Senator the Hon Mathias Cormann
Minister for Finance
BARRIE CASSIDY: This week it’s the Minister for Finance, Mathias Cormann who joins us, in the early hours from our studio in Perth. Good morning, welcome.
MATHIAS CORMANN: Good morning. Good to be here.
BARRIE CASSIDY: Now, you seem to be saying two things at the moment that there is, remains a Budget emergency, but you’re in no hurry to fix it. Now, that does seem to be a contradictory position.
MATHIAS CORMANN: We inherited a Budget emergency from the previous Labor Government and we are working in an orderly and methodical fashion through the usual processes of Parliament to fix it. Labor left behind $123 billion in projected deficits in their last Budget on top of $191 billion in cumulative deficits in their first five Budgets and they left behind a spending growth trajectory, if unaddressed which would take us to $667 billion of debt and growing beyond within the decade. The Budget is our plan to repair the Budget. If all of the measures in our Budget are adopted we will be able to reduce debt within the decade by nearly $300 billion down to $389 billion. That is even after taking into account the requirement for us to make some adjustments along the way for the effects of bracket creep.
BARRIE CASSIDY: Yeah, but you’ve made the argument there that you can describe this as an emergency but why no rush? And you’ve used those words yourself, there is no rush.
MATHIAS CORMANN: What I have said is that there is no rush to deal with specific structural reforms, which do not take effect until 1 July 2015, early 2016 or indeed not until 2017. It has always been thus, that in relation to structural, medium to long term reforms, you deal with them sequentially and in a prioritised fashion in the Senate. The Senate never, ever has dealt with every bit of Budget legislation on day one. By the time we went to the last election, Labor had still not initiated legislation in relation to Budget measures two Budgets ago. So, as far as we are concerned, we are dealing with things as quickly as we sensibly can, bearing in mind that we had, until 30 June, a Senate that was controlled by Labor and the Greens, with Labor and the Greens both playing politics. Labor is opposing savings, $5 billion in savings that where initiated by Labor in Government. Bill Shorten is now opposing them. The Greens are telling us they are in favour of regular reductions in the excise on fuel. So that was the Senate we had to deal with until 30 June. We’ve had two weeks of the new Senate so far. The first two weeks were always going to be dominated by the repeal of the carbon tax, which is now gone as promised and the mining tax repeal, which is still a work in progress. So the point we’re making is that the Budget situation we inherited is very serious. The spending and debt growth trajectory that we inherited is very serious and needs to be addressed. We’re focussed on repairing the Budget, as we promised but we’re doing it in an orderly, methodical fashion as we must.
BARRIE CASSIDY: You insist it’s orderly?
MATHIAS CORMANN: Absolutely. As you work through the implementation of the Budget inevitably there’s going to be a lot of noise. Inevitably there’s going to be a level of conversation seeking to scrutinise the decisions the Government has made and why and that is appropriate. From our point of view, at the end of the day, what are we focussed on? We delivered a Budget. We are now working through the usual Parliamentary process to implement the Budget measures that we think are necessary in order to protect our living standards, in order to build opportunity and prosperity for the future. What I would ...interrupted
BARRIE CASSIDY: The Prime Minister uses the fireman analogy. That when there’s an emergency, the firemen turn up and from that moment on you start to get it under control. But that’s not what’s happening is it? In fact, the fire’s spreading.
MATHIAS CORMANN: That is not true. We have started to get it under control. As the Prime Minister, myself, Joe Hockey and others have said for some time now, a lot of our Budget, a lot of our plan to fix Labor’s Budget mess has already gone through. For example, our biggest savings measure... interrupted
BARRIE CASSIDY: But if the fire, I’m sorry, if the fire is the deficit, the deficit is spreading, the fire is still spreading and when the firemen turned up you threw fuel on the fire by giving the Reserve Bank $9 billion.
MATHIAS CORMANN: The Labor Party in their desperation for more cash all the time, which they then wasted along the way, completely depleted the capital reserves of the Reserve Bank, which was putting Australia in a difficult situation. So the position here is this. If we don’t take corrective action, we are on track for Government debt to increase to $667 billion within the decade and growing beyond that. We say that is not sustainable. We say that taking spending as a share of GDP to 26.5 per cent by 2023-24, which is the trajectory that Labor put Australia on is not sustainable. Look at the revenue that is raised as a share of GDP. Tax revenue as a share of GDP over the past twenty years has averaged at 22.4 per cent. So there is a significant fiscal gap between revenue and expenditure. If we leave that gap in place, we’ll continue to increase the level of debt, which means we’ll have to continue to increase the level of interest, which means we continue to borrow from our children and grandchildren, forcing taxes up for them or imposing deeper cuts on them to pay for our lifestyle today and we don’t think that’s fair.
BARRIE CASSIDY: If we can stretch the analogy again, the fireman thing and it is an easy thing for people to understand, that you turn up and you start to put out the fire. Can you give the undertaking now that the Budget deficit at the end of your first term will be smaller than it was at the time of the last election?
MATHIAS CORMANN: If the Budget is implemented that will absolutely be the case. We inherited $123 billion worth of projected deficits in our last Budget and we’ve brought that down to about $60 billion in project deficits over our Budget. If you look at the trajectory over the forward estimates, we’re on a believable path back to surplus. That is working on the basis of more realistic assumptions than the Labor Party did. You’ve got to remember, Labor in May last year delivered a Budget, which within 11 weeks deteriorated by another $33 billion. That was the story under Labor. They kept over estimating their revenue and under estimating their expenditure and their Budget outcomes were always worse.
BARRIE CASSIDY: You’re talking about lot Labor, but the fact is you’ve made Budget repair a key factor in what you plan to do. And yet, when I ask you whether you can reduce, not wipe out the deficit and produce a surplus, but can you reduce the Budget deficit in three years and your answer is maybe, if.
MATHIAS CORMANN: No, the answer is we’ve laid out our plan to put the Budget back on a believable path to surplus. Where is Labor’s plan? Does Bill Shorten still believe in a surplus? And if he doesn’t like our plan ...interrupted
BARRIE CASSIDY: But you’re in Government now.
MATHIAS CORMANN: Indeed.
BARRIE CASSIDY: So what’s your plan and can you guarantee you’ll reduce the deficit?
MATHIAS CORMANN: What is our plan? Our plan is in the Budget Barrie. We delivered a Budget in May, which presents our plan to put the Budget on a believable path back to surplus and we are now working in an orderly and methodical fashion to implement that plan through the Parliament. What I am saying though is, our plan is the only plan to fix Labor’s Budget mess that is on the table. Where is Bill Shorten’s plan? Wayne Swan used to sell the virtues of Budget surpluses, he never quite got there but at least he seemed to believe in getting the Budget back to surplus. We haven’t heard much from Bill Shorten at all about needing to get the Budget back into surplus. If he thinks it needs to get back to surplus and he doesn’t like our plan, what is his plan?
BARRIE CASSIDY: Yeah, we’re not even talking about getting back to surplus, we’re talking about reducing the deficit from where it was at the last election. So you’re saying that it’s possible if you can’t achieve a breakthrough with the crossbenchers and with Labor and the Greens, then you might not reduce it at all.
MATHIAS CORMANN: What we’re saying is the Budget is our plan to take us back into surplus on a believable and credible trajectory. Our Budget is there for all to see. We are working to implement our Budget. About half of all of our Budget measures have gone through. Indeed our biggest saving, our biggest single saving, which is a reduction in the funding growth for foreign aid to the tune of $7.6 billion over the forward estimates, that went through as part of the appropriation bills. A whole range of other savings measures went through as part of the appropriation bills. The Senate passed the Budget Repair Levy, even after Bill Shorten suggested that Labor would never support it, they quietly voted for it in the Senate. Let’s just wait and see what happens with the remaining medium to long term structural reforms, which come into effect progressively from 2015 onwards. We’ll continue to work to repair the Budget as we promised we would.
BARRIE CASSIDY: And when the Prime Minister says if they’re not allowed to implement the Budget then there’s the prospect down the track of increased taxes and higher interest rates. A Coalition Government would never allow that to happen would you?
MATHIAS CORMANN: This is a statement of fact though. We’ve laid out our plan to reduce the unsustainable spending growth trajectory that Labor left behind. If we were not able to reduce spending growth and if we continue to stay on an unsustainable debt growth trajectory, obviously at some point that will have to be paid back. Essentially if we stay on a spending growth trajectory that takes us to 26.5 per cent as a share of GDP when tax revenue on average over the last twenty years was 22.4 per cent as a share of GDP and you don’t want to balance the books by reducing spending, then the only alternative to balance the books is to increase taxes. Again, what is Bill Shorten’s plan? Is he planning to increase taxes in order to make up for Labor’s unsustainable spending growth trajectory?
BARRIE CASSIDY: And just finally Martin Parkinson, the Treasury Secretary’s said you should have put the tax issues, some tax issues in the mix this time around. We got it wrong, was the headline in the Fin. Do you now regret that you didn’t say more about potential tax reform down the track and certainly tax reform that might impact on wealthier people?
MATHIAS CORMANN: I don’t agree with him that we got it wrong. We are dealing with tax reform as we said we would in the lead up to the last election through the tax reform white paper. In the meantime, we are doing exactly what we said we would do before the election and that is repeal the carbon tax, the carbon tax is gone, repeal the mining tax, we are quietly hopeful that we’ll be able to get rid of this bad tax soon and we’ll be reducing company tax by 1.5 per cent from 1 July 2015.
BARRIE CASSIDY: Minister, thanks for your time this morning.
MATHIAS CORMANN: Always good to talk to you.