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Senate Select Committee on COVID-19
Australian Government’s response to the COVID-19 pandemic

BECKETT, Mr Ian, Division Head, Macroeconomic Modelling and Policy Division, Department of the Treasury

BERGER-THOMSON, Mrs Laura, Principal Adviser, Macroeconomic Group, Macroeconomic Conditions Division, Department of the Treasury

BRINE, Mr Matthew, Division Head, Environment, Industry and Infrastructure Division, Department of the Treasury

BROWN, Ms Philippa, Acting Division Head, JobKeeper Division, Fiscal Group, Department of the Treasury

DI MARCO, Ms Katrina, Division Head, Tax Analysis Division, Revenue Group, Department of the Treasury

JEREMENKO, Mr Robert, Division Head, Retirement Income Policy Division, Department of the Treasury

KENNEDY, Dr Steven, PSM, Secretary, Department of the Treasury

PEISLEY, Mr Merrick, Principal Adviser, Centre for Population, Department of the Treasury

POWER, Mr Trevor, Division Head, Macroeconomic Group, Macroeconomic Conditions Division, Department of the Treasury

ROLLINGS, Mr Jonathan, Division Head, Budget Policy Division, Department of the Treasury

WILKINSON, Ms Jennifer, Deputy Secretary, Fiscal Group, Department of the Treasury

WILKINSON, Ms Vicki, Division Head, Social Policy Division, Department of the Treasury

YEAMAN, Mr Luke, Deputy Secretary, Macroeconomic Group, Department of the Treasury

Committee met at 10:00

CHAIR ( Senator Gallagher ): I declare open this hearing of the COVID-19 Select Committee, as set out in the circulated program. The committee will hear evidence today from the Department of the Treasury, the Australian Taxation Office, the Department of Social Services and Services Australia. Information on procedural rules governing public hearings and on claims of public interest immunity, which will be incorporated in Hansard, has been provided to departments and agencies and is available from the secretariat.

The extract read as follows—

Public interest immunity claims

That the Senate—

(a) notes that ministers and officers have continued to refuse to provide information to Senate committees without properly raising claims of public interest immunity as required by past resolutions of the Senate;

(b) reaffirms the principles of past resolutions of the Senate by this order, to provide ministers and officers with guidance as to the proper process for raising public interest immunity claims and to consolidate those past resolutions of the Senate;

(c) orders that the following operate as an order of continuing effect:

(1) If:

(a) a Senate committee, or a senator in the course of proceedings of a committee, requests information or a document from a Commonwealth department or agency; and

(b) an officer of the department or agency to whom the request is directed believes that it may not be in the public interest to disclose the information or document to the committee, the officer shall state to the committee the ground on which the officer believes that it may not be in the public interest to disclose the information or document to the committee, and specify the harm to the public interest that could result from the disclosure of the information or document.

(2) If, after receiving the officer's statement under paragraph (1), the committee or the senator requests the officer to refer the question of the disclosure of the information or document to a responsible minister, the officer shall refer that question to the minister.

(3) If a minister, on a reference by an officer under paragraph (2), concludes that it would not be in the public interest to disclose the information or document to the committee, the minister shall provide to the committee a statement of the ground for that conclusion, specifying the harm to the public interest that could result from the disclosure of the information or document.

(4) A minister, in a statement under paragraph (3), shall indicate whether the harm to the public interest that could result from the disclosure of the information or document to the committee could result only from the publication of the information or document by the committee, or could result, equally or in part, from the disclosure of the information or document to the committee as in camera evidence.

(5) If, after considering a statement by a minister provided under paragraph (3), the committee concludes that the statement does not sufficiently justify the withholding of the information or document from the committee, the committee shall report the matter to the Senate.

(6) A decision by a committee not to report a matter to the Senate under paragraph (5) does not prevent a senator from raising the matter in the Senate in accordance with other procedures of the Senate.

(7) A statement that information or a document is not published, or is confidential, or consists of advice to, or internal deliberations of, government, in the absence of specification of the harm to the public interest that could result from the disclosure of the information or document, is not a statement that meets the requirements of paragraph (1) or (4).

(8) If a minister concludes that a statement under paragraph (3) should more appropriately be made by the head of an agency, by reason of the independence of that agency from ministerial direction or control, the minister shall inform the committee of that conclusion and the reason for that conclusion, and shall refer the matter to the head of the agency, who shall then be required to provide a statement in accordance with paragraph (3).

(d) requires the Procedure Committee to review the operation of this order and report to the Senate by 20 August 2009.

(13 May 2009 J.1941)

(Extract, Senate Standing Orders)

CHAIR: I welcome Dr Kennedy and officers of the Department of the Treasury. Thank you for appearing before us again. Dr Kennedy, you have circulated an opening statement. Colleagues, if you haven't got it, it will be provided by email shortly. It's a bit hard to get you to agree to the publication of the address that you haven't got electronically before you, but, if the committee is happy to do that once the email is circulated, I'll take the committee's agreement, unless that is otherwise objected to. Dr Kennedy, I invite you to make an opening statement and then I'll ask members of the committee to ask questions.

Dr Kennedy : Thank you for the opportunity to make an opening statement. It's a little longer than the statements that we've normally been making in front of the committee.

CHAIR: No-one follows the rules anyway, Dr Kennedy.

Dr Kennedy : In light of the update, Chair, similar to what would normally happen in budget estimates, I thought it would be useful to give a more comprehensive update. When I appeared in front of this committee three months ago, I noted that we have never seen an economic shock of this speed, magnitude and shape, reflecting that this is a significant shock both to supply and demand, and this remains the case. I also said that the final shape of this shock remains hard to predict, because it depends on how the virus's transmission unfolds in the face of efforts to suppress it both in Australia and overseas. Over time, the uncertainty around the progression of the virus will diminish and more economic activity will return. This also remains the case and underpins our advice to government on responses to the economic consequences of the pandemic.

The shock is far from over. This is obvious to Australians living in Victoria. We are learning more about the management of COVID-19, but there remains considerable uncertainty about the progression of the virus and its full impact on the economy. The management of the pandemic from a health perspective will continue to underpin economic recovery and the effectiveness of economic policy responses. We can see this in our data, with falls in travel and public activities typically preceding government decisions to increase restrictions. Confidence is an essential ingredient of economic recovery—confidence, firstly, in the management of the spread and treatment of COVID-19; confidence in the governments and public institutions that decide and implement responses and policy; and, then, confidence in our economic future. Today I will draw on the Economic and Fiscal Update to describe the evolution of the economic shock to date and our forecasts, explain how we see the policy response unfolding and provide some reflections on macroeconomic and fiscal frameworks.

The Australian economy is expected to have fallen by seven per cent in the June quarter, the sharpest quarterly fall on record. Business investment is expected to contract by 19 per cent in the quarter. Household consumption is expected to have fallen by around 12 per cent in the quarter. As a result of the lower spending and restrictions on specific industries, severe job losses occurred in the June quarter. For the quarter as a whole, employment fell by 5.5 per cent, alongside a record fall in participation in the labour market. While normally we would look to quarterly measures of economic activity and labour market outcomes, this shock is moving so fast that there are significant differences between months within a quarter.

Observing the evolution of what we have termed the effective unemployment rate provides a useful insight into the progress of economic effects to date. The effective unemployment rate is a measure of unemployment that includes the unemployed, those who have recently withdrawn from the labour force and those still connected to their employer but working zero hours. In April around 600,000 people lost employment, with only 120,000 of those actually counted as unemployed and the remaining 500,000 not counted as in the labour force. In addition, around 700,000 people were counted as employed but were working zero hours for economic reasons. Bringing these changes together, the effective unemployment rate was close to 15 per cent in April. By May this number had begun to decline as people started to work again, even as the number of people technically counted as unemployed increased; the effective rate had fallen to around 14 per cent. By June, as health restrictions began to ease, the effective unemployment rate had fallen to around 11 per cent, with employment increasing and fewer people working zero hours.

While the Australian economy has begun to recover from the severe effects of the containment restrictions in April and early May, the road to recovery will be long and unpredictable. Economic activity and employment will likely remain below pre-COVID levels for at least the next 12 months. This reflects assumptions about continuing restrictions to contain outbreaks of the virus, which keep sentiment below average, as well as the dislocation expected from the substantial loss of business and household income.

In financial year terms, following a fall of a quarter per cent in 2019-20 the Australian economy is forecast to fall by a further 2½ per cent in 2020-21. The pick-up in activity is more evident in calendar years. We are forecasting GDP to decline by 3¾ per cent in 2020 before increasing by 2½ per cent in 2021. Household consumption is forecast to fall by 1¼ per cent in 2021. Dwelling investment is forecast to fall by 16 per cent in 2021. Non-mining business investment is forecast to fall sharply, driven by a sharp decline in machinery and equipment investment as firms seek to preserve cash. However, mining investment is expected to grow for the first time in seven years. Net exports are forecast to fall by only a little, with large falls in international tourism and education exports offset by less international travel by Australians. The unemployment rate is forecast to remain elevated and is expected to be 8¾ per cent by mid-2021. As a result of significant spare capacity in the labour market and the economy more broadly, wage and price pressures are expected to be subdued. The July update contains considerable detail on the assumptions that we took around health measures so we could be transparent about the basis for our forecasts and risks to the outlook in these unusual times. We also provided some information indicating the impact of variations to key assumptions.

Turning now to the policy response, we see the government's fiscal response moving through three phases. The first phase has focused on providing income support to people and businesses, especially in light of the loss of income that comes from withdrawal from economic activity due to COVID-19. In other words, the response focused on the supply element of the shock. The two most significant mechanisms to deliver income support have been JobKeeper and jobseeker, although they have been substantially supplemented by payments to welfare recipients and cash payments to small and medium-sized enterprises linked to their payroll. An important element of jobseeker and JobKeeper is that they act as automatic stabilisers—that is, they flex in response to the size of the shock. Given the uncertainty that emerged in late March and remains with us, this automatic element is important and a deliberate design feature of JobKeeper, and one of the reasons for the enhanced jobseeker. Naturally this also means the cost of these programs can be significantly more or less than anticipated, given the capacity for the effects of COVID-19 to swing substantially. Not all of this income transfer will be spent immediately by businesses and households. For example, we are likely to see the household saving ratio rise to around 20 per cent in the June quarter, reflecting both precautionary behaviour and forced savings. This transfer of money from the public balance sheet to the private balance sheet will support activity not only in the quarter it is provided but also over future quarters.

The second phase will see income supports maintained but increasingly targeted while switching fiscal support to encouraging economic activity and employment and taking the opportunity to reform where it arises. The focus of policy here is switching more to responding to the demand element of the shock. Elements of the second phase that have already been put in place include tax measures to encourage business investment, subsidies to support housing investment, and direct public expenditure on infrastructure. Reform elements include industrial relations reforms associated with JobKeeper, and training reforms through the National Skills Commission and the JobTrainer fund.

The timing of the third phase of government support will depend on the shape of the COVID-19 shock. In this phase it will be necessary to increasingly focus on the functioning of labour and product markets and responding to accelerated structural change. Clearly, support for demand will still be required to lock in a declining unemployment rate. The extent of this support is hard to predict. It will depend in part on how long businesses and consumers remain precautionary as a result of ongoing health concerns and general uncertainty around the outlook. It will also depend on the extent of restructuring and structural change that occurs throughout the economy. As we move into this phase and start to emerge from the crisis, there will be both a need for and more opportunities to pursue economic reform. This is necessary in order to lift our growth potential and help the economy adapt more quickly, at a lower cost to the new environment we will face.

Taking opportunities where and when circumstances present is one of the most powerful ways to achieve reform. I would see the successful manner in which governments around Australia have approached the challenges of COVID-19 as fitting very much into this mould. Sustained and successful reform periods have common features. They include an unwavering commitment to public value for spending, the application of markets to delivering outcomes, the use of evidence in understanding and responding to challenges, the effective engagement of business and people, a fair and reasonable approach to structural change, successfully sharing the gains of growth, and understanding that the national interest is not always achieved through balancing sectional interests, and high-quality governance.

In the July update, it was noted that interest rates were cut by 425 basis points in response to the GFC, and, as outlined in the Treasurer's National Press Club speech on 24 July, the stimulatory effect of a cut in interest rates of this size today equates to about $100 billion in fiscal stimulus over a 12-month period. While actions taken by the RBA are assisting the economy, they are not providing anywhere near the amount of support they have in the past. This is not just the experience here in Australia; this is happening in many developed countries. I suspect that these new circumstance are going to be with us for some time, and they have direct implications for monetary and fiscal policy. From a monetary policy perspective, we have seen central banks undertaking more interventions outside their historical conventions, such as standing ready to directly purchase national and subnational debt, and buying considerable amounts of private debt. Phil Lowe outlined very effectively the RBA board's position on these developments, their implications for central banks, and their relevance to Australia in his recent speech on 21 July. From a fiscal perspective, this means more is going to be expected of governments and fiscal policy in managing economic cycles.

Interestingly, fiscal policy will be more powerful in these settings. It is highly likely that fiscal multipliers are larger when interest rates are near zero and are expected to remain there for the foreseeable future. In other words, the usual crowding-out features of fiscal policy are much less pronounced. Fortunately, Australia is in a very good position to provide appropriate policy responses, as it has done to date. This is not an invitation to spend in an untrammelled fashion. The intersection of the quantity of the fiscal policy response—be it through tax measures or spending—and the quality of that spending or those tax measures will determine our future success, and, at an appropriate time, moving back towards a balanced budget will be essential to driving quality decisions. Thank you, Chair, for the opportunity to provide this opening statement.

CHAIR: Thank you very much, Dr Kennedy, for that opening statement. Colleagues, we have Dr Kennedy with us up until the break—so, for an hour. Government senators have agreed to cede their time so that the time is available for non-government senators to ask Dr Kennedy questions. So we will go to Labor senators first, then to Senator Siewert—or your nominee, Senator Siewert—and then to Senator Lambie and Senator Patrick.

Thank you very much, Dr Kennedy, for appearing today with your colleagues. In the Economic and Fiscal Update, there are four years of measures but one year of forecasts. Can you explain a little bit more about that? I note that there are continual references throughout the document to a state of uncertainty, which I think we all understand. But does Treasury keep that data? Do you have that data and you're just not publishing it at the moment?

Dr Kennedy : We are forecasting and looking at the economy beyond a year. We're doing that on an ongoing basis. As you noted, Chair, there is considerable uncertainty around those forecasts, particularly because they rely so heavily on the nature of those health assumptions. I noted in my opening statement that we detailed the assumptions quite clearly because, as we can see, with the circumstances unfolding in Victoria or even the earlier circumstances when we were settling costings back in March and April, those assumptions drive very dramatically the subsequent economic forecasts. So the government chose to release an update with those forecasts. The RBA has taken a slightly different approach. It has published three forecasts—

CHAIR: Scenarios.

Dr Kennedy : three scenarios. The government's intention for the budget update on 6 October is to publish the full four years. I will say now there will still be very considerable uncertainty around those forecasts when they're published. Some of the costings are straightforward because they're an estimate based on a number of firms. They're not going to vary, regardless of the economic circumstances. Other costings, particularly the ones that are demand driven—

CHAIR: Yes, sure.

Dr Kennedy : actually have the potential to swing very dramatically. So the decision was taken to publish the usual four years of costings. There, my broad guidance to you would be that there are variations around the potential for those costings to swing depending on the nature of those programs. But the decision was taken to publish the full four years for all the currently announced policies.

CHAIR: So you've got the four-year forecast figures that you keep within the Treasury. You would provide those to government, one would assume, as part of your briefing process.

Dr Kennedy : We're forecasting four years and beyond constantly, particularly in this crisis, trying to understand how the economy might unfold. We have economic models. In a normal forecasting period, as soon as you move outside a year or two, the fans of outcomes start to arise. In this circumstance, as soon as you move outside, things change from week to week. As soon as you move outside a month or two, frankly, things can vary. I have to say I thought it was sensible to publish those forecasts in the way we did, but I do—

CHAIR: Was it a decision by the Treasury to publish one year of forecasts?

Dr Kennedy : No, it's the government. The budget documents are all government documents, not Treasury documents.

CHAIR: It was a government decision. And they have four years of forecasts; they have that information?

Dr Kennedy : Just so I'm clear, we prepare that information and we brief around that information all of the time. Certainly, we brief the Treasurer on our views around those forecasts, but, as I said, they change.

CHAIR: So they have four years of information, but one year's was published.

Mr Yeaman : Chair, I'm Deputy Secretary, Macroeconomic Group. I've recently joined the department. Thank you for the opportunity to appear.

CHAIR: Nice to meet you. Welcome.

Mr Yeaman : I'll just add to Dr Kennedy's comments. As he said, we regularly maintain a longer term view of the economy and have those forecasting tools available. The formal advice that we've provided to government through this period has been based around this—as you described it—one-year forecast period out to June 2021. It is certainly the case that the attention and the focus that we've put into this next two-year period have been much greater than we have done beyond that. We haven't gone to the extra degree of really trying to fine-tune our forecasts beyond that two-year period for the reasons Dr Kennedy described around uncertainty.

Dr Kennedy : We haven't seen the point of it, to be quite honest, Senator.

CHAIR: Yes, but that's a different question from the one I'm asking, which is about the government having four years of information but publishing one year of information. The next question I'd ask that flows from that is: regarding the uncertainty that has led to the nonpublication of the four years, what's going to happen in the next eight to nine weeks that's going to make that less uncertain? I mean, that's what we're talking about here. If you're prepared to publish in October, why was the government not prepared to publish it at the end of July?

Dr Kennedy : It's an update. The government chose to do a full budget update on 6 October. As I am foreshadowing to you, we will do our best to outline whether events are any more certain. They're somewhat more certain, because, as I said, we're learning more as things unfold. But, as we're seeing in the circumstances in Victoria and elsewhere, things can change very rapidly. We will do our best to outline those things, but I would just foreshadow for you that significant effort goes into just trying to understand the evolution over the coming months and quarters. It is important to begin to get a sense of estimates beyond that, and we will do our best. But forecasting in this period is very difficult.

CHAIR: Sure. In terms of assumptions, which I think you talked about in your opening statement—and you do go into some detail in the update on it—what's happened, basically? What's the reassessment of those assumptions and the numbers that flow out from those assumptions being used, in light of what we've seen happening with Queensland border closures again and obviously the terrible situation our fellow Australians in Victoria are in?

Dr Kennedy : Further constraints, be they through movement or through the extension of the six-week measures that the Victorian government announced, will mean that growth will be lower, employment will be lower and unemployment will be higher. The health constraints, applied in any way, that are necessary to manage the spread of the virus naturally contain economic activity and have a negative effect on the economy. We illustrated an estimate of the effect of the six-week health measures in Victoria. From memory, it was around three-quarters of a per cent off September growth, which is substantial in and of itself. If those measures were more constraining or had to be extended, the effect would be larger. And if they needed to be applied similarly in other states beyond that then of course people could lose confidence and have concerns about what they're seeing unfolding, even in other parts of the country. So, management of this—for example, the management of how the virus is spreading in New South Wales—in all states is incredibly important. It is important that the community has confidence that it is well managed. That will matter enormously for economic activity over and above what the constraints do directly to reducing economic activity.

CHAIR: I think in the update you speak of the modelling you've done, or the estimates that you have—that for every week of the containment measures from late March to mid-May GDP was about $4 billion lower. We have sought access to that modelling, and I don't believe we've had an answer from Treasury yet on that—or it might have come in late this morning. But I will just repeat that the committee is interested in understanding a bit more about the work Treasury's done there to understand the impact of restrictions on the economy. It's a bit difficult to drill down into those much deeper when you don't have access to the information. Presumably all of this would be updated again in the budget based on what we're seeing in Victoria—

Dr Kennedy : And more broadly.

CHAIR: and more broadly. But just in the intersections, for example, of the new JobKeeper arrangements and the impacts perhaps that this would have in terms of the new eligibility requirements of assessing turnover at different points in time, is there capacity within that to ensure that businesses in Victoria, for example, don't get a rough deal in terms of those new requirements coming in?

If they had an okay May and June, but then had a difficult July, August and September, would that still enable them to access those supports?

Dr Kennedy : The assessment is done over those two quarters—the June quarter and then the quarter we're in—so there is the potential for good months and bad months to be coming through in those months. There are some discretions around the application of the test that the Tax Commissioner can apply. I will pass to Jenny to expand on that.

Ms J Wilkinson : The secretary is right: the details of the new rules, and then the guidelines for JobKeeper 2.0, have not yet been published. Those will be important for everyone to understand when they come out. There will certainly be some flexibility for the Tax Commissioner to manage some of the things we have already had to manage in JobKeeper 1.0, like around what the comparable period is for businesses. There is no question that the policy has been designed around the current outlook for the economy. It would be a matter for government if they wanted to change design parameters from what's been announced. But, at this stage, the requirement is that you need to have demonstrated a fall in turnover in both the June and September quarters in order to be eligible for ongoing support. We haven't yet seen all of the data from the June quarter. That data on turnover should be available when the BAS is filled in, for most businesses, and we'll be analysing that when that comes in.

CHAIR: Okay. We might ask the Tax Commissioner a bit more about that. From our point of view, we would want to make sure it's flexible enough to meet the needs of what's happening on the ground in Victoria and be able to move quickly to that. Dr Kennedy, I'm working through the issues because we don't have you for very long. The published deficits in the document are pretty big. They are expected to be about $84 billion in 2019-20 and $184 billion in 2020-21. How long does Treasury think the budget will remain in deficit?

Dr Kennedy : 'Pretty big' is probably an understatement.

CHAIR: I was being a bit kind there.

Dr Kennedy : They are pretty big but I would say they are absolutely necessary given the size of the shock and the circumstances we face. They are not at all outside of what the international experience would be. So they are very large but very reasonable. The government will be in a better position to outline what those future deficits will look like in the October budget. Obviously a deficit of 9.7 per cent of GDP—I think around 99 per cent of these measures are spending loaded in the first couple of years, so that will automatically bring that number down quite a lot. But we did outline in the update—and we will be working on this between now and budget—that it is very difficult to predict how revenues are going to recover in the light of this, on the other side. A little under half of this deterioration is a writedown in revenues. Once again, the spending very much depends on how the health aspects unfold, hence the matching spending arrangements. But the spending arrangements do come off relatively quickly, across the course of a couple of years. The taxation arrangements is the bit we'll be working on. In summary, the deficit will come back. Under the current scenario, it will drop down from that very high level fairly rapidly. But it's the revenue side we're working on, because that will tell you the subsequent trajectory—

CHAIR: And any further stimulus, presumably.

Dr Kennedy : Exactly—depending on the health circumstances and the global circumstances. There is no doubt in my mind that we'll have deficits for a number of years. But I won't give you that number just yet. I'll wait till we do a bit more work and get to it in the budget.

CHAIR: In the update, the language used is:

Over the medium term, the Government will strengthen the fiscal position to ensure Australia continues to be well-placed to respond to future shocks.

That's on page 44. Is that use of 'medium term' the standard use of the term, which seems to be 10 years?

Dr Kennedy : Yes.

CHAIR: So we're looking at a budget recovery over a decade, using the government's language?

Dr Kennedy : There are so many variables here. There are 1.6 million people on the jobseeker payment and two million people drawing the supplement. First and foremost, the challenge is to get the unemployment rate down.

CHAIR: Absolutely.

Dr Kennedy : So that will be, at least in my advice, a particular focus of how things unfold in the period ahead. That certainly intersects with the budget. It has implications for how quickly it comes back in, but it also has implications for the composition of spending and what is the best way to drive that rate down. There are going to be many factors. Just sitting here in front of you today, watching circumstances unfold in Victoria or Queensland or anywhere else—we have never seen this amount of uncertainty. We really need to just continue to move, as I think we have done, effectively through the shock that is with us. As we get to the other side of that—and we will—the budget trajectories and the speed at which unemployment falls will be two things that will intersect.

CHAIR: I have a couple more issues, and one of them is unemployment and jobs. Just before I go there, I want to ask about the published figures on debt. Gross debt is currently just over $700 billion, and it's predicted to rise next year to $850 billion. How would you describe that level of debt for Australia? I think the government used the word 'manageable'.

Dr Kennedy : I think it's entirely manageable. As has been noted by a number of people, Australia's gross debt and net debt to GDP are both relatively low by international standards. We are increasing the debt very rapidly. Through recovery, one would expect the debt-to-GDP ratio, even with some deficits, to stabilise relatively quickly. These are very large jumps in the numbers. Moving from a deficit of 4.3 per cent to 9.7 per cent obviously increases the debt quickly, but we did publish, in the update, some estimates of the cost of debt at the moment and how much it is falling—I think, on average, it's below one per cent—across the composition of our debt. The AOFM put away $15 billion of debt, to be paid back in 2051, from memory, a couple of days ago at under two per cent. So we are locking in lower interest rates for this debt. Getting the economy back to trend growth—and beyond, one would hope—in recovery, to drive down the unemployment rate, will stabilise that debt-to-GDP ratio quite quickly.

CHAIR: Do you see it increasing beyond $850 billion?

Dr Kennedy : Yes. I'd be surprised if it didn't increase beyond $850 billion.

CHAIR: Do we have to wait until October to understand a bit more about that?

Dr Kennedy : We'll provide updated estimates in October.

CHAIR: But it will rise beyond $850 billion.

Dr Kennedy : I'd expect that.

CHAIR: You go to unemployment a number of times throughout the document. It's forecast to peak at 9¼ per cent in the December quarter. You say that the unemployment rate will take some time to decline. You go on to say:

There may be longer-term impacts on the labour market if some workers who have been dislocated, especially those in more vulnerable cohorts, lose skills or need to re-skill to enter employment in a different occupation …

You also talk about the overrepresentation of women and young people and the impact on loss of jobs and hours. Also, through the JobKeeper review, you point out that casuals have been disproportionately impacted. I think there's also a reference to economic scarring, which may drag on further activity, including as a result of persistently higher unemployment.

Dr Kennedy : It's a pretty gloomy assessment.

CHAIR: Yes, it's a really grim assessment. The thing that flows from that when you read the document is: what's the government going to do about it?

Dr Kennedy : I think the first thing to appreciate is how government actions have kept it substantially below what it otherwise would have been. Nine and a quarter per cent is not a good unemployment rate, but it's a lot better than the unemployment rate we might have hit if the government had not moved to put in what are the largest fiscal responses we've seen in our history, at least since the Second World War. Obviously, all efforts are being put into trying to keep that peak below the sorts of peaks we saw in the nineties and the eighties, which climbed up over 10 per cent. We know that, in trying to drive an unemployment rate down, if there is a reallocation of economic activity then there are simply frictions with people moving into new jobs, new businesses starting, some businesses closing down and jobs being lost, which is why I think it's also very important to complement that period with significant training. The faster you drive that unemployment rate down, the less scarring you will have with people missing out or getting a couple of years behind. So that is a focus of the government and its policies.

We are still in the middle of this shock with the health measures coming along—hence the extension of JobKeeper and jobseeker. But, as we drive through to the end of the year and hopefully we get more clarity, we will get a better sense of the shape of driving down that unemployment profile. We saw a lot of people come back very quickly when the restrictions came off. It was still quite a few jobs down, but a lot of women came back, particularly, and a lot of young people. But still young people are disproportionately affected. The payroll job effects have come back to be more constant between men and women now, but women were much affected in the shock, so we're still watching that carefully. It's the young person aspect. There was a very insightful report published by the Productivity Commission about these issues for young people. So they would certainly be a focus of ours in driving the recovery.

As we've talked about and as you know well, Senator, what happens is that there are fewer hires and separations in a downturn, so the number of people losing their jobs begins to fall, but so does hiring, and so the turnover in the market is much lower. So there's just less of that opening up and that set of opportunities with people moving in and out and young people entering the workforce for the first time. There's just a lower amount of that activity for them to sort of lean into as they enter the labour market, which is why I think training opportunities and potentially measures that support their entry into the labour market are going to be very important in the period ahead. We just need to get into that period. While significant health constraints are in place, such as in Victoria, we need to be thinking about those measures. We first need to be allowing our health areas and governments to deal with the health crisis.

CHAIR: I take your point, but the update doesn't leave you with a sense of urgency from government around dealing with unemployment. There's an acknowledgement that more jobs will be lost, and that is captured in the data. By December, it will be 240,000. This update is a very grim read from cover to cover, but I guess the question it's left open is: what's going to happen and what's going to be done about this? I guess what we take from it is that we're being told, 'Wait till October and we'll have more to say on that.' What does that say to people who are worried about their jobs right now, today, and people who are talking to me about having to let their staff go and lose their business? The human side of it is so red hot out there.

Dr Kennedy : Oh, 100 per cent. It's not all waiting for October. The business investment measures—the instant asset write-off and the 50 per cent accelerated depreciation—typically have quite robust fiscal multipliers on them. But, to encourage business to take those up and invest, they need to see stability in the economic circumstances they're facing and to feel confident about that. If they're not confident about their capacity to remain open and trade, it's difficult for them to take the decision to take up that incentive to invest.

Six of our eight jurisdictions have little or no community transmission, putting aside what we're observing in Queensland. So those states are opening up and showing how you can get back—how you get the lift. Really, it's the Victorian circumstance that pulls us back, and people are watching closely, I think, the New South Wales circumstance to see what the confidence impacts are on those constraints. There is a sense in which you really have to focus on what's in front of you when you have such a large and uncertain shock. But, as to support, I don't think one could call this a timid response! The size of the fiscal response that's been put in place to this shock is very significant. I think people can take heart from the approach that the government has taken there and will continue to take in supporting driving down and keeping the unemployment rate, our estimate is, at least five percentage points below what it otherwise would have been.

CHAIR: It says on page 38 that fiscal measures are estimated to have lowered the peak unemployment rate by about five per cent, preventing the loss of 700,000 jobs. I think we've asked for that modelling, too, but haven't received it. What that says to me is that government made a choice about the tolerance for loss of jobs—that is, fiscal measures have reduced it by five per cent, but they made a choice not to go further than that. Is that correct?

Dr Kennedy : No, not quite. Fiscal policy, like monetary policy, can be like pushing on a string for a while. You can only get so much effect out of the amount of money that you're going to pour in. As I said, the household savings ratio is going to rise, we think, to about 20 per cent—a very high number—in June, which I think people will find a little strange. How is it that people are saving 20 per cent at the moment? We're seeing accelerated pay-downs of mortgages and pay-back of other types of loans because of precautionary behaviour, because people—

CHAIR: Sure. They're worried.

Dr Kennedy : They're worried and they're concerned. So you have to calibrate that fiscal response to get as large an impact as you can, but just simply throwing more and more money at it won't necessarily drive it down. I can't think of a time when more government money has flowed into two quarters in Australian history, to be quite honest.

CHAIR: But it had to, didn't it?

Dr Kennedy : I felt—

CHAIR: It had to.

Dr Kennedy : It did have to.

CHAIR: That wasn't so much a choice.

Dr Kennedy : I think the finance minister made that point in that press conference. What we tried to do in advising the government around those fiscal measures was to specifically go to the issues that were in play, and so we tried to give some cash flow, through the $32 billion, and then we tried to keep businesses, as best we could, whole, through the JobKeeper arrangement. Then we tried to enhance the automatic stabilisers, and—beyond the personal circumstances of people getting a much higher jobseeker payment—they were quite important for stabilising economic growth. A very large portion of the extra money those people get they spend, and that is helpful for flowing back through the economy. But even some of that will have been saved because of the highly unusual circumstances.

CHAIR: What is Treasury doing about measuring the effectiveness of the measures? There's been a lot of talk about how big it is, and it's good and normal, I guess, in politics to talk about the size of things—

Dr Kennedy : Yes.

CHAIR: but less focus on the effectiveness—that is, what's the outcome that's actually coming from this? And how's Treasury going to measure that and report against that?

Dr Kennedy : I'm not sure how you found the JobKeeper review—

CHAIR: Yes, that's one aspect of it, but there are a number of measures.

Dr Kennedy : Well, that is the government's most significant measure, and an extensive assessment in the middle of a program. I've been doing this for a while, including through the GFC and other arrangements—admittedly, not in this role—and that's a pretty intensive assessment of a program right in the middle of a very significant crisis. We are looking at the other measures and we're thinking very carefully, as I said to you earlier, about, and looking at the literature on, the composition of the government's response. It's really: 'What is the biggest jobs pay-back for any of this expenditure?' I expect the government will have more to say about that in the October update.

Frankly, the assessment of the effectiveness of the response is made by looking at how you and other countries unfold and the effectiveness of their policies, but it's also around your key aggregate, and your key aggregate in a downturn of this size is the unemployment rate and broader measures.

CHAIR: Yes, I agree. Senator Siewert, we'll go to you first and then I'll hand over to Senator Whish-Wilson.

Senator SIEWERT: Dr Kennedy, I just want to clarify and ensure that I understand properly that at the present time the economic update assumes that the major COVID payments are going to have run their course by June 2021.

Dr Kennedy : Which ones, sorry?

Senator SIEWERT: Will the current major COVID payments have run their course by 2021?

Dr Kennedy : JobKeeper is in place until March 2021 and the reduced jobseeker, with the COVID supplement and redesign, $300, actually, in our forecasts, finishes at the end of December. That's the assumption that's in our forecasts for payments at the moment. Those payments finish in December and March respectively.

Senator SIEWERT: In your forecasts, what are you using for the jobseeker payment after December?

Dr Kennedy : It goes back to its pre-COVID-supplement level.

Senator SIEWERT: Forty dollars a day? That's what it goes back to?

Dr Kennedy : Our assumption is that it goes back to where it started. I would add that the Treasurer and the Prime Minister have indicated they are looking at the issue of the extension of the jobseeker payment. But, yes, in our forecast it goes back to its pre-COVID level.

Senator SIEWERT: The unemployment forecast is at 8.75 per cent; is that correct?

Dr Kennedy : In June next year, yes.

Senator SIEWERT: At the moment, the forecasts are based on an unemployment rate of 8.75 per cent, with a jobseeker payment at $40 a day?

Dr Kennedy : Yes.

Senator SIEWERT: What do you think is going to happen to the economy if that's the unemployment rate? And that's not the effective unemployment rate, is it? That's the employment rate measured at people working one hour a week.

Dr Kennedy : Can I pull a couple of things together there. We think that the effective unemployment rate we talk about will come back together with the official unemployment rate towards the end of the year or early next year. It depends a lot on how the health situation recovers—enormously of course—but, assuming a scenario in which things are well controlled and restrictions begin to come off, those two numbers come back together. So you can think of the effective rate and the official headline rate as looking pretty similar as you get into the early part of next year.

Just as an aside, that doesn't mean there won't be substantial underemployment coming with the unemployment rate. The unemployment rate and the effective unemployment rate are a measure of heads, a measure of people without jobs. The number for people seeking more hours, of course, is over and above that measure of unemployment—just to be completely clear.

But, yes, an unemployment rate of 8¾ per cent by June in the numbers that we presented for the update assumes the policy that jobseeker goes back to its pre-COVID position after the end of December.

Senator SIEWERT: Thank you. Can I just confirm that you are still using one hour a week as counting as employed?

Dr Kennedy : We use the ABS's official definition, which, from memory, is—that's right, yes.

Senator SIEWERT: In terms of the different health outcomes you've just articulated, the ones that are included in the assumptions, have you done any other modelling on the different scenarios that could well play out from here?

Dr Kennedy : Yes. I'm not going to be able to say to you we have scenario A, B and C, because what we're tending to do, because things are so uncertain, is look more at the rules of thumb for what sets of restrictions do to economic activity and then translate them through. For example, we will have a good sense of it because we think in the June quarter we're going to see growth fall by about seven per cent across the whole country and the employment outcomes that we get. Moving forward to prepare our estimates for October—we did publish those numbers; the $4 billion a week—because of the uncertainty, we're tending more to say, 'If this goes for three months longer, it costs you an additional X billion dollars or Y jobs.' It's that type of approach. Because it's so, frankly, unpredictable—the emergence of treatments, the emergence of vaccines, the success of control—it means the scenarios are very widely spread. We're tending to focus more on: what is the impact of this type of shutdown, and how large would it be if it went for this purpose? Then the government is able, as those things unfold, to make its decisions around our estimates of the costs of these things.

Senator SIEWERT: So you've provided the cost of those scenarios, but have you provided the government mechanisms, for example, for keeping JobKeeper running longer or keeping the jobseeker payment higher than $40 a day? Have you provided the government with that information? If so, can you provide it to the committee?

Dr Kennedy : How do I answer that?

CHAIR: Truthfully and fully.

Dr Kennedy : Chair, I think you know me well enough to know that I do that.

CHAIR: I know. Candidly, maybe.

Dr Kennedy : I keep appearing here, giving you a very candid assessment. We're doing it on an ongoing basis. I suppose that is the short, candid answer. If those costs begin to unfold because the health circumstances deteriorate, then we're constantly providing advice about the measures that best ameliorate that. In the period that we've just been through, those measures have been the JobKeeper and jobseeker payments. That's the nature of how we're advising on those circumstances.

One of the reasons we were very keen to do that assessment of JobKeeper was to see just how effective it was in those particular circumstances. We did note in the JobKeeper review that in a world in which you begin to move away from those health circumstances, JobKeeper becomes a less ideal policy because it ties people who were employed back in March to a firm, effectively. It's not an incentive, for example, for a new hire; it's only an incentive to keep employed and in place the person that was in place back in March. In a world in which a health circumstance has dramatically deteriorates, then you're not really talking about that type of recovery; you're still talking about income support because activities are so constrained.

That's why I spoke about the three phases. In a supply shock, you're really taking the public balance sheet and giving it to the households and businesses because they have lost so much income. If you begin to move out of that supply shock, you can begin to push on demand and push on employment creation more effectively. In the midst of that supply shock, it's very hard to do much about that demand because people are asked to stay home and to not undertake activities.

Sorry for the rather unusual start to that answer. It really needs to match the circumstances that you're in front of, and those circumstances are changing rapidly. They changed very rapidly through March and April, and they're changing again today.

Senator SIEWERT: To go back to part of my question, are you able to provide the alternative scenarios and your modelling to the committee so that we can get a picture of: if things get worse, what are the—

Dr Kennedy : I'll take on notice providing more information. I don't think the Chair will be too impressed with this, but I'll take on notice providing more information on how we think through and cost those different effects.

Ms J Wilkinson : The only other thing to add is that it really has been the case that our focus to date has been almost week to week and month to month. For example, the scenario that's outlined in the update, which is in box 2.2, looks at what happens if there's a longer shutdown in Victoria. That scenario is in the context where we have in place jobseeker and JobKeeper until the end of September quarter. Those have been announced to the end of the December quarter. Most of our analysis internally really has been very much in the here and now. I think it's honestly the case that we haven't been spending much time doing the sort of speculative, much longer term scenarios around what happens next year if there's a completely different world that emerges.

Dr Kennedy : To give you an example, had the Victorian circumstance not emerged, we would have expected to see far fewer firms in Victoria flow through to the second JobKeeper because of the reapplication of the eligibility test. In our latest estimates, we now think at least 75 per cent of Victorian firms will stay on JobKeeper because of the circumstance they find themselves in compared to other states. Maybe that number actually will turn out to be a little bit higher because, even when we did the update, circumstances were a little bit different. In my advice to government, I advise it to be—and I think it absolutely has been—open to responding to those circumstances as they emerge. As Jenny outlined earlier, the rules are yet to be made for the full application of JobKeeper. As the government makes those rules, I think the current retargeting of it is perfectly sensible. But it has to keep in mind that, even when we put this for the government's own update, things have deteriorated in a major state.

Senator WHISH-WILSON: Mr Kennedy, in relation to rising levels of net debt to GDP, what kind of historic, including recent historic, levels are our interest servicing metrics at—like net interest payments?

Dr Kennedy : I might ask my colleague, Jenny Wilkinson, to answer. You're interested in the public interest debt servicing costs?

Senator WHISH-WILSON: Yes, that's right.

Ms J Wilkinson : That information was provided in the update on page 60. There's a graph which shows the public debt interest payments as a share of GDP. They're currently a bit under one per cent. They have been a bit lower than that over recent years but were obviously much higher than that in the mid-1990s. That's a function of both interest rates and the level of debt.

Senator WHISH-WILSON: That's right. Yes, I saw that but I just wanted to get it on record. There seems to be a lot of focus on the rising level of government debt in historical terms. Because interest rates are at record lows, the debt servicing capability isn't the concern that perhaps some people are making it out to be.

Dr Kennedy : I know you take an active interest in what the AOFM is getting its bonds away at and it put that 30-year bond away earlier this week. That is good news to be locking in those low interest rates for our debt dynamics. I made a point then and a similar point was made by Guy Debelle at the RBA that the debt dynamics really begin to work in your favour with such low interest rates. There still is an extent to how much you're adding to debt each year over the medium term. But in trend growth and those debt dynamics, even with small deficits, your debt to GDP will begin to fall because of the interaction between the growth rates and interest payments.

Senator WHISH-WILSON: You're using an average bond yield of 0.8 per cent, I understand, to estimate the cost of the debt. What kind of impact do you think that recent debt issuance you talked about will have on yield, going forward? If you increase government debt by five per cent, for example, to fund infrastructure, have you done any forecasting on what that is going to do to yields? You can take that on notice, if you like.

Ms J Wilkinson : It wouldn't have an impact on yields, as such. Do you mean the impact it would have on interest payments as a share of GDP?

Senator WHISH-WILSON: Yes.

Ms J Wilkinson : I haven't done that calculation myself, but I'm happy to take that on notice.

Senator WHISH-WILSON: If you could take that on notice.

Dr Kennedy : In general terms, you're coming to a point, Senator, I think, when you raise infrastructure, assuming that is productive infrastructure, these monies raise a level of growth. Of course, the dynamic can be reasonably positive, but it's—

Senator WHISH-WILSON: Correct.

Dr Kennedy : absolutely crucial that they do that. If they don't, even with a lower interest rate, it's frankly just of no public benefit. So it doesn't change a decision trade-off, but we can look at it from the perspective of—

Senator WHISH-WILSON: I've only got three more questions, Chair, but that was my next question: is the government looking at increasing infrastructure spending at current levels; and what kind of positive benefit would that have?

Dr Kennedy : It has made a series of full forwards on infrastructure decisions—I think about $4 billion off the top of my head, but I'll get my colleagues to check. Through its normal budget processes, it will be considering infrastructure decisions. A number have been made across the course of the last couple of months. We can get those outlined for you, if that's helpful—yes, I can.

Ms J Wilkinson : In the update, the government announced that it's going to be bringing forward around $3.9 billion worth of infrastructure projects from its previous plans. It's been focusing very much on those, as they're called, shovel-ready projects around the country that you can invest in and get them up and going quickly. They'll be working closely with state governments to identify what those projects are.

Senator WHISH-WILSON: A question—and I know you touched on this with Senator Gallagher—on the effectiveness of the stimulus payments, particularly in relation to JobKeeker, jobseeker and the COVID supplement. You mentioned, Dr Kennedy, that households more broadly are tending to be retiring their debts. We've seen a big increase in the savings rate recently, a 30 per cent increase in monthly household savings, between January and June. Do we know what the expenditure patterns are of these lower income cohorts and the people on these benefits? Are they spending more of what they're receiving?

Dr Kennedy : They typically do.

Senator WHISH-WILSON: Have you been able to do any work on that?

Dr Kennedy : I haven't got any—

Senator WHISH-WILSON: They typically do, but I was wondering if—

Dr Kennedy : I don't have any research in front of me; I'll get some for you though. It's well accepted that lower income households, if you like, have higher fiscal multipliers or they spend more of moneys that they receive because they tend to be more constrained from that perspective; and more well-off households, particularly when confidence is low, will tend to save more. I wouldn't call that an uncontroversial reflection on the nature of how moneys will flow back to the economy when it's given to different households. There is a flow of evidence around this, which I'm more than happy to send to you, if you're interested, and new studies that look at it in different ways.

Ms J Wilkinson : Some from Australia and a couple of very good studies from the US which we're happy to send your way.

Senator WHISH-WILSON: Thank you. Last question in this frame—sorry, Chair. With potential tax cuts still on the political agenda, we've seen the previous tax cuts flow through to some of the lower income cohorts in the country. Growth in household consumption, I think you understand, is the lowest since the GFC, despite the payment of the first low- and middle-income offset. What kind of work have you done as to what the tax relief did to household consumption?

Dr Kennedy : The LMITO changes—I just haven't got the right officials with me for that. Luke, have you got anything to hand?

Mr Yeaman : No.

Dr Kennedy : I made some remarks at the time; I'll just go back to those. We talked about this briefly in the past. It's a little bit like the answer I just gave you. For some households, they will not have spent it immediately, but it will still bring forward consumption. What's hard to predict is the time line. Even when you give more money to better-off households, it doesn't sink forever into their savings; it tends to bring forward what their consumption would otherwise be, but does not have as large and immediate an impact. If you think of fiscal multipliers building up over time, the fiscal multipliers on moneys going to lower-income households are higher initially and then continue to build, because the money continues to build. They would start lower for higher-income households but would still bring forward the period in which they otherwise might have been bringing their consumption back, because you have still transferred money onto their balance sheet—from the public balance sheet to the private balance sheet. So it's partly about profile and partly about the impulse. I know you're specifically interested in the LMITO. I'm sorry; I don't have that to hand. I will talk to Revenue Group and dig that up.

CHAIR: Thank you, Senator Whish-Wilson; that was your final question. Senator Lambie.

Senator LAMBIE: Dr Kennedy, how many apprentices have lost their jobs in the past six months?

Dr Kennedy : I don't have the number on apprentices to hand. Luke, do you have it?

Mr Yeaman : No. We'll see if we can dig it up.

Senator LAMBIE: I will move to my next question, if you like, while you have a look at that.

Dr Kennedy : We've got aggregates and we've got age groups, because, as we've spoken about, young people have been more affected. But there are specific wage subsidies for apprentices at the moment, which I would expect to diminish the extent to which apprentices lose jobs compared to those who don't.

Senator LAMBIE: We'll get onto that very shortly. Has the take-up of the apprentices wage subsidy scheme been as high as Treasury initially expected?

Dr Kennedy : I'll get Jenny to answer that for you.

Ms J Wilkinson : My recollection is that the take-up of the scheme was slightly less than we had expected in the early period. The apprentices subsidy was announced in, I think, the second economic support package. Then when the JobKeeper payment was announced businesses had to decide whether they were going to access either the JobKeeper payment for their apprentices or the wage subsidy through the Supporting Apprentices and Trainees program. A significant number of them chose to use the JobKeeper package instead.

Let me see if I have the latest figures on take-up. Initially we expected that there could be up to 117,000 apprentices supported under the program, when it was announced. As at mid-July around 83,000 apprentices and trainees have been signed up to the program. As I said, that's not necessarily because that program hasn't been as effective; it's more because, when we announced the JobKeeper program, we had a lot of discussions with businesses about them having the opportunity to work out whether the apprentices program or the JobKeeper program would be the best way for them to support their apprentices.

Senator LAMBIE: What modelling has Treasury done to see what will happen with these apprenticeships as the JobKeeper amount continues to drop? Has anyone done any modelling on what's going to happen with these apprentices, and the outcome of that?

Ms J Wilkinson : Forecasts for the take-up of the apprentices program are the responsibility of the department of employment and the Department of Finance. We haven't done any independent modelling of what's going to happen to apprentices per se. The government announced an extension to the apprentices program as well in the update, so the apprentices program has now been widened to a wider range of businesses. So medium-sized businesses as well as small businesses are able to take up the program, and that's been extended out to the middle of next year. So that program has been extended in the same way that access to the JobKeeper program has been extended. In fact, it's been extended to the middle of next year rather than just to the end of March.

Senator LAMBIE: Okay. So there's been no modelling done. How come the apprentice wage subsidy is only for existing apprentices? What's the pipeline for kids who go through these short courses to find work through TAFE? What is your carrot at the end of the stick for them on the employers?

Ms J Wilkinson : One of the things that I understand we observe with apprentices is that there are lots of apprentices who drop out after their first or second year of doing their training. So the focus the government has had in the initial phase when the apprenticeships program was announced and in this most recent extension is on trying to make sure those apprentices who are in their training and partway through their training are extended. There is an existing program, as I understand it. I don't have the details in front of me, but there's a separate program that the department of employment runs for new apprentices. There was an overlap between these two programs, which was one of the reasons why this one was focused on making sure that existing apprentices either were held on by their employer or, indeed, could move to new employers if their employer couldn't hold them on.

Senator LAMBIE: Do you think employers will have the ability to take on new workers and train them up without any help from the government? Why not give them an incentive to hire these apprentices?

CHAIR: Senator Lambie, there's a bit of background noise going on. I don't know if it's you. If it's from someone else, it would be useful if they can mute their microphone. Maybe you could just repeat your question. Sorry, Senator Lambie. It's just difficult to hear.

Senator LAMBIE: Thank you, Chair. Do you think employers will have the ability to take on new workers or new apprentices and train them up without any help from the government? Can you please explain why Treasury hasn't recommended this to the government or whether the government have any intention of employers getting a subsidy or an incentive to hire new apprentices?

Ms J Wilkinson : First of all, I guess the decisions that businesses make about whether they are in a position to take on new staff in part depend on the broader circumstances in the economy. So my expectation is that that will vary a lot across different states depending on, as the secretary has outlined, the progress with the virus and how states are performing as the health restrictions are eased.

Dr Kennedy : Put it this way, Senator: helping businesses take on apprentices is not going to be much help if they haven't got enough work.

Senator LAMBIE: No, what I want you to tell me, Dr Kennedy, is: what's the point in paying for the short courses if jobs are not coming out of them?

Dr Kennedy : It's the same answer. It's important—

Senator LAMBIE: These are our own children. Where's the connection between offering these short courses and them picking up work in apprenticeships or traineeships?

Dr Kennedy : It's part of exactly the same answer. There has to be broader support for the economy so activity is there for businesses to get out and employ people, and there have to be sensible pathways from training, and potentially incentives for apprentices and other programs, through into those jobs. They're all part of the package that is needed for recovering from a shock of this size.

Senator LAMBIE: Can you please tell me what the pathways are so that we know if these short courses are going to be successful and our children are going to get employment out of them?

CHAIR: Senator Lambie, we will have Department of Education, Skills and Employment officials coming next week, and perhaps we can work through JobTrainer in a bit more detail with them. Dr Kennedy, I know it's almost time. I just have a final question. The economic update has a forecast of negative 4.75 for nominal GDP in 2021. Does the Treasury have a theory on the year or so after that and what that does to debt sustainability?

Dr Kennedy : Have a what? Sorry.

CHAIR: Does it have a theory or a view on what happens next year—we touched on that a bit earlier—and what that might mean for debt sustainability?

Dr Kennedy : Part of that fall in nominal GDP, apart from economic activity, is also our assumption around the terms of trade and what's happened to the GDP deflator, where we've used our usual assumption around iron ore prices. So a lot will swing on the price on the deflator side. We would expect real GDP to grow after that. The prices will very much depend, particularly for a country like ours, on how our GDP deflator unfolds in the terms of trade. At budget we will outline how we expect the GDP and nominal GDP to unfold beyond there, but part of what's driving the fall that you've identified is also the terms of trade fall that basically reflects the iron ore price fall, which we also put in some scenarios for because it is an assumption as well. Iron ore prices today, I think, are still over $102, and we're assuming they'll fall down to $55 over the course of two quarters. So there are some ons and offs, potentially, inside the budget.

Ms J Wilkinson : It's also partly a function of looking at it on a financial year basis compared with a calendar year basis. For example, the CPI number that came out for the June quarter had a significant fall because of what had happened to oil prices, in particular. That means that if you're looking at the financial year impact you've got a big fall in prices at the beginning of the year, which tends to have a big impact on the average. As the secretary outlined, in understanding how this shock is going to translate through the economy it is, in some ways, more sensible, or easier to understand, if you look on a calendar year basis. I don't have the calendar year nominal GDP figures in front of me, but in calendar year 2020 we're expecting real GDP growth to fall. We're expecting a recovery in calendar year 2021. I hazard a guess that nominal GDP growth will be coming back in 2021 and that mainly what you're seeing is a base effect, because of the financial year data.

CHAIR: We've got lots more questions, Dr Kennedy, but we'll let you go. Thank you very much for your time. We look forward to seeing you again soon.

Dr Kennedy : Thank you.

Proceedings suspended from 11:17 to 11:24

CHAIR: We will now resume the hearing with Treasury officials minus the secretary. Senator Patrick.

Senator PATRICK: Thank you, Chair. My questions relate to immigration. I'm wondering about the impact of COVID-19 on migration, in relation to Treasury's expectations over the next couple of years. Obviously that's subject to variations with the international community's success in dealing with the pandemic, but I presume numbers are being used for inputting to other modelling.

Ms J Wilkinson : That's correct, Senator. I'll hand over to Merrick Peisley, from the Centre for Population, who can address this question. But you're absolutely right. As with everything we talked about this morning, there is an enormous amount of uncertainty around all the numbers we're predicting at the moment, including the net overseas migration numbers. But I'm very happy for Mr Peisley to take you through those.

Mr Peisley : The statement outlines our expectations in terms of net overseas migration, which is assumed to fall from 232,000 in 2018-19, to 154,000 in 2019-20 and to 31,000 in 2020-21.

Senator PATRICK: South Australia has NOM of 4.7 per cent but a population of seven per cent, so we've always tracked under the national growth rates. Do you have any feel for how these numbers will translate through, particularly in relation to South Australia?

Mr Peisley : We don't forecast down to the capital city and sub-state level, as well as the state level, at the moment with NOM. But, with such low NOM numbers coming into 2020-21, we would expect that there would be very little NOM going to South Australia.

Senator PATRICK: You've got a reduction down to 10 to 15 per cent of NOM—your normal values—going from 2018-19 to 2020-21. That means where looking at below 0.5 per cent in South Australia.

Mr Peisley : It's a bit more complicated. With migrants, 75 per cent go to the capital cities on the east coast and the larger states. It would depend on the type of visa and the migrant flow as to the time. But I don't have the figures, and I'd only be speculating as to what would go to South Australia.

Senator PATRICK: Do you model this on a state-by-state basis in the population centre?

Mr Peisley : Not at this time, but we are working towards that development.

Senator PATRICK: So your view is that perhaps South Australia will be disproportionately impacted by the fall in numbers?

Mr Peisley : No. I think all states are impacted by the fall in NOM.

Senator PATRICK: I accept that all states will be impacted, but do you see a disproportionate impact for South Australia?

Mr Yeaman : The major declines we are seeing in immigration are predominantly related to those inbound migrants coming in from overseas—and, as Mr Peisley said, they traditionally come into our largest cities on the east coast and then, over time, move to other parts of the country. In that respect, it may be the case that South Australia is, at the margin, slightly less affected by that initial shock to the NOM and the lower growth rates that we're expecting relative to Sydney and Melbourne, for example. But, as Mr Peisley said, the numbers are getting down to such a low level because we are essentially seeing a dramatic drop in the program. So those differences are going to be very marginal.

Senator PATRICK: How does that affect—what's the state equivalent of GDP?

Mr Yeaman : Gross state product.

Senator PATRICK: Do you look at that when you look at the economy in advising government?

Mr Yeaman : We aren't forecasting a state-by-state split at this time. It's true that the decreases in NOM and migration will certainly have a flow-on effect through the economy, but we haven't gone to the degree of forecasting that on a state-by-state basis. We're looking across each state in terms of their consumption patterns and investment patterns overall, but we haven't broken it down to a direct link from migration, state by state.

Senator PATRICK: How does the high unemployment intersect with the benefit that often flows from skilled migration, for example?

Mr Yeaman : The skilled migration program is primarily targeted at those areas where there are skill shortages. I think it is the case that over the next six to 12 months we're going to see, across the board, across large parts of Australia, higher levels of employment in all states. There will be a reduction. We know that there are pressure points—for example, some of the seasonal worker schemes, where there is traditionally a large migrant workforce that helps service those industries. I think the government is well aware of the pressures in those areas and the need to, as soon as possible, either find a substitute workforce or return some flow of that international workforce into those sectors. Beyond that, the reality is that we're going to be seeing lower levels of migration overall, and that's going to mean, picking up the secretary's points from earlier on, that we're going to need to see an increased focus on training and flexibility in the labour market to help Australians move to the areas within the economy that are growing.

Senator PATRICK: If you could you take on notice, Mr Peisley—noting it's your area of expertise—what information you have that is specific to South Australia, I'd be grateful for that.

Mr Peisley : I'd be happy to do that.

CHAIR: Ms Wilkinson, can I go quickly through the summary of the key policy measures. You had the numbers for the Supporting Apprentices and Trainees program. I think you said there were about 85,000 enrolled in that program?

Ms J Wilkinson : Yes.

CHAIR: Could you tell me how many businesses have used the boost in cash flow for employers?

Ms J Wilkinson : About 764,000 businesses have benefited from that program so far.

CHAIR: And we know that about 2.2 million are using the coronavirus supplement.

Ms J Wilkinson : It's a little higher than that now. I think it's close to 2.3 million, but you might want to confirm with DSS when they arrive this afternoon.

CHAIR: Okay, I will. This may not be a question for you; it might be them I should ask. My question is about the payments to support households. The total cost is essentially over two fiscal years, but it goes down in 2020-21. Is that because of the timing of payments?

Ms J Wilkinson : No. It's because the first payment—

CHAIR: They're the two $750 payments, aren't they.

Ms J Wilkinson : That's right. The first payment was expected to support around 7½ million individuals, and that supported pretty much everyone who was on welfare payments, veterans and other income support recipients. The second round was expected to support about five million entities, because it didn't provide support to people who were, by that stage, getting the coronavirus supplement.

CHAIR: So that explains the difference in the cost.

Ms J Wilkinson : Yes.

CHAIR: Do you have any details on backing business investment, or is it a bit early?

Ms J Wilkinson : We don't. It's too early. We don't have any data on that, and we won't get any data on that until businesses submit their tax returns for this year.

CHAIR: And on the early access to super—which is what Senator Keneally wants to go to—do you have any updated numbers? I think the front page of The Australian had some today.

Ms J Wilkinson : I did read that article quickly this morning, but I didn't memorise the numbers. The data I have is that just under 32 billion has been paid out in the temporary early release of super as of a couple of days ago—27 July.

CHAIR: And do you know how many people that's been paid to?

Ms J Wilkinson : About 3.8 million—I'm sorry, that's not quite right. It's 3.8 million withdrawals.

CHAIR: Because some people could have used it twice.

Ms J Wilkinson : That's correct.

CHAIR: Do you have any single-use data?

Ms J Wilkinson : I don't have single-use across the two payments at this stage, no.

Mr Jeremenko : I could answer that: in terms of total unique applicants, if we can call them that, it's 2.64 million, totalling that $31.9 billion.

CHAIR: And that was a couple of days ago.

Mr Jeremenko : As at 28 July, correct.

CHAIR: And is that updated figure of 42 billion linked to the extension to December?

Mr Jeremenko : The revised estimate for the amount that will be withdrawn from the super system to the end of December is 41.9 billion.

Senator KENEALLY: I want to look at this $42 billion figure, because the initial estimate was that it would be about 1.5 million people and 27 billion, up to 24 September. I'm trying to understand: how did Treasury arrive at that initial estimate? And how have you gotten it so wrong? I don't mean to be disrespectful, but this is a significant variation.

Mr Jeremenko : The early access for COVID measure was developed in early March, and I don't think anyone in Australia—or, certainly, anyone around the world—would have been able to predict what the impact of the pandemic would be as it was just rolling out at that time. So what we had to do, of course, is use our best estimates. The correct number, in terms of our initial estimate, including the temporary visa holders that were added a couple of weeks after the March announcement of the measure, was 29.5 billion. The actual lived experience of those first three months, up to 30 June this year, was actually $20.1 billion removed. So what we did was—given the extra three months of, as I say, actual numbers—assumed a certain take-up for the remaining three months, plus the extension from September to December. So, effectively, that is this six months that we are in now. So they are best estimates, but we will revise, as we have done and as the government has published in the economic update, when we see actual numbers coming through, and that will give us a real feel of the level of uptake.

Senator KENEALLY: Can I try to understand a bit about the estimate of 42 billion. Is Treasury anticipating a spike in applications for early release of super when JobKeeper and jobseeker payments are reduced in September?

Mr Jeremenko : No, I wouldn't put it that way. We very much used, as I said, the first three months experience. The initial take-up in this financial year—as in, the second tranche starting on 1 July—was around 400,000 applicants in the first day. Over that first week, it actually amounted to less than what the first week in April amounted to. So there was an initial spike on the first day. It is now down to around 15,000 applicants a day, or between 15,000 and 20,000, but trending down. So the level of daily applications for early release is significantly lower, at the same stage, if you like, into the phase of early release. We are assuming that, obviously, the unfolding situation in Victoria will have an effect. We obviously have factored in the extension from September to December; that has an effect. But the biggest effect is our re-costed numbers based on the lived experience of the first three months.

Senator KENEALLY: Has Treasury done any modelling of the impact of the early withdrawal super scheme on retirement incomes? That is, have you done any looking forward to what this might mean for those people who have accessed the scheme—what the impact will be on their retirement incomes?

Mr Jeremenko : No, but it is almost self-evident that people who are withdrawing money from their superannuation will necessarily have a lesser amount when they retire. But it's important to contextualise this, with the already-in-existence-before-COVID—if I can describe it that way—early release scheme. It's always been a mechanism in the superannuation system that, for emergency situations, people can access an amount of super, and, in some cases, unlimited amounts. This measure was a decision that the government didn't take lightly, because it obviously has that trade-off—it reduces superannuation balances.

Senator KENEALLY: Sure, but I suppose, if I can interrupt you, accessing your super early was meant, as you said, for emergency situations. This is on a new scale, at 2.64 million unique users—you've never had that level of emergency access or early access to super before.

Mr Jeremenko : We've never had a global pandemic like this before.

Senator KENEALLY: Right. So I'm trying to understand. Part of the government's fiscal stimulus response has been to allow people to access their superannuation early, but that will have an ongoing impact over many decades, I imagine, because over 2½ million Australians have accessed their super early, over half a million have emptied their accounts and 463,000 of those are under 35. So I'm trying to see if the government has done any modelling of what the impact will be on retirement incomes and, quite frankly, on the government pension as a result of this early access super scheme.

Mr Jeremenko : No, we haven't, but the other important aspect of this is to have an eye to what the 2.6 million people who have accessed their super are actually able to do now that they wouldn't have been able to do, having accessed either $10,000 or up to $20,000 if they've applied twice. So the whole point of this is: yes, it is at the cost of those individuals' retirement balances, but it allows them to have that money now in a time of need. That's the whole purpose of this measure.

Senator KENEALLY: The reporting in the paper today says that a great deal—I'm trying to find the figure—about 58 per cent of early release payments are classified as 'saved unspent' and remain in workers' accounts. Was that the policy intent? Is that what the government anticipated? Was that the policy design? Was that what the government intended—that people would access this money and put it into savings accounts?

Mr Jeremenko : It was designed to allow people to access it for any reason that stemmed from COVID, effectively. For some people, if they qualify—so they have been economically affected—part of the release amount for them may well be best put towards saving because of that confidence effect that the secretary was talking about earlier. That adds to the confidence that some individuals might have to address the uncertainties that may lie ahead. The statistic that was also in that report that quoted the Australian Bureau of Statistics numbers—around 60 per cent of people who've released their superannuation, according to the ABS survey, plan to or already have used it on essentials like household bills, mortgage, rent and paying down debt. That is certainly consistent with the intent of the measure.

Ms J Wilkinson : I'm not sure that the data can distinguish between whether people have it in their savings account and their savings account is an offset account to their mortgage as opposed to paying their mortgage down directly. So it's not clear whether this is just being put in an account for a rainy day or whether this is for sort of unexpected—

Senator KENEALLY: I'm glad you raised that, Ms Wilkinson, because the media report says:

Government analysis of banking sector data has indicated the "vast majority" of the early release payments are being saved, placed in offset accounts to reduce mortgage interest payments or put towards debt repayment.

The article seems to suggest you can make that distinction based on government analysis. If you can put that on notice, whether or not that distinction can be made, I would appreciate it.

I'm mindful of the time, so I just would like to get through a couple more questions, if I could. Can Treasury advise the proportion of the fiscal stimulus that has been provided by superannuation? When I ask that question, I'm thinking about the—that super pays out in pension and lump sum payments each year, plus the early access to super. Is it possible to either provide that now or take that on notice?

Mr Jeremenko : I certainly don't have it now, but I'm happy to take that on notice.

Senator KENEALLY: I appreciate that. Can I also ask whether Treasury has done any modelling on how the withdrawal is affecting Australians who have not withdrawn their superannuation funds?

Mr Jeremenko : Sorry, the line broke halfway through your sentence.

Senator KENEALLY: Have you done any modelling on how the $42 billion worth of withdrawals would affect Australians who are not withdrawing from their super funds? That is, does this have an impact on the super funds themselves or on the performance of our superannuation system?

Mr Jeremenko : There's no specific modelling, but I would point out that, even at the $41.9 billion figure by the end of December, which is our revised estimate, it's still around 1½ per cent of the total superannuation pool. So it's not a significant proportion. Obviously, depending on the particular funds and investment choices, there may be some flow-on impacts, but I would have thought they would be very minor.

Senator KENEALLY: Can I ask you if you could provide—and, again, it'd be great if you could do this now, but, if you can't, please do it on notice—the number and demographic breakdown, by age, gender and state, of super balances that have been run down to zero or below $1,000 as a result of the early release withdrawal?

Mr Jeremenko : We don't have that data. Certainly I am aware that APRA is seeking some better information from superannuation funds to try and establish a sense of those sorts of figures, but they don't exist at this stage.

Senator KENEALLY: Has anyone got data on the number of temporary visa holders who have accessed the early superannuation scheme and the amounts?

Mr Jeremenko : I do have that. As you're aware, temporary visa holders were only allowed to withdraw in the first tranche, up to 30 June this year. Some 0.3 million accessed $1.5 billion.

Senator KENEALLY: Thank you. I have one last question. I note in this article today that the chief executive of the Association of Superannuation Funds, Martin Fahy, raised a concern about what is essentially a wealth transfer. That is, people accessing their super early in order to pay rent, for example, but that rent going into wealthier SMSFs—for example, funds who own rental properties. Has Treasury done any analysis of the extent to which this early access to super funds may just become a wealth transfer scheme from the poor to the better off?

Mr Jeremenko : I did see that quote. I was quite puzzled by it, because it seems to suggest that the head of ASFA is suggesting that people accessing super to pay rent is somehow a bad outcome. People who are in such an economically affected state that they're accessing their super and paying their rent is, I think, a very sad outcome in terms of the fact that they're in that economic state, but I don't think allowing them access to their super, which is their wages forgone, to pay that is in any way a bad thing. Maybe he was misquoted, but that suggestion that, depending on who the landlord is, this should somehow be forbidden as a way to use your superannuation I find quite puzzling.

Senator KENEALLY: Or maybe it's just a comment that, if the government had more certainty around JobKeeper and jobseeker, people would have more confidence that they would be able to pay their rent. But I will leave that there. That's a comment. You don't need to respond to that. That's a political comment. I will cede my time now.

CHAIR: Thank you, Senator Keneally. Senator Whish-Wilson?

Senator WHISH-WILSON: Thank you, Chair. I'd just like to continue my line of questioning from the last questions I asked, when Dr Kennedy was there. Just quickly to recap: I think we agreed it was a reasonable assumption that those who have been receiving jobseeker and the COVID supplement during this pandemic, with an effective increase in income, are likely to have increased their spending or certainly to have reduced their spending less than others given their situation. My second question was really about stage 1 of the tax cuts. I mentioned that growth in household consumption in the September 2019 quarter was at that point the lowest since the GFC despite the payment of the first lower- and middle-income tax offset in that quarter. I was just in the process of asking some questions. Why did this tax relief correspond with the lowest household consumption in a decade? Was it too early at that point to expect it to have had, for example, an impact on consumption? I was just getting an answer on that at that point in time, so I will just take off where we left, if anyone has a comment on that.

Mr Yeaman : I have one brief comment, and then my colleagues may wish to add. We've been having a quick look. I suspect we did do some analysis at the time about the impact of the changes to the tax system, including the impact on consumption, but we weren't prepared today to have that information in front of us.

Senator WHISH-WILSON: That's okay.

Mr Yeaman : So we will look at what we can provide to you on notice about that. I would make, I suppose, the obvious point that, at any given time, there are many things happening in an economy and you never quite know what the counterfactual is, of course, as you know.

Senator WHISH-WILSON: Of course.

Mr Yeaman : So I suspect that's part of the story. We do generally hold the view that with direct cash payments of some kind, whether through tax cuts or direct payments to households, you would expect to see some immediate pass-through, depending on the economic circumstances, clearly. I think international evidence in this space suggests something in the order of around 0.6 per cent of that, plus or minus 0.1, flowing through in the first three to six months, with some further pass-through beyond that. But again it's highly dependent on the economic circumstances.

Senator WHISH-WILSON: I understand. But, in the broader context of what I think has also been discussed this morning, it's self-evident that there's a bit of paradox of thrift at the moment given the extraordinary circumstances we're in. Savings have increased and people are paying down mortgages and other debt. I was interested in tying that together with the evidence of the first tax cuts and whether Treasury had adjusted its expectations of the impact of future personal income tax on household consumption. This is obviously a very live political debate. I'm more interested in the policy aspects of that—whether you had readjusted anything given these circumstances.

Mr Yeaman : In short, we're continuing to look at it. In this climate, in particular—and I've just answered your question, Senator—we are continually looking at what we think the effect of a particular tax cut or a government payment or an investment incentive is going to be in this climate.

As the secretary said, to repeat his earlier point, if it's fundamentally a supply shock that's holding people back, if people don't have the opportunity to go to the shops, don't have the opportunity to spend money in the same kind of way they would previously have done, then clearly that's going to mean the short-term effect of a given policy is less.

Our view of the economy is that as you move forward and you start to hit the period through next year, and this is entirely dependent, of course, on the economic circumstances, and the health circumstances in particular, you are starting to get probably both elements. There will still be some supply restrictions in the economy that do prevent people from doing some of the things they would have otherwise done, particularly on the travel side and some of the larger entertainment aspects of the economy, but there will also be aspects where people are able to get back to business as usual to some extent and there are opportunities to drive demand. To answer your question, we don't have a set view at this time on what different—and we're looking not just at tax cuts, we're looking across the board at different forms of support for the economy. We're continually reviewing that. I think the answer is there are elements of both: there will be elements where some things are a little bit less effective and there will be elements where some things are more effective.

Senator WHISH-WILSON: I'm sure you are continuing to review that. That's why I'm raising these questions at this point in time.

Mr Yeaman : If I may, Senator, there's one other point I was going to add to your point around consumption. There is also probably a distinction in some parts of the economy between—there are some sectors of the economy, particularly emergency services and health services, where essentially there are people who are in still relatively secure employment, and their incomes are probably holding up reasonably well. But, equally, they don't have the capacity, partly because they're working incredibly hard at the moment and also because of the constraints on consumption. There are probably patterns within that saving behaviour too that reflect the different circumstances of cohorts.

Senator WHISH-WILSON: I appreciate that, and that will average out to some extent. Look, I won't pin you down on the detail, but if you've got any adjusted expectations on the impact of future personal income tax on GDP I'd be interested as well. I suppose where I'm going with this is: have you compared maintaining jobseeker at its current rate, and JobKeeper at the current rate, and the impact that will have on aggregate demand versus the impact of future personal income tax cuts that are coming down the line. We understand that lower income Australians are more likely to spend those stimulus payments and that will have an impact on aggregate demand, but we're very, very uncertain that tax cuts at this point will contribute anything to aggregate demand.

Mr Yeaman : What I will say, and my colleague may like to add to this, is that up until now the key priority in our mind, and I think in the government's mind, has been to maintain that connection with employers and to ensure there is that immediate income support flowing through the economy. That's why the focus has been on JobKeeper and jobseeker. Going forward, as we move through those phases that the secretary discussed in his opening statement, I can assure you we're giving quite a lot of thought not just in relation to tax cuts, but across the board to what is the most effective way in the economic circumstances we expect to see to support aggregate demand in the economy, and we'll continue to advise government on those issues as we go forward through this next phase.

Senator WHISH-WILSON: Senator Siewert may have some more questions on that in a second, if we have time. Looking at your model, your distributional impacts of transitioning to the stage 2 tax cuts—I'll put this on notice to you, because there's a fair bit of detail—I'm particularly interested that we're aware that stage 2, as it roll outs through to 2022, is going to disproportionately benefit wealthier Australians in their tax offsets. Given these propensities to spend that we've been discussing amongst different income cohorts, do you agree that delivering extra post-tax income [inaudible] per year—I'll send you my analysis on that; I'd take my full 10 minutes if I went through that now—will have less stimulatory impact than a program delivering for low-income earners who earn below $90,000, and especially those who earn below $19,000? And do you agree that the kinds of stimulus payments we're paying to low-income Australians are fairer and more efficient economically?

Ms J Wilkinson : As the secretary has said and as Mr Yeaman has outlined, the government has already introduced a range of different ways in which it's provided support to the economy. Through this next phase, there are a range of different ways in which the government can provide support. Some of them would have more of a shorter term impact, which I think is what the secretary outlined; others would have an impact over a longer period of time. We factor all of that into the advice that we provide government. At the end of the day, it's a matter for government to decide what package of measures are the measures that they think are most appropriate to support the economy at any point in time.

Senator WHISH-WILSON: Has there been any new advice given to government specifically in relation to the timing of the tax cuts packages? The transition is now set in legislation, but has there been any advice on deferring or possibly even putting the legislation before the parliament to delay these, given the extraordinary circumstances we find ourselves in?

Ms J Wilkinson : Actually, yes. As you say, given the extraordinary circumstances we find ourselves in, we're providing a very wide range of advice to government on everything from tax matters to infrastructure investment to IR reforms. There are lots of different areas that we're providing advice to government on, and tax is definitely part of that.

Senator WHISH-WILSON: Okay. I understand that's a difficult one for you to answer, but I hope you have been. I'm sorry I don't have the full name of the program, but I think at the previous hearing I asked you about the renovation rescue package for wealthy Australians—the $25,000 payment to people who might want to do a renovation or a build over $150,000. Can you give us an update on how many Australians have applied for that stimulus program?

Ms J Wilkinson : Yes. The HomeBuilder program is being run by the states. All of the states have signed up to the national partnership agreement. Three states have begun accepting applications for the program: Tasmania, South Australia and Western Australia. We don't have any data from Western Australia yet. We understand that, as of yesterday, 64 applications had been received in Tasmania and 60 in South Australia. The vast majority in both cases is for new builds, not for renovations.

Senator WHISH-WILSON: The last few months have been about getting things out the door and doing what we can to kick things along and try to maintain some semblance of normality for people and how they think about the world and the economy. Will you be collecting qualitative data—I know it's not asset tested, but will you be looking at whether intentions were to build previous to this program or who may have been, at the margin, convinced to go ahead and build and renovate because of the $25,000 incentive? Is there any way we'll ever be able to ascertain that?

Ms J Wilkinson : We're using a range of different channels to get an understanding of how all sorts of things are unfolding in the economy, including through our Coronavirus Business Liaison Unit. We are working closely with state governments in relation to the HomeBuilder program itself. It's always a bit tricky when you're dealing with anecdotes, because you've got to work out how to weigh up the anecdotes. We certainly are expecting that the state governments will be sharing information with us on the take-up of the program, and we'll be looking at that carefully. There's no assets test per se, but there is an income test on access to the program. There are also limits on the size of the build that you can do. So the program is targeted, for example, at an individual who earns less than $125,000 per year or a couple who earns less than $200,000 per year.

Mr Yeaman : If I may add, from the macro side of that equation: over the last few months we did see quite a significant increase in the number of people who had previously been in the process of purchasing a home, or in the contract phrase, and then withdrew. I could get the number wrong but I think it was close to 30 per cent, which was substantially higher than even during the GFC and in other times. On your point about whether they were already considering buying a house: to the extent that this scheme essentially locks in people who were going to proceed but may have otherwise pulled out, or brings forward activity in people who may have been thinking of purchasing in a year's time but thought, 'I'll bring that forward and move a bit earlier to take advantage of this scheme', we would see that as a positive outcome for the economic outlook in the short-term to maintain that construction and jobs pipeline. Finally, I note that when the government's scheme is put in context with some of the state based schemes—particularly in WA; I know that one off the top of my head. Combined with the WA scheme, it can be about $45,000 extra for a person purchasing a home. We've seen a real spike in WA around the activity of home sales.

Senator WHISH-WILSON: In terms of fairness—you can perhaps take this on notice, given I've run out of time—can you remind us what the government is spending on social housing for low-income Australians. It's the states, of course, that tend to have responsibility for this. Has there been any program to increase construction of social housing around the country?

Ms J Wilkinson : Most of the state and territory governments have announced policies to put additional spending into social housing. We're very happy to take that on notice and give you a list of the spending that's been announced over the last several months.

Senator WHISH-WILSON: I'm most interested in whether the federal government has played a role in the leadership on this.

Ms J Wilkinson : Okay.

Senator LAMBIE: I have a social-housing question, following on from Senator Whish-Wilson. Most states and territories are asking for social housing funding. Has the government asked Treasury to look at the number of jobs and what sort of funding could be generated for social housing? Has the government asked you to do any figures on that at all?

Ms J Wilkinson : On the support that state and territory governments are providing to social housing—is that your question?

Senator LAMBIE: No; has the federal government put up its hand and asked you to do any modelling on what sorts of jobs would be provided if they gave money to the territories or states. We're down thousands in public housing as it is. Has there been any talk from the government, through Treasury, on doing any modelling and then putting in money to build public housing?

Ms J Wilkinson : The Commonwealth already provides some money to the states and territories through the National Housing and Homelessness Agreement.

Senator LAMBIE: Is there anything on top of that, because of COVID-19? That's what I'm asking: is there any look at expanding that right out in the matter of jobs and the homelessness out there?

Ms J Wilkinson : To this point, the government hasn't made any announcements about an expansion to the NHHA or the arrangements it already provides to support social housing.

Senator LAMBIE: Thank you. You may not be able to answer these questions, but I'll put them to you anyway. Apparently the government is talking up big industrial reform to get the economy growing again. Can you tell me whether you've been asked to do any modelling or whether there is any evidence that making workplace agreements more flexible will strengthen the economy and keep more people in work? Have you been asked to do any modelling on that?

Ms J Wilkinson : We haven't been asked to do any modelling specifically on that. The industrial relations working groups are being led out of the Attorney-General's Department. I think it's fair to say, if I talk a bit more narrowly about what the impact of the JobKeeper direction was, that we certainly received a lot of anecdotal feedback through the business liaison and through other channels that the additional flexibility that the JobKeeper direction provided to firms was taken up in a number of cases. It certainly facilitated businesses and employees working together to come up with arrangements which were mutually beneficial in the circumstances.

Senator LAMBIE: Do you know if the government has any evidence that people are losing work because of problems with our workplace rules? Is there any actual evidence to support the claim that this is a problem?

Mr Yeaman : The Attorney-General's Department, as part of this process, has been doing some survey work directly with businesses that have been using these provisions. The Treasurer referred to some of the early survey results from that work in his National Press Club speech last week. It found that three in four employers surveyed had used the flexibilities provided by the provisions. Almost all employers surveyed who used the flexibilities said such access was important to keep their business operating and their employees in jobs, and around 80 per cent of employers surveyed support the continuation of those flexibilities for a further period of time. Job losses and business closures were the most commonly cited impacts of not being able to use the provisions. So there is emerging survey evidence that certainly shows the benefit during this period, but we are not aware of any other more detailed modelling.

Senator LAMBIE: You're not aware of the government looking at funding social housing as a stimulus during COVID-19 at this stage?

Ms J Wilkinson : The Commonwealth government hasn't made any announcements around funding social housing, but most of the state and territory governments have. The Commonwealth continues to provide support to the social housing sector through the National Housing Finance and Investment Corporation, NHFIC, and has continued to approve finance for community housing providers, who in turn provide social housing at the state level.

Senator LAMBIE: But nothing has happened since COVID-19? That's what I'm asking you. There is no new plan on the table? Things just carry on as usual in the social housing area? There are no extras, we're just going along with the same old stuff? That's all I'm asking you.

Ms J Wilkinson : There haven't been any announcements at the Commonwealth level. But I would just note that social housing is a state responsibility. The Commonwealth does provide some support, through the NHHA and through NHFIC, but it is predominantly a state responsibility and most of the states have announced that they will renovate or invest in social housing through this period.

CHAIR: How many homes you expect to be built in 2020-21 under the HomeBuilder program? It's a $680 million program. Do you have a number that runs alongside that?

Ms V Wilkinson : I think the original estimate was 27,000.

CHAIR: All in 2020-21? That's the money. So you would expect 27,000 houses?

Ms V Wilkinson : Construction will have commenced. There were 20,000 new builds and 7,000 renovations.

CHAIR: And that's the number you're still working with?

Ms V Wilkinson : At this stage, yes. The way HomeBuilder works is that a contract has to be signed by 31 December and construction has to commence within three months—

CHAIR: Okay. So it has to be done by March.

Ms V Wilkinson : But that doesn't mean the housing will necessarily be completed.

CHAIR: So it's still 27,000 that the government wants to see done. Senator Patrick.

Senator PATRICK: My question relates to the policy rationale around jobseeker—in particular, the exclusion of input tax sales related businesses. To put a little bit of context around this—and I'll keep the detail to a minimum to keep the whole thing anonymous—I've got a company here in Adelaide that provides, typically, long-term accommodation to both interstate and international guests. They have a specific tax ruling that enables them to not participate in a GST arrangement, which normal businesses do, but have an input tax sales arrangement. They are excluded from JobKeeper, but they're clearly operating a business that is legitimate and supported by the tax office in terms of the way they operate their business. They are clearly affected by COVID-19. What policy rationale was there for excluding these types of businesses from the JobKeeper program? I might have said 'jobseeker' before; I meant JobKeeper.

Ms J Wilkinson : I think we've talked about this before. In designing the JobKeeper program, and particularly designing it to be rolled out in a very short period of time, the government was very clear that we needed to use as many existing tax definitions and turnover definitions as possible to make it both relatively straightforward for businesses but also straightforward for the ATO to actually ensure compliance around the program. That's why the government anchored their definition of turnover around the GST definition of turnover. There are some businesses or particular services which are input-taxed businesses rather than being within the GST—the typical example is for the provision of financial services.

Senator PATRICK: Yes, I understand.

Ms J Wilkinson : Our understanding is that many of those businesses provide some services that are input taxed and provide a range of other services which are subject to GST. So it would mean that a subset of their business uses the normal GST definition of turnover and, therefore, in relation to the turnover from that subset of their business they can potentially meet the turnover test—as, I understand, some businesses are. I don't know the circumstances of the particular business that you're talking about. I guess, in the broad, when I look at the number of pages of ATO advice around defining 'turnover' and defining 'GST turnover', it would have been completely impractical for us to come up with an alternative measure of turnover to address every situation. So we—

Senator PATRICK: Sure. It's not—

Ms J Wilkinson : had to anchor a lot of things—

Senator PATRICK: I understand the rationale behind the way in which you've designed the policy. I note that the act provides provisions for an alternative test by the commissioner—and I will ask the commissioner about this later on this afternoon—but I'm just trying to clarify: it wasn't so much that you didn't think these businesses were deserving; it was simply a case of finding the best mechanism in a quick period of time to support as many businesses in a simple manner.

Ms J Wilkinson : And in a way which had integrity—it was designing a program which was going to fit as best as possible for such an economy-wide scheme.

There is some provision for the tax commissioner to provide for alternative tests, but it's deliberately quite constrained, again, in order to make sure that the program was able to be managed by the ATO in a way which was going to be tractable in the circumstances.

Senator PATRICK: Do you have any figures or any idea on how many participants in the economy rely exclusively on input tax sales?

Ms J Wilkinson : Is that for their whole business—so they don't produce any GST taxed supplies?

Senator PATRICK: Yes.

Ms J Wilkinson : I don't have those data. Perhaps the tax commissioner or the tax office might have those data. We're happy to make some inquiries for you to see whether we can get those data, but, no, I don't have those data.

Senator PATRICK: I'll let you partially take that on notice, noting that the tax commissioner is coming up.

Ms J Wilkinson : I'm happy to do that.

Senator PATRICK: Is that alright? Thank you very much.

CHAIR: Thank you, Senator Patrick. Just going back: aside from HomeBuilder—and I note the forecast is for dwelling investments to decline by I think 16 per cent in 2020-21—do you have an estimate of how many homes will be built, aside from HomeBuilder, in the 2020-21 year?

Ms J Wilkinson : Do you mean what's our estimate of residential—


Mr Yeaman : We will have that. We might just need to dig that number out.

CHAIR: Would you mind?

Mr Yeaman : We'll see what we can find.

CHAIR: Yes, that would be excellent, if that could be provided today. I just have a few questions, and then I'll go to Senator Paterson for the last section. In relation to the JobKeeper review, how many people are you expecting to come off JobKeeper at the change? I think I did see a figure in the media.

Ms J Wilkinson : In the latest month I think it's nearly 3.6 million employees on JobKeeper—

CHAIR: Yes, and about 900,000 businesses, is it?

Ms J Wilkinson : A bit over 900,000 businesses—and based on the estimates that we've provided to date we're expecting that there could be around 1.4 million employees who'd be covered by the JobKeeper payment in the December quarter.

CHAIR: And businesses? Do you have a number?

Ms J Wilkinson : We don't have an estimate of businesses. Our analysis is employee based. The way in which we come up with estimates of the likely coverage is to take the aggregate macroeconomic forecasts and split them into industry level to look at take-up at industry level by employee and then make a determination based on what we know about health restrictions as to what proportion of those employees are likely to continue to be covered in the December quarter. We can't do that. We don't do that on a business-by-business level.

CHAIR: So, for business it's actuals, it's what happens? That's when you're going to have the numbers.

Ms J Wilkinson : That's right—exactly. It's actual turnover. It's their eligibility and then, in turn, the number of employees who are eligible will be determined by actual turnover.

CHAIR: What area in Treasury did the review? I don't think it says.

Ms J Wilkinson : That was in my group—Fiscal Group.

CHAIR: So you didn't have any consultants working on it?

Ms J Wilkinson : No. I should add: it was led out of Fiscal Group, and we had a very small team who were doing the actual review, but they then drew upon assistance from the JobKeeper Division, which is in Fiscal Group. They also worked with Macroeconomic Group—both Macroeconomic Conditions Division and Macroeconomic Modelling and Policy Division—and worked with Tax Analysis Division. So, it was very much a cross-Treasury exercise.

CHAIR: Who led the advice on refining the changes?

Ms J Wilkinson : That's Fiscal Group—JobKeeper Division—

CHAIR: So, you did the review and then the same group followed through on designing the change for JobKeeper 2.0?

Ms J Wilkinson : I mean, we're responsible for providing advice to government on that policy, yes.

CHAIR: I note in the review that there was a section that basically cautioned against the two-tiered payment system similar to New Zealand's, saying it could raise significant policy issues and also that changes could be a complex undertaking for some employers and could also disadvantage employees. And it goes on. There's some caution there. How have you responded to those issues that you identified in the review with the model that's ultimately been agreed?

Ms J Wilkinson : What we outlined in the review was that any modifications would be an on-balance decision, like they are in lots of circumstances. A really important consideration was what sort of time was going to be made available to the employers and to the ATO, for example, for making changes. When the review was done, at that point JobKeeper was projected to end at the end of the September quarter. Our assessment on introducing a two-tier payment, for example for the second quarter of payments, if the program was to end at the end of September—it's a six-month program. If we had introduced a two-tier payment straight after, say, the July update, that would have been very cumbersome for businesses and complex for the ATO to administer if the program had been going to end at the end of the September quarter. If the program is extended over a longer period, there's more of a case for making that change.

CHAIR: Okay. How did you determine the reduction in the rate? How did you settle on the two tiers and the reduction in terms of the other aims of JobKeeper—to keep people employed and to provide income support?

Ms J Wilkinson : Maintain the connection?


Ms J Wilkinson : In part that drew upon the analysis in the JobKeeper review that did show what the distribution was of income being received by individuals who were eligible for the JobKeeper payment. It was clear from the work of the review that there were some people who were very part-time, whose normal hours for the month of February looked like they were earning certainly well less than $1,500, but also less than $750. So the intention, broadly, was designed to come up with an amount which would continue to provide support to people who were longer term part-time employees but, at the same time, recognising that, for some of those employees, that's just the minimum amount that businesses have to pay them. So, for some of those employees who may have been paid higher hourly rates by their employer or for some of those employees who have taken on additional hours since 1 February, businesses will continue to pay them at higher rates which are commensurate with the hours that they're working.

CHAIR: Is there anything you can provide the committee that goes to that in a bit more detail, as to how the tapering was informed by data—the data you were getting through the review, presumably, about what people were earning and how businesses were tracking? Take it on notice.

Ms J Wilkinson : I'm happy to take that on notice.

CHAIR: I think there's an acknowledgment that we're going to see some people move from JobKeeper to jobseeker. Have you got anything you can update the committee there with?

Ms J Wilkinson : There are a couple of things here. I think we have to be a bit careful about being too definitive about exactly what the flows within the labour market are going to be. One of the things that we're observing is that there are really big flows into employment, out of the labour force, back into the labour force. The flows are enormous. If you look at the labour force releases, several hundreds of thousands of people are moving between these categories. So I think we want to be a little bit careful. The introduction of the lower payment certainly means that there's a higher likelihood that there will be more people who will be receiving a JobKeeper payment through their employer and may also be eligible for jobseeker, because the JobKeeper payment, or the payment they get from their employer, is just treated as income in the jobseeker income test. So they're treated like every other person who earns income from a particular job. That income is taken into account in determining whether they will be eligible for jobseeker. It's a bit hard to tell how many people will be in that situation.

CHAIR: Do you have an estimate?

Ms J Wilkinson : Based on the numbers that we have, it could be around 250,000 people, but it could be lower than that because it depends, for these people, as to what their total income is, it depends on what their partner's income is and it depends on what their assets are. So all of those things will determine how many people would be eligible for both payments.

CHAIR: We're very short of time. What happened with the sole trader issue? There was some advice on the website that got removed. I note the review says that sole traders were 40 per cent of organisations and 12 per cent of individuals. So they're a reasonably big chunk of the people and businesses using JobKeeper. What happened there?

Ms J Wilkinson : You're right—a significant amount of support to sole traders has been provided through the JobKeeper program. There were a range of different design parameters that government was considering. There was a Treasury mistake that was made where we finalised a webpage a couple of weeks before the final decisions were taken and the announcement was made. There were a range of different changes. That change hadn't been picked up. It certainly was not in the fact sheet or any other material that Treasury published at the time.

CHAIR: So it was considered as part of the redesign of the program but wasn't proceeded with?

Ms J Wilkinson : There were a range of different design parameters that were considered.

CHAIR: Okay. And it was taken down once the mistake—

Ms J Wilkinson : As soon as we found out—as soon as we did.

CHAIR: I will ask this anyway, though I fear I know what the answer is going to be. Is there any opportunity for the committee to have a look at what those various design parameters were?

Ms J Wilkinson : I think that does go to a question of the deliberations of the government and the deliberations in cabinet. I can take that question on notice.

CHAIR: If you would, and, if you are going to claim public interest immunity, you need to specify the public harm that would be caused by providing that and have a minister make a declaration along those lines. I think there are a few outstanding where that's been undertaken but they haven't come back to the committee. Senator Paterson, can I go to you.

Senator PATERSON: Just returning to the exchange, Ms Wilkinson, you had with Senator Whish-Wilson about income tax cuts and in particular his focus on the potential benefits to aggregate demand of tax cuts, are there any other policy rationales for cutting income tax other than stimulating aggregate demand?

Mr Yeaman : We don't have our revenue group colleagues here. I'm sure I could talk for a substantial amount of time on that topic, around the nuances of the tax system, but—

Senator PATERSON: We probably don't have a substantial amount of time, as much as I'd enjoy that!

Mr Yeaman : Indeed!

CHAIR: Maybe you could have a private briefing.

Mr Yeaman : The answer is: yes, there are other reasons, to do with work incentives, to do with the efficiency of the tax system overall and the relative differences between different aspects of the tax system. One issue is the interrelation between the company tax rate and the income tax rates and how that plays into behaviour, including around tax planning and a number of other factors. So you're certainly right. I won't go into it now, and my colleague may like to add, but there are certainly a number of other reasons, other than aggregate demand, why you might choose to make design or other changes to the tax system, absolutely.

Senator PATERSON: And could you loosely describe those as potential supply-side benefits?

Mr Yeaman : Correct. I think you certainly could. I think some of them would be characterised as supply-side benefits. There may also be efficiency arguments and administrative arguments as well, as to why you might choose to do that.

Senator PATERSON: Great. Thank you. I'll leave that item at that. Just returning to the issue of superannuation and Senator Keneally's exchange with you, Mr Jeremenko—I'll come at this in a roundabout way, but I assure you I'll get to the point—how important is it to someone's security in retirement to own their own home?

Mr Jeremenko : Analysis over the years by various bodies, including Grattan Institute and others, have shown that it is a significantly important aspect of retirement. To break it down simply, if you are in retirement and yet still having expenses such as rent to look after, and mortgage payments, to an extent, but at least that's going towards the asset, that is a much more significant drain on the capital and the income from that superannuation.

Senator PATERSON: Yes, and particularly because the family home is exempt from the pension asset test in retirement but superannuation is not. So, if you had a fixed amount of money and could choose whether it was in superannuation or in your home in retirement, many people, having those assets in their home, would be better off financially, wouldn't they, because they wouldn't have to pay rent and it wouldn't count against the pension assets test?

Mr Jeremenko : Certainly, that's correct. It's not included in the assets test for the pension. So that is a factor.

Senator PATERSON: So, if the reports in The Australian today are accurate—that a number of people who have withdrawn from their superannuation account have either used it to pay down debt or have put it in an offset account—and if that helps them remain a home owner and meet their mortgage commitments, depending on their individual circumstances, that could be a very sensible financial decision, couldn't it?

Mr Jeremenko : It could be, yes.

Senator PATERSON: Thank you. I know Senator Davey had a couple of questions as well.

CHAIR: Senator Davey?

Senator DAVEY: I want to understand the issues we're having in border communities. I know it's a state issue and it's being managed by the states, with border lockdowns, but has Treasury done any preliminary modelling on the fiscal impact of the state border closures and what that may mean going forward?

Mr Yeaman : The material we provided in the economic update had a section on restrictions and lockdowns. In essence, the impact of border closures was captured in some of that analysis, around the cost to the economy. We haven't aggregated out or published anywhere—and we wouldn't have it inside our analysis—a specific dollar measure for the cost of border closures. We assume that when those borders are closed you do continue to see freight and essential services moving across the border. From an economic standpoint, that mitigates some of the cost that you might otherwise see. We don't have a specific cost estimate of what impact those border closures have, but certainly, going forward, if they are sustained, impacts on things like tourism would certainly be a factor.

Senator DAVEY: We in border communities are hearing a lot about people who live in border communities or thereabouts and work across the border and who now can't go to work. I'm concerned about the financial impact on their families. So there hasn't been any work done on that to date?

Mr Yeaman : We haven't, no, at the national level. You're absolutely right—there are those localised issues which can be quite significant for the local community and for individuals, but, at the national level, we haven't done analysis around those specifically.

Senator DAVEY: Expanding my viewpoint out to the impact of the international border closures—obviously we've done a lot of work on tourism, but the government has also done a lot of work to try and keep our market access open. Are we following that to see how successful it is? Obviously I'm thinking a lot about agriculture. We put in the freight assistance program for that. Has that succeeded in maintaining the markets and maintaining our economic viability in those areas?

Mr Yeaman : I think other departments would have more to say about the particular impacts on the agricultural sector and some of those other key sectors. At an aggregate level, what I would say is that, while the tourism market has obviously been very severely affected by these changes, and business travel and so on, one of the things that have given us some support through this period has been our agriculture sector and our commodities sector, which have largely been able to continue to operate and provide income to the economy. Others in other departments would have a better feel for some of the specific issues within sectors and markets, but, at an aggregate level, the commodity sector has continued to support the Australian economy quite successfully through this period.

Senator DAVEY: One last question, on the back of that. I did note that Dr Kennedy, in his opening statement, mentioned that investment in mining is actually expected to grow this year. Do we expect that to continue, or is it just a factor of the current conditions?

Mr Yeaman : We do think we are moving into more of an investment phase in that sector. Commodity prices, particularly iron ore, are at relatively high levels. There had been a period of investment previously, which had then flowed into a lull. We're now seeing that pick back up. So we do see strength continuing in that sector and in the investment sector for some time, subject to all of the vagaries that we've discussed here today.

CHAIR: Just before we let you go, has Treasury done any modelling on the economic impact of COVID spreading to states that have their borders closed? It does go into your assumptions in the update, I would've thought.

Mr Yeaman : We haven't distinguished between whether something crosses a closed border and whether it doesn't. The estimates that we published in the update were around $2 billion a week, I believe, for a national shutdown from here.

CHAIR: Yes, but, for those states who have kept their borders close and don't have cases, has there been modelling on what the economic cost of COVID spreading there might be?

Mr Yeaman : We would apply the same rules of thumb, essentially, around the kind of declines in output. It would depend heavily on the size of the state and what restrictions are put in place in response. So we assume in our numbers that, if there are outbreaks that cross borders into some of those other states which are currently not in restrictions, or not in as severe restrictions, they would be manageable and would be traced and the states would be able to maintain their economic activity on average over the period. That's what we assume, so we have allowed for that in our numbers in an ongoing sense. If it were the case that the outbreak was such that further restrictions needed to be put in place, we would apply a rule of thumb similar to the ones in our documents, depending on the scale of the restrictions and the size of the states.

CHAIR: Did you get a number on that housing figure?

Mr Yeaman : Sorry, it looks like not just yet, but we can certainly get that figure.

CHAIR: Okay, if you could. I wouldn't mind if you could get it to us today. We're sitting all afternoon. That can come through the secretariat.

Mr Yeaman : Certainly.

CHAIR: Thank you. Colleagues, just before I wrap up, there's a whole stack of answers to questions on notice that have come in from Treasury and DSS that have been circulated via email. With your agreement, we will publish them instead of waiting the 24 hours. Agreed? Okay, thank you very much. Thank you, Treasury, for staying a bit longer. Officers are reminded that answers taken to questions taken on notice are due in 10 working days. Thank you very much for appearing before the committee again. We look forward to continuing to engage with you. The government has agreed to and supported the committee sitting for further sessions in response to the parliamentary sitting being cancelled, so we are having further sessions, and we'll be in touch for another hearing date for Treasury, which I'm sure you'll all be looking forward to.

Proceedings suspended from 12:42 to 13:18