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RUBY:

From Schwartz Media I’m Ruby Jones this is 7am.

Next Tuesday, the federal government will drop its highly anticipated budget, laying out its priorities for the next 12 months.

The stakes couldn’t be higher - as Australia reckons with the global economic fallout from the virus, and plots an uncertain future.

Today, columnist for The Saturday Paper Paul Bongiorno on what the Treasurer is planning, and what it might tell us about who should pay for Australia’s pandemic recovery.

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Archival Tape -- Josh Frydenberg:

“Ladies and gentlemen, one year ago, our nation was in lockdown. We were staring into the economic abyss, 1.3 million Australians had been stood down or had lost their jobs.”

RUBY:

Paul, next week, the Treasurer, Josh Frydenberg, will unveil the federal government's 2021 budget. It's come around pretty fast. What should we be expecting?

PAUL:

Well, Ruby, the Liberal treasurer of Australia, Josh Frydenberg, will unveil a budget that will hugely increase spending and lay the groundwork for deficits as far as the eye can see...

Archival Tape -- Josh Frydenberg:

“Of course, in the long run. We know that the key to sustainably delivering higher real wages is through lifting productivity. That is why the government will continue to pursue a range of reforms and investments to boost productivity and set Australia up for the future.”

PAUL:

...And our erstwhile fiscal conservative treasurer will unashamedly walk both sides of the street next week.

Archival Tape -- Josh Frydenberg:

“We are making the necessary investments to seize the opportunities that will set Australia up for the future, create jobs and lift wages over the long run.”

PAUL:

He's already committed to not undertaking any sharp pivots towards austerity as he works hard to drive the unemployment rate lower.

Archival Tape -- Josh Frydenberg:

“For fiscal consolidation to be sustainable, it should rely on gradual changes that are made over time and that provide the foundation for a growing, thriving economy.”

PAUL:

At the same time, Frydenberg insists, the government's core values haven't changed, and he remains committed to lower taxes containing the size of government budget discipline and guaranteeing the delivery of essential services. You know, Ruby, it sounds a bit like the prayer of Saint Augustine, who before his conversion prayed, Lord make me pure, but just not yet.

RUBY:

OK, so this is about assuring people that the government will continue to spend and maybe even that it will spend on them and they'll get something out of it. But it's also at the same time about trying to say that the pandemic deficit will be addressed, which is a bit of a hard and contradictory sell.

PAUL:

Well, yes, it is. And it all goes to the question of who foots the bill after the pandemic. It's a question, Ruby, that governments worldwide are grappling with.

Archival Tape -- Sarah Hunter:

“The failings I can see over the last decade was that governments pulled the plug on the support they gave the economy after the financial crisis too early.”

PAUL:

As economist Sarah Hunter at the National Press Club put it on Tuesday, we're seeing a sea change in how governments view fiscal policy and how it can be used in the economy.

Archival Tape -- Sarah Hunter:

“And this is a bit of a change. And we're seeing it globally. The US, my goodness, that is a massive turnaround for the books, even if they only get half of what's on the table through right now it's a huge fiscal package…”

PAUL:

As Hunter says, there's a recognition that tax cuts for the wealthy have only served to widen income inequality.

Archival Tape -- Sarah Hunter:

“That does seem to be some recognition that income inequality and wealth inequality has got to a stage where it's too high, it's not sustainable. We need to reverse that trend.”

RUBY:

So do you think that we will see this trend reverse in Australia, that there will be less tax cuts for the wealthy in this budget?

PAUL:

Well, midweek, the government was background briefing journalists that speculation it would fast track tax cuts for the high income workers was wrong. The government instead would be extending the low and middle income tax offset worth up to 1080 dollars by a year. But if this is a pre-election budget, as it definitely looks and smells to me, the Australian precedent would suggest that neither Scott Morrison nor Anthony Albanese, for that matter, will follow Joe Biden's example and promise to raise the company tax and the income tax paid by the super rich. These are measures the US president is now seeking to implement with the approval of 65 percent of the American public, according to an Ipsos Reuters poll. It's also similar to the approach being taken by the UK government, which, like Australia's, is conservative.

RUBY:

And so why do you think this seems like a pre-election budget Paul?

PAUL:

Well, some on the government backbench, Ruby, are convinced Morrison has already begun ‘fattening the pig head of market day’, as they say, with billions in promises almost daily. Rolling out and market day to their thinking is likely to be in October or November before any Covid risks materialise to stall or stymie the economic recovery. And if that happens, which. Can't be dismissed in light of the catastrophe in India and the containment uncertainties everywhere, the government's record? Well, it wouldn't be so convincing.

RUBY:

We'll be back in a moment.

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RUBY:

Paul, we're talking about when we might see an election held in Australia and the likelihood that it could be sooner rather than later, how beneficial would an early election be to Scott Morrison?

PAUL:

Well, all of the state elections we've seen since the pandemic shows that incumbent governments and that's including the recent Tasmanian Liberal one, are pretty much guaranteed to return. And that's largely a vote of confidence in the way Australia has been protected from the virus, both in a health and in an economic sense.

RUBY:

And just how well are we doing when it comes to our economic recovery?

PAUL:

Well, Ruby, just how remarkable the economic recovery has been was spelled out in Reserve Bank Governor Philip Lowe statement after the bank on Tuesday left interest rates at their historic lows of near to zero. Lowe is forecasting the economy to grow at its fastest calendar year rate in more than two decades. He expects Australia to reach full employment, which he defines as an unemployment rate of 4.5 per cent by the end of next year. And to keep this growth, he's flagging that rates are unlikely to change before the end of 2024 and the labour market is in better shape than pre Covid.

And there are signs inflation is returning in key areas like building construction and commodities, which encourages optimism. There is a more healthy economic pulse, and no doubt the Treasurer will claim all the credit for this. And I've got to tell you, it'll be hard to begrudge him any due recognition because this recovery was purchased largely by his massive spending and its survival depends almost entirely on it.

RUBY:

But this spending, it's pretty much the opposite of the approach that has been taken by the Liberal Party. Traditionally, it might be politically popular amongst voters, but has it caused any problems for the government?

PAUL:

Yeah, well, fiscal conservatives in the government remain unhappy that Morrison and Frydenberg embarked on what they see as a labour style, gargantuan cash splash. And with an eye to appeasing them, The Australian was told that savings from unspent stimulus schemes will be used to fund major packages for aged care, mental health, the National Disability Insurance Scheme, childcare and veterans. And the paper says this would reduce the projected deficit by as much as 40 billion dollars. It'll still be by one estimate. However, an eye watering 155 billion dollars in 2020-21, but gradually shrink over the forward estimates over the next four years. But I've got to tell you, there's also criticism coming from Labour, but from another direction.

Archival Tape -- Jim Chalmers:

“The economy is recovering, but it's patchy and uneven. There's still two million Australians who can't find a job or enough work. There are still lots of people for whom this still feels like a recession.”

PAUL:

Shadow Treasurer Jim Chalmers says the welcome recovery is patchy, uneven and hostage to uncertainty.

Archival Tape -- Jim Chalmers:

“The budget, as it stands, is riddled with those partisan rorts that have come to light in recent times. And it's weighed down with waste. And that means that there is less room to invest in people and less invest in their jobs and invest in the future.”

PAUL:

And on Wednesday, there was a jarring reminder of how tenuous it all is with a locally acquired covid-19 case in Sydney and urgent contact tracing swung into action to find the source. But the ever present prospect of economically damaging lockdown's will remain with us, especially while our painfully slow and bungled vaccine distribution heightens the vulnerability.

RUBY:

And that goes to the heart of this, I think, Paul, our economic recovery. It does hinge on us being able to remain free of covid-19 and therefore hinges on our quarantine processes and on the vaccination rollout.

PAUL:

Well, there can't be any argument about that, Ruby. There's no doubt that our full economic recovery hinges on us being able to safely open our international borders. And the government's warning to the 9000 Australian citizens stuck in India that they face jail or punitive fines if they attempted to come home before May 15, while it was stark confirmation of quarantine failure. You know, the government has had a year to get it right. Its reliance on the sole Howard Springs facility in the Northern Territory was foolishly complacent.

And experts are warning the Covid infection will be with us for years. And yet the federal government has had to be prompted to look at another designated facility on Commonwealth land. The Victorian government has identified in Melbourne. Well, Morrison now says he's seriously considering this detailed plan and no one line in the budget, in my view, will be more important than the 700 million dollars required to make this plan a reality.

RUBY:

Paul, thank you so much for your time today.

PAUL:

Thank you, Ruby, bye.

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RUBY:

Also in the news today

New coronavirus restrictions have come into force in Sydney, with household gatherings now limited to 20 visitors and masks compulsory in indoor areas.

The wife of a man in his 50s who tested positive to the virus Wednesday has also tested positive, and NSW Health are concerned about venues around Sydney the couple visited while infectious.

And on Monday the Federal Court will hear an urgent challenge to the Morrison government’s temporary ban on citizens entering Australia from India.

Lawyers for Gary Newman, a 73-year-old Australian stranded in Bangalore are seeking to challenge the emergency declaration made by the Health Minister Greg Hunt.

7am is a daily show from The Monthly and The Saturday Paper. It’s produced by Ruby Schwartz, Elle Marsh, Atticus Bastow, Michelle Macklem, and Cinnamon Nippard.

Brian Campeau mixes the show. Our editor is Osman Faruqi. Erik Jensen is our editor-in-chief.
Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.

New episodes of 7am are released every weekday morning. Follow us your favourite podcast app, to make sure you don’t miss out.

I’m Ruby Jones, see you next week.

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