Senator the Hon Mathias Cormann
Minister for Finance
TOM CONNELL: We’re in that awkward in between moment between the Commission of Audit and its report for some pretty significant cuts you would have to say and the Budget, when the Government will likely take perhaps a few of those recommendations. Perhaps a few of them watered down if anything and then reveal exactly what they’re going to include in the Budget. Later on in the program we’ll have Labor’s Ed Husic, no doubt highlighting a few of the more disastrous consequences he believes will be in that Commission of Audit and if they are implemented in the Budget, what will happen.
But to start off from the Government’s side, we are joined by the Finance Minister, Senator Mathias Cormann all the way from our Perth studio. Mathias Cormann thanks as ever for your time. I know it’s pretty early over there in the West.
MATHIAS CORMANN: Good to be here.
TOM CONNELL: We’ll start of, if we can, with something not actually in the Commission of Audit but the debt tax. And we’ve heard the Treasurer say a few times if implemented, this measure would very much mean higher income earners contribute to savings measures because of the fact of course that lower income earners will be more affected by some of the spending cuts we’re going to see. That’s your way of sharing the Budget pain you’ve been saying.
MATHIAS CORMANN: That’s exactly right. So the Commission of Audit is recommending a whole series of structural reforms and structural savings to bring our spending growth trajectory under control over the medium to long term. But we do have an immediate problem. There is an immediate and short term need for a special effort to get us into a stronger starting position to repair the Budget. Now if we were to impose one hundred per cent of that effort on the spending side, then inevitably the only people that would be impacted are lower income people who receive Government payments. You can’t reduce the growth in Government payments in relation to people who don’t receive any Government payments. So our commitment and our objective is to share the additional special effort as fairly and as equitably as possible. We are mindful that higher income earners already pay a lot more tax. However, given that there is a special additional effort required in order to deal with Labor’s legacy of deficits and debt, the only fair and equitable way of doing so is by also considering some well targeted, time-limited measures through the tax system.
TOM CONNELL: Is it also though fair and equitable to make those measures targeted at high income earners temporary as Tony Abbott has said, but the spending cuts presumably are a lot more long term. That doesn’t seem to be actually sharing that pain.
MATHIAS CORMANN: Over the long term what we need to ensure is that our spending growth trajectory is consistent with our revenue growth trajectory. Governments can’t continue to spend more than we raise in revenue. So clearly we’ve got to bring those two trajectories in line. In fact we ought to raise slightly more revenue than we’re spending in order to ensure that we’ve got a small buffer over the medium to long term, which is why our commitment is to get us into a position of surplus of one per cent as a share of GDP by 2023-24. The problem right now...interrupted
TOM CONNELL: Just specifically to that point, sorry Mathias Cormann, you’re saying that those higher income earners will have to share the pain, but only temporarily. Spending cuts that will affect lower income earners, they’re permanent or much more long term.
MATHIAS CORMANN: That is not what I’m saying. What I am saying is that there will be structural reforms in the Budget. There will be structural savings in the Budget. There will be things that are fair and equitable over the medium to long term. But in terms of the immediate effort, clearly if we want to be able to make an immediate effort in order to get ourselves in a stronger starting position to repair the Budget, then clearly we’ve got to look at both the spending and the revenue side in an appropriately well targeted fashion.
TOM CONNELL: Okay, there are also moves afoot of course to increase the retirement age and thus the pension age. That’s all been confirmed or has been confirmed by Joe Hockey. He wants to essentially keep people working. But why not look at taxing superannuation payouts for those earning more than $1 million in superannuation. That would be a big item would it not for the Government.
MATHIAS CORMANN: Very clearly we live longer and as such we will have to work longer. The previous government extended the pension age to 67. We are proposing to extend that slightly further to 70 by 2035. The important point here is that this will not impact on people that are on an aged pension today, or that are about to go on an aged pension. This is very much a long term reform.
Now as far as superannuation is concerned what we said in the lead up to the last election, it is very important for people who are saving to achieve a self-funded retirement so that they do not have to rely on the aged pension to have policy stability, to have stability in regulatory settings, which is why we made a commitment not to make any unexpected detrimental changes to superannuation in this first term of Government. To what extent there is a need for more medium to long term reform that will be part of the taxation white paper discussion.
TOM CONNELL: Alright, but when it comes to what you alluded to there about being an election promise, the debt tax would appear to quite clearly break one of them. Is the superannuation part the reason you don’t want to break that promise perhaps, as you really see a lot of those people that could be affected by changes to the taxation there being traditionally mostly Liberal supporters.
MATHIAS CORMANN: You’ll have to wait to see what’s in the Budget before you come to conclusions in relation to our election commitments. Our focus very much is on keeping the commitments we made in the lead up to the last election. We’re committed to keeping our election commitments and we’re working very hard through the Expenditure Review Committee process to ensure that we’re implementing savings and necessary reforms in the way that is consistent with the commitments that we made in the lead up to the last election.
TOM CONNELL: The Commission of Audit didn’t look at tax expenditures such as the superannuation tax breaks I alluded to earlier. Are those sort of measures going to be looked at in this tax white paper? Tax expenditures?
MATHIAS CORMANN: Firstly, you’re right, the Commission of Audit’s job was to look at spending right across Government in order to ensure that Government spending is as efficient and as well targeted as possible. They’ve come back with a series of recommendations to address the unsustainable spending growth trajectory that we’ve inherited from the previous government.
In relation to superannuation, you’ve got to be very careful here. The whole purpose of superannuation is to ensure that more people across Australian can look after their own needs in retirement and not have to rely on the aged pension. When people talk about tax expenditures and wanting to address that, what they’re saying is that they want us to increase taxes for those that are saving more to achieve a self-funded retirement. Now we want more people to save more, so more people can look after their own needs in retirement and not rely on the aged pension.
TOM CONNELL: There’s surely a line to be found there somewhere. Sure encourage saving, but once you get a super accounts of a million dollars plus, is there not a line at some point where you think the system could be more sustainable, where some sort of tax occurs.
MATHIAS CORMANN: I remember when Labor was looking at this in government about a year ago, they talked about balances between $800,000 and $1,000,000 being balances for people that are rich. Now if you look at the net present value of the aged pension for a couple aged 65, the net present value of the aged pension is about $800,000. So you shouldn’t think for one second that somebody with a superannuation saving of $800,000 to $1,000,000 is rich because it’s just not true.
TOM CONNELL: Okay, a couple of broader questions for you. Do you think voters are ready to see an end to universal healthcare?
MATHIAS CORMANN: We are committed to maintaining and continuing to build a world class health system. In terms of the specific Budget measures, obviously you will have to wait until the second Tuesday in May. The challenge for Australia is to ensure that we are able to continue to fund sustainably, the world class health system that we have come to expect and that people will want to continue to be able to benefit from. That’s our focus.
TOM CONNELL: Is that something you’d be comfortable with though, or you’re ready to at least have this conversation on universal free healthcare isn’t sustainable.
MATHIAS CORMANN: In the lead up to the last election we made very clear commitments that we would keep the funding envelope in place for health that we inherited from the previous government over the then forward estimates. Within that, we’re focussed on making sure that spending on health is as efficient and as well targeted as possible, in an effort to ensure that the world class health system that we have here in Australia continues to be affordable for tax payers and for patients over the medium to long term. So that our children and our grandchildren can continue to benefit from a world class health system and that they don’t have to suffer the consequences because we have spent too wastefully today and have made it more difficult for world class health to be funded into the future.
TOM CONNELL: Okay, on the theme again of conversations we need to have, do you think one of those at a conversational level, I’m not asking you to pre-empt the Budget, but to talk about the fact that one day perhaps there might need to be an asset test on the family home when it comes to the aged pension. Was that something you just don’t want to be talking about with voters.
MATHIAS CORMANN: Well you are inviting me to speculate on what may or may not be in the Budget. We haven’t provided responses to each of the recommendations that were made by the Commission of Audit. Clearly, as invariably is the case with these sorts of reports, there will be some recommendations which we will agree with and be able to implement immediately, there will be others that will take some more work and there will be some things that we will never do.
TOM CONNELL: Sure, but there have been indications at least of areas generally, principles that the Government says let’s talk about this, is that one, which is a pretty big one for seniors groups, is that an area that you’re going to be talking about at least? Sounding people out about it.
MATHIAS CORMANN: We’re going to be talking about how we can ensure that the unstainable spending growth trajectory that we’ve inherited from the previous government can be addressed. Without any corrective action, Commonwealth spending would go from $409 billion this year to $690 billion in 2023-24. That would be 26.5 per cent of spending as a share of GDP, which is incredibly high. Compare that to the 23.1 per cent of spending as a share of GDP in the last year of the Howard Government. That is the spending growth trajectory that Labor has put us on and we’ve got to fix it.
TOM CONNELL: When it comes to this Commission of Audit report, we heard Tony Shepherd under questioning from the Senate Committee yesterday say he had no idea how many public service jobs would be affected by his reports recommendations. He said it could 5,000, it could be 15,000 he didn’t know. Is that a good sign for what’s been billed as a very thorough report?
MATHIAS CORMANN: Tony Shepherd had a job to make recommendations to Government. Obviously the Government has been going through a careful, methodical process assessing the recommendations, assessing the implications of the recommendations both in terms of how much can be saved and what any other effects would be. Our judgements and our final conclusions in relation to all these matters will be reflected in the Budget. I’ll just remind you here that the commitment we made in the lead up to the last election was to reduce the size of the public service by 12,000 through natural attrition. That effort was hampered somewhat through the secret cuts that Labor initiated in the dying days of the government when they initiated cuts of 14,500 people in the public service. But you’ll just have to see what’s in the Budget before you can ask me some further questions on this.
TOM CONNELL: Just specifically though, I’m asking about the report and the way its compiled, would you not expect part of what’s been recommended here to have a firmer grasp of on exactly how many workers this could affect?
MATHIAS CORMANN: The work that the Commission of Audit did was very much focused on how best to ensure that Government spending is as efficient and as well targeted as possible. The job of what all of the effects and the downstream consequences are is really the job of the Government, which we are currently doing, which we have been doing for the last few months.
TOM CONNELL: Okay, we might move on just finally, Mathias Cormann to this cancelled trip by the Prime Minister to Indonesia. Now the official line that we’ve been given is that Tony Abbott is too busy at this time to make this trip. It was much anticipated given that we’re trying to restore relations in the wake of those spying allegations. Now they happened under Labor but they are something the Government’s trying to fix or mend nonetheless. This officially reason of ‘too busy’ because of the Budget period, we always knew when the Budget was going to be handed down. The other reports we’re getting is that there’s been an on-water operation, an asylum seeker boat turned around and that would cause embarrassment for Indonesia if that happened during Tony Abbott’s visit. That seems to me a pretty clear sign that this policy is something that jars with Indonesia.
MATHIAS CORMANN: The Prime Minister is very keen to visit Indonesia and to visit President Yudhoyono. President Yudhoyono is a great friend of Australia. But we are one and a half weeks away from the Budget and there is a lot of work to be done in Australia over the next ten days. This is not a trip that has been on the table as a proposed trip for a very long time. The Prime Minister will go to Indonesia as soon as possible, when it is mutually convenient for both Indonesia and for Australia.
TOM CONNELL: So just on that reason, what do you expect voters to conclude from the line that its ‘too busy’? Its pretty rare reason given for these international trips isn’t it?
MATHIAS CORMANN: No, the Prime Minister is obviously very focussed on his responsibilities here in Australia ten days out from our first Budget. I don’t think that there is anything unusual or remarkable about this. It is entirely unremarkable.
TOM CONNELL: What’s remarkable surely is how long this Budget, we knew a long time ago when the Budget was going to be so why organise the trip at this time?
MATHIAS CORMANN: I don’t believe that we organised the trip. I think that there was a proposition that the Prime Minister might want to go to Indonesia, there was an invitation and the Prime Minister is very keen to travel to Indonesia. Our relationship with Indonesia is very important and President Yudhoyono is a very good friend of Australia and very soon no doubt, the Prime Minister will travel to Indonesia. But right now, ten days away from the Budget, our first Budget there’s a lot of work to be done in Australia and we’re very confident that our friends in Indonesia understand that.
TOM CONNELL: Okay, well I know you have plenty of work as well to do on this Budget, so Mathias Cormann appreciate your time this morning on Saturday Agenda all the way from over there in Perth.
MATHIAS CORMANN: Always good to be here.