Senator the Hon Mathias Cormann
Minister for Finance
Date: Wednesday, 14 May 2014
ZEB ECKERT: Well back to the Asia Pacific now and the big story in Australia today and indeed this week is the Budget. One that was tipped to be a horror show by some estimates. Well let's take a look at what the Government says. Joining us from Canberra today is Finance Minister Mathias Cormann and Senator. Let me get your perspective of in the long run, if this goes as planned, what does this Budget that has many painful cuts included in it, what does it do for Australia if you get to your end goal?
MATHIAS CORMANN: What it will do is that it will build a stronger, more prosperous and more resilient economy for Australia and it will help us repair the Budget problems that we have inherited from our predecessors. This is really about creating better opportunities for people across Australia in the future, asking people to make a contribution today for a better future.
ZEB ECKERT: Well let's talk about this because the focus here is putting Australia on a path to surplus. You talk about structural reforms and more firmer fiscal sitting but the Central Bank last week described this as a head wind for the economy. Are you concerned, have you taken into your calculus the possibility this could backfire given external conditions?
MATHIAS CORMANN: Well we have obviously very carefully weighed up all of the factors and all of the information in front of us. When we came into Government in September last year, we did inherit an economy growing below trend, rising unemployment, low consumer confidence, business investment which had plateaued. So what we are doing in this Budget, we are putting our spending growth trajectory on a more sustainable footing, but at the same time we are shifting from consumption to investment in relation to the remaining government spending. In particular, we are rolling out a very significant program of investment in productivity enhancing infrastructure, which once it is properly rolled out will permanently add one per cent to our GDP.
ZEB ECKERT: Let's talk about election promises, how do you square $80 billion worth of cuts here to health and education spending when Mr. Abbott, Tony Abbott repeatedly promised to voters during the campaign no cuts to health care or education. This is a question that many voters are today asking in Australia.
MATHIAS CORMANN: Well we are completely keeping faith with our promises. In the lead up to the last election we said we would keep the same funding envelope in place in health and education that was in place at the time of the last election and we are doing exactly that. We have identified well targeted efficiencies and savings within the health portfolio, but we are reinvesting that in our health system. Putting all of those savings into a Medical Research Future Fund which is expected to build up to $20 billion worth of capital with the earnings from that fund to be reinvested in medical research. Now in education, we have actually done better than the previous government. We have put $1.2 billion in additional money to schools over the forward estimates prior to Christmas. But beyond the forward estimates period, in terms of our medium to long term trajectory, some of the spending growth trajectories that were put in place by the previous government were unsustainable. We are not cutting spending on health and education, we are just growing it in a more realistic fashion. We have adjusted the growth trajectory rather than to impose actual cuts.
ZEB ECKERT: Well there are those individuals who will experience these cuts. 16,500 civil servants are going to lose their jobs, pensioners will be hit by savings measures. You can't say that this will not impact ordinary Australians. Do you worry that when these elections come around in 2016 that voters may vote with their feet?
MATHIAS CORMANN: Well this will impact on everyone across Australia. We are asking every Australian to contribute to the task of putting our country, putting our Budget, back on track. Look at the end of the day, in two and a half years time, at the time of the next election, people will have
the opportunity to pass judgment on whether they think we got things right or if we didn't. Now in relation to public service numbers, it is the responsibility of a government to provide the services and administration of government as efficiently and as cost effectively as possible, because we don't want taxpayers to have to pay for government administration costs that are not appropriate. What we want to see moving forward is stronger private sector growth. Over the last six years we had too much public sector growth and not enough private sector growth.
ZEB ECKERT: Senator Cormann I think most people would laud, at least the initiative to try and get the Budget under control to make it more structurally sound. But the question here: is perhaps there are a bit of optics going on? Because Australia's gross debt, our research shows, 28.8 per cent of GDP last year, this is the smallest outside of Estonia amongst advanced economies according to the IMF, so if you look at this from a global perspective isn't the Government perhaps overplaying its hand when you talk about a Budget emergency?
MATHIAS CORMANN: No we don't think we are. The only reason we are in a better position than other countries around the world is because in 2007, when the previous Government was elected, we had a strong Budget and a strong economy. The Budget in 2007 had no government net-debt, a $20 billion surplus, we had money in the bank to the point where the government was collecting more than $1 billion in interest income a year. Fast forward six years and we have inherited $191 billion of deficits in the first five Budgets, $123 billion of projected deficits over the forward estimates at the time of the election and government debt heading for $667 billion. Now you mention the IMF. If you look at recent IMF reports, what they show is that spending growth in Australia is among the fastest in the world, among the fastest in the world. So what we are concerned about, more than anything, is the trajectory that we were on, and we have put a stop to the unsustainable spending growth trajectory because the only reason the situation in Australia right now is not worse is because we started from a so much stronger position than anybody else. If we had started in the same place as some of the other economies, we would now be in serious trouble. We need to strengthen Australia's capacity to deal with any future shocks and future challenges that come at us from the global economy.
ZEB ECKERT: I understand that. Senator Cormann with just a few seconds left, about thirty seconds or less, China of course has a major impact on Australia's economy, from mining to various other sectors. How would this Budget be impacted here, Budget take a hit really, if the Chinese economy slows down below the Government's seven per cent target level? How do you factor that in to your equation?
MATHIAS CORMANN:China is a very important trading partner for Australia. There is no doubt about that and our terms of trade, in particular when it comes to our exports of iron ore and coal are very heavily impacted by the strength of the Chinese economy. That is why it is so important, because we are exposed to that potential risk and potential volatility, that is why it is so important for us to ensure that we have a stronger fiscal foundation from which to prepare ourselves for any such challenges that might come our way.
ZEB ECKERT: Senator we have to leave it there. Senator Mathias Cormann, he is Australia's Minister for Finance and Senator representing Western Australia since 2007, we appreciate your time sir, we know it's a busy time these past two days in Australia.