Senator the Hon Mathias Cormann
Minister for Finance
Date: Saturday, 23 August 2014
DAVID LIPSON: Parliament returns next week after the winter break and there’s still no sign the Senate crossbench are finding the Government’s controversial Budget measures any more palatable. So what is the Government’s next move. Finance Minister, Senator Mathias Cormann joins me now as he does at this time every fortnight. Thank you very much for being with us.
MATHIAS CORMANN: Good to be here.
DAVID LIPSON: What is the quantum of Budget savings now being held up in the Senate?
MATHIAS CORMANN: There’s about $40 billion worth of Budget savings or thereabouts that are being blocked by the Labor Party. You’ve got to remember, that includes $5 billion in savings that Labor under Julia Gillard and Kevin Rudd themselves initiated and banked in their Budget, but which Labor under Bill Shorten recklessly and irresponsibly and for pure political reasons is now opposing. Bill Shorten as Labor leader is even more reckless than Julia Gillard and Kevin Rudd were, if that was possible.
DAVID LIPSON: So does that constitute a Budget crisis?
MATHIAS CORMANN: We inherited a Budget in very bad shape from the Labor Party. $123 billion in projected deficits in their last Budget, which came on top of $191 billion in deficits in their first five Budgets and a spending growth trajectory, which was massively unsustainable, taking us to $667 billion in Government gross debt within the decade and growing beyond that without corrective action. Our first Budget in May is our plan to deal with the debt and deficit disaster that we inherited from the Labor Party. We are progressing and implementing that Budget in an orderly and methodical fashion. What was happening was that some journalists in particular, didn’t seem to quite appreciate, that as has always been the case with Governments that don’t have the numbers in the Senate, that we would have to negotiate some of those structural reforms through the Senate. But we do have time to do that because some of the more structural savings don’t come into effect for some time.
DAVID LIPSON: But where has the urgency gone? Because for much of the last year, you and other members of the Government have been talking Budget crisis, Budget emergency and now, a week before Parliament returns the urgency of that seems to have gone.
MATHIAS CORMANN: That is not quite right. You would know, if you look at my interviews with you over the last year on a fortnightly basis, you’ll see that I’ve said on many occasions that we will repair the Budget mess that we’ve inherited from the Labor Party in an orderly and methodical fashion. We are continuing to progress that. We’ve only had two weeks of the new Senate sitting and the first sitting fortnight was always going to be dominated with the carbon tax repeal, the mining tax repeal and a series of related matters. You’ve got to remember, up until 30 June this year, Labor and the Greens controlled the Senate completely. Labor and the Greens have been putting politics ahead of the national interest. I’ve already mentioned about the $5 billion in savings measures initiated and banked by Labor, which they are now opposing. But even the Greens, the Greens right now are opposing the indexation of the fuel excise. They’re now the party which says that they believe in regular reductions in the real value of the excise on fuel. So that is what we were dealing with in the Senate until 30 June. A Labor Party and the Greens putting politics ahead of the national interest. We now have got options in terms of talking to eight crossbench Senators who are all taking a very constructive and positive approach to their engagement with the Government. We’re very hopeful that over time we’ll be able to get most of our Budget measures through.
DAVID LIPSON: The Government this week has been point to the almost of 99 per cent of Budget measures that have passed through the Parliament in the form of appropriation bills. Now if that didn’t happen, it would be certainly a Budget crisis, we would be in a Whitlam-esque scenario. But aside from those crucial appropriation bills what structural savings can you point to that the Government actually had success in passing through Parliament?
MATHIAS CORMANN: Our single biggest savings measure has already gone through the Parliament. This is the $7.6 billion reduction in funding for foreign aid over the forward estimates. Structurally we’ve reduced the funding growth trajectory from the one that Kevin Rudd had put Australia on, which was manifestly unsustainable. There are a range of other savings measures that have gone through. Changing Tools for Trade as a reform to the way we support our apprentices. That comes with a good structural saving. The Budget Repair Levy has also gone through and there are a range of other measures that have gone through. The mining tax repeal is the next cab off the rank where we have to deal with Labor’s failed tax to which they again recklessly and irresponsibly attached billions and billions of dollars in growing unfunded spending promises and related Budget measures. We’ve got to deal with that now in a way that takes pressure off the Budget and off the economy into the future.
DAVID LIPSON: And has there been any further consideration on the possibility of splitting those spending measures attached to the mining tax? Is the Government still ruling that out?
MATHIAS CORMANN: We will not be splitting the unfunded promises that Labor attached to the mining tax from the mining tax repeal legislation. We went to the last election very clearly indicating to the electorate that we would repeal the mining tax, which is a bad tax and that we would repeal the unfunded promises that Labor recklessly and irresponsibly attached to that tax. We are having very constructive conversations with crossbenchers, including and in particular the Palmer United Party about how we can achieve our objective to scrap the mining tax without putting the Budget under undue pressure into the future. You’ve got to remember, the $10 billion in unfunded promises that the Senate in the middle of July said to the Government they wanted us to keep, that is a figure that continues to grow over time. So if we left those unfunded promises in place, it would put more and more pressure on the Budget into the future. So we are talking to the Palmer United Party and to other crossbench Senators represented in the Senate on how we can ensure that we can get rid of this bad tax, but that we also make sure that we don’t expose the Budget to undue structural pressure into the future as a result.
DAVID LIPSON: One of the other key measures that the Government’s had trouble getting support for is the $7 co-payment. A lot of focus on that this week. Most of the revenue will go into this Medical Research Future Fund, not directly to the Budget bottom line. Now in an opinion piece for The Australian yesterday I think it was, you spoke of how the Medical Research Future Fund would become an asset on the Budget balance sheet eventually can you just explain that for us?
MATHIAS CORMANN: Not eventually, immediately. If you take efficiencies on the expenditure side and you take revenue from a co-payment and you accumulate it into a capital fund, that capital fund becomes an asset on the Government’s balance sheet reducing Government net debt. What needs to be clearly understood is that under our proposal, the only money that would be invested in additional medical research would be the net earnings generated by that capital fund. Over time, as the capital accumulates to $20 billion, which we believe would happen within six years under our proposal, those net earnings continue to increase, which means that over time we would be able to double the current investment in medical research on a fiscally sustainable basis.
DAVID LIPSON: I absolutely agree that setting up a fund like this is prudent policy, when we have the money for it. But has you point out, or have pointed out many times, currently Australia is paying $1 billion a month interest on our debt. Now everyone watching this knows that when you have a credit card maxed out, the focus should be on paying off the credit card rather than setting up a new savings account if you will. So what’s the difference here?
MATHIAS CORMANN: David, I totally understand the point you are making. But you’ve also got to remember the commitments that we made in the lead up to the last election. In the lead up to the last election we made a very clear promise that we would maintain the funding envelope for health at the same level as was in place over the forward estimates at the time of the last election. So we are working hard to keep faith with the commitments that we made in the lead up to the last election. That is why we have said to the Australian people, we do believe that we need to pursue efficiencies on the expenditure side in health. We do believe that we need to introduce a price signal in order to ensure that in the context of the growing demand for health care services as a result of the ageing of the population, that the limited resources from taxpayers are allocated to a growing demand for services in the most efficient way possible. But we’ve also then said, in order to keep faith with our commitment that we would not be cutting the overall funding envelope for health in the forward estimates period, we are proposing to put all of this money into the Medical Research Future Fund, where it will accumulate over time, generate income and that income itself would be invested in medical research, which will help us improve the quality of health care and the efficiency of health care into the future, which in itself will help us put downward pressure on the spending growth trajectory in health into the future. So from our point of view this is really a win-win-win policy proposal, which will help us ensure that all Australians can have timely and affordable access to quality health care into the future in a way that is also affordable for the taxpayer over the medium to long term.
DAVID LIPSON: Okay, well just back to what really was my original question. Is there a Budget emergency now? Is there a Budget crisis?
MATHIAS CORMANN: We inherited a Budget in a mess from the Labor Party. You’ve got to remember between the Budget in May last year and the Pre-Election Economic and Fiscal Outlook just eleven weeks... interrupted
DAVID LIPSON: But is there a crisis, because you were happy to use the language of emergency and crisis previously. Why not now?
MATHIAS CORMANN: This is very important. So, in the period from May last year, within eleven weeks to the election, the Budget position deteriorated by $33 billion or $3 billion a week. So we inherited not only a very bad debt position, not only did we inherit $123 billion in projected deficits, we also inherited a rapidly deteriorating position. We had to work very hard to turn that around. Now our Budget is our plan to deal with the debt and deficit disaster that we inherited from the Labor Party. We are facing a Budget emergency as a country. We are facing a very challenging fiscal situation, but the Government is dealing with it in an orderly and methodical fashion. We’re dealing with it through the usual and normal processes of the Parliament. Having to negotiate Budget measures through the Senate is situation normal. There’s actually nothing new, unusual or unexpected about it, except that perhaps some sections of the media seem to think that unless you had passed the whole Budget within weeks of the Budget being delivered, there was somehow a situation where we were no longer on top off the process. We are on top of the process. We do know what we are doing. We’re working through it very carefully and we’re very confident that with the goodwill from the people on the crossbench, not on the Labor side or the Greens side of the Parliament, but certainly on the crossbench that we will be able to repair the Budget mess, the Budget debt and deficit disaster that the Labor Party left behind.
DAVID LIPSON: Finance Minister, Senator Mathias Cormann, thanks so much for your time today.
MATHIAS CORMANN: Always good to be here.