Department of the Treasury

[09:04]

CHAIR: I now welcome Senator the Hon. Simon Birmingham, Minister for Finance; the Secretary to the Department of the Treasury, Dr Steven Kennedy; and officers from the Treasury. Minister, do you wish to make any opening remarks?

Senator Birmingham: Good morning, Chair. Good morning, senators. Thank you, but, no, thank you.

CHAIR: Excellent. Dr Kennedy, I believe you do have some opening remarks. Welcome. We're happy to hear from you.

Dr Kennedy : Thank you, Chair. I do have some opening remarks. I'd like to start by providing an update to the committee on the international and domestic economic situation. Since the release of the budget, several countries around the world have experienced their highest number of new daily COVID-19 infections and deaths and have had to resort to lockdowns. We witnessed a rapid escalation of COVID-19 infection rates in Asia. We have watched the consequences of India's second wave of COVID-19, with average weekly fatalities that spiked in May at over 29,000 confirmed deaths. Both Taiwan and Singapore have recently entered lockdowns after experiencing a sudden renewed spike in infections. Thailand experienced a record number of new COVID-19 infections in May, with over 4,000 daily cases, while Malaysia just recorded over 9,000 daily cases over the weekend. Not only do these and other outbreaks present significant health challenges globally; they continue to disrupt economic recovery paths in affected countries. For example, in Canada the unemployment rate increased by 0.6 percentage points to 8.1 per cent in April following further lockdowns, with retail and hospitality sectors disproportionately affected. In Japan, the repeated extension of the state of emergency has further dampened domestic activity. Japan's economy contracted by 1.3 per cent in the first quarter of 2021, following a 4.8 per cent year-on-year contraction in 2020.

On a positive note, new COVID-19 case numbers have continued to decline over the past month in the United Kingdom, compared to their peak in January, although there are concerns that daily new case numbers are beginning to rise as a result of virus variants. In the United States the daily average number of new COVID-19 cases has fallen over the past fortnight to its lowest level since June 2020. This has allowed restrictions to begin to ease in the United Kingdom, Europe and the United States. The mixed global position clearly shows that the pandemic is not over and that risk to Australia and the global recovery remains heightened. The recent outbreak in Melbourne again reinforces this point.

Despite this, here in Australia the domestic economy has continued to recover and grow strongly. Indeed, the recovery has been stronger than from any major downturn in recent history. Australia's economic growth outperformed all major advanced economies in 2020. We have seen employment and hours worked rise above their prepandemic levels. As I set out in a recent speech to the Australian Business Economists, I see two key reasons for this stronger than expected recovery. First, Australia has had considerable success in suppressing the virus at a relatively low economic cost. Second, fiscal policy has been more effective than we may have expected in maintaining economic and social relationships and in supporting recovery. This was complemented by expansionary monetary policy settings and the flexibility provided in financial markets and rental markets.

Positive health outcomes and continued fiscal policy support have led us to significantly upgrade our expectations for the economic recovery in this budget. After it contracted by 2.5 per cent in 2020, we now expect the economy to grow by 5¼ per cent in 2021. This compares with last year's budget, where we forecast a fall of 3¾ per cent in 2020 and growth of 4¼ per cent in 2021. Momentum in the economy, the rollout of vaccines and continued fiscal and monetary policy support are expected to continue to drive broad based growth over the next few years. The prospects for this are sound, given strong household and business balance sheets, record job vacancies and high levels of consumer and business confidence. We expect the strength of household balance sheets, reflecting strong income growth and high savings rates in 2020 together with recent strong house price growth, to support above-average growth and consumption in the near term.

Another factor supporting the outlook for growth is improved investment expectations. This reflects the large pipeline of public investment still to be rolled out; strengthened expectations by non-mining firms for near-term capital expenditure, supported by the government's business tax incentives; and a strong pipeline of dwelling investment. Turning now to the labour market, I would like to provide the committee with an update on the transition from the JobKeeper program. As outlined in budget statement 4, the JobKeeper payment was a critical element of the government's policy response. It supported household and business incomes, ensured employees retained leaderships with their employer, even when they were stood down, and it helped ensure firms survived the shutdown so they could quickly resume trading and hiring once initial lockdowns had passed. As a result, a record number of workers have returned to their previous jobs during this recovery, facilitating a rapid bounce back in the labour market. We expected the transition from the JobKeeper payment to be manageable, but anticipated there would be some job losses and potentially an increase in the unemployment rate.

In March I advised you that Treasury estimated between 100,000 and 150,000 former JobKeeper workers could lose employment over the months following the end of JobKeeper. This was a forecast based on our assessment at that time on the strength of the economy and labour market. Early indicators suggest, while there have been some job losses associated with the end of the program and there may be more in the future, the strength of the broader labour market has meant that many of these individuals are finding jobs. The Australian Bureau of Statistics has indicated that the end of the JobKeeper wage subsidy did not have a discernible impact on employment between March and April, and that changes could reflect usual month to month variation in the labour market, with some larger than usual seasonal changes around Easter and school holidays.

The unemployment rate fell to 5.5 per cent in April, over a percentage point lower than it was in December. The number of people receiving unemployment benefits has fallen by around 150,000 since the end of March. Other partial data, which provides some insights are the latest single touch payroll data. These data suggest that up to 40,000 former JobKeeper workers lost employment in the first two weeks following the end of JobKeeper. We now have an extra two weeks of data, and across the four weeks around 56,000 former JobKeeper workers lost employment. In terms of the net labour market impact, it is worth remembering that around 400,000 people moved into and out of employment in a normal month. We would expect many of those who lost employment at the end of JobKeeper to regain employment in coming weeks.

The May labour market report, to be released on 17 June, will provide the next comprehensive update on developments in the labour market since the end of JobKeeper. Along with elevated levels of job advertisements, these data continue to give us confidence that the labour market has the underlying strength to absorb workers transitioning off the JobKeeper payment.

In line with our upgrade to the GDP outlook in the budget, we expect the unemployment rate to fall to five per cent by June 2022 and beyond this to 4½ per cent in 2023-24. Fiscal policy has played a prominent role in driving down the unemployment rate to date, and we expect this to continue with the additional support coming through this budget.

The forecast falls in unemployment represent a much faster reduction in labour market slack than expected at the 2021 budget. This raises the question about how far the unemployment rate can fall before generating wage and price pressures. I would now like to touch on the outlook for wage and prices.

The first point is we have upgraded our wage and inflation forecast to reflect a stronger labour market and a stronger economy. The impact of COVID-19, including falls in global oil prices and policy responses such as increased childcare subsidies, saw consumer prices fall by 0.3 per cent through the year to the June quarter 2020, while wages increased by 1.8 per cent over the same period. This helped contribute to increases in household income during the height of the pandemic. In the near term, we are likely to see a temporary rise in prices due to the unwinding of childcare and other subsidies and the recovery in the global economy. By contrast, short-term wage expectations remain low.

Beyond this we see the path for nominal wages being influenced by three key factors. First, the amount of labour market slack determines the pressure on employers to increase wages to retain and attract employees. As discussed at previous Senate estimates, the NAIRU is a measure often used to represent the critical point were substantial pressure is placed on employers to increase wages. Since our last hearing, Treasury has released the paper estimating a lower NAIRU of between 4½ per cent and five per cent. This means we now expect the unemployment rate will need to be lower than previously thought before we see a substantial pickup in wages. Furthermore, we are now more confident that the recovery from the recession has been sufficiently rapid to avoid a temporary increase in the NAIRU, as generally occurs after a recession.

The second factor influencing nominal wages is inflation expectations—that is, the rate at which people expect prices to rise in the future. Inflation expectations provide an anchor when negotiating wage rises, meaning, all else equal, lower inflation expectations leading to lower growth in nominal wages. The recent period of low inflation has contributed to lower inflation expectations and therefore lower nominal wage growth.

The third factor is productivity growth. An increase in productivity increases the value of labour, which raises wages. Productivity improvement can be driven by movements in the global productivity frontier, which are then reflected here, in Australia, through incorporating overseas technology advancements into domestic production processes. Alternatively, productivity improvements can be driven by domestic reform that improve the allocation of resources within Australia.

All things considered, we have taken a relatively cautious view and forecast a pick-up in wages from 2022-23, when we expect the unemployment rate to fall within Treasury's estimated band for the NAIRU, but not before. This higher wage growth is expected to contribute to a gradual strengthening of inflation, reaching the midpoint of the RBA's target band by 2024. However, the COVID-19 recession and our recovery are unprecedented in recent history, so the speed with which prices and wages respond to reducing slack in the economy remains a key source of uncertainty. Wage growth could respond more quickly to a fall in the unemployment rate if we start to see a mismatch between the skills employers are looking for and the skills of those looking for work.

I'd like to touch briefly on the key assumptions underpinning our economic forecasts. The budget assumes that a population-wide vaccination program is likely to be in place by the end of 2021. We also assume few domestic restrictions and no extended or sustained state border restrictions over the forecast period. The budget also assumes that flows across the international border will remain very low until mid-2022. Australia's economic success is inextricably linked with Australia's ability to successfully maintain strong health outcomes. A key assumption we have made is that we will continue to effectively contain outbreaks going forward. A change in our situation would hinder our ability to keep the domestic economy open and undermine the momentum in the economic recovery. We have also maintained prudent assumptions for commodity prices. While the iron ore spot price remains elevated and is currently around US$170 per tonne free on board, we have assumed that the iron price will decline to US$55 per tonne by the end of the March quarter 2022, three quarters later than last year's budget.

Finally, Treasury forecasts that Australia's population growth in 2021 will slow to its lowest rate in over a century, down 2.1 per cent. The main driver of this low growth is net overseas migration, which Treasury forecasts to be negative in 2020-21 and 2021-22. Lower population growth will affect the size of the economy, but this will not necessarily have a significant impact on GDP per capita if the pandemic and economic consequences of the pandemic are well managed.

I would like to now make some comments on the macroeconomic policy mix. Monetary policy has provided important support during the pandemic, despite the cash rate reaching the zero lower bound. But there are limitations on how much more support monetary policy can provide. In periods such as this, with monetary policy constrained and spare capacity in the economy, fiscal policy is an appropriate and effective tool to support demand. However, it is important that this support is consistent with long-term fiscal sustainability. Sustainable fiscal policy needs to balance the use of our resources across time and generations. It involves weighing the costs of servicing and reducing debt in the future versus the benefits of deploying those resources today.

The government has updated its economic and fiscal strategy in the budget, and it contains some important principles that go to fiscal sustainability. In the first and current phase of the strategy, the focus is appropriately on securing the recovery and driving the unemployment rate down to prepandemic levels or lower. Once the recovery is secured, the fiscal strategy will be focused on growing the economy to stabilise and reduce debt. By supporting economic growth now and over the medium term, the strategy will underpin stronger public finances over time. Based on the budget forecasts and projections, it remains our view that the fiscal position is sustainable.

The underlying cash balance fell sharply as a result of economic and health support provided in response to COVID-19. As temporary measures are unwound, the underlying cash balance improves steadily from 2020-21. This is despite the prudent assumption for the iron price and forecasts for wages growth that I referred to earlier. The underlying cash balance is expected to improve to a deficit of $57 billion in 2024-25, or 2.4 per cent of GDP, and further improve to a deficit of 1.3 per cent of GDP in 2031-32. A steady improvement in the underlying cash balance over the medium term reflects payments that are broadly stable as a share of GDP. It also reflects a gradual increase in the tax-to-GDP ratio as a result of the unwinding of temporary tax relief to businesses through full expensing and loss carry-back, and rising personal income tax receipts.

By the end of the medium term, the tax-to-GDP ratio is projected to reach 23.1 per cent of GDP, still lower than the tax cap set out in the strategy of 23.9 per cent. Australia's net debt is estimated to be 34.2 per cent of GDP at 30 June 2022, lower than the estimate of 40.4 per cent of GDP at the 2020-21 budget. Notwithstanding an increase in yield since the start of the year, the government's borrowing costs remain near historical lows, and Australia's debt servicing costs are projected to remain low by historical standards at around one per cent of GDP over the medium term. Low interest rates coupled with strong economic growth suggest that Australia's net debt-to-GDP ratio will peak at 40.9 per cent of GDP at 30 June 2025, before improving over the medium term to reach 30 per cent of GDP at 30 June 2032. A strong economy, coupled with a disciplined approach to spending will be key to ensuring debt as a share of GDP stabilises, and then declines as projected. A more aggressive tightening of fiscal policy in the current context would be counter-productive. Australia's economic recovery is well underway and running ahead of expectations. As the economy expands, we have an opportunity to drive down the unemployment rate below its pre-COVID-19 level, and to generate appropriate wages and price growth, while maintaining fiscal sustainability. Australia's success in managing the crisis to date is enabling us to look forward to the next set of challenges, but we must constantly check ourselves. And we cannot take our recovery for granted. The emergence of new variants, the continuation of outbreaks in several other countries and the outbreak in Victoria are a stark reminder that the pandemic is far from over.

To secure the economic recovery, it is of the utmost importance that Australians get vaccinated when their turn comes to help reduce the health and economic risks of future outbreaks and, when safe, to enable us to open our international borders. Thank you for the opportunity to provide this opening statement. I would just let the committee know that Luke Yeaman, the Deputy Secretary of Macroeconomic Group is not appearing today. He's attending the RBA board, which is occurring at the same time this morning, on my behalf. I'm very happy, though, for other officials to answer questions.

CHAIR: Excellent. Thank you, Dr Kennedy—

Dr Kennedy : I will say, my opening statements have been a little on the long side. I'll take feedback from the committee, but I understand you generally like a comprehensive update. I'm in your hands if you feel they run too long.

CHAIR: It's always valuable, Dr Kennedy. Thank you very much. We appreciate it's on the longer side but it's absolutely full of information, and I'm sure it pre-empted a lot of questions. It also prompts a few. I'm going to start with one. You spoke, in your opening statement, very briefly about investment expectations. Could you just talk the committee through, particularly, where private sector business investment is currently running, and what the expectations are going forward?

Dr Kennedy : I'll ask Mr Power to give you a few details on the numbers. In general terms, business expectations for investment have been revised up, and have been exceeding our expectations in investment undertaken. Businesses do seem to be taking advantage of the immediate expensing, otherwise known as instant asset write-off incentives, so we've seen some quite sharp increases in the most recent data, particularly in plant and equipment. We're also seeing some small upward revisions, though I'll confirm this with Mr Power in a moment, in mining investment as well as non-mining investment. As you know, in the past in this committee we've spoken many times about non-mining business investment, and hoping to see a strengthening there, and the early signs have been positive. We're still expecting, from memory, a small fall in business investment, but that's an upgrade from where we previously were, and then quite a sharp increase in business investment after that. I'll ask Mr Power just to give you a few numbers if that's helpful.

Mr Power : That's right. We saw an increase in 2.6 per cent in new business investment in the December national accounts, and since then the business confidence has continued to be very strong. The NAB monthly survey of business confidence conditions are plus 32 points in April, so very strong, and capex expectations in the ABS surveys continue to strengthen in the outlook. So we do have built into a forecast, as Dr Kennedy said, quite a strong response over the next couple of years, in response to some of the measures that are in place.

CHAIR: How granular is the information in that area? Is it across all sectors of the economy? Do you get a reasonable picture of the various sectors?

Mr Power : Yes. A lot of the response to date has been in machinery and equipment. That has really responded in the December quarter. There are various breakdowns of what exact equipment that is, rather than in particular sectors within groups, but we know there have been a lot of vehicles. In December there was a lot of farm equipment, particularly on the back of the strong rural conditions—but really the rise has been in machinery and equipment.

CHAIR: You go to country towns and you see the machinery dealers don't have much stock left. So that's certainly evidenced on the ground. I'm handing over to Senator McAllister.

Senator McALLISTER: You have, for obvious reasons, spoken, on a number of occasions in your opening remarks, about the impact of the pandemic on the international economy and here. I want to ask you some questions about that. The vaccine rollout is included in one of the key assumptions for the budget. Can you talk us through how Treasury conceives of the economic significance of the vaccine? How does it flow through to economic performance?

Dr Kennedy : The main driver of economic performance is the number and scale of outbreaks. We've got an assumption in the budget about a vaccination program likely to be in place by the end of the year. Whether that program was in place earlier, for example, wouldn't advantage us much if we experienced significant outbreaks at the same time. So really it's this sort of intersection. Sorry; I should be very clear: it's important that people vaccinate, as I said, as soon as they can, and that the government deliver the vaccination program as promptly and as safely as it can. But the key piece is how it relates to outbreaks. We've seen in some countries, for example, where vaccination rates are running at, say, 30 per cent. Singapore is at 30 per cent at the moment, and they're in a four-week lockdown. They're suffering significant economic impacts despite vaccination rates having got up to that level.

Part of the reason we also put in that assumption that international travel would not really begin to flow till the end of the year is that there's genuine uncertainty about how the disease will be unfolding and so how quickly we'll be opening even in the light of a vaccination program likely in place by the end of the year. It's the government's assumption, but we chose to work with the government on putting in that more cautious assumption. Obviously, higher vaccination rates reduce the risk of health consequences, which are incredibly important for confidence and more broadly in the community. I'm not an expert on the transmission bit—I think you probably should go and talk to the health people about that—but my understanding is that it could be, of course, of some assistance in reducing transmission. So it assists in reducing outbreaks. They're probably the main ways we think through a vaccination program. Is that the sort of thing you're interested in?

Senator McALLISTER: It does. I think that at least part of your evidence is that it is significant that it is a population-wide vaccination program, because it's that which is most significance in relation to containing the frequency and extent of outbreaks. Is that a correct understanding of what you've just said?

Dr Kennedy : Yes. The first and foremost reason why one runs the vaccination program is to protect health. Frankly, once you protect health, you have positive economic consequences, because people are confident that not only they but perhaps their loved ones and others are protected from the consequences of the pandemic. I've given evidence in the past that, even in those countries that don't impose severe restrictions in the face of high case rates, we see withdrawal from economic activity. I think the confidence lens is an important lens for the link to the vaccination program. If people feel the health situation is well managed, and part of that is the vaccination program, they'll feel confident to go about their activity, and that will be strong for the economy.

Senator McALLISTER: In the last budget, in 2021, Treasury modelled an upside scenario of an early vaccine and indicated a $34 billion dollar benefit to GDP; that's correct?

Dr Kennedy : I haven't got the precise number, but it strikes me as right.

Mr Power : Neither do I, but I recall that's right.

Senator McALLISTER: The budget paper read at that time, 'Under this scenario, economic activity could increase by $34 billion to the June quarter in 2022, increasing growth by 1.5 percentage points in 2021-2022.' So it's very significant in terms of economic impact, noting, of course, that our principal objective is to protect the health of Australians. But it has a flow through to the economy; doesn't it, Dr Kennedy?

Dr Kennedy : Exactly, because it is directly related to protecting the health of Australians. Our thinking around its interaction with the international border has probably evolved a little over time. Even once there is a population-wide vaccination program in place, there will be judgements for all the governments in Australia to make around how our borders work. As I have mentioned in my opening statement, there are variants out there—again, you should talk to the health people about this—to which the vaccines are more or less effective, and effectively the pandemic continues to evolve. So there will be other considerations. I don't think it is simple as saying, for example, we have a population vaccine program in place and we will now just open the international borders in a willy-nilly fashion. I think governments will be thinking through that very carefully.

Senator McALLISTER: Nonetheless, accomplishing the goal of a population wide vaccination program, sooner rather than later, has economic benefits; that's correct?

Dr Kennedy : I think the most important thing is that people are confident that the program's in place, that they can get vaccinated and it happens in a safe and sustainable way. The key issue that affects the economy is outbreaks. To the extent that it was linked in any way to outbreaks would affect the outcome. But if you went faster and you had more outbreaks, you would be no better off; in fact, you'd be worse off. The key issue is suppressing the virus.

Senator McALLISTER: And that is what a vaccination program is intended to do.

Dr Kennedy : It definitely assists in that case.

Senator McALLISTER: Can I ask about the specifics of the assumption. The first assumption in the box on page 36 of Budget Paper 1 states, 'It is assumed that a population-wide vaccine program is likely to be in place by the end of 2021.' Can you tell us what that means?

Dr Kennedy : We took our advice from the Chief Medical Officer about the likely state of the vaccination program. In broad terms, his advice to us was as the Treasurer presented in TheAustralian—he wanted to have two shots by the end of the year would likely to be able to have that. For our purposes, from an economic perspective, that was enough to form our key assumption to do the forecast. Sorry to labour the point, the really key assumption for us is the extent to which there are outbreaks over that period and the international border. That's not to diminish the importance of the vaccine program itself, but that was enough for us to be able to shape our forecast, that kind of broad assessment of where the vaccination program will be at. We didn't ask for nor are we experts in in the precise number of Australians who will be vaccinated by that period, for example. But that was enough for us to underpin our forecast.

Senator McALLISTER: Did Treasury assume that all of the population cohorts identified in the government's national vaccine strategy would be vaccinated by the end of the year?

Dr Kennedy : We didn't go down into that sort of detail. We took the government's vaccine program as given, and we took the advice from the Chief Medical Officer, and you can check with him. But I guess it is implicit in his advise that the program would be delivered by the end of the year, and it would be likely that it would be in place. But I didn't go by line with him through the program and say, 'Will this be done or will that be done?'

Senator McALLISTER: The Prime Minister made this statement in the parliament on 12 May, saying:

… these are assumptions that Treasury put together in the budget to guide their assessment of the estimates that they prepare. That is not a policy statement nor is it a policy commitment of the government.

It's a bit of a problem, isn't it, if the budget assumptions are different to the policy of the government?

Senator Birmingham: The budget assumes the iron ore price will track to $55 per tonne. That's not policy of the government; that's an assumption that underpins the way in which Treasury does its modelling. Treasury, in a whole range of different areas, makes assumptions to be able to underpin the preparation of the budget, and it is absolutely the policy of the government to drive the vaccine rollout as hard and fast as possible, whilst being cognisant of the safety advice and whilst dealing with the changing international circumstances and the availability of those vaccines. The Prime Minister is simply making a statement of fact there.

Senator McALLISTER: Are you saying that the government has as much control over the vaccination rollout as it has over the iron ore price?

Senator Birmingham: No, I'm not.

Senator McALLISTER: It was a rather unusual answer to my question. I'll put to you the question that I put to Dr Kennedy. Is it usual for budget assumptions on questions of government policy to diverge from government policy? That appears to be what's being proposed here.

Senator Birmingham: I have said many times, as have other government ministers, that there are significant uncertainties that continue to exist around the vaccination rollout. That's a statement of fact and reality. We would wish that the health advice had not limited the distribution of AstraZeneca to over-50s, but the health advice has. We would wish that the delivery of vaccines forecast to come from Europe earlier this year had occurred as contracted and expected, but it didn't. These are factors not in the government's control. We've had to respond to them and adapt to changing circumstances, so we're being honest and upfront in the fact that there continue to be uncertainties, and those uncertainties mean that, yes, for framing a budget and modelling a budget, Treasury needs to make certain assumptions, but the uncertainties are just things that we have to deal with and respond to as best everybody possibly can.

Senator McALLISTER: When the Treasurer said: 'The assumption is that every Australian who would like to get two shots of the vaccine will be able to do so by the end of the year,' what did he mean? Did he mean that it is your government's intention to make that happen, or just that it's a mere assumption?

Senator Birmingham: You gave the quote there of him talking about the assumptions. He was answering questions about the budget in that regard. The government wants Australians to have the opportunity and the potential to be fully vaccinated as soon as possible, and we will continue to drive that availability as hard as we can, within the health constraints and the availability constraints that exist.

Senator McALLISTER: How many Australians do you believe would like to get two shots of the vaccine by the end of the year?

Senator Birmingham: I can't put a figure on that. Really, these are questions for Health, but I would hope that, as we progress through the different stages of the rollout and as the other choices, in terms of the Moderna vaccine and the Pfizer vaccine, become available in increasing supply through the second half of year as part of the 195 million doses that the government has contracted for delivery, if that supply meets contracts and expectations at present, that sees more Australians have increasing confidence in relation to receiving the vaccine.

Senator McALLISTER: Dr Kennedy, you've indicated that the assumptions around vaccine impact in two key ways: on the number and scale of outbreaks, and also on the cross-border flows of population. What assumptions did you make about the frequency, intensity and duration of lockdowns following that advice from the CMO about the vaccination program?

Dr Kennedy : Since we're going to be very precise, I will probably get Mr Power to read out the language in a moment. We effectively assumed there would be outbreaks that would be contained—I think that was the language. And what we had in mind by that were outbreaks that would be, say, up to a week and contained, for example, to things like a metropolitan area—those types of levels—and a few outbreaks of that nature. We weren't particularly precise, and the reason we didn't write it down is that it is, frankly, a very broad assessment. Even our own costs of shutdowns has been changing over time. Our early estimates of the Victorian shutdown last year, for example, were an overestimate. That shutdown cost less than we thought, so it is a pretty imprecise science, to be frank with you. But we have put in an adjustment, within our economic growth numbers, the notion that there would be lockdowns for short periods—say, up to a week—over the course of the next year.

Senator McALLISTER: Did you identify or project how many such week-long lockdowns might take place over the course of the budget?

Dr Kennedy : From memory, just a small number—so low single digits.

Senator McALLISTER: Mr Power?

Mr Power : As Dr Kennedy mentioned, we do assume localised outbreaks over the period and that they're effectively contained. As Dr Kennedy said, by 'localised', we effectively draw on some of the experience we've seen. For example, if you think about a metropolitan area rather than a statewide situation, for example, we do assume a number of those lockdowns, and they impact on consumer confidence and consumer spending in our forecasts, pretty much through 2021.

Senator McALLISTER: How many of such lockdowns did you imagine through 2021?

Mr Power : For the exact details, I'd like to take it on notice. But I believe it was in the order of three per quarter.

Senator McALLISTER: Three per quarter, of one-week duration?

Mr Power : Correct.

Senator McALLISTER: In metro areas. So 12 over the course of a year?

Dr Kennedy : Just to be very clear with you on this, we used that as a guide to get some sense of the economic cost. Whether there are more or less that are shorter or longer, we're just trying to find a way to calibrate some economic cost. To be very clear with you, we're not predicting lockdowns of that nature or that many. We're just trying to use it as a guide to cost a hit to the economy through this period, because it's what we observed. We observed a lockdown in Western Australia, one in Brisbane; we currently have a lockdown in Victoria, of course. There were some restrictions put in place in New South Wales more recently. So I would just encourage you not to—

Senator McALLISTER: I understand.

Dr Kennedy : It is, frankly, just a mechanical way of coming up with a number to have an impact on growth.

Senator McALLISTER: Did you assume that lockdowns of this kind and of this frequency would cease after the population-wide vaccination program was in place?

Mr Power : We do. Once we get through 2021, we do have to make an assumption about, for example, confidence in response to those things. So we do assume that basically lockdowns cease, if you like, beyond the vaccination program being in place.

Senator McALLISTER: So they cease in the first—

Dr Kennedy : We're no longer doing lockdowns as we go into 2022, because that's when we're also beginning to open up our international borders, admittedly cautiously. If we weren't in a position to be opening up our international borders because we were doing lockdowns—the two things aren't compatible, really. We have a very slow increase in international borders coming back in 2022. We are presuming also, just to be clear, not only that the vaccination program is effective but that all other mechanisms around the managing of suppressing of the virus, ongoing improvements in testing and tracing, and any other issues that are associated with the virus are continuing to improve, as they are, and that allows us to manage the virus—that combination of things—without resorting to lockdowns. But, I will be absolutely clear, it is an assumption. We're being, as we have been all the way through, open about the need to put that assumption in place, because of the amount of uncertainty. As I've mentioned earlier, there is still a lot of uncertainty out there about how the pandemic will unfold in 2022, but we need to pin our numbers down with something, and that is what we did.

Senator McALLISTER: So the assumption is that—acknowledging they are assumptions—as a consequence of the current settings there will be three lockdowns a quarter until the next financial year, at which point—for the purposes of the budget model—they cease?

Dr Kennedy : Effectively. We certainly don't—

Senator McALLISTER: And the borders open?

Dr Kennedy : Well, the borders begin to open through—

Mr Power : Mid-2022.

Dr Kennedy : Mid-2022. There are some international student numbers that we put in for the run-up to June of 2022, from memory, but the numbers are very low through the first half of the year, and then the borders open more widely. I should say, even once they open, we don't expect the numbers to bounce back to previous flows immediately, so the opening is a gradual opening even beyond 22 June.

Senator McALLISTER: So despite the fact that budget assumes that there is a population-wide vaccination program available by December, it doesn't assume that that has any flow-on impact until the following June, from an economic perspective?

Dr Kennedy : I wouldn't precisely put it that way, because I'd go back to my earlier comment about outbreaks. In essence, no, because of the way we think through the program, not particularly because of the timing.

Senator McALLISTER: In essence no—meaning that my statement was correct? The population-wide vaccination program is not reflected in the economic performance until the following June?

Dr Kennedy : How can I put it? There are a lot of assumptions in play here.

Senator McALLISTER: Yes, there are, but you said the main issue is outbreaks—

Dr Kennedy : Yes.

Senator McALLISTER: and you've also told me that the budget assumes continuing outbreaks until June next year.

Dr Kennedy : Yes, small, contained outbreaks, which is crucial. If they're not contained, that would be a down side to economic growth. If, for example, they were not contained beyond focused metropolitan areas and weren't of a short order—say, up to a week—that would have a downside impact on growth. The extent to which that all intersects with the vaccination program—yes, it's related to the vaccination program. But let's remember that, as I tried to point out earlier, the crucial factor through the next few months, and I think really up to when our borders begin to open, is that the virus is suppressed and that's not just about the vaccination program. That's very much about contract tracing, appropriate management of the virus and restrictions when appropriate. And we can see that in the Singapore example that I gave earlier.

Senator McALLISTER: Yes, well, that wasn't Treasury's view last October, when you did it last budget. You did a stylised upside and downside scenario of the significance of the vaccine. Why wasn't such a sensitivity assessment undertaken on this occasion?

Dr Kennedy : Well, there's still considerable uncertainty. There was, perhaps, even more back then when we did the budget in October last year. We still did our normal upside and downside scenarios on prices and a range of other things, but there was actually a vaccination program in place when we were doing this budget. As the minister said, the program is as it's outlined and so we reflected that, and that was in our broad assumption. As we've refined our view over time, and we've narrowed it down, the key issue is around outbreaks, so we've focused in on that.

In theory we could have suggested to the government that we do a series of scenarios around a lot more outbreaks or far fewer outbreaks, something along those lines. That probably would be another way one could do scenarios, but we were comfortable enough that by laying the assumptions out in the open way we did and talking about the numbers in the way we did, that would be enough information for people to form their assessments—

Senator McALLISTER: Given that the government, since the budget, has indicated that the assumption that you've laid out is not, in fact, government policy, do you remain confident in the assumption in the budget, Dr Kennedy?

Dr Kennedy : I'm comfortable with the assumption in the budget.

Senator McALLISTER: The minister's just given you a whole range of reasons why that assumption may not be correct. He says they're beyond the government's control.

Dr Kennedy : We have to make an assumption about a whole range of things. I think it's a reasonable assumption to make. We're very open about it and I'm trying to be clear about what the impact is on the numbers, even though that's difficult. So I'm comfortable with the assumption.

Senator Birmingham: The budget papers, as do every budget paper for that matter, acknowledge that outcomes could differ to forecast depending upon the extent to which assumptions hold. Outcomes could be better. Outcomes could be worse. That is situation normal in terms of the way assumptions are factored into the budget and acknowledged in those budget papers.

Senator McALLISTER: It's not usually a situation normal, though, minister, for a set of assumptions to be in the budget and then a whole set of ministers to go into the chamber and say the opposite. For example, on 13 May, Senator Colbeck told the Senate that the assumptions in the budget paper are very different to government policy. Is that not cause for concern? That the assumptions in the budget paper are very different to government policy?

Senator Birmingham: I think the assumptions are broadly complementary, but I have acknowledged and outlined there are a range of uncertainties that exist, and that we will continue to have to respond to throughout the course of the year ahead.

Senator McALLISTER: It sounds as though Dr Kennedy had fairly general and high-level advice from health, and he's directed me to the department. But, Minister, does your government expect that all of the cohorts outlined in the vaccination strategy will have the vaccine available to them by the end of the year—all of them up to phase 3?

Senator Birmingham: That's our hope.

Senator McALLISTER: That is your hope. Including the under-18s in phase 3?

Senator Birmingham: There's obviously health advice pending, still, in relation to children. Australia has not made decisions that some other countries have in relation to vaccination of children and younger-age cohorts. No doubt the Therapeutic Goods Administration are working through that, based on their evidence and analysis and looking carefully at what the handful of countries who have extended their vaccination arrangements into children are advising. If there are extensions to the vaccination program, then clearly that will require further time and delivery, in terms of the rollout of those extensions. There's also an ongoing—

Senator McALLISTER: Sorry, Minister—

Senator Birmingham: aspect to the vaccination program as well. Of the 195 million doses we've contracted now, we've started to contract the booster doses, because there's a recognition that, indeed, that as we likely get to the end of the first period of vaccinations, it is probable that boosters will become a feature of an ongoing vaccination program.

Senator McALLISTER: But I'm speaking about the assumptions in the budget—it's the reason I am asking you. The budget assumes there will be a vaccination program fully rolled out by the end of the year. Does that include two doses for every adult who wishes to be vaccinated as per the COVID-19 vaccination national rollout strategy?

Senator Birmingham: The Treasurer addressed that fairly directly in the quote that you read back to us earlier, Senator.

Senator McALLISTER: So that is the government's plan?

Senator Birmingham: That is what we hope to drive towards, but there are all of the uncertainties that exist. You can sit there and laugh, Senator. But if the government had decided to dogmatically ignore the advice of ATAGI and not limit the population cohorts as to whom AstraZeneca is applicable to, the over-50s, I'm sure you would be criticising that. We could have sat there and dogmatically said, 'That disrupts the vaccination schedule and what we intended to be the case,' but, of course, we followed health advice because that's the right thing to do. Yes, it cause a disruption that we wish had not occurred, but it's a disruption and a change in plans that we just have to respond to, and that's what we continue to do.

Senator McALLISTER: I will leave it there.

CHAIR: Okay. Senator Bragg.

Senator BRAGG: Dr Kennedy, I want to ask you about some of the wages growth issues in the budget. I'm looking at budget paper 1, page 9, where it has the table of the major economic parameters. I think you've addressed these in your speech this morning. This is a question in relation to wages growth and super. The Grattan Institute, RBA and Retirement Income Review have all concluded that increases in the rate of super will be paid for in slower wages growth. Do you agree with that?

Dr Kennedy : That's consistent with the approach we take.

Senator BRAGG: Yes, okay. It looks to me, from the reading of these forecasts that, for the next couple of years, CPI outstrips wages growth. Then we have a couple of years where CPI and wages growth are at level pegging. Then it looks like in 2024-25 wages growth goes just ahead of CPI. Have the super increases been scheduled into these projections?

Dr Kennedy : Yes. They're legislated and they're policy. Increases in the super guarantee get reflected into our wages forecasts. Obviously they're still people's earnings, but they go into super, and they lower the wages forecasts. The effect—I think you mentioned the Grattan Institute. We usually talk about 0.8 per cent, and I think that's what the RBA has talked about in the past. Roughly 0.8 of whatever the increase is doesn't go into wage numbers. That's the number we use as well.

Senator BRAGG: 0.8?

Dr Kennedy : Not of wages. Of any one per cent, wages are 0.8 of that less, particularly in the short term—0.7 to 0.8. That's what's in the literature as a guide. That's the number we use. So, roughly speaking, a 0.5 per cent increase in the super guarantee means wages are less by about 0.4 per cent.

Senator BRAGG: Okay. So, without SG rises, there would be positive real wages growth in the forwards?

Dr Kennedy : There'd be small positives, yes.

Senator BRAGG: Thanks a lot.

CHAIR: Okay. Senator Canavan.

Senator CANAVAN: Dr Kennedy, I'd like to ask you about your views on inflation and prices. You mentioned some stuff in your opening statement, but in particular do you have any thoughts or analysis the Treasury has done since we last spoke about the increase in inflation in the US in recent months? I think it was one of the highest recorded figures for some time—over four per cent—in the last couple of months. Are there any risks of that inflation overseas transmitting here to Australia?

Dr Kennedy : It is one of the uncertainties in the forecasts about how, particularly, the US people are focused, as you mentioned. It was not only the headline number; I think the core number was also up by quite a bit. Their trimmed number is up by less, and the debates probably became a little more vigorous in the US around inflation since we last spoke. It's probably, to be honest, not moved on much. The assessment in the US among the official family I would say is broadly that these are one-off impacts, because they also had, as you know, a relatively weak labour market monthly outcome there. People are waiting to see what the next one looks like. So there are some mixed indicators out there. But, as we spoke about last time, the extent to which inflation could be stronger, even wages could be stronger, is something we'll watch closely. It has been low for quite some time. So I think we would want to see that turn around in a sustained way. But clearly, it's in the realm of possibilities and we'll watch it closely.

Senator CANAVAN: Last time you mentioned the work you were doing on the NAIRU. I've had a look at that paper and I congratulate you and Treasury officials. It's a very good paper and quite understandable, although I'm a bit rusty with a few things. Just a general question first: how much, in your view, should this work inform or decide fiscal policy settings?

Dr Kennedy : At best 'informs', because, as you would have seen in the numbers, there's a pretty wide band of error around those estimates. So I think 'informs' or 'guides' broadly. I think it's quite reasonable to do what the government has done, and that is provide some forward guidance about where it would like to see the unemployment rate go to, but not precisely pick out our NAIRU estimate and say we're targeting that and then we're going to stay there, because, frankly, that estimate itself, as you would have seen in the paper, is estimated as an historical relationship in that case between wages and unemployment, and other measures are done through the relationship between prices or inflation and unemployment.

Sorry, it is a longwinded way of saying 'at best, a guide'. What we are trying to outline in that paper is that NAIRU could well be lower than what we've previously thought but the band, I think, went from three to six per cent, from memory, the broader band. We put down a tighter band at 4½ to five. But I think you have probably been—

Senator CANAVAN: I was going to go to that. I am happy for the officials or anyone who worked on it to answer these things as well. I'm looking at chart 9 on page 19 of your paper. First point, just to confirm, these estimates only go to the end of 2019?

Dr Kennedy : Yes.

Senator CANAVAN: You haven't calculated or at least not published estimates post-2019?

Dr Kennedy : No, they're sort of pre-COVID estimates. I made a comment in my opening statement that we're becoming more confident that the type of scarring impact that can see an NAIRU increase doesn't look like it's occurring, at least in Australia, in this type of recovery, because we are recovering so rapidly.

The thing we spoke about last time, though, which I think is still far from determined, is whether COVID leaves us with any form of a negative productivity shock that we have to adjust to that could turn up in prices and those types of things, and we just simply don't know at this stage what the lingering effects of COVID are.

Senator CANAVAN: Are you suggesting there that the issues of global supply chains and these things I think you mentioned in the paper are a risk that could hurt productivity growth?

Dr Kennedy : Yes.

Senator CANAVAN: And therefore effectively lift the NAIRU, in this model at least?

Dr Kennedy : Exactly. At least there's a productivity shock that lowers potential output for some time, and then you go back to whatever the growth rate is off that potential output. It might affect the level, if you like, initially and then your growth rates go back to whatever they were in the past. I think they might be likely to affect productivity on an ongoing basis but that would mean that, in technical terms, the supply curve shifted back in for a short period post-COVID and then went back to its previous growth rates. So what you're adjusting back to might not be quite what you think it is, and that's where price pressures could rise more rapidly. We haven't seen any sign of that but of course, as I said earlier, it's within the realm of possibilities and we'll be watching it closely.

Senator CANAVAN: Just on this, I was going back to that chart 9 and the confidence bands here are at a 68 per cent confidence interval that you're looking at. The late 2019 estimate of NAIRU was just under six per cent, by my understanding here, and the 95 per cent confidence of NAIRU is above six per cent. Our unemployment rate, notwithstanding changes through COVID, could already be within this sort of confidence interval of where the NAIRU is at? Is that a correct interpretation?

Dr Kennedy : Yes, it's possible. It would be pretty disappointing if it was that high because it would suggest other failings, to be quite honest, in the way our markets are operating. One would hope that we could, with the right policies in place, sustain an unemployment rate much lower than that and with sustainable wages and prices growth. And I hope that's the case, but the future will tell.

Senator CANAVAN: Just turning to the extent this factors into the Reserve Bank's decision—and I'm not asking you to comment on the specific decisions of the Reserve Bank, but in terms of what the government expects or in a statement of expectations to the RBA—what are they meant to target? Are they meant to primarily target inflation and worry about that or will they also look to target the unemployment rate?

Dr Kennedy : The governor talks about the RBA having really three considerations. One is around inflation and I guess that's operationalised through the target band. Of the other two, one is employment, and we could interpret that through unemployment. And the third one is the broader welfare of Australians. So they're asked to take all those factors into account. But it's fair to say that central banks look closely at this inflation or wage-unemployment trade-off because it particularly helps them understand the inflation implications of where the broader economy is at.

Senator CANAVAN: And just turning to that trade-off, I note your paper makes some commentary about whether or not the Phillips curve, to the extent we believe the Phillips curve, has flattened in recent years. This is where my failings would be. I just couldn't quite work it out. Do your updated estimates, do Treasury's updated estimates, indicate a flatter Phillips curve than in previous estimations done by Gruen and others earlier?

Dr Kennedy : I'm just trying to remember.

Senator CANAVAN: I'm sorry, I continue—

Dr Kennedy : I think so.

Mr Power : I would say so. But if you would like to go into slightly more detail—

Senator CANAVAN: As I said, I couldn't see a clear comment in the paper in terms of your own model but on page 24 you do have some commentary about estimates the US Federal Reserve have done recently, indeed only last year. In a speech the Kansas City Federal Reserve chair outlined that in their view the Phillips curve has flattened in recent years, therefore, indicating a lower trade-off between inflation and unemployment rates. Is that consistent with what's happened here in Australia, in your estimations in this model? I'm happy for you to take that on notice.

Dr Kennedy : I will take it on notice. I might even send around the federal estimated model to have a chat to you about it, to be honest.

Senator CANAVAN: Okay.

Dr Kennedy : I'll work through the Treasurer with that. But I was just talking to my colleague then. I think from memory they have a structural break in their estimation, which suggests a flattening of the curve. But some time ago, not—

Senator CANAVAN: Not in recent years necessarily?

Dr Kennedy : That is certainly what people are talking about around the world, whether that trade-off has changed.

Senator CANAVAN: Given everything else being equal, if the curve is flatter the ability of monitoring fiscal policy to lower the inflation rate is more muted. Is that correct?

Dr Kennedy : Yes.

Senator CANAVAN: Finally on this stuff, I'm looking at a very interesting commentary by Stephen Kirchner about your paper, and he noted—I'll just quote from him—that it was inflation expectations that played havoc with the RBA's model, leaving the bank to overestimate the NAIRU until recently. He said, 'For all we know, the latest estimates could also be out.' He was referring to the RBA's update there. How confident are you in the estimation of inflation expectations and how big an influence do they make on whether we've got that NAIRU in the right place or not?

Dr Kennedy : They're important, as you're rightly pointing out. There's quite a lot of discussion in the paper about alternative formulations, from memory. I think you've read it more recently than I have. And I did read the Kirchner piece as well. In my opening statement I talked about the factors that weigh on nominal wage setting. Inflation expectations are an important part of them. It's part of the reason why it is important to credibly maintain inflation in the inflation band because that goes a long way to setting inflation expectations. It flows into people's activities, their subsequent wage setting behaviour et cetera.

Of course, the final point I would make on this is that really wages are ultimately going to be determined by productivity. And the lower real wages that we have seen in more recent years and, frankly, around the world, do reflect actually lower productivity. So we've been talking about this sort of inflation-unemployment or wage trade-off, but the sort of nominal wage piece is beyond inflation itself; it's going to be made up of that productivity piece really. And that's crucial in and of itself.

Senator CANAVAN: Given you've read the Stephen Kirchner piece, you might recall that he implies there is some degree of disagreement between the Treasury and RBA on the potential for fiscal policy to target inflation or deliver the lower unemployment outcomes that Governor Lowe seems to wish for fiscal policy to do. Do you have any commentary on that? Is Mr Kirchner right about that or are you all of unified and one mind?

Dr Kennedy : I'm not there today but I haven't noticed any tensions in the meetings.

Senator CANAVAN: Sorry?

Dr Kennedy : No, we have good, frank conversations with the RBA about these matters, and no.

CHAIR: Senator McKim, are you on the line?

Senator McKIM: I am.

CHAIR: You have the call.

Senator McKIM: I've got some further questions around wealth inequality, which was a topic we touched on at the last estimates. The AFR released its Australian rich list last Friday which shows that the combined wealth of Australia's 111 billionaires grew at a rate equivalent to 20 per cent per annum between October last year and April this year, which follows a 30 per cent growth rate for wealth of billionaires in the previous 12 months. So we've got effectively an 18-month period where the wealth of Australia's 100-plus billionaires has grown by 50 per cent. When you combine that with Treasury's projection for wages, which is effectively that real wages will flatline or worse for the next two years, does Treasury believe that the massive growth in the concentration of wealth amongst the super wealthy in Australia is in the national interest?

Dr Kennedy : I might break it up because there are a couple of questions I might take in there. On the wages side, I'll just also say at the outset, it is not unusual for a strengthening of wages to lag a recovery. And that is effectively what we've got in our forecast. It is a rapid recovery and so there is certainly some upside to those wages. We've relied on traditional relationships. But I don't want to leave you with a sense that in the forecasts we think that wages are sort of persistently in the way they're presented. Particularly in the next couple of years of the forecast, we do see wages strengthening, especially if the unemployment rate is driven down below pre-COVID levels and then we would expect them to strengthen beyond the forward estimates.

On the wealth side, I did go and have a look at the wealth statistics, because you raised the issue with me last time on income inequality. And I can talk about those briefly. I haven't done anything on, I think you called them, the super wealthy or the billionaires but I can certainly pass to my colleagues.

The broad assessment when we've looked at income inequality and wealth inequality—and I think the market is predominantly from Productivity Commission analysis but some other analysis—is in very broad terms: income inequality has remained relatively stable in Australia. Australia's particularly effective at offsetting private sector income inequality through both the tax and transfer system but then also payments in kind through education and health systems.

There has been a small increase in wealth inequality. Our data sort of doesn't go to the last week, the type of data you're talking about, because we're talking about survey based wealth data.

To answer your last question, that small change in wealth inequality or even sort of more the ones that are happening now—though, to be honest, I don't know if they are—are not factoring in specifically to our wage forecasts. Our wage forecasts are coming off the dynamics in the labour market itself. As I said earlier, fundamentally nominal wages will reflect those three things I spoke about: productivity, inflation, inflation expectations, generally the strength of the economy. So we don't factor something that's happening on the wealth side into our wage forecasts.

I'm happy to go back to those numbers or ask my colleague to talk about it but you specifically asked me to look at wealth inequality, and that's what we've had a look at. I'm happy to talk about it a bit more if it's helpful to you.

Senator McKIM: Sure, thanks.

Mr M Cully : Senator, I can give you the Gini coefficients, firstly, for income inequality and then, secondly, for Commonwealth inequality.

Senator McKIM: Yes, thank you. I am specifically asking about wealth inequality, not income.

Mr M Cully : Sure. We measure Commonwealth inequality from the ABS Survey of Income and Housing. There is a time series that goes back to 2009-10. Unfortunately, it ends in 2017-18; we do not have any more recent figures than that. As the secretary said, there has been a slight tick upwards. If we start in 2009-10, the Gini coefficient is 0.602; in 2011-12 it is 0.593; in 2013-14 it is 0.605; in 2015-16 it is also 0.605. The most recent data point we have is 2017-18, which is 0.621. At that time, internationally Australia was ranked eighth most equal in the distribution of wealth across 28 OECD countries.

Senator McKIM: Does Treasury think that growing wealth inequality is good for Australia or bad for Australia, in economic terms?

Dr Kennedy : On the basis of that data—I realise it is a little dated—our broad assessment is that there is little change in wealth inequality. The broader international literature would suggest that extreme forms of inequality can weigh on growth. There is always going to be some inequality present, but extreme forms of it can weigh on growth. Once again, my broad assessment—it has been a cursory one—looking at the international comparisons and looking at our changes over time, is that Australia is far from that situation.

Senator McKIM: But we have a situation where, if you are a billionaire, your wealth on average has increased by 50 per cent in the last 18 months. If the wealth of the super wealthy is growing so much faster than incomes, doesn't that change the way the economy works? A small group of people are getting more of the national economic pie, simply because they have more pie in the first place—they had more pie to start with. How is that creating a better country? How is it in Australia's national interest in the broad, or in the national interest of Australian people in the broad, if children are being born into a world where their opportunity is determined more by their parents' wealth than by any effort that child might make in his or her life? That doesn't sound like 'you've got to have a go to get a go' to me. That sounds like we are heading back towards feudalism.

Dr Kennedy : There are a few structures in place in Australia where you can see much more clearly how they affect changes in income inequality. That is the role of the public health system, the role of education more generally and effectively the targeting of our welfare and tax system. In terms of how that turns up in wealth inequality, I take as given the numbers you are talking about on the billionaire side, but our focus would tend to be on population-wide estimates of wealth inequality. As Mark outlined, they are not changing much over time. They would not give us cause for great concern that somehow or other they are changing the underpinning of the way the economy is working. On your earlier comment on opportunity, Australia's system around the provision of education, early childhood education, health and a range of issues is crucial in generating opportunity. Effectively our history has shown that we have been quite effective in that regard for some time. My broad assessment is that it is not changing.

Senator McKIM: Real wages are forecast to go backwards over the next two years and then stagnate in real terms in the third year of the forward estimates. How much of the forecast fall in real wages is as a result of the cost of housing going through the roof? Some commentators have suggested that house prices will grow 10 times faster than wages this year.

Dr Kennedy : Most of the bounce-back in the consumer price index is coming from more broadly what people are calling base effects: the unwinding of very low prices, particularly for childcare, the free childcare subsidy, very low petrol prices, and a range of other prices. If you have the budget numbers in front of you, you will see that the consumer price index—this is very unusual—fell in 2019-20 by 0.3, and then we have an increase through to June 2021 of 1.75. We expect the inflation rate through the year to be quite high in this next June quarter as we unwind that effect.

So there is a lot of temporary impact, not particularly a house price impact, through the down in 2019-20. A straight read of real wages in 2019-20 suggests that they grew because prices were falling and the wage price index was growing by 1.8. I would caution people not to get excited about real wages growing last year and then declining this year. There is a lot of one-off movements going through those numbers. The broad assessment, which some of your colleagues here have talked about around real wages, I think is broadly right. We expect them to be pretty much flat through the next couple of years and then strengthen as time goes on. I will confirm with Mr Power, though, because you have a specific question about house prices. I don't think that is the main story that is driving real wages being flat across the next couple of years, but I will confirm it for you.

Mr Power : The payments that are coming through from HomeBuilder and other subsidies are effectively offsetting some of the price increases you might see from the housing side. But the main impacts are those that Dr Kennedy mentioned.

Senator McKIM: Treasury has repeatedly forecast higher wage growth than has actually occurred, and that is a long-term scenario, not just related to the pandemic. What is Treasury's forecast for housing costs over the forward estimates? Is Treasury forecasting housing costs to increase as the proportion of income over the forward estimates?

Dr Kennedy : Senator, I need to correct my record. I read out the wrong numbers earlier. I was right in talking about the wage price index in 2019-20 growing by 1.8 and the consumer price index falling by 0.3. Inflation through to June 2021 is forecast to grow at 3.5, as I mentioned earlier—above 3—and the wage price index at around 1.25, and things unfold as they go on from there. Apologies for that. For house prices, I will pass to Mr Power.

Mr Power : Senator, you mentioned house costs. We obviously look at CPI, we look at the output gap in the economy, and we look at pressures in the labour market. That all goes into our view of the CPI profile going forward. I don't have for you the component on housing costs. I am happy to take it on notice to see if we have any detail on that point. But that relates particularly to housing costs, or the cost of builds—I assume that is what you are getting at?

Senator McKIM: Housing costs in total. People who live in houses generally have to pay bills, but there are also the costs of repaying a mortgage, and for a third of Australians who don't own the home they live in, there is the cost of rent. I am particularly interested in the cost of rents. My hometown of Hobart is the most unaffordable city in the country in which to rent. We have a homelessness crisis down here. We have people living in tents out at the showgrounds, or who have in the near past. Are you saying you don't know whether housing costs are going to rise as a proportion of income? Surely that is something Treasury tracks?

Mr Power : On the specific point about what those costs are doing and how they are contributing to the CPI, I am happy to take that on notice and get you some detail on that.

Dr Kennedy : There are some very significant differences in rental vacancy rates and rents across cities. You are right, Senator—Hobart and Tasmania for some time have been suffering the pains of growth, particularly on the housing side. The vacancy rates were much higher in Melbourne, so we expect to see rental growth there to be less. It is beginning to come back in Sydney. There is quite a bit of variation by cities. We will reply to this on notice and break it down a bit.

Senator McKIM: Sure.

CHAIR: Senator McKim, we will have to leave it there for now. You are welcome to come back after the break. I have a lot of senators in line for Dr Kennedy. Senator Walsh.

Senator WALSH: Dr Kennedy, I want to go back to the budget assumption around the rate of international travel. The assumption is that international travel will pick up in the first half of 2022. Do you want me to read that out?

Dr Kennedy : No; you're good.

Senator WALSH: The rate of international arrivals will continue to be constrained by state and territory quarantine caps over 2020-21 and the first half of 2021-22, with the exception of passengers from safe travel zones. Your advice, Dr Kennedy, was that international travel will slowly pick up at the start of 2022. Most people would understand from this that we think international travel will be considerably more open by the middle of 2022; is that correct?

Dr Kennedy : We are still in a pandemic, with many unknowns; so that is what we put in there. It would be great if it were earlier. We needed to put something in to pin the budget down, so that's what we put in.

Senator WALSH: The Premier of New South Wales, as people would know, suggested that we have a target of 80 per cent of adults being fully vaccinated to reopen the borders. Do we have any assumptions about the proportion of people who should be vaccinated in order to have confidence that international travel will pick up in the middle of the year?

Dr Kennedy : We didn't go into that in ours. We did the assumptions at the high level that are there and then translated that through to population growth numbers, just how people would be moving; that affects our growth numbers. I didn't ask the Chief Medical Officer for a particular rate to underpin the numbers. I just asked, frankly, for advice about how to translate the health situation into economic numbers as it was written down. I didn't ask him, 'Does that mean 60 or does that mean 90?'

Senator Birmingham: Senator, that really is a question for Health in that regard and for the chief health officer. Even then, I suspect the answer will be that it depends, because the uncertainties around different variants of COVID and the other questions that come to the fore mean that they will be decisions made closer to the time when you might be looking at border re-openings based on the best available evidence at that stage.

Senator WALSH: The reason I'm asking these questions here is that there are assumptions in the budget about what people might understand is a concept of borders re-opening in the middle of next year and we don't have a target for the proportion of the population that should be vaccinated at that point. We also don't have a target for the number of vaccinations that will have been provided by that point. That's correct, isn't it?

Dr Kennedy : We haven't used the target in some sort of operational way in our numbers; just the assumptions, as I went through with Senator McAllister.

Senator WALSH: So what we have is an assumption that a program will be available?

Dr Kennedy : Likely in place by the end of the year. As the Treasurer spoke about, the further detail around that was that Australians who wanted two shots could have had them by then. Effectively, we need to be able to broadly shape what are we going to do with the migration numbers when the borders open and how is this likely to impact potential outbreaks, which I talked to with Senator McAllister. Having said that, there's considerable uncertainty around how vaccines affect transmission, so I have to be frank about that as well. They're just broad assessments.

Senator WALSH: Just briefly, you clarified the language around the population-wide vaccine program being likely to be in place by the end of the year. At MYEFO it was going to be fully in place by the end of the year. What was the reason for that change?

Dr Kennedy : In both cases we go to the health department and take advice about how to reflect these things in our economic numbers. They are what they are. That's what we did. I didn't interrogate him about it. I don't think I should go through them. I think they're well-known around the supply considerations and other things. I'll pass to you, Minister.

Senator Birmingham: Senator Walsh, they're really the uncertainties and the challenges that have been faced through the first half of this year, the disruption to expected and contracted supply from Europe and the change to ATAGI advice in relation to who was eligible to receive the AstraZeneca vaccine. They're known and public disruptions and, clearly, they have impacted upon Health's expectations.

Senator WALSH: The slow pace of the vaccine rollout is what is responsible for that change in assumption about when we're going to have the program fully in place?

Senator Birmingham: The disruptions that have occurred impact on Health's assessment of that. Clearly, the government had laid out what we had hoped to see achieved on the basis of expecting a full supply of contracted vaccines in the way in which they had been scheduled to arrive and on the basis that all Australians would be eligible for AstraZeneca. As it's turned out, all Australians are not eligible for AstraZeneca and more than 3½ million doses from Europe didn't show up when expected.

Senator WALSH: Do we have any assumptions in the budget or the forward estimates around what type of quarantine facilities are going to be required to, as people would understand it, re-open the international borders in the middle of the year? When we assume in the budget that the international borders will be largely open by the middle of the year, are you assuming that quarantine will still be required at that point?

Dr Kennedy : No, we've not been specific about it, and we say they sort of re-open steadily from that point. There isn't a quick bounce-back to all international flows immediately. I'll get Mr Power to correct me if I get this wrong, but effectively the current state caps constrain the extent of travel outside of the student programs which are being announced through to around the middle of next year, and then beyond that international travel begins to open up. We've not pre-supposed that there's an ongoing permanent quarantine program. We've just made an assumption that international travel begins to open up, I think, across the course of the next year or so.

Senator WALSH: Sorry, Dr Kennedy, can I just clarify: when you say you've not pre-supposed that there'll be an ongoing quarantine program, does that mean you've supposed that there won't be a need for one?

Dr Kennedy : To be honest, we haven't assumed one way or the other. We've just assumed that the travel resumes. We simply don't know at this stage—

Senator WALSH: I just wanted to clarify that.

Dr Kennedy : whether one would be required, whether that would slow things down or speed things up. I honestly don't know. We haven't assumed one is required, I guess, because we haven't put one in.

Senator Birmingham: Again, we're talking here about the assumptions Treasury have made to underpin their economic modelling. It's a broad question, I guess, that Dr Kennedy and his team have addressed in those assumptions of the re-opening of international borders in a staged way. The wording is that it's relatively slow and cautious in a general sense.

Dr Kennedy : I'll just make a general comment for the committee around forecasts and what the numbers represent. Let's be clear that we've had some very significant misses in our forecasts throughout this pandemic, nearly all because we forecast much larger falls than we anticipated would happen. In fact, growth has been much stronger, as I outlined in the statement, through the recovery. It's absolutely right to question how these assumptions would affect the forecasts, but I also wouldn't want to leave the committee with a sense that somehow or other these forecasts are going to be right within close proximity. These are really unusual times. You're absolutely right to question whether they might be higher or lower, but they could be substantially different from what they're presented simply because of the uncertainty that still persists. There's less uncertainty than we had last year particularly, but it still persists, particularly on the global side. The potential for subsequent waves globally is still a significant issue.

Senator WALSH: I am interested in the fact that there have been no assumptions made either way about the ongoing need for quarantine programs, especially given the situation that we're in in Victoria. It's true, isn't it, that there was no funding for purpose-built quarantine facilities in the budget?

Senator Birmingham: There's not an identified policy measure in the budget, but the government continues to operate an elevated contingency reserve in response to the uncertainties in relation to COVID-19. We made that decision knowing that we were in the process of responding to Victoria. We only received their proposal, I think, a couple of weeks prior to the budget being handed down. It certainly wasn't in a position to be a fully costed and considered proposal in that short period between receipt and the handing down of the budget. It's the type of thing that the contingency reserve is there for, and we are certainly continuing in very active discussions with Victorian officials to find a pathway forward on that proposal.

Senator WALSH: Thank you, Minister. The Victorian proposal requested $200 million from the Commonwealth for the proposed Victorian open-air quarantine facility, as I understand it, and you've just confirmed that that's under consideration and the Prime Minister said that that's under consideration.

Senator Birmingham: I think the Victorian proposal was very broadly costed in a range between $200 million and $700 million, off the top of my head, without the figures in front of me. It had a very broad costing range associated with, equally, a range of between 500 places and 3,000 places. But, yes, we are working closely with Victoria. Our officials are in close dialogue between the Commonwealth and Victoria in working through and understanding the business case, the planning issues and associated things to be able to be in a position to make an informed decision in relation to that proposal.

Senator WALSH: Thank you. Dr Kennedy, you mentioned before that you might not have had that much luck in estimating the costs of lockdowns, but we are in one at the moment in Victoria. You would have seen different estimates of the cost of the latest statewide lockdown in Victoria from the state government and the Commonwealth Bank. The range is $700 million to $1.3 billion. I've seen multiple estimates of week-long metro lockdowns being at about $1 billion per week. What do you say about that? What is the estimated cost of the latest statewide lockdown in Victoria?

Dr Kennedy : In the past I think we've talked about lockdowns costing around $100 million a day. That's the lower end of the range you have just talked about, the $700 million. We have not formally assessed the Victorian statewide lockdown or provided any advice but, on the basis of past advice, we're probably at the lower end of those broad ranges you're talking about. Our assessment is that these costs have been coming down. There's no doubt they still cost businesses, but we are adapting to them. That's certainly what we have seen.

Senator WALSH: The minister just said that the Victorian proposal might be costed at around $200 million to $700 million for the Commonwealth. At $100 million a day for the Victorian lockdown perhaps, or $700 million for the seven days, it's difficult to not compare these two things. There's a potential investment there of $700 million from the Commonwealth for a dedicated quarantine facility and at the same time we're having a lockdown in Victoria, because the vaccine escaped from hotel quarantine, which is going to cost $700 million. Is there not a cost-benefit analysis that Treasury is looking at about the benefits of investing in purpose-built quarantine facilities?

Senator Birmingham: It's quite a false comparison because the Victorian proposal is for the dedicated facility, or the purpose-built facility, to be additional to the hotel facilities that are in existence. The Victorian proposal was presented to us on the basis that those hotel facilities would still be there and that the additional facility would be just that—additional, and provide extra places to be able to deal with returning Australians or other pressure points in terms of entry to Australia. To assume that, if it existed, there would not be hotel quarantine in operation is to reject part of the Victorian proposal and to pretend that there was some different approach that applied. We shouldn't go in pretending that facilities that are built to handle quarantine or different types of facilities will 100 per cent eliminate risk. A risk will always—

Senator WALSH: They might help, though.

Senator Birmingham: A risk will always exist when you're talking about a virus transmitted from humans to humans and when there are still, in terms of transit, catering, testing and a range of other functions, those contact points. We've continually updated with the states and territories the practices around hotel quarantine through the course of the year. Australia's hotel quarantine system, like New Zealand's, and our border controls, like New Zealand's, are pretty much the tightest in operation in the world. But each time we have to assess where we can achieve further gains. Going to your question, Victoria didn't present this as a direct substitution—that they were closing down hotels. In fact, it was quite the opposite; they presented this as an additional capability and capacity.

Senator WALSH: You've just given quite an expansive answer there, as I would characterise it, backing in hotel quarantine and indicating that you're not interested in pursuing open-air quarantine facilities, despite the fact that the Victorian lockdown has occurred because the virus escaped from hotel quarantine and a person was infected in hotel quarantine. Are you doubling down on hotel quarantine as the answer for the country over the next period or are you investigating significant investment in open-air quarantine facilities?

Senator Birmingham: Senator Walsh, I addressed the questions previously in relation to the Victorian proposal, and we are absolutely investigating that. We are pursuing means to support that, and we are working closely, through officials and dialogue with Victoria, to drill down into their business case, to work through the planning issues and to reach, ideally, a point of being able to see that proceed.

The point I was making is that Victoria's proposal was not suggesting that this was a case of substitution in the short to medium term. They were presenting it as a case of additionality. Hotel quarantine, used pretty consistently in our country and in New Zealand—really, we're the only two countries in the world applying this type of very strong restrictions on entry into our countries—has overwhelmingly worked. Where there have been leakages, they absolutely cause problems. That is why you need to have the testing systems, the tracing systems and the other isolation systems all to high standards as well. No system, short of completely excluding any entry in and out of the country, can completely guarantee that there won't be some form of transmission of COVID at some point in time. That's why all of those structures are important. As I said the Victorian proposal is one that we are working through, and hope to be in a position to make positive decisions on soon.

Senator WALSH: Finally, Dr Kennedy, has the Treasurer asked for any package of economic support for workers and businesses affected by the Victorian lockdown?

Dr Kennedy : The Treasurer has asked us for advice around the Victorian lockdown, including what assistance Victorians are provided and our assessment of the situation. He has asked for advice on that.

Senator WALSH: Has he asked for any advice or costings from you on a potential federal package of support for Victoria, given that this lockdown is estimated to cost $700 million?

Dr Kennedy : He's asked us for advice more broadly, not specifically for something, but in preparing advice we would explore all options.

Going very briefly to the benefit-cost trade-off, I realise this isn't of much help to Victorians, but we do look at the benefit-cost trade-off, particularly the health restrictions and what they mean for economic costs. As you're exploring with the minister, there's no reason why we shouldn't always be looking at ways to do things more effectively.

There's no doubt that trade-offs in Australia have been struck quite prudently. There are very few places in the world that you could look around—in fact, almost none—and see this type of economic growth and this type of openness in economic activity within a country. As I've tried to point out in previous studies, the notion that we could have not had those restrictions and achieved those outcomes, when one compares what's happened in countries that didn't have the restrictions, they've grown similarly to us but they've had much higher fatality cases and deaths. In some countries, as I was pointing out in a speech recently, really sadly, have had very dramatic falls in economic outcomes and very bad health outcomes. So the trade-offs are important to us. We tend to look at them from the point of view of the whole health system, not specifically whether you buy this or you buy that. We leave that up to the health system on that side.

The last point to make, though, in all of that is not only now but in the future we will not be able to take risk to zero. There will always be trade-offs to be made throughout this period. To date, in very broad terms, all governments, not just the federal government, have made difficult trade-offs. Generally, it's shown globally that they've been good for the economy, and one hopes that continues.

Senator WALSH: You haven't been asked to cost open-air quarantine facilities by the government?

Dr Kennedy : We normally wouldn't get asked to cost that. That would be done by the finance department. I don't know whether that came up in Finance.

Senator Birmingham: The finance department is working, as part of the Commonwealth's engagement team, with Victoria in relation to the business case, costs and the like.

Senator WALSH: In relation to that one proposal, not other proposals?

Senator Birmingham: That's the one detailed proposal that the Commonwealth has received.

CHAIR: We need to move on because whilst we will continue with Macro after the break, we only have Dr Kennedy until 11. Senator McDonald, you have a few minutes, and Senator Rennick, you have a few minutes.

Senator McDONALD: I want to ask some questions in the context of what I'm seeing in regional Queensland. I am having reports of horticultural award payments going from around $24 an hour up as high as $32 an hour, and hospitality businesses that are paying bonuses for people to stay for at least six months and paying well above award. In lawyers and accountancy firms in Townsville and Cairns, I'm hearing of firms paying above market expectations in order to secure people, given that there's been so much activity in those regional centres. The unemployment rate dropped in April following the conclusion of JobKeeper. What are your expectations for the remainder of the year?

Dr Kennedy : We expect the unemployment rate to steadily track down—not to continue to fall at the rates it's fallen after we bounced back and a lot of people have gone back to work. That, of course, all depends on the virus remaining suppressed, as we've been talking about, and outbreaks remain well contained. Trevor, what does the number track down to, to June next year?

Mr Power : Senator, as you can see at the front of the budget papers, we do think that the unemployment rate will continue to track down through this year and to June 2022. For example, by June 2022, we forecast that to reach five per cent and continue tracking down, as the secretary said a bit earlier, beyond that. We do think there's some strong momentum in the labour market, partly because of a lot of the vacancy data, the job vacancies that are in the system. We are also aware that there are some particular pressures in particular regions on the availability of workers.

Dr Kennedy : We've certainly heard those reports of the bonuses and the payments to people to move. I hadn't heard the horticultural increase one. It's very interesting. We are certainly hearing of that liaison report. We haven't seen anything come through yet in aggregate wages—to become economy wide. We've certainly heard of that in regional areas, and particularly those areas that relied on backpacker workforces or temporary migrant workforces. In some ways, as long as businesses are profitable and prices are passed on—I know this will sound a bit difficult—it will be good to see some wages coming through. Of course, one would want it to be sustainable.

Senator McDONALD: That's, of course, the other side of it. Some agricultural businesses are saying that there's a limit to what they can pay in their business model.

Dr Kennedy : Yes, I've certainly heard that, too. The pricing pressures make it difficult to offer wages on the other side.

Senator McDONALD: I was going to ask you what other measures you are looking at outside measured unemployment rates to understand the impact of the pandemic on the jobs market. You're looking at job advertisements; anything else?

Mr Power : The rate of unemployed people to vacancies and the speed with which those are turning over. Of course, when we think about what's going forward, we think about the rate at which people will take up jobs, how that labour income will go into their income and spending, and therefore generate further growth. We are looking at a number of measures, including some of the labour market data that the secretary mentioned very recently, which all point to confirming our view that there'll be continued labour demand throughout the rest of the year and into next year.

Dr Kennedy : We have a business liaison unit that talks to the large employment agencies as well, and they are seeing fewer applicants per vacancy. That's one of the flows that Trevor was talking about. Once again, it's not everywhere, but it is certainly in some regions. I was talking to one operator in Queensland in particular, and he was certainly talking about the pressures that you've identified.

Senator McDONALD: At the beginning of COVID I had businesses in North Queensland that were talking about employees stopping work to go onto JobSeeker, particularly in bananas and transport. When they were advertising, they couldn't get people to respond to the advertisements. What did the Treasury review find in terms of unintended impacts on the recovery from the economy-wide subsidy?

Dr Kennedy : The COVID supplement?

Senator McDONALD: Yes.

Dr Kennedy : The main issue that tends to arise in the welfare payments and the supplements is often how they taper, not especially the level—effectively, how you remove them over time, because people can take a job or work additional hours and they can lose a benefit. That taper can mean that they decide, 'I don't want to take that extra hour,' or, 'I don't want to take even a second job because it means I'll flip across a boundary and I will taper out.'

We didn't do a particular assessment of the COVID supplement disincentive through that period itself. My broad assessment is that, in that period of pandemic uncertainty, it would have had, frankly, probably little impact on employment probabilities. There were issues in that period about people's willingness to travel, honestly, because they were also worried and uncertain about the circumstances. 'Should I pack up and move or should I do something?' There were state closures, for example, through that period. 'I don't even know whether I can get there and whether my family can come,' et cetera.

We didn't do anything specifically. The potential certainly does arise. With the government having made its final decisions around the ongoing JobSeeker payment and other reforms that it made to the program, I don't see them as having a significant disincentive effect on an ongoing basis on people's willingness to get employed.

CHAIR: Senator Rennick, I believe you have just one question for Dr Kennedy; is that correct?

Senator RENNICK: Yes.

CHAIR: We can come back to this after the break, Senator McDonald.

Senator RENNICK: I want to touch on the point you made before about how the tax and transfer system deals with wealth and equality quite well. I've got figures from the Department of Finance recently that showed the defined benefits scheme for non-military employees was a liability of $335 billion, for 170,000 public servants, which works out at $2 million per person. Do you think that retired public servants should be subject to an asset and income test similar to people who retire in the private sector? Wouldn't you think that if you had a fair tax and transfer system—it's a fair question. It's a $335 billion liability, Chair.

Dr Kennedy : I will need someone from the revenue side to help me with how the taxation system will apply to people on defined benefits.

Senator RENNICK: It's not the taxation system; it's the income and assets test for that. They get taxed, but they should still be subject to an income and assets test, like people in the private sector, shouldn't they?

Dr Kennedy : What should be subject to the income and assets test?

Senator RENNICK: Say there are 40,000 people who get more than $75,000 a year every year in retirement. If they've got assets, say, of $5 million and they've got other income—some retired public servants come back and work as contractors, so they're getting $75,000 in retirement, plus another $100,000, for example, as a contractor—should they not be subject to income testing and asset testing if they're already wealthy?

CHAIR: Senator Rennick, that's a policy question. It's probably more for the minister. I don't know whether the minister wants to take it. I'm happy for you to explore the issue with the Revenue Group. Dr Kennedy, do you want to add anything?

Dr Kennedy : Not at this stage. To be honest, you've caught me on the hop because I don't know the details about it. I'm more than happy to go and have a look at it. Perhaps the best thing I could do for you is to take it on notice and give you a more considered response.

Senator RENNICK: Thanks.

Dr Kennedy : I beg your pardon; the right group will be the Markets Group.

CHAIR: Okay, perhaps you can explore the issue with Markets Group, Senator Rennick. We will have to leave it there, given Dr Kennedy has other commitments elsewhere. Thank you for prioritising estimates, Dr Kennedy. I know you had potential commitments elsewhere, and we appreciate the fact that you prioritised this committee and the estimates process. Go with our thanks. We will suspend for 15 minutes.

Proceedings suspended from 11 : 01 to 11 : 17

CHAIR: We will resume this hearing of the Senate Economics Legislation Committee. We are still in Macroeconomic Group, which includes Corporate and Foreign Investment Group.

Senator McALLISTER: I want to ask some follow-up questions regarding discussion I was having with the secretary about the approach to establishing assumptions around the vaccine. The secretary has indicated that the assumptions were developed on the basis of high-level advice from the CMO. Can I confirm that you spoke only to the CMO and not to the Department of Health?

Mr Power : No. We speak quite broadly to the Department of Health and also to the CMO. The secretary speaks to the CMO and also through the Department of Health. So quite a number of discussions go across multiple levels.

Senator McALLISTER: Specifically in relation to the assumptions that appear in Budget Paper No. 1 at page 36, can we confirm that these assumptions were developed based on advice from the CMO, or was Health involved as well?

Mr Power : Effectively both are involved. Typically, we set up the assumptions and talk to the Department of Health. We send those assumptions to the Department of Health, and there is an interaction with the CMO effectively through the Department of Health, and we receive advice back.

Senator McALLISTER: The secretary indicated that, as part of those consultations, no advice was provided about projections for the number of Australians who will be vaccinated by December or the proportion of Australians who will be vaccinated by the end of December; is that correct?

Mr Power : As the secretary set out, what we are trying to get to in the assumptions is whether effectively a vaccination program is in place and, therefore, what matters to us in our assumption set is determining whether there are outbreaks and whether we need to assume lockdowns, et cetera. We try to set that high-level assumption, so that is essentially what we interact on with the Department of Health and the CMO. We don't seek details on particular proportions from the Department of Health, rather just that the program is in place so we can proceed on the key assumption around outbreaks and lockdowns.

Senator McALLISTER: Thinking about the outputs for you from Health's perspective, what exactly did the Department of Health tell you that led to the assumptions on page 36? Specifically, I am trying to understand where the boundary lies between your expertise as forecasters of economic outcomes and their expertise as forecasters of health outcomes.

Mr Power : If I understand your question correctly—and I don't have exactly in front of me what they said to us—essentially, when we provide a set of draft assumptions over to the Department of Health, and obviously to the CMO through them, they give us advice as to whether they think they are reasonable and also generally in line with the way they are thinking about the vaccine rollout.

Senator McALLISTER: You sent them the text in box 2.1 that said, 'In the first phase of Australia's vaccination program, our COVID-19 vaccine and treatment strategy commenced in late February 2021, with most priority populations having been vaccinated.' Are you telling me that they confirmed that that is true?

Mr Power : With that particular component, most of what I have been referring to is really about the end-of-the-year vaccine rollout. I will have to confirm whether those particular sentences were also confirmed by them and how they responded.

Senator McALLISTER: Health's own website indicates that only a very small number of people in aged-care facilities have been vaccinated: 112,000 people in a population cohort that numbers half a million.

Senator Birmingham: Senator McAllister, I am not quite sure of the figures you are quoting here. Are you talking of residents in aged-care facilities?

Senator McALLISTER: Aged-care and disability-care residents and staff.

Senator Birmingham: That is not quite what you said before.

Senator McALLISTER: They are a priority population, are they not?

Senator Birmingham: They are. In relation to aged-care facilities, around 85 per cent of residents have received a first dose.

Senator McALLISTER: They are not fully vaccinated though, are they?

Senator Birmingham: A first dose provides improved health outcomes, on research, of around an 80 per cent reduced chance of serious illness, in the chance of contracting COVID, so they are receiving significant benefits from that first vaccination dose.

Senator McALLISTER: So job done?

Senator Birmingham: No, that's not—

Senator McALLISTER: Most priority populations have been vaccinated; is that the government's view? One dose only: job done?

Senator Birmingham: That is not what I said. I said very clearly that around 85 per cent of residents in aged-care facilities have received a vaccine, as I understand it, and the evidence suggests that that first dose of vaccine provides benefit in terms of about an 80 per cent of reduction in the likelihood of serious illness or consequences from contracting COVID. The facts are that there is still a job to be done in administering the second dose that will take that 80 per cent figure and increase it even further.

Senator McALLISTER: The 80 per cent figure relating to one jab only. Don't you think it is a little slippery to slide between vaccinated and fully vaccinated in the material you are presenting to the public in your budget papers?

Senator Birmingham: If there were zero benefit from having the first dose, there would be little point in talking about it. But the evidence suggests that there is a significant benefit from the first dose of around an 80 per cent reduction in the likelihood of serious consequences if somebody contracts COVID.

Senator McALLISTER: Mr Power, who told Treasury that most priority populations have been vaccinated?

Mr Power : Going to the overall point, the key point that underlies our forecasts is when the program is in place across the population; that is the key part of the assumptions. That particular point about priority populations I will have to go back and confirm. It is not the central part of our forward assumption profile for the forecast outcomes through the following financial years.

Senator McALLISTER: Why does it matter that the program is in place across the population?

Mr Power : We need to make the best set of assumptions about effectively whether there might be outbreaks or lockdowns, or whether the borders are open. We try to make, in consultation with the Department of Health, et cetera, the best guess about when the vaccine program will be in place so that we can set the other assumptions, like the border, et cetera.

Senator McALLISTER: The CMO and the Department of Health together confirmed for Treasury that a population-wide program would be likely to be in place by the end of 2021.

Mr Power : That's right.

Senator McALLISTER: What did that mean practically for your assumptions?

Mr Power : What we are able to then assume is what the level of consumer confidence or spending might be through 2021. We have to make an assumption about when the border might be open. Obviously, we then try to set those assumptions out so that we can think about how consumption might grow and all the components of the economic forecasts that then follow from that.

Senator McALLISTER: Did Health give you advice about when the border might be opened based on that vaccination program?

Mr Power : No. The border itself is part of the assumptions that are not necessarily directly in relation to Health. It is something about which, again, we talk to other portfolios; for example, the portfolio of the Department of Home Affairs. We come up with a set of what we believe are reasonable assumptions, and then we set our forecasts on the basis of those.

Senator McALLISTER: I asked a direct question: did Health provide you with advice about when the border would be opened?

Mr Power : I don't recall that they did.

Senator McALLISTER: Did they provide advice about the number of outbreaks that should be factored in, consistent with the evidence the secretary provided earlier?

Mr Power : Again, I don't think that was the case. It is something we just have to make some assumptions about rather than something that has come directly from the Department of Health. I would need to go back and confirm that, but that is not a set that I recall the Department of Health provided us with in any specific detail.

Senator McALLISTER: They told you that there would be a program in place; they didn't tell you how many people would be vaccinated under that program. Then you proceeded to make a set of assumptions about how many outbreaks would be likely to occur each quarter; am I correct?

Mr Power : That is right, in general terms. Obviously, we are trying to make our best forecasts, so we have to make certain assumptions about things which are highly uncertain and that's what we did in relation both to borders and potential outbreaks.

Senator McALLISTER: Did they provide you with any outputs from any modelling to assist you in making those assumptions?

Mr Power : Not that I recall.

Senator McALLISTER: Did they provide you with any analysis about the relationship between vaccination rates and outbreaks?

Mr Power : No, not that I recall.

Senator McALLISTER: I am trying to understand the basis—

Senator Birmingham: Senator McAllister, whilst drawing into that sort of analysis is really a question for Health, I make the observation that the United Kingdom, with a higher vaccination rate, recorded 3,000 new cases yesterday and Singapore, with a higher vaccination rate, is in the midst of a four-week lockdown at present. There are many uncertainties that everybody right around the world is grappling with. So in terms of the precision of assumptions, they are just that: they are assumptions to underpin the type of modelling Treasury needs to do to deliver budget outcomes. The Treasury always acknowledges the potential for variability in the outcomes based on those assumptions.

Senator McALLISTER: Mr Power, as you just heard from the minister, questions about how this unfolds are ordinarily things we would ask of Health, but your evidence here is that you didn't ask the Health Department about these issues. Treasury came up with their own ideas about how vaccination rates and the progress of the pandemic would impact on the economy. Is that correct?

Mr Power : I wouldn't characterise it like that. To give you a sense of it, we speak quite frequently with the Department of Health and have done so over a long period—not only around assumptions but also progression of the virus et cetera. It's not the case that Treasury, if you like, has gone off to the side and developed its own. We're talking in common, as I said, quite frequently with the Department of Health. We do of course have some of the data and experience in what outbreaks have occurred over time. So, whilst quite uncertain about the number of outbreaks and those sorts of things, we have to make some sort of assumptions. We take prudent assumptions about the number of outbreaks likely to occur, and it is the case that we talk to the Department of Health about that. I wouldn't say that it was something that Treasury just came up with and was included into the forecasts but rather something that we did generate; and we do consult with, of course, a lot of the other departments around town.

Senator McALLISTER: Is that based in part on historical data and in part on your own dataset about how outbreaks have occurred in the past?

Mr Power : Not about the outbreaks themselves but about the economics of how they've flowed through. Obviously, we've observed outbreaks through 2020; some of the data has come in, so we've been able to understand what the impacts are, as they are over the time periods that—

Senator McALLISTER: I'm not questioning your capacity to assess the economic impact of an outbreak; I'm questioning the basis on which you establish the likelihood and probability of an outbreak. It appears to me that you've done that. Your evidence so far is that they were assumptions generated by Treasury and not by Health, and I'm finding this confusing evidence, given your areas of expertise and specialty.

Mr Power : I wouldn't say that we, if you like, have determined the probability of outbreak or anything such. We've simply just made an assumption for the basis of seeing a forecast that there would be some outbreaks rather than—

Senator McALLISTER: On the basis of what dataset?

Mr Power : Essentially, it's just an assumption. We have assumed, as I said a bit earlier, that it was three per quarter, from memory, rather than on the basis of health modelling, as you mentioned.

Senator McALLISTER: Nonetheless, there has to be some reason. You could have said that there will be 25 per quarter, and you didn't choose that number. Why did you choose three?

Mr Power : Obviously, 25 per quarter hasn't been what has occurred. I guess that we've looked back and seen what broadly has occurred, and there have been more recently shorter lockdowns occurring and slightly more frequently rather than what we saw in early 2020. Again, it is an assumption that effectively helps us set the forecast, but it is only just that: an assumption.

Senator McALLISTER: Sure, based on some kind of analysis that I'm trying to elicit from you. Was it your group that did that work or some other part of Treasury?

Mr Power : It's our group that sets the assumptions.

Senator McALLISTER: So someone in your office decided that it would be three; was that based on recent Australian history?

Mr Power : Based on what we think is a reasonable assumption, which is basically on what we've seen through 2020. Then, as for how the situation has evolved, as I said, it has been more common more recently that there have been shorter and more localised lockdowns.

Senator McALLISTER: You didn't assume that there would be any difference between the first two quarters of this financial year and the second. You have chosen the same number for the first two quarters and the second?

Mr Power : Essentially, we haven't drawn a distinction largely between the two. Obviously, we're now forecasting the second half of the year rather than the first, so we haven't drawn a significant distinction, from memory.

Senator McALLISTER: So the fact that a population-wide program would be available or is likely to be in place in your assumptions makes no difference?

Mr Power : No, I wouldn't say that. As the population-wide vaccination program is assumed to be in place through 2022, obviously there is the assumption of some slow return of students, tours—

Senator McALLISTER: I'm sorry; two outbreaks.

Mr Power : We also assume some increasing consumer confidence in the economy. We assume that, as the vaccine rollout is in place, there is some pick-up in the economy more broadly. Again, they are assumptions, so it's difficult to put a point on it, but we do assume improving activity.

Senator McALLISTER: It doesn't sound like a vote of confidence in the government's vaccination strategy. You assume that there will be six lockdowns between now and Christmas and another six between Christmas and next June.

CHAIR: I think that's definitely framed as an opinion question, Senator.

Senator McALLISTER: No. I'm seeking confirmation that they are the assumptions: that there will be six lockdowns between now and Christmas and another six between Christmas and June.

Mr Power : As I've said, we've assumed those lockdowns over the period. In addition to what you've said, we do assume increasing confidence, if you like, through 2022 as a result of the vaccine assumption. They're the assumptions that underpin the forecasts.

Senator McALLISTER: So, in the absence of advice from Health, you've produced your own assumption which doesn't vary after the government says that it will have its vaccination program likely in place.

Senator Birmingham: Senator, certainly, the first part of your question there is an unfair commentary on what Mr Power has indicated. He has indicated that Treasury has engaged and does engage in quite a constant process of engagement with Health and with the CMO, and that it's that engagement that helps to inform Treasury in setting assumptions. Treasury always tries to set relatively cautious or conservative assumptions in the approach that it takes to budget forecasting, and this approach is consistent with that. But, as officials have indicated, they're dealing with a highly uncertain virus and environment, as can be seen right around the world right now.

Senator McALLISTER: At page 231 of Budget Paper No. 1, Mr Power, there is discussion about confidence intervals. There's clarity that delays in the vaccine rollout, the emergence, is not contemplated in the confidence intervals that are provided on the following page, page 232; is that correct?

Mr Power : The confidence intervals analysis really draws on the extent to which forecasts over the historical period have deviated from what was forecast; they sort of draw on quite a lot of that historical analysis. Of course, in the history of events, pandemics et cetera are quite rare; so, whilst that analysis there provides a picture of uncertainty, they don't specifically relate to events like pandemics which, as I said, aren't dominant in the historical period.

Senator McALLISTER: Was any sensitivity testing done at all? I accept that these confidence intervals don't engage with a slowing of the vaccine rollout. Did Treasury do any sensitivity testing about what the impact of a slower than usual or faster than expected rollout would be?

Mr Power : As you pointed out earlier, we have done some in previous budgets and we have done some thinking and some work on that. It's difficult to frame exactly what the situation would be. The impacts on that would depend on how long delays were in a full rollout and the relationship with borders.

Senator McALLISTER: Yes. Mr Power, previously Treasury was willing to make some assumptions about that and to do some sensitivity testing on the vaccine rollout. You didn't do that in this budget and they're not included in the confidence intervals. Was the work done but not included in the budget?

Mr Power : We've done some thinking about it, but it's not complete thinking, if you would like to put it that way, because it goes to full scenarios, if you like. But, again, that's something that we continue to think about and analyse.

Senator McALLISTER: What do you mean by 'done some thinking about it'?

Mr Power : Obviously, it's something that's potentially variable. When we do think about what is the sense of lockdowns and when will they occur and what is the timing of the border, that's the way in which we've thought about estimating the impacts of that.

Senator McALLISTER: Did you propose that thinking be included in the budget?

Mr Power : We have done some of that analysis and we have provided it to the government. It's obviously a matter for government what they produce in the budget.

Senator McALLISTER: So the work was undertaken in Treasury and provided to government.

Mr Power : We have done some work on that, yes.

Senator McALLISTER: But it's not included in the budget papers.

Mr Power : It's not included in the budget papers.

Senator McALLISTER: Minister, why is that? Why did the last budget include an analysis of the costs of delay to the vaccination strategy, but this budget doesn't?

Senator Birmingham: I think, as I've said—and as we heard from Dr Kennedy earlier—we're dealing with a greater understanding of the uncertainties that exist in relation to COVID and the vaccine rollout associated with that. Those uncertainties are spelt out on the page that you were citing before, which is page 231 of Budget Paper No. 1. That makes it very clear that, as the pandemic is still progressing, the outlook remains uncertain. There is a possibility that future outcomes will fall outside of the typical confidence intervals presented in this statement. It goes on to cite delays in the vaccine rollout, the emergence of additional strains of the virus or, alternatively, more rapid recovery as being possible significant events that could cause forecasting errors to be larger than normal. These are simply the realities of uncertainty that we are dealing with in that regard.

Senator McALLISTER: Minister, earlier in our discussions, you compared the uncertainty of the government's own policy program to the uncertainty in the commodity market for iron ore. I would have thought that the Commonwealth—

Senator Birmingham: That's not a correct interpretation of what I said.

Senator McALLISTER: We can go back and look at the Hansard, but it was a very direct comparison.

Senator Birmingham: You asked me directly about the differences between assumptions and government policy, and I cited clearly a typically used assumption—in fact, one that Dr Kennedy quoted in his opening statement—as an example of an assumption that underpins some of the budget forecasting, which clearly is not a matter of government policy.

Senator McALLISTER: When you go to page 239 of the budget, the assumption about iron ore price movements is tested, and there's sensitivity analysis about what would happen if prices were higher or lower. Why wasn't the information that Treasury provided to your government about the consequences of a delayed vaccine rollout included in the budget in exactly the same way?

Senator Birmingham: I'll let Treasury speak to the confidence with which they can undertake that type of sensitivity analysis. The movement in iron ore prices results in a fairly measurable and quantifiable change in relation to tax receipts and impacts on GDP. The movement in relation to the vaccine schedule is still compounded by the uncertainties about the extent to which the vaccines reduce transmission and the uncertainties around the extent to which they withstand alternate variations of COVID. So it is nowhere near, I would contend, as precise a sensitivity analysis that you could undertake as there is for the price of iron ore.

Senator McALLISTER: But you were happy to include it in the last budget.

Senator Birmingham: Certainly at the time of the last budget, we probably had higher expectations that all of the plans around the vaccine rollout would go according to the announced schedule. It's well-known and acknowledged that international supply disruptions, and changes in the health advice, have caused changes to the vaccine rollout; that's just a fact. I think we do now deal with and acknowledge that there's a greater degree of uncertainty than perhaps more optimistic assessments had projected at the end of last year.

Senator McALLISTER: Treasury gave us advice earlier that their assumption is that there will be no more lockdowns from July 2022. I assume that is based on an assumption, buried somewhere in this document, that sufficient numbers of the Australian population are vaccinated by that time to prevent it.

Senator Birmingham: Let me acknowledge the uncertainty, in that different strains of COVID could mean that, in next year's budget or in MYEFO, those assumptions need to change. We don't know for sure that the current vaccines will withstand whatever mutations come along.

Senator McALLISTER: But the thing that you can control is the rollout. Is it a possibility that the vaccine rollout may not be completed by March 2022?

Senator Birmingham: If the eligible cohorts of the population are significantly extended to children, depending on the recommended timing around booster shots and whether there are further changes to the health advice, all of these unknown factors could impact. That's why I keep highlighting the reality that we face, which is an uncertain one. The government continues to give its best efforts in terms of prioritising the rollout. We've seen significant growth in terms of the uptake and distribution of vaccine over the course of the last few months; I think it went from the first million doses being administered in 43 or 46 days and the last million doses being administered in about 13 or 14 days. You can see that that dose administration rate has grown quite significantly through the course of the rollout, but we can't say with any guarantee that other disruptions won't come.

Senator RENNICK: I've got some questions around table 5.11 on page 153 of the budget. If I don't have the right group, tell me to come back later. My questions effectively are around the two biggest concessions, which are the main residence exemption on housing and the concessional taxation of superannuation, and how both are calculated. Are you able to answer those questions?

Mr Power : They'd be best directed to Revenue Group, if I'm correct.

Senator RENNICK: I'll come back and ask them tomorrow. That's fine; I just wanted to find out.

CHAIR: Senator McKim, you have the call.

Senator McKIM: I want to remind folks from Treasury of the question that I put on notice, question on notice No. 96, that related to the impact of the European Union's proposed carbon border adjustment mechanisms on Australian exports. That hasn't been answered yet. Are you able to provide an answer to that today?

Mr Power : I don't believe so, Senator. I believe that they are close to being finalised, but I don't think we have them for you today.

Senator McKIM: Isn't Treasury interested in this topic? If the US is contemplating joining the EU in imposing, basically, carbon tariffs, don't we collectively, and in particular doesn't Treasury, need to understand what the impact of this might be on the Australian economy?

CHAIR: With due respect, Senator McKim—I will allow the officials to answer—the official has already indicated that the answer is almost ready for you. I'll allow the official to answer.

Mr Power : Obviously, we're aware of the discussion around carbon border adjustment mechanisms. We are obviously thinking of and taking into account in our forecast process the policies that have been announced and put in place by other jurisdictions. We do think about the adjustment mechanism. We haven't undertaken a detailed scenario on that at present, but that's probably the best information that I can give you at the moment.

Senator McKIM: Why hasn't Treasury undertaken a detailed scenario assessment? We've known for some time that the EU is working on carbon tariffs. As I've just mentioned, we now know that the US is contemplating joining them. It has the potential to have a pretty clear impact on the Australian economy, does it not?

Senator Birmingham: Clearly, officials can add to this, but in terms of the type of detailed assessment you are asking for, the policy concept exists and is widely talked about in the EU, and to some extent in the UK and to some extent in the US, but across none of those jurisdictions is there any particular, detailed model that could enable detailed modelling to be undertaken, I would have thought.

Mr M Cully : As for the EU's proposed carbon border adjustment mechanism, as the minister said, the details of that are still being worked through. Possibly, the proposal will be made available sometime later this month. If it's introduced, if it passes through, it will take effect from the beginning of 2023, so that's still 18 months away. We haven't done anything beyond a preliminary understanding of what those discussions are. As they do become firmed up, we will take a close interest in this. We note that there has been some modelling work undertaken by Victoria University's Centre of Policy Studies, which was released back in April. That modelled a very modest impact on GDP of 0.05 per cent. Also, there are a number of limitations about that study which suggest that number might be too modest, but that's at least what that first round of modelling work showed.

Senator McKIM: You've said that you're keeping an eye on it—I'm paraphrasing you here—and, once more detail becomes available, that would be the time that you would do some more work. Once that detail is available, would part of Treasury's work be to analyse whether Australia adopting the same carbon targets as the EU would be more or less costly than maintaining our current targets and having to pay the EU carbon tariff? In other words, would we be better off economically if we just got on board with the EU? Would that kind of assessment be part of the work that Treasury might do?

Senator Birmingham: It's a bit of a hypothetical, Senator McKim. Treasury undertakes a range of modelling and assessments for government. Dependent upon the policy settings taken internationally, Treasury, no doubt, will undertake modelling to inform government thinking there. Treasury also plays a role, alongside the department of energy and emissions reduction, in terms of helping to inform modelling to shape government policy decisions in terms of emissions reduction targets. No doubt all of that work would and will feed into future reviews and considerations of those targets which, under the Paris Agreement, do have five-yearly updates attached to them.

Senator McKIM: I've got some follow-up questions around housing and wages, to flow on from my earlier conversation with the secretary. The budget papers state that, as housing prices rise, household wealth grows and households that benefit from this are expected to increase their level of consumption. What is the impact of rising house prices on people who rent?

Mr Power : As you said, just in our forecasts, we do have a transmission mechanism from house prices into wealth into consumption. We took a question on notice this morning around rents and how that flows into CPI. Obviously, we do build that into our forecasts at a macro level on CPI. That's how it flows into our macro forecasts rather than in a distributional sense, which I think you're getting at here.

Senator McKIM: Yes, I am getting at the distributional impacts. The proposition that I put to you—I'm interested in your response—is whether Treasury would agree that the current increases in house prices and rents are increasing economic inequality.

Mr Power : My colleague might have some information on rents and yields, but it does depend on what is happening with rents. As we talked about this morning, there are variable components across different parts of Australia, and cities. I took on notice this morning effectively how the cost of rents is flowing through into CPI, so we will get that information for you. My colleague may have something to add to that.

Mr M Cully : A further comment that goes more directly to your question is the role that monetary policy is playing with low interest rates in leading to higher housing prices. The Deputy Governor of the Reserve Bank, Guy Debelle, gave a speech a week or so ago on monetary policy during COVID, and it's worth making this point from his speech. He said:

It is important to remember that while housing prices may not rise as fast without the monetary stimulus, unemployment would definitely be … higher without the monetary stimulus.

That, plainly, has a flow-on consequence for income inequality.

Senator McKIM: I appreciate that response. Just on rents, the secretary was right to say that it's variable across the country. In fact, there's only one capital city where the median rental asking price has gone down in the last year, and that's Melbourne, possibly for quite obvious reasons in terms of the impact of the pandemic on Melbourne. But it has gone up in every other capital city, and in some cases by nearly 15 per cent. I think it's indisputable that we have a problem with rising rents in this country. I'm interested in your response to that on notice; I accept that you've probably given me all that you've got on that in real time. Are there any measures in this budget that will help people to meet the rising costs of rent?

Senator Birmingham: I'll let Mr Power add to this. Again, the overall strength in relation to the economy and employment creation are key aspects. The extension of LMITO provides a significant additional financial benefit to certain households. The increase in the base rate of the JobSeeker payment again provides increased support into the economy, including in relation to meeting cost-of-living factors. They are a few of the broader approaches. Obviously, the measures that are particularly stimulating in increasing housing supply at present, in terms of the HomeBuilder program, as well as the continued support through NHFIC, are also designed to provide support into those sectors. Mr Power may wish to add to that.

Mr Power : Only to say that the government's First Home Loan Deposit Scheme has been in place and expanded. On rents, from a macro point of view, I don't have here any more detail on other measures; but we may be able to come back to you, as I said.

Senator McKIM: Minister, you mentioned LMITO. Obviously, just to place the facts on the record, that's a one-year extension. Obviously, that is a finite benefit. Nationally, rents are up, on average, four per cent around the country in the last year. LMITO will provide a maximum benefit of $1,080. With rents being up four per cent on average, an average rental will cost an extra $980 per annum. LMITO provides, over and above that, the grand total of $100 extra per annum. As I said, it's only there for one year. What happens to people who are renting when LMITO ends?

Senator Birmingham: You have referenced this budget specifically. Obviously last year we brought forward the permanent tax cuts that provide significant additional income support into households. I would also highlight the growth in the rate of first homeowners into the housing market. Again, clearly there are a couple of benefits that flow through from that. It is helping to drive construction benefits, removing certain Australians from the rental market and providing a higher rate of homeownership and the economic security that flows from that. But even measures such as the changes to being able to make concessional superannuation contributions for those aged over 60 from the sale of their primary residence are designed to provide dual benefits, one of which is of course helping those individuals to take a dividend from the family home and increase their superannuation savings but another of which—

Senator McKIM: The question is about rent, the one-third of Australians who rent.

Senator Birmingham: is to increase the liquidity of housing stock and make available more of those family homes.

CHAIR: Senator McKim, we will need to leave it there for now. Senator Chisholm.

Senator CHISHOLM: I just have some questions following from Dr Kennedy's opening statement. I refer to the part where he says that we have an extra two weeks of data and that across the four weeks—this is in relation to JobKeeper—we now have 56,000 former JobKeeper workers who have lost employment. I was just wondering, Mr Power or anyone else, if you can break those 56,000 people down in terms of gender, geography or industry.

Mr Power : I don't think we have a breakdown but I'll just ask my colleague.

Mr M Cully : We don't have a breakdown to hand but it's something we're happy to take on notice and provide a breakdown for you.

Senator CHISHOLM: In terms of how that data came through, I think the first two weeks was 40,000 and then the second two weeks was another 16,000 on top of that. Is that correct?

Mr M Cully : That's almost precise. If we look at the period ending 25 April, as at 25 April there were 56,000 people who had lost employment who had been in a JobKeeper job until the end of March. So it's not necessarily the same plus 16,000. Almost certainly the vast majority of them are but there might be a few people who are moving on and off.

Senator CHISHOLM: Is there anything that you can point to, in terms of a trend, about what you are expecting with that over the next month?

Mr M Cully : I don't think it's sensible to hazard a guess at this stage. I think the secretary has said on a number of occasions that we will monitor this data on an ongoing basis. We will have the next fortnight's data, I imagine, in the next week or so. I'm not sure when there will be an opportunity to make that kind of data available. It's too early, I think, to make a judgment as to whether the rate is slowing down, although you would expect that the bulk of the job loss would have occurred in the first immediate period following the closure of JobKeeper.

Senator CHISHOLM: Just on another figure, two million Australians are searching for work or more hours. How many hours a week does someone need to work to be classified as employed?

Mr Power : The ABS definition, from memory, is that, if you're employed effectively working any hours then you are classified as employed.

Senator CHISHOLM: Do you know how many employed Australians work fewer than 38 hours a week?

Mr Power : Not really. The only thing on this that, I think, is important to note is that underemployment has also fallen quite quickly out of the pandemic. I'm sure that there is continuing spare capacity in the economy through underemployment. However, we have seen that come down quite significantly as the economy has recovered. So I guess there is some positive information on people taking up hours of work that has recovered from pre-pandemic levels. I guess, again, we're sort of seeing what's happened there in terms of hours as a sign of strength in the broader labour market.

Senator CHISHOLM: Would it be possible to take that question on notice?

Mr Power : I'm happy to.

Senator CHISHOLM: Also, how many work fewer than 10 hours a week and one hour a week?

Mr Power : We can get that information for you.

CHAIR: Senator Walsh.

Senator WALSH: The budget relies on increased consumer spending—considerable consumer spending. How much GDP growth is expected to be accounted for by increased consumer spending?

Mr Power : Consumption is a share somewhere between 55 and 60 per cent of GDP. As you've noted, in the forecasts we have quite a strong labour market recovery and strong labour market income flowing to households. We know that household disposable income had risen quite significantly through 2020; so that adds, if you like, to the income that households have to spend. All of that is built into our forecast.

Senator WALSH: The answer was around 55 per cent for this budget period?

Mr Power : I'm sorry, what I was saying was that, as a share of GDP, consumption is about 55 to 60 per cent, from memory. As for the contribution, if you like, to the growth, I'll have to come back to you with the detail of how our consumption goes. But consumption is a significant driver of growth in the period, for the reasons that I just mentioned.

Senator WALSH: You did go to some reasons around labour market trends but, as we all know and as we've discussed today, nominal wages are expected to be very flat and real wages are expected to go backwards and freeze. We've also removed some of the cash supports to households around the Corona virus supplement to JobSeeker and we've ended the JobKeeper program. What are the risks in the assumption that we can rely on increased consumer spending, given what we're projecting on wages and given the realities of decreased income supports?

Mr Power : I guess I'd say that we're quite confident in the forecasts we have for the labour market. If you look at other forecasters, many are forecasting stronger outcomes than we are. And there is significant fiscal support still in the system, for example, from some of the measures that you mentioned, in addition to, if you like, the savings that have built up on household balance sheets. So it's not an assumption, if you like. That's a central part of our forecasts. We do take into account that income and the way it flows through the economy. There are, of course, always risks and uncertainty in relation to the forecasts. But when we look at the forecasts within the budget compared to others, if you like, we actually think they're quite prudently placed compared to other forecasters.

Senator WALSH: But real wage growth in the budget period is minus 2.25; then over the forwards, minus 0.25; then, zero; then, zero; and then, 0.25. Does that not have an impact on consumption and on your reliance on consumption for growth?

Senator Birmingham: Just before Mr Power responds, I would just remind you of some of the evidence that Dr Kennedy gave earlier this morning about some of the particular apparitions or unusual movements that we're seeing in relation to inflation and its intersection with real wages and the impacts of things such as the cessation of free childcare have had far more dramatic movements on some of those statistical indicators than you would ordinarily expect. Mr Power can add further to the underpinnings around your question.

Mr Power : I guess that's the other point I was going to make. We did see, as Dr Kennedy talked about this morning, real wages grow through 2020, and some of those short-term factors are factors in real wages in the short term. But as I said, some of the other factors, which we think are important in supporting consumption spending going forward in addition to labour income, are things like fiscal supports that are in place, such as LMITO and stage 2 tax cuts, which mean that households, if you like, are able to keep more of that labour income to the extent that it flows through. So as I said before, I think our forecasts around consumption are reasonably well placed compared to other forecasters.

Senator WALSH: There is a reliance on households spending what they've saved. Is that right?

Mr Power : No, not necessarily. You might recall that during 2020 the savings rate rose quite a lot, which is unsurprising, given that people were locked down through a period of 2020 and there were a large number of payments made by the government to households. That meant that the savings rate did rise. It fell quite a bit, around 12 per cent, in December 2020. We do expect that to come back to more normal levels over the following couple of years so that, if you like, households do return to saving more normal levels than pre-pandemic when they were somewhere around five per cent of income. We do assume that that's the case. But as I said, the savings rates that we did see during the pandemic were really quite unusual partly because people were locked down.

Senator WALSH: We talked a little about non-mining investment this morning. The Reserve Bank Governor gave a speech back in March where he talked about how historically flat non-mining investment has been, and he talked about opportunities for stimulating investment in a range of different non-mining sectors. What are the main programs and measures, other than the temporary expensing measures, that you see contributing to non-mining private sector investment and growth?

Mr Power : Clearly there have been a number of measures that have been put in place over the past couple of years. It started with an instant asset write-off and, as you've mentioned, it now moves to temporary expensing. And they're important components for non-mining business investment. But, to be honest, as the economy comes out of the pandemic and you have increasing strength across consumption and stronger labour market outcomes, of course what you tend to see is a lag then; lagging that outcome is business investment that will come behind that, as demand is returning. So we are forecasting quite a strong return of demand in the economy. Just that component itself, in addition to the government measures, will tend to see, if you like, a return in business investment over the period.

Senator Birmingham: To add to that, firstly, those full expensing measures, working in tandem with the loss carry-back, are very significant. Together, the extinction of those in this year's budget reflected a $20 billion-plus decision taken by government to create that incentive for bringing forward an additionality of investment across the economy. But in there are also some various targeted policy measures that will over time have impacts. There is the creation of the patent box, for example, being targeted to help drive future and further investment in those biotechnology and medicine sectors and also exploring its potential application to the renewable energy sector.

Measures such as the increased excise rebate for small distillers and craft brewers will be expected to stimulate activity in those areas. I have met—I don't want to suggest too many, because I don't want you to think all I have done is visit distilleries or breweries—a good number of small businesses in those sectors. That decision for some is helping them to employ more staff and for others is driving investment decisions as they look to increase their possible production closer to what is effectively now the tax-free production level that they will be able to operate at under the new excise arrangements. So different targeted measures in sectors help to drive that investment equation as well as the overall investment setting.

CHAIR: I am sure you are not an orphan on this side in helping out that sector of the economy, Minister.

Senator Birmingham: At the end of an estimates week, it is more important than at other times.

Senator WALSH: The Treasurer in his speech said that the budget will help to create more than 250,000 jobs by the end of 2022-23. Are those jobs additional to what was projected as jobs growth in the economy? By that, I mean are they attached to particular measures in the budget?

Senator Birmingham: Those projections for employment growth are informed by all of the policy settings as well as the assumptions we have discussed at some length this morning. Officials might want to add to that overarching comment.

Mr Power : From memory, those figures relate to, as the minister said, both employment growth as a result of measures which are built into the forecast, and employment growth which we are forecasting over the whole period—for example, business investment and dwelling investment—all of those components which flow into employment growth over the period.

Senator WALSH: Is there any breakdown of how many jobs attach to different budget measures of the kind that the minister just took us through in relation to different industry sectors?

Mr Power : Some estimates, particularly for temporary full expensing and the LMITO estimates, are in the budget papers. So there are some specific numbers in relation to certain measures but not all, partly just due to the difficulty of separating out the individual impacts of every measure. But there are some, for example, in relation to the two measures I just mentioned.

Senator WALSH: So, when you are providing advice to government about potential jobs growth in particular industries based on particular measures, do you provide advice as I just described it, industry by industry and measure by measure, about jobs to be created by those measures?

Mr Power : Not typically in an itemised sense. Partly we look at the whole, and see where we think the economy might get to. In certain cases you can do some analysis to isolate the impacts of different measures, which we are able to do in some measures. There are interaction effects between measures. For example, an increase in investment in one area will continue to generate more employment, with more income flowing through into the economy, which builds economic momentum. So it is difficult to allocate across measures all the details of those effects; but we have been able to do it with some measures, which are published in the budget.

Senator WALSH: From a different vantage point: has Treasury been asked to model the costs of any incentives, such as prizes or rewards of some description, to encourage people to get vaccinated?

Mr Power : Not to my knowledge.

Senator Birmingham: Not to mine, either. The main incentive to get vaccinated is to reduce your chances of getting sick.

CHAIR: And not affect your loved ones.

Senator WALSH: In relation to the state-wide lockdown in Victoria, do you have estimates of how many casuals weren't paid and how much money workers lost?

Mr Power : No; I don't. Obviously, it is early days in relation to the lockdown, but I don't have any estimates in relation to that at present.

Senator WALSH: Do you have any projections or estimates of how many jobs would be expected to be lost because of the state-wide lockdown?

Mr Power : Not of the current lockdown. As I said, it's early days. We are waiting to see whether the lockdown is extended and how broad it is. Once we are able to see the shape of the lockdown and how long it will be, we will be able to place it and understand where it sits and what its potential impacts might be. But we don't have detailed estimates of those things at present.

Senator WALSH: You and the secretary told us earlier that you would generally estimate the cost of a metro lockdown at $100 million a day. Within that, do you have any expectations about how many jobs might generally be lost in a metro lockdown, such as the one we are in, in Victoria at the moment?

Mr Power : Typically, we have been able to look back and understand what the impacts are at the high level. When we were talking about $100 million a day, that was an estimate we had done later last year; and it was thinking about a broader lockdown, rather than just metros, for example. So if the lockdown is not continued statewide, the impacts could be less than that. But it does depend on how the lockdown evolves: how broad it is and how long it goes on for.

Senator WALSH: I should clarify. Your figure was for a metro lockdown, wasn't it? This is a state-wide lockdown.

Mr Power : This, at the moment, is a state-wide lockdown. I understand that there is discussion about whether that will continue to be the case, but we will have to wait and see.

Senator WALSH: You don't have any estimates you could give us about how many small businesses, for example, might be expected to close as a result of the state-wide lockdown in Victoria or, putting it another way, of a week-long state-wide lockdown of the kind you have been modelling.

Mr Power : No, we don't at the moment. We have typically looked at the overall macro impacts of these, rather than numbers of businesses that might close. But to the extent that this lockdown evolves, we may be able to draw some estimates of the impacts over time.

CHAIR: Senator McKim, you have the call.

Senator McKIM: I have a couple of questions on public sector wages. Last year the government decided that public sector wage increases should not exceed private sector wage increases. Isn't this policy of suppressing public sector wage increases actually suppressing wage growth across the economy?

Senator Birmingham: Senator McKim, I guess that if the government decided to drive public sector wages at a faster rate, by default that would mean that overall the Wage Price Index would be higher. But we have indicated that our policy setting is to have public sector enterprise agreements reflect growth in private Wage Price Index. It is possible—there have been times where this is the case—that private sector Wage Price Index grows faster than otherwise might have been negotiated or said in a government EA.

Senator McKIM: Minister, I am struggling to understand what you mean by your answer. Perhaps I could just ask you directly: do you accept or reject the proposition that increasing public sector wages would have a flow-through effect into private sector wages?

Senator Birmingham: No, I don't necessarily accept that the mere fact of public sector wages policy has a flow-through effect into the Wage Price Index at a private level.

Senator McKIM: You don't accept that?

Senator Birmingham: Not as a direct correlation, no.

Senator McKIM: Budget Paper No. 1 on page 62 says, 'The near-term outlook on wages is consistent with low wage increases in new federal enterprise bargaining agreements'. Isn't that just another way of saying that the government's public sector wages policy is contributing to a decline in real wage growth in Australia?

Senator Birmingham: I'll take the first sentence on page 62: 'The WPI is forecast to grow by 1½ per cent through the year to the June quarter of 2021 and by 1½ per cent through the year to the June quarter of 2022 before rising to 2½ per cent through the year to the June quarter of 2023'. The previous wages policy, from memory, had a two per cent cap in relation to growth under potential enterprise agreements. Clearly, in projecting a possible rise to 2½ per cent in relation to what is in the budget there, that provides the possibility that, by linking public sector wages to private sector Wage Price Index, you could see faster rates of growth than under the previous enterprise agreement model with a cap in place.

Senator McKIM: Minister, you are refuting any link between public sector wages and private sector wages? That was the answer you just gave.

Senator Birmingham: There is a link now established in terms of the government's wages policy setting to inform enterprise agreement negotiations that does seek to provide, essentially, a link and a guarantee there in terms of public sector wages that, if the private sector is growing faster, public sector wages will also grow faster.

Senator McKIM: I am asking the other way around about the impact of public sector wages on private sector wages. Given that you have, as I understand it in your last but one answer, denied that suppressing public sector wages has any impact on private sector wages, what evidence do you have to support that position? There's plenty of evidence to the contrary.

Senator Birmingham: In terms of a direct correlation, private sector wages aren't driven by public sector wage determinations. Over time, increasingly inflationary or other factors can drive changes in relation to wage forecasts and expectations. In terms of a direct and short-term correlation, the linking, as we are establishing, between public sector and private sector wage growth does create a connection. But simply an arbitrary decision by government to escalate the rate of public sector wage growth doesn't in and of itself derive a short-term lift in private sector wages.

Senator McKIM: That's the second time you've said that, Minister. Can you take on notice what evidence you have to support that position, given I've seen plenty that supports the contrary position? You've made that assertion twice now, and good luck to you, but could you take on notice what evidence you have to support that position and come back to the committee?

Senator Birmingham: Sure.

Senator McKIM: Thanks. Thanks, Chair.

CHAIR: Thank you, Senator McKim. I believe that's all for macro. Insofar as we can release individuals, we will. We're sticking with the Corporate and Foreign Investment Group. In particular, the focus at the moment will be on foreign investment. Senator McDonald, you have the call.

Senator McDONALD: Thank you very much, Chair. I've got questions with regard to the Port of Newcastle. The Port of Newcastle is the largest coal export port in the world. It's also a very significant agricultural port. I think that 300,000 tonnes of wheat were exported out last year. The port is operated by a company through a 98-year lease with the New South Wales government and the company is half-owned by a Chinese state-owned corporation that's involved in the Belt and Road Initiative. Does the Foreign Investment Review Board have a position on China's Belt and Road Initiative?

Mr Hamilton : When we in the Treasury look at individual applications that come before us, regardless of whether they're a port or something else, we look at the specifics of the activity. We look very closely at the national interest. We take a range of factors into account as part of doing that.

In relation to ports specifically, under the reforms that the government introduced, which came into place on 1 January, there were specific new powers in relation to national security. Ports are covered in that because the Foreign Acquisitions and Takeovers Act refers to the Security of Critical Infrastructure Act. That talks about ports very specifically. There is a linkage in what we look at and the security arrangements covered by the SOCI Act, but more broadly we look at a range of factors in terms of the national interest to make sure that the application before us is not inconsistent with the national interest or Australia's national security.

In relation to the Port of Newcastle, as you're aware, that took place in 2014. It was covered by the FATA at the time but, of course, there have been a number of reviews of the FATA since then, including in 2015 and then most relevantly, as I've mentioned, the reforms coming into place on 1 January this year. The framework itself has changed over time to take into account some of the issues that we see in our strategic environment and security; and national security was a focus of the most recent reforms.

Senator McDONALD: Would this lease be approved under the current conditions that you've just discussed, given the geopolitical environment?

Mr Hamilton : Whether or not it would be approved would depend on our analysis of the specifics; who the investor was. We would talk to our partner agencies in forming our judgements. What is important to note is that it would come before us—

Senator ABETZ: If I can interrupt, for Senator McDonald, if I may? I think Senator McDonald is asking: given the same parameters, the same applicant et cetera, it's not who might be applying. We understand that, with respect. It is: if it was the same applicant, would this still be allowed?

Mr Hamilton : The circumstances are different. We would take our current circumstances into account. I don't know what the answer or what the outcome of an application would be, but we would take our current circumstances into account. What is different is that—

Senator ABETZ: If I could interrupt again? Would you accept that the circumstances today, if anything, are more—I'll use a neutral term—'interesting' than they were five or six years ago? We understand the parameters—

CHAIR: Senator, with respect, let's allow the official to answer. I will point out that we are entering the realms of the hypothetical. We do allow some broader scope in this committee. We'll let the official answer, but I do think we need to be a little careful.

Mr Hamilton : The government has made a number of statements in relation to the strategic circumstances that we're in. Defence issued an update last year. We take those circumstances into account. The outcome of that, as I said, Senator, is hypothetical and I won't speculate on it now. It is important to note two things: firstly, the legislation has changed and it gives the government and the Treasury some more powers in relation to their assessment of foreign investments; secondly, obviously circumstances have changed as well. We take that into account when we talk to our consultation partners.

Senator McDONALD: Given that China has been willing to interfere with Australian coal entering China, does the FIRB have any scope to intervene if China interferes with Australian coal exports at our end through its ownership of the Port of Newcastle?

Mr Hamilton : I'm sorry, Senator; in relation to foreign investment review processes?

Senator McDONALD: Yes.

Senator Birmingham: Your question, which clearly presents a hypothetical scenario, is: if the owners of the Port of Newcastle were at the point of the Port of Newcastle to seek to disrupt exports, would there be powers or means to intervene?

Senator McDONALD: Yes.

Senator Birmingham: As Mr Hamilton has indicated, the reforms to the foreign investment regime do provide new call-in powers for the Treasurer in relation to certain circumstances, but they are for decisions made following the application of those reforms. Clearly, this acquisition pre-dates those reforms in that regard. Officials can correct me, but in terms of the narrow application of the Foreign Acquisitions and Takeovers Act, I don't believe there would be specific powers necessarily there, although there might be elements in relation to conditions or otherwise that could prompt action more generally.

Senator McDonald, if we were to see that type of disruptive behaviour occur, the government would clearly view that very dimly and would explore, no doubt, what other options were available, which may include powers under competition policy settings or the like in terms of the disruption that would be inherent in somebody acting to disrupt commercial activities such as legitimate export of goods from a port. It may necessitate, in terms of that type of extreme scenario that you have pointed out, the rapid passage of further legislation. It is always within the power of a sovereign parliament such as Australia to respond to a potential circumstance like that with additional powers and legislation, if necessary.

Senator McDONALD: Thank you, Minister. I would be the last person who would ever want to interfere in a private corporation's business matters, but I do note that, in September 2019, P&O sought to increase charges by 33 per cent to commence in January 2020, with no additional changes in services, and then also proposed to charge for dredging works that have already been paid for and completed. I think these are examples of barriers to trade by increasing costs. I'm not asking you to comment on that, but I'm just drawing that to your attention. What are the criteria for including national security as a concern for the Foreign Investment Review Board?

Mr Hamilton : The legislation itself provides for a category of mandatory notifications for consideration or assessment and approval. They include, as I mentioned, that if the Security of Critical Infrastructure Act lists the infrastructure that's the subject of the application, it must come before the government for approval under the FATA.

The act also provides the ability for us to call in transactions where we think there may be activities that are not covered by that mandatory notification. There's a category of mandatory notification and we can call in activities. We've also provided guidance for industry around reviewable national security notifications where they're not mandatory but we think it is likely that there may be some security issues that we would consider. There's a provision in the act there and we've provided public guidance around the sorts of businesses that we suggest entities apply for investment approval. As I said, if we identify a transaction that's occurring that has not been notified, we have the ability to call that transaction in for consideration under that national security power.

Ms Kelley : I think it's important to add that, in consideration of the national security issues, as we've probably mentioned in previous hearings, we consult extensively with other agencies in the national security departments. They will provide advice which is incorporated in the advice that's provided to the Treasurer.

Mr Hamilton : If I could just provide a bit more specific information, Senator? As part of implementing the new reforms, we've been strengthening our capability to identify transactions that we might want to call in. That includes investing in new market scanning capabilities within the Treasury that we can use to look at what might be happening in the market. If there is an activity that we see that might be of interest, we can call that in.

As I mentioned, there are new types of approvals required under the new national security notifications. We've had around 36 new types of applications come to us that we would not have previously seen under the act before it was reformed, because of these new national security focused requirements in the act. We have the ability to call things in and we're building our systems and processes within the Treasury to give us the capability to do that. In addition, the act makes it clear that, if you are investing in certain types of assets, you have to come to us, or we encourage you to come to us.

CHAIR: The last couple of questions.

Senator McDONALD: Thank you, Chair. Did the Treasurer consult with any national security authorities when he accepted the National Competition Council's advice not to declare the Port of Newcastle?

Mr Hamilton : In general terms, the practice of consultation across government agencies is a longstanding one. As I said, this is many years ago now, but you would expect that the government would consult across relevant departments in forming its judgements. This is something that is a historic case.

Ms Kelley : We're not aware of that, so we can't definitely answer that question.

Senator McDONALD: Given that the sale or the lease of the port was on the basis of conditions around containerisation, and the Port of Botany and Kembla have their own containerisation facilities, I'm interested to know whether Treasury or the National Competition Council advised the Treasurer of the port's foreign ownership as part of this consideration?

Mr Hamilton : There's one issue here that we come across when we are asked about particular cases—the very clear protected information provisions in the act that prevent us from talking about the specifics of cases, what might have come before us and what we might have approved. I think we're starting to now get into the territory of becoming quite specific about a foreign acquisition case.

Senator Birmingham: There are certain policy distinctions between the ownership and long-term lease arrangements determined under the Foreign Acquisitions and Takeovers Act historically, as Mr Hamilton said, and the advice around that versus, in terms of ports, issues around national access regime determinations and types of charges you mentioned, which are often regulated charges and have their own separate processes for either approvals of those charges or determinations in relation to access, some of which, in those latter parts, are probably questions for the markets group in Treasury rather than for the foreign investment division.

Senator ABETZ: Is it accepted that China Merchants Group Ltd and its subsidiaries are key actors in China's Belt and Road Initiative? This relates to Senator McDonald's questions in relation to the Port of Newcastle.

Mr Hamilton : That's not something on which I have an answer for you here.

Senator ABETZ: Could you please take that on notice? My follow-up question is: does, or did this, have any bearing on FIRB considerations in making any determinations about the ownership or the leasing arrangements of the Port of Newcastle?

Mr Hamilton : Again, Senator, we would need to take that on notice. As I said, we would need to make sure that, in providing a response, we're consistent with the protected information provisions in the act. We'll take that on notice.

Senator ABETZ: Thank you. Was FIRB briefed as to this? Could you take that on notice as well? Minister, take this on notice: will the government review this deal under the same provisions that the government reviewed the BRI in Victoria? Believe it or not, I'll be asking that in Foreign Affairs as well, of Minister Payne.

CHAIR: The minister may wish to respond.

Senator Birmingham: I'll take that on notice, as you requested, Senator Abetz.

Senator ABETZ: I was assuming that the minister would take that on notice.

CHAIR: It's best to get it on the record.

Senator ABETZ: Well done, Chair; no criticism at all. I'd be interested in Treasury's views on this as well: similarly with the Darwin port, Cockatoo Island, and the Cambria Green proposal for the state of Tasmania, which is a very large proposal. Was the department asked by Foreign Affairs to provide any information—not wanting to know what the information or advice was—or advice in relation to the cancellation of the BRI in Victoria?

Mr Hamilton : I will take that on notice, Senator.

Senator McALLISTER: I want to ask some questions about the volume of applications coming to the FIRB both in the period when the monetary screening threshold was lowered to zero and in the period since January this year, when the arrangements were changed again. In the period between March last year and December, what was the total number of applications made?

Mr Hamilton : Let me make sure that I've got the numbers here. In 2020, in total, there were 2,952 proposals received by the Treasurer. Of those, 1,743 were non-zero-dollar threshold. My mind is not quite agile enough to do the maths instantly, but the balance is zero-dollar threshold. With these numbers, we go through a careful process of validating them; they may change slightly, but we want to be able to give you a response.

Senator McALLISTER: Of those, 1,743 would have in any case come to the FIRB?

Mr Hamilton : That's correct.

Senator McALLISTER: That makes sense. Of the total, the 2,952, how many were approved?

Mr Hamilton : Again, Senator, the maths will defeat me very quickly, but I can give you the numbers for this financial year to date, in terms of approvals, in terms of the numbers of cases approved.

Ms Kelley : We'll take it on notice.

Mr Hamilton : One option is that we break it down and give you the numbers on notice.

Senator McALLISTER: If you don't have that information here, I understand that. However, you were indicating that you do have a different data point, which is the number of approvals issued this financial year.

Mr Hamilton : That's right. For this financial year it is around 1,710. That's in total.

Senator McALLISTER: And how many blocked?

Mr Hamilton : We were asked this question at the last hearing and we're still working through finalising our numbers. But to give you a sense, Senator, the numbers of rejections are very low. In the 2017-18 financial year, two were rejected. In the 2018-19 year, there was only one rejection. I would expect the number for the 2019-20 financial year to be very similar to that—very low single digits.

Senator McALLISTER: If it is very low, honestly, why don't you know? If it's a matter of some significance when the FIRB decides to reject an application, surely, it's not that hard to find out?

Mr Hamilton : As I said in my response to the previous question, when we give the Senate a sense of the numbers, we want to make sure that they are right. With the withdrawals, obviously, it's very important that we get that number correct. The number is published as part of our annual report, and we're going through the process of finalising that now.

Senator McALLISTER: In the period between January this year and May this year, where we are operating under a different set of thresholds and triggers, how many applications have been received?

Mr Hamilton : That is 480. That's to 30 April this year.

Senator McALLISTER: Am I correct in understanding that, with the earlier figure that you provided, 36 of those were new kinds of notifications?

Mr Hamilton : Yes.

Senator McALLISTER: It means that around 400 were the sort of business that would have happened prior to March last year but the new arrangements have triggered an additional 36?

Mr Hamilton : Yes, around 450 would be. If it's helpful, that compares to around 515 for the same time the previous year.

Senator McALLISTER: Of those 36 new kinds of notifications, what is the country of origin for the applicants?

Mr Hamilton : I don't have that exact breakdown with me, Senator. We'd have to take that on notice and see what we can do for you.

Senator McALLISTER: What sectors predominantly are those applications in?

Ms Kelley : We'll have to give that to you on notice as well.

Mr Hamilton : We'll have to check the sectors. The sectors are something on which we do provide a breakdown in the annual report that's released—investor country and the breakdown by sector are provided on an annual basis. We're in the process of finalising our annual report for the 2019-20 financial year. That will give that breakdown. But we will see what we can do in advance of that for you.

Senator McALLISTER: What's the average processing time for applications at the moment?

Mr Hamilton : With the data, we use median processing times. We have used that previously for estimates hearings. At the moment, for this financial year, 2020-21, it's around 49 days. That compares to 48 days for 2019-20, the previous financial year.

I'll make a few points around that, if I can, just to unpack the 49 days a bit. I think that, over time, you'll see the impact of a few factors on that number. COVID clearly introduced some challenges for the organisation in processing applications. The zero-dollar threshold itself drove a significant number of new applications in. We have a new legislative framework that both we and investors are becoming used to which has introduced new application types.

Within the median processing times, you can see quite significant variations in cases. With some, where we are aware that there are significant commercial deadlines, we move as quickly as we can to progress those. For some, where they may raise some more complicated issues around the national interest or national security, we may take some more time. There's variation between cases. Also, as I said, there are a number of factors that I would expect to see impact that processing time. At the moment the numbers we have are suggesting for this year 49 days as a median processing time.

Senator McALLISTER: Since we're in the world of the bell curve, what's happening at the margins? What are the longest periods of time?

Mr Hamilton : We don't talk about individual cases, as you know; we just provided that information about what are the extreme ones.

Senator McALLISTER: I'm not asking you to identify the projects.

Mr Hamilton : I can take it on notice and see what we can provide to give you a bit of a sense of how quickly we move for some cases, where there are big commercial deadlines. For some of the more significant transactions, it can take a significant period of time to work very carefully through those. As I said, we move as quickly as we can to move cases through the system.

Senator McALLISTER: You'll be aware, I imagine, that the investment community has been quite anxious particularly in the period where the zero-dollar threshold was applicable. In particular, the start-up sector were quite concerned that their capital-raising efforts were unable to be completed because of delays in the FIRB approval regime. How has the FIRB responded to that concern?

Mr Hamilton : We're hearing the same thing. It's fair to say that all applicants are obviously very keen to have their transactions move through the foreign investment approval process as smoothly as possible, and we're committed to doing that. There is a new legislative framework in place. We need to make sure that we are implementing that effectively.

One of the things that we take into account is to make sure that the expectations that the government's put on us to ensure strong compliance with the framework, which is a new focus for us, is being implemented. It takes some time to make sure that, when we approve something, we are confident that the investors will comply with their approval and their obligations under the FATA. We're working to implement this new program, make sure that investors are capable of complying with their requirements and, at the same time, we are building new systems that will help us to manage transactions.

As you know, the government provided us with significant funding in last year's budget, $86.3 million, to design a new IT system that will help us in our administration of the foreign investment framework. That will take time. We're still going through the procurement process. We have been recruiting new staff. I have some numbers with me, which I'll find in a moment, if they will help. We are a significantly larger organisation than we were around a year ago. Partly, as I said, that's to implement this new compliance focus but also it's to help manage the caseload of applications that we have.

Ms Kelley : We actively work with applicants as well around the timing and critical issues. With those that need to be expedited for what could be commercial reasons, we work with them very closely to make sure that that process is expedited. We are more and more implementing a risk-based triaging approach—and some of them then tend to be very complex, and we do have to work through those complexities in detail—so that we are expediting commercially critical applications. That is part of what we do.

Senator McALLISTER: Has Treasury provided advice to government about the impact of the current FIRB arrangements on the ability for projects to raise capital and business to invest in projects?

Mr Hamilton : I don't think we've provided specific advice on that. What the legislation mandates is a review of the new framework. That's due at the end of this year. We have started to talk to the investor community about their views of the legislation and their views of how it's being implemented. We have a term of reference for the review which is live on the website. We haven't got to the point of inviting formal submissions yet because we are getting to the point now, I suppose, where we've had a few months since 1 January where both we and investors are more comfortable with the new framework that we can take some lessons on board and we will invite some submissions later in the year that will inform the review of legislation.

Senator McALLISTER: What's the informal feedback, Mr Hamilton?

Mr Hamilton : As I said, generally some of the things we are hearing are that investors are keen for faster approval of their applications. We have heard that from a number of stakeholders. We of course need to balance that with the new national interest test—the national security test—the government has asked us to implement. We put a lot of new guidelines on our website to help investors navigate through the new legislative framework. We've heard that that is very helpful. We're hearing, really importantly, that Australia continues to be a very attractive place for investment overall. Investors are telling us that. We continue to see, through the application volumes, a lot of interest in Australia as a destination for investment.

Senator McALLISTER: Of the stakeholders that are telling you that they are keen to see faster approvals, are they drawn from any particular business sector?

Mr Hamilton : I'd need to take that on notice. I personally haven't been doing all the engagement myself. I would say there is a wide range of stakeholders that clearly would like faster processing. I suspect even if we didn't have a new legislative framework, the nature of applicants is such that they would like to hear back quickly. It's not unexpected or unusual. So it's something that we are committed to: making sure that the system is as streamlined as is sensible for it to be, balanced against the importance of protecting the national interest and our national security.

Senator McALLISTER: Have you received an application from SEPCOIII?

Mr Hamilton : You know we don't comment on whether or not we've received specific applications. We don't comment publicly about those.

Senator McALLISTER: Have you received an application from China Mengniu Dairy Company Limited?

Mr Hamilton : I refer you to my previous answer.

CHAIR: Just quickly from me, is the DFAT league table of foreign investment by nation into Australia derived from information you collect or do they collect information separately? It runs: US, UK, Belgium—who's number 4, Japan?

Mr Hamilton : We track applications of course. The FATA has a range of thresholds and if a country is not required to lodge an application to us we won't track that as part of our assessments. Broadly, the US continues to be the significant foreign investor in Australia but I'd need to check the correlation of those tables.

CHAIR: I'm wondering where the information—

Senator Birmingham: From that, DFAT would use a broader mix of data sources. I take on notice to what extent Treasury provides input into those data sources. I'm pretty sure you meant the Netherlands coming in sort of around third or fourth rather than Belgium. But yes, in terms of the full list there and the data sources, we are happy to provide an input.

CHAIR: I don't often get to the committee that Foreign Affairs and Defence—

Mr Hamilton : It's more likely that they will be using Australian Bureau of Statistics' data which captures the investment flow, whereas we look at what comes through the foreign investment system.

CHAIR: That's all I wanted to clarify. Thank you very much for your time. Insofar as we can further release those from Macro Corporate and Foreign Investment Group we do so, if you are not required later in the day. We will return after lunch with Fiscal Group.

Proceedings suspended from 13 : 05 to 14 : 06

CHAIR: Senator Keneally.

Senator KENEALLY: Thank you to Fiscal Group for your time this afternoon. I'm interested in the permanent migration planning levels over the forward estimates and the levels that are used in the budget assumptions. Could you please outline what level is used over the forward estimates, year by year?

Ms Wilkinson : The assumptions in the budget are: 160,000 in 2020-21, 160,000 in 2021-22, and 160,000 in 2022-23. Then it reverts to 190,000 for 2023-24 and 190,000 for 2024-25 and then throughout the medium term.

Senator KENEALLY: It reverts in 2023-24 to 190,000 and the projection is that it stays at that level through the medium term?

Ms Wilkinson : That's right.

Senator KENEALLY: I understand. If we look at the planning levels and how they interact with other parts of the budget—for example, the government has a $671 million savings measure that comes from deferring social services payments for newly arrived permanent migrants for four years—most of the substantial savings come in 2023-24 and 2024-25. Am I correct then that those savings measures assume a 190,000 planning level?

Ms Wilkinson : The Centre for Population in Treasury is responsible for setting the migration forecasts. We then provide them to the Department of Finance, to other parts in Treasury and to relevant agencies who are doing their costings. I didn't do the costing. I can't speak to the details of that costing but certainly that information would have been made available.

CHAIR: Senator Keneally, I should have pointed this out earlier: we do have an official on the video conference as well. If Mr O'Halloran is required could you just let us know, Ms Wilkinson?

Ms Wilkinson : Absolutely. I might just mention at the outset that Mr O'Halloran and also Mr Hirschhorn are here from the ATO in case they will be useful in answering questions, particularly around JobKeeper. We found that it's been useful to have both agencies here at the same time.

The other thing I might just mention briefly is that the Infrastructure and Project Financing Agency now sits within Fiscal Group in Treasury, and representatives from that agency are also available to take questions.

Senator KENEALLY: I also note that the net overseas migration figure in the budget reaches 235,000 by 2024-25.

Ms Wilkinson : Correct.

Senator KENEALLY: Is that the new NOM for the medium term as well?

Ms Wilkinson : That's right.

Senator KENEALLY: That's helpful. I also want to check on a couple of other things. The December 2020 population statement had the NOM in 2020-21 at a negative 72,000 and at 2021-22 at a negative 22,000. But it seems the government has reduced the forecast NOM in the budget.

Ms Wilkinson : That's right. Those numbers have been updated for two reasons: firstly, because we've had additional data; and, secondly, because some of the assumptions, if you like, around the general macro circumstances have changed since the budget. That's why we've got a new set of NOM forecast in the budget.

Senator KENEALLY: When you say 'additional data' can you give me a sense of what you mean?

Ms Wilkinson : I might ask Ms Anderson, who is the head of the Centre for Population, to provide you with the detail.

Ms Anderson : Sorry, what was your question?

Senator KENEALLY: The change in the population statement in the budget in terms of the NOM—what prompted that?

Ms Anderson : The data that Ms Wilkinson referred to was ABS estimated resident population releases. Since the population statement was released and the budget was released last year we've had two releases. They were for the June quarter 2020 and the September quarter 2020. So we updated our starting position for the financial year because we took into account the ABS release for the June quarter, and then the September quarter was the first quarter where we really saw in this financial year what was happening with all the different components of population growth. So we reflected that in a revised forecast for this financial year, 2020-21.

Senator KENEALLY: Do those components include things like the reopening of the borders and the vaccination of the population?

Ms Anderson : For the 2021-22 year, the next financial year, most definitely the assumptions around the border opening were highly instructive as to the revision in NOM.

Senator KENEALLY: Those being an assumption of a gradual reopening from mid next year?

Ms Anderson : That's correct, from mid 2022, whereas the budget last year and the population statement used the same assumption, which was for late 2021. So that's essentially a six-month pushback in the assumption, which is what has guided that revision down in NOM.

Senator KENEALLY: On the government's assumptions in relation to temporary migration: do you have any assumptions in relation to temporary migration? We have 190,000 permanent in 2023-24. What assumptions are you making around temporary migration?

Ms Anderson : In the long run, for the medium term and beyond, obviously the next four years are highly influenced by what's going on with COVID. They're probably not particularly instructive as to what the long-run levels will be. We look at history essentially, the pre-COVID history, to guide what's going on in the future. I can provide a bit more detail around how we're thinking about each of those components, if that's helpful.

Senator KENEALLY: What we might do, in the interests of time, is take that on notice rather than have a conversation that you and I might find interesting.

Ms Anderson : Absolutely.

Senator KENEALLY: I think it's highly interesting. The budget's quite fascinating with the NOM because we're going to go from almost no population growth to a rapid turnaround. That's why I'm asking this question. The permanent planning level has to be part of that, clearly; it jumps to 190 to have that rapid turnaround. But I'm also trying to understand what you anticipate will happen regarding temporary migration—particularly with the return of international students.

Ms Anderson : As you'd appreciate, the level of uncertainty has never been higher around what's going to be happening with temporary migration. We have thought about the recovery of the economy. The pace at which the economy is recovering is indicative of how fast we think some of that demand might come back for labour and other things. So that's obviously relevant. We think there is a reasonable amount of pent-up demand for students and other cohorts to return once the borders are opened more fully. And a range of these factors play into how we're thinking about temporary migration. But we do think there's reason for optimism in how quickly that will come back. When I say optimism, I mean reason to believe it will go up irrespective of value judgment about that.

Senator KENEALLY: But that optimism, again, is only realistic if it's based on the rollout of the vaccine and the reopening of the borders?

Ms Anderson : We primarily pay attention to the border opening. Obviously, the two are linked in other ways. But the border opening or, I guess, reduction in restrictions around flow of people in and out, is really what guides the NOM primarily.

Senator KENEALLY: The flow of people in and out, I presume, is also affected by quarantine—whether or not they have to quarantine—

Ms Anderson : It is, yes.

Senator KENEALLY: how long they have to quarantine, whether they have to pay the cost of quarantine.

Ms Anderson : To the extent that that affects the decision to come or not, then yes.

Senator KENEALLY: Back to the levels—do you have any assumptions around levels of temporary migration in 2023-24 or 2024-25?

Ms Anderson : We have a model that breaks down what we expect that to be. Again, I can provide that on notice, if that would be useful.

Senator KENEALLY: I would be very keen to get that, thank you.

Ms Anderson : We do have a return relatively quickly. Essentially what we've seen in the last little while is a normal rate of departures—or fairly normal rate of departures—across all of the different visa categories, but very little in terms of incoming people to replace that. That's why there's been this declining NOM. But we do expect that to recover relatively fast. I'm happy to provide on notice exactly what we expect that profile to look like, noting the uncertainty is pretty high around those numbers, especially once you get out to 2023-24.

Senator KENEALLY: I'm thinking about something Ms Wilkinson said—in terms of the population forecast, you provide the forecast, and other measures in the budget get modelled using those numbers, like the savings measure in social services. But really every number in the budget, whether it's forecast nominal GDP growth, real GDP growth, household consumption expenditure, all of these are dependent on these population numbers coming to fruition.

Ms J Wilkinson : That's true. When we think about the determinants of GDP growth, we think about the three Ps: population, participation and productivity. That's why the population forecasts, when we're doing our forecasting rounds, our population projections are, if you like, at the beginning end of that process. They get provided to the team in the macroeconomic group who use them to inform the rest of their macroeconomic forecast.

Senator KENEALLY: The budget forecasts have a lower birth rate than previous budgets and, I presume, we're also going to see more deaths as a result of the baby boomer generation moving into their older years. I'm just trying to understand the relative importance of migration in terms of driving the population figures in the budget.

Ms Anderson : I would posit that migration has contributed historically just over 50 per cent overall to our growth, so it's a very large proportion of the growth that we are seeing. Fertility obviously does have a long-term impact, as does life expectancy. Although we have a lot of people ageing, they are living longer as well. Migration and natural increase are the two, and natural increase is affected by a host of things.

Senator KENEALLY: Are you still projecting migration to be a little over 50 per cent, or do you have a different allocation?

Ms Anderson : At the moment, over the medium term, I'd have to take on notice exactly what percentage of the growth it is, but I would expect if it's running at around 235,000, it would be a little over 50 per cent—returning to that once we hit that 235,000.

Senator KENEALLY: If I could get that on notice too, that would be great, thanks, Ms Anderson.

Minister, I note that last year's budget did make the point—Budget Paper No. 1, Statement 1: Budget Overview—that the planning level would be reduced from 190,000 to 160,000 places over four years from 2020. I didn't actually see a similar statement in this year's budget. I'm just trying to understand the assumption that seems to be in the budget that the planning level increases to 190,000 from 2023-24—is that government policy?

Senator Birmingham: Senator, I believe so. Let me just double-check in relation to that and the intersection between those figures.

Senator KENEALLY: That would be really helpful, because I am just trying to—it's not a gotcha, honestly, Minister. There's a sentence that appeared in last year's budget that doesn't appear in this year's budget. But it does seem, from the Population Statement that was released in December, that between 2021 and 2022-23 the planning level for permanent migration is 160,000, and from 2023-24, it is 190,000. Last year's budget made a similar assertion. Ms Wilkinson has just confirmed that the planning level in the budget forward estimates does go to 190,000 in 2023-24. I'm just trying to understand that assumption that is underpinning the budget—is that also government policy?

Senator Birmingham: Yes, I understand, and I can advise that that is the current policy setting.

Senator KENEALLY: Great. Thank you very much. I appreciate your taking those questions on notice.

Senator WALSH: Last year, the Treasurer said that the job of budget repair wouldn't begin until the unemployment rate had dropped below six per cent. That was in his pre-budget speech in September. The budget revises that, with the shift occurring not when unemployment is comfortably below six per cent but when 'the economic recovery is secure and the unemployment rate is back to pre-crisis levels or lower'. That decision to change the strategy of when you move to phase 2, is that made by the Treasurer or the finance minister?

Senator Birmingham: The fiscal strategy is set as a decision of government, so it's a decision made through the cabinet process, ultimately.

Senator WALSH: You can't elucidate further on whether it's your decision or the decision of the Treasurer?

Senator Birmingham: Both the Treasurer and I have our names on the front page of the budget papers, so it's our decision and, as I said, effectively a cabinet decision.

Senator WALSH: What is Treasury's understanding of when 'the unemployment rate is back to pre-crisis levels or lower'?

Ms J Wilkinson : This is probably a question for which it would have been useful if our macroeconomic group were still here. My recollection is that, pre crisis, the unemployment rate got down to about 5.1 or 5.2 per cent, and the budget papers show that, by June 2022, the unemployment rate is expected to be five per cent.

Senator WALSH: So that means unemployment is projected to hit the target rate for budget repair to begin in June 2022. Is it correct that budget repair should begin in 2022-23?

Senator Birmingham: We went through this a little bit in Finance estimates last week. The government has made clear that we see, now, that range that Dr Kennedy was talking a bit about this morning, around where the NAIRU operates, as being the range that we are striving for in order to see any shift in relation to the fiscal strategy. That means driving the employment rate below that five per cent level to move into that more medium-term stage of stabilising the budget position and spending. As I said in Finance estimates earlier, it's not exactly a switch that you just flick from one to the other; there's a continuum here that's dependent upon the different stages of economic recovery continuing.

Senator WALSH: People can read in the budget what the medium-term fiscal strategy is, and they can read that we'll move to the medium-term fiscal strategy when unemployment is at pre-crisis levels. Pre-crisis levels were 5.1 per cent in February 2020. Unemployment's projected to be five per cent, as you've confirmed, by June 2022. Does that mean we should be entering the period of medium-term fiscal strategy, or moving to phase 2, in the 2022-23 financial year, or in the next budget?

Senator Birmingham: The budget does show improving bottom line in terms of the deficit position through the forward estimates. It improves each year over the forward estimates, particularly towards the end of the forward estimates as the next couple of years of temporary COVID relief measures come off, in relation to expenditure. If you look at the charts—for net debt as a share of GDP, for example, on page 215 of the budget papers—it also shows the estimated peaking of net debt, which is now forecast to peak at 40.9 per cent at 30 June 2025 and then improve over the medium term, to reach some 37 per cent of GDP by 30 June 2032. These medium-term projections are all consistent with the commitments the government made in this budget. Commitments such as the investment in aged care or investment in NDIS are all factored in to that overall medium-term improvement, consistent with that fiscal strategy.

Senator WALSH: I'm genuinely trying to understand whether the unemployment rate returning to the pre-COVID level—which we all hope it does—and reaching five per cent by June triggers, as the budget suggests, budget repair in the next budget. I might be wrong in how I'm reading it, but it seems that a decision has been made that, when unemployment is back to precrisis levels, we move from the current phase to the medium-term fiscal strategy of budget repair.

Senator Birmingham: Yes. As that medium-term—

Senator WALSH: Is it correct that, if unemployment hits five per cent, you move to budget repair in the next budget?

Senator Birmingham: The medium-term fiscal strategy outlines that the key element there is, firstly, stabilising and, then, reducing gross and net debt as a share of the economy. The reason I pointed you to the net debt chart, which, just the same as for the gross debt charts, shows the application of that fiscal strategy, is that we do anticipate and have built into all of these projections that growth in the economy that enables a stabilisation in relation to spending and achieves that improvement of debt as a share of the economy over time.

CHAIR: As a follow-on there, for clarification, no cuts are required to achieve the fiscal consolidation outlined in the budget?

Senator Birmingham: No. What is completely factored into those medium-term projections are all of the decisions taken by government, be that increased support in relation to child care, aged care, NDIS or otherwise.

Senator WALSH: I'm going to have to review the transcript to figure out whether you've answered my question or not. Are there other factors that you're looking at? The budget assumes that the budget repair will begin when the unemployment rate is back below 5.1 per cent and also when the economic recovery is secure. Perhaps I'll go back to Treasury and ask: what is Treasury's understanding of when economic recovery will be secure? Obviously, the unemployment rate is one factor. What is Treasury's understanding of when the economic recovery will be secure?

Ms J Wilkinson : One of the things that I'd be thinking about would be that it would be when a lot of the uncertainty that businesses and individuals, let alone governments, are managing around the pandemic is closer to being resolved and when we've got to the point where some of the emergency support measures and the temporary targeted support measures that have been put in place are no longer regarded as being necessary. Those have been pretty critical elements of the first phase of the fiscal strategy. Those are the sorts of things I wouldn't expect the government would be needing to continue to implement in the second phase of the fiscal strategy. As the finance minister said, it is still the case that even in the first phase, the government's projections for the underlying cash balance are for it to continue to narrow and for both net and gross debt to stabilise and, in fact, decline over the medium term.

Senator WALSH: Dr Kennedy gave a speech on 18 May, which he referred to earlier today, to Australian Business Economists, and it was reported in the ABC. There was a figure reported that the deficit is projected to remain at 1.3 per cent into 2031-32. How much expenditure would have to be cut to close that gap?

Ms J Wilkinson : I'm not sure what you mean by 'close that gap'. The secretary certainly gave a speech and noted that the underlying cash balance is 1.3 per cent of GDP at 2031-32, at the end of the medium term. At that level of underlying cash balance, we have both gross and net debt falling, so I'm not sure what your question is. I'm not sure what gap you are talking about closing.

Senator WALSH: I think the ABC reported that there is about a $50 billion deficit at 2031-32. Does that sound right?

Ms J Wilkinson : The government hasn't published the level of the deficit in the medium term. Typically what government publishes is the deficit as a share of GDP, which is 1.3 per cent of GDP. I can't confirm that but I'm happy to take that on notice.

Senator WALSH: Thank you. Has the Treasurer or the finance minister or their offices sought advice on the quantum of budget cuts that would be required to undertake the job of budget repair over the forward estimates?

Ms J Wilkinson : Not to my knowledge.

Senator Birmingham: No, Senator.

CHAIR: I think that is a good place for a break. I will share the call. I will go to Senator McKim online.

Senator McKIM: I want to ask questions about some of the information in the women's budget statement which, according to the budget papers, delivers an additional $1.9 billion in measures to support women's economic security. Can I start by making sure my understanding of this is accurate. Is the government basically saying that women will get access to $1.9 billion that people who aren't women won't get access to? Is that correct?

Ms J Wilkinson : The total amount of funding that was announced as part of the women's budget statement was $3.4 billion over the forward estimates. That included commitments under women's economic security, women's safety and women's health and wellbeing. The $1.9 billion figure that you're referring to in terms of the total cost of the women's economic security measures together—the most significant measure there is the childcare subsidy for families with two or more children. Those subsidies are available to families who are in that position. It is not exclusively to the women in those families.

Senator McKIM: Thank you. I still want to be clear in my own mind: if there were no women in a family, would a family be able to access that?

Ms J Wilkinson : They would. It is a policy which is based upon the way in which the current childcare arrangements work and the definition of 'the family' under the childcare arrangements, which, I have to admit, I'm not privy to in detail. I presume that any family would be covered.

Senator McKIM: What part of the $1.9 billion, which the government says is to support women's economic security, is only available to women?

Ms J Wilkinson : I don't have a breakdown of that figure. The childcare measure to support families with two or more children has been designed to help families with young children make choices about working, returning to work and/or working extra hours. What we know is that secondary income earners are predominantly but not exclusively women. Our expectation is that a significant share of the people who would take advantage of this measure to work extra hours or days or simply get some additional support through this measure would be women.

Senator McKIM: I appreciate that. Would I be right that, in terms of spending allocations in this budget that are only available to women and therefore not available to people who aren't women, the upper limit of that would be $1.9 billion? There's no more money than the $1.9 billion in this budget—at the most—that will be available to women but not available to people who aren't women.

Ms J Wilkinson : I'm not sure—

Senator Birmingham: The age pension has a higher proportion of women who receive it than men. Different Medicare benefit items have a higher proportion of women, though some have a higher proportion of men. We don't do a gender analysis across every payment item across the budget.

Senator McKIM: Well, you probably should. I think you should do a gender analysis across those matters. I'm specifically asking about the women's economic security package that's mentioned in the women's budget statement. That's what I'm asking about.

CHAIR: To be fair, Senator McKim, you actually went well beyond that in that last question. I think the minister's response was entirely reasonable.

Senator McKIM: I'm trying to clarify my question, Chair.

CHAIR: Go ahead.

Senator McKIM: Minister, can you confirm, in the context of the women's budget statement—about which your government blew every bugle you could find during the budget speech and in your selling of the budget subsequent to it—that there is a maximum of $1.9 billion dollars that is available to women but not available to people who aren't women?

Senator Birmingham: I certainly can't confirm that, because the women's budget statement includes measures in relation to women's safety, women's health and wellbeing—

Senator McKIM: I'm talking about women's economic security.

Senator Birmingham: Sure. You asked about the women's budget statement just then. The women's budget statement comprises elements related to women's safety, women's economic security and women's health and wellbeing. There is a range of measures there. The economic security statement, as part of the women's budget statement, identifies an additional $1.9 billion in measures to support women's economic security. The largest of those—you're correct—in terms of cost to the budget item line is the change to the childcare subsidy. Of course, there is a far greater amount attached to the pre-existing investment in the childcare subsidy as well, which, yes, is available to families but, as all of the evidence shown, has the most beneficial effect on women ahead of men when it comes to workforce participation choices. Over time that may change—that will hopefully change over time—in terms of that benefit and balance evening up. But certainly in terms of productivity benefits and workforce participation benefits, it still accrues disproportionately to women in all analysis at this stage.

Senator McKIM: What I'm hearing is that in the part of the women's budget statement that supports women's economic security—so I've now narrowed the scope, and thank you for your assistance, of my question—there is $1.9 billion, at a maximum, that is available to women that is not available to people who aren't women. I mean, that's a pretty non-contentious statement, I would have thought. Is that correct?

Ms J Wilkinson : I don't think that is correct. In that part of the statement there's reference to a range of different programs that men and women both benefit from—for example, the JobTrainer program. There is mention of the fact that more than 50 per cent of recipients of the JobTrainer program are women. And, as you said at the outset, I think it's a mischaracterisation to say that the childcare program itself is exclusively available to women and not available to men; it's available to families, to assist in participation decisions.

Senator McKIM: Thank you. I appreciate that. I'm going to move on, because we are just talking around in circles here. I did say maximum of $1.9 billion. That is what I put to you. I don't think that's contentious or inaccurate. But look, let's just move on. The stage 3 tax cuts that commence in the 2024-25 financial year are worth about $15 billion. Is that right?

Ms J Wilkinson : I don't have those figures with me. That would be a question for Revenue Group, who are appearing tomorrow.

Senator McKIM: Is Treasury aware of the Parliamentary Budget Office analysis that men will get at least twice as much benefit as women from the stage 3 tax cuts in the first year?

Ms J Wilkinson : I am aware in very general terms, but I haven't looked at that analysis.

Senator McKIM: Does Treasury not look at the gender split of probably the biggest future change in the tax and transfer system that we know about? Treasury's not interested in whether the benefits of that would flow disproportionately to one gender or another?

Ms J Wilkinson : Again, I think that's a question for Revenue Group. This discussion has come up before, though, and Revenue Group have certainly pointed out that the tax system as it's designed—there's not a tax system for women versus a tax system for men. It is just a tax system, and the outcomes of the tax system reflect the underlying distribution of income across individuals in the economy.

Senator McKIM: I'll bet you haven't done an analysis of whether more of the benefits of the stage 3 tax cuts would flow to men than to women, for example.

Ms J Wilkinson : That's a question for Revenue Group.

Senator McKIM: The stage 3 tax cuts will deliver a $9,000-a-year tax cut for those earning $200,000 a year and nothing whatsoever for someone on the minimum wage. Is that a question for you?

Senator Birmingham: These are all revenue questions that you're pursuing, really, Senator McKim.

Senator McKIM: Okay. I'll park that until Revenue Group. Can I just be clear, then, that the fiscal unit of Treasury doesn't deal with the impacts of tax cuts at all? Is that right?

Ms J Wilkinson : Within Treasury I guess we have a pretty clear delineation between us in terms of the policies that we're responsible for and what Revenue Group is responsible for—both the policies and analysis around tax policies. They're the experts in this area.

Senator McKIM: Didn't your group prepare the women's budget statement?

Ms J Wilkinson : That's correct—well, my group combined with some secondees from the Office for Women. We're the sort of coordinating function, and we worked then with colleagues across Treasury and across a large number of other Commonwealth departments in pulling together the statement.

Senator McKIM: Alright. We have got a Women's Budget Statement, but we don't know what the impact of the stage three tax cuts will be on women versus, for example, men? Is that right?

Senator Birmingham: The Women's Budget Statement focuses overwhelmingly on policy decisions taken as part of the 2021-22 budget.

Senator McKIM: They've included the stage three tax cuts.

Senator Birmingham: Pardon, Senator McKim?

Senator McKIM: The budget that we have just had handed down includes the stage three tax cuts.

Senator Birmingham: And it includes a whole lot of policy decisions taken in preceding years, as they were taking in a preceding year. What I am saying is the budget statement focuses overwhelmingly on new policy decisions taken in the context of this budget and not on policy decisions taken in as many preceding budgets as you wish, and those tax cuts certainly go back a couple of budgets.

Senator McKIM: Just to be clear, and I apologise if I've been asking questions at the wrong time, if I wanted to ask questions about the impact of stage three tax cuts on people of various annual incomes and the impacts of those on things like wealth inequality in Australia are you saying that I should be asking those in the revenue section?

Senator Birmingham: Yes. They are revenue policy considerations.

Senator McKIM: Alright. Minister, this is my last question on this for now. The Women's Budget Statement does actually include lots and lots of measures that were announced in previous budgets. But it doesn't include an analysis of how the stage three tax cuts will flow to men versus women. Why is that?

Senator Birmingham: I don't accept that characterisation. The primary focus of what's outlined in the Women's Budget Statement are measures that were new to this budget. I will not say it is completely exclusive, but it certainly is the primary focus in the context of those that we were talking about. As we were talking before about the childcare subsidy, for example, there is an explanation more broadly about the way the childcare subsidy operates. But in terms of policy decisions that are detailed in the Women's Budget Statement it details the specific changes being made in this year's budget.

CHAIR: We will need to move on. We will come back to you, Senator McKim, time permitting. Senator McAllister, you have the call.

Senator McALLISTER: Thank you very much. I too want to ask about the Women's Economic Security Statement. I understand that Treasury was in the lead for the Women's Budget Statement overall. Miss Wilkinson, is that correct?

Ms J Wilkinson : That is correct.

Senator McALLISTER: Was that your section of Treasury that took responsibility?

Ms J Wilkinson : Fiscal Group, yes.

Senator McALLISTER: When did you become aware that a Women's Budget Statement would be required?

Ms J Wilkinson : I will have to take the specific date on notice, but there was a meeting of the women's task force which was convened in early April. My recollection is that it was soon after that task force meeting that we had a discussion with the Office for Women about what would be different ways in which the package of measures—which were targeting women's safety, security and wellbeing—could be pulled together.

Senator McALLISTER: So the women's task force meets. There is a discussion in early April. You then talk to the Office for Women and at that time you're still canvassing whether or not there will be a Women's Budget Statement or some other form of communication?

Ms J Wilkinson : As I said, I am happy to take on notice the question about when a decision was taken. I think that was a decision taken by the task force, which is a cabinet task force. I know that the first task force meeting was on 6 April. Certainly within a week of that we were having discussions with the Office for Women.

Ms V Wilkinson : We had had discussions with the Office for Women prior to that.

Ms J Wilkinson : That's true.

Ms V Wilkinson : As part of those discussions we had canvassed different forms that a statement could take. Obviously it was a decision of government in early April as to what form and when. We had had some earlier discussions.

Senator McALLISTER: Okay. When did preparations begin for the 2021-22 budget?

Ms J Wilkinson : The first set of ERC meetings for the 2021-22 budget were convened in early February.

Senator McALLISTER: Right, but presumably work at the departmental level was happening last year.

Senator Birmingham: Agencies right across government, yes, are preparing their policy proposals and bids to feed into the budget process.

Senator McALLISTER: I'm conscience that the budget cycle is a little out, but conventionally that would begin in the year prior—in November or December. We've had long conversations in the other room in the finance and public administration committee about how the Department of Finance goes about it. It would ordinarily begin earlier, would it not?

Ms J Wilkinson : It would ordinarily begin earlier; however, we don't usually bring down a budget in October the previous year and then a midyear statement with an additional set of announcements in December. In these circumstances, in this context, it was early this year.

Senator McALLISTER: The ERC meets in February. We haven't had a Women's Budget Statement for 78 years, but the women's task force met on 6 April and sometime after that but less than a month before the budget is brought down we decide we're going to have a Women's Budget Statement; is that correct? Is that the sequence, Minister?

Senator Birmingham: As Vicki Wilkinson has said, there were discussions at a departmental level preceding that. Yes, the first meeting of the new task force occurred, decisions and strategy were set in some of these areas and work ensued from there. Without going to when specific policy decisions were taken during the budget, a number of those policy decisions would have predated the decision around putting them into the statement.

CHAIR: Can I just check with you, Ms Wilkinson, because I think it's probably the quickest way, where are questions about JobKeeper best asked?

Ms J Wilkinson : In this group.

CHAIR: In Fiscal Group?

Ms J Wilkinson : Correct.

CHAIR: Great.

Senator McALLISTER: On 25 April the Sun-Herald and the Sunday Age published an article by James Massola in which he referred to leaked emails sent by federal Treasury to the health department asking for urgent input from Health on women's programs that the department had already rolled out. The email cited by the journalist asked for all developments in women's health over time. The department was given less than 24 hours to compile a four- to five-page document for Treasury. Is this how we normally do budget work—less than four weeks before handing down the budget we send emails around asking people to get out what's in the bottom drawer?

Mr Swieringa : That email came out of my branch. We were looking for contextual information mainly to sort of tell part of the story about women's health up until this budget. It wasn't so much for particular measures in the budget itself, but things that had happened previously.

Senator McALLISTER: So people had 24 hours to provide contextual information about women to Treasury?

Ms V Wilkinson : I had a conversation with the relevant deputy in that department about material we were after to set the scene, and we agreed on that time frame. This is something that the Department of Health obviously has worked up over time. It was setting the scene and it was the history in this area. It is not uncommon that a department would have material about their own measures that we would call on in preparing the scene-setting or contextual information in a budget document.

Senator McALLISTER: I'm trying to establish the time frame for how these documents are being pulled together. Obviously, last year's documentation didn't make it to printers on time, so something different has to happen in Treasury to at least get to the printer. Did you second stuff from the Office for Women?

Ms V Wilkinson : Yes, we did.

Senator McALLISTER: What date was that?

Ms V Wilkinson : It was around 19 April, recognising that in a virtual world we had been speaking and working with the Office for Women for an extended period. But we did around that time physically locate Office for Women staff in Treasury because the budget process does require physical proximity as we get closer and closer to the point on all budget statements, preparing them for printing and finalising the content.

Senator McALLISTER: Ms Hawkins, from the Office for Women, told me that secondments commence on 26 April. Is she right, or was it the 19th?

Ms V Wilkinson : We went back over our records and we did look at that date, but our diaries suggest it was the 19th.

Mr Swieringa : I think that in those first few days those seconded from the Office for Women were partially going back to PM&C to tie off loose ends.

Ms V Wilkinson : So it was to-ing and fro-ing, I think.

Senator McALLISTER: Senator McKim was asking you about a gender impact assessment on the tax measures. We've talked about this often here. Putting aside tax and acknowledging that that was a measure in a different budget, was gender impact assessment undertaken on any significant measures in this budget?

Ms J Wilkinson : I think that in the Women's Budget Statement we presented, where possible and where it was clear, that there was a differential gender impact. We provided information on things like the proportion of JobTrainer take-up, which was men versus women, and around some of the other programs such as the Family Home Guarantee and our expectation of the proportion of women that would be taking up that program. It sort of depended on the measure as to whether it was something that was applicable and/or that we had the data which could help inform that.

Senator McALLISTER: Was that gender impact assessment done prior to consideration by ERC and cabinet minister or afterwards?

Ms J Wilkinson : My recollection is that for many of these programs it was done as part of the development of the programs within those portfolios.

Senator McALLISTER: This is a new development. We never did that before. I've asked here many times what gender impact assessment has been done on initiatives, and there's never been any indication that any has been done at all. What's changed, Minister? You're in your eighth year of government. Why are we now doing gender impact assessments on policies prior to decisions when previously this wasn't a feature of your government's practice?

Senator Birmingham: It has always depended on the measures being brought forward and the nature of them. With Senator McKim we were talking about the childcare measures. Certainly, a number of years ago, when the reforms to the entire childcare support system envisaged, I know that workforce participation analysis and the like were important drivers of decision-making.

Senator McALLISTER: That's interesting, but it's not really an answer to my question. I am asking what's changed. What are the reasons for the government's change in practice?

Senator Birmingham: I'm just not sure that anything in particular has changed there. I think it depends on the measure and the basis upon which portfolio ministers are bringing forward that measure in advancing the arguments in favour of those measures.

Senator McALLISTER: This government abolished the Women's Budget Statement in its first year of office and has now reinstated it. Why is that?

Senator Birmingham: The government recognised that there were particular issues that deserved and warranted focus and took a decision to produce the Women's Budget Statement this year.

Senator McALLISTER: Does the government consider that these issues were present in the previous year—in 2020?

Senator Birmingham: I think there has always been importance surrounding a number of these issues. The government listens to commentary and analysis and determined that it was important to produce the statement in the context of this year's budget.

Senator McALLISTER: You will recall Mr Morrison said, to paraphrase him, when it comes to tax time, we don't have pink forms and blue forms. Is that still the Prime Minister's view—that there's no need for gender analysis because, for example, the tax system is gender-neutral?

Senator Birmingham: In that sense we don't. Senator McKim's question before was an interesting example of a measure that clearly has disproportionate benefits when you look at things such as workforce participation for Australian women, such as the childcare reforms, but it isn't applied in an exclusive way. It supports families overall. Indeed, in family circumstances and context, the tax reforms and tax cuts ultimately put more dollars back into family budgets.

Senator McALLISTER: Sorry; is gender impact analysis necessary or unnecessary? Your answer doesn't make that clear.

Senator Birmingham: It depends on the arguments around the policy and the extent to which those arguments around a policy perhaps help to define the merits of proceeding the policy or not. Hypothetically, would the changes to the childcare subsidy have an approved purely on the basis of providing greater financial assistance to families with more than one child under five? Maybe they would have, but the argument was certainly stronger when coupled with analysis and evidence around the increased workforce participation that would be achieved, and that workforce participation overwhelmingly benefited Australian women.

Senator McALLISTER: The point is that you don't know that's true until you have actually done the analysis. My question is: is it now the government's practice to undertake gender impact assessment on all major economic policies coming before the ERC and the cabinet?

Senator Birmingham: No, not necessarily. I think it will remain—

Senator McALLISTER: Optional.

Senator Birmingham: horses for courses in terms of what the driving factors and relevant analysis to inform policy position are. Tax cuts in general provide greater disposable expenditure and expenditure to Australian households and Australian families.

Senator McALLISTER: So we won't be doing gender impact analysis for those but maybe for some other policies? I'm just trying to work out how you're going to decide.

Senator Birmingham: As I said before, I think it is a case that there are areas upon which a decision around a policy will have other compelling arguments put to it. In part, portfolio ministers make some determination in terms of the arguments they present in favour of budget proposals in their portfolios. Clearly, with the changes the Prime Minister made to the ministry, you would expect that the Minister for Women's Economic Security or the Minister for Women Safety, in bringing portfolio measures consistent with their responsibilities in those portfolios, would clearly be outlining how it is that those policies met the objectives expected of their portfolios.

Senator McALLISTER: But not other agencies—so not the minister for education?

Senator Birmingham: The minister for education is the minister responsible for the childcare subsidy, and he clearly played a role, in relation to driving that forward, in the analysis there too.

Senator McALLISTER: Not the Minister for Finance?

Senator Birmingham: I'm trying to think of the types of policy proposals I would bring forward in my portfolio area in terms of—

Senator McALLISTER: Procurement?

Senator Birmingham: Procurement was where I was thinking. We have the Indigenous Procurement Policy target. If we were looking at proposals specifically in that space, then certain sectoral analysis might be relevant, depending on those proposals.

Senator McALLISTER: The point is: you don't know until you look, do you? You might develop policy that is very detrimental to women, but you won't know until you look. But there doesn't seem to be any commitment to looking to find out.

Senator Birmingham: You can start to mandate all sorts of additional requirements for every proposal that comes through—

Senator McALLISTER: You're talking about mandates. I'm asking what your approach is.

Senator Birmingham: I'm saying there's a determination around whether it strengthens the argument to make a particular decision—

Senator McALLISTER: I see—whether it suits!

Senator Birmingham: that is aligned, just as different analysis by different portfolios is brought forward all the time in terms of arguments for certain policy discussions.

Senator McALLISTER: Is the government committed to continuing the Women's Budget Statement? Will we have one next year?

Senator Birmingham: Yes.

Senator McALLISTER: The government has recently backflipped on the 2018 policy to have women escaping domestic violence access their superannuation; that's correct, isn't it?

Senator Birmingham: I think an announcement was made in that regard, yes.

Senator McALLISTER: The budget papers indicate that not proceeding with that measure will cost the government $83 million over the forward estimates. Can you explain why that is?

Senator Birmingham: That's probably a Revenue Group matter, but, because it relates to the interactions with the tax system—

Ms J Wilkinson : I think it might be better if you ask Markets Group, who are responsible for superannuation policy and the early release policy; they're coming this evening. I'm pretty sure that that cost relates to the difference between the concessional tax rate you get when you make contributions to super and what you get taxed at your marginal rate when you make an early withdrawal. I think it might be better to go into that detail with Markets Group.

Senator McALLISTER: That's fine. I just want to confirm the fiscal impacts. Minister, by getting women to raid their superannuation accounts to escape a violent relationship, the government was going to be $83 million better off; is that correct?

Senator Birmingham: Through early access to superannuation, there is a change in the tax arrangements, as Ms Wilkinson just identified.

Senator McALLISTER: What was the value of the 2018 Women's Economic Security Package, when this was announced?

Mr Swieringa : The value of the whole package?

Senator McALLISTER: Yes.

Mr Swieringa : The whole value of the 2018 WES was $119.2 million.

Senator McALLISTER: So about three-quarters of that package was paid for by asking vulnerable women to self-fund their escape from violence, thus saving the government $83 million; is that correct, Minister?

Senator Birmingham: I don't know how the sums in that regard were calculated.

Mr Swieringa : I don't have the actual 2018 WES in front of me, so I'm not sure if the number I've got is net of that being removed.

Senator McALLISTER: Minister, how could you have called that, in good faith, with a straight face, a women's economic security package when it was mostly funded by the women who most needed your help?

Senator Birmingham: When Minister Hume is here with Markets Group, she will be better placed to talk through some of the advocacy that occurred for that measure at one point. Government listened to concerns about that measure, which was why it was reversed and, instead, in this budget, other payments and supports were enacted to provide outcomes in that regard.

Senator McALLISTER: It is an $83 million saving off the back of women escaping violence, and you had the gall to include it in a women's economic security initiative.

Senator Birmingham: It was certainly never taken as a decision because of the savings or revenue implications; it was taken, at the time, as a decision in relation to arguments made about access to financing, and the fact that there are provisions for Australians in a range of other exceptional circumstances to access their own superannuation. Arguments had been made that, in the exceptional circumstances of needing to flee domestic violence, people ought to have the same rights of accessing their money, their superannuation. So the government took that in good faith in response to those arguments at the time—that it was another exceptional circumstance that ought to be considered along with others. We have subsequently listened to counteropinions and arguments, and that's why, in this budget, that decision is reversed and alternate policy proposals in terms of providing financial support are provided for.

Senator McALLISTER: That's all from me for the moment, but I do have more for this group.

Senator McKENZIE: Great to see you all. I want to follow up on some questions on notice from last estimates which remain unanswered. Mr Brine responded verbally that he was unaware of the last time that Treasury conducted a public consultation on discount rates and cost-benefit analysis. Can you provide that answer, please? You've had some time to check it out.

Mr Brine : I think that answer was lodged this morning.

Senator McKENZIE: I'd like you to read it out to me, because I didn't know it arrived this morning.

Mr Brine : I will just get it:

Relevant agencies, including Treasury, the Department of Infrastructure, Transport, Regional Development, Communications and Arts and Infrastructure Australia consider discount rates periodically to ensure they remain appropriate and fit for purpose. This includes consultations with academics as well as relevant infrastructure bodies in each State and Territory and other interested parties such as the Productivity Commission. These consultations are conducted informally and are not public. Infrastructure Australia, in their Assessment Framework, provide a sensitivity analysis around the 7% real discount rate (4% per annum and 10% per annum) when evaluating business cases.

CHAIR: Sorry; can we, through the secretariat, get a copy of that to Senator McKenzie?

Senator McKenzie: Yes, could someone print off the questions on notice that have been submitted this morning—QON 12 and 14, if that hasn't arrived, and 15. When you say 'periodically', my actual question was when we last publicly consulted and reviewed.

Mr Brine : I'm not aware of Treasury having undertaken any public consultation or review.

Senator McKENZIE: Right. I don't have it in front of me. Was there a raft of bodies that examined this periodically?

Mr Brine : Yes.

Senator McKENZIE: How often? What's the period—pi divided by two?

Mr Brine : Informally, we examine whether it remains appropriate. In the discussion we had last time, my view and certainly the view of the department is that where it is at the moment is not appropriate. So there is no formal three- or four- or five-year review. I mentioned last time we were looking at a process. I think that is one thing we should examine—whether there should be a regular review and how timely that should be and who's in the best position to conduct it. We're hoping to have that work finalised by August.

Senator McKENZIE: Alright. On notice, if you are already working through and making that a regular occurrence, can I ask about understanding better the international settings and how—

Mr Brine : Yes, we can definitely undertake that.

Senator McKENZIE: Thank you. I also asked if you could provide some examples of the United States discount rate, which you said was seven per cent for projects that displace private capital and three per cent for projects that displace private consumption?

Mr Brine : Yes.

Senator McKENZIE: Is this also a question that was submitted this morning, question 14?

Mr Brine : That is.

Senator McKENZIE: Okay, if you could read me that answer.

Mr Brine : 'In the United States, a seven per cent discount rate is generally adopted to evaluate regulatory proposals and investments. The seven per cent rate is an estimate of the average before-tax rate of return to private capital in the US economy and approximates the opportunity cost of capital. It is considered to be the appropriate discount rate whenever the main effect of a regulation is to displace or alter the use of capital in the private sector. The US, however, acknowledges that the effect of regulation does not always fall exclusively or primarily on the allocation of capital. When regulation primarily and directly affects private consumption—for example, through higher consumer prices for goods or services—a lower discount rate of three per cent is considered to be appropriate. This seeks to reflect the rate at which society discounts future consumption flows to their present value—that is, the idea that a dollar spent now is worth more than a dollar spent in the future. By way of example, a government funded infrastructure project would more likely displace private investment and would attract a seven per cent discount rate under the US model; whereas a policy impacting the prices of a commodity—for example, setting a price floor for a good—would be more likely to attract a three per cent rate. The selection of the appropriate discount rate is generally left to the discretion of the relevant US agency putting forward the proposal.'

Senator McKENZIE: So, if it were, for instance, the department of infrastructure, in this case, it would be left to them to make that call?

Mr Brine : That's right.

Senator McKENZIE: It wouldn't be overseen by a body?

Mr Brine : It would be left to them. But we understand it generally would be that seven per cent rate, because that is an example of something that would be displacing private capital, unlike obviously the cost-benefit analysis that we do for regulations, for example—that might be more likely to attract a three per cent rate.

Senator McKENZIE: Thank you. And, Minister Birmingham, you took on notice my question about a review of the discount rate and what actions are being taken by the government. I understand from the National Farmers Federation that Treasury has now started this review?

Mr Brine : That's correct.

Senator McKENZIE: What are the objectives and terms of reference for the review?

Mr Brine : We haven't set a formalised objective or term of reference. What I would describe the objective as, though, is to ask whether seven per cent is an appropriate discount rate given recent movements, or given movements over several years, in the risk-free rate. And, if it's not an appropriate rate, what should the rate be, who should be using it and how regularly should it be reviewed going forward?

Senator McKENZIE: Good. So we haven't set the terms of reference for the review yet, nor the objectives?

Mr Brine : That's right.

Senator McKENZIE: When will they be finalised?

Mr Brine : Treasury, from time to time, is commissioned to do a formal review by the government. But, on other occasions, we undertake work of our own volition. We just ask the question: is this a sensible discount rate for us to be applying or not? This exercise is in that second category. This issue has been raised with us previously in Senate estimates but also by Infrastructure Australia, by the National Farmers Federation, and we think it would be a good thing for us to be able to do to provide the government some well thought through advice about the use of discount rates in evaluating project.

Senator McKENZIE: From my perspective I'm really interested in how the use of discount rates, like the National Farmers Federation, have a broader impact specifically for regional projects outside of capital cities, where the numbers obviously are different. Will there be a specific term of reference related to regional Australia?

Mr Brine : There isn't a formal terms of reference, but, yes, I think it would be sensible to examine whether one discount rate should be applied for everything or whether different types of projects should attract different types of discount rates, as we have seen, for example, in the US. We can certainly explore the question of whether regional and urban projects should have different discount rates. My view going into that would be you would want to look at how you're evaluating the cost and benefits rather than how you're discounting at the time, but that's something we can certainly consult with and form an informed view about in the coming months.

Senator McKENZIE: As you go through this work, what sort of opportunity is there for public consultation and feeding in from broader stakeholders than just the Productivity Commission and the bodies you mentioned in your answer on notice 212?

Mr Brine : We have reached out to the NFF, and they have kindly agreed to bring together some stakeholders for us to discuss the issue with. We're not planning at the moment a formal public consultation process given it's a fairly technical issue, and I think we've got a fairly good grip of who in the community is interested in it: Infrastructure Australia, of course; the infrastructure department; the Department of Finance at the Commonwealth level are all agencies who would be involved. We would need to engage the state treasuries, given that a lot of infrastructure proposals emanate from the states, and there would also be some academics and community groups that we would want to engage with.

Senator McKENZIE: Okay. Like I've brought the NFF to your attention, if there are other stakeholders, would you be happy—

Mr Brine : Absolutely.

Senator McKENZIE: Excellent. When are we thinking this—I want to say review, but it's not a formal review. When will this examination be completed?

Mr Brine : We're aiming to have our view finalised by August. Given the close involvement of the states, we would then look to put that on the agenda of the Heads of Treasuries and CFFA later in the year.

Senator McKENZIE: Awesome. Thank you very much. I appreciate it. It would be great if I could get those a little earlier next time.

Mr Brine : Yes, Senator.

Senator PATRICK: I just wanted to go to some analysis that came from the PBO in relation to returning JobKeeper from profitable companies. Basically, that analysis suggests that, if the companies that were identified in the brief—I think there were 65 of them. The government could recover $1,152.9 million, so $1.1 billion. I was just wondering if Treasury have looked at this on their own to see what could be recovered, perhaps with more information than .was available to the PBO.

Ms J Wilkinson : We haven't looked particularly at that question. I think we've had discussions before at estimates that the government's view is that they're very comfortable with businesses choosing to repay JobKeeper if they feel like they didn't need it. But the law is pretty clear that people were eligible for JobKeeper on the basis of their projections as to whether they expected that they were going to have the requisite falls in turnover. The ATO has, of course, been dealing with a number of different companies who have chosen to repay JobKeeper. I'm not sure whether it would be useful for you to get an update on where that's up to.

Senator PATRICK: Yes, I wouldn't mind. Thank you very much for that. How much have we had paid back, and across how many companies?

Mr Hirschhorn : We are in discussions with 47 businesses. Thirty-three of the 47 have currently repaid $159 million. There are another 14 that we are in discussions with, and that is another $66 million, which would bring it up to $225 million.

Senator PATRICK: That's good. Have you, as the tax office, come up with any numbers in relation to how many companies that were paid JobKeeper did make a profit in that period?

Mr Hirschhorn : At this stage we have not performed such an analysis. We have done work around turnover predictions. To get JobKeeper you had to predict either a 30 per cent turnover reduction or, if you were a large company, a 50 per cent turnover reduction. We have done some analysis of companies that seem to have done well, despite having predicted a large turnover reduction, and we have clawed back some JobKeeper from those companies. In terms of linking to profitability, we have not done a detailed analysis as of yet. In one sense, that's because it's not relevant to our job of who is entitled, based on the law as it was passed. Obviously, if there was retrospective legislation to change entitlements, that would be very interesting. But, separately, profitability data will start coming in for us over the next period. I think Ms Wilkinson, in previous hearings, has indicated that there is a plan, in a Treasury review of the program, to do some analysis of profitability versus JobKeeper entitlements when that data has come in. But, pending the data coming in and that review taking place, we have not done a detailed analysis.

Senator PATRICK: I presume that analysis would be done to inform government as to the merits of retrospective legislation to correct this windfall?

Senator Birmingham: Evaluations are being done as part of the review.

Ms J Wilkinson : Like with all major programs, there's an expectation that a program evaluation and review will be conducted at the conclusion of the program. In the context of the review of the program and analysing what the outcomes and impact of the program were on business survival and employment more broadly, the plan is that the evaluation would be stepping back and looking at the effectiveness of the program. But Mr Hirschhorn is right. The data we would get on company profitability comes from their income tax returns.

Senator PATRICK: Which is not in yet.

Ms J Wilkinson : Which we don't have now. We don't even have 2019-20 ones now, and we won't get the 2020-21 returns until well into 2022.

Senator PATRICK: Has the review that you referred to concluded?

Ms J Wilkinson : No. This is an evaluation of the program, which we've only just commenced.

Senator PATRICK: Minister, since our last meeting, have you changed your appetite in relation to retrospectively returning to taxpayers money which was taken for a particular purpose but then used for profit?

Senator Birmingham: No, Senator. The government hasn't changed its attitude. JobKeeper was outlined with clear terms at the outset. It provided an important role in terms of underpinning confidence at a time of enormous uncertainty. We believe that it served its many purposes: providing confidence; avoiding business failure; supporting individual Australians; and helping drive economic stimulus through Australia's first recession in 30 years.

Senator PATRICK: If I look at the list the PBO was using—you're comfortable with the idea that Ampol took taxpayers' money and provided it to their shareholders as a dividend?

Senator Birmingham: I don't have details about individual companies in front of me. I am not going to comment company by company, if you are going to put that to me in that sense. Have some companies returned dividends to shareholders who are overwhelmingly Australians, Australian superannuation funds, people for whom those dividends are an important part of their financing and growth strategy? Yes, some have. JobKeeper was not established on the basis that every company needed to be losing money to be eligible for it. It was established for the range of purposes that I outlined before, in terms of confidence outcomes, stimulus outcomes, employment outcomes and business survival outcomes.

Senator PATRICK: Yes. I understand that no-one was breaking the law, but it clearly goes against the intent. You will remember, just as well as anyone else, that when this legislation was in the parliament it was done on an emergency basis, so it wasn't necessarily as thoroughly thought through as other legislation might be. You don't see there is an option there to correct in those particular circumstances where there wasn't a thoroughly researched policy being put forward?

Senator Birmingham: No, Senator, not in terms of retrospectively going back and changing the policy criteria. The type of evaluation that Ms Wilkinson was speaking about before will inform our government and future governments in terms of, if you had to do it all again or you had to do something like it again, how you might structure it in ways that achieve enhanced outcomes with potentially greater value for money. But importantly we would also be looking at ensuring that at such a crisis point of assumption or uncertainty, as it was at the time JobKeeper was born and established, how you still make sure a program is appropriately accessible to businesses and achieves the certainty and the confidence that was sought at that time too.

Senator PATRICK: Since our last exchange, you might be aware, I posted a little video of that. My office was contacted by a range of South Australians who were quite disturbed about the idea that there were a number of companies that made profit and that profit was derived from JobKeeper—from their money. What do you say to my South Australian constituents who are most upset about this particular program being abused by companies, in their minds? The people I work for and the people you work for. How do you explain that to them?

Senator Birmingham: Sure, Senator Patrick. I am happy to continue to contribute to your social media campaign and your videos. What I would say to them is—

Senator PATRICK: No. This is about us representing South Australians.

CHAIR: Senator Patrick, order!

Senator Birmingham: Can you do me the courtesy of not interrupting me, Senator Patrick?

Senator PATRICK: Sure.

Senator Birmingham: Thank you. I hope that bit gets in your video too. What I will say to them, as I've said to you already today, is that JobKeeper was established at a time last year when the country was headed towards the first recession we had faced in 30 years, at a time when speculation and projections were that it could be as devastating as the Great Depression. Certainly the global economic impacts are the biggest global disruption to the world economy since the Great Depression. As a program, it has positioned Australia where employment levels in Australia have recovered to be ahead of pre-pandemic levels faster than any other major developed economy in the world.

In relation to your question specifically about the fact that some businesses ultimately did make a profit through the year and have returned that in dividends, I would say to people that frequently they will, through their superannuation holdings, be beneficiaries of those dividends and those returns. We would much rather an economy in which people's jobs are saved, people's investments are secure and businesses are making money, than an economy where businesses are losing money, people are losing their jobs and people's investments are not making a return.

Senator PATRICK: This is not about trying to undo what was done back in early 2020. This is about, having got through that and having preserved the jobs—and no-one is criticising you for implementing the policy in the way in which you did, but now looking back, none of what you just said to me goes to any good reason as to why you wouldn't seek to recover that taxpayers' money that went beyond the preservation of jobs and the preservation of a company. No-one begrudges that circumstance. What they don't like is that money was given to them by the taxpayer and then funnelled, in many cases, to private individuals who own large companies or own large shares in companies. It's taxpayers' money.

CHAIR: With due respect, Senator Patrick, this isn't a forum for discussion. I'm happy for the minister to respond if he wants to.

Senator PATRICK: The way this works, Chair—

CHAIR: Senator Patrick, the way this works is questions and answers. I know the way this works.

Senator PATRICK: I'm asking a question on behalf of my constituents who do look at these videos from time to time, and it's a reasonable thing that they get to see what their representatives are saying. There's nothing perverse about that at all.

CHAIR: Senator Patrick, I will allow the minister to respond, and then you'll have one more question.

Senator Birmingham: Senator Patrick, you're right. The Australian economy performed far better than was expected through the pandemic, and, as a result, businesses have done better than anticipated through the pandemic. Part of that success is a function of programs like JobKeeper having worked, and we are proud of the fact that it has worked and achieved those enhanced outcomes. I don't know whether your line of questioning suggests you want us to go after the many small businesses across Australia who also made a profit whilst in receipt of JobKeeper, because the vast majority of businesses participating in the JobKeeper program were small and medium-sized businesses. I know that it is popular in some quarters to go after the larger companies who have to publicly report their outcomes, but, if you were to take your argument, then we would also be sending a recovery bill to a whole range of small and medium-sized businesses right across the country as well. Our view is that we laid out the criteria for this program in advance. People engaged with the program in good faith under those criteria at a time of massive uncertainty, and we're not about to go back a year later and change the rules, whether you're a big business or a small businesses.

CHAIR: This will need to be your final question, Senator Patrick.

Senator PATRICK: Yes, that's fine. So what about all of those people who honestly went through the Centrelink processes and found themselves having to repay money? They were people in much worse conditions than some of these businesses. We now know that the government acted unlawfully in the returning of that money. You seem to be quite okay with companies taking money for which there was no purpose; yet, on the other hand, you have people who complied with the law and then were pursued by government. How do you reconcile that?

Senator Birmingham: The handling of Centrelink debts was never about trying to go back and change the entitlement that people had to a payment that they had received. It was a recovery activity—

Senator PATRICK: An unlawful recovery activity!

Senator Birmingham: where debts were identified as having been incurred. You're asking, in relation to JobKeeper, for us to go back and change the eligibility criteria of something that was set up and engaged in in good faith. Where the ATO identify anybody wo accessed JobKeeper and claimed JobKeeper, particularly during the last two quarters of its operation, against the laws that were established for JobKeeper, then I fully expect the ATO to seek to recover those funds from those businesses and to use the full force of the law to do so. If people accessed the program contrary to the generous way in which it was legislated, Senator Patrick, then they ought to have the full force of the tax office in pursuing the recovery of any such funds—

Senator PATRICK: The people who received Centrelink accessed their entitlements lawfully and were pursued by government in a way that was later found to be unlawful.

Senator Birmingham: Senator, I know that you're smart enough to understand the differences between the two and that the issues that related in the Centrelink case were about the manner of the debt recovery and the way that was undertaken. What you're asking us to do here is to actually rewrite the laws of eligibility after people—

Senator PATRICK: It's not a hard thing to do. There's a building just over there you can do it in.

CHAIR: Senator Patrick!

Senator Birmingham: Sure, Senator Patrick. We're not about to go back and retrospectively change the entitlements.

Senator PATRICK: I'm sure South Australia will be disappointed.

Senator Birmingham: They'll get to have their say at the next election, won't they?

Senator PATRICK: They will.

Senator Birmingham: Good luck with that.

CHAIR: That's the end of your time for the moment, Senator Patrick. We will be continuing with Fiscal Group. Senator McAllister will take us to the break.

Senator McALLISTER: I've got a couple of questions which are largely administrative. I would ask them of Minister Hume, except that we have a slight disjuncture between your role, Ms Wilkinson, in leading the economic security work and Minister Hume's ministerial job. Was there a change to the administrative orders to facilitate the new portfolio for Minister Hume or did the allocations for Treasury remain as they were?

Ms J Wilkinson : I hate to say this, but I think that's a question for Prime Minister and Cabinet. I'm not aware of any changes to the administrative orders in respect of her women's economic security role—

Ms V Wilkinson : Not at this stage.

Ms J Wilkinson : No.

Senator McALLISTER: Can the department take this on notice. This is one of these things where I'm really asking you to confirm my online research. Is the administrative arrangements order that was promulgated on 18 March the relevant order? I am happy for that to be contemplated over the break and for people to come back and tell me later.

Ms V Wilkinson : Yes.

Senator McALLISTER: I don't know whether one has been made subsequently. Do you know, Minister?

Senator Birmingham: I can't recall, which suggests possibly not, but the issuing of an administrative arrangements order won't necessarily capture everyone's attention. I have no doubt that the processes around updated charter letters and so on for ministers would have ensued and been pursued following the reshuffle. But, in terms of the administrative orders, whether there were changes necessary, I'm just not sure.

Senator McALLISTER: Maybe that's just something—

Senator Birmingham: We can take it on notice as it relates to whether there were any changes for Treasury.

Senator McALLISTER: Yes, that is particularly what I'm asking: has Treasury acquired any new responsibilities or devolved any responsibilities to anybody else as part of that set of changes to create this new set of appointments in relation to women?

Ms J Wilkinson : My answer is I don't think so, but we will confirm for you.

Senator McALLISTER: That would be terrific. I want to understand how the department will support Minister Hume in her new role. Will a women's economic security unit be established within the department? How is it going to work?

Ms J Wilkinson : The members of the women's task force are being supported by a combination of the Office for Women and individual departments. My recollection is that the Office for Women, for example, is taking a central coordinating role around all of the measures in the women's statement. There are a couple of measures in the women's statement that are Treasury portfolio matters that we will feed into. But, for the most part, it's the Office for Women that is looking after all of the suite of measures which came forward in the statement. We did engage with Minister Hume and assisted her through the process of the development of the women's statement and the task force meetings, but, at this stage, we haven't set up a specific unit within any of our groups. Social Policy Division has taken responsibility for leading the work. They'd led the work on the women's economic statement. We decided it made most sense for them to lead that work given, partly, the load that Budget Policy Division was already handling in terms of pulling together the other budget statements and given their role in the development of a number of, though not all of, the initiatives which were coming forward and that were going to be covered in that statement.

Senator McALLISTER: But the Minister for Women's Economic Security as a position within the structure of government does sit within the Treasury portfolio; that's correct, isn't it, Minister Birmingham?

Senator Birmingham: Senator Hume is sworn to this portfolio, yes.

CHAIR: That may be an appropriate place to break. We are coming back with Fiscal Group.

Senator McALLISTER: Sure.

Senator Birmingham: Ms Wilkinson has just reminded me that Senator Hume is also sworn to the Department of the Prime Minister and Cabinet through her digital economy role.

CHAIR: We will break there, because we will stick to the schedule. We will return after the break, continuing with Fiscal Group.

Proceedings suspended from 15:45 to 16:01

CHAIR: Alright. We will resume this hearing of the Senate Economics Legislation Committee for budget estimates. We are continuing in Fiscal Group. Senator McAllister still has the call.

Senator McALLISTER: May I just confirm this is the right section to ask about HomeBuilder?

Ms J Wilkinson : Yes.

Senator McALLISTER: I'm aware that the HomeBuilder scheme closed on 14 April. That's correct, isn't it?

Ms J Wilkinson : Yes.

Senator McALLISTER: I want to know how many of the applications that had been lodged were considered incomplete when the HomeBuilder scheme closed.

Ms V Wilkinson : I don't think we have a figure for that. The states are administering HomeBuilder, and those applications come into them. There are different processes in different states, but there's a portal in a range of states and then individual processes in other states. We don't have oversight of what is in the system. The state revenue offices have oversight of those.

Senator McALLISTER: Ms Wilkinson, are you aware of the stories last night and last week on A Current Affair that there is a Facebook group called 'Homebuilder Grant Application Problem' that had gathered over 800 members who were desperate because their application for HomeBuilder was deleted?

Ms V Wilkinson : I am aware of the A Current Affair program, and I'm aware of the Facebook page, which has been running since the inception of HomeBuilder.

Senator McALLISTER: Can you explain what happened?

Ms V Wilkinson : HomeBuilder is administered by states under an NPA between the Commonwealth and the states. The states administer the program through a portal in some jurisdictions and through an individual mechanism in others. Over the course of the HomeBuilder program applicants have provided varying degrees of applications into that system, and the system closed on 14 April, as you've flagged. At that point there were people in the system with very early stage applications and people with almost fully complete applications. It became obvious post 14 April that there were differing interpretations of what was an application in the system. The Commonwealth has worked with state jurisdictions ever since 14 April in respect of those applications. The states have now corresponded with applicants in the system who had applications that were partially complete to flag that an application in the system is an application that will be assessed by the states to see if they are eligible for the HomeBuilder grants.

Senator McALLISTER: Have you talked to the states about this problem?

Ms V Wilkinson : We have talked to state revenue officers continually since the management of the HomeBuilder program.

Senator McALLISTER: But this is a very specific problem, isn't it?

Ms V Wilkinson : Yes.

Senator McALLISTER: People believe they have been cut out of the system. I have here a pile of emails and they are absolutely devastating. They are from people who are full of anguish about the circumstances they find themselves in. One said: 'I am desperate to attain these funds towards my new home. I am in my 50s and I cannot have this money taken away from me at this stage of life.' That is one such letter. There's another couple saying: 'We are devastated. We're in our 50s, and we finally have the opportunity to build our forever home after saving together for the last couple of years.' This is a really emotional, stressful issue for these people. Is Treasury considering apologising? Minister, are your ministers considering apologising to these people? They are out of their minds with anxiety.

Senator Birmingham: I'm aware of some certain decisions taken at a jurisdictional level, in terms of seeking to provide rectification where partially complete grant applications were not in the system in time for HomeBuilder eligibility where that appears to have been due to administrative issues in those jurisdictions. There might be some information that could be provided in terms of what is happening there at the jurisdictional level to try to work through these issues. I do appreciate the emotion that must be involved for the individuals concerned. I haven't seen the A Current Affairs story that you referenced, but I can certainly appreciate it from the circumstances you are outlining.

Clearly, if there are issues in terms of state-by-state implementation that have caused distress to individuals, we are very sorry that that would have happened. If there are means to still rectify that without compromising the integrity of the program through the states and territories, then, of course, I think we would be cooperative in terms of doing so.

Ms V Wilkinson : Can I just add to the minister's response that the states have notified all applicants who are in the system of the change in their interpretation of the definition of 'submitted'. That occurred yesterday. All of those people, if they have applications in the system, will have received an email from the state jurisdictions. We've confirmed that with each state.

Senator McALLISTER: So your evidence is that you have been in contact with every state who has been administering this program for the Commonwealth and created a pathway where every one of these people will have their application considered.

Ms V Wilkinson : We have been notified by states that affected individuals have now received or been notified by email that the definition of 'submitted' has been changed to take account of any application that is in the system. It won't support anyone who hasn't submitted an application—that is, hasn't put an application into the system. That has been confirmed by state revenue offices.

Senator McALLISTER: Has the minister asked for a briefing on this mess?

Ms V Wilkinson : We have briefed the minister ever since the commencement on HomeBuilder on a variety of issues.

Senator McALLISTER: Have you briefed him on this mess?

Ms V Wilkinson : We have briefed the minister on all the issues that have come up through HomeBuilder since the commencement of HomeBuilder. There have been a variety of issues that have arisen over the course of this program.

Senator McALLISTER: Thanks, Ms Wilkinson. That is not a response to my question. Have you briefed the minister about the issues confronting these citizens?

Ms V Wilkinson : We have provided briefings on every issue, including that one, that has come up during the course of HomeBuilder.

Senator McALLISTER: Thank you. When did you brief him?

Ms V Wilkinson : I haven't got the dates with me. Ever since it started to emerge as an issue we have been briefing, so I will have to go back, but probably since 14 April. I haven't got that with me at the moment, but we can come back on notice.

Senator McALLISTER: Did you brief him in the last week?

Ms V Wilkinson : Yes.

Senator McALLISTER: So the last time you briefed the minister on this mess was last week, after the story aired on television?

Ms V Wilkinson : We have been briefing on that issue, among others, as it has arisen and over the course of the period that it has been an issue.

Senator McALLISTER: Minister, are you satisfied that these people will get the outcome they are expecting, which is a fair hearing and a fair process through HomeBuilder?

Senator Birmingham: I'm not going to attempt to answer for every email or comment you've got on a Facebook page. I'm sure there are a range of different circumstances there, but it does sound like action with the states and territories to achieve a more satisfactory outcome for those cases, where they are legitimate, has been put in place. I trust that Minister Sukkar will be staying on top of that and working with the states to ensure that their communications, as the holders of those applications with individuals, provides an outcome for them.

Senator McALLISTER: It would be a brave soul who would venture that Mr Sukkar will be staying on top of things, but we'll leave it there.

CHAIR: We'll take that as commentary, Senator McAllister. Do we remain in Fiscal Group? Is anyone else seeking the call? Senator Chisholm.

Senator CHISHOLM: I have questions about the new National Agreement for Skills and Workforce Development. It says on page 43 of Budget Paper No. 3 that the Australian government and the states are working towards a new national skills agreement by August 2021 to replace the existing agreement. The same page shows funding for the National Agreement for Skills and Workforce Development of $1.6 billion each year out to 2024-25. Does that mean the Commonwealth will not be increasing funding under the new national skills agreement?

Mr Boneham : This agreement is still under negotiation with the states. That is being led by the Department of Education, Skills and Employment, so they are probably the best people to ask about that. What I am aware of is that there are bilateral discussions with all states and territories, and the total amount of funding will be dependent on those negotiations.

Senator CHISHOLM: Can you point to any specific measure in the budget that contains additional funding for a new agreement to be reached?

Ms J Wilkinson : Negotiations are ongoing. It's typically the case that, when you're in the middle of negotiations, you don't reveal what you might be negotiating around. I don't think there is a provision in the budget which allows—

Mr Boneham : There were some announcements made in the budget. There was $1.49 million for 15 industry owned Skills Enterprises. These are the enterprises that will be providing advice on the types of training packages that are needed. For example, in digital, they might say they need certain skills packages. There was funding provided for that. There was $69 million for a new VET National Data Asset. That will assist the National Skills Commission in the work they will be doing. There is also $30.9 million over four years to redesign and rebuild the national training register—that's training.gov.au—and $23.6 million over four years to uncap the Skills For Education and Employment program. These are basically foundation skills programs which assists in numeracy, literacy and digital skills. They are an important part of skilling people up so they can go and get a job. There is also $12.1 million for simplifying Australian Apprenticeship Pathways. And there is $10.7 million—sorry, that's not related to skills ones; that was going to be for the Digital Skills Cadetship, but that's not related to the skills agreement.

Senator CHISHOLM: Once the agreement is in place, if additional funds were required would they come out of the 'decision taken but not yet announced'? Is that the likely outcome?

Mr Boneham : That would be my understanding.

Senator CHISHOLM: Will the amount of funding under the new national skills agreement be made publicly available before the agreement is signed?

Senator Birmingham: Once an agreement is reached with the states and territories then the budget implications, in a detailed sense, would usually be reflected in the next budget update. It would be likely, when an agreement was reached, that funding announcements would occur as well, if there were relevant funding announcements to be made, which usually, Senator Chisholm, predates the actual signing of an agreement.

Senator CHISHOLM: If the funding will come out of the decision taken but not yet announced, I'm just wondering how you would cost the amount that was provisioned as part of that in the budget, given the agreement is still being negotiated.

Senator Birmingham: I'm smiling, Senator Chisholm, because I'm thinking through the fact, as Ms Wilkinson said at the outset, that where it's a negotiation we don't customarily show our hand in the budget as part of that negotiation. But, in generic terms, we would cost it while looking at the policy outcomes being sought to be achieved, mindful of previous funding arrangements and working through what is a fair assessment, we believe, of a Commonwealth contribution to achieve those policy outcomes and to enter into an agreement with the state.

Senator CHISHOLM: Yes. So it's done, I suppose, on a worst-case scenario of what you potentially have to account for?

Senator Birmingham: I wouldn't quite describe it as worst case.

Ms J Wilkinson : No.

Senator Birmingham: It's—

Senator CHISHOLM: Best estimate?

Senator Birmingham: a best estimate, a realistic envelope.

Ms J Wilkinson : It's usually the negotiating envelope that you broadly provide the minister who's leading the negotiations.

Senator CHISHOLM: Is the funding based on funding per student?

Ms J Wilkinson : Do you mean under the current NASWD or under the new agreement?

Senator CHISHOLM: Under the new agreement.

Ms J Wilkinson : I don't think it's appropriate for us to speak about the new agreement.

Senator Birmingham: No. And some of the new agreement is subject to negotiations.

Senator CHISHOLM: Okay. Has the department met with state or territory counterparts to discuss these funding arrangements, or is that left to the department of education?

Mr Boneham : I have had discussions with state treasuries. I've also been involved in bilaterals with the Department of Education, Skills and Employment and skills departments in treasuries. So yes, I have been involved.

Senator CHISHOLM: How many times have you met with states and territories since the new minister was appointed?

Mr Boneham : I'd have to take that on notice.

Senator CHISHOLM: Okay. Can you give us a sense of what the subject of those discussions has been?

Mr Boneham : Obviously, the states are putting forward their issues with the proposal. I'm hearing from treasuries similar things, but also discussions in relation to how the Commonwealth would fund the skills agreement. That's been a big part of the negotiations over the last two months.

Senator CHISHOLM: What about a sense of how close you are to coming to an agreement?

Ms J Wilkinson : Again, I'm not sure it's appropriate for us to—I mean, these are always challenging negotiations with states and territories. There are certainly some negotiations which are more advanced than others, but I wouldn't want us to jeopardise the success or otherwise of any of these agreements by making any commentary on them.

Senator CHISHOLM: I suppose I am just trying to get a sense of where the discussions are at with states and territories. I understand your position. Is there likely to be a different amount for the same course in different states and territories?

Mr Boneham : The National Skills Commission is developing products, and those products will set out what is called an efficient price. At the moment, those products are still in development. The purpose of that is to set an efficient price across jurisdictions which will relate to what the costs are in delivering that product or that training course. States will then have flexibility in relation to fees and subsidies for those products. It is a different system to what is in place now. Until we have those products, I can't really answer your question. Hopefully they will be released in the second half of this year. I think the NSC has stated they will be released then.

Senator CHISHOLM: Would one of the principles of the new funding agreement be that no jurisdiction is worse off?

Mr Boneham : I believe that has been a commitment given to states in relation to that.

Senator CHISHOLM: Is the new funding agreement—and you touched on this before—based on an efficient price?

Mr Boneham : The new funding agreement will take into account the efficient prices that the NSC will produce.

Senator CHISHOLM: Can you give us a sense of how that will be calculated?

Mr Boneham : I cannot at the moment because we don't have the products. I'm sorry.

Ms J Wilkinson : The work that the NSC is doing on efficient pricing is going to be useful for all jurisdictions. Again, I think we have to be clear about not presupposing where the negotiations are going to go and what the outcome of negotiations will be.

Senator CHISHOLM: Is funding in the model based on the National Skills Commission national average benchmark price report?

Senator Birmingham: I think that is definitely getting to potential detail of negotiations of the agreement that is still under negotiation.

Senator CHISHOLM: I will just move on to legislation. Have you commenced drafting legislation to underpin the new national skills agreement?

Mr Boneham : That would be a question you would need to ask the Department of Education, Skills and Employment.

Senator CHISHOLM: I want to move on to JobTrainer. Can you tell us how many JobTrainer placements have been contracted for delivery with the states and territories to date?

Mr Boneham : That is another question you should put to the Department of Education, Skills and Employment. They are implementing that and have policy responsibility for JobTrainer.

Senator WALSH: I have a couple of questions about the government's response to the aged care royal commission in the budget for the Fiscal Group. Part of the key role of the Fiscal Group is to ensure that government spending is effective. The government committed $3.2 billion for residential aged-care providers through a new $10 per resident per day supplement. Is that funding tied to anything more than the quarterly reporting measure?

Ms J Wilkinson : Again, we are happy to help as far as we can on the aged-care forms. The Department of Health, obviously, are responsible for the aged-care reforms and responsible for speaking about them in the whole. Of course, the Department of Finance are responsible for doing all of the costings.

Senator WALSH: I note that I have only a couple of questions on it that I think are pertain to you.

Ms J Wilkinson : The broad answer is that there are a number of elements of the aged-care reform which go to governance. This goes to what the increased requirements are on providers—whether it's the number of minutes of care, whether it's how they respond to issues that are raised by the Aged Care Quality and Safety Commission, whether it's resources for that commission to do better audits. There are a number of those measures which go to improving the performance of the aged-care sector. The specific answer is: I don't think there's a specific element in relation to that particular increase. That particular increase was determined both by the royal commission and by the government as being an important increase in funding to put the residential aged-care sector on a sustainable footing. But both the government and the royal commission recognised the importance of the broader set of reforms to improve outcomes in residential aged care.

Senator WALSH: I'll just unpack that a little bit, because I think the royal commission called for a lot more than the $10-a-day daily supplement. You've just characterised, I think, that $3.2 billion as being what the royal commission called for, but it's not what it called for, is it?

Ms J Wilkinson : They certainly called for that. I'm not saying they didn't call for other amounts as well.

Senator WALSH: Yes. I understand the broader policy context of this and I am trying to get to a couple of questions for fiscal group. The first is: what is that measure tied to?

Senator Birmingham: Without the royal commission report in front of me, a fundamental part, at least, of that decision does go to the viability and capability of providers to be viable whilst meeting even existing expected standards of care and operation, but that does also then contribute, as Ms Wilkinson has said, to a number of the other expected obligations and standards being put on providers. Beyond those administrative functions and standards that it is being expected providers will meet, there are other budget measures, such as the finding that relates to the minimum care time, that will help to achieve these recommended outcomes of the royal commission as well. The decision on that $10 was squarely a response to the royal commission and a recognition of the arguments the royal commission had made for that funding to flow.

Senator WALSH: Was it more of a bailout payment?

Senator Birmingham: I wouldn't use 'a bailout payment' as a description, but it was certainly a recognition that there are, for some providers, viability and sustainability pressures and that those pressures then have a flow-on effect in relation to their ability to provide the quality and standards of care that are expected. This payment eases those pressures and enhances the ability to provide enhanced quality and standard of care.

Senator WALSH: So it's to bail them out and get them to a basic minimum level, rather than to actually get to improvements in food, for example. I think that's what the community understood this $10 a day per resident to be.

Senator Birmingham: It should provide improvements in areas like food, whilst other reforms identified, such as the minimum care times, the 200 minutes overall, of which 40 minutes are with a registered nurse—I'm getting nods that my recollection is correct—have additional funding streams attached to them.

Senator WALSH: I am asking about this specific $3.2 billion fund, the $10 per resident a day supplement. Is it tied to anything specific, or is it a general bailout amount? Is it tied to specific outcomes in relation to food, for example?

Senator Birmingham: I think we're probably getting to a level—

Senator WALSH: Do providers have to spend more on food?

Senator Birmingham: I understand the question. We're probably getting to a level of detail around what is in the standards and the evolution of those standards with aged-care providers, and that really needs to go to the Department of Health. If there's more that officials can add in terms of knowledge there, but—

Senator WALSH: In terms of just the basics of ensuring that government spending is effective, it's a $3.2 billion fund. Is it tied to anything? Is it tied to improvements?

Senator Birmingham: There are a lot of conditions that aged-care funding is tied to, and the Department of Health is best placed to take you through changes in relation to those conditions.

Senator WALSH: My understanding is that the only thing that providers have to do in relation to the $3.2 billion fund is undertake to report to government on expenditure on food on a quarterly basis. Do you think that that is a sufficient implementation plan for a $3.2 billion fund, given the shocking knowledge that we now have about the basic daily needs of residents being unmet?

CHAIR: With due respect, Senator Walsh, I think the minister has answered the question to the degree it can be answered here and not by the Department of Health, but I'm happy for the minister or officials to respond if there is anything they can add.

Senator WALSH: I would like a response.

Senator Birmingham: I'm happy to respond again, as I said. In terms of detailed requirements and the standards and expectations set on providers, the Department of Health is better placed to answer that than the Treasury is. That funding is a direct response to a direct recommendation of the royal commission. It, as I said before, recognises that there are pressures in the aged-care sector, including sustainability pressures, and that those pressures do contribute to some providers not meeting the standards expected in the sector, and that additional funding can better enable those providers to meet the standards of care and support that are expected. The criteria for and the standards overall that have to be met, really are Department of Health questions.

Senator WALSH: When the program comes to be evaluated, will it be evaluated by the Department of Health? When this funding measure comes to be evaluated, who will evaluate it?

Senator Birmingham: There's a series of reforms as part of the aged-care royal commission response, and that includes changes in 2023, for example, to the way bed licences are allocated and the funding formulas that exist around that. I don't think this so much is a fixed term program for program evaluation at its conclusion. This is a step up in base funding that then leads us through the journey to other reforms that build upon that, those other reforms being the increase in minimum care times and changes to bed licence arrangements and consequential funding changes overall.

Senator WALSH: This is a genuine question: will anyone be evaluating the impact of that $3.2 billion program on whether residents got better food? Who will be evaluating whether the $3.2 billion funding, which is meant to provide better food, results in better food or not, given that providers are reporting on a quarterly basis?

Senator Birmingham: The government will absolutely be expecting—

Senator WALSH: But who within government, which agency?

Senator Birmingham: It will be the Aged Care Quality and Safety Commission, being at the front line in terms of their reporting against standards and government expecting to see improvements in standards as a result of the investments being made. Again, in terms of the monitoring of those improvement and the increased transparency around the reporting of them and the accountability being applied to providers, they're all questions really for the Department of Health.

Senator WALSH: That implies that there is going to be monitoring of improvements.

Senator Birmingham: Well, there is additional funding for the commission as part of these reforms, too, to increase the monitoring and reporting.

Senator GALLAGHER: I have a couple of questions about specific measures. Senator Birmingham, I asked about one of these last week in Finance, and I think they ended up taking it on notice. I just want to know whether Treasury can shine any more light on it. It's about applying a consistent four-year newly arrived residents waiting period across payments. It's the largest save in the budget. And what assumptions were used to inform that costing?

Senator Birmingham: I think Senator Keneally touched on that before.

Ms J Wilkinson : We spoke earlier today about what the net overseas migration assumptions were and that those were provided to relevant agencies in doing all the various costings and forecastings for the budget. I'm not across the detail. I presume it's the Department of Finance that actually are responsible for that costing.

Senator GALLAGHER: Yes. They couldn't tell me. There's the 160,000—

Ms J Wilkinson : Yes—the permanent migration program.

Senator GALLAGHER: And then there's the Treasury one, which has it dipping to minus 777,000—

Senator Birmingham: The net overseas migration.

Senator GALLAGHER: That's net overseas migration, which takes into account what happens to temporary migrants as well as permanent migrants.

Senator GALLAGHER: Yes. Considering that we're not going to have 160,000 for the first cohort—let me write this down: it's 160,000 for the—how did you just describe that?

Ms J Wilkinson : That's for permanent migration. It's the migration planning level, but it's the permanent migration program.

Senator GALLAGHER: And then we've got the actual—what you think you're going to see for net overseas migration for the forward estimates that you put in.

Ms J Wilkinson : Yes. So, we've got the permanent migration program. Then we've got the humanitarian program. And then we've got the temporary arrivals and departures, which includes people like students as well as Australians coming and going.

And in terms of your comment about the 160,000 permanent migration program: that permanent migration program is filled from people who come in from offshore and also temporary migrants who are onshore, who can become permanent migrants. My understanding is that actually we're expecting the 160,000 to be close to filled this year. At least, that's the planning.

Ms Anderson : It's still definitely the plan for that to occur—most of that.

Senator GALLAGHER: So, that would be largely from temporary migrants actually moving into permanent—

Ms Anderson : You'd have to check definitively with Home Affairs, but our understanding is that the change to the program this year was to have far more onshore applicants being granted permanency through the permanent planning level.

Senator Birmingham: For example—and I hope I'm not revealing something that Home Affairs hasn't—I think they were giving priority to clearing some of the waiting list of onshore partner visa applications.

Ms Anderson : That's correct.

Senator Birmingham: As an example of where you've got people here on temporary visas who have applications that have been waiting for consideration, and in a year in which offshore applicants weren't able to make the migration pathway, they've been able to prioritise some of those onshore applicants.

Ms Anderson : And, if it's helpful, the parameters that are used for costings are consistent with appendix A in BP3, where all the population numbers are. Those are the numbers that form part of, effectively, the baseline. So, the 160 and the 190 and those sorts of things are consistent with that appendix A. Then what is costed is how a particular change to the program that is new each year affects the UCB, the underlying cash balance. So our numbers, from the Centre for Population, basically form part of the baseline, and then changes in policy decisions are costed against that baseline. I'm sorry that's a bit esoteric.

Senator GALLAGHER: No, no. I understand it. You set that, and then it goes to agencies. Once a measure is agreed they basically put all of those different components in and come out with what that actually means for the UCB.

Ms Anderson : Exactly.

Senator GALLAGHER: That's probably answered as much as I can ask about that. We'll ask some questions of Social Services later because I presume they've done the detailed side of how that policy decision actually comes up with a final number that you then put into the budget.

Ms Anderson : There's a role for Revenue Group as well because we're talking about tax receipts. In terms of the costing of the migration program each year, the Tax Analysis Division in our Revenue Group prepares that costing. Finance then prepares it in collaboration with the relevant responsible departments that may be having an impact in a fiscal sense.

Senator GALLAGHER: Thank you very much. On the childcare program—and I know that the detail will have to be asked in education and skills—I can't remember what the initiative is called, but I'm interested in the $1.7 billion over five years. I'm interested in how that lines up with the labour market participation rate. I know there will be ons and offs in it, but you're forecasting participation to decrease by 2022-23. I want to know whether there's a participation component in the childcare package. Would you have done that work?

Mr Swieringa : Colleagues from Macroeconomic Group did some of the work around the economic effects of this, but, within their analysis, they thought it would lead to increased participation for about 1.4 per cent of the people who have children aged zero to four. Because that's quite a small section of the population, it's probably not large enough to have moved their participation forecasts overall. That would be my understanding, but, as I said, it's Macroeconomic Group who could probably give you—

Senator GALLAGHER: So Macroeconomic Group did that analysis specifically of that $1.7 billion measure?

Mr Swieringa : That's right.

Senator GALLAGHER: You don't have the details of how many people that would be? It's 1.4 per cent of, what?

Mr Swieringa : It potentially affects up to 250,000 families or thereabouts.

Senator GALLAGHER: The whole package?

Mr Swieringa : Yes.

Senator GALLAGHER: Of that, are you saying it would have an increase in the participation rate of about 1.4 per cent?

Mr Swieringa : Not so much the participation rate. I think that's the change in hours that we would expect out of that cohort of people. We haven't pinned it down exactly to heads; it's mostly done as an analysis of how many additional hours we thought people would work.

Senator GALLAGHER: Have you got that?

Mr Swieringa : Overall, we thought it was as much as 300,000 hours of work per week—

Senator GALLAGHER: That this would—

Ms J Wilkinson : The way the government presented it, which is completely reasonable, it's equivalent to about 40,000 individuals working one extra day a week. Our expectation is that this measure would largely provide an incentive for people who were working, say, three days a week to take on an extra day a week, rather than having someone who was completely out of the labour force to come in altogther.

Senator GALLAGHER: So it's dealing, in particular, with the women who, if they pick up more hours, will go back with their childcare costs, basically.

Ms J Wilkinson : Exactly. It's dealing with some of the highest workforce disincentive rates, as we call them, which are a function of both the cost of childcare and the withdrawal of other benefits. The other thing that's critical here is that the government, at the same time, removed the cap on the childcare subsidy that a family could receive per child. There were some families who were affected by that cap who had workforce disincentive rates of more than 100 per cent.

Senator GALLAGHER: Just explain to me the 1.4 per cent. What is that, again?

Mr Swieringa : That's the change in the number of hours that we would expect out of people in families with children aged zero to four.

Senator GALLAGHER: We currently have about, 250,000—

Mr Swieringa : Families who have got multiple children aged zero to four.

Senator GALLAGHER: Because you have to have two. don't you?

Mr Swieringa : You've got to have two or more, yes.

Senator GALLAGHER: In child care?

Mr Swieringa : In child care.

Senator GALLAGHER: So it's a smaller subset. It's not that many, when you think about 250,000 in childcare. Of the people in child care who have two or more children of childcare age, so nought to four, you would expect it would increase by about 300,000 hours per week for equivalent of about 40,000 families.

Ms J Wilkinson : Forty thousand—it's equivalent to—

Mr Swieringa : Individual extra days of work.

Senator GALLAGHER: Thank you for that.

Senator CHISHOLM: I have some questions about the JobMaker hiring credit. I think it was around the last estimates that the Treasurer announced that a thousand,000 people had been employed using the JobMaker hiring credit. Do you have an update on that figure?

Ms Brown : As at 24 May, there were 2,400 employees covered by the JobMaker hiring credit.

Senator CHISHOLM: Can you tell me how much has been paid out in the JobMaker hiring credit.

Ms Brown : $4.2 million.

Senator CHISHOLM: $4.2 million out of $4.9 billion, is that right?

Ms Brown : The original costing was $4 billion.

Senator CHISHOLM: What is the now expected take up?

Ms Brown : The cost was revised in the context of the budget, and it's now expected that there will be probably around 10,000 employees covered by the hiring credit.

Senator CHISHOLM: What are the costs associated with that?

Ms Brown : It's $93 million.

Senator CHISHOLM: The saving of that is set out on page 84 of Budget Paper No. 1. Is that correct?

Ms J Wilkinson : That's right, in the top dot point.

Senator CHISHOLM: What is the saving all up?

Ms J Wilkinson : The saving for the JobMaker hiring credit?

Senator CHISHOLM: Yes.

Ms Brown : It is $4 billion less $93 million.

Ms J Wilkinson : It's $3.9 billion.

Senator CHISHOLM: That's $3.9 billion. I'm just trying to get a—

Senator Birmingham: Just for the sake of a technicality there, Senator Chisholm, it's an estimates variation in that sense. It's a program underspend, not a decision of government to reduce the value of the program.

Senator CHISHOLM: That dot point reads:

payments relating to the Economic Response to the Coronavirus program, which are expected to decrease by $1.5 billion in 2020-21 ($4.9 billion over the three years to 2022-23), largely reflecting lower than expected uptake of the JobMaker Hiring Credit and improving labour market conditions

The $3.9 billion of that $4.9 billion is JobMaker hiring credit.

Ms Brown : That's right, and there are some other underpayments in that category also.

Senator CHISHOLM: What are the other components of that saving?

Ms Brown : The remaining part is largely an estimates variation on the JobKeeper payment.

Senator CHISHOLM: Can you provide that in a bit more detail to me.

Ms Brown : The expenditure on the JobKeeper payment was revised down by around $1 billion in the budget, reflecting lower than expected utilisation of the program due to better labour market conditions.

Senator CHISHOLM: So the take-up now will be 10,000 for the JobMaker Hiring Credit. That gets us to the $93 million figure?

Ms J Wilkinson : Just to be clear, it remains a demand driven program. So the take-up will be whatever the demand for the program is, but the estimate that we have in the budget papers is that there would be a take-up in the order of 10,000 new hires.

Senator CHISHOLM: When the funding profile for the JobMaker Hiring Credit was being updated for inclusion in the 2021-22 budget, was consideration given to expanding the eligibility of age of employees under the program?

Senator Birmingham: The government looked carefully in relation to this program, as we did across all of the policy settings in the budget, as to how to best sustain the economic recovery underway across the country. We determined that this program as legislated, whilst clearly not having the take-up anticipated, that's partly a function of the fact that youth unemployment, in the last figures at least, is now at its lowest level in 12 years. So the decision was that the best way to sustain the economic recovery in a way that provided the longest-term benefits to employment in the economy overall was to invest in areas such as the continuation of the full expensing measures that bring forward investment, and have a beneficial effect on the economy by bringing that forward, but also provide productivity and competitiveness gains across businesses for a longer-term output too.

Senator CHISHOLM: Just going to the specifics of my question, given unemployment is still a problem, was consideration given to expanding the eligibility of age of employees under the program, specifically?

Senator Birmingham: A range of things are always considered in the budget context—

Senator CHISHOLM: I'm saying specifically to this program.

Senator Birmingham: This program was considered in the budget context as well. Ultimately, for the task at hand, in terms of continuing the economic recovery in the areas that we felt would have the greatest benefit, we didn't feel that changing this program was going to be a priority. The labour market recovery has been far stronger than anticipated, especially far stronger than anticipated among young Australians. That's a good thing, and it's a good thing that there is less demand for this program than would have been the case had unemployment, particularly youth unemployment, been significantly higher.

Senator CHISHOLM: Was consideration given to just cutting your losses and ending the program?

Senator Birmingham: No. As you heard from Ms Wilkinson before, it is a demand driven program. We would still encourage Australian businesses of all sizes to support this program and to utilise this program by giving a young Australian the opportunity of work that this program supports and funds. Though many businesses are doing that outside of this program, we'd certainly encourage them to create those additional places and use it where they can.

Senator CHISHOLM: What was the age limit? Was it 35?

Ms Brown : There were two tiers of payment, and one applied to people up to age 30, with a lower tier up to age 35.

Senator CHISHOLM: What feedback did employees provide about the program? Was there a problem with the design? Why didn't it work?

Senator Birmingham: Firstly, youth unemployment, in the last figures, is sitting at a 12-year low. The extent to which the employment market has recovered and jobs have been created is far faster than anticipated when this program was born. Some employers have provided feedback of concerns analogous to—I think you were here when Senator Patrick was asking his questions before—that engaging in a government program that provides government funding, if they are a profitable business, only leads to them being targeted and getting negative headlines. That's why I would urge them, and urge those who comment on a program like this, to recognise that it's about creating additional places to give unemployed young Australians an opportunity, and we should celebrate businesses who choose to participate in it, not seek to condemn them for doing so. But there may be other feedback that officials can check.

Ms J Wilkinson : That was certainly a very strong piece of feedback we received from larger businesses. Ms Brown, do you just want to walk through some of the other feedback and our view for why it hasn't been picked up?

Ms Brown : I think the other significant theme in the feedback we received was that the program was designed with very strong integrity features and that those features made it complex for businesses to engage with the program. There were a lot of safeguards in place to avoid discrimination against older employees and to ensure there wasn't a windfall gain from employers engaging with the program. That meant it was necessary for them to provide quite detailed information to support their claim.

Ms J Wilkinson : The only other thing I would add is that there are other complementary wage subsidy programs which were introduced and expanded after the hiring credit had been announced—some of the apprenticeship programs in particular. A number of businesses made a decision that those were more beneficial for them than participating in the hiring credit, and you couldn't participate in both schemes at the same time.

Senator CHISHOLM: Thanks. How much has been spent on advertising for the JobMaker Hiring Credit since it was announced in the budget last year?

Ms J Wilkinson : I'm not sure whether the ATO has any specific information; we might have to take that on notice. There hasn't been a specific campaign about the hiring credit, but we can talk to the people in our corporate area who have dealt with the broader communications campaign. Do you have anything, Mr Hirschhorn?

Mr Hirschhorn : I don't have anything with me. I know the tax office has a lot of consultation and interaction with industry groups. You wouldn't necessarily consider that an advertising campaign, but we have tried to engage with stakeholders and through professional bodies to provide support to accountants and lawyers to advise their clients of the existence of the scheme. But I would have to take that on notice. I'm not aware of any formal advertising campaign, but I'll take that on notice.

Senator Chisholm: Also, whilst you're at it: the ATO website says:

From 15 January 2021, we will write to employers who have registered for the JobMaker Hiring Credit scheme and encourage them to check they meet all eligibility criteria before they claim. This will help ensure:

eligible employers can make a claim from 1 February 2021

there are no delays in their payments being processed.

It has the link there. Did that occur?

Mr Hirschhorn : Yes. The process we've adopted, which was also very successful in the JobKeeper program, was to have a registration process. It was really a registration of interest by an employer. We've had about 23,000 employers register. When they register there's a separate process where they indicate potential employees that they might claim for. We have a process where we have a first look at those employees and we also look at some of those integrity requirements—for example, they have to have tax returns up-to-date and various other requirements. We write back to them, and if we're concerned that they don't meet eligibility requirements, we say, 'You're not eligible according to our records, because you haven't yet lodged your return; it would be a good idea to lodge your return.' Ultimately, the claim is made through what's called Single Touch Payroll software.

We've also developed some workarounds for those employers who had not previously had access to Single Touch Payroll software. What we're trying to do after the registration phase is to maximise the position of the employer before they make their formal claim so that when they do make the formal claim it's as smooth sailing as possible. We find that some employers who register, register for employees who are not eligible employees—for example, they haven't been on the relevant benefits, such as JobSeeker. So some employers do not move from registration to making a claim.

Senator CHISHOLM: I was going to ask how many you wrote to. I think you said it was about 23,000.

Mr Hirschhorn : So 23,410 have registered. The numbers won't add up. We have not had to write to everybody because some people have registered if they look eligible. But, for example, in March we emailed about 1,200 of the employers who had registered but had nominated employees who appeared to be ineligible. So we emailed them and asked them to have a look at their claim. We wrote to about 14,000 businesses that had registered but that had yet to make a claim. There might have been overlaps between these groups. In early April, we wrote to 700-odd employers who had registered but had not yet lodged all the necessary tax returns and advised them that if they wanted to benefit from the scheme they had to get their tax returns up to date. This is now a rolling program.

Senator CHISHOLM: When you say 'write', do you mean email or was there a cost associated with this? Did you have to send—

Mr Hirschhorn : As I understand it, under this scheme we have mostly used email.

Senator CHISHOLM: Did you get any feedback as part of that process? If so, from how many businesses and what was the type of feedback?

Mr Hirschhorn : I don't have in front of me what feedback we've got. I hope that many of those employers found it useful in maximising their entitlement and not waiting until their claim was rejected. But, unfortunately, I'd have to take on notice if there was any substantial feedback. I know that across this scheme we have received 35 complaints. We generally track complaints more than compliments, but there's not a high level of complaints under the process.

Senator CHISHOLM: Are the companies using the hiring credit? I'm keen to get a sense of the different categories of employees, whether they were non-employing businesses or had one to four employees, five to 19 employees or more than that? Is that something that you have?

Mr Hirschhorn : We can provide some information. This links to the 2,400 unique employees who have been claimed. A little more than half—1,279—have been claimed on behalf of microbusinesses. Microbusinesses are those with business income or turnover roughly less than $2 million per annum. I will give you the exact numbers: 1,279 are micro and 736 are small to medium enterprises, So that is the difference. They range in turnover from $2 million up to $250 million per annum. Not-for-profits have claims for 88 unique employees, and large business have claimed for 297 unique employees. So the measure has mostly been taken up by microbusinesses and small businesses.

Senator CHISHOLM: You've got that based on turnover. Do you have it based on the number of employees they have?

Mr Hirschhorn : I do not have that in front of me. I can take on notice as to whether we can produce that.

Senator CHISHOLM: Thanks. That would be great.

CHAIR: Fiscal Group is released with our thanks. We move now to markets group. Welcome.

Senator GREEN: I have some questions about the announcement from the government in the budget about a cyclone reinsurance pool. Page 285 of the budget paper shows this announcement in the form of a 'fiscal risk' for the 'establishment of a cyclone and related flooding reinsurance pool'. Does the fact that it's a fiscal risk mean it's actually part of the budget in terms of that $10 billion guarantee? How does it impact the budget as a fiscal risk?

Ms Quinn : There's potentially a contingent liability on the budget, so the risks capture all potential liabilities in the budget. So that's why it's articulated in the risk statement. The exact parameters of the scheme have not been finalised. We are consulting on the precise mechanisms for the reinsurance pool, but the government has decided that, in the event that the parameters get finalised, there would be up to a $10 billion guarantee, and that's why it's in the budget.

Senator GREEN: Language is quite important with this one, so can I just be clear: it says that it's the government's 'intent' to establish a reinsurance pool. You've just said that if the parameters—is this a solid commitment, or does it depend on the consultation?

Ms Quinn : There's an intent to set up a reinsurance pool. The parameters of the precise arrangements for the pool are being consulted on now.

Senator GREEN: Right, what it looks like. Could that number change depending on the consultation?

Ms Quinn : In theory it's possible, but we're consulting within the current arrangement, which is to have a $10 billion liability.

Senator GREEN: It also says in the budget papers that the reinsurance pool will be designed to be cost neutral to government over time. What does that mean?

Ms Quinn : The intention is that it pays for itself over time. There will be particular years when particular insurance events happen where it might go into deficit, but it would be paid for over time through premiums by people paying for insurance. The reason you need some balance sheet adjustment is that, if the scheme is set up, over time it might be cost neutral but in any particular year it might go into deficit. I'll just pause and check if my colleague James Kelly has anything to add.

Mr Kelly : I don't have much to add. As Ms Quinn said, some years it could go into deficit. But you're accumulating premiums and charging insurers for access to the reinsurance pool, so in some years the norm would be that you are in positive territory, and then potentially you could get an event and you draw down.

Senator GREEN: My question is more about the cost neutrality of the scheme. You said it's going to be paid through premiums. Who is actually going to be paying for the reinsurance pool if it is going to be cost neutral to government?

Mr Kelly : Insurers charge premiums to, for example, households or strata titles or small businesses. The insurers, as they currently do, seek reinsurance for the risks they've taken on board. Reinsurance is effectively a form of insurance for insurers. So, it's in the space of providing reinsurance to the insurance companies that the reinsurance pool would operate. It would charge the insurers for the expected payouts over time plus administration costs.

Senator GREEN: So how does that get passed on to consumers?

Mr Kelly : Reinsurance is part of the costs of insurers. They build that into the premiums they charge households. One of the things the task force will be consulting on will be how to ensure that the benefits of cheaper reinsurance through the government pool are passed on to households. That's one of the things the consultations will be working through, and the consultation paper analyses a few options in that respect.

Senator GREEN: I've read the consultation paper and I've read the 23 questions that are posed in it. I'm here at estimates to get some answers, because that's what people in North Queensland want to know. They're very concerned about the possibility of a levy. Is the government ruling out a levy across all insurers to pay for this policy?

Mr Kelly : There's no levy proposal in the pool as set out in the consultation paper or the government's announcement.

Senator GREEN: You were talking about the difference with reinsurance and that being passed on through premiums. What percentage of an insurance premium on a regular house in North Queensland does the government say is currently made up of reinsurance costs, because this is what government is going to pay for? What proportion of a premium is made up of a reinsurance cost?

Mr Kelly : I don't have those figures with me. I can take it on notice.

Senator GREEN: But surely there's been some analysis about the margin that the government assumes that people will save? It's not saved; it's more what's attached to reinsurance. Is it one per cent, two per cent? What's the margin?

Mr Kelly : I would have to take the precise figures on notice. But, yes, we have been doing an analysis. We have been working with the Australian Government Actuary and an actuarial consulting firm to get a preliminary idea of the margin, but obviously the consultation process will offer opportunities to take that further.

Senator GREEN: So you do have those figures, but it's just a matter of taking them on notice?

Mr Kelly : I think we have those figures, but I don't have them with me, so I can't be absolutely certain.

Senator GREEN: I'm trying to understand how it's going to work to essentially save consumers money, because that's the key complaint from people in North Queensland—that is, the cost of insurance is making it unaffordable and inaccessible. In terms of the likely saving to consumers, is that the difference between the current component of an insurance policy that is made up of reinsurance? Is that the idea that that's what people will save? Ms Quinn is nodding.

Mr Kelly : A significant part of the cost of insurance for a household would be made up of the reinsurance that the insurer pays. The cost savings for the household under the proposal would be the difference in price an insurer pays for the government backed scheme or government pool versus what it would pay for a private reinsurer.

Senator GREEN: What's the difference?

Mr Kelly : The government in its announcement referred to a $1.5 billion saving of premiums over a 10-year period, so that's basically $150 million a year. That's the current estimate of that difference.

Senator GREEN: What does that mean in terms of premiums though? It's $150 million a year over 10 years for reduced premiums. That's for households, stratum, small businesses north of the Tropic of Capricorn over two years, but what does that mean for regular household premiums?

Mr Kelly : It's very hard to answer the question. Maybe I'll give a very general answer. The general answer is that premium reduction would on average represent a 10 per cent reduction in premiums.

Senator GREEN: On average?

Mr Kelly : On average. When you talk about an individual or an individual household, it's going to depend on where that household is, if it's a household or it's a small business or a strata, the nature of the insurance they have, issues around retentions that they have, so there are a lot of factors that could affect the individual policy level. There are also, as set out in the consultation paper, suggestions as to how those benefits could be maximised for those households in the highest risk cases.

Ms Quinn : Senator, I might just add, you asked the question about why is it that the government reinsurance might be cheaper than the reinsurances available to private insurers at the moment.

Senator GREEN: No; my question is about the difference that will end up being passed on to consumers for premiums and how that will happen.

Ms Quinn : But it's partly about why is it that a government reinsurance scheme might be able to be provided to insurers cheaper than they're currently paying for reinsurance themselves, and there are a few reasons, but the first is the aggregation benefit you get from having a larger pool of reinsurance going to market and the second is that the government scheme wouldn't have profits on top of it. In terms of the intention, it would be that it covers its cost but it's not got a profit margin. So they're two reasons that the expectation is you would get cheaper reinsurance through a pool arrangement.

Senator GREEN: Ms Quinn, sorry to pull you up, but you've said 'might' a few times. Will this actually be cheaper than—

Ms Quinn : Our expectation is that it will.

Senator GREEN: For the insurers?

Ms Quinn : For the insurers—yes, that's correct.

Senator GALLAGHER: Is there going to be a requirement to pass on any savings to households though—if you're giving cheaper credit to insurance companies that a requirement to pass onto households will be made?

Ms Quinn : That's one of the consultation questions. It's about arrangements to ensure that happens.

Senator GREEN: There's nothing locked in yet?

Ms Quinn : No, not yet.

Senator GREEN: Can I just take you to what people have been told about the reinsurance pool so far. I want to understand where that information is coming from. We know that the scheme doesn't start until 1 July 2020, so when can we expect things to change for premium holders? Is there an immediate effect on 1 July 2020?

Mr Kelly : 2022.

Senator GREEN: Is there an immediate effect for consumers on 1 July 2022?

Ms Quinn : That will depend on the design parameters. It will also depend on what current reinsurance arrangements insurers have in place and what the transition is from current contractual arrangements to a reinsurance pool run by the government. We don't know the answer precisely to that question now. These are questions that are being worked through over the next few months as we design the scheme in more detail.

Senator GREEN: Will the reinsurance pool provide premium reductions for premium holders as soon as it starts on 1 July 2022?

Ms Quinn : The intention is that it will be available to provide reduced premium reinsurance to insurers. The question in the transition arrangements is, if an insurer already has a contract with a reinsurance, at what stage they roll off, and at what stage they take up the government scheme.

Senator GREEN: My question is about whether it will actually happen immediately on that date.

Ms Quinn : The reinsurance pool will be available on that date.

Senator GREEN: Does that mean, as a policy holder in North Queensland, on that date my premium will drop?

Ms Quinn : It will depend on whether you were taking out your insurance then and whether your insurance has taken advantage of the government reinsurance on that day. It's very hard to say—blanket—everybody will get X at a certain time because everyone has different insurance arrangements; they renew at different times, as do insurance companies themselves in terms of their contractual arrangements with reinsurers.

Senator GREEN: You might have to wait for, what—a couple of months, a couple of years? What is it?

Ms Quinn : Most people have their insurance changing on an annual basis. In terms of the reinsurance contracts, they can go longer. These are questions that are being explored as part of the implementation process.

Senator GREEN: I take it on board that they are being explored now, but Assistant Treasurer, Minister Sukkar, told people: 'it will deliver undoubtedly premium reductions immediately.' What is the assumption behind that comment? What is the basis for that?

Mr Kelly : Senator, I haven't seen that comment, so I'm not in a position to comment on it.

Senator GREEN: It was in the press conference where this scheme was announced. I'm sure that you read it thoroughly and watched it live while it was happening. It was a pretty big announcement.

Mr Kelly : I don't have the transcript with me.

Senator GREEN: Where does the 10 per cent figure come from, Mr Kelly?

Mr Kelly : I understand the $150 million per annum saving that's reflected in the figure of $1.5 billion over 10 years, that's, in a sense, 10 per cent of what insurers pay annually for reinsurance.

Senator GREEN: Is that 10 per cent going to be immediate as well, or is it going to take some time to get to that 10 per cent saving?

Mr Kelly : Senator, I don't have anything to add to Ms Quinn's answer on that question.

Senator GREEN: The 10 per cent figure—can you just explain where that comes from again? What I'm interested in understanding is whether it will be any more than 10 per cent, or if 10 per cent is really the best we can hope for in terms of premium reductions from this scheme?

Ms Quinn : The 10 per cent is from preliminary analysis based on actuarial analysis of the market, the volume of reinsurance, the possible premium reductions through design of the scheme, but it's all preliminary. It's not a cap on the amount of reductions by any means. There are parameter shifts that could push that up or down.

Mr Kelly : And it is an average. As set out in the consultation paper, the intention is to design the scheme to deliver the greatest benefit for the higher-risk properties.

Senator GREEN: Minister Sukkar also said that two large national insurers said:

… they will be shortly announcing that they are re-entering the northern Australian market now that they will be able to access reinsurance through the Australian government.

Which two big insurers are going to re-enter the market now?

Mr Kelly : Senator, I don't have the answer to those questions.

Ms Quinn : I have known in the past, but I don't have them in my head at the moment. But I'm happy to take it on notice.

Senator GREEN: Okay. So, can I just be clear: the assumption on the current amount of premiums being paid in northern Australia in terms of what people will save could be more or could be less than 10 per cent?

Ms Quinn : That's correct.

Senator GREEN: And we know it's going to be cost-neutral to the government—

Ms Quinn : Over time.

Senator GREEN: But will the government have to pay something up-front?

Ms Quinn : It will depend very much on the incidence of cyclones. The intention, as Mr Kelly mentioned—this is how all insurance premiums work—is that you collect premiums and you build up a buffer. If an event happens in the first year it may well be that this has an impact on the government's budget. But over time it's intended to be cost-neutral. So, it depends on the incidence of insurance and insurance events.

Senator GREEN: And we don't know yet whether there'll be an immediate impact for every premium holder in North Queensland; it will just depend on where they're up to with their insurance and whether their insurers take up this reinsurance pool?

Ms Quinn : Yes, that's right.

Senator GREEN: Okay, so you may or may not save 10 per cent. It may or may not come into effect for you on 1 July 2022. And we don't know yet whether there will be a cost up-front to government, because we're not sure whether there'll be a cyclone or not. Is that right?

Ms Quinn : That's right. It is the government's intention, as clearly set out in their press release, that they are looking at premium reductions of around 10 per cent on average. And it is their intention that the reduction in insurance premiums occurs as fast as possible.

Senator GREEN: I know it's their intention, but I'm asking what's actually going to happen, because that's what matters. It doesn't really matter what their intentions are.

CHAIR: Senator Green, this is commentary.

Senator GREEN: Well, I'm pulling the official up because I've asked her multiple times what is going to happen.

CHAIR: Senator Green, I've been listening carefully. The official has answered all your questions. You are just repeating them now. Please finish this question, or I'm going to go to another senator.

Senator GREEN: I'm seeking to understand what the difference is, and I'm being really clear about this now—whether there is anything concrete that we can go back and tell people in North Queensland is definitely going to happen, or whether at the moment it's just intentions and consultations.

Ms Quinn : The press release is very clear. The government intends to set up a reinsurance pool. It intends to make sure that there is a $10 billion liability in the budget to be able to back the pool. It is consulting on the design parameters of the scheme now, in order to get the precise parameters, which will then provide more information. We have done a fair bit of work on the feasibility of it—whether it will work, how much it will cost—and rough parameters, which is behind the government's $1.5 billion for households over the period. That's all backed by analysis. But until you get the precise parameters it's difficult to say. It's also impossible to say whether there'll be a cyclone in the first, third or fifth year of the scheme. That is something that we can't predict.

Senator GREEN: My last question: obviously the ACCC worked for three years on a report on northern Australian insurance. They didn't recommend a reinsurance pool. They said that it might not be cost-effective and that it might not actually deliver savings for premium holders in North Queensland. What was your advice to government about the reinsurance pool in light of what the ACCC has said on the likely impact that it would actually have on premium holders?

Ms Quinn : In terms of looking at the reinsurance pool, it's clear that if you could reduce reinsurance premiums it would reduce the cost of insurance for North Queensland. The exact parameters of the scheme need to be carefully designed in order to deliver a reduction in premiums. That is why we are going through the consultation process and working very closely with industry to shape and frame the reinsurance pool to deliver reductions, as the government has asked us to do. So, our view is that you can reduce insurance premiums through a reinsurance pool.

Senator GREEN: On average 10 per cent.

CHAIR: Senator Green, we have been pretty generous. Senator McDonald wants a follow-up question on this area and then we're going to Senator McKenzie.

Senator McDONALD: As another resident of North Queensland, the announcement by the government of the $10 billion reinsurance pool has been welcomed with open arms, because this has been such a trying topic for so long, particularly for businesses, as well as strata title units and all those things you know from consultation papers. You've talked a little bit about the task force which is consulting to make sure that this is well targeted for industry, as well as premium holders. I want to come back to the ACCC report which, I think, in the end made 39 recommendations, some of which included the state government around stamp duty, and some were about reducing building risk, and the federal government is putting funds into reducing risks of roofs blowing off and windows blowing in. If I could get you to help me to understand, specifically around the state government's obligations around stamp duty. Is that something that officials have been able to engage with Queensland Treasury on, about their willingness to reduce the stamp duty premiums, which would result in an immediate reduction of insurance premiums in North Queensland?

Ms Quinn : Senator McDonald, you are correct, that the ACCC and other reports at times have pointed to stamp duty as an insurance cost and that reducing stamp duty would reduce insurance costs. It's not something that we've engaged directly with the officials on in recent times. But you are right that it is something that has been around for a long time.

Senator McDONALD: I think we identified that there was around $60 million that the state government is now receiving as a windfall tax because of increasing premiums, so even if we flatlined at the previous premium number that would have been an amount that was available to reduce insurance premiums for North Queensland. Thank you, Chair.

CHAIR: Thank you, Senator McDonald. Senator McKenzie, you have the call.

Senator McKENZIE: Thank you, Chair. I want to go to superannuation. It's a fact that no RIS was undertaken, and the reason for this was a certified letter from Meghan Quinn, Deputy Secretary, basically saying I certify that the review has adequately addressed all seven RIS questions. The review being the PC inquiry report handed down or completed 2½ years ago. But the fact is that many of the policy positions adopted are not covered in the PC review, particularly there is an issue around the inclusion of having to write to members regarding admin fees. Was there an assessment of what the letter writing would do for members and their assets?

Ms Quinn : Can I clarify that you are talking about the Your Future, Your Super package? It is open to the government to use existing analysis as part of the RIS process—

Senator McKENZIE: Yes, as part of—

Ms Quinn : That's what happened in this case. In terms of this precise question in terms of letter writing—

Senator McKENZIE: In your letter you say that the review has adequately addressed all seven RIS questions. The review doesn't cover a variety of policy positions within this reform. The one I am specifically asking about is the requirement to write to members. I want to understand, given we didn't do a RIS—like the impact to businesses of that particular policy position—how did we assess what the impact would be?

Ms Quinn : While all the RIS questions were addressed in the Productivity Commission, we did additional analysis in terms of the regulatory burden, in terms of the compliance cost of the different metrics. I'll just pass to my colleague on that more specific question.

Mr Dolman : The government proposal in relation to holding funds to account for underperformance has been taken to be an implementation of recommendation 4 of the Productivity Commission inquiry. In many ways, what the government has put forward is very close to what the Productivity Commission recommended in its review. One area of difference was that the Productivity Commission recommended that funds that fail the test twice should be, essentially, shut down. They'd be forced to close. Instead, the government has put forward a two-tiered response to funds that fail the test. The first tier being that they need to inform their members; the second tier being that, after two consecutive failures, they'll be closed to new members entering the fund, rather than being closed down altogether.

Senator McKENZIE: For this particular policy position around funds writing to members et cetera, I want to understand what assessment you did and how you came to the conclusion that this was an acceptable level of regulation and burden for companies. Can someone help me with the detail?

Ms Quinn : On the letter that you quoted, there is a table about the regulatory burden of implementing the whole package. It's broken down by the three different large classifications. The entirety of holding funds to account for underperformance is expected to cost about $6.4 million, in terms of the compliance costs. I'm happy to take on notice more details that go into making up that component for you. I don't have them with me here today. On balance, the whole package was around reducing fees for superannuation members, improving the efficiency of the operation of superannuation trusts and ensuring that, over time, there's accountability and strong governance in superannuation schemes.

Senator McKENZIE: What was the rationale, then—the reason for writing to members?

Ms Quinn : This is around ensuring members have transparency about what's happening to their superannuation. There's been a long-running discussion around the engagement of superannuation holders and how engaged they are in the activities of the superannuation fund. It seems reasonable, if a superannuation fund has not performed, that the members should know about this and that there's transparency and clarity about the performance before other action occurs. It seems logical that they would be informed through some sort of mechanism.

Senator McKENZIE: Yes, it seems logical. It does seem logical. My question is: was there consumer testing of whether this was the logical way to communicate with members?

Mr Dolman : The precise text is set out in regulations, which have gone out for consultation—

Senator McKENZIE: No, I understand that. I'm probably going a step back in the policy development space. It's a logical thought—'We'll just get them to write to their members'—and that may be the case. I want to know that it's the fact. What work did you do to inform that as your communication tool?

Mr Dolman : Just to come back to my previous answer, as part of developing that form for the letter, we worked closely with the Department of the Prime Minister and Cabinet's Behavioural Economics Team, as well as colleagues at the Australian Taxation Office, which deal with these sorts of interactions with consumers from day to day. It hasn't been Treasury designed entirely. We were reaching out across the Public Service.

Senator McKENZIE: Okay. I might ask some follow-up questions on that one. The Productivity Commission report did not include the admin performance test. Where was that evaluated?

Mr Dolman : The Productivity Commission report looked at investment returns both with and without administration fees. The government put out—as part of the Your Future, Your Super package in October last year, as part of the budget—an intent to put in place a performance test based on net investment returns, not with administration fees netted off. We went out to consultation, and we received 61 submissions. We consulted widely, bilaterally, with the superannuation industry, and the government reached a view, which you would have seen in the regulations that have now been circulated for consultation, that they now do want to include administration fees in the benchmark.

Senator McKENZIE: The admin performance test itself was evaluated in a similar way by accessing internal sections of the Public Service?

Mr Dolman : There was a normal consultation process on draft legislation.

Senator McKENZIE: You got 61 submissions. Who evaluated this particular performance test? Did it come from a submission that you received specifically, or did you read all the submissions and devise it yourselves, or did you get a consultant?

Ms Quinn : We gather information through consultations and discussions with expert parties ourselves. We do all the analysis and we present advice to government. That's what we do on all policies, and it was no different in this process.

Senator McKENZIE: So it was an internal evaluation by the department in advice to government.

Ms Quinn : Drawing on expertise from the industry, private parties and other interested people.

Senator McKENZIE: Why is there no appeal mechanism?

Ms Quinn : For which aspect are you talking about?

Senator McKENZIE: Closing down a fund—there's no way you can actually appeal this decision. It's just carte blanche.

Mr Dolman : In relation to that issue, the performance test will be set out through regulation, so it'll be a black letter test. APRA will have the role of administering that test one year to the next. But their role will be, in many cases, mechanical in terms of applying the formula that's set out in regulations.

Senator McKENZIE: I know it's a black letter, so my question is: why was the decision made not to allow an appeal?

Senator Hume: I can answer that if you like, Senator.

Senator McKENZIE: Thank you, Minister.

Senator Hume: APRA has always had the power to either change trustees or do whatever it needs to do with the superannuation fund, but what it hasn't had is a bright-line performance test. If a fund decides that APRA's decision is unreasonable, it can appeal that, and it would do that to Federal Court. That appeal could go on for ever and a day. It could say, 'Yes, we have underperformed by 50 basis points on an eight-year rolling average, but we have a really good app,' or, 'We have great customer service,' or, 'We've got really good insurance,' or, 'We're a big brand'. That could be fought out for years and years in Federal Court. For all of those years that it's in Federal Court, the members are stuck languishing in an underperforming fund. This bright-line performance test gives the fund the responsibility to tell its members that they have not received what was written on the box.

Senator McKENZIE: I'm not arguing with the intent of the legislation.

Senator Hume: It encourages them to go to the online performance tool.

Senator McKENZIE: I'm just going to the right of appeal being quite fundamental to our system, not just in this area but in regional forestry agreements and I could go on and on. There are businesses languishing every day as a result of green lawfare et cetera, so it's not a unique problem. At a philosophical level, why are we not allowing appeals?

Senator Hume: You have to look at the counterfactual to that, which is: should a superannuation fund that essentially is there to deliver retirement outcomes to its members and that has persistently underperformed by 50 basis points on a rolling eight-year average be allowed to continue and have all those members languishing in an underperforming fund, sending a report out to its members saying, 'Congratulations you made five per cent this year'? Its members say, 'Oh, I made five per cent this year, that's good,' not understanding that everyone else made 12 per cent.

Senator McKENZIE: I understand the purpose of the legislation. It's the lack of ability to appeal that is an issue.

CHAIR: For your information, a couple minutes, Senator McKenzie.

Senator McKENZIE: I've got two very short further sequences. The issue around the data that underpins and is pumped in to the admin fee benchmarking test has been raised with me as an issue. Did APRA confirm to you that complete and consistent data in relation to administration fees going back eight years was available for inclusion in the performance assessment?

Ms Quinn : We did have extensive discussions with APRA both before and after the government's announcement, and data is available. It is the case that people have raised issues around particular data measurement issues and things like that. The obligation on the superannuation trustees at the moment is to provide accurate information to APRA, so if it's the case that they're now looking at the data that they provided and realising that they would like to revise their data, that is a matter for APRA to investigate and to consider, given that the legal obligation is that they should be providing accurate information in the first instance. The quality of the data is something for APRA to investigate, looking at the issues that have been raised.

Senator McKENZIE: So you can be confident that APRA has a level of integrity around the data that's been collected thus far, because it's going to be retrospective?

Ms Quinn : The legal obligation has been on the superannuation industry to provide that quality of data to APRA, and APRA will obviously follow up, as they do on other requests, as people are now wanting to come clean on changes on data and things like that.

Senator McKENZIE: So you've had the conversations with APRA. How confident are you that they have robust data available to ensure that these tests can actually be conducted appropriately and as required?

Ms Quinn : You're asking me for an opinion on a regulator in Australia. I won't go into—

Senator McKENZIE: Well I'm figuring you've had a pretty good discussion with APRA, because to form the advice to government you'd have to have a level of confidence that the system as it has been running will provide the outcome that we're all seeking.

Ms Quinn : I have a high level of confidence in APRA's ability to implement this reform. That does not mean that all data provided to regulators is always accurate and correct. There will obviously be processes to evaluate and examine those things.

Senator McKENZIE: So has APRA dropped the ball, then, if we're worried about the integrity of the data they currently hold and that they may not actually have been getting the correct data?

Ms Quinn : That's not what I said, Senator. I'll just check if my colleague wants to add anything else on discussions with APRA around the data.

Mr Dolman : We have had discussions with APRA. They haven't raised any concerns to this point.

Senator McKENZIE: They haven't raised any concerns?

Mr Dolman : They have not. As Ms Quinn pointed out, the obligation is on the superannuation trustees to provide accurate data, and that's been the case for some years.

Senator McKENZIE: Yes. But it's clear that, whether they have or haven't provided appropriate data, that's all a bit opaque at the moment.

Ms Quinn : It wasn't my evidence that it's been opaque at all, Senator. What I'm saying is—

Senator McKENZIE: No, no, I wasn't meaning your evidence; I was meaning whether the integrity of the data supplied, under existing regulation, by superannuation funds was what it needed to be to give us the confidence around this.

Ms Quinn : I think it's fair to say trustees provided data to APRA and that data is now being used for a different purpose. They may well be looking at that data in a different light. That would be a process whereby APRA will have discussions with those trustees that raise questions with them, because the obligation was on trustees to provide accurate information.

Senator McKENZIE: Yes. I appreciate that. But this is data for a different purpose. We're using data collected for one purpose for a different purpose.

Ms Quinn : It shouldn't change the legal obligation of the trustee to provide accurate information—

Senator McKENZIE: I agree with you about that.

Senator WALSH: I too have questions about Your Future, Your Super. The bill contains a number of regulation-making powers, including the power that allows the Treasurer to make any payment by a superannuation fund an illegal payment. That power is being referred to as an 'investment kill switch', and the minister has stated that the investment kill switch power contained in the bill is required to prohibit superannuation funds from making investments or expenditure that is not in the national interest or 'to protect the national interest'. Has Treasury consulted with any national security agencies in the development of this legislation?

Ms Quinn : You're talking around the regulation-making power that allows for prospective, and a class of, actions in relation to clarifying the best financial interests of members. That's the regulation power you're referring to, and it's around ensuring that, as the system goes forward, if there is any uncertainty in the system there is an ability for clarity to be provided by the Treasurer. It is prospective. It doesn't go back in time, in terms of unpicking or undoing any investments or payments. It's only for prospective, and it would be a disallowable instrument—as are other mechanisms like this as part of legislation. For example: the Future of Financial Advice legislation has a mechanism like this in that set of arrangements as well. I'm not sure about the national interest quote that you're talking about. This is a targeted at whether a particular type of expenditure is in the best financial interests of members.

Senator WALSH: Has Treasury consulted with any national security agencies in the development of the legislation?

Ms Quinn : I'm not aware of consulting on national security, because it's not something that we're required to do.

Senator WALSH: Yes; so you haven't?

Ms Quinn : Not to my knowledge, no.

Senator WALSH: That's okay. Can the Treasury provide any examples of investments made by superannuation funds in the past that contravened the national interest?

Ms Quinn : We don't have a test such as what you're proposing; it's not in the legislation as before parliament. In the normal course of events we wouldn't look at that type of question.

Senator WALSH: You wouldn't look at it, and you haven't looked at it?

Ms Quinn : Not to my knowledge.

Senator WALSH: Has Treasury provided any briefings to Liberal or National backbenchers in relation to the powers that we're talking about since the publication of the Senate inquiry into the bill?

Mr Dolman : I'd need to take that on notice.

Senator WALSH: That's a question you need to take on notice? You don't know whether you've briefed any Liberal or National backbenchers in relation to the powers?

Mr Dolman : My apologies, Senator; I'm not being evasive. I was actually on an extended period of leave so I don't have that information in front of me.

Ms Quinn : I don't believe so, but we can check that specifically.

Senator WALSH: Okay. Has Treasury undertaken any work to prepare draft regulations in relation to schedule 3 of the bill?

Ms Quinn : I haven't got the bill in front of me. Is schedule 3 the one that refers to the regulation-making power?

Senator WALSH: Yes, that specific regulation-making power.

Mr Dolman : There were draft regulations in relation to schedule 3 that were circulated as an exposure draft in April. They went out to four weeks consultation. We received 41 submissions and we're working with government to consider what came back through that process.

Senator WALSH: I know that you've released the regulations in relation to the bill as a whole. But the bill contains a regulation-making power and so I'm interested in what we know about what that power might look like. What's the specific regulation for that power and where are you up to with that?

Mr Dolman : The minister may want to comment further, but my understanding is that the batch of regulations that the government has consulted on is the totality of the batch of regulations that the government is currently looking at. As it notes in the explanatory memorandum, if the government were minded to introduce a regulation down the track there would be another consultation process, another exposure draft process and so forth. And ultimately that would be a disallowable instrument.

Senator WALSH: Has there been any consultation with any other agencies or external stakeholders in relation to that potential regulation at this point?

Ms Quinn : We certainly consulted with people through both the legislation and the regulations. To the extent that stakeholders brought it up, we would have talked to them about their views in relation to that regulation. So the short answer is yes.

Senator WALSH: In response to a question on notice as part of the Senate inquiry into the bill, Treasury provided an estimate that 21 out of 77 MySuper products, containing over three million accounts, were underperforming. Has Treasury updated its estimates of how many MySuper products are underperforming since then?

Ms Quinn : We provided this answer on 8 April. I'm happy to take it on notice, but it's unlikely.

Senator WALSH: Has Treasury conducted any modelling on how many choice products would underperform according to the same benchmark that you used to model the underperformance in the MySuper products?

Mr Dolman : Obviously, as part of developing views around the policy and working with government in its design, we've looked at the available data. APRA is actually in the process of expanding their data collection beyond MySuper products currently. So I would say we don't have a reliable dataset yet that we can test those hypotheses against.

Senator WALSH: So you've got a benchmark and an estimate in relation to MySuper, but you don't have one in relation to choice products?

Ms Quinn : We have an incomplete dataset on choice products, and APRA is looking at expanding and improving the dataset on choice products. We don't have the full set of choice products to do the same sort of analysis on.

Senator WALSH: I think the Productivity Commission estimated that 36 per cent of choice investment options had returns that were substantially below what they described as a conservative benchmark, making up a large tail of relatively low-return options compared to MySuper products. You wouldn't have any reason, I guess, to disagree with that modelling of the Productivity Commission?

Ms Quinn : No. We certainly have worked with the Productivity Commission and understood the methodology they have used in their datasets, and we used that as a base for the analysis of the entire package in terms of the estimates of savings for consumers. We took their methodology and their base and updated it where we have got updated information, so there is no reason to have any questions about the Productivity Commission's approach.

Senator Hume: Senator Walsh, can I clarify for my own understanding: when you are referring to 'choice products', are you talking about trustee directed products that have a mix of asset classes in them, or are you talking about single asset class products?

Senator WALSH: I think I'm talking about non-MySuper products that are choice products.

Senator Hume: That have a series of asset classes in them?

Senator WALSH: Yes.

Senator Hume: Which are the group of products that are scheduled to join this program—Your Future, Your Super—in the second year?

Senator WALSH: Later, down the track, yes. After the MySuper—

Senator Hume: The year after this?

Senator WALSH: Yes. But I'm wondering why there's no Treasury data then on underperformance of those products which you've mentioned you intend to bring into these reforms later. At the moment you've given us answers on notice in April around the MySuper products. You've mentioned an incomplete dataset in relation to choice products. We have talked about the Productivity Commission research. You don't dispute that benchmark. There must be something that you can tell us now, or on notice, about your best estimates of how many choice products would be underperforming on the same benchmark that you've used for the MySuper products.

Ms Quinn : I'm happy to take on notice what we have available, noting the caveats around the work that APRA is doing to improve our understanding of that segment of the market. I am happy to take your question on notice.

Senator WALSH: Okay. Thank you.

Pro ceedings suspended from 17:59 to 18:59

CHAIR: We will resume this hearing of the Senate Economics Legislation Committee. We are in Senate estimates. We are considering the Markets Group of Treasury.

Senator McKENZIE: Just finishing off my line of questioning from before, I've had a look at the reform document released October 2020 and I'm having a look at the underperformance benchmarking methodology in appendix 2. Looking at this series, the equation set out, I'm thrust back to second year mathematics at university, which I really enjoyed. But I am a very small part of the population that probably 30 years ago could have worked this formula out. How do I explain that to the average super fund member in terms of the methodology that's underpinning the benchmark?

Ms Quinn : At a very high level, the framework is that there is a benchmark that is created. A regulator will assess it based on data provided by the trustee, and someone will either meet or not meet the benchmark. Then, in terms of how the actual benchmark is calculated—

Senator McKENZIE: So that's this formula here.

Ms Quinn : Yes, that's right. I will pass to my colleague to provide a bit more detail.

Mr Dolman : That's a good explanation, Ms Quinn—

Senator McKENZIE: Yes, but Ms Quinn and I are wanting greater detail.

Mr Dolman : The formulas in the back of the document, I think it's fair to say, were intended for the superannuation industry. The consultations we've had with industry—they've got an awareness how this works. It's the same approach that APRA has been using for their Heatmap methodology, and it's also the same approach the Productivity Commission used. Within the industry, there's a fair degree of familiarity.

Senator McKENZIE: With the formula itself?

Mr Dolman : That's correct.

Senator McKENZIE: Can anyone in this room explain it to me?

Senator Hume: Yes, I can explain it to you, Senator.

Senator McKENZIE: Thank you, Minister.

Senator Hume: A superannuation fund chooses its own asset allocation.

Senator McKENZIE: Yes.

Senator Hume: It's based on their own asset allocation and an index for each one of those asset classes. The formula describes whether that fund has underperformed by 50 basis points on a rolling eight-year average—

Senator McKENZIE: I understand the purpose of the formula. I understand that what gets spat out at the other end will give us the answer to that primary fundamental question. I was actually wanting more of a description of the formula itself.

Senator Hume: Sorry, I should actually add—

Senator McKENZIE: You've talked about how these sorts of parameters are used by the Productivity Commission.

CHAIR: Senator McKenzie, just let the minister finish.

Senator Hume: I should actually add that that formula, while it was in the budget document, is not the one that's in the regulations.

Senator McKENZIE: Okay.

Ms Quinn : One of the reasons why it looks complicated is, as the minister said, there are different asset classes with different indexes.

Senator McKENZIE: Yes, which is the sum of asset classes—

Ms Quinn : So you have to weigh them up and add them up and then average them over time. So there are two dimensions of complexity. That's why it looks complicated.

Senator McKENZIE: Yes. We've said that the Productivity Commission uses the Heatmap methodology.

Ms Quinn : They did use this formulation, and it's APRA's Heatmap that they've been publishing, and it's based on that methodology.

Senator McKENZIE: Is there a reason that this methodology was chosen over the benchmark that, say, the Future Fund would use?

Ms Quinn : The APRA methodology would have tried to capture all the different types of superannuation funds and the different asset classes they invest in over time, so there's always a trade-off between diversity and simplicity in this world. APRA, I know, has consulted extensively on the Heatmap over consecutive years for different purposes, so some of the discussions around those were about exactly how you measure every little bit and how you put it together as well, in terms of weighing it up and when the weights shift and those sorts of complexities. I'm not sure exactly. I haven't been involved in the discussions between the Heatmap and the Future Fund, but it's likely that it goes to having something that captures the performance of different types of entities and being able to compare them over time.

Senator McKENZIE: Thank you.

Senator CHISHOLM: I have some questions about Greensill Capital. Documents released by Treasury under FOI show the now-collapsed supply chain finance group Greensill Capital organised a conference call on 2 April 2020 with James Kelly, head of Treasury's Financial System Division; with adviser Aiden Storer; and with the department's macroeconomic adviser, Ian Beckett. I was just wondering who organised this teleconference between Treasury officials and Greensill Capital.

Ms Quinn : While my colleague is checking some background, I just want to correct that: Ian Beckett at the time was working in the Financial System Division, and he was moved as part of our reallocation of resources in response to COVID. So he was also in the Financial System Division at the time of the meeting.

Senator CHISHOLM: Thanks.

Mr Kelly : Senator, sorry. I didn't hear the precise question you asked at the end.

Senator CHISHOLM: I was basically just asking who organised the teleconference meeting between Treasury officials and Greensill Capital.

Mr Kelly : The meetings that were referred to in the documents released under FOI followed inquiries of the department, and the calls were organised following initial calls. One thing I should note, just for the record, is that, while on the documents released I am shown as an attendee at the meeting, I was on the invite list but I did not attend that call.

Ms Quinn : Just to clarify, looking at the FOI documents as released, it's not a Treasury system that the calls are registered on. The dial-in details and things like that suggest that it was organised by the other party.

Senator CHISHOLM: Okay. Who did the suggestion to meet with Greensill Capital come from?

Ms Quinn : Greensill Capital approached Treasury about the policy that Treasury was considering at the time, so the initial approach came from Greensill.

Senator CHISHOLM: And who was it from Greensill?

Ms Quinn : I understood it was Julie Bishop.

Senator CHISHOLM: So who did she approach at Treasury?

Ms Quinn : She approached the Treasurer's office, and then it was directed to Treasury. I certainly had a discussion with her about setting up a meeting.

Senator CHISHOLM: You had a discussion directly with Ms Bishop, about setting up a meeting?

Ms Quinn : Yes.

Senator CHISHOLM: So it started at the Treasurer's office and then filtered down? Okay. Was Ms Bishop on the teleconference?

Ms Quinn : She was on one of the teleconferences: the initial teleconference that I was on.

Senator CHISHOLM: How many teleconferences with Greensill Capital were there all up?

Ms Quinn : I'm not sure. I had one, which was about getting preliminary information about what they were interested in discussing, and then it was allocated to people more closely working on that policy. I think there was at least one more, but I don't know if there were more than that. I am happy to take it on notice.

Senator CHISHOLM: Okay. Is there no-one there who can advise us of how many there were?

Ms Quinn : I don't think so.

Mr Kelly : My understanding is that there was one call involving Mr Beckett with Greensill. That would have been in addition to the one you mentioned. But we can take that on notice.

Senator CHISHOLM: Thanks. On that first call, who was present on the conference call?

Ms Quinn : I, Ms Bishop and a member of Greensill Australia.

Senator CHISHOLM: Who was that person from Greensill Australia?

Ms Quinn : I would have to check. I honestly can't remember.

Senator CHISHOLM: Do you know if Lex Greensill was a party to any of the calls?

Ms Quinn : Not the call I was on.

Mr Kelly : I don't think Lex Greensill was a party to any of the calls with Treasury.

Senator CHISHOLM: What was discussed on the call that you were a part of, Ms Quinn?

Ms Quinn : The purpose of the call, from my perspective, was to find out what they were interested in talking to Treasury about further. They were interested in the parameters around the small and medium enterprise guarantee and who would or wouldn't be able to avail themselves of that policy under the rules. So the purpose was to listen to what they were interested in and then triage and provide a pass-through to someone who was dealing with that policy. So that was my intent. My understanding was that the follow-up was to hear more about Greensill's business model, what credit they were providing and what the parameters of their business were, to see whether they were eligible to be part of the scheme, which they were not. They weren't a party to it.

Senator CHISHOLM: So, basically, it was to see whether the product they offer was applicable to the scheme?

Ms Quinn : Correct.

Senator CHISHOLM: Did you meet with or have a discussion with any other companies that were pitching similar products or ideas?

Ms Quinn : I didn't personally, but I believe the team did.

Mr Kelly : During the COVID crisis, we would have discussions with people interested in providing, say, small-business finance. We were certainly interested in the trade credit market and also the related market of trade credit insurance. Part of the inquiries relating to Greensill were about not just product but their financing of the products. That took us into the space of structured finance support funds. Greensill provides trade credit. It arranges funding for that. So the call with Mr Beckett was essentially about the structured finance support funds.

Senator CHISHOLM: What was the policy, Ms Quinn, that you were discussing with Greensill?

Ms Quinn : I was asking them what they wanted to talk about, but it was the small and medium enterprise guarantee.

Senator CHISHOLM: Specifically to that, you didn't talk with any other companies or people putting forth products around that policy?

Ms Quinn : I didn't personally, no. But there was a whole set of engagement with the industry across the board about rules and regulations to do with the small and medium enterprise guarantee. So there were definitely discussions with other parties but not me personally.

Senator CHISHOLM: I suppose it goes to, though, the fact Ms Bishop was involved and you met with this company but any other engagement with other companies was left to other people?

Ms Quinn : It's just the way it worked. I had an initial conversation with them. I had initial conversations with an awful lot of people who were interested in what policy positions were. One of the roles I was playing at that time was triaging between stakeholders and allocating them to parts of the department that could follow up further.

CHAIR: My guess is that at that time you would have had a lot of businesses coming to government with a whole range of proposals. Did anything come out of the approach from Greensill, from a government perspective?

Ms Quinn : They were not members of the small and medium enterprise guarantee, no.

Senator CHISHOLM: So how come you met with this company and not others?

Ms Quinn : It was just the way it worked on the scheduling. I was actually in the Macroeconomic Group at the time, and I was working closely with the business liaison unit and various other parties. One of my roles at the time was to engage with stakeholders and help triage their connections to the department.

Senator CHISHOLM: Can you provide me with a list of what other companies pitched or put forward suggestions regarding the small and medium enterprise guarantee and who met with them from the department?

Ms Quinn : I am happy to take that on notice.

Senator CHISHOLM: At the time Treasury had engagement with Greensill Capital, an audit from the Association of German Banks had registered complaints about the Greensill bank with Germany's financial watchdog. Germany's financial watchdog warned of an imminent risk that the Greensill bank would become over indebted as it imposed a moratorium on the lender making disposals or payments. Is it common that Treasury accepts meetings with organisations whose products have been flagged as being an imminent risk?

Ms Quinn : We accept meetings with all sorts of businesses, depending on what the circumstances are. We wouldn't have being aware of the information you just provided at the time. We were responding to inquiries across the board from all sorts of industries and triaging them to see whether there was assistance that they might be available for.

Senator CHISHOLM: Just in relation to the contact from the minister, to clarify, that was Minister Frydenberg's office that contacted you about the meeting?

Ms Quinn : Yes, I had discussions with Minister Frydenberg's office.

Senator CHISHOLM: Can you provide a copy of the information that Greensill Capital gave to Treasury officials in preparation for that meeting?

Ms Quinn : There may be some issues with commercial-in-confidence information, but we're happy to take it on notice.

Senator CHISHOLM: If it was information provided by them, I don't see how that would be commercial in confidence.

Ms Quinn : Parties often provide information to us as part of a discussion. I didn't receive anything in advance of the meeting that I had. There were follow-up discussions, but the initial discussion was to find out what their inquiry was and what they were interested in.

Senator CHISHOLM: Following the conference call on 2 April 2020, did you have any further interactions with Julie Bishop regarding Greensill Capital?

Ms Quinn : Not that I'm aware of. I certainly didn't.

Mr Kelly : And there were no further follow-ups following that call.

Senator CHISHOLM: And Greensill Capital?

Ms Quinn : I didn't, no. I did the initial triage discussion. As Mr Kelly has said, there was an additional discussion with Ian Beckett and others. But, as I understand it, there were those two discussions.

CHAIR: And nothing came of it?

Ms Quinn : And they didn't fit in within the rules of the scheme.

Senator CHISHOLM: So what exactly did Greensill Capital pitch to Treasury that they thought could have been of use?

Ms Quinn : They were asking for clarity around the scheme. They were interested in understanding more about the scheme and if their product would fit into the scheme or not.

Senator CHISHOLM: What product was that specifically from Greensill?

Ms Quinn : I didn't get into details.

Mr Kelly : It would have been a trade credit product.

Senator CHISHOLM: So that would have applied to small business?

Mr Kelly : They provide trade credit or factoring, so it's a kind of financing. It's financing associated with the sale of goods and services from one party to another, which was their core business.

Senator CHISHOLM: Thanks, Chair. I do have some other questions for this group on another issue.

CHAIR: How long do you think they'll take? Otherwise I'll just—

Senator CHISHOLM: I'm happy to have a break.

Senator CANAVAN: I have some questions about the announcement in the budget on the change to the National Access Regime. I believe there was a review announced about this on 16 February. When did consultation finish for the review of the National Access Regime?

Mr Jeremenko : The consultation closed 19 April.

Senator CANAVAN: I've had a look at the consultation paper that was prepared for it. Has there been a final report drafted or provided to the Treasurer?

Mr Jeremenko : In terms of the decision that was announced in the budget, that is the extent of the further product, if you like.

Senator CANAVAN: So there was no final report or anything like that?

Mr Jeremenko : It was a consultation on aspects that would improve the timeliness of the processes surrounding the National Access Regime. As part of the decision-making, a regulation impact statement was prepared as well.

Senator CANAVAN: Consultation closed on 19 April. When was the decision made to progress reforms to the National Access Regime of the nature outlined in the budget papers?

Mr Jeremenko : It was certainly made after 19 April and in the course of finalising the decisions in the budget context.

Senator CANAVAN: Could you take on notice the specific date that the Treasurer made that decision?

Mr Jeremenko : Happy to do that.

Senator CANAVAN: Did you or other people from Treasury provide advice to the Treasurer around the consultation?

Mr Jeremenko : Yes, that's a normal course of events. We will summarise the issues raised in the consultation and provide advice to the Treasurer.

Senator CANAVAN: Did you or others from Treasury seek the views of the ACCC about the proposed changes?

Ms Quinn : Yes, and they provided a submission.

Senator CANAVAN: Were the ACCC consulted on the specific changes that had been proposed in the budget papers?

Ms Quinn : They responded to the consultation paper, as did others.

Senator CANAVAN: So their communication to you was during the consultation period?

Ms Quinn : Yes.

Mr Jeremenko : As a stakeholder.

Senator CANAVAN: So there was no further consultation to them post 19 April?

Mr Jeremenko : Not that I'm aware of.

Ms Quinn : We can take on notice—

Senator CANAVAN: Take it on notice.

Ms Quinn : Often there are follow-up conversations of detail.

Senator CANAVAN: Yes. I thought with detailed changes like this there might be, and the ACCC is on the record about some of these matters. Is there a list of submissions available online?

Mr Jeremenko : The normal practice is that submissions and the content those submissions be released. It's a matter for government, but normally it is the case that the timing of that release aligns with legislation that is introduced.

Senator CANAVAN: None of those submissions have been made public at this stage. What about a list? Is that available, or can you provide it?

Mr Jeremenko : I could take that on notice, but there's nothing published.

Senator CANAVAN: Okay, if you could take on notice the list of the submissions that were provided. On these changes, it's interesting that, on 29 December last year, in the Newcastle Herald the Port of Newcastle said to the paper:

… the government has assured the port on several occasions that it was going to make the amendment—

in fairness to the national Competition and Consumer Act—

but is yet to do so.

…   …   …

Senior government sources have indicated this long-running issue only affecting Newcastle will be resolved imminently.

This comment—admittedly, from the Port of Newcastle—came months before the consultation was even announced. Are you aware of the government indicating to you or others that they'd made a decision on this matter before consultation started?

Mr Jeremenko : No, I wasn't aware of that article. I was actually not in this role at the time.

Ms Quinn : The Treasurer did indicate on 16 February that Treasury would be undertaking examinations.

Senator CANAVAN: Yes, I mentioned that earlier. It just seems strange that, if it was out for consultation, at least the Port of Newcastle was indicating here that government had assured them they were already going to make amendments before the consultation. That seems a little strange and causes the question of whether the consultation was actually in good faith to be asked.

Ms Quinn : The Treasurer indicated that we'd be looking at it, and the consultation was released on 19 March for a month. So it's a bit earlier than the actual conversation.

Senator CANAVAN: I'm not suggesting—maybe the Port of Newcastle were incorrect, but they at least indicated that the government had made a decision. So, if they had already made a decision, to then go out and say, 'We'd like your views on this is issue,' is not exactly in good faith to others.

Ms Quinn : It's not the case that the government had made a decision.

Senator CANAVAN: That you're aware of.

Ms Quinn : That was made in the context of the budget deliberations.

Senator CANAVAN: Turning to the specific changes that were announced—and I'm sure you're aware of them—on page 189 in budget paper 2, there were three major decisions, the last of which is to terminate:

… arbitration proceedings and determinations where the declaration of infrastructure is revoked in order to correct an existing anomaly in the process.

Those are the government's words. My understanding is that particular point would terminate Glencore's current arbitration proceedings with the Port of Newcastle—am I correct in that?

Mr Jeremenko : That's going to, in effect, a hypothetical.

Senator CANAVAN: It's not a hypothetical. They've got arbitration right now with Glencore. It's not hypothetical.

Mr Jeremenko : The announcement of the government was, as you correctly referred to, in the budget papers. The detail of how that will work and the transitional arrangements that may need to apply are yet to be formulated. So that would go to answering your question.

Senator CANAVAN: I'll put it a different way: what are the arbitration proceedings and determinations currently in place that would be terminated by this change? Surely you would have assessed what would be affected by such a change before you made this recommendation.

Mr Jeremenko : Yes. I might pass to my colleague Mr Pearl, who is closer to it.

Mr Pearl : Senator, the arbitration proceedings you refer to date back to the initial ACCC arbitration determination, when the Port of Newcastle was part of the National Access Regime, a few years ago. That was reviewed on the merits by the Competition Tribunal, which handed down a different arbitration determination. That review was appealed to the Federal Court, and the Federal Court directed that the Competition Tribunal reconsider that case. But the Federal Court decision has been appealed to the High Court. Apologies for going into such tortuous detail, but that's the legal framework, and it is ongoing.

Senator CANAVAN: If the change that the government has announced were to be made, that would terminate those processes. Is that correct?

Ms Quinn : I think what Mr Jeremenko was saying is that, often when there is legislation put in place, there have to be transition arrangements for existing arrangements, and that detail hasn't been worked out.

Senator CANAVAN: The provision says, 'terminating arbitration proceedings and determinations where the declaration of infrastructure is revoked'. It's pretty black and white. I'll ask it another way. Is there a possibility, in the detailed development of the legislation, that Glencore's proceeding or Glencore's arbitration won't be terminated?

Mr Jeremenko : Certainly there is no start date evident in that budget announcement, so, yes.

Senator CANAVAN: But it seems to indicate that they'd be retrospectively terminated, because it says, 'terminating arbitration proceedings'—something that's going on. Maybe you could take on notice whether or not Glencore's arbitration would be terminated by this provision. Finally, just going back to some of the questions I asked earlier, are you aware of any other arbitration proceedings that would be impacted by this clause? Maybe you could just indicate verbally, Mr Pearl.

Mr Pearl : We're not aware, but we'll check.

Senator CANAVAN: Thank you. Rod Sims, in a speech on 30 September 2019, said:

We are deeply concerned about what this means for users of the service—

he was talking about the Newcastle port and changes to part IIIA—

as it will cause companies to limit investment in related markets as a result. In contrast, a declaration would constrain monopoly pricing and promote investment by providing a credible threat of arbitration.

…    …   …

With the Port of Newcastle, we already have a monopoly and it seems they are now completely unregulated. That simply does not make economic sense.

…   …   …

If the Port of Newcastle and others like it cannot be captured by the current test, then the regulatory framework must be changed.

Without asking for an opinion on Mr Sims's view, it would seem to me that these changes actually make the Port of Newcastle less regulated than it currently is. Is that correct?

Ms Quinn : I would characterise Rod Sims's view as about the coverage of the National Access Regime, so where they're vertically integrated—it does apply to elements beyond vertically integrated enterprises. And he has a policy view that he has put, as you said, in speeches and other forums. These reforms go to the effectiveness of the operation of the scheme in terms of the timeliness and certainty given to parties, how much it's tied up in legal backward and forward. So there are different policy questions. One is about coverage, whether it's just vertically or others, and this goes to the operation of the scheme.

Senator CANAVAN: Putting aside the questions of vertically integrated or not vertically integrated—you're right; it was in Mr Sims's speech—these changes mean less regulation on the Port of Newcastle. Yes or no?

Ms Quinn : These changes go to the efficiency of the scheme for everybody, not just the Port of Newcastle. They go to how much certainty there is for parties on both sides of an arbitration to the resolution of the dispute. It doesn't go to the actual outcomes of the regulation; it goes to how long it takes for the outcome to be known to parties.

Senator CANAVAN: It says here in the second point, which I haven't quoted from yet, from Budget Paper No. 2, that the changes would limit the new applications for declaration. That clearly would be less regulation for an infrastructure owner, would it not?

Ms Quinn : I think you need to read the rest of the sentence. It limits 'new applications for declaration, or revocation of a declaration, of infrastructure where the infrastructure has been the subject of a previous declaration or revocation process'. So it's about reprosecuting the case.

Senator CANAVAN: Sure, but compared to the baseline, compared to the status quo, which allows for new applications in those cases that you've read out, there is now less regulation for the Port of Newcastle—or there would be less regulation for the Port of Newcastle.

Ms Quinn : This legislation is not aimed at one particular part of the National Access Regime. It applies to all future applications.

Senator CANAVAN: I understand that, but—

Ms Quinn : And it goes to the—

Senator CANAVAN: But that sentence—sorry—just to come back to that, would mean less regulation on an infrastructure owner than today.

Ms Quinn : It wouldn't mean less or more. It would just be that the efficiency of the application of the regulation would be greater.

Senator CANAVAN: Well, it limits new applications for declarations. I'm sure infrastructure owners around the country are laughing and popping champagne.

Ms Quinn : No—where they've already been subject to previous applications.

Senator CANAVAN: Yes, okay, but still, compared to the status quo, that's lower regulation.

Ms Quinn : But if things have changed, if there's been a decision and circumstances have changed, then this would not prevent people from putting in an application. It would prevent people—

Senator CANAVAN: I completely understand that—

Ms Quinn : putting an application in—

Senator CANAVAN: but it does prevent people putting in an application where circumstances have not changed. Yes?

Ms Quinn : Correct, but that doesn't go to the—

Senator CANAVAN: Correct. Thank you. We'll move on.

Ms Quinn : Just to be really clear, that doesn't go to the level of regulation that people are subject to. It goes to the process of deciding what action is taking place.

Senator CANAVAN: I appreciate the forthcoming—but that, I suppose, is an opinion, which I probably shouldn't ask about.

CHAIR: Senator Canavan—

Senator CANAVAN: Yes, last question—well, just a last couple but not many more. That was the first point. The second point is about merits review, in Budget Paper No. 2. You're removing the merits review. It seems very strange to do this, given that the Harper review just a few years ago—and I'm quoting from the Harper review's recommendations on page 439—say:

The Panel favours empowering the … Tribunal to undertake a merits review of access decisions, including hearing directly from employees of the business concerned and relevant experts where that would assist, while maintaining suitable statutory time limits for the review process.

So is this new decision of government directly in contrast to the recommendations of the Harper review?

Ms Quinn : On the balance of the evidence, the government has decided to remove merits review, as opposed to keeping it.

Senator CANAVAN: And that's against, directly contradicting, the recommendations of the Harper review?

Ms Quinn : Correct, consistent with other policy decisions—

Senator CANAVAN: Yes, that's fine.

Ms Quinn : the government's taken.

Mr Jeremenko : And consistent with the Hilmer review. That decision is consistent with the Hilmer review.

Senator CANAVAN: Which decision? The government's decision?

Mr Jeremenko : The decision of government.

Senator CANAVAN: Yes. The Hilmer review was in?

Mr Jeremenko : 1993.

Senator CANAVAN: Yes. Okay. Thank you.

CHAIR: Senator Chisholm.

Senator CHISHOLM: I have some questions around the proxy advisers. In 2021-22, Treasury expense measure 'Resourcing for government priorities' includes $500,000 'to consult on and develop options to improve the regulation of proxy advice'. I was just wondering if you could break down how this money is being spent and how the amount of $500,000 was arrived at.

Mr Jeremenko : The amount that has been provided, as is often the case with various measures that Treasury's asked to examine, includes an amount to cover the number of resources that Treasury has on that task. In terms of the actual quantification of the $500,000, Mr Dickson, who's at the table, might be able to go into further detail. Otherwise, we can take that on notice.

Mr Dickson : That roughly equates to around three staff in a team plus overheads.

Senator CHISHOLM: I missed the last one.

Mr Dickson : Plus overheads. The Department of Finance provides a methodology in terms of making costings for these sorts of exercises. In this case, it amounts to roughly three personnel.

Senator CHISHOLM: Okay.

Ms Quinn : It's funding for the department to do the policy work associated with this measure. It's not funding for external consultants.

Senator CHISHOLM: Okay. And what are they actually going to do?

Mr Dickson : They'll be involved in precisely what it says in the budget measure, which is to undertake the analysis and assist with the consultation and work through the development of options.

Senator CHISHOLM: Has Treasury already spent any money in relation to developing options to improve the regulation of proxy advice?

Mr Dickson : In the sense that we've been doing the consultation already, yes.

Senator CHISHOLM: Could you give us a sense of how much money has been spent and what that's been doing?

Mr Dickson : I can take that on notice. The reason for taking it on notice is that essentially what you're asking me to do is just calculate the salaries for the people that have been working on this so far. I can do that calculation.

Senator CHISHOLM: Can you give me a sense of what work they've been doing so far?

Mr Dickson : They've been undertaking the consultation. There was a consultation paper that was released not that long ago. That consultation will be coming to a conclusion. That's largely the work that has been undertaken so far.

Senator CHISHOLM: How many people have been conducting that so far?

Mr Dickson : It has involved a range of people. There's the team that I spoke about, including myself and Mr Jeremenko. A good number of people have been involved so far.

Senator CHISHOLM: Is it just this unit that has been handling it, or has there been—

Mr Dickson : It's mainly run out of Corporations Branch, which is my branch—I run that. It does touch on aspects that cut across other dimensions of the financial system. Typically in that scenario, Treasury involves people who have an interest and who are outside the Corporations Branch. So it does include people from outside my branch.

Senator CHISHOLM: Will any external contractors or consultants be hired as part of the process?

Mr Dickson : At this stage, my intention is that I wouldn't.

Senator CHISHOLM: If that were to change, what process would you follow in engaging consultants?

Mr Dickson : The Department of Finance sets out what the procedures are for procurement. We also have internal procedures for that, so we would just follow those. Just to give you an idea of what that means: for certain procurement thresholds there are certain obligations upon us. Sometimes that involves us reaching out to a panel and we can then select an appropriately qualified consultant or entity from the panel. At other times it may require a more lengthy process.

Ms Quinn : Senator, just to confirm: at this stage it would be unlikely that we'd draw on consultants for this particular measure.

Mr Dickson : Yes, that's correct. I don't have that intention.

Senator CHISHOLM: I think you mentioned the consultation paper that was released?

Mr Dickson : Yes.

Senator CHISHOLM: What prompted the consultation paper, given that ASIC undertook a review of proxy advice in 2018 which pointed to there being no problems? What changed since that review was conducted?

Mr Dickson : I'll provide a bit of additional context to that. Looking at the Treasurer's media release that announced the review, two things are worth drawing your attention to. One is in relation to the importance of proxy advice. Proxy advisers do have a very significant influence when it comes to the way capital is allocated in the economy. They also have, secondly, an important influence when it comes to how companies are run, particularly given the extent to which shareholdings are determined by institutional investors. The government took the decision that there was a need to make sure that the regulations for such an important part of the economy are fit for purpose.

Senator CHISHOLM: So that's how things changed since the ASIC review was undertaken?

Mr Dickson : Yes.

Senator CHISHOLM: What research was undertaken as part of that consultation paper being put together?

Mr Dickson : In terms of the research that had been undertaken: we looked at overseas developments and we drew particularly on what was occurring in the UK and the US, as well as in other jurisdictions. Propositions had been tested in those jurisdictions, and a question had arisen as to whether or not some of the propositions that were raised there would be appropriate in the Australian context.

Senator CHISHOLM: Which organisations did you meet with prior to the Treasurer announcing the consultation?

Mr Dickson : I did not have meetings with anyone prior to that that I can recall. But I'll take that on notice just to be sure.

Ms Quinn : And, just to be clear: the role that proxy advisers play in the system as other entities in the financial system would be something we look at from time to time. It's not just the case that the only work in Treasury would have been done specifically for the consultation paper. It would have drawn on background and information developed over time.

Senator CHISHOLM: Did you meet with any of the proxy advisers to seek their perspectives before publishing the paper?

Mr Dickson : No. That would be an exercise appropriate for us to do during the consultation. In my time on this project, I've done that as part of the consultation exercise. I didn't do it before. I should clarify that my experience in the Corporations Branch is relatively recent, so there may have been activity that was undertaken before I was involved in it.

Senator CHISHOLM: Would it be possible to get a list of who was met with in the preparation of the consultation paper?

Mr Dickson : I'm happy to take that on notice.

Senator CHISHOLM: Did you meet with the BCA or the Australian Institute of Company Directors?

Mr Dickson : Yes.

Senator CHISHOLM: Was that as part of the consultation process?

Mr Dickson : Yes.

Senator CHISHOLM: Is Treasury aware of any complaints made by clients of proxy advisers to the Treasury or to ASIC in relation to the conduct of proxy advisers since the 2018 ASIC review?

Mr Dickson : In the course of our consultation there were suggestions put us about how the proxy advice sector could be improved.

Senator CHISHOLM: But was that made by clients of the proxy advisers or by other entities?

Mr Dickson : That includes clients of proxy advisers.

Senator CHISHOLM: Did you also received complaints from company directors about the role of proxy advisers?

Mr Dickson : I don't know if I'd characterise them as complaints, but there were suggestions about how the regulatory settings could be made fit for purpose. We have been receiving suggestions from a broad group of people about how those regulatory settings could be made fit for purpose.

Senator CHISHOLM: Thanks.

CHAIR: Senator Patrick.

Senator PATRICK: I have some questions in relation to the consumer data right standards advisory committee. I've seen some ads on SEEK in relation to what looks like jobs for this particular role. It's been put to me by elements of industry that you've currently got people in these roles who may be conflicted in some way. Are you aware of any allegations in relation to that?

Ms Quinn : Which roles are you talking about?

Senator PATRICK: It's the Data Standards Advisory Committee—people who are developing the standards for the Consumer Data Right's APIs, which will no doubt be used throughout industry.

Ms Quinn : The Consumer Data Right's Data Standards Body advisory team joined Treasury this year, in February, as part of a machinery-of-government change. At the moment there is a renewal of contract. Many of them are contractors with specialist skills, and so that's what you're referring to in terms of the SEEK market testing on contracts. As part of people's employment, they do need to comply with conflict-of-interest arrangements, and that's something that will form part of the contract for employees under the Treasury framework. At the moment people are employed under a framework from the CSIRO, where they were previously employed, and so any questions about conflict arising from their previous employment contract would have gone to CSIRO.

Senator PATRICK: But they're now working for you, aren't they?

Ms Quinn : They are, but they're not yet under our full employment contract arrangements, because the transition arrangements are still being worked through. I'll pass to my colleague.

Ms O'Rourke : The Data Standards Body is I think what you're speaking about, rather than the Data Standards Advisory Committee, which is a different group. The Data Standards Body is staffed by people who are both APS staff and then contractors. As Ms Quinn said, the APS staff are under an arrangement. They're on the CSIRO enterprise agreement. Yes, they're now Treasury staff, but their terms and conditions of employment are under the CSIRO enterprise agreement. In relation to the contractors, they are under contracts that were settled with the CSIRO. Those contracts have been novated over to Treasury. They're the contracts that we're currently in the renewal process. As Ms Quinn said, as part of that renewal process there will be a declaration of any conflicts that we'll consider in relation to any of those contracts that are entered by Treasury.

Senator PATRICK: My understanding is that some of the current contracts are not full time. They're some portion of time but in the order of $400,000 to $500,000 per annum in remuneration or contract value. Is that correct?

Ms O'Rourke : Yes, that's correct. The contracts are with the agencies who supply particular expertise. The expertise includes very specialist IT consultancy and IT architect and engineering skills. The value of those contracts in some cases is significant—like you say, exceeding $400,000. Those contracts were entered when the consultants were with CSIRO and then novated over to Treasury when the DSB came across to Treasury. As I said, we're in the process now of going to market to fill those roles, because those contracts expire on 30 June this year.

Senator PATRICK: Do you expect to be paying that sort of money in your current market testing?

Ms O'Rourke : The process that we're going through is allowing us to test the market and identify what proposals are put to us. I'm yet to have a readout of the applications to see whether they're at that level, so I'm afraid I'm not currently able to assist you with that particular question.

Ms Quinn : Just to clarify, not everybody gets paid that much—

Senator PATRICK: I understand that.

Ms Quinn : because we only pay for what we actually use. So while the full contract might specify that's the maximum, they may get significantly less than that because they may only work for a few days of the contract period on particular things that we target them to provide assistance with.

Senator PATRICK: Sure, in some senses the rate that I go to, the standard I work to is in the Legal Services Directions. If you are to employ a senior counsel above $3½ thousand per day or a junior counsel over $2,300 a day then the Attorney's permission needs to be sought. I've just seen in a whole range of defence contracts, OneSKY—parliament dealt with OneSKY several years ago with Airservices, where they were paying quite extraordinary rates. I appreciate these are novated, so it is what it is for you, and I'm glad to see you are at least testing the market. Can I ask you on notice to provide details of any of those contracts that are above, say, $350,000 per annum.

Ms O'Rourke : The current contracts?

Senator PATRICK: You can de-identify the players. I just want to get an understanding of that, then maybe next time we'll ask you the same questions about what's happened since.

Ms Quinn : Happy to take that on notice. It is something we have been looking at. Our desktop analysis suggests it's not unusual for these very specialist skills to command quite high rates in the marketplace, because it is quite a specialist skill and the ability to do this work is quite important for the consumer data—

Senator PATRICK: At this point in time you're supposed to be talking down the price, in case someone's listening: 'They're a dime a dozen and we're quite outraged by the price!'

Ms Quinn : That's why we've gone to market. I guess the underlying point is that they are very specialist skills that are important to the system.

Senator PATRICK: The contract no doubt will specify the types of activities that they do.

Ms Quinn : Correct.

Senator PATRICK: So if you could couple the higher value contracts with the type of work that was contracted, I'd be grateful for that. This next thing must be relatively widespread. My understanding is that there was a PID made in relation to this. I don't want to go to the PID, but apparently it's common knowledge that someone lodged a PID. That alarms me greatly, because it's an offence to reveal that someone has made a PID other than, obviously, in the course of dealing with a PID. Can you confirm, has a PID been made? I'm not going to go to the details.

Ms Quinn : I'm not aware of anything within the Treasury context.

Senator PATRICK: Okay. And you, Ms O'Rourke?

Ms O'Rourke : No.

Ms Quinn : We're happy to take it on notice, but it's unlikely, if neither of us—

Senator PATRICK: I'd just be really concerned if—I know of another instance, in another department, where questions are arising, and that's something you have to jump on straightaway, if people are spreading the word that PIDs have been lodged. It is an offence, and it is a huge deterrent for people who wish to come forward. Even if they're wrong, they are entitled to protection if they front up and say, 'Hey, I feel there's something going on that I want to draw to your attention.' Thank you very much, Chair.

Senator O'NEILL: I'm just joining you now, because I've been in another committee throughout the course of the day, so I apologise if I traverse any territory that you've already covered, but I certainly haven't heard your evidence. I want to take you to the Treasurer's speech on budget night, where he states that the budget 'will create more than 170,000 new apprenticeships and trainees'. You're familiar with that statement?

Ms Quinn : I'm not familiar with that statement, and those questions unfortunately would go to our Fiscal Group colleagues, who were here earlier in the day. That would go to the department of employment, and our Fiscal Group colleagues are the ones who do the central agency work in relation to the department of employment. We don't look after that element of the budget, I'm afraid.

Senator O'NEILL: Would you be able to answer any questions about the scale of the Boosting Apprenticeship Commencements measures.

Ms Quinn : Unfortunately, no.

Senator O'NEILL: Any questions at all about apprenticeships created?

Ms Quinn : Unfortunately not.

Senator O'NEILL: Okay. Let's see how we go with the next area of questions. The Department of Industry, Science, Energy and Resources portfolio budget statement says that outcome 4—'facilitates growth of small and family business'—is now the responsibility of Treasury.

Ms Quinn : That's correct, yes, and that is this group.

Senator O'NEILL: Could you clarify: has the Markets Division picked up responsibility for small business across the Public Service?

Ms Quinn : Yes, Markets Group, and within Markets Group the Small and Family Businesses Division, which was previously part of the department of industry, has joined Treasury as part of administrative government changes, and the responsibilities for the small and family business ombudsman have moved within the Treasury portfolio. So, both of those elements that were previously under the department of industry portfolio have moved to the Treasury portfolio and have joined the Markets Group within Treasury.

Senator O'NEILL: So, to be clear, all the responsibilities or performance measures for the small business division in the Department of Industry, Science, Energy and Resources have been transferred to the Treasury? There is nothing that you left behind there? It all came over with you?

Ms Quinn : It all came over, yes, that's correct—including Mr Cully, the division head.

Senator O'NEILL: Well, we are getting to this a little earlier than on previous occasions, when the overloaded program in Employment actually put it on even later. Mr Cully, you may be able to help here. Are there any new roles or functions that have been added or renewed since the change in administrative orders on 15 April 2021?

Mr P Cully : No.

Senator O'NEILL: So, it's exactly as it was? It's simply: pick up and move.

Mr P Cully : That's exactly what it was. There was a small function that was part of the division for a period that was not the responsibility of the small and family business minister, the Employing Your First Person project. That remains with the department of industry.

Senator O'NEILL: Could you explain that to me again, so I understand clearly—which tiny bit?

Mr P Cully : It was a project called Employing Your First Person, which was the responsibility of the Minister for Industry. That sat within my division from approximately this time last year or a little earlier. But that was not a responsibility of the minister for small and family business, and that particular function remains in the department of industry. That function had largely finished in terms of most of the workload. It created a contract builder tool for small businesses employing their first person. So the ongoing role there is really just maintenance and updating of that tool.

Senator O'NEILL: So who is particularly responsible for that now that you have moved off, Mr Cully? Is there anyone?

Mr P Cully : It sits within the AusIndustry division in the department of industry and is a responsibility for the minister for industry.

Senator O'NEILL: One of the roles of the small business division, when it was within the Department of Industry, Science, Energy and Resources was 'listening to small and family businesses to understand challenges and opportunities they face'. So will Treasury consult directly with small businesses as part of its policy development process going forward?

Ms Quinn : We intend to operate all the functions as previously part of this function. We serve the minister for small business, as did the previous department. Yes, we will be consulting with small business. We already consult with small business through various forums prior to this, but we will continue, and work with the ombudsman as well in terms of reaching out to small business.

Senator O'NEILL: Coming from a small business family myself, and being surrounded by lots of small and micro businesses in a regional part of New South Wales, and having attended on many occasions chambers of commerce, for example, many of the businesses that I interact with and do a lot of the employing never show their face at a chamber of commerce. They are too busy run their businesses; they see those entities as somewhat political on many occasions. Their stories sort of seem to remain out there in the community. How do you reach small businesses and micro businesses of the kind that I've just described? What is your strategy to engage with those who aren't being collared and cornered by political advocates of particular perspectives?

Ms Quinn : I absolutely acknowledge the point that it's difficult to consult with a broad range of entities, especially given the types of issues. It would depend on which particular policy we were looking at and the strategy that we would employ. I can talk generalities, and Peter may follow up. In general, the strategy that we would adopt depends on the program and what the target audience or experience would be. Then we would consider the full range of options depending on time available and resources available.

We have, for example, experimented with online mechanisms in terms of drawing in people and doing online forums. We have also gone out to local governments and other institutional structures, rather than just targeting one type—you mentioned chambers of commerce, but there are other institutions and organisations that touch. We have used direct approaches in particular areas, drawing on advice from consultants that have addresses and things like that. Just like any other marketing firm, we will be able to try and pull together focus groups on particular policies if possible. So it would very much depend on the program and how much we needed to. Of course, we receive submissions and we receive input from members of parliament who are in the community and raise these issues through mechanisms in parliament and through political parties in parliament, and our state colleagues as well.

Look, I can't give you a specific answer because it would depend on things, but we are always open to suggestions from others about how to do this. It's an ongoing challenge, not just with small and family businesses but also with individual groups of consumers.

Senator O'NEILL: Do you have any plans to continue to innovate in that area?

Ms Quinn : The short answer is we are always looking for innovation. We just had a conversation about the consumer data right element that we are trialling different ways of doing policy in that space, where we do interactive design work using technology. That's a particular high tech community that operate in that way; that's not going to work for everybody in the small business space, but for some it will. For example, for people in the fintech community there is a different way of engaging. So we are open to innovation. We have tried different things at different times.

Senator O'NEILL: Do you have a particular mechanism for engaging with women in business?

Ms Quinn : There are some forums we have used at different times through different policy development programs that I've been involved in. It is more difficult to get into the small business community in general. But there are some organisations that have a particular focus on women and small business. We have used some of the mechanisms but they are like focus groups and forums and going to talk to influencers and finding out how they are getting their information. Often it is easier to see people who have aggregated views as opposed to us being able to get out to see all the people who have individual views.

Senator O'NEILL: Do you find research to give you a more robust and nuanced view of what is going on across more business?

Ms Quinn : We have done on other policy programs. At this point, given the recent arrival of small business into the portfolio, we haven't done anything in the small business space. But, as an entity, Treasury has funded research on different policies at different times.

Senator O'NEILL: So that is up for grabs, perhaps, for debate?

Ms Quinn : If necessary to get a good policy outcome, that is something we would explore, yes.

Senator O'NEILL: And that would be dependent on the time that you would have? The government often asks for feedback, and there can be quite a short turnaround on some of the reports that we have to produce in the Senate, for example, that are supposedly targeting small business. If you were to actually authentically get out to small businesses that weren't just represented by peak bodies, it would take some time to do that effectively, wouldn't it?

Ms Quinn : It would and it would also require resources.

Senator O'NEILL: That's a great segue; thank you very much, Ms Quinn. You wouldn't have known, but my next question is about funding allocations for supporting small business in the current budget estimates from 2021-22 through to 2024-25. What is the funding allocation in the budget specifically for supporting small business?

Ms Quinn : Do you mean the total funding or the additional funding in this budget?

Senator O'NEILL: Do you want to give me both?

Ms Quinn : It is very difficult, actually, to come up with these summary numbers, because a lot of programs in the budget will benefit small business but they are not designed and targeted specifically at small business. But, in total, 43.4 in additional tailored initiatives over the forward estimates are being delivered for the small family business portfolio. That is one calculation made up of a series of measures. I don't have before me the base on what that goes to, but we're happy to take it on notice.

Senator O'NEILL: Can you give me an indication of how you break down that '43.4 tailored'?

Ms Quinn : Sure. It's a series of measures. There's $16 million of additional funding going to the Payment Times Reporting Scheme, which is a top-up on top of other previous funding; $12.7 million to support an additional 10,000 small businesses through the Digital Solutions—Australian Small Business Advisory Services program; an additional $8 million to extend the Council of Small Business Organisation Australia's Go Local First campaign; $4.3 million over four years to establish the Franchise Disclosure Registry; an additional $1.5 million to the Australian Small Business and Family Enterprise Ombudsman; an additional $0.9 million over the four years to continue the Ahead for Business program, delivered by Everymind. So there are some specifically targeted measures. But, as I said, there is a whole suite of tax changes and other programs that obviously deal for small businesses that aren't captured in that very specific slice of analysis.

Senator O'NEILL: Could I just clarify the final two amounts? Was it funding for ASBFEO?

Ms Quinn : Yes, $1.5 million.

Senator O'NEILL: And funding for Ahead for Business?

Ms Quinn : Yes, $0.9 million. Both of those additional on a base.

Senator O'NEILL: And that is to be expended in the period between 2021-22 out towards 2024-25?

Ms Quinn : Yes.

Senator O'NEILL: Could you point to a place in the budget where I would be able to see the breakdown over the forward estimates of those amounts, or do I need to get that from you?

Ms Quinn : All of these are measures that are in the Budget Paper No. 2—individual kind of measures. They would all be under the Treasury section of the budget.

Mr P Cully : We may need to provide it on notice. I think some of them are listed individually and a couple of them have been wrapped into other measures. So they are not easily identifiable from the budget papers.

Senator O'NEILL: Okay; if you could do that and indicate the date at which the expenditure is likely to occur. I want to see if it is forward or back-end loaded.

Mr P Cully : Yes.

Senator O'NEILL: Thank you very much.

According to the 2021-22 portfolio budget statements there was $51 million and 69 staff allocated to supporting small business. What is the amount of funding and staff allocated in each of the years 2021-22, 2022-23, 2023-24 and 2024-25?

Mr P Cully : I don't believe that there are funds allocated in those outyears. We did respond to a question on notice previously, breaking down the aspects of the funding for the departmental administered et cetera. Certainly departmental funding can't be specified in those years going forward. But we have provided for administered and capital through. That was a question on notice from estimates in November last year.

Ms Quinn : There will be additional staff and additional funding relative to that, given the announcements in the budget.

Senator O'NEILL: Additional funding, not a reduction in funding, since the last budget update?

Ms Quinn : No, definitely additional.

Senator O'NEILL: Is the expected funding average staffing level for the small business function in Treasury estimated to fall below $51 million and 69 staff in any year from 2024 to 2025?

Ms Quinn : We wouldn't necessarily do the allocation of departmentals that far out because it would depend on what happens in the context of the government. But certainly to the extent that we've done planning, it does not fall relative to the numbers you've just mentioned. The government has allocated additional funding for programs which would be supported by staff in this budget. So it goes up from what we had in last year's budget.

Senator O'NEILL: When was the decision taken to include information on the level of funding for small business in the 2021-22 portfolio budget statements for Treasury?

Ms Quinn : I don't know that there was a specific decision taken. It would have been included as we do our normal reporting, which is not necessarily at a divisional level.

Senator O'NEILL: Given the government's frequent statements and mentionings of small business, I find that a little surprising that there isn't a clear focus in the way that Treasury is looking at funding allocation to small business ,when we know it is creator of jobs in much of Australia.

Ms Quinn : The government allocates program funding and staff to perform that program funding. We have that information, but there are other aspects of the work of the division which could be done in different parts of the building. I am happy to take that on notice. We have an internal budget process where we shift resources around depending on the demands and that can go up or down depending on the government's demands on Treasury. The program funding and funding of particular programs is spent on what the government has indicated and we have base funding that gets shifted depending on the needs.

Senator O'NEILL: In a way, it is just requiring Australians to trust that the government is going to keep small business as a focus.

Ms Quinn : We have a dedicated minister for small business and he is very focused on ensuring that he is appropriately supported. That is a mechanism of oversight. While small business is in Treasury, there is a specific minister focused on small and family businesses.

Senator O'NEILL: I acknowledge that that is the case, but it would seem that there has been some airbrushing of small business support in an explicable and obvious way to Australians who may look at this budget.

Ms Quinn : I am not aware of any changes at all as part of the MOG that would suggest what you've just indicated. The programs have moved over, the staff have moved over and the budget has provided additional funding and staff for small business. There is no evidence to suggest that there is a change of focus in terms of expenditure or activity within the small business space.

Senator O'NEILL: But we have no way of ensuring that the current funding level which you assure me has transferred over remains at that level. There is no way for us to scrutinise whether the amount of investment in small business drops over the forward estimates, because there are no numbers about it in the budget papers. It is a 'trust us' situation; isn't it?

Mr P Cully : I'm not aware that there was an individual line item in the industry statements that covered the work of the division. It is standard that it's incorporated into the broader financial statements.

Senator O'NEILL: So it is no more transparent? In fact, it's still opaque about what the government is investing in small business? Is that what you're telling me, Mr Cully?

Mr P Cully : I'm saying that, as with all other areas, the funding is not broken down into individual levels.

Senator O'NEILL: Can you assure me that the decision not to reveal explicitly the funding for small business in this budget and over the forward estimates was not a decision of the government?

Ms Quinn : It certainly wasn't a decision of the government or the department. We've applied the same metrics and transparency to our portfolio budget statements in this way as we have every other division, and it certainly hasn't changed as a result. We would apply the same metric as other departments.

Senator O'NEILL: Can you tell me how many times the term 'small business' appears in the Treasury portfolio budget statement this year?

Ms Quinn : I can take that on notice. I don't know.

Senator O'NEILL: If I suggested to you, Ms Quinn, having had a look at that, that there are only five mentions of 'small business' in the entire Treasury portfolio budget statement, would that surprise you or does that accord with your general recollections?

Ms Quinn : It wouldn't surprise me. I'm not sure that many other policy areas get more than five mentions either. I confess that I have never gone through and counted up how many mentions of 'financial systems', 'small business', 'superannuation' et cetera.

Senator O'NEILL: It surprises me that, for a government that so often speaks as if it is the friend of small business, the entire Treasury portfolio budget statement only mentions 'small business' on five occasions. That doesn't seem to reveal a very strong commitment to small business.

Ms Quinn : I can assure you that 'small business' is mentioned more in the measures tables, given I have just mentioned at least seven measures that are specifically targeted at small business. I'm not sure the portfolio budget statements are necessarily a great metric for the government's intent.

Senator O'NEILL: I will go to some issues with regard to small-business insurance. Has Treasury, at this point in time, undertaken any analysis or prepared advice on the impact of the pandemic and natural disasters on the cost of small-business insurance premiums?

Ms Quinn : The short answer to that is yes. It depends across a whole range of insurance metrics. You were not here earlier, when we talked about insurance particularly in northern Australia. That's one area where small-business insurance, as well as household insurance, has been a focus of government. We have also looked at other parts of the insurance market that have come under pressure as a result of both the pandemic and other structural changes in the insurance market. Some of the particular line items of insurance that affect small business, such as personal indemnity insurance and other components of particular industry segments, come up from time to time, and we look at those and provide advice as required.

Senator O'NEILL: Thank you for that general overview; I appreciate you filling me in on a little bit of the conversation that happened earlier. I think household insurance in the north has been an issue for many, many years. In terms of business insurance in those contexts, that's something that seems to have acquired more passion and focus in recent times. Can you provide any documentation, or can somebody come up and give me some detail, about the research that Treasury has undertaken, particularly with regard to the impact of the pandemic and natural disasters on the cost to small business?

Ms Quinn : I can take that on notice. One of the areas which has been in the public domain is the business interruption insurance issues that have been raised as part of the pandemic, about whether the pandemic is covered under business interruption insurance or not. You may be aware that there has been one test case, and there is another test case—it's an ongoing process through the courts—to determine whether COVID-19 does or doesn't trigger those particular metrics in business interruption insurance, which is a clear connection between business insurance and mostly small business but also large business and the pandemic. That's one area we have certainly done analysis on and provided advice to our Council of Financial Regulators colleagues on.

Senator O'NEILL: Can you provide that to us?

Ms Quinn : I can take that on notice. Much of it is in the public domain through various forums.

Senator O'NEILL: So nothing significant is located in terms of information from the department in addition to what's in the public place; is that what you're telling me?

Ms Quinn : We have been working with our colleagues to examine different implications. I'm happy to take it on notice to see what we can provide.

Senator O'NEILL: Thank you; I'd really appreciate that, to have a fulsome sense of what's going on. Constantly businesses that put themselves at risk, that put all their capital on the line, that put their house on the line, in the case of many, many small businesses, undertake good practices based on good advice and buy their insurance in good faith. It would be very difficult for those businesses, having been interrupted by the pandemic, to find that what they purchased in good faith is not worth the paper it's written on.

Ms Quinn : It is the case that insurance is very important for commercial transactions. It is the case that very little commercial activity happens without some form of insurance. The insurance market needs to work effectively for capital allocation to work. It is an area of focus not just for us but also for the regulators.

Senator O'NEILL: Who are the regulators responsible for that?

Ms Quinn : APRA looks after the prudential regulation aspects—so the house, the insurance industry sales, what's happening in the market, how effectively the market is working—and ASIC looks after the conduct side in terms of information provided to customers and the efficacy of their interactions. In terms of dispute resolutions, AFCA, the Australian Financial Complaints Authority, looks after the dispute resolution aspect. From time to time the ACCC looks at the competition aspects of insurance markets as well.

Senator O'NEILL: There are no other entities that would be engaged to provide you with insight?

Ms Quinn : I will check. My colleague may have another acronym for you.

Mr Kelly : Probably the only other one I would mention is the Australian Small Business and Family Enterprise Ombudsman, who has also looked at issues for small-business insurance markets.

Senator O'NEILL: Thank you very much. Mr Kelly, you might be able to help with this: was consideration given to the specific needs of small business as part of the measure for the cyclone and related flooding reinsurance pool?

Mr Kelly : The government's announcement of its intention to establish a reinsurance pool references that it will cover households, strata title and also small business. The recent Treasury discussion paper that was released canvasses the design issues around extending reinsurance pool arrangements to small business.

Senator O'NEILL: In addition to natural disaster reinsurance, has the department provided advice on the difficulties of small business in securing reinsurance as a result of the pandemic?

Mr Kelly : Reinsurance is something insurers get. That's at a technical level. We have looked into issues, and Ms Quinn alluded to some of these, around different lines of business insurance and their availability following on from COVID. One that came up in discussion with Senator Chisholm before was trade credit insurance. There are issues in the market there, with some insurers reducing coverage; there was a concern about reductions in coverage. We've done work and we've looked at the impact on public liability insurance and professional indemnity insurance, and a number of other business lines. I would have to check—and this gets back to the things Ms Quinn took on notice—whether it's possible to differentiate between the small-business part of some of those lines as opposed to the product generally. My memory is focused largely on product lines rather than what the differences were depending on the size of business and how you define the size of business.

Senator O'NEILL: When their insurance comes around, many businesses find it difficult to manage. They will get a broker to go out to try to find the best deal. If they get a good broker, the broker will break down the payments for the car fleet, the public liability and all the sorts of insurance they need, and it can then be paid in instalments. Those sorts of arrangements are quite common. But one of the problems that emerges for small business in this sort of context is risk aversion and a very significant increase in premiums. Are you monitoring that? Are you aware of that concern amongst business owners, because that is a huge pressure on business survival?

Ms Quinn : The short answer is yes. The Insurance Council of Australia has commissioned a report by Mr John Trowbridge as well to look at improving the availability and accessibility of insurance for small business, and he's released a consultation paper. That's the industry looking at it from an industry perspective. That's something that we are monitoring and would be involved in understanding what they're looking at. It is the case that, with APRA, we do look at what's happening in different parts of the insurance market in terms of premium increases and availability—so, both the cost and the availability of insurance.

Senator O'NEILL: Yes, because one of the critical things that can take a business down is the denial of insurance—

Ms Quinn : Correct.

Senator O'NEILL: if somebody just decides that they're not going to provide that facility anymore.

Ms Quinn : Correct.

Senator O'NEILL: I'm glad you're watching. Are you preparing any briefs for the government in terms of their response capacity to this problem, because it is becoming a thing, isn't it?

Ms Quinn : It certainly is something we're looking at, and we provide advice on a regular basis. Any further action would be a policy issue for government.

Senator O'NEILL: Do you have any sense of the scale of businesses that are going to collapse under the weight of changes to insurance premiums or the denial of insurance upon renewal?

Ms Quinn : We don't have any estimates on that basis. I do note that the number of insolvencies in Australia is about 40 per cent below normal levels of insolvency as a result of various policy actions of government. There is quite a bit of support for businesses in the Australian system at the moment as a result of the government's response to COVID, both regulatory and fiscally. The number of insolvencies currently occurring is significantly down on what you would expect in the absence of the epidemic. So, it's a sign of success at the moment, in terms of government policy response.

Senator O'NEILL: What's happening at the moment in terms of brewing storms in the business world is what I'm interested in. The government has to be watching what's going on for these small businesses. The general terms about insolvency are a result of the change in the definition and the timings around when that had to be declared. Things are changing in that area. There is an expectation—and I know it's a matter of public record now that some of the large auditing companies have indicated that they're increasing the numbers of people ready to deal with a significant increase in insolvencies. I hope that that's not the case, but I understand that that has been made public.

Ms Quinn : It is the case, though, that people were expecting larger numbers of insolvencies than have actually occurred, so let's hope that continues. But you're right: that is something to watch going forward.

Mr Kelly : We've been paying quite close attention to what's been happening in the business insurance market, both price and coverage. Our overall sense is that, while there are concerns to be had about coverage, from an economy-wide perspective it's only in very small subsectors that coverage is an issue. Event tourism or adventure tourism is obviously one area where coverage has a question mark.

Senator O'NEILL: I do take your point that the government of Australia is looking at this at a macro level, but when you're a small business there's nothing macro about your lived experience. We have seen incredible pressure in the tourism industry, and the availability of the particular kinds of insurance that you are talking about there—and their paucity in terms of being able to access them—is shrinking. That's an exacerbating factor for regions of Australia that really rely on tourism. What are the government's plans in terms of these problems that are very much emerging now in the community?

Mr Kelly : The government's plans are matters for the government to answer—

Senator O'NEILL: What advice are you providing?

Mr Kelly : It is something that we've been asked to continue to monitor. We are certainly engaging with the Insurance Council of Australia on the issues around that. As Ms Quinn mentioned, the ICA has recently launched a project which will look at a number of strands about how you can respond to some of these issues, whether it be industry-led initiatives, disclosure with customers or how they do the insurance arrangements. Others are on the government side. We continue to talk to the industry, we continue to monitor the pressures and issues out there and, as required, we will provide advice to government.

Senator O'NEILL: Have you provided advice to government already?

Mr Kelly : Yes.

Senator O'NEILL: Can you provide that to this committee?

Ms Quinn : We can take that on notice and ask the minister.

Senator O'NEILL: Can I ask very bluntly: how many businesses in the tourism sector need to fail before the government would intervene to do something about this issue?

CHAIR: Senator, that's not a question officials could—

Senator O'NEILL: I know how polite we are in this committee, but when you're a business and you're in need—they need to know the government is ready to do something.

CHAIR: Senator O'Neill, you're not the only one who talks to small businesses.

Senator O'NEILL: No, and I hope the government doesn't want to claim that position, because it's not the case. Lots of people are speaking to small business. Seriously, is there a trigger point at which the collapse of entire industries, because of a failure to respond, prompts action from the department? When do you hit crisis point? How bad does it have to be before you code red?

CHAIR: Again, Ms Quinn, you may answer if you wish to. However, I don't think that's a question that needs an answer.

Ms Quinn : It's not a framework that we apply. We monitor, we look at and we respond, depending on the context and the circumstances. I think it's fair to say we've responded pretty vigorously in terms of providing advice on the government policy response, particularly in the COVID environment. We have actively looked at all the issues that have been brought to us to provide advice from all sorts of parties. We don't wait around for things to happen. We do look at, monitor and provide information. Any action, obviously, is on behalf of the government.

Senator O'NEILL: So you are looking and you're sending material to the minister. If there's a failure of response, it's the government's determination about action or no action. But you give the information that they need to make these decisions?

Ms Quinn : Our role is to provide information and advice and, obviously, the government makes the decisions.

Senator O'NEILL: Are you confident you have a good, detailed view of what's going on in small businesses across the country, particularly in the tourism area?

Ms Quinn : I'm confident that we're engaged on these issues, talking to industry and others.

Senator O'NEILL: And you continue to feed that information up to the minister?

Ms Quinn : Yes.

Senator O'NEILL: When the funding arrangements for the measures that we were discussing earlier were costed, was there an option to include a broader group than northern Australia, with regard to insurance?

Mr Kelly : The reinsurance pool covers cyclone events and related flooding. While predominantly you'd expect that to affect northern Australia, it is not limited to northern Australia. But the focus is very much on the high premiums in northern Australia as a consequence of cyclones. Other than in a very general sense, there wasn't consideration of broader reinsurance arrangements for other lines of catastrophe insurance.

Senator O'NEILL: It's not just catastrophe that happens in northern Australia—many great things happen up there as well!—but certainly cyclones happen up there. Across Australia, weather inflicted catastrophic events actually happen in other contexts. Are you providing any advice to the government for any other context, with regard to insurance access that might affect businesses?

Mr Kelly : In some ways we have looked at other hazards in the past. My memory of the study done in 2015 on northern Australian insurance brought out the impacts on prices, or the insurance program consequences, of other catastrophes such as bushfires. Compared to cyclones and what happens in northern Australia, they're not as significant, by quite a degree.

Senator O'NEILL: Can I move now to the temporary full expensing extension and the temporary loss carry-back extension?

Ms Quinn : Those are two questions that you can put to our Revenue Group colleagues, who will be appearing before this committee tomorrow. They handle all taxation other than superannuation tax.

Senator O'NEILL: What about questions with regard to sole traders?

Ms Quinn : If it's taxation of sole traders, it would also be our Revenue Group.

Senator O'NEILL: So that's for tomorrow as well.

Ms Quinn : Yes.

Senator O'NEILL: Okay. Could I just go to skills shortages? Can I ask a couple of questions about that? Is that appropriate to ask you?

Ms Quinn : It is unlikely that we'll be able to help, but I'm happy to take them on notice for you. Labour market analysis is our Macro Group, and any particular policy issues related to skills would be our Fiscal Group or the department of employment.

Senator O'NEILL: So the Macro Group—when would these be best asked?

Ms Quinn : They were on this morning, unfortunately.

Senator O'NEILL: Okay. I'll try with you in case you have some general information.

CHAIR: Honestly, it is not the area of this part of the department.

Senator O'NEILL: We might have to put them on notice.

CHAIR: I really think they should go on notice.

Senator O'NEILL: Okay. That's fine. Thank you.

CHAIR: Senator McDonald, I believe you have one question.

Senator McDONALD: I do have one question.

CHAIR: Okay, Senator McDonald—with great indulgence.

Senator McDONALD: There was reference made to the number of times that small businesses were referred to in the budget, which you've agreed to take on notice. I think there was some commentary from other senators. Can you tell me how many times small business was referred to in the opposition's budget reply statement?

Ms Quinn : The question that I took on notice related to the portfolio budget statement of Treasury, which is but one of the budget documents. We have no responsibility for the opposition statement, so that's not something I can answer.

Senator McDONALD: I understand that it was only once that small business was referred to by the opposition leader. I just wanted to clarify the attention that was—

CHAIR: I think you've made your point, Senator McDonald.

Senator McDONALD: Thank you, Senator Brockman. Very kind.

CHAIR: With that, Markets Group can go with our thanks. A safe journey home.

Proceedings suspended from 20:31 to 20:36