Senator the Hon. Mathias Cormann
Minister for Finance
Special Minister of State
Leader of the Government in the Senate
Senator for Western Australia
Date: Thursday, 7 November 2019
Thank you very much, Michael.
It is great to be here. Thank you for the invite. Thank you also to the Group of 100 for inviting me to address the inaugural CFO Live conference.
And Michael it is great to learn how your business is growing again under our Government.
My most important message to all of you today is that, despite the economic headwinds we are facing we are optimistic about our future.
The Australian economy continues to grow.
Our economy continues to generate new jobs at a comparatively high rate.
We have now moved into our 29th consecutive year of continuous economic growth.
Over that period the Australian economy has grown on average by 3.1 per cent, more than the OECD average of 2.2 per cent.
This is one of the longest uninterrupted stretches of growth across the developed world and is a testament to our strong economic institutions and strong economic frameworks.
Most countries had multiple recessions over this period, including those stemming from the Asian Financial Crisis and the GFC.
By international standards, Australia’s achievements in terms of economic and employment growth have been remarkable.
In 2018-19, Australia recorded stronger real GDP growth of 1.9 per cent in year-average terms than every G7 economy except the United States, where growth was running at 2.5 per cent.
Some people tend to apply a bit of a discount to what a politician may say about our expectations about the future.
Which is why I refer you to the public statements of our RBA Governor Philip Lowe who recently pointed out – again – that he expects economic growth in Australia to gradually strengthen, adding that he expected a return to trend growth within twelve months. His views are consistent with ours.
The creation of more new jobs is one of the most important objectives of our Government.
Our employment growth today is more than three times the rate we inherited.
We will continue to implement policies that will increase the number of new jobs and keep unemployment as low as possible.
Giving people the opportunity to get a job, to have better job security, to be able to build a satisfying career here in Australia, is one of the best ways to spread the benefits of economic growth.
Earlier this year, in the lead up to the election, we committed to help drive the creation of another 1.25 million new jobs in our economy over five years.
Of these, 250,000 new jobs are expected to be new jobs for young Australians.
Already, nearly 1.5 million new jobs have been created since we took office in September 2013.
Employment growth has averaged 2.7 per cent annually over the past three years – well above the long-term trend of 1.8 per cent and well above the assumption of 1.5 per cent growth per annum that has been enshrined in our Budget forecast.
And there have been large lifts in workforce participation, particularly among women and older age cohorts.
The workforce participation rate has reached 66 per cent, a historical high which is helping to spread the benefits of Australia’s continuing economic growth.
And – something we don’t read much about, in fact we are often told the opposite somehow – wages growth is picking up.
The Wage Price Index (WPI) rose by 2.3 per cent through the year to the June quarter – the strongest financial year result since 2013-14.
Private sector wages grew by 2.3 per cent through the year – the best result in four years.
Real wages grew by 0.7 per cent through the year to the June quarter – above the 20 year average of 0.6 per cent and above the rate of 0.4 per cent through the year growth we inherited on coming into office.
Of course we would like to see wages grow more strongly into the future, but we do have to keep things in perspective.
Average weekly ordinary time earnings for full-time adults rose by 3.1 per cent over the past year – the strongest growth in six years.
Private sector average weekly ordinary time earnings for full-time adults rose by 3.3 per cent over the past year – also the strongest result in six years.
About two weeks after the election, the independent Fair Work Commission announced its decision to increase the National Minimum
Wage rate by 3.0 per cent from 1 July 2019.
That increase is higher than the economy-wide wages growth of 2.3 per cent and inflation of 1.6 per cent for the year to June 2019.
The Fair Work Commission has provided a real minimum wage increase every year we have been in Government.
To compare and contrast that, during the period of the previous government, those on the minimum wage were hit by real wage cuts in three out of six years.
Data from the OECD shows that in 2018, Australia had the highest hourly minimum wage (in purchasing power parity terms and adjusted for inflation) in the OECD.
When we put our last Budget together we were absolutely aware of the headwinds our economy was facing and would be facing moving forward.
Proactive policy action through our pro-growth Budget will continue to help keep our economy growing.
Since the election we have legislated a further $158 billion worth of personal income tax cuts bringing medium term income tax relief legislated over the past two years to more than $300 billion.
Those reforms have already put more than $21 billion back into wage earners’ pockets since the middle of July.
Our plan prioritised low and middle income earners in the first instance delivering a material boost in take home pay, helping to drive stronger effective wages growth.
Our plan also enshrines strong structural reforms, simplifying and flattening our personal income tax system while addressing bracket creep.
Bracket creep left unaddressed would undermine aspiration and weaken the economy over time.
Whereas addressing bracket creep, making sure Australians don’t go backwards and have the right incentive and reward for effort helps make our economy stronger.
Under our plan, by 2024-25, 94 per cent of taxpayers will pay no more than 30 per cent income tax on any of their income.
That is a significant, genuine tax reform.
The Government’s tax relief measures will help support consumption growth, which will be good for the economy.
We are driving significant investment into productivity enhancing infrastructure for the future through our record $100 billion infrastructure investment pipeline.
Investment in genuine, quality, productivity-enhancing infrastructure is not something that you decide today and implement tomorrow. It does require planning and proper execution. It requires proper identification of high quality projects for prioritisation and proper execution.
The proposition by some that we could somehow rush from one day to the next and pump billions of additional money into the economy on infrastructure is somewhat unrealistic and naïve.
Stronger wages growth into the future requires stronger productivity growth.
This means creating the right incentives for workers and businesses through lower taxes, cutting red tape and flexible labour markets.
It means building the infrastructure needed to address congestion in our cities and better connect our regions.
It means having a health and education system which underpins the wellbeing of our community while equipping workers with the appropriate skills and training to maximise productivity.
But how much and how quickly our productivity increases in the overall economy will depend on the actions of not just governments, but also employers and employees.
If we are going to create more new jobs and enable people to earn more for what they do, we need businesses to increase their capital expenditure and to adopt new technologies and business practices that effectively integrates capital with labour.
Our Government’s plan to turn the tide on productivity growth focuses on enabling productive businesses to invest in more and better quality tools to equip workers, creating opportunities to improve the skills and capabilities of our labour force and empowering businesses to put labour and capital to work.
We also need to keep expanding the markets for our goods.
We want to continue to ensure that our exporting businesses have the best possible access to markets around the world – so they can be even more successful in selling Australian products and services around the world and create more jobs and opportunities here at home, which is why our commitment to free trade remains so important.
When we came into government just 26 per cent of our two-way trade was covered by trade agreements.
We have already been able to lift that to 70 per cent and are working to increase that further to more than 90 per cent during this term.
The reason these trade agreements are so important is, firstly, to protect our access to markets where other competitors of ours have access to those markets through their own trade agreements, but also where we can to have better access than others to those key markets, in particular across the Indo-Pacific.
We have opened up new opportunities for our exporters in the rapidly growing middle class markets on our doorsteps as well creating new investment opportunities in Australia.
The states and territories are our partners in addressing the productivity challenge as a great number of initiatives require their involvement.
Regulation always requires a balance to be struck.
Better regulation, not more regulation, should be our goal. It is not about removing necessary consumer or environmental protections but rather ensuring our regulations are effective, efficient and fit for purpose.
We also remain committed to ensuring that the Australian Government lives within its means.
Our commitment to return the Budget to surplus – and to keep it in surplus – is not some theoretical vanity project.
It’s about ensuring Australia is in the strongest most resilient position possible to deal with the inevitable headwinds which come our way from time to time while also being positioned in the best possible way to take advantage of our opportunities.
It’s about making sure we can guarantee the necessary funding for our social safety net and the many essential services Australians rely on over the long term, without having to force up the overall federal tax burden on the economy beyond a level where it would harm further growth and job creation.
When we came into government – not only did we inherit a budget in free fall – with a $33 billion deterioration in the budget bottom line in just eleven weeks post the 2013-14 Budget – we also inherited an unsustainable spending growth trajectory.
Spending as a share of GDP was headed to 26.5 per cent over the then medium term and rising. To put that into context, the long-term average is 24.7 per cent. The more you spend as a share of the economy, the more you need to raise in taxes as a share of the economy in order to pay your way.
The Government has no money of its own. All of the money the Government gets to spend on an ever increasing spending growth trajectory as a share of the economy is money we take out of the pockets of your businesses and out of the pockets of working Australians.
That is all the money we have and so if Government expenditure continues to go up and up and up as a share of the economy, as it was on track to do when Labor lost government, then necessarily over time taxes as a share of the economy would have to continue to go up and up and up, which means you as businesses leaders around Australia have less money to invest and consumers have less money to spend. That would have an inevitable impact on economic growth into the future.
As a result of our decisions to control expenditure growth we have turned that trajectory around.
In our most recent Budget we have brought spending as a share of GDP down to 24.6 per cent with a medium term outlook based on our current policy settings of 23.6 per cent over the medium term.
Instead of the trajectory going to 26.5 per cent and rising, we now are down to 24.6 per cent and heading to 23.6 per cent over the medium term.
We have also ensured that our budget forecasts and projections are based on more realistic assumptions.
When we inherited that rapidly deteriorating budget position in 2013, the Budget assumptions we inherited still assumed an iron ore price of $120 a tonne. All of the spending had been locked in assuming that government revenues would be generated on the back of a $120 a tonne iron ore price and till we were in a significant deficit position.
Incidentally in more recent times – when we have assumed an iron ore price of $55 a tonne compared to the average price in 2018-19 of $72 a tonne, yes that helped contribute to a better outcome than forecast, but I would point out that even at an average of $72 a tonne those prices remain well below those which underpinned the Budgets of our predecessors.
In our first few budgets and budget updates we had to work very hard to deal with the fallout from all of that on the revenue side while pursuing the necessary fiscal reforms on the spending side of the Budget.
The 2018-19 financial year is the third year in a row now that the underlying cash balance is materially better than forecast at Budget.
Over the past three years the final underlying cash balance outcome was $37 billion better than forecast at Budget, compared to the last three Labor Budgets where the Budget bottom line deteriorated by a staggering $70 billion compared to the original Budget estimates.
We turned the deteriorating budget trajectory we inherited into an improving trajectory.
We kept spending as a share of GDP at 24.6 per cent, below the long-term average of 24.7 per cent for the second year in a row.
2018-19 was also the fifth year, the fifth year in a row, that the employment growth outcome was better than the employment growth forecast at Budget time.
Stronger than expected employment growth means more personal income tax revenue for Government without the need to increase taxes.
It also means lower payments on welfare. Welfare dependency by the working age population is at a 30 year low.
In 2018-19 the Budget has returned to balance for the first time in 11 years and we remain on track to achieve a surplus in 2019-20.
The underlying cash balance in the Final Budget Outcome for 2018-19 was a small deficit of just $690 million compared to a $14.5 billion estimate when the Budget was delivered.
We expect average real spending growth to remain the lowest of any Commonwealth government over at least the past 50 years.
Recent spending growth (from 2012-13 to 2017-18) has been significantly lower than it has been historically, and is expected to continue to be lower than the long-run average.
Responsible fiscal management helps ensure Australia is better equipped to deal with future challenges and to reduce the burden on future generations.
Trade tensions between the US and China pose the main downside international risk to Australia’s economic outlook.
These tensions are weighing on global growth — the OECD and IMF have downgraded global growth forecasts, as the Government did in the Budget.
Slower global growth, particularly slower growth among our major trading partners, self-evidently impacts on Australia very directly.
The other risk for Australia is the impact of uncertainty on business confidence and the flow-through to business investment.
Businesses which are uncertain about the longer term environment in which they will operate are less likely to invest.
This is why the Government is implementing, and continues to pursue measures to support businesses which in turn supports economic growth.
Whether it is through our corporate tax cut down to 25 per cent for businesses with a turnover or up to $50 million, or our instant asset write off for investments now up to $30,000 with access expanded to include medium-sized businesses with an annual turnover of up to $50 million.
The $30,000 threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.
Our Government is also backing our 3.4 million small and medium sized businesses by ensuring they get paid on time, boosting their cash flow and helping them grow.
We understand the importance of cash flow to smaller businesses – in fact we know that cash flow is vital to each and every business, which is why we are doing everything we can – from our end – to ensure businesses are paid on time.
As of 1 July 2019, the Government adopted maximum payment terms of 20 days for invoices on procurement contracts valued at up to $1 million – down from 30 days.
This represents 95 per cent of procurement contracts entered into by the Australian Government, and ensures that businesses are being paid quickly when doing business with the Government.
To further demonstrate our commitment to faster payment times, we recently announced that, along with our counterparts in New Zealand, we would adopt the Pan-European Public Procurement Online framework for e-Invoicing, and that the Australian Government would adopt five day payment terms on contracts where both the Government and the business is using this e-Invoicing framework.
I am pleased to announce today that this policy will come into effect from 1 January 2020, as Government agencies and businesses progressively adopt e-Invoicing capability.
So from 1 January 2020, Commonwealth Government agencies will start paying e-Invoices within five days or pay interest on any late payments.
The five day e-Invoicing payment policy will apply to contracts valued up to $1 million, where a supplier and a Commonwealth agency both use the internationally established framework for delivering and receiving invoices in an electronic form.
e-Invoicing will improve business cash flow through faster payment times and deliver significant benefits and efficiencies to suppliers and the Government by reducing transaction costs and handling errors.
Last month the Government passed legislation through the Parliament to enable Australia to implement the internationally-recognised framework for e-Invoicing.
Having a standardised framework enables buyers and suppliers to transact using e-Invoices even if they have different software.
We are now prioritising e-Invoicing adoption across the Commonwealth.
The Department of Finance and Services Australia will be the first Commonwealth agencies to accept e-Invoices from 1 January 2020, with other agencies implementing the capability over the course of the year.
We encourage State Governments and the business community to follow our lead using the new framework for e-Invoicing.
A maximum 20 day payment term will continue to apply in instances where e-Invoicing is not used.
A loosening in bank lending restrictions by the Australian Prudential Regulation Authority (APRA) is also supporting the stabilisation of the housing market.
APRA has relaxed its requirements for authorised deposit-taking institutions (ADI) which will no longer be expected to assess home loan applications using a minimum interest rate of at least 7 per cent.
ADIs now have the ability to review and set their own minimum interest rate floor in their loan serviceability assessments and use a revised interest rate buffer of at least 2.5 per cent over the loan’s interest rate.
This will support the housing market over the foreseeable future.
Consultation is also currently underway on the establishment of our Australian Business Growth Fund, which is intended to ensure that small and medium-sized businesses (SMEs) can have competitively priced access to the finance they need.
With better access to more competitive finance, SMEs will be able to grow and hire more Australians.
Small and medium-sized businesses find it difficult to obtain finance other than on a secured basis – typically, against the family home. They also find it difficult to access additional funding, once they have pledged all of their real estate as collateral.
The Government is committing $100 million in funding to establish the Business Growth Fund and partnering with other financial institutions to provide equity funding to SMEs. The aim is for the Fund to grow to $1 billion as it matures.
This will significantly enhance the ability of SME’s to access funding, filling a gap in the market that is preventing them from reaching their full potential.
The Business Growth Fund complements other initiatives to support SME’s including the $2 billion Australian Business Securitisation Fund which helps small businesses get the funding they need at a better rate.
Legislation to establish the Business Growth Fund will be introduced to Parliament before the end of this calendar year and consultation on the legislation closes today.
We will of course continue to make decisions to ensure the economy can keep growing in the context of some of the challenges we are facing.
Our budget forecasts will of course be reviewed as part of the normal process in the preparation of the upcoming 2019-20 Mid-Year Economic and Fiscal Outlook – to be delivered in the middle of December. It will, as we have done every year – take into account the growth outcomes in the first three quarters of national accounts data for 2019.
We will continue to go through an orderly process in reviewing all of the information, reviewing all of the options to continue to make policy decisions to put Australia on the strongest possible economic and fiscal foundation and trajectory for the future.
We believe that an important part of ensuring the economy continues to grow and that confidence in consumer spending increases into the future is to continue to demonstrate that as a Government we are working to a plan, that we know what we are doing and we are sticking with it, making any adjustments in a sensible and considered fashion.
In conclusion, the fundamentals of the Australian economy are strong.
We continue to grow and are well placed to navigate the challenges in front of us over the years ahead.
Never forget that the future success of nine out of 10 working Australians depends on the future success of the many private sector businesses around Australia which employ them.
The changing environment, globally and at home, will continue to present challenges as well as opportunities.
To continue along our path of economic growth and rising living standards, government and business must continue to work together to help ensure Australians can sustainably earn more for what they do, to everyone’s benefit.
As CFOs you have the power of numbers based evidence at your finger tips to help drive the strategies to make your organisations stronger.
Thank you for what you do every day.
We look forward to keep working with you over the years ahead to deliver the best possible economic opportunities for Australians today and into the future.