E&OE

Patricia Karvelas, host, RN Breakfast, ABC Radio: The federal government is now out selling its pre-election budget this morning and the pitch is aimed squarely at your hip pocket. Treasurer, Josh Frydenberg says it's a long-term economic plan, but it comes with short-term sweeteners for the next time you fill up your car and file your tax return. To look at whether that will help with the cost-of-living and keep the economy moving, I'm joined by a budget panel. Jennifer Westacott is the chief executive of the Business Council of Australia, and Cassandra Goldie is the CEO of the Australian Council of Social Services, and Saul Eslake is an independent economist. Welcome to all of you.

Jennifer Westacott chief executive, Business Council of Australia: Thank you very much.

Cassandra Goldie CEO, the Australian Council of Social Services: Good morning.

Saul Eslake, independent economist: Good morning, Patricia.

Patricia: Let's start with you if we can, Jennifer Westacott. Since the last budget, we've had another round of COVID lockdowns and a new set of natural disasters. One is unfolding right now in the Northern Rivers again. Is there enough in this budget to help businesses recover and thrive?

Jennifer: Look, there's a fair bit in the flood relief packages. There have obviously been huge assistance announced today, there have been some very important assistance for small business, and don't forget, the state government's putting a lot of money in too. What I think we should do though, Patricia, going forward is we need to be on autopilot with these things. We should not be scrambling every time we have a disaster. We should we should activate JobSaver straight away, we should make sure that small business has got cash coming in the door. We should get those small business grants out to people quickly. Obviously, the disaster payments need to get activated really quickly. We need that sort of autopilot from government. I was in Lismore a couple of weeks ago. It is shocking, Lismore, it is absolutely shocking. You go into those recovery centres and people are just walking around absolutely stunned. We just need to understand, this is going to keep happening. Let's not keep denying it. Let's actually just get ahead of this and get ourselves on autopilot with this. So there's good stuff in the budget, but I think there's a whole other conversation to have about this.

Patricia: Cassandra Goldie, what about low-income earners and those already living in poverty, because there are these one-off payments targeted really at those groups?

Cassandra: Well, look, it's a budget for people who are struggling the most that they can't rely on. We've got a lot of temporary fixes here but no permanent solutions, and the one-off payments that the government has delivered, they're not well targeted either. Let's remember that the tax offset that's costing $4 billion, the combined effect is that you can be on $100,000 and you'll be getting $1,200, whereas if you're on one of the lowest incomes, JobSeeker for example, that's $46 a day, you'll get this one off $250. That might help you for a week, maybe two, but you've got to pay for your rent every single week, Patricia, and you know what's happened to those rent prices. They've gone up nationally by at least 8 per cent and in regional areas, up to 30 per cent increase in those rents. So people facing homelessness and hunger are not getting what they needed out of this budget and we've had a lot of money spent, people who've got more got the most.

Patricia: Saul Eslake, does this look like the responsible long term plan Josh Frydenberg says it is, and how much of this budget is about the upcoming election?

Saul: Well, I suppose like Captain Renault, you're shocked to see election vote-winning measures in a budget that's possibly weeks away from an election. I think it's inevitable that there would be some of these sorts of measures and others which in similar circumstances in 2007, the then Treasury Secretary, Ken Henry described as frankly comma pad in a memorable phrase, and there are some of those. But in general, the government has, I think, drawn a reasonable balance between doing what governments of all persuasions always do in their pre-election budgets and the requirements of present circumstances, which is to embark upon the task of budget repair. And out of what was really big windfall revenue gain from higher commodity prices and stronger than previously forecast economic and employment growth, the government's directed about 70 per cent of money it had towards putting the budget on a more sustainable path and I think that's broadly the right thing to do. I don't at all criticise the government for addressing cost-of-living pressures faced by people in the bottom end of the income distribution. Arguably, they could have done more in that regard, but there are other measures, including I would say the cut in the petrol excise itself that are poorly targeted. Bearing in mind that Australian households have almost $250 billion more stashed away in bank deposits than they had on the eve of the pandemic. Most Australians actually don't need help coping with cost-of-living pressures, and you wonder what all those additional savings are meant to be used for.

Patricia: And yet you say it's still a reasonable job, Saul. What you mean is it's a reasonable political exercise, right? Because if they don't need the money, they're being given it.

Saul: Well, the people who are being given most of the money are those at the bottom end of the income distribution who actually do need it and I don't criticise the government for that. I think it would've been almost unconscionable for them not to have done something to assist pensioners and beneficiaries and workers on low wages with increases in petrol and food prices. For which they're not well placed to cope. The cut in the petrol excise by contrast, although it does massage down the line inflation rate, temporarily assists a whole lot of people who don't need any assistance at all and who could have quite reasonably been expected to draw down some of that huge increase in bank deposits they've racked up over the last two years to assist them with that. I mean, if you wanted to make other criticisms, it would be along the lines that, for example, there's nothing in the budget that tangibly contributes to improving Australia's pretty ordinary productivity growth performance. Which after all would be the best way of ensuring sustainable increases in real wages over the long term. There are gimmicky handouts to small businesses, supposedly to incentivise them to invest in digital technology and skills. This comes on top of a panoply of other tax preferences that the government has given to small businesses since 2015, none of which have been shown to work despite all the chanting of mantras about small business being the engine room of the economy, something for which there's no evidence whatsoever. Those sort of measures just simply don't work.

Cassandra: I would highlight of course, Patricia, the biggest cost-of-living problem for people on low and modest incomes is housing costs and the measures that we've got in this budget, the first home guarantee and the saver scheme, they are measures that are going to push prices up even further. This is the problem. The government continues to do these kinds of measures that actually put more fuel on the fire of housing affordability. We went into the pandemic with the housing affordability crisis, particularly for people on low modest incomes. And again, that $3 billion, to Saul's point on the fuel excise, the people who are getting the most out of that are people on higher incomes because they spend more on their fuel, and we could have put that $3 billion into lifting the adequacy of income supports for people who have the least, lifting JobSeeker and…

Patricia: Okay, so just let me ask you…

Cassandra: The one I'll get into, social housing.

Patricia: But on the one-off payments, if we can just stick to that, and now, the petrol excise going for six months, that will help people at the lowest end?

Cassandra: But it will also help people at the higher end and this is a government that said it was going to be responsible with how it would spend its dollars. If it was serious about tackling cost of living, it should have targeted those dollars to people actually really do have a problem with covering the essentials of life like housing, food, and being able to put something in the tank. People on high incomes do have a lot on those balance sheets, but people on low incomes needed a lift in their incomes. The other area of course is low paid workforce, the caring sector, aged care, childcare. Those workers, they're also not able to cover the costs and those are where the dollars should have gone in this budget.

Patricia: Jennifer Westacott. Given those points made by Cassandra Goldie, do you think this is a responsible mix given the pain people are feeling now?

Jennifer: I think it is broadly. I agree with Saul. I think that the targeting to low-income households, I think the one-off payment to people who are receiving welfare, I think that's the right thing to do. Look, there'll be lots of arguments about the fuel excise. They'll be damned if they do, damned if they don't. I mean, it's hard to see how you'd target that because of the way it works, but you know, for a family traveling in and out to their work from Western Sydney or the suburbs of Melbourne and Brisbane, $10 every time you fill up your tank, that's actually, you don't fill it up once a year, you fill it up once or twice a week. That's actually a lot of money for people. I think the crucial thing is keeping that temporary and then doing the hard work that we need to do on road user chargers, particularly as we're going to have electric vehicles. I think the other point Saul makes which we make in our commentary on the budget too, the work has got to get done on lifting our productivity, it's got to get done on lifting our competitiveness, it's got to get done on lifting business activity because that is the way to get high wages across the economy, not just wage inflation in patches of the economy.

Patricia: Okay, let's talk wages. Saul, there's a lot of volatility in forecasting at the moment and wages predictions have been overly confident in recent budgets, they really have. Would you really think we're going to see the kind of predictions that are being made here?

Saul: Well, the Treasury isn't the only one who has got these forecasts wrong. Of course, the Reserve Bank has also acknowledged that it's consistently overestimated wages growth, and that's been a feature of forecasting around the world, not just in Australia. The budget papers rightly acknowledge that we don't have a great deal of practical experience to inform the judges in wake about how wages will behave in an environment when the unemployment rate is less than four per cent as it's expected to be, it's almost that now. I think it's certainly reasonable to expect that in a labour market as tight as this, wages growth will pick up. It's certainly fair to say that forecasts of that in the past have undershot, but I would say that there's at least as great a chance that wages growth could surprise a bit to the upside as there is a chance that we will again see wages growth fall short of the government's forecasting. Certainly, in other countries where the labour market is tight, most obviously the United States, wages growth has surprised to the upside. Given that trends in Australian wages seem to have followed trends in other comparable countries with a lag of a year or two in the past 20 years, it seems reasonable again to assume that the same sort of thing broadly speaking would happen here. Once you allow for differences in the way wages are set, for example, through the greater use of multi-year enterprise agreements that we have here compared with some other countries. So I would agree that wages growth is likely to pick up but I think there's a great deal of uncertainty as to by how much they'll pick up.

Cassandra: I think Patricia, with where we've got to on employment, I think we've got a really historic opportunity here to support people who have been out of the labour market for far too long, have really struggled to get a look in, people who are older, people with a disability, to finally get to the front of the queue. But what we've got to make sure is that we get the investment in skills, education, training, support for them that I think we are on a unity ticket with that to make sure this is a fantastic opportunity for those people. They can't live in destitution whilst they're trying to retrain and re-skill. That's why JobSeeker is so important. But also, let's go for real full employment. That is the best way to continue to push up wages, to make sure that people have decent wages when they get a job and not this forcing people into bits and pieces of really low-paid insecure work that doesn't do anything for people's mental health and certainly doesn't do anything for their cost-of-living.

Patricia: Yeah, Jennifer Westacott, we are in a historically significant moment with the unemployment rate. What are the opportunities that provides?

Jennifer: Well, there's some opportunities and there's some risks too. We've got to sustain full employment and that's about driving business activity, that's about growing the size of the economy, that's about driving business investment, and there's some good things in the budget but we think there's a lot of work still to be done there. We've got to get our skills system working and I think we shouldn't underestimate, I mean, there's a $7 billion package in the budget on skills and there's a lot of work on apprenticeships, there's an extra $3.7 billion for the skills agreement with the states. We want to see that used to really not just close the skill gaps, to address some of the issues that Cassandra's talking about. People who are not skilled, who can't get jobs, who are not going to be part of the digital economy, let's upskill those people but let's also take the opportunity to reshape the skills system so that people can get skills more quickly through micro credentials or short courses, whatever way, so that we're not dragging away of a decade of this. So that's the opportunity I think, Patricia. Not just to put more money in but to rethink about the way we skill people, the way we train them, the way we hire them, the way we make sure that they stay in their jobs and the way we make sure they get access to higher paid jobs.

Patricia: Just finally, Jennifer Westacott, you've been calling for the work of budget repair to begin. Now, the budget predicts net debt will peak in 2026, the budget puts off spending cuts and there's no serious revenue raising here. Has the government put that hard work off beyond the election?

Jennifer: I don't think anyone expected this to be a budget that did the kind of heavy lifting on the budget repair, but to Saul's point, they've only spent 30 per cent thereabouts of the gain that they've made in terms of improved commodities, improved revenue. Look, the best way we are going to improve the budget is of course to get that growth. You know, for every 1 per cent you add to the GDP, you get $18 billion, you get $4 billion of revenue. Everyone knows the maths. That's the best way without having to make those harsh decisions, and the longer that growth scenario, and that's my nervousness about the budget, those numbers two again, that makes the job or budget repair much harder and there are some stark choices. But the other point I'd make is they have stuck in the guard rails in terms of tax to GDP, so I think they have actually not gone out of that fiscal discipline. But let's not forget, the task of budget repair is a hard one in this country. Remember the last time we tried it in 2014.

Cassandra: We can't finish here without talking about climate change. Let's be real here. Any kind of economic analysis has to factor in what's going on with extreme weather events now, and that as a country, we have to do everything we can to have a fast, fair and inclusive transition to a clean economy and to bring down our emissions reductions. This budget doesn't really touch the sides of that. We've got nothing substantial in that. Let's be very clear here, the community expects it. As Jennifer was saying at the beginning, we need a really comprehensive, rapid response to disasters. We need to fix the disaster recovery payments. They need to be at least $3,000 Patricia, not in this budget, but also, the big structural change to our emissions process and making sure that we are transitioning to a clean economy, electrification. We've touched on fuel prices but let's talk about moving away from fossil fuels. Let's get rid of the fossil fuel rebate, that's also costing billions. We could have got rid of that and put that into the rapid transformation that we need.

Jennifer: Just very briefly though, I think there are things. I think we've moved beyond a climate change budget. Everything we do in this country now is about transitioning to a clean energy economy so there are important things in the budget. The modern manufacturing initiative, which is about diversification of industry. The $2 billion Regional Accelerator Program, which is something we've been calling for that's really about, and I hope it's targeted to many of those regions where they are going to go through a big transition as we move to a clean energy economy. All the skills stuff is also about getting people with the skills and capabilities to run a different sort of economy and to run an advanced manufacturing economy. I wouldn't say there's nothing in the budget. I think the days of looking for the climate change budget are gone. We've got bipartisan commitment to net zero, we've got states on track, we've got business moving ahead at really rapid pace. The challenge is how we manage that transition.

Cassandra: We can agree to disagree on that one.

Jennifer: Okay.

Patricia: Saul, final word to you, on both of those issues, paying down debt and the structural work that needs to be done, and also the climate change question, is there enough in this budget, enough answers on these questions?

Saul: I think the answer is no, and the point I'd make here is that the medium-term projections in the budget confirm that government spending is on what seems to be a permanently higher plane as a proportion of GDP at about 26.5lf per cent. That number is very constant all the way to 2033, and yet, we have a rule, self-imposed, that taxes can't exceed 23.9 per cent of GDP, a figure which is based solely on it being the average for the last two terms of the Howard government when government spending averaged 24 per cent of GDP. So, we are spending an additional 2 per cent of GDP as far as the eye can see, most of it coming from increased spending on the NDIS, the aged care system and health, which the public very clearly wants and woe betide any government that doesn't provide it. Whether the public wants it or not, we are going to get increased spending on defence, and we have to spend more on interest payments, even at low interest rates because of the debt that's been racked up over the last two or three years during COVID. It would seem to me that the task of budget repair, whenever some government gets around to tackling it in earnest, is going to have to be undertaken primarily from the revenue side. In an ideal world, between now and the next election, the government and the opposition would be having an intelligent conversation with the electorate about the least economically damaging and fairest ways of raising maybe an additional percentage point or two of GDP in revenue, and that might include measures designed to speed the transition to a clean economy. But frankly, I'm more likely to find myself stepping in thylacine poo when I step outside my front door than I am for that intelligent conversation to take place.

Cassandra: I think that's up to us, Saul. We'll agree with you on that one.

Patricia: I think the three of you have had a very intelligent conversation. Thank you for coming on the program.

Cassandra: Thanks very much.

Jennifer: Thanks Patricia