Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 30 June 2014
JANINE PERRETT: And now to Canberra where the Federal Minister for Finance Senator Mathias Cormann is standing by to talk about all those things and more. Welcome back to the show Senator.
MATHIAS CORMANN: Good to be back.
JANINE PERRETT: Well I must say you must be very busy at the moment. Let’s just have a look at the tally for today. You have heard the litany of warnings and concerns around everything from the International Bank of Settlements they warn that markets are out of touch with reality. The outgoing APRA Chief warned of bank safety being undermined, the CBA Senate report is already talking about undermining confidence and today you choose to introduce regulations to roll back some of the provisions in the Future of Financial Advice Act. How can Australians have confidence in the financial system in the year ahead with all these issues?
MATHIAS CORMANN: What we have done today is implement the policy commitments we took to the last election and of course 10 days ago, on the 20th of June, I put out a five page comprehensive and detailed statement explaining all of the things that we were doing and why to improve our financial advice laws moving forward. Our objective is to ensure that we’ve got the right balance between appropriate levels of consumer protection, while making sure that access to high quality advice people can trust remains affordable.
JANINE PERRETT: But why did you time those announcements, as you said 10 days ago, when you knew the Senate report is coming out? Why wouldn’t you wait and see what the recommendations are or at least, just from a perception point of view, look like you were going to have some interest in it.
MATHIAS CORMANN: Well we do have an interest in it, but we always knew that what the Senate inquiry was looking at was events some time in the past. Incidentally during the period of the previous government. A lot has changed since then. The financial advice industry has worked very hard to lift professional, ethical and educational standards and that is work that must continue and the Government will continue to engage with. The regulatory framework for financial advice has changed, it will continue to have changed as a result of the improvements that we are making. The important point here is that there has been a series of inquiries now into various failures in the financial services sector. The Ripoll inquiry, this inquiry, there have been a series of other inquiries as well and the important changes have been put in place into our regulations. The statutory requirement in the Corporations Act for financial advisers to act in the best interest of their client. That continues to be in place, it is an important requirement. The ban on conflicted remuneration for financial advisers and that continues to remain in place.
JANINE PERRETT: But not everybody is convinced. There is a few semantics there. They still think the overall image. But let’s go to the CBA inquiry.
MATHIAS CORMANN: When you say ‘they’, it is very important to understand that the previous government used the cover of some of the issues that emerged in the financial services sector to impose excessive additional red tape in the pursuit of some vested commercial interests in the financial services sector...interrupted
JANINE PERRETT: Well let’s talk about vested commercial interests. I mean the banks, there’s been a lot of speculation that you had a meeting with the Chief of the Commonwealth Bank, Ian Narev before you put out those statements. What did you discuss with him before you put out the FOFA changes?
MATHIAS CORMANN: I can absolutely confirm that I have had two conversations with Mr Narev. He is the head of the Commonwealth Bank and there was a Senate inquiry going on and I explained to him that obviously I expected that the Commonwealth Bank would provide a considered response to the issues raised in that report. I am very confident that the Commonwealth Bank will provide a considered response to the issues that have been raised by that Senate Economics Committee inquiry.
JANINE PERRETT: So you’re saying that and the Treasurer was quite tough on them too at the weekend but you have also been pointing your Government that you have a financial inquiry headed by David Murray. David Murray is a former Commonwealth Bank Chief. The only bank he ever worked at in his entire life was the Commonwealth Bank. Do you not think there is a conflict of interest there if you are relying on his financial inquiry?
MATHIAS CORMANN: I think you’re mixing up a whole series of different things here Janine...interrupted
JANINE PERRETT: I am only going off the Treasurer pointing out that you have got another financial inquiry going.
MATHIAS CORMANN: And that is a statement of fact. Last week, the Senate Economics Committee released a report, which goes over some 550 odd pages and which makes 61 recommendations. One of the recommendations by that inquiry was to establish a Royal Commission into what has been taking place. What I pointed out and what others have pointed out is that we are not convinced that yet another inquiry on top of all of the inquiries that have already been taking place is the best way forward, including and in particular for people that have been impacted by these events in the past...interrupted
JANINE PERRETT: Isn’t that just the point Senator? All of these inquires have been going on and the problem continues. You would think you might need something a bit more serious or to do something on the recommendations.
MATHIAS CORMANN: If you continue to look at events before some of the changes that have taken place, then I am not surprised that you continue to observe some of the things that we all want to fix. This is the point. The financial advice industry itself has done a lot of work in recent years to lift professional, ethical and educational standards and that work should continue. I commend them for the work that has been done so far, whether it is the financial planning association, the AFA, SPAA, FSC or others. But also the regulatory framework is now different and will continue to be different as a result of some of the changes that we have supported over the period of the previous government. So you can’t continue to call for more changes on the basis of things that have already been addressed in the past.
JANINE PERRETT: Well isn’t that what you are doing with the Royal Commission into Unions? You’re looking, gosh, you’re looking back at 20 years on something that Julia Gillard did. Isn’t that the point of Royal Commissions, they do look back? I mean if you had a crystal ball and you were aware of where the next collapse or shonk was going to come from, we would all be happy. But you don’t.
MATHIAS CORMANN: Well the thing with what happened with the AWU, the whole point is that was never properly looked at. That is the whole point. Whereas in relation to Australian financial products and services, we have had a whole series of very recent inquires having made recommendations very recently. We are making some improvements to what has been put in place in recent times as we said we would do in the lead up to the last election. The point to remember here is everybody always is calling for more red tape here and more red tape there...interrupted
JANINE PERRETT: No, it’s called regulation.
MATHIAS CORMANN: Well not all regulation and not all red tape is good for consumers. Regulation is only good if it actually delivers a genuine improvement in consumer protection.
JANINE PERRETT: Well you can argue that self-regulation, leaving it to the banks didn’t work with CBA.
MATHIAS CORMANN: Well I am not arguing in favour of self regulation here at all. There is a very robust regulatory framework in place. The point I’m making is that the previous government, quite unashamedly, and quite ruthlessly pursued regulatory change that was not competitively neutral. We believe that in the financial services space, in order to ensure that people across Australia saving for their retirement, managing their retirement, managing financial risks through life should be able to rely on high quality advice they can trust and that is regulated in a competitively neutral environment...interrupted
JANINE PERRETT: Well, well let’s get to the issue of regulation. We’ve been concentrating on CBA and the planning. The other group that got the biggest kick in that report last week was ASIC. Now that is the market regulator and there has been criticism from all sides about their role. It has also pointed out that you’re taking $120 million out of their budget as of tomorrow. You told me on this show after the Budget that that would be fine, it wouldn’t affect their ability to regulate the market. Greg Medcraft said exactly the opposite to Parliament. Now who’s right? You or him?
MATHIAS CORMANN: That is actually not what he said. He didn’t say the exact opposite. I think you’re verballing Mr Medcraft here. He said...interrupted
JANINE PERRETT: He said it would offend their front line services.
MATHIAS CORMANN: I think you will find that what he said is having a Royal Commission would force them to divert resources, when those resources are better deployed in regulation of the market and I agree with him. Look, this report that was released last week, as I said earlier, more than 550 pages, 61 recommendations, I am considering them carefully and once we’ve had a good chance to properly read the whole report and properly think through all of the recommendations, we will provide a full and considered response.
JANINE PERRETT: So even if you don’t have a Royal Commission, and I can understand that you’ve said that you are not keen on that, but do you agree that perhaps, and it is not just under your watch, this has been an ongoing problem for many, many, many years about ASIC and their lack of success and whether they are doing a good job. Would agree it might be time to have an inquiry or at least look at the funding? I mean you’re under fire for cutting $120 million...interrupted
MATHIAS CORMANN: But we have just had an inquiry. That’s the whole point...interrupted
JANINE PERRETT: It wasn’t into ASIC though was it? It showed shortcomings into ASIC. I am talking about their funding. Rather than having this argument about their funding, there is a recommendation for a new funding model for ASIC. Is that something you would be willing to consider?
MATHIAS CORMANN: Janine, this inquiry was an inquiry into ASIC and it has made 61 recommendations. Most of those recommendations relate to the performance of ASIC and how we might be able to improve ASIC’s performance. As I said to you earlier, we will very carefully consider all of those recommendations...interrupted
JANINE PERRETT: Including maybe a new funding model for them so we don’t have to have this issue of their budget being cut and disputes over it?
MATHIAS CORMANN: We have an open mind on any recommendation that will help ASIC do a better job. Greg Medcraft did come out and he fronted the media last Friday and he did explain ASIC’s thinking and the things that ASIC have done to lift their performance as a result of having been involved in this Senate inquiry and he pointed out quite candidly that this Senate inquiry and what they were confronted with during that inquiry was quite a learning experience for them in terms of the way they do their work.
JANINE PERRETT: Okay so final question just before we go to a break and we’ll come back to another regulator. You are saying that the $120 million that is going is not going to make ASIC any less efficient than it already is? Despite some indications to the contrary from Mr Medcraft?
MATHIAS CORMANN: The whole point is to make it more efficient, but it won’t make it less effective.
JANINE PERRETT: By taking $120 million?
MATHIAS CORMANN: It will make it more efficient but it won’t make it less effective, that’s the whole point.
JANINE PERRETT: Okay, well that’s certainly a new funding model in itself. We’re going to take a short break and then we’re going to come back to a number of other issues, including the mining tax now that you’ve got the carbon tax going. I know that’s close to your heart. We’ll be right back in just one minute.
Welcome back, I’m talking with Finance Minister Senator Mathias Cormann in Canberra. Senator we were just talking about Budget cuts to ASIC, today the outgoing chief of APRA the other main prudential regulator, gave a quite outspoken farewell interview. He also warned about his concern about Budget cuts impacting on their ability to regulate would you concede that he’s going any point?
MATHIAS CORMANN: It’s very simple Janine. We’ve inherited a situation where the previous government was spending more than they were raising in revenue, year in year out. We inherited a debt and deficit disaster with $190 billion in deficits in their first five Budgets, another $123 billion in projected deficits in their last Budget. We had to make judgments on how best to get our Budget back onto a believable path to surplus, because right now the Government is borrowing from our children and grandchildren in order to pay our way today. That is not appropriate and that is not sustainable...interrupted
JANINE PERRETT: That’s fair enough...interrupted
MATHIAS CORMANN: So we’ve had to make judgements right across government where we are not able to spend as much as what was being spent before.
JANINE PERRETT: I understand that, but I mean you’ve got to prioritise. Did you not get a slight worry when you saw those comments from the International Bank of Settlements and others? Do you not think ‘oh gosh, we might be in a bit of denial about how robust and healthy and safe our system is’?
MATHIAS CORMANN: Regulators will always argue for more powers and for more resources. We believe that our regulators have got the appropriate powers and that they’re appropriately well resourced. We do have a Financial Systems Inquiry in place, which is there exactly for that reason, to assess whether we’ve got the balance right when it comes to all of our regulatory settings in our financial system. That inquiry will make some recommendations to Government and we will respond to those in due course.
JANINE PERRETT: Okay, so are you sound like you’re more open to recommendations from the Murray Inquiry than you were to the Senate Inquiry into CBA or are they all on the table? Or are some you’re more amenable to than others?
MATHIAS CORMANN: Janine, we always consider all of the reports that make recommendations to Government. The point I’m making is that in our judgment and in the Budget situation with the debt and deficit disaster that we have inherited from the previous government, we have provided the appropriate level of resourcing for our regulators and for agencies across Government. But if you ask me, would a regulator inevitably like more resources and more powers, well I think you’ll find that they will always argue in favour of more powers and more resources.
JANINE PERRETT: Okay, let’s move onto other things. You’ve had one victory with the carbon tax or what looks like victory. Now you’ve got that mining tax to go. I know it’s been a particular bug bear of yours. What are your chances of getting rid of that as well do you think?
MATHIAS CORMANN: We are not taking anything for granted. We have continued to make the case as to why the mining tax is a bad tax. It’s bad for the economy, bad for jobs. It hasn’t raised any meaningful revenue. In fact, it is costing the Budget money. Yet the previous government recklessly and irresponsibly had spent all the money they thought it would raise and more. So obviously, as part of our plan to build a stronger, more prosperous economy and as part of our plan to repair the Budget, we are committed to get rid of the mining tax. We are hopeful that the majority of Senators in the new Senate will support our judgements in relation to this.
JANINE PERRETT: You say it’s a bad tax, it’s bad for everyone. One person it’s not bad for is Glencore. Did you see a piece in the Fairfax papers, front page at the weekend? Our third largest miner, offshore-based Glencore paid not a cent of tax in the last financial year. Isn’t that an argument for a mining tax, Senator?
MATHIAS CORMANN: The mining tax has been in place since 1 July 2012. So what you would be suggesting is that the mining tax is a complete failure. Again you’re mixing... interrupted
JANINE PERRETT: Okay, well were you appalled to hear that a major miner doesn’t pay any tax in Australia? Our third largest miner?
MATHIAS CORMANN: Again you’re mixing a series of different issues. The point I would make is that any business that makes profits in Australia should pay its fair share of tax in Australia. The Government and indeed the previous Government has taken a series of steps to ensure that that happens, including taking action through the G20 to ensure that there is a coordinated approach by all the relevant countries around the world in relation to these matters. But the mining tax certainly has not been successful in forcing miners to pay because what’s been happening here is that the mining tax is costing the Budget money. I’m not sure how many other ways I can put that.
JANINE PERRETT: Alright well, it’s certainly not costing Glencore one, they seem to be only people. You mentioned the G20, and the multilateral crack down on global tax evasion. There was a report last week that in fact that Australia is dragging its heels and hasn’t given the right information on this. Are we dragging our heels on this?
MATHIAS CORMANN: No we’re not. That is an inaccurate assertion.
JANINE PERRETT: So the story was wrong? We aren’t slower than other countries?
MATHIAS CORMANN: You should not always believe everything you read in the newspapers, Janine.
JANINE PERRETT: Alright then, good point. I wanted to clear it up. That’s fine. But there was another story in the newspapers today, same paper, that Google, which is one of the companies that keeps being brought up when we talk about this crackdown. That contrary to the $13 million they claim they paid in tax, they only paid $280,000. Is it companies like Google you want to see this crackdown on? If not Glencore?
MATHIAS CORMANN: Janine, it would be completely inappropriate for me to talk about the tax affairs of individual taxpayers. What I will say again is that clearly any business, whether it is a domestic business, a multinational business, any business that generates profits in Australia should be paying their fair share of tax on those profits here in Australia. There are issues that we’re concerned about. There were initiatives that were initiated by the previous government that we’re pursuing. There’s some things that the previous government wanted to do which we were told by Treasury when we came into Government were unimplementable and not actually realisable. We’re working our way through all of that. We’re making sure that we’ve got the system in place that will see business that generate profits in Australia pay their fair share of tax in Australia.
JANINE PERRETT: Okay, while we’re on tax. The Communications Minister bought into tax policy today. The 48 per cent top tax rate is too high he thinks. He’s not sure about what share comes from income and revenue. Do you welcome Malcolm Turnbull’s entry into the tax debate?
MATHIAS CORMANN: We’re about to initiate a Tax White Paper review process and no doubt that will generate a lot of discussion around the country, as it should, about how best to raise the revenue that Government needs for the important services of Government in the most efficient, least distorting way in the economy. What we have said is that in the lead up to the next election, we will be releasing our policy based on the findings of that Tax White Paper review process. All will be clear then.
JANINE PERRETT: Well do you agree with him? Maybe 48 per cent’s too high? The day before you bring in the debt levy that raises that but equally you’ve also indicated that there will be room for tax cuts before the election. Which is it going to be?
MATHIAS CORMANN: Again, you’re mixing up a few things. What we have said is that ... interrupted
JANINE PERRETT: Well there are lot of mixed messages.
MATHIAS CORMANN: The thing is, we’re dealing with a debt and deficit disaster, in order to spread the effort, the additional effort required and spread that more equitably, we’ve... interrupted
JANINE PERRETT: I understand that. So how can you then raise the prospect of tax cuts?
MATHIAS CORMANN: If I can answer. Number one there is a debt and deficit disaster. We’ve introduced a Temporary Budget Repair Levy, which is a two per cent increase in the top marginal tax rate for three years in order to help address that situation in the short term. What we’ve also said is that over the next decade, we want to reduce the legacy of debt Labor left behind. Labor had us on a trajectory to take us to $667 billion of gross Government debt and that was based on an assumption that all throughout that period of time there would be no adjustment for bracket creep to our marginal tax rates. What we’ve said is, what we have introduced in our modelling, we’ve said that we would reduce gross debt to $389 billion within the decade and we’ve introduced in that modelling an assumption that...interrupted
JANINE PERRETT: Okay, I’ve got to ask you something very quickly, we’ve run out of time...interrupted
MATHIAS CORMANN: Sorry, this is important. We’ve introduced an assumption that we will make adjustments for bracket creep...interrupted
JANINE PERRETT: Okay, I just need a very quick, we’ve only got a few seconds, just a yes no answer on this, the FOFA reforms you’ve put in as regulations today, they might be knocked down by the Senate next week what’s plan B? Quickly.
MATHIAS CORMANN: The FOFA regulations implement the changes where legally possible, that we took to the last election. I won’t second guess what the Senate may or may not do. We will make the case as to why those improvements are good improvements and why they should remain in place.
JANINE PERRETT: Okay, well we’ll wait and see what happens with baited breath and we’ll talk to you then. Senator Cormann thank you for your time tonight.
MATHIAS CORMANN: Always good to be here.