Q&A, AFR Business Summit - Sydney, NSW
10 March 2020
Well thanks Prime Minister, we’ve got time just for a few questions. You’ve got a pretty big day as I understand, ERC, Cabinet, etc, decisions to make. Look, this time last year you gave a speech last year, very different circumstances. There was an election coming. You were making the case for re-election, you actually invoked the word recession last year but in a different context, you were warning against a change of government. Now we’re, as you’ve said in your speech, we’ve been mugged by circumstance in the last couple of months. And a lot of people in this room and economists are talking about the possibility of a recession. What confidence do you have that what you're going to announce later this week plus the collective efforts you’ve called for, that we can head that off, we can keep our heads above water in June and beyond?
Well look Phil, I don't find speculation on those things terribly helpful. What I find helpful is what we do, and what we announce, and explaining why we're doing it and how we're doing it and ensuring that we're delivering on the things we say we're going to do. That's what change of circumstances, that's what delivers the desired effect. And that's what the government and I am very focussed on, what we do. What you do matters. And what you’ll see from the announcements we’ll make later this week I think demonstrate our understanding along the terms I’ve outlined today. You made reference to last year. What I'm pleased about is we’re going into this crisis with a balanced budget and not $387 billion dollars worth of higher taxes. I don't think that would have put Australia at all in a good position to deal with this. As I said, we have been patient and steady as we’ve restored the budget to balance. And in doing that, as I you know, warned back in 2016 as the Treasurer, that's what you need to do to build your buffers to be able to take the action, and it's not just me saying this. This is something that’s recognised, whether it's by the IMF or the OECD or others, they recognise that Australia is well positioned to deal with this. Well positioned to deal with this.
You mentioned in your speech about balance sheets, you've said the unis, and previously the universities, have savings on which they’ll have to draw, you’ve asked big corporations here today to keep paying workers even casuals and part timers if they don’t, even if there’s no work for them, and households, is it a case that everyone's going have to dip into their savings, even households? On top of what the government’s going to do, is it an admission that the government can’t do everything?
Well the economy just isn’t made up of the government. It's made up of businesses, it’s made up of households, it’s made up of everybody. And what I’m referring to is the people's individual household balance sheets. For the stats I quoted about being ahead of mortgages and the way they’ve been able to restore those balances, business balance sheets, bank balance sheets, the Commonwealth's balance sheet, I'd say state balance sheets as well, state governments. All of us are in a position today to be able to do what we need to do, over the course of this virus crisis to strengthen and see the Australian economy through. And it requires I think that mindset, if you want to have a bounce back stronger on the other side, then it will require I think using those balance sheets that you’ve built for such a time as this, to ensure that Australia emerges stronger.
And we’ve seen another shaky night, overnight on Wall Street. The ASX here is down nearly 20 percent just in a couple of weeks, what’s your message to investors? And by extension, just people who are worried about their super? Given what’s happening in the markets?
I think particularly with the markets, and I don’t often comment on this, but I’d simply make this observation. I mean markets are attempting to reprice risk. And what we're seeing at the moment is a lot of uncertainty regarding the future path and trajectory of this virus, and that is quite a big uncertainty. And as they reach around trying to settle on a view about how that can be priced. Then we see this volatility, and we see the challenge to liquidity in these markets. Now, I would expect to see that settle in terms of their ability to price risk, with more information. And the government itself, we are getting more information about the nature and the trajectory of this virus. I mean there are a couple of things we already know about it. It has nowhere near the mortality rates that we've seen from SARS and MERS. The figures we’re seeing now are sub-one percent. And you know, SARS and MERS were more than double digit times those sorts of, those mortality rates. It’s still a serious virus, but it is moving more towards a very bad flu than it is to a deadly type of virus like SARS and MERS. It is a long way from those sorts of impacts. Viruses run a course. That's what the epidemiologists tell us. And so there's a lot of work, not just being done in Australia, but around the world and I’m sure being resourced by many financial houses as well. So they can best plot the course of this, and understand what that risk means and so they can price it in the decisions that they’re making in markets on a daily basis. So I think with more information and better understanding, and as we've seen the virus extended into more countries, that gives the availability of a lot more datasets upon which to run these models. And I’d say at the moment, some of the best learnings are coming out of Korea, where we have a very high testing rate, we have a much more advanced health system and the data we're seeing come out of there is informing a lot more I think of the modelling which is being done, which means that I think as markets get better information, they'll respond I think in a less volatile way. In the meantime, it's important that the Reserve Bank, and these are conversations that we, of course, have with them, and I’m sure others do, are keeping a close eye on those liquidity issues in those markets. And the roles that they have to play. And equally, the Treasury is doing the same thing.
Okay and just briefly I know you have to go. On the Reserve Bank do you think we're getting closer to quantitative easing?
Well I’m going to leave that one to Phil Lowe, I’ve got plenty of decisions that I have to make, and they don’t involve whether that step is taken or not. But what I will say is this, and that is that, one of the first things I did when I was Treasurer is as I restored again the process of meeting on a monthly basis with the Reserve Bank, and I know the current Treasurer keeps that process up, it's a very important relationship and we both have different roles to play. It's important we understand each other's thinking. It's not for us to, sort of I suppose, run each other’s book, that's what we’re both tasked individually to do. But I can assure people that there is a very high level of alignment in understanding what the challenges are. And that will I think continue to support confidence throughout Australian markets and the Australian economy, that both arms of monetary and fiscal policy will be pulling in the same direction.
Okay and just finally I did have one question from the floor I was to ask, and that’s quite succinct. Is the world over reacting to this virus?
Well if you look at the supermarkets at Chullora you could quickly come to that conclusion. And that's why I think it is important that we get this into perspective. The government's been very sober about our assessment of this, we’ve taken it seriously from the outset, I remember in the first couple of days, when this was presenting in January, we were dealing with the bushfire crisis at the time, but the incident response centre in Canberra had been set up and I went there with Doctor Murphy. Those who were attending seemed to be interested in other political issues at the time, but for me it was very clear that this was going to be a very significant issue that had very profound, broader, economy wide impacts, globally. Because what it does is, what this virus does is disrupts economies. Global economies, domestic economies. It's a disruptor. But it is a health disruptor, not a financial disruptor in terms of its cause. And so it's important to keep it in perspective. This has a fixed life. This virus. It will run its course. And it's important we do things while we address this that does not impede a longer term position. In fact, use the time for training, skills development, investment. I know that many companies will ask staff to take their built up leave during this period of time. There are many things companies can do to work together with their employees, to work through this. We will face, I suspect depending on how the virus spreads, there will be shortages of labour in particular areas. And that will mean that some people who have been working in some places, who may not be working in those places will have the opportunity to be working in other roles. If that’s possible depending on the training that’s required for that. It’s very possible that we’re going to have to see, and I know state governments are going to be working closely on this, to draw more part-time nurses into more full-time nurses in the weeks and months ahead. So, it's about getting ahead of it. It's about staying ahead of it. It's about keeping a level head on it and ensuring that we take the actions that are necessary in accordance with the principles I’ve set out today. As I said, we're all in this together and we’ve all got a role to play.
Thank you very much Prime Minister.
Thanks Phil.
