Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 15 May 2014
JOHN LAWS: I can tell you that they are not going to get an easy ride through the upper and lower houses with this Budget. MP's from all sides of politics against many of the policies. Key cross-benchers say they will oppose measures announced in the Budget, including the introduction of a new medical payment and change to pensions that Ron just there was talking about.
Meanwhile Labor plans to vote against what they see as a broken promise, including the debt levy and the fuel excise increase. It seems like nobody is very happy about this. It is a harsh dose of reality to say the least. It is pretty telling when the State Premiers from your own Party are turning against you. Prime Minister Tony Abbott has even raised the prospect of an early election if key Budget measures are blocked in the Senate.
We have got the Federal Finance Minister, Mathias Cormann, on the line to discuss the matter, Mr Cormann, good morning.
MATHIAS CORMANN: Hello, good morning.
JOHN LAWS: How do you pronounce your first name?
MATHIAS CORMANN: Mathias.
JOHN LAWS: Mathias, okay. I have heard all sorts, I've never heard the right one.
MATHIAS CORMANN: You have to think cuppa tea, Mathias.
JOHN LAWS: Okay, I'll think of it and maybe one day we can have one.
MATHIAS CORMANN: That sounds good.
JOHN LAWS: Mathias Cormann. Will the Coalition go to an early election, I mean will they actually do that or is it all smoke and mirrors? All talk?
MATHIAS CORMANN: The Budget that we delivered on Tuesday night is the Budget, in our judgment, Australia needs to build a stronger economy, create more opportunity for everyone and to start the repair job of the Budget. We now want to set out to implement that Budget and of course we are, right now, explaining the reasons for the judgments that we have made. We will also have that same conversation with people represented in the Senate. We are hopeful that we are able to persuade them.
JOHN LAWS: But you people would have been absolutely and totally aware of the situation prior to the election?
MATHIAS CORMANN: We were certainly aware prior to the election that Labor had mismanaged our Budget. The situation after the election was a bit worse than what we were led to believe. The most concerning thing about all of this is that the spending growth trajectory that we are on is completely unsustainable. If we continued on the trajectory that we are on at the moment, we would end up with spending of 26.5 per cent as a share of GDP. To put that into context, the last year of the Howard Government it was at 23.1 per cent as a share of GDP. We would be taking Federal Government spending up from $409 billion to $690 billion within the decade. That would mean massive tax increases would be required to balance the Budget, which would weaken our economy, would lead to job losses. We can't do that. We can't raise taxes like that. So what we are saying is that we need to ensure that we make our spending growth trajectory more sustainable because it isn't fair to our children and grandchildren to keep running deficits, which forces them to pay the price with interest, for our living standards today.
JOHN LAWS: Okay, well all of that is understandable and all of that has been explained very simply by you and we thank you for doing that. But a promise was made prior to the election that there would be less of a tax burden, there wouldn't be any new taxes, what happened to that promise?
MATHIAS CORMANN: Well there will be less of a tax burden. Taxes as a share of GDP over the forward estimates will be lower than they would have been under Labor's trajectory, because we are getting rid of the carbon tax and the mining tax and we are also pursuing a 1.5 per cent cut in company taxes. Now we are as a temporary measure, to help us repair the Budget, in asking everyone across Australia to help us put the Budget back on track, we are introducing a temporary 2 per cent increase in the top marginal tax rate for people earning more than $180,000. Not because we like it, we hate increased taxes. We stand for lower taxes. But because we believe that the country right now needs an effort from everyone to help put us in a stronger position for the future.
JOHN LAWS: Okay can you name any other time in the history of Australia that we have had a temporary tax, which has been withdrawn? I don't ever remember a tax ever been withdrawn.
MATHIAS CORMANN: Well the super surcharge that Peter Costello put in place was withdrawn after 9 years. But in terms of this particular tax measure, what we have said very clearly, is that in the legislation introducing it, there will be a sunset clause. It will be in effect for three years and after the three years it will fall away automatically. There is a precedent for this, you might remember that John Howard at various times had, for example, the gun buyback levy, which was there for a period and then it went away. When Ansett collapsed, there was the Ansett Levy that came and disappeared. So this is not unprecedented that a Government, to help get through a particular difficult patch and to put us onto a stronger position as we set out to deal with certain challenges, ask everyone across Australia to help and to contribute. The alternative John would be to impose 100 per cent of the effort on lower income earners, because when you cut Government spending, inevitably…interrupted
JOHN LAWS: They are going to suffer.
MATHIAS CORMANN: Well the only people that will be impacted by cuts in Government spending are those that receive payments from Government one way or another. So we don't think that would be appropriate, which is why regrettably, we feel that in order to spread the burden fairly and equitably, we also had to consider this particular temporary tax measure.
JOHN LAWS: But do you accept that the Prime Minister has gone back on his word?
MATHIAS CORMANN: No we don't accept that. People will have all sorts of interpretations about what we said before the election and we don't want to argue the fine print. At the end of the day in two and a half years time, when people go to the next election, of course we accept everyone will have an opportunity to pass judgment on our performance. They will be able to pass judgment on whether they think we made the right decisions for the right reasons, whether our decisions were fair and whether they helped strengthen the country or whether in their judgment there is a better alternative moving forward. We accept that without reservation. In the meantime we have a job to do, people across Australia expect us to fix the Budget mess that we have inherited and we are doing our absolute best to get that job done.
JOHN LAWS: You say you are not interested in the fine print. I can understand… interrupted
MATHIAS CORMANN: No no no. What I am saying, is that I don't want to be defensive about semantics. We understand why there is a level of concern about this particular tax measure. Because I don't like a tax increase either, nobody in the Coalition likes to go for a tax increase. We stand for lower taxes and we want taxes to be as low as possible, but in the circumstances that we are facing as a nation, we think that over the next three years there is no alternative to the plan that we have put forward.
JOHN LAWS: Ok. So why did the Prime Minister say this?
PRIME MINISTER (EXCERPT): I absolutely guarantee to the Australian people, absolutely guarantee to the Australian people, that the tax burden will be less under a Coalition Government.
MATHIAS CORMANN: Well that is true. The tax burden will be less under a Coalition Government and the figures in the Budget bear that out. If Labor had been re-elected and the taxes…interrupted
JOHN LAWS: Yes but Mathias, with respect, Labor hasn't been re-elected. You are there because people thought you would do a better job, there's no point about talking about what Labor might have done.
MATHIAS CORMANN: It's not what they might have done. It is what was in their last Budget. If you look at taxes as a share of GDP…interrupted
JOHN LAWS: But they are not there anymore.
MATHIAS CORMANN: Yes, but the quote that you just played from Tony Abbott was to say that the tax burden under the Coalition would be lower than under Labor, so the only way I can answer that proposition is by comparing what we are doing with what Labor put into their last Budget. Now in Labor's last Budget, taxes as a share of GDP were higher than what they will be over the forward estimates that we have delivered as part of the Budget that we delivered on Tuesday. The reason for that is that we will be scrapping the carbon tax from 1 July and that will save an average family $550 a year. We will be scrapping the mining tax, which will reduce the overall tax burden in the economy. We will be reducing company tax by 1.5 per cent. All of that will help us build a stronger economy, a more prosperous, more resilient economy where everyone will have a better opportunity to get ahead and that is what we are setting out to do.
JOHN LAWS: The NSW Premier, Mike Baird, he is on your side too, he has accused the Government of trying to outsource their deficit problems onto the States. Is that reasonable? Because it certainly looks like it.
MATHIAS CORMANN: Mike Baird is a very good friend. He is a great Premier of NSW and I was very pleased to see him ascend to that position. But on this occasion I disagree with him. What we are saying is, the previous Labor Government splashed money around that they didn't have left, right and centre, right across the board. That spending growth trajectory that we inherited was unsustainable. What we are saying to everyone, including the States, is that everybody has to share in the effort to make spending into the future more sustainable. Now what we are saying in relation to the States is that we are not cutting spending for schools and hospitals, we are just not increasing it at the same unsustainable rate that Labor had locked in to the forward trajectory.
JOHN LAWS: Mathias, you're sounding like a politician.
MATHIAS CORMANN: Well I am a politician.
JOHN LAWS: Yes, but you don't want to tell people.
MATHIAS CORMANN: I'm quite happy to fess up to you, on your show, that I am a politician and I am doing the best I can to explain what we are doing and why. In relation to health and education, over the forward estimates, as we said we would do before the election, we are keeping the same funding envelope in place. Beyond the forward estimates that Labor left behind, what we are saying is, that the massive spikes, the massive increases in payments to the States that Labor locked in to the long-term trajectory are not affordable. So we will continue to increase funding for schools and hospitals. Schools and hospitals incidentally which are the responsibilities of the States and Territories, but we will just not be increasing the funding as fast and as sharply as Labor was promising to do, because quite frankly we cannot afford it. We can't keep spending money that we haven't got. We can't keep spending more than we are raising in revenue. That is a very simple truth. So what we would expect the States to do is the same as we have to do at a Federal level, to revisit how we do things, make sure that spending is as efficient and as well targeted as possible. Ultimately, State governments are sovereign governments in their own right, they have got to make judgements on how they intend to run State schools and State hospitals.
JOHN LAWS: Okay, tell me this. How are the States expected to fund these shortfalls if they don't push for an increase in the GST? Or don't you mind if they push for an increase?
MATHIAS CORMANN: We're not going to initiate any changes to the GST at all, full stop end of story. That's what we said before the election and we'll stick to that.
JOHN LAWS: Yes, but a lot of things were said before the election Mathias, that turned out not to be correct. But go on with it.
MATHIAS CORMANN: We would say that the Budget that we delivered on Tuesday is very honest, it is fair and it keeps faith with the commitments that we took to the last election. Now in relation to the States, it is the responsibility of the States to ensure that their funding for schools and hospitals is sustainable. They are State schools and State hospitals. Now the Federal Government does make a contribution, we'll continue to make a contribution. That contribution will continue to grow, it just won't grow at the unsustainable, unaffordable, unrealistic rate that Julia Gillard and Kevin Rudd had locked into the forward trajectory because quite frankly taxpayers across Australia cannot afford that trajectory that Labor locked in. Now if we were keeping all of the spending growth that Labor locked into the Budget, as I said before, we would have to increase Federal Government spending by nearly $290 billion over the decade. That would mean that we would have to increase taxes massively, which would weaken the economy and which would lead to significant job losses. We don't want to do that and we should not be put in a position where we had to do that. Which is why we are asking everyone to help us get the Budget back onto a more sustainable track, including the States.
JOHN LAWS: Okay. Economists, who hopefully know what they're talking about are warning that regressive policy changes in the Budget are going to hit the poorest people the hardest. Is it fair to place that burden on those who can afford it least, or don't you believe what the economists are saying?
MATHIAS CORMANN: We don't agree with that proposition. What we have done in this Budget is we've looked at the challenge that we are facing, the spending growth trajectory that we were on, what that would mean in terms of future opportunities for people across Australia if we didn't address it, and we made judgments on how best to address it. In asking everyone across Australia to contribute and to help put our country back onto a stronger footing, we have asked everyone to participate in the effort and we have sought to spread that effort as fairly and equitably as possible. But as I said to you earlier, inevitably when you try to get Government spending under control, to a degree, the people that are going to be impacted by adjustments to your spending growth trajectory are going to be those people who receive payments from Government. There's not really any other way to make your spending more sustainable into the future than by essentially adjusting your payments into the future.
JOHN LAWS: Okay. From next year, unemployed young people wanting to go on the dole, they are going to be forced to wait six months before they receive any money. Isn't that pushing the problem back onto parents who mightn't be able to able to afford it anyway?
MATHIAS CORMANN: No it is not. The basic proposition is this. If you are healthy and well and you're young and you're able to work, you should work.
JOHN LAWS: I agree with that.
MATHIAS CORMANN: There has been too much of a culture where you can go straight from school onto welfare.
JOHN LAWS: I agree.
MATHIAS CORMANN: And I think that is a very bad proposition.
JOHN LAWS: I agree with you.
MATHIAS CORMANN: The thing is this. If you go out of school, you should essentially accept any job that you can get at that point in time and take that as your first step on your ladder up through life. It's been too easy to walk straight out of school and onto the dole and we wanted to break that link.
JOHN LAWS: Good.
MATHIAS CORMANN: Which is why we are saying that there ought to be a six month waiting period and that young people in that situation should either 'earn or learn'. Now there are some safeguards here as well. I have been asked many questions and once you've actually done some work and you, through unfortunate circumstances lose your job, there will be recognition of past effort and so that waiting period will come down. If you're a parent or if you have some health issues or whatever, there is going to be a safety net around all of that. But the basic proposition is that if you're healthy and well and you're a young person, you shouldn't just automatically be able to go onto the dole, you should work.
JOHN LAWS: Well I agree with that and I would imagine the majority of Australians agree with it. We allowed a culture to develop that I think was very dangerous to the psyche collectively of all Australians. I don't think it did anybody any good, it was a loss of dignity for young people who are doing just as you said, leaving school and going straight on the dole. A lot of people started to object to young people generally because of their behaviour in that regard and young people deserve a chance, they deserve to be respected, but they don't deserve to be paid to sit on their backsides and do nothing.
MATHIAS CORMANN: John, I couldn't have put it better myself and I'm pleased we are in full agreement on that very important reform that we have introduced.
JOHN LAWS: Yes well I think it is very important. I think it is extremely important and I think the majority of self-respecting young people would agree with you. It's a very very good idea. The best thing you can give a man is a job.
MATHIAS CORMANN: Agreed.
JOHN LAWS: You might like to use that.
MATHIAS CORMANN: That's a very good line.
JOHN LAWS: Mathias I've enjoyed very much being able to talk to you and I hope we have the opportunity to do it again.
MATHIAS CORMANN: Yes, of course. Looking forward to it.
JOHN LAWS: And thank you very much indeed.
MATHIAS CORMANN: Good morning.
JOHN LAWS: What a nice fellow. I knew he was going to be nice because he looks nice. You've seen him on television, he's rather handsome. No don't worry, no don't worry. Mathias Cormann is a very interesting fellow, he's the Federal Finance Minister so an obviously very capable fellow and he was quite open in the discussions that we had and I like that. I like a politician who's prepared to front up and tell the truth. I think we all like that, don't we?