you can do stuff and take on those issues.
JOURNALIST: Would removing public sector wage caps help kick start wages growth?
GALLAGHER: In terms of this Government's record, one – I can’t see it as a priority for them. They have seen the public service as a cash cow and an institution to reduce not invest in. Certainly, history would show that public sector wages have led the way in setting wages and conditions in other industries. I’ve seen the value in having well-paid public servants delivering services right across the country. Many of them work in regional areas and work hard for their jobs but the record of this Government on the public sector is terrible. They are all about reducing the institution as it exists, cutting jobs and using the savings to bolster and dress over economic mismanagement. Wages haven't been a top priority for them. They haven’t been a top priority in the public sector and I don’t think they have been in the private sector either.
JOURNALIST: How credible is the treatment of the iron ore price in the overall framing of the update and the forward projections?
CHALMERS: The iron ore price is a substantial reason that earlier updates of the Budget have been stronger than anticipated. They've had the iron ore price substantially wrong for some time now. They chose not to upgrade that assumption in this Budget update. It is a bit unusual that they haven't before now given prices have been substantially higher than $55/tonne for some time now. That's an important part of the forecast. Most importantly they finally had to 'fess up on unemployment, growth and wages that they have had ridiculous assumptions and forecasts for, particularly on wages. They've been pinged for it in this Budget update. They've been telling Australians that the economy's going to grow strongly, that wages are going to grow strongly and unemployment's going to track down. What they've had to concede here in a pretty humiliating fashion is that they've had wrong all along.
JOURNALIST: You mentioned net debt before, that's a promise that's been broken. Why is it so important that they not break that promise? Is net debt at zero a key thing? Should they be borrowing more?
CHALMERS: We are talking about holding them to the standard that they have set. In the last Budget update they said that there would be no net debt whatsoever by 2029-30. They failed that test. They had to walk it back. Josh Frydenberg was asked about that and was all at sea on that question. The interest bill on the accumulated debt is substantial. Both sides of politics would like to see that net debt paid off. Most of the debt in the Budget is Liberal debt. They inherited $175 billion. They've now got $393 billion. Enough of this absolute rubbish about Labor's debt. Most of the debt in the Budget today is Liberal debt. The Government has been accumulating debt at a faster clip than Labor did during the course of the last Government. Every time Frydenberg, Cormann and Morrison talk about Labor's debt they are lying. Most of this debt is Liberal debt and the interest bill being paid on that is bigger than the amount of money which is invested in things that we value greatly. We want to see that debt paid down. They've had to walk back a key commitment to have that paid back over the next 10 years. They've raised the white flag on that.
JOURNALIST: Do you think wages growth at three per cent by 2022-23 is achievable with unemployment at five per cent? Can you respond to Cormann today who said that household disposable income would be lower had Labor won government?
CHALMERS: They've got the wages forecast wrong every time. They've got it wrong 33 times in the last six-plus years. There's nothing in the way they go about this which gives me confidence that they're going to get it right this time. The Reserve Bank's made a couple of points about this. They've said the unemployment rate needs to be south of five percent to get wages moving substantially. The Reserve Bank has also said that over the last seven years weak wages growth has become the "new normal". Ordinarily that would be something that a Government would be ashamed of. Mathias Cormann has said that low wages growth is a deliberate design feature of their economic strategy. We've got a couple of things going on at once. First, heroic assumptions about wages which the Government has fallen short of and secondly, weak wages growth which is a deliberate feature of their economic policy. What was your second question, Sarah?
JOURNALIST: Just responding to Cormann suggesting that household disposable income would be lower under Labor?
CHALMERS: They are always talking about Labor, aren't they? They're always looking for a distraction from their substantial failures on the economy. Mathias Cormann is in his seventh year as Finance Minister in his third term of Government. You'd think that this guy would finally take some responsibility for the fact that net debt has more than doubled on his watch, that the economy is floundering on his watch, and that growth is slower since he became the Finance Minister when Government changed hands. You'd think in the seventh year of Government these guys would take responsibility for the mess that they've made of the economy. How about he owns up to the fact that wages growth has never been weaker under any other Government? Or the fact that the Reserve Bank describes that as the "new normal"? Or the fact that he calls that a deliberate design feature of the economy? This guy has no credibility. He's been at the scene of the crime for all the economic misjudgments that have occurred over the last six-plus years. He should stop banging on about Labor and take responsibility for the fact that he has been a failure as Finance Minister and that the economy's been failing on his watch.
JOURNALIST: Mining investment was predicted to go up over the forward estimates to 12 percent. What is your response to those figures? Is the Government relying on those figures to buoy its outlook?
CHALMERS: That's a big part of the story that they're relying on. That's the first increase of any note for some time now as you would know given the economy out West. The overall business investment forecast has been substantially written down. One of the biggest falls in the forecasts in this mid-year Budget update is for business investment. That's partly a function of the business community not having much confidence that the Government has a plan to boost the economy. Weak business investment is one of the defining features of this mid-year update. Employment was growth is worse, wages growth is worse, and business investment is substantially worse and that's part of the problem.
JOURNALIST: Today the Treasurer told Australians they could have confidence about their economic outlook. Was he being honest given the Budget's failing so many of these key measures?
CHALMERS: Australians can't have confidence in a Liberal Government which promised to make the economy even stronger and instead made it even weaker. When you hear Josh Frydenberg talk about confidence you've got to wonder whether he's reading the same Budget papers as he's just released. We want the economy to grow. We want unemployment to go down. We want wages to grow. We want Australians to have confidence in the economy. A Government which doesn't have a plan to boost the economy is not going to engender confidence in the Australian community. I say this about Josh Frydenberg. You've got to wonder whether this bloke's up to it. I watched another one of those deer-in-the-headlights performances where he just doesn't seem to have a clue what's actually going on in the economy. Because he doesn't have a clue, he doesn't have a plan. I'll tell you what he needs to do over Christmas. He needs to buy Angus Taylor a beer because if not for Angus Taylor a lot of focus would be on Josh Frydenberg as the weakest link in the Government. He's the chief architect of this economic weakness. He's got it wrong at every single turn. He's been in the job now for more than a year. He's got no excuses for this type of performance that he put on around the corner earlier on today.
JOURNALIST: Given the downgrades to the surplus that we're seeing over the forward estimates would you still advocate for bringing forward stage two of the tax cuts and greater infrastructure spending? Is there concern that advocating for that could be painted as irresponsible economic management?
CHALMERS: The irresponsible thing to do would be to do nothing. I think what we're seeing now is growth slower than it should be and unemployment higher than it should be because the Government's not doing anything. It's irresponsible not to act. We continue to believe that it's possible to do proportionate, measured and responsible actions in the Budget without jeopardising the surplus. We believe that the Government should deliver the surplus that they promised. We think there is still room within that to do something responsible to boost the economy whether it's some combination of the measures that I identified before. There is still room in the Budget for the Government to take some action. Their failure to take action on the economy is one of the reasons why we've got these weak economic figures. I'll give you one example. One of the reasons why the surpluses are smaller is because individual tax is down something like $7 billion. That's mostly a function of wages being stagnant for so long. One of the key reasons we have these downgrades to the surpluses and one of the key reasons why the Budget position has deteriorated is because the economy has deteriorated and wages and consumption are a big part of that story.
JOURNALIST: What's an adequate number on the surplus? $3 billion?
CHALMERS: I'm not prepared to put a number on it. What we're calling for is for the Government to take action. We've been saying that since the election. We've called the economy right since the election. Something needs to be done here. We're joined by the Reserve Bank, the business community, and credible economists who all think the same thing. It's not for us to put a number on the final surplus. It's for us to make constructive contributions to this to point out where the Government could be doing more and that's what we've been doing.
JOURNALIST: Are you concerned that the Reserve Bank will have to cut interest rates even further and perhaps even take other forms of monetary policy easing? Does that in itself create a risk that people think this is a huge problem in the economy?
CHALMERS: This will be the last question from Colin because I'm conscious that we've got a minute of silence shortly for the victims of the New Zealand tragedy. I am concerned that the Reserve Bank's been left to do all of the heavy lifting. Interest rates at record lows and a quarter of what they were during the GFC are not doing enough to boost the real economy but they are puffing up asset prices. That is a concern. The Reserve Bank and Labor have said that the Government needs to come to the table with a Budget response to work hand-in-hand with the Reserve Bank on monetary policy so that they can both do their job in boosting the economy. The absence of the Government in that conversation has meant that the Reserve Bank has had to consider some of those unconventional steps that you mentioned. Ideally the Reserve Bank and the Government would be working hand-in-hand to boost the economy. Right now the Reserve Bank's been left all alone and that's not a good outcome in the economy and for Australians. Thanks very much.