Locking in the recovery
The pragmatism of Budget 2021-22 sets Australia on a world beating pathway to economic recovery, argues the Federal Treasurer in a speech to the MRC. The following is an edited transcript.
Can I say the Menzies Research Centre does a very important job. Not only promoting and upholding and advancing the legacy of Sir Robert Menzies, but also more broadly in putting the facts on the table with respect to key issues. And they may be issues of culture, issues of economics, issues of politics or strategic issues. And Nick, you do a fantastic job. You've got a pointed pen and it really does count. And I know my colleagues and I, of course, and the Prime Minister, we really appreciate the great work that you do, so thank you very much.
Earlier this year, I got a phone call from a friend of mine, Father Criostoir MacDonald, who's a priest in County Cork, Ireland. And he was ringing me because he was in a pretty bad way due to COVID, not because he contracted the virus, but because he was burying a member of his congregation each and every week. Ireland has a population of around five million people. They've had around 5,000 deaths.
And it made me reflect on what the rest of the world has been going through in terms of the death toll from COVID. Per every million of the population, Australia's had 35 deaths. In Canada, it's around 500. In the United States it's 1,500. In the United Kingdom, it's 1,800. If we had the OECD average for loss of life due to COVID, more than 30,000 Australians would have lost their lives. Tragically just over 900 have lost their lives, 90% of whom have been in Victoria because of the failures there.
We have completely dodged the bullet on the health front, equally on the economic front. We've been ahead of the global pandemic. Last year, the British economy contracted by 9.9%. The French, the Italian economies by around 8%, the Canadian and the Japanese economies by 5%. Yet here in Australia, we contracted by just 2.5%. In the back half of last year, we saw the highest economic growth on record with two consecutive quarters above 3%.
We're the first of any major advanced economy around the world to see employment levels now above where they were pre pandemic, with 75,000 more Australians in work today than before the pandemic hit. It's been an incredible performance by our country on both the health and the economic front, but it wasn't always going to be thus.
On budget night, I told the story of how Treasury said to me at the height of the pandemic, unemployment could reach as high as 15%. That's more than two million Australians unemployed. The GDP could contract by more than 20%. That's the equivalent of taking out from the Australian economy, the construction, the mining and the agriculture sectors simultaneously.
For real, we were standing on the edge of an economic abyss last year. We responded without ideology, but with pragmatism, with an overwhelming unprecedented amount of direct economic and health support. I've also said it publicly that I reached out to John Howard, who's been a mentor and a friend, someone I've worked for before we announced JobKeeper. JobKeeper was not the type of policy that a Liberal treasurer would normally introduce: an economy-wide $1500 a fortnight wage subsidy.
But I reached out to John Howard and told him about the policy that we were about to announce. And he said to me, "Josh, at times of national crises, there are no ideological constraints." And for me to hear that from Australia's second longest serving prime minister was a green light that we were on the right track and JobKeeper did support 3.8 million Australians in the job.
When I was recently in Melbourne, I went down to Chapel Street, met with a small business owner who has a homeware store and a cafe. She had mortgaged her home. She'd moved into the premises six months before the pandemic hit. She had eight staff. The pandemic hits, she's convinced she's going to lose her home, convinced her business is going to fold, stands down a number of her staff.
JobKeeper is announced. She brings back those staff. She goes to the banks under the plans that we developed, where banks would provide temporary relief for mortgage repayments. She goes to her landlord under the agreements that we reached through national cabinet, that landlords would provide rental relief to their tenants. And now, her business is thriving and she has more staff than she did going into the pandemic.
And she says without federal government support, she would have lost her house and she certainly would have lost her business. This story is everywhere across the country. And the Labor Party would try to put holes in JobKeeper, saying that how can we give it to profitable companies? Well profitable companies actually employ people. And they were the laws and the program at the time that we passed the legislation. It's about anticipated turnover decline. But they're trying to punch holes in it because they know what a successful program it's been and how the Australian people can relate to the fact that a Coalition government came to their rescue at their time of need.
So going into this budget, the context was this economic recovery is now really gaining momentum. Consumer confidence at the highest level in 11 years, business conditions the highest level on record, job vacancies the highest level on record, businesses' capital expenditure expectations the highest in many years, dwelling investment rather than being negative has now gone positive.
Even talk about inflation in the housing industry on suppliers and tradies because of the demand for programs like HomeBuilder. Motor vehicle sales are up. House prices are up. We want people to be feeling more confident about the value of their home as opposed to going into negative equity. So the economy is really picking up, but that's one side of the equation.
The other side of the equation is that the virus is still around us. 800,000 people a day contracting the virus. India and other countries are seeing new variants of the virus. Europe has gone from a recession to out of a recession, back into a recession. The US has spent $1.9 trillion, but has not seen a spike in their employment like where you have here. Western Australia recently went into a statewide lockdown. Monetary policy is largely spent.
And so we realised going into this budget that we had to continue to lock in and secure the economic recovery. That's what the Prime Minister and I, the Finance Minister, the rest of the Cabinet and the Government were absolutely focused on, securing the economic recovery. So in this budget, we're doing what has worked, continuing to provide tax relief, business investment incentives, skills programs, infrastructure spending in record amounts. That will all helpfully lock in the recovery, with Treasury estimating that 250,000 more jobs will be created.
And the unemployment rate will now come below 5% by the end of next year. To put that in historical context for you, the last time we had sustained unemployment under 5% was between 2006 and 2008. And then you have to go all the way back to the 1970s. And the way to repair the budget is to repair the economy and having a couple of 100,000 extra people in work than not is worth $5 billion to the budget bottom line for increased tax receipts and lower welfare payments.
Let's not forget that going into the pandemic we balanced the budget for the first time in 11 years, off the back of the lowest welfare dependency in 30 years. So the budget very much is our jobs plan going forward. But it's also a plan to guarantee the essential services.
Now Menzies, when he established our party, did so based on fundamental principles, tax relief, which we've done in this budget, supporting free enterprise and the private sector, which we've done in this budget, encouraging personal responsibility, which we've done in this budget, with a number of new measures to support self-funded retirees.
Home ownership, which we've done in this budget with a number of initiatives to enable people to get into their first time. But Menzies also talked about the importance of a safety net. And that's where our support for the NDIS, our support for women's safety, our support for mental health initiatives, and our support for aged care is really important. And it's not just increased spending. There's actually significant reform.
And when you already spend $23 billion a year on aged care, getting a more efficient service delivery is a very important policy objective as well. Another thing that we've done in this budget, which coalition governments have done, whereas Labor do not have a stronger record, is with respect to listing drugs on the pharmaceutical benefits scheme.
We have listed as a coalition 2,600 plus drugs, equivalent of one each and every day since we've been in office. These are life changing drugs. In the Budget I announced the listing of drugs for lung cancer, for breast cancer. But I also announced the drug on budget night called Emgality, which is for people with a chronic migraine.
Normally it costs you $6,800 a treatment. It will now cost you $40 a script and $6 if you’re a concession card holder. I got a message the day after the budget from a lady who I know who I never knew was on Emgality. Every four weeks she would self-inject $6,800 of this drug for her chronic migraines. And of course, it put her in an incredibly difficult financial position.
Now a coalition government is delivering that drug to people who need it most. And that's the benefit of a strong economy. Finally, the fiscal position remains sustainable, but no one should overlook the fact that we do have a higher debt burden as a result of the biggest economic shocks since the Great Depression. Net debt to GDP, which is a key indicator of our fiscal sustainability, will peak at around 40%. This compared to just over 43% that we had forecast at last year's budget, just last October. US and UK net debt to GDP 100% plus, Japan even higher than that.
But importantly, that net debt to GDP ratio comes down each and every year compared to what was forecast last October and our deficits come down by two thirds over the forward estimates. And that of the nine countries in the world that have a AAA credit rating from the three leading rating agencies, Germany, Netherlands, Switzerland, Norway, Sweden, Denmark, Luxembourg, and Australia.
Our budget is consolidating faster over the next six years than any of them. And it's really important to understand that we're still in phase one of our fiscal strategy, which is to allow the automatic stabilisers to work and to ensure that the support gets out to the community where it's needed most.
We have held firm on issues where our political opponents have not. We said that JobKeeper was temporary emergency support, and it would end in March, after tapering down with a two tiered system. Still costing more than $2 billion a month in the March quarter. The Labor Party said it needed to continue. Business groups said it needed to continue. We held firm.
Tomorrow I get the labour force numbers. It will be interesting to see what has happened with unemployment, but the early data is more than 120,000 people have come off income support in the five weeks since the end of JobKeeper. So when the Labor Party says, what have you got for your trillion dollars of debt?
Well, firstly, what we've got for the high debt burden is a country that is now leading the world in the economic recovery. A recovery from a recession that is five times faster than Australia experienced in the 1990s. A record number of Australians in work. And the Labor Party will always want to spend more, including wanting us to buy an airline when Virgin was going to go through voluntary administration.
So this is an important budget. It's a pathway forward for the Coalition. I believe it's consistent with Coalition values. Fiscal discipline remains a core equity, but so does lower taxes. And we haven't increased taxes, whereas the United Kingdom have increased taxes. The US have increased taxes and you've just seen in Victoria, a tax grab from the Andrews government. We have not increased taxes and that is a very different approach.
The final thing I'd say is I do think that the Australian economy will be different on the other side of this pandemic. I think the acceleration in the take-up of technology is only going to gain pace. It's changing the way we work, the way we communicate, the way we shop. McKinsey have done some work and say that with professional services firms, 25% of people will be working from home two to three days a week.
When I went and visited Cotton On, Australia's largest global retailer, they've seen a massive take-up of online sales. What are they investing in? Distribution centres. And I think the Zoom meeting will replace the flight interstate, maybe for one meeting or two, which was previously the case. I think another big change will be the empowerment of our regions.
When I was speaking to Janet Yellen recently, she said she's seeing exactly the same in the United States. People are moving to our regions out of the CBDs. Why, because they can get the quarter acre block. They can get better lifestyle amenities, as long as they're digitally connected. And they're fearful of this pandemic, but they're also fearful of the next. And then another thing that will change is supply chain resilience.
Countries are not going to take a second chance when it comes to ensuring the supply chains at times of national crises. We produce enough food for 75 million people. We don't have a problem with food security, but as Angus [Taylor] and the Prime Minister announced in the last couple of days, we're investing in fuel security.
We've got two refineries. We need to maintain that sovereign capability, steel manufacturing remains a sovereign capability. We were incredibly adaptable during this crisis. ResMed went from making sleep apnea devices to making ventilators. Gin distilleries in Tasmania went to making hand sanitisers.
And we took a little mask factory in Shepparton that was working on one shift of work a day, five days a week, brought in the defence force, reassembled new machines, and suddenly turned it to 24/7 making millions of masks. But we will not leave that to chance going forward. Countries like Australia, being the island continent we are, have to ensure we have supply chain resilience.
So Nick, thank you for having me here. It's a great pleasure to be with so many friends of the party. If the last 12 months has taught us anything or 15 months, it's that leadership matters. At the last election, Labor went with a higher taxing agenda, on your savings, on your franking credits, on your housing, on your income. The Australian people rejected that very clearly.
But if Labor had got in, they would have implemented that before the pandemic weakening the economy. The unions would have been given a seat at the cabinet table. And I think our country would have been set back as a result of the policy decisions taken by Bill Shorten as prime minister. Fortunately Scott and the team won.
He's shown fantastic leadership over the course of the last 15 months, been criticised for closing the borders with China, did so it helped protect us to where we are. And now Australia's economy is the envy of the rest of the world. We're not complacent. We're seeking to lock in those gains. That's what the budget was all about. That's what the budget will do. Thank you very much.
This is an edited transcript of a speech delivered by the Federal Treasurer, Hon Josh Frydenberg MP at a post-Budget event hosted by the MRC in Sydney on 19 May.