Senator the Hon Mathias Cormann
Minister for Finance
JANINE PERRETT: And now, as promised, the man of the moment, well one of them, but a key member of the Government Budget team taking time away from dotting the is and crossing the t’s and adding it all up, Finance Minister Senator Mathias Cormann in our Canberra studio of course. Welcome to the show and thank you for breaking away from a big week.
MATHIAS CORMANN: Good to be here.
JANINE PERRETT: Now I want to take issue with you on something first. I have been covering Budgets for many years and one of the great benefits for journalists is that we get to do the pre-Budget leaks. We call them leaks. Your Government seems to be announcing everything, there is no room for leaks. We had childcare announcement this week, small business tax, today a big pension announcement. Now why are you announcing all of these things a week before the Budget?
MATHIAS CORMANN: We are a Government which never sits still. We always work to put Australia on a stronger foundation for the future and when we are ready to make announcements, we make them. So yes, there have been a number of announcements this week, all focused on putting Australia on a stronger foundation for the future, strengthening growth, strengthening job creation opportunities and focusing on helping families.
JANINE PERRETT: But in the strategy of doing this and announcing it in the week before the Budget, is that to clear the way so the Budget is a different looking document? I mean, what’s the political motivation for making these announcements this week?
MATHIAS CORMANN: The Government makes announcements all the time. Now in the lead up to the Budget next week, there is a particular focus and a particular level of interest. The Government is just getting on with the job of providing good Government.
JANINE PERRETT: Okay, well you’re in all the meetings. How different is the atmosphere in those meetings this year compared with last year? I am thinking, what lessons did you learn from last year?
MATHIAS CORMANN: Last year was our first Budget after a six year period of Labor Government. Last year we had to change direction quite significantly given that back in September 2013, we had inherited a weakening economy, rising unemployment and a Budget position that was rapidly deteriorating. Since then, we’ve made significant progress in implementing our plan for stronger growth, for stronger job creation and for repairing the Budget. We haven’t got quite as far as we would like, but we have made significant progress. This year, it was more a matter of building on the progress that we had made, make some adjustments to some of the measures that we hadn’t been able to settle down and next week, it will all be revealed.
JANINE PERRETT: But what is the sort of catch phrase you’re using when you’re in there or how would you sum it up? The Prime Minister has said that it will be a dull Budget. If you had to sum up what you’re thinking when you’re doing it and looking at it, what is the word you’d use to describe it?
MATHIAS CORMANN: It will be the right Budget for these times. It will be a Budget to strengthen growth, to strengthen job creation and ...interrupted
JANINE PERRETT: Well that’s what the Prime Minister said today.
MATHIAS CORMANN: And that is a very accurate description. It will be a measured, responsible, fair Budget. It will be a Budget focused on putting Australia on a stronger foundation for the future.
JANINE PERRETT: Okay. You talked about the fact that last year was your first Budget and what you’re inheriting. I notice this week the new Victorian Labor Government brought down a Budget. It was pretty well received for a Government that has only been in four months. It did increase spending a bit but even conservative commentators seem to think it was quite responsible. Do you think that perhaps it might be worth looking at how they did it?
MATHIAS CORMANN: The Victorian Labor Government followed from a very effective and responsible Victorian Coalition Government, which had done all the heavy lifting in fixing the Budget and they left behind a very strong surplus. So clearly, the starting position for the Victorian Labor Government was much better than the starting position that we inherited. The starting position for the Labor Government in Victoria was not dissimilar to the starting position for Kevin Rudd at a Federal level back in 2007. The problem is that our starting position was one where we were facing a rapidly deteriorating Budget position, an economy which was weakening, rising unemployment and we needed to work very hard to turn that situation around. We have made a lot of progress over the last 12 months, but there is more work to be done. We are focused on the task at hand, which is to strengthen growth, strengthen the opportunity for more jobs and to continue the important task of getting the Budget back to surplus as soon as possible.
JANINE PERRETT: Okay, are you willing to put a timeline on a surplus?
MATHIAS CORMANN: We’ve been saying consistently all the way since before the last election actually, that we would bring the Budget back to surplus as soon as possible. We will do that in a way that is economically responsible and we will do that taking into account the circumstances that we are dealing with. Since the last election, and in particular since the Budget last year, we have faced some additional global economic headwinds. There have been some significant falls for example in the price of iron ore and the price of oil and gas and various other economic indicators at a global level. We have had to take these things into account and make responsible judgments and we will continue to do so.
JANINE PERRETT: Just on the iron ore price, you’ve been a bit lucky, it was heading down, it was in the mid-$40s and some were talking about it going down to $20, in fact it has bounced back up, it is over $60 today. Given that you had lowered expectations on the price, is that going to make the headline number look better for you? I mean, how relieved were you to see that iron ore price increase at this time?
MATHIAS CORMANN: Just to put it into context, so iron ore obviously is our biggest export nationally. 21 per cent of our national export income comes from iron ore. So what happens to the price of iron ore is material and it does matter in terms of nominal growth, in terms of wages growth and a range of other indicators and it does have an impact on our revenue. When we came into Government, the iron ore price, the free on board iron ore price was at US$120 a tonne. By the time of the Budget last year, US$92 a tonne. By the time of MYEFO last year, US$60 a tonne. So between the Budget last year and MYEFO, we had to write off about $30 billion of revenue. There have been some further falls, there have been some further falls in iron ore prices since then, so that will have an impact on our revenue. But the important point here is that whoever would have been the Government, whoever is in Government, that would have been the same. No Government controls what happens to global commodity prices. But what we have done is to make sure that in the context of what was happening in the global economy, we put Australia on the strongest, most resilient foundation possible to deal with challenges and to be in the best position to take advantage of opportunities that will continue to come our way as part of the Asia-Pacific region.
JANINE PERRETT: Okay. The Reserve Bank is trying to do its bit. It is as concerned as you about confidence and all these issues and it is well aware of global factors. This week we saw a rate cut, yet it was aimed at trying to bring that dollar down, trying to get the animal spirits going as Joe Hockey said, to instil confidence. Since then, we have seen the market heading down, be it for global factors, but not great for confidence, but most importantly, that dollar is persistently near the 80c level despite the cut, which is quite unprecedented. Now Glenn Stevens warned recently that Governments can’t rely on central banks, that interest rate cuts just don’t have the same impact that they used to. He has been proved right this week. That must be a concern. That puts more pressure on what you’re doing next week, doesn’t it? To try and get the economy moving.
MATHIAS CORMANN: Monetary policy and fiscal policy work together in the economy and they have to be complimentary to each other and head in the same direction. The Reserve Bank makes its decisions on monetary policy independently, as they must. The decision this week that the Reserve Bank has made, to reduce the official cash rate by another quarter of a percent, down to two per cent, does give opportunity to businesses across Australia to consider investment. It does provide opportunity to strengthen growth, private sector growth and we certainly look forward to seeing that happen. You can’t make a judgement based on what happens in the first 24 hours, you need to look at these things develop over time. But it is certainly true that as we are putting our Budget together, we are very much focused on those measures that we can put in place to strengthen growth, strengthen opportunity, strengthen the opportunity for more jobs.
JANINE PERRETT: But we have seen low interest rates, this might be another quarter of a per cent but we have had low interest rates for a long time now, business has firmly kept their hands in their pocket. This must be very frustrating to you when they criticise the Government, they blame the Budget, but they just don’t seem to want to spend.
MATHIAS CORMANN: We actually do think that there are a whole range of green shoots in the economy and we look forward to that continuing to build in the months ahead. We are very optimistic in terms of our outlook. The official cash rate has been coming down in recent times, but if you look at where Australia has been at compared to the rest of the world. Compared to the US and parts of Europe, even right now we are still comparatively high. The Government is focused on doing everything we can to help strengthen growth, to help strengthen job creation and we are quietly confident that with everything that is happening low official cash rate, lower dollar than what we have had this time last year, low oil and gas prices and a range of other indicators working our way that there will be movement in the economy and the economy will strengthen in the months ahead.
JANINE PERRETT: And what do you say to those business people who are already expressing their annoyance that you seem to, that they think, that you have gone soft on reform, that a dull Budget is not what we need, that we need to continue to be tough. What do you say to them when they argue that you are softening?
MATHIAS CORMANN: We are not softening. We are pursuing the necessary economic reforms for our times. We are doing it in a way that is also sustainable and achievable. The business community won’t thank us for putting forward reform proposals that have got no chance of getting through the Parliament because of the attitude that is taken by the Labor Party and various other parties in The Senate. We are making judgements on how we can best proceed in putting Australia on a stronger foundation for the future. We are continuing to pursue important structural economic reform. We are continuing to pursue important fiscal reform, reform to our spending moving forward.
JANINE PERRETT: We have to take a break there, but we will come back, there is plenty more to talk about in just a minute.
Welcome back, I am talking with Federal Finance Minister Senator Mathias Cormann who is in Canberra preparing the Budget for next Tuesday’s big night. Senator Cormann, just on the Budget today, we had the Prime Minister denying a report in The Australian newspaper that backbenchers were concerned about Joe Hockey if this Budget doesn’t work, they want him out. The Prime Minister said that you are all taking responsibility for it, he named Mathias Cormann, it’s his Budget, as much as Joe Hockey’s, are you happy about that, are you happy to take full responsibility wherever it may fall?
MATHIAS CORMANN: The Prime Minister is absolutely right. It is the Government’s Budget and all of us on the Expenditure Review Committee, from the Prime Minister to the Treasurer to the Deputy Prime Minister to myself, Scott Morrison and Josh Frydenberg, we are all part of it. Absolutely I take responsibility for the Budget that we will be delivering next week, alongside my very good friend Joe Hockey, who has worked extremely hard to put Australia on a stronger foundation for the future, who is an exceptionally effective Treasurer. I have worked with him very, very closely and I know better than anyone else how he has put his heart and soul into putting Australia on a stronger foundation for the future and improving opportunities for all Australians.
JANINE PERRETT: Yet, what went wrong last year then? I don’t want to go into, we know that the Senate was a roadblock, but both the Prime Minister and the Treasurer have admitted it was too ambitious. Mistakes were made. Was it the selling of it, what are you going to do differently this year, say in the selling of it afterwards, because half the challenge is selling a Budget.
MATHIAS CORMANN: All of us have made the point that maybe we tried to do too much at once in last year’s Budget and we certainly have learned from that. We did inherit a very challenging situation and we did make a judgment last year that we needed to make some difficult, though we would have said necessary decisions to turn the situation around. Now what we’ve learnt is that sometimes, and I’ve said this on your program before, sometimes you can go faster in implementing reform by going a bit more slowly. That is certainly something that we’ve thought about very carefully as we’ve put this Budget together.
JANINE PERRETT: Okay, I’m just going to go to another issue that emerged today. An announcement that the WA Government is going to get a payment of $499 million to make up for that GST gap. When we had the COAG meeting only a couple of weeks ago, this was not mentioned. Some people think because you are a West Australian Senator perhaps you helped them get it? Why did they get this payment and why wasn’t it announced at COAG?
MATHIAS CORMANN: You’re quite wrong when you say that this wasn’t mentioned at COAG a few weeks ago. At COAG a few weeks ago, the GST sharing arrangements did come up and the situation …interrupted
JANINE PERRETT: But not half a billion dollars special payment to them?
MATHIAS CORMANN: If I can answer your question.
JANINE PERRETT: Okay.
MATHIAS CORMANN: Western Australia as a result of recommendations by the Commonwealth Grants Commission, was faced with another 16 per cent cut in their GST revenue next year compared to this year. In fact, their GST revenue next year as a result of these recommendations would be lower than in the first year that the GST came into effect some 14-15 years ago, even though the overall pool has more than doubled. Now you’ve got to remember, the GST was actually designed to be a reliable growth revenue for the States. Over the 14 or 15 years, Western Australia has contributed a lot of growth, but has also had to invest a lot of money into infrastructure and services to deal with the growing population that comes with this. Now what the Prime Minister said at COAG was that over the medium to long term, ultimately, the only way to address GST sharing arrangements in a sustainable way is through the Federation White Paper …interrupted
JANINE PERRETT: Sure.
MATHIAS CORMANN: …including by considering the introduction of a 50 per cent floor. And the second thing he said was that the Federal Government would have bilateral discussions with the State Government about how we could provide appropriate levels of support over the short term to deal with the fact that both the GST revenue and the revenue from iron ore royalties, the other key revenue source in Western Australia, were falling at the same time. I’ve conducted those negotiations on behalf of the Federal Government with the State Treasurer in Western Australia, and what the Prime Minister announced yesterday was the agreement that he reached with the Premier.
JANINE PERRETT: Where is the money coming from Senator?
MATHIAS CORMANN: The money is coming out of our infrastructure budget and all of the details will be released in the Budget Papers next week.
JANINE PERRETT: All will be revealed next week, okay then. Just a couple of other things, did you see Ken Henry, the former Treasury Secretary under the Rudd Government and author of a tax paper has been made Chairman of NAB today. An interesting move to see a former public servant get that job. Do you have any opinion on that?
MATHIAS CORMANN: I’m not a commentator. That is a decision for the National Australia Bank. I wish Ken Henry every success. Good luck to him.
JANINE PERRETT: Okay, that brings me to your tax discussion at the moment ahead of the next tax reform we’re going to do. When Joe Hockey announced a few weeks ago, he said unlike Labor, we’re not ruling anything in or out. Since then we’ve ruled out GST reform, raising the GST, we’ve raised our changes to negative gearing, you’ve ruled out changes to dividend imputation. A number of areas you’ve ruled out. Where is the reform going to come from?
MATHIAS CORMANN: We are going through an open and transparent process. We’re going into the process with an open mind. Essentially, one thing that is very important to clarify. When we talk about tax reform, unlike the Labor Party, we are focused on lower, more efficient, simpler and fairer taxes. We’re focusing on how we can raise the necessary revenue for Government in the most efficient, least distorting way in the economy so that we don’t detract from economic growth opportunities into the future. Under Labor when they talk about tax reform, inevitably they were talking about how to raise more taxes by introducing new taxes in new areas. Now we go into this with an open mind but the process is only at its beginning.
JANINE PERRETT: Okay, even though we’re ruling things out. I look forward to, just tell me Senator Cormann, will there be some surprises in the Budget or is really going to be dull for us?
MATHIAS CORMANN: The Budget will present our plan for stronger growth, more jobs and better opportunity for all Australians. It will all be revealed next week.
JANINE PERRETT: All will be revealed. We will be covering it and I look forward to hearing and then talking to you about it after that. Thank you for your time, go back into those meetings, get it done.
MATHIAS CORMANN: Will do.