Well, thank you very much Stutch, and welcome everybody. Can I first also thank you also for those comments, Ken. Can I also acknowledge the Gadigal people of the Eora nation and pay my respects to elders past, present and emerging. And I also want to acknowledge, as I always do, if there are service men and women here and any veterans who are here today, and simply say thank you for your service.
To Stutch, thank you again, for the invitation to be here again this year and the Australian Financial Review for bringing together this group at a very important time in our country.
In 2016, I said this – I was Treasurer at the time – I said, “we must take action to strengthen our economic resilience to deal with the shocks that will inevitably come – to get debt under control by returning the Budget to balance, through disciplined expenditure restraint, and a tax system that supports growth and provides sustainable revenues.”
Since I said that, the final Budget outcome in the past three Budgets exceeded the Budget Estimate on the night by a cumulative total of $37 billion. Year on year, bettering the mark that we set in each Budget.
Last year, the Budget was restored to balance. And now here we are. What we spoke of has now come before us. This is what I was talking about. This time we are in right now, was what I was talking about back in 2016.
We confront today a new, complex, hydra-headed and rapidly-evolving challenge. The coronavirus, COVID-19.
And while we all know we’re not immune, so far, as a nation, we have been able to get ahead of this. But to stay ahead, we must work together and continue to take decisive and timely action.
This is one of those national interest moments.
Whatever you thought 2020 was going to be about. Think again.
We now have one goal, together, this year – to protect the health, the wellbeing and livelihoods of Australians through this global crisis, and to ensure that when the recovery comes, and it will, we are well positioned to bounce back strongly on the other side.
All Australians have a role to play, in Australia successfully moving through this crisis.
Large businesses, in particular, have a huge role to play. And I particularly want to commend Qantas, who I was with yesterday, who have already played an important role in those three flights that they were able to put on. I was down at their headquarters yesterday thanking all of those staff and the Qantas team and all of those from DFAT and others who were involved in those operations. And credit where it’s due, I want to thank the banks in order: Westpac, Commonwealth, NAB and ANZ, for passing through the 25 basis points in response to my call the other week.
We need your perseverance, your planning, your enterprise. We need your common sense, we need your calm, we need your commitment. But we need your patriotism, as well.
We need you to support your workers, by keeping them employed. Hold onto your people, because you will need them on the bounce back on the other side. Wherever possible, support them – full-time, part-time, casual, including with paid leave if they need to take time off during the course of the virus.
We need you to support your small business suppliers by paying them promptly. Pay your suppliers not just in time, but ahead of time, especially now.
You know what, you want to know what you can do to keep Australians in jobs? Keep businesses in business? And support Australia through this crisis?
If you are a large business, go back to your office today, pay your supplier invoices and commit to pay them even faster for the next six months.
That is what sticking together looks like.
How you support your customers, your suppliers, your employees during the next six months and potentially beyond, will say more about your company, your corporate values and the integrity of your brand, than anything else you’ve likely done as an organisation.
We also need your investment, looking ahead to the opportunities that are on the other side. Take the opportunity to invest in the skills of your workforce or in the capital projects that will provide the pathway for a new season of growth that will be there.
As the Fin Review has stated on more than one occasion, this is a ‘team Australia’ moment.
The Government will soon announce our economic stimulus package geared to the unique nature of the challenge we face in the wake of the COVID-19 health crisis.
And what I want to do today is outline the dimensions of this challenge, the principles that are informing our response, and why Australia is strongly positioned, not just the Government, more so than virtually any country in the world today – not just to ride out this crisis, but to emerge stronger and more productive on the other side.
Australia’s economy ended 2019 solidly in the face of a difficult global economy and domestic challenges, not least being the devastating drought that the country has been in through for many years now. And there’s been no greater sight that I’ve seen more recently than where we’ve seen that rain falling.
Employment was growing strongly, more than twice the OECD average and faster than any of the G7 advanced economies.
Tax cuts for individuals, small and medium sized business, as promised, infrastructure spending, including the bringing forward last year of some $4.2 billion of projects into the forwards, low interest rates, strong trade and external performances – including three historic quarters of current account surpluses, rising house prices after a stagnant market for some years. These were all supporting the pick-up in growth that was borne out in last week’s ³Ô¹ÏÍøÕ¾ Accounts. Up to 2.2 per cent in the December quarter through-the-year, up from 1.8 per cent in September.
Internationally, the US and China has inked a phase one trade deal. Very welcome. The prospects for an orderly Brexit has risen, and there were early positive signs of manufacturing activity and trade improvements.
In short, we were heading into 2020 with growing domestic and international momentum out of last year.
The Reserve Bank had drawn the same conclusion, as many commentators have. The turning point had been reached, the Governor said, advising Cabinet early this year that 2020 was set up to be a much stronger year.
The mid-year economic and financial statement, released in early December, confirmed that the budget was back in balance and heading for a clear surplus in 2019-20.
This was not achieved through reckless forecasts of US$180 a tonne for iron ore, indeed the MYEFO assumptions were even more conservative at the time of December last year than we even had in the Budget. No, this was done through careful stewardship that saw Budget Estimates bettered by tens of billions year after year after year.
After seven years, the structural integrity of the Budget had been restored and Government was once again living within its means, as we promised. Expenditure was under control, at less than 2 per cent growth per year, and the revenues needed to guarantee the essential services that Australians rely on, were being produced by our economy, not through higher taxes.
This could not have been achieved at a more important time for our country.
Within a month of that mid-year statement, the bushfire crisis intensified and COVID-19 struck.
Occurring simultaneously, they have dramatically impacted Australia’s economy and finances. In the March quarter alone Treasury estimates around a 0.7 percentage point hit to growth.
In response to the bushfires, the Commonwealth committed an additional $2 billion to support individuals, small business, primary producers, tourism operators and communities most affected.
That $2 billion was initial and additional over two years and was in addition to the national disaster recovery assistance that flows and will continue to flow from pre-existing disaster funding arrangements.
Already $360 million has been paid out by the Federal Government to support bushfire-affected communities in just the past couple of months. More than $200 million of that has come from the $500 million that was profiled to be spent from the $2 billion ³Ô¹ÏÍøÕ¾ Bushfire Recovery Fund by the end of June. There’s no suggestion that the $2 billion was going to be spent in two months. It was intended to be there over two years. To actually be there, not just for the response, but for the recovery.
And just as the intensity of the bushfires started to abate, and parts of the country that have been in drought for many years and finally saw decent rains, the coronavirus hit.
The first cases of pneumonia thought to have been connected with the coronavirus were detected in Wuhan, China, in late December.
Cases of the coronavirus, officially named as COVID-19 by the World Health Organization on 11 February, started spreading throughout China and across the world.
And as of this morning, there are 113,210 cases of COVID-19 globally, across 108 countries, more than 3,975 lives lost, including 3 in Australia. Those lives lost, to date, are larger than SARS and MERS put together by multiple. So, it clearly is a global health crisis.
Australia moved quickly, and we got ahead of the rest of the world. Our swift and decisive action to initiate travel restrictions on the basis of expert medical advice has helped to first contain and now slow the spread of the virus in Australia.
And these timely measures have bought us time to prepare for the anticipated next phase of community transmission that we have now entered.
For the first time ever, we activated the Emergency Response Plan for Communicable Diseases Incidents of ³Ô¹ÏÍøÕ¾ Significance.
We have also fast tracked the Australian Health Sector Emergency Response Plan to prepare ourselves to respond to a more rapid spreading of COVID-19 within Australia, and that is a phase we are now looking into.
We have prepared the ³Ô¹ÏÍøÕ¾ Medical Stockpile, and the Commonwealth has committed to a 50-50 shared health funding deal with the states and territories to address additional costs incurred by state and territory health services as a result of the diagnosis and treatment of patients with, or suspected of having, COVID-19. Our initial estimate, is together, that’s at least $1 billion.
Last Thursday, the Government stood up the ³Ô¹ÏÍøÕ¾ Coordination Mechanism within the Department of ³Ô¹ÏÍøÕ¾ Affairs to support pandemic preparedness beyond the health system. And this body will coordinate activities across the Commonwealth, state and territory governments, beyond the health response, as well as industry to ensure a consistent national approach is taken to provide essential services across a range of critical sectors and supply chains.
And this morning, the Attorney General and Minister for Industrial Relations, Christian Porter, is holding a joint industry-trade union roundtable focusing on workforce and industrial relations implications of the coronavirus.
And Wednesday, the Minister for Industry, Science and Technology, Karen Andrews, will hold an industry roundtable on emerging supply chain impacts as a result of the coronavirus.
So the response is whole-of-government. It’s at all levels of government. COAG will meet later this week. Our early intervention to contain the virus, has so far, enabled Australians to go about their everyday lives, and continues to be our goal.
COVID-19 is a global health crisis, but it will also have very real and very significant economic impacts, potentially greater than the Global Financial Crisis (GFC), especially for Australia. The epicentre of this crisis, as opposed to that one, is much closer to home. The GFC impacts were centred on the North Atlantic, and back then China was in a position to cushion the blow for Australia.
The initial outbreak of COVID-19 in China saw consumers stay away from shops, and many workers stay away from work, and that continues.
Manufacturing output in China fell sharply in February as the [inaudible] showed, with the official measure plunging to the lowest level on record.
Relative to SARS in 2013, China is substantially larger and more interconnected with the global economy including to Australia, magnifying the reverberations throughout the world.
An early sign of the hit to our economy was the sharp fall in demand for our rock lobsters, which make up about half the value of Australia’s seafood exports.
Our tourism sector, in which many businesses were already reeling from the bushfires, has been hit hard by the collapse in travel with broader fears of contagion sharply curtailing global tourism.
Our education sector is also obviously being significantly affected. Over 100,000 Chinese international students were not in Australia when the travel ban was actioned. This is not just about the fee revenue for universities and colleges, but even more significantly, the second round impacts for the local economy.
The consequences for other countries are just as significant, given the integral role China plays as a source of final demand for goods and services and as part of the global supply chain.
As I said, that spread now goes well beyond mainland China to over 100 countries.
The OECD released updated forecasts last week and downgraded their expectations for global growth and across all major economies.
Australia of course, was not excluded, but got favourable mention, and you saw both the Reserve Bank and Treasury release estimates last week of the significant direct impact of COVID-19 on growth, particularly in the March quarter.
Now as they do in times like these, and we’ve seen this obviously in the last 24 hours in particular, financial markets have sought to move to respond and seek to seek to reprice the risk that they’re seeing. This is giving rise to particularly sharp movements in global equity and financial markets, off record highs, sure.
But the impact on investors and retirees and no doubt the sovereign wealth fund Peter, which is so ably managed – the Chair is with us today. It’s real. Uncertainty has led to volatility in financial markets, however Australia’s financial markets continue to operate effectively and the Reserve Bank Governor has noted the RBA will ensure the Australian financial system has sufficient liquidity.
There is the potential for heightened risk aversion to flow over into reduced business and consumer spending, reduced demand across our economy.
These effects would be greater if coronavirus were to have a significant impact on the health of our workforce, which is what we need to plan for. And that’s something we’re working very hard to prevent at the moment.
Now this all means that the challenge we confront today is very different in nature, as I’ve argued, to the Global Financial Crisis.
The financial crisis started with excessive risk taking in the financial sector and involved the collapse of financial institutions, the disruption of credit, the impairment of balance sheets and a prolonged recovery.
The situation we face today is a health crisis that has moved quickly to weaken demand, disrupt supply chains, crunch cash flows, especially for small and medium sized businesses and especially in those sectors and locations most exposed and hardest hit. However, we must remind ourselves that the problem is temporal not structural. It’s about a biological contagion, not a financial one.
In our response, we must be careful to solve this problem, the one we’re facing now. Not the last one. And we need to solve it for Australia, for our circumstances, and not appropriate the diagnosis for other economies elsewhere in the world. We need our response, here in Australia.
We also need to learn from the mistakes made from the Global Financial Crisis – especially when it comes to a clear fiscal exit strategy.
The range of possible economic outcomes will depend on the spread, severity and duration of this health crisis and its interaction with demand-side and supply-side effects. Now that means, to fix our problem, our health response must be the primary response.
From a health perspective, our focus is to slow the spread of the virus, and to resource and manage scaled-up demand on our health system, and I’ll have more to say about that this week also. And more broadly, to coordinate the efforts to maintain continuity of services and supplies and to minimise civil disruption.
Let me turn now to our fiscal response.
As we finalise the Government’s fiscal response in coming days, and the Treasurer would have otherwise been here, but he was with Treasury officials until late last night as we continue to work through these issues. Our objective is this, keep people in jobs, keep businesses in business, and ensure we bounce back stronger on the other side.
It’s about supporting community confidence, employment and business continuity. This means boosting domestic consumption, reducing cash flow pressures for the most vulnerable businesses, and supporting new investments to lift productivity.
Now there’s seven principles that will guide our response, and the first of those is that measures must be proportionate to the degree of economic shock and the impact on the economy.
Secondly, they need to be timely and scalable, so they can be adjusted appropriately as the health and economic effects evolve. This a dynamic situation we’re in.
Third, the response needs to be targeted to address the specific issues we are confronting, supporting those most affected, and delivered where it will be most effective. We must not waste taxpayers’ resources.
Fourth, the response needs to be aligned with the many other arms of policy and activity, in particular monetary policy, and with the responses of other governments, particularly at a state and territory level. The Government is working closely, as you have seen with the Reserve Bank, the Governor and his team. And as you know the Bank moved last week to cut the official cash rate by 25 basis points. Now all of the four major banks and many other financial institutions have passed this through in full, and I acknowledge and commend them for that again today.
Fifth, we must use existing delivery mechanisms, wherever possible. That’s where it goes pear-shaped, if you get that design wrong, as we learned from the last stimulus. We saw those mistakes of trying to rush a range of new programs in response to the GFC. This is why we’ve been moving swiftly, but patiently, to ensure that the response that we announce can address these issues.
Sixthly, the measures must be temporary and accompanied by a fiscal exit strategy. We cannot bake into the bottom-line, this response for years to come, holding the Budget under water.
And finally, we must favour measures that will lift productivity. To enable the Australian economy to sustain an even stronger growth trajectory than we were on prior to the crisis.
By following these principles, we believe we will protect the structural integrity of the Budget and we will maximise the impact of our measures to protect the livelihoods of Australians and our economy during this difficult period. And in doing so we will prevent the need for future governments to spend the better part of a decade restoring the fiscal position and even longer paying back the debt.
When the economy bounces back, our plan is that the Budget bounces back as well. The stronger the recovery, the stronger the economy, the stronger the Budget.
Now, Australians have good reason to be confident that we are one of the best prepared in the world to mitigate both the health and economic impacts of COVID-19.
Australia has a world-class health system – our hospitals, doctors and nurses, laboratories, medical researchers are amongst the best in the world. The Doherty Institute down there in Melbourne, a classic example. Attracting funds from philanthropists, like Jack Ma and others, to find the vaccine. World-class. And they’re able to scale-up their response and certainly will be with the support we’re providing.
We also have a remarkable history in this country of economic resilience. And we need to return to those values. This is due in no small measure to the strength of our institutions and our policy frameworks, including an independent, credible central bank and a flexible exchange rate. As I mentioned, monetary policy is working in concert with fiscal policy to support the economy. Our banks are well capitalised and awash with ample liquidity, and our financial system is resilient. We have been working on that as well.
Not only are banks well-placed to lend at low rates, our businesses also have strong balance sheets, providing a strong foundation for investment. It’s not just the Government’s restored balance sheet, which will support us through this crisis, it is the stronger balance sheet of businesses, of banks, and indeed households.
Our exchange rate is also playing its usual shock-absorbing role in the face of an external shock, providing a welcome boost for our exporters. And household balance sheets have also strengthened, as I just mentioned in recent years with mortgage holders now on average around two and half years ahead of their mortgages, based on offset account and redraw facility balances.
A strong fiscal position has also been core to our ability to respond to shocks like these. Our debt to GDP is one of the lowest in the developed world, and that didn’t happen by accident. Over several years, we have taken the hard decisions needed to rebuild our fiscal strength, and in doing so, in the face of also coming off the back of the mining and investment boom that ripped $80 billion out of investment in our economy, retaining our AAA credit rating.
We didn’t rebuild our fiscal strength by increasing taxes or cutting essential services. Instead, we went on path of strengthening the Budget by restraining growth in recurrent expenditure and growing the economy.
We resisted repeated calls for cash splurges as part of an unwavering plan to rebuild our fiscal buffers so we could respond when it is truly needed, which is now. That time is now. This is the time we have been preparing for.
While much has changed in the last few months, though I want to give this assurance to Australians, as I close. We do face some tough and uncertain times ahead. We will get through this. And we will get through this together. But let me also assure Australians, there is plenty that won’t change over the next year, over the next three months, over the next six months and beyond, under our Government.
Our guarantee of funding for the essential services that Australians rely on, including record schools and hospital funding, that remains.
We will continue to announce new PBS listings for life-saving and life-changing medicines.
We will continue to make it quicker for people to enter the NDIS Scheme or to have their plans reviewed. You know some 50,000 people have come onto the NDIS since the last election alone, until the end of the year I understand.
We will continue to roll out our $100 billion infrastructure plan, including the bring forward, that we acted on last year, to bring forward some $4.2 billion worth of projects forward, so they can be hitting the ground right now, with additional investment that we worked through with the states last year.
We will continue strengthening our defence force in line with our commitment to return defence spending to 2 per cent of GDP, and that will be achieved next Budget year. That is also providing important opportunities for investment and growth, and indeed stimulus in many parts of the country.
We will continue to look for practical actions to curb the suicide rate with our towards zero plan. A core objective of our Government, particularly amongst our veterans, amongst young people, amongst Indigenous Australians.
We will continue to work with the states to progress the Fourth Action Plan and our record $360 million to reduce violence against women and children.
We will continue to help communities rebuild from the devastating drought, and to deliver the much needed support in response to the bushfire crisis of our black summer.
We will press on with the vital work of closing the gap for Indigenous Australians.
We will continue to ensure the tax system rewards hard work, fair go for those who have a go, supports investment and doesn’t hold our businesses back.
And we will set Australia up for an energy future with a real plan that supports jobs and industry – one that is reliable, affordable and sustainable. A plan based on technology, not taxation and ‘never-never’ targets.
We will continue to reduce our greenhouse gas emissions to meet our international commitments without increasing taxes, or electricity prices, or compromising the jobs of rural and regional Australians.
We will do our bit to get rid of the plastics in our oceans, not just on our coasts, but throughout our part of the world, and take care of our own waste.
We will enable Australians to grasp the opportunities of the digital economy and to extend our competitive edge in new technologies and industries. Whether it’s the space industry down in South Australia and across the country, whether it’s in cyber security, or in medical technologies, and of course fintech.
We will continue to open international markets and advocate for the benefits of open global markets and the rules-based trading system, and the reform of that.
We will continue to lower regulatory barriers to investment, through the work that Ben Morton’s doing, with our renewed deregulation push.
And we will progress practical and sensible reforms of the industrial relations system, not driven by ideology, but driven by common sense, to ensure the system remains fit for purpose and supports a strong economy.
And we’re serious about reforming the VET system, so we can ensure Australians are trained with the skills businesses need, so those Australians can get a job and the business can get ahead.
And we will ensure our universities collaborate with business to undertake research that grows our economy.
These remain the plans that will continue to guide our Government into the future, so that Australia rebounds quickly and emerges stronger from today’s challenges.
So, of course, we’re not immune to the coronavirus, but I want to assure the Australians that we are taking every step to protect their health, to protect their livelihoods, and to protect our economy, to ensure that we bounce back even stronger on the other side.
Now is the time when we do need to pull together. And I have every confidence that we will. That’s what Australians do.
Our planning, our preparations, are well advanced. Our action is there to see.
Our institutions are strong. Our people are strong. Our Budget is balanced.
Most importantly, we face this challenge with the greatest asset, which remains undiminished – that is the common-sense resilience and ingenuity of the Australian people.
Australia will pass this test, and it will pass it strongly. And we will be stronger on the other side.
Thank you very much for your attention.
