Senator the Hon Mathias Cormann
Minister for Finance
CHRIS KENNY: Welcome back to Viewpoint. With just two sleeps to go until the Federal Budget, we are joined from Canberra by the Finance Minister Mathias Cormann. Thanks for joining us Mathias.
MATHIAS CORMANN: Good evening Chris.
CHRIS KENNY: Can you tell me, do you believe that the Australian Federal Budget has a spending problem or a revenue problem?
MATHIAS CORMANN: Well the Australian Federal Budget that we inherited from Labor is in a mess. It is based on a spending growth trajectory that is unsustainable. That clearly was the finding of the Commission of Audit. We inherited $123 billion worth of projected deficits after $191 billion of deficits in Labor’s first five Budgets, with government debt heading for $667 billion. So we are working very hard to turn that around.
CHRIS KENNY: So it’s a spending problem or a revenue problem?
MATHIAS CORMANN: Well there is a significant spending growth problem and of course we have to ensure that we implement structural reforms and structural savings to the Budget on the spending side and we will. But there is a need for an immediate effort to put us into a stronger starting position to repair the Budget. That is what we promised we would do in the lead up to the last election - repair the Budget mess that we have inherited. It is important that we spread the effort, the short term immediate effort, around the whole community.
CHRIS KENNY: Of course the reason I ask this, is because in the lead up to the Budget Tony Abbott, Joe Hockey, yourself, you all said that the problem with Labor’s financial management was a spending problem, and you kept saying you would come into Government and fix that spending problem. And you knew it was severe, you knew it was drastic and you had an update during the election campaign to outline how bad it was for you. And you still kept saying that it was a spending problem that you could fix without increasing taxes or introducing new taxes.
MATHIAS CORMANN: Well we have inherited a significant spending problem because Labor clearly year in, year out spent more than they raised in revenue. The spending growth trajectory we inherited was unsustainable ...interrupted
CHRIS KENNY: Yes, but this is exactly my point because you said you could fix that without increasing tax.
MATHIAS CORMANN: Well I don’t accept that we used those words, but I don’t want to argue the semantics. The truth is over the last six/seven months we have reviewed all the information, assessed all of the options on how best to repair the Budget mess that we have inherited from the Labor party and on Tuesday, the Budget that Joe Hockey will be delivering will be a Budget that will build a stronger, more prosperous economy and which will put the Budget back onto a believable pathway to surplus.
CHRIS KENNY: Alright, well one of the controversial measures in that is the so called ‘debt levy’ which essentially is just an increase in income tax for high income earners. Can you tell us how much extra money that will raise and how long it will be in for?
MATHIAS CORMANN: Well I am not going to deliver the Budget for you tonight and I am not going to talk to confirm specific measures ...interrupted
CHRIS KENNY: But it will be temporary?
MATHIAS CORMANN: I have already said on the record and a number of us have said on the record that we, in putting the Budget together have made sure that there is an immediate short term effort to put us into a stronger starting position to repair the Budget, which will involve an effort, a well targeted, time limited effort through the tax system. The detail of all of that of course will be in the Budget on Tuesday.
CHRIS KENNY: Sure, well you have said that. You’ve talked about a temporary tax increase in fact. So my point is that it is not really a structural reform if it is temporary is it? Structural reform is reform to the Budget spending or revenues that goes on into the future, not something that is a quick sugar hit for the Budget for a few years.
MATHIAS CORMANN: Chris this is a very important point. In the Budget there will be significant structural reform. In the Budget, there will be significant structural savings. But the virtue as well as the downside of structural savings is that they start low and slow and they build over time. Now in the interim, while we let those structural savings, those structural reforms kick in and build up, we do think that there is an immediate effort required and that immediate effort needs to be spread as fairly and as equitably as possible across the whole community. In relation to those Australians who don’t receive any payments from Government, the only way you can ensure that they contribute to the overall effort to repair Labor’s Budget mess is sadly and regrettably through the tax system.
CHRIS KENNY: Well ok, one of the people who has been criticising your tax increase, breaking the promise and having a ‘debt levy’ if you like, an increased tax to try and get the Budget under control is of course the Liberal party’s economic hero former Treasurer Peter Costello. He says the tax is the wrong idea. It was interesting to see you in your Press Conference this week hit back at him a bit really by quoting Peter Costello back to himself from his 1996, his crucial first 1996 Budget. Here is a little bit of what you quoted from him back in 1996.
PETER COSTELLO: Mr. Speaker, you don’t turn around a nation’s finances, a nation’s future without making some hard decisions. But if we avoid the hard decisions, they are only going to get harder in the future. The measures have to be fairly shared. We cannot expect those who rely on pensions and allowances, low income earners to bear the costs. So we are asking high income earners to make a contribution and business to make its contribution too.
CHRIS KENNY: I think you’re point is quite well made there Mathias Cormann in that it is a very similar argument that Peter Costello was making then to what you’re making now, but it does get to the point though doesn’t it that it is a political tax, that you’re doing this in order to sell the Budget to everyone. You want to make sure that the rich share a little bit of the pain.
MATHIAS CORMANN: I don’t agree that it’s a political tax and the point that I would just make is that I wasn’t hitting out at Peter Costello at all. Peter Costello is a Liberal Party hero. He did an outstanding job as Treasurer repaying Labor’s $96 billion worth of debt. The point that I was making was that in 1996, Peter Costello was confronted with the same challenge that we’re confronted with now. He was confronted with a massive Labor Party deficit, with massive Labor Party debt and in meeting that challenge, he essentially made a judgment that we think was right then and is still right now, that the immediate effort to repair the Budget mess that we have inherited needs to spread fairly and equitably. And of course what I wanted to point out is that if we want to get to the same destination that the Howard Costello Government took Australia to, that is to pay off the debt and put the Budget sustainably back in surplus, then we’ve got to take the same path that John Howard and Peter Costello laid out for us back in 1996.
CHRIS KENNY: Can we just for one question put the economics to one side, the fiscal challenge to one side, and I just want to ask you whether over the last few years we’ve seen a lot of people lose faith in politics and politicians from both sides in the process. They have become increasingly cynical about politics, does it worry you as a politician really who’s just starting off as a Cabinet Minister, does it worry you that you’re taking decisions that if you’re breaking promises will increase that cynicism that perhaps will undermine the faith that especially young people will have in the political system?
MATHIAS CORMANN: Chris I’ll let others form their judgments on how they think we perform,. All I can say for me and for my colleagues is that every single day, we do the best we can to make Australia a better country. Every day, every single day we try to make the right judgements for our country’s future and then of course, every three years the Australian people get the opportunity to pass judgment on whether they think that the judgments that we’ve made were fair and strengthened our country. But look, at the end of the day, I’m not a commentator, I’m a participant in the process and it will be for others to form judgment on whether they think that we’ve performed appropriately.
CHRIS KENNY: There’s been a lot of focus on broken promises on the revenue side. Will there be promises broken the spending side? In other words, Tony Abbott’s commitments not to cut spending in health, education, defence, the ABC, is he going to be able to keep all those promises?
MATHIAS CORMANN: Chris, the Budget that the Treasurer will be delivering on Tuesday will keep all of the policy commitments that we took to the last election. We have worked very hard as an Expenditure Review Committee and indeed as a Cabinet, to make absolutely sure that we deliver on all of the policy commitments that we took to the last election.
CHRIS KENNY: Do you want to see smaller government? Is it your plan that the government should become a smaller part of the overall economy, that it’s become too big in recent years?
MATHIAS CORMANN: Absolutely. The size of Government has become too big at many levels. We do need to reduce the size of government. We need to ensure that government services are as efficient and as well targeted as possible, that government administration is as efficient, as effective and as accountable as possible. When we came into Government, even just the number of government bodies has grown incredibly. There are around 1000 different individual government bodies. There is significant opportunity here for reform that we are pursuing and government spending as a share of GDP ought to be coming down over time. If we didn’t take corrective action compared to the trajectory that we inherited from Labor, government spending as a share of GDP would head to 26.5 percent by 2023-24 or $690 billion. That is way too high and that is of course why we are pursuing the structural reforms and savings that you will see in the Budget on Tuesday night.
CHRIS KENNY: Well if that’s part of your aim to shrink Government, it would make government a smaller part of the economy, why would you be introducing a massive new generous Paid Parental Scheme that is reliant on a new levy?
MATHIAS CORMANN: Chris I know that you don’t like the Paid Parental Leave Scheme. We've had this conversation many times. From our point of view it is an important economic and social reform. It's an important workforce participation measure. We do have an ageing population. We do have falling workforce participation rates. We do need to ensure that we increase the level of female workforce participation in particular and our fair dinkum Paid Parental Leave Scheme is an important part of our agenda to build a stronger, more prosperous economy.
CHRIS KENNY: Will you cap the amount that public servants can get, or will public servants still be paid at their full salary?
MATHIAS CORMANN: Well firstly, of course, the scheme has been adjusted somewhat, it is now going to be capped at $100,000 of income. Secondly what we have said in the lead up to the last election is that public servants would no longer be able to double-dip, because under Labor, public servants were able to access both the Paid Parental Leave Scheme that they legislated and a full replacement wage Paid Parental Leave Scheme on top of that. So what we will be doing, which is part of the costings we took to the last election is to ensure that there is no longer any opportunity for public servants to double-dip.
CHRIS KENNY: Okay and just the pay freeze for politicians, one year, it’s a bit weak isn’t it? Shouldn’t you have at least frozen your pay for the whole term of this government? A lot of people in the private sector have had their pay frozen over the past twelve months or so?
MATHIAS CORMANN: The Prime Minister and the Treasurer have provided very strong leadership here, making it clear that pays of Parliamentarians and Secretaries here at the Federal level will be frozen for one year. That is something that has to be managed through the Remuneration Tribunal. Let’s see what happens next year. This is this year is this year and next year will be next year.
CHRIS KENNY: Well Mathias Cormann I appreciate your time, I hope you’ve put aside a nice cigar to smoke at the end of it all on Tuesday night?
MATHIAS CORMANN: There’s something to be said about after a long day’s work to just sit down and reflect on what has been happening on the day just gone.
CHRIS KENNY: Indeed, thanks very much. No doubt paying a bit of excise on those cigars as well. That’s Finance Minister Mathias Cormann joining us live from Canberra.