Senator the Hon Mathias Cormann
Minister for Finance
Date: Sunday, 30 March 2014
BARRIE CASSIDY: Our programme guest is the Finance Minister Mathias Cormann, who joins us in the very early hours Perth time. Good morning Minister. Thank you.
MATHIAS CORMANN: Good morning. Good to be here.
BARRIE CASSIDY: We will start with the financial advice legislation. You are talking about tweaking the amendments. Is there a chance that after community consultation you’ll throw them out altogether?
MATHIAS CORMANN: No there is not Barrie. Our objective is to ensure that people saving for their retirement across Australia can have access to affordable high quality advice with appropriate levels of consumer protections. The changes the previous government imposed went too far. They imposed too much unnecessary and costly red tape, which has pushed up the cost of advice and which has also led to a lessening of competition and diversity in the financial services market. These are both developments that are not in the public interest and that are not in the consumer interest. We will seek to rebalance the financial advice laws, preserve the important consumer protections but make sure that there is some cost pressure taken out of the system so that people have to pay less for high quality advice.
BARRIE CASSIDY: You talk about consumer protection, why is it then that apart from the banks, apart from the big banks, nobody really seems to want this?
MATHIAS CORMANN: This is an area that is highly technical. For people with a vested interest and dare I say it people with political motivations it is very easy to frighten people. There has been a lot of misinformation spread around. Some people have suggested that we would abolish the Future of Financial Advice Laws altogether. Not true. We are just proposing to improve them. Some people have suggested that we would abolish the requirement for advisers to act in the best interests of their clients. Not true. We are keeping the requirements in full. We are making a small adjustment to the test that advisers have to satisfy in order to ensure that consumers and financial advisers are very clear on what the financial advisers’ obligations are. People have suggested that we are bringing back conflicted remuneration for financial advisers. Not true. So what I am currently setting out is to ensure that there is a clear understanding of the facts. If there is a capacity for us by more precise wording to better reflect our policy intent, the policy intent we took to the last election, then of course we are very happy to do that.
BARRIE CASSIDY: You say it’s a political scare campaign in part, but do you see the problem that bank employees can pretend to give personal advice when they are really selling a product? And they are selling that product to get a commission. Now what form of words can you come up with that prevents that from happening?
MATHIAS CORMANN: Firstly, right now, courtesy of a special deal that Bill Shorten did with industry funds, industry funds are able to provide general and limited personal advice, charge an undisclosed fee for that advice and that advice incidentally is exempted from the opt-in requirements and people are not able to opt out from that particular fee. Of course a product provider should be able to incentivise his employees to provide general product advice, general advice about their products. There can be no suggestion that if you walk into a bank and you talk to a bank teller and the bank teller is providing you with information about the Bank’s products that that is a conflict. You would expect them to do that. Historically what people have been concerned about is about financial advisers who for all intents and purposes present themselves as independent from any of the product providers, making judgements on the basis of where they would get the best and the biggest kickback rather than what is in the best interests of the client. That shouldn’t be allowed to happen. That is not going to be allowed to happen under the legislation that we are putting forward. What we do think should be able to happen is that product providers should be able to provide information and advice, general advice, about their own products.
BARRIE CASSIDY: Yeah sure. But can you find the form of words that you can’t drive a truck through so that these advisers can’t disguise sales and wrap it up as advice?
MATHIAS CORMANN: That is exactly the conversation that we are currently having. If there are adjustments that can be made to ensure that the wording in the regulations more accurately and more precisely reflects our policy intent, then of course we will take that on board and we will make those adjustments.
BARRIE CASSIDY: The impression was left that Arthur Sinodinos, the former Assistant Treasurer, developed these changes but in fact it you was something that you were working on in Opposition right, and that he inherited from you?
MATHIAS CORMANN: I was the Shadow Minister for Financial Services and Superannuation and I developed our policy in the lead up to the last election. It was based on extensive consultation and with the benefit of a series of Parliamentary inquiries that looked at the financial products and services across Australia. So absolutely, this is an area that I was responsible for in the lead to the election.
BARRIE CASSIDY: Now looking back over the past week, are you disappointed that there was precious little talk, certainly precious little talk that broke through to the community, about debt and deficit and Budget preparations, it did seem as if the Government went off message in a critical week.
MATHIAS CIRMANN: We are totally focused on ‘Operation Repair the Budget’. We have inherited a very bad Budget situation from our predecessors - $123 billion worth of projected deficits over the forward estimates, debt heading for $667 billion without corrective action. The Treasurer, the Prime Minister and the whole Cabinet and I, we are very focused on making the decisions that need to be made in order to put our Budget back on a more sustainable track.
BARRIE CASSIDY: Just before we get onto the Budget then, just one question on these awards. Do you think that they have merit, it would make sense for these awards to have community consensus, to be bipartisan in their approach?
MATHIAS CORMANN: I think that was a great announcement by the Prime Minister. It is a great way to provide special recognition to pre-eminent Australians who have made an extraordinary contribution to our nation. I think that it is a great announcement and I think that the Australian public will embrace it.
BARRIE CASSIDY: So community consensus doesn’t matter, in fact he didn’t even take it to Cabinet?
MATHIAS CORMANN: Well the Prime Minister is the Head of the Government. There are certain things that are the prerogative of the Head of the Government and I have got no issue with that.
BARRIE CASSIDY: Alright, on the Budget now and the sentiment that seems to be coming through and I’ll ask you whether this is a true reflection of the way the Cabinet Ministers see it, but that you’ll be marked down if you don’t take strong, decisive action and that you’re satisfied that the public has got an appetite now for toughness.
MATHIAS CORMANN: Again, we’ve inherited a Budget in a mess. Massive deficits as far as the eye can see. Debt heading for $667 billion. We have to make some difficult decisions in order to put the Budget back on track. We took a clear commitment to the last election that we would repair the Budget and we will.
BARRIE CASSIDY: You talk about what you inherited though and the forward estimates, Labor clearly loaded them up to unsustainable levels, as you would see it, but two of those big areas contributing to this are the Gonski reforms and the NDIS. Now you signed up to both of those, so that’s a shared responsibility, isn’t it?
MATHIAS CORMANN: We signed up to the funding for the Gonski reforms so called over the first four years. What the Treasurer and I pointed to this last week is that a lot of the cost was actually loaded into the fifth year, beyond the forward estimates. So that wasn’t transparent to the public. It was quite amusing in a way this week, to watch the Shadow Treasurer Chris Bowen and the Leader of the Opposition argue that if only we kept to Labor’s fiscal rules, which prescribe a limitation on real growth in spending to 2 per cent that the Budget would automatically and easily get back into surplus. The truth is that from the fourth year to the fifth year, consistent with spending that Labor has already locked into the Budget trajectory, spending is set to increase by 6 per cent in real terms. Three times as much as would be the case if Labor indeed had complied with their own so called fiscal rules in government.
BARRIE CASSIDY: Yeah but to take my point though, you are on unity ticket in terms of what’s contributing to that. You’re on a unity ticket on Gonski and on NDIS.
MATHIAS CORMANN: We are on a unity ticket when it comes to Gonski for the first four years and we’ve always said that... interrupted
BARRIE CASSIDY: And all the way through on NDIS...
MATHIAS CORMANN: Of course what we’ve said in relation to the NDIS is that we will implement it. We will implement it in a way that is as efficient and as well targeted as possible. That is the work that is currently underway. Senator Mitch Fifield, the Minister with responsibility in this area is doing an outstanding job in identifying all of the issues that were caused by Labor’s rushed political implementation timetable, when what was required was a sensible implementation timetable. There was an independent review that was done that actually noted that the way Labor approached implementation of the NDIS was a bit like trying to build a plane in flight. We are making all of the necessary adjustments to make sure that spending in this important area of policy is as efficient and as well targeted as possible.
BARRIE CASSIDY: Now this new proposal that the Treasurer’s put to the States on assets recycling, if the States sell assets and then spend money on infrastructure then the Federal Government will top that up by 15 per cent. Are you confident that the Premiers will eventually go along with this?
MATHIAS CORMANN: The State Treasurers all agreed to this as a way forward. This is part of our plan to build a stronger economy and create more jobs. We want to essentially free up the capital from existing assets, assets that will continue to be of benefit to the economy whether in public or in private hands, so that the State Governments and the Federal Government have the capacity to invest in productivity enhancing infrastructure of the future, to help us grow the economy more strongly moving forward. This is a very good plan. We are very confident that when it is all said and done, the States will take advantage of it and yes, that the Premiers will come on board.
BARRIE CASSIDY: And this 15 per cent that the Federal Government will provide does that come off the Budget? Or will that come from your own asset sales like for example Medibank Private?
MATHIAS CORMANN: We will provide all the detail as appropriate in the Budget to be delivered on the second Tuesday in May. Just by way of general comment, there has got to be an understanding that right now, at present, any asset that is owned by a State has got their company tax payments reimbursed by the Federal Government. So once any State-owned asset is sold into the private sector they will end up paying company tax to the Commonwealth. So the 15 per cent payment in recognition of the additional investment in productivity enhancing infrastructure by the States is an incentive to get them to do the right thing. It is also a recognition that the Commonwealth will be able to increase its tax base on the back of those sorts of asset sales.
BARRIE CASSIDY: Just one final point on that though. Is it a bit tough on States like Victoria and South Australia who say that they’ve done the right thing, and they’ve sold a lot of their assets, to the point where they’ve got precious little left to sell. Whereas the States who have dragged the chain, like New South Wales for example, they have the most to sell, therefore they have the most to gain. Now how is that fair?
MATHIAS CORMANN: We are where we are. We can’t deal with history. We’ve got to look forward. We’ve put a plan on the table that will be able to benefit all States, including Victoria and South Australia if they take the opportunity up.
BARRIE CASSIDY: Now just finally you’ve picked up everything that Arthur Sinodinos left behind in the pre-Budget preparations. The Treasurer, Joe Hockey will be out of the country for a week or so very shortly. How are you finding the workload?
MATHIAS CORMANN: We’re all working as part of a team. It is clearly a significant effort right across the Government. It doesn’t come down to one individual. There are a lot of officials involved across a whole range of portfolios as well as, of course, the Prime Minister, the Treasurer and myself and others. It’s all going to be good.
BARRIE CASSIDY: Minister, thanks for your time.
MATHIAS CORMANN: Good to be here.