Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 1 May 2014
TREASURER: Firstly on behalf of the Government with my colleague and friend, the Minister for Finance I truly want to express my gratitude, appreciation to Tony Shepherd and to the Commissioners and to Peter Crone and the Secretariat on their enormous effort in putting together the recommendations of the Commission of Audit. It is clearly a very comprehensive document that focused on, of course, the largest areas of expenditure which also happen to be the fastest growing areas of expenditure in the Commonwealth Budget.
There are 86 recommendations. Some of the recommendations the Government will be proceeding with in the Budget. Other recommendations the Government will not proceed with. Some other recommendations are clearly in the public domain for debate and discussion.
What this report proves is that we have inherited a mess. The challenge now is to get on with the job of fixing the mess. And we will. In the Budget in May, we will outline the first word in responding to the major structural challenges left behind by our predecessors. The fact is that unless structural reform is undertaken, Australians will have a lesser quality of life in the future than they have today.
That’s why we got on with the job of commissioning this report. That’s why we got on with the job of dealing with some of the structural challenges that have been left behind by the previous Government. I have no doubt that there will be many issues that will be highly contentious and somewhat difficult for various stakeholders and some in the community to accept. But there is an overwhelming challenge here. That is to ensure that the Budget is structurally fit for the future. We are addressing it and we are focused on it.
I am going to ask the Minister for Finance to say a few words and then we will throw it open to you.
FINANCE MINISTER: Thank you very much Treasurer.
What the Commission of Audit report clearly shows is that the spending growth trajectory that we have inherited from Labor is unsustainable and needs to be addressed. What it shows is that on top of $123 billion worth of projected deficits we found after the election, the spending growth trajectory we inherited from Labor continues to deteriorate beyond the current forward estimates. Unless we take corrective action.
Now the Commission of Audit makes recommendations on structural reforms and structural savings. The Government in the Budget will pursue structural reforms and structural savings, which will build over time and which will help put us back onto a believable path to surplus.
The question may be asked ‘why are we doing this?’ Well to extend a theme very much defined by my good friend and colleague the Treasurer, because our goal is to replace the age of entitlement with a new age of opportunity, where in a stronger, more resilient, more prosperous economy everyone has the opportunity to get ahead.
That’s why we are so committed to repairing the Budget mess we have inherited from our predecessors. That’s why we are so committed to implementing all of the policies to build a stronger, more prosperous economy, which we took to the last election.
QUESTION: Treasurer, some of the proposals are eye watering when it comes to the politics of them. Page 244, Volume 1, suggests that a couple with two children aged 4 and 6 would lose $8077. Is that the kind of quantity you are looking at when it comes to your welfare changes?
TREASURER: I want to lay down to you that this is not the Budget. This is a report to the Government, not of the Government. We have carefully and methodically gone through the recommendations. There are a number of recommendations that would be described as courageous to use a term familiar to some in Canberra. There are some recommendations that represent common sense. When you see our Budget you will understand that we are focused on responding to the challenge in a measured and methodical way. We are not going to cherry pick a part of the report and say, ‘Well that’s it, it’s all done. Job over’, the way the previous government did with the Henry Report. We are going to go through all of the initiatives carefully as we have done. Some will go to a Federation White Paper in discussion with the states. Some, obviously will go into other processes, for example we currently have a Productivity Inquiry into Childcare. So there are other processes.
QUESTION: Treasurer, nowhere in the report does it mention revenue. What do you say to voters who were told before the election by the Prime Minister that there would be no increase in taxes when it is now clear that you are planning one?
TREASURER: Phil, the brief for the Commission of Audit was to deal with expenditure. We are going to have a tax white paper that is going to deal with the structural issues in taxation and we will take that to the next election. Frankly, can I say to you something? I mean all this talk about broken promises and so on. Of course we are endeavouring to keep our promises and we will. But the bottom line is the Labor Party promised the Budget would get back to surplus and it never will. It never will. Because they left behind structural costs that well exceed the revenue that will come to the Budget. So please, this idea, somehow that everything we have ever said is going to be held against what has moved on us, because the previous government basically misled the Australian people about the state of the budget is kind of ridiculous. However, we are keeping our promises. We are keeping our solemn promises. Now that means that some of the initiatives that we have to roll out will occur after the next election so that we can get a new mandate, but we can’t have a ‘do nothing’ Budget and we will not have a ‘do nothing’ Budget.
FINANCE MINISTER: The recommendations in the Commission of Audit Report invariably are for structural reforms and structural savings. The Government is very much focused on implementing structural reforms and structural savings in the Budget. However, structural savings, good structural savings, genuine structural savings, start low and build over time. Given the size of the task that we inherited from the previous government there is a need for an immediate effort in the short-term to get us into a stronger starting position as we embark on this important task to repair the Budget. Now our commitment is to ensure that special immediate effort is as fairly and equitably spread across the whole community as possible. Our commitment is to ensure that any immediate short term effort is as well targeted as possible and is time limited.
QUESTION: Is the deficit tax of some kind absolutely locked in now because it is the only way to get the rich? And, why do it if it will be blocked by the Senate anyway?
FINANCE MINISTER: The implication of what Bill Shorten said the other day - who apparently doesn’t want to do his bit to help repair the budget mess that Labor left behind - the implication of what he said when he argued that Labor would not be part of any tax increases is that 100 percent of the burden to deal with the legacy of deficits and debt that Labor left behind, should be imposed on lower-income families. We don’t think that is right. We think that it is important that the effort is spread fairly and equitably across the whole community in the short-term, while the structural savings have got time to build up and deliver dividends over the medium to long-term.
QUESTION: Mr Shepherd said to us earlier that his report quite deliberately started slow and built up because you needed to not hit the economy too hard and because you needed time to take people with you? So my question is why do you need to do something straight away and quick? Why can’t the measures to hit the rich take time like this? And the second question is, is there anything, any measures in this report that you’ll rule out today?
TREASURER: No we are not in the business of ruling in and ruling out today. And why? Because we have got a process that we are going through in relation to this report. The first answer will be on Budget Night. That is the first point. The second point is some of the recommendations are, even though they are very worthy, they are actually quite difficult to implement because I must say, one of the surprises out of the Expenditure Review Committee process has been that the basic infrastructure of government hasn’t been maintained. When I talk about that I talk about the capacity of Centrelink for example, with its massive computer systems to be able to cope with the changes in policy and the computer system at Centrelink and the call-waiting times and the interface with the community is under enormous pressure now and hasn’t got the capacity to be able to respond to significant and immediate policy change in all cases. The same could be said with Medicare. That has been a surprise for us, which means that we are at the end of the day going to have to spend a hell of a lot of money, in the billions, to try and repair the basic infrastructure of government to be able to deliver some of the policy changes. The second key thing is that there is an interaction between the policy initiatives that are outlined today and other policy areas such as the interaction with the taxation system that need to be properly taken into account. Which means even though the recommendations came in isolation, we have to look at the whole picture. Don’t forget, this looks at the largest areas of expenditure, not the whole of government expenditure and it doesn’t look at the revenue side and it doesn’t look at the timetable side and the interface with the community.
FINANCE MINISTER: Just an additional point to make here is that the Budget that the Treasurer and I are working on with the Prime Minister and the Cabinet will very much be a growth Budget. Our commitment is to build a stronger economy that is more resilient and where we can create more jobs. This is an important part of building a stronger economy. So nobody should walk away with the impression that somehow we are going to pursue measurers that are going to weaken economic growth. This is going to be a growth Budget.
QUESTION: Look, just a bit confused about the messaging. When you say that you will still keep all your pre-election commitments, surely one of them very clearly was no new taxes, no increased taxes. Does this mean you’ll keep to that in this term of Government? Or are you saying because the situation you were left in is worst than you were told by Labor, you may need to concede on it?
TREASURER: You are asking us to speculate on the Budget in a couple of weeks’ time. We are not going to speculate on the Budget. Our commitments prior to the election stand.
QUESTION: What do you say to the increasing number of Liberal MPs and Senators who are today warning you not to go down the path of a deficit levy or tax?
TREASURER: Well I would just say to you, government payments overwhelmingly go to people under a certain level of income. Now the deficit has been built up and expenditure has gone to everyone in the community so everyone has to make a contribution to repair the deficit. That is a fundamental point, I think all of you would understand that. That it is so important that everyone contributes to the heavy lifting in repairing the budget. It has to be a national effort and there are only certain policy levers that you have to ensure that everyone makes a contribution. They are very limited.
QUESTION: Do you think that businesses carry enough of the load of the cuts that are proposed in this report?
TREASURER: Well that is a matter for the Commission, we’ve said that we have to, the end of the age of entitlement means that it applies to every stakeholder, including business.
QUESTION: Mr. Hockey I wonder, how do you feel about the prospect of handing ten percent of your income taxing powers to the States as part of the Federation reforms? And secondly do you have a view on that and do you have a view about this idea of changing the way the GST is distributed to the States?
TREASURER: Well if I could hand them 15 percent of my expenditure I would come out on top I suppose wouldn’t I? But the bottom line is they are matters for the Federation White Paper. They are matters for the Federation White Paper. There is no doubt that structurally, from an economic perspective the federation is broken and it needs to be fixed. So the recommendation out of the Commission of the Audit is in many ways obvious. That is why Tony Abbott, before the election, said we are going to have a new Federation that is going to come out of the Federation White Paper. Now one of the initiatives that we have talked about, the asset-recycling initiative, represents a new step forward in the relationship between the Commonwealth and the States and I don’t know if it has received enough focus. It will be a very important point of discussion between the Prime Minister and Premiers’ tomorrow but that is a step forward because that is helping to drive microeconomic reform across the country.
QUESTION: Treasurer you said that some of the recommendations were common sense and some of them were courageous. What category do you put the idea of tightening the assets test for eligibility for the pension and particularly including the family home in the asset test in the longer term?
TREASURER: Well again, I’m not going to respond to individual recommendations. However as the Prime Minister said the other day, we’ll have something to say about the aged pension in the Budget, but nothing will compromise our commitment not to change the aged pension over the term of this Government, first term of this Government. Clearly what you get out of the report is that changes in retirement income need to be planned well ahead and quite clearly, the fact that initiatives in relation to the aged pension in the report stretch out to the mid-2050’s, I think is just a reminder that we’ve got to start planning now to give everyone confidence that they are not going to be worse off in the short term in relation to their retirement incomes.
QUESTION: To return to surplus how do you see the balance between taxation increases and spending savings?
TREASURER: Well that will be clear in the Budget, but overwhelmingly it is fair to say that our savings in the Budget will do the hard yards and when we define savings in the Budget, we’re not going to define to include tax increases, like the previous government did. When I was looking at the last Budget, more than 60 percent of their so-called saves were new taxes or tax increases, we are not going to play those word games. Tax increases or tax revenue is not, so far as we are concerned a saving from the Government, it’s taking in some cases and where necessary savings from the community. Just give everyone a chance.
QUESTION: Mr Hockey, do Australians go to the doctor too much as Mr Shepherd just said. He said Australians go on average 11 times to the doctors each year. Is that a problem you will be addressing?
TREASURER: Well I don’t accept the introduction of your question.
QUESTION: Well that’s what Mr Shepherd said.
TREASURER: Well Mr Shepherd is entitled to his views and as you can tell, it’s a very frank and honest report and we don’t necessarily agree with what’s suggested.
QUESTION: Mr. Hockey there is a proposal in the report to strip high income earners of the private health insurance rebate; does that fall into the courageous category or common sense?
TREASURER: Well our support for private health insurance is well-known.
QUESTION: There is a very significant part that suggests the privatisations in the report, up to ten. Can you tell us philosophically where you stand on some of those like Australia Post, ABC etc. And most of them are in the medium term, do you think any of them should be short term?
FINANCE MINISTER: Well the Government has a policy right now to sell Medibank Private. We are progressing that sale. There are a number of recommendations in relation to opportunities for further sales that have been made by the Commission of Audit. We are considering all of the recommendations and the decisions that we ultimately make will be reflected in the Budget.
QUESTION:There are only certain policy levers available to you, why did you and the Prime Minister rule out tax increases before the election?
TREASURER: Taxes self-evidently gain to increase because it’s increasing as a share of GDP.
QUESTION: The Commission clearly did not like the idea of increasing defence spending to 2 percent of GDP over the next decade. Is that something you will take notice of or will you stick to your commitment.
TREASURER: We are sticking with our commitment.
QUESTION: The Commission has some views about childcare being a very important part of the participation equation and you should spend more on childcare, taking away from paid parental leave. Do you agree with that proposition: if you want to increase childcare and nannies, you need to take from another area?
TREASURER: Look improving participation in work is going to be a key focus of the Budget. Now in relation to childcare, we have a Productivity Commission review, we are not going to make policy on the run. We hear what the recommendation is, we are sticking by the Paid Parental Leave Scheme that we are committed to because it improves participation and we have got to increase participation. This Budget will be a call to arms for the Australian people. If you have the capacity to work, we just don’t want you to work, we need you to work. If we are to grow the economy, if we are to deliver prosperity, the hard yards are going to be have to be taken by everyone. Out of that, the most vulnerable in the community will be able to have the sorts of confidence and protections necessary to reassure them that they will be well taken care of. Last question.
QUESTION: In your speech last week you spoke about adhering to Labor’s spending cap of 2 percent or less.
TREASURER: No no, I said that they never adhered to it and now they are expecting us to adhere to it.
QUESTION: I note today, I think it’s page 47, it has to match your surplus timetable, it has spending under 1 percent or even negative for the next three or four years that it grows to over two or two and a half, were you talking about an average over the ten years of where you want to be, or under two, or are you prepared to get away with two?
TREASURER: Well the bottom line is, we’ve got to have a credible plan to get back to surplus because when we get back to surplus, we just start to pay down the debt that we’ve inherited and if we pay down the debt that we’ve inherited, we can in so far as you can, we can inoculate Australia against the turbulence that will inevitably come sometime in the future in the global economy. Now we are not going to turn this ship around overnight, but we are going to turn it around because we must. We can’t keep heading into a cyclone and expect everything will be okay. And if there is anything that comes out of today, it is proof that the ‘she’ll be right’ attitude of our political opponents is not good enough and was never going to work and someone was going to have to stand before you today and say that the hard yards need to be done to fix the Budget, it happens to be us and it’s the Coalition in Government. We are ready for it because we all have to contribute.
FINANCE MINISTER: If I can just add here an important point, because Labor keeps talking about their fiscal discipline. They kept talking about limiting growth to 2 percent real, but if you look at what Labor did, they always failed to meet their target. In fact in the first year beyond the forward estimates, spending growth in real terms is 6 percent if we kept to the spending trajectory of Labor, three times their so-called fiscal target. If we kept to Labor’s spending growth trajectory, Commonwealth spending as a share of GDP would head to 26.5 percent by 2023-24. A staggering 26.5 percent within a decade. That compares to 23.1 percent under the last year of Howard Government. The spending growth trajectory that we inherited from Labor is unbelievable, it is unsustainable and it’s got to be fixed.
QUESTION: Can you keep to the 2 percent average?
FINANCE MINISTER: Well you’ll see our detail in the Budget.
TREASURER: Okay, two more and then that is it.
QUESTION: Then also on the big picture. You’ll reserve your comment on individual measures in this report, but the report an ambition or basically says that if done, these would cut spending in 2023-24 by $60 to $70 billion. Now, do you accept that goal of reducing spending by that sum in that year and therefore do you accept that if you don’t endorse a particular proposal in this report, you have got to find some other way of achieving the same spending cut.
TREASURER: Well self-evidently, we have to make savings, genuine savings by a certain amount, you have to go and do the economic assumptions by their model, which may not necessarily be the same as Treasury. It could be higher or lower. I’d just say to you that there is much work to be done, we know that and we are committed to it. Last question.
QUESTION: The Commission talks about how you could have a cap of 24 percent of taxation as a proportion of GDP, would you accept that kind of measure, and if I could ask Senator Cormann as a proud Western Australian whether he would also like a per-capita GST share?
FINANCE MINISTER: We took a commitment to the last election which was very clear and I’ve said this many times before. There will be no change to the GST, full stop end of story.
TREASURER: And in relation to the first part…
QUESTION: Taxation as a proportion of GDP.
TREASURER: Look, we believe in smaller government, but it doesn’t happen overnight. It’s not going to happen overnight, I mean we’ve got to be realistic about it. We’ve got to be realistic about getting the revenue to start to give us capacity to restructure the way Government operates and you know that’s not going to be easy. It’s very hard, but we’ve begun the process and if the economy grows, revenue will grow and then you’ve got your options on the table for tax reform. So what we’ve got to do is focus on growth, where government’s spend money, make sure you get more bang for your buck in the economy and I think you will see that at play from the Budget. Thanks very much everybody.