Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 25 September 2014
JONATHAN GREEN: $48.5 billion, that is a fair bit of money. And that was the actual Budget deficit for the last financial year. It is a fair bit worse than the initial forecast. But not so far out on the figure in December’s mid-year update. Why so high? Finance Minister Senator Mathias Cormann should have an answer. Senator welcome.
MATHIAS CORMANN: Good evening.
JONATHAN GREEN: We asked our listeners to text in their reaction to the deficit. One has suggested that you will claim that you are cleaning up the mess that was left by the Labor Government. That is from John on the text messages.
MATHIAS CORMANN: That is a fact. That is true.
JONATHAN GREEN: However, this Budget occurred significantly on your watch.
MATHIAS CORMANN: Well the situation is that when we came into Government in September, we inherited a weakening economy, rising unemployment and a deteriorating Budget position. You have to remember that when Labor delivered this Budget, and the Final Budget Outcome that we delivered today is the Final Budget Outcome for Labor’s last Budget, back in May 2013, Labor predicted that the deficit would be $18 billion, having promised the year before that there would be a $2.2 billion surplus. Then, within 11 weeks between the May Budget last year and the election, the Budget position, the deficit deteriorated by more than $1 billion a week. When we came into Government, that deterioration continued. Which is why in the Mid Year Fiscal and Economic Outlook in December last year what we set out to do was to present the true picture, the true state of the Budget, to draw a line in the sand. If you look at where we ended up with the Final Budget Outcome compared to the estimates that we presented in December last year, we were essentially on par.
JONATHAN GREEN: Well you were talking about $30.1 billion weren’t you?
MATHIAS CORMANN: No.
JONATHAN GREEN: In the pre-election outlook?
MATHIAS CORMANN: No, the situation we inherited and the true state of the Budget as presented in MYEFO nine months ago was that we were expecting the deficit from Labor’s last Budget to be about $47 billion. By the time of the Budget in May this year we said $49.5 billion and we came in about half way in between at $48.5 billion. So the problem is that when we came into Government, the Budget position was deteriorating. There were a whole range of unresolved legacy issues that we have to deal with. For example, Kevin Rudd in the lead up to the last election promised a commitment to offshore processing but didn’t provide funding for it. They made decisions leading to public sector redundancies, but didn’t provide funding for public sector redundancies and so on. There was a $1.2 billion hole because they had taken money away from schools in Western Australia, Queensland and the Northern Territory which we had to put back in. So we dealt with a whole series of legacy issues and we needed to find the real bottom. You see the problem with the previous Government was that they always got their forecasts wrong. So we were committed in MYEFO in December last year to use more realistic assumptions, more realistic estimates. And what you can see today in the Final Budget Outcome is that we have now stabilised the budget position and that is a good foundation from which to repair the Budget and to put us back onto a believable path to surplus.
JONATHAN GREEN: But you have added to that deficit too. I mean according to the Opposition today, $10.8 billion is due to positions taken by your Government. That you might quiver with but we know at least $8.8 billion is the grant to the Reserve Bank.
MATHIAS CORMANN: Well let’s go through these things. So the Labor party recklessly and irresponsibly took more than $5 billion in cash dividends out of the Reserve Bank in one year. Irresponsibly depleting the Reserve Bank’s capital reserves and yes we made a judgment that we needed to fix that bad decision by the previous Labor Government because it would have weakened Australia if we hadn’t done that.
JONATHAN GREEN: That wasn’t the Reserve Bank’s judgment. They didn’t request that money.
MATHIAS CORMANN: Well that is actually wrong. I don’t think that you would be aware of the conversations that happen between the Government and the Reserve Bank. Reserves for capital at risk at the Reserve Bank as a result of Wayne Swan taking more than $5 billion in cash dividends out of the Reserve Bank had gone down to 3.4 per cent. That was highly irresponsible. The appropriate level is about 15 per cent of reserves in terms of capital at risk. Now the other decision that we made, Labor said in the lead up to the last election, you might remember all of the advertising about people not being allowed to come here and how every illegal boat arrival would be sent offshore for processing. They said that is what they wanted to do but they didn’t provide the money. So we provided the money for a commitment that Labor made before the last election. They also made a whole series of decisions in relation to the size of the public sector where they knew it would lead to redundancies. They didn’t provide the money for those redundancies. So yes, you’re right we did have to make some decisions to clean up some of the consequences of either those kinds of decisions or to make sure that there is proper funding to deal with those legacy issues.
JONATHAN GREEN: You’re making decisions Mathias Cormann but at what point do you take responsibility?
MATHIAS CORMANN: Well we are taking responsibility now. So what I am saying to you is that when we came into Government, the Budget position before we came in had been deteriorating by more than $1 billion a week. Now that didn’t stop on the exact day when we came into Government. So the first job we had was to ensure that we had a more realistic picture of what the true state of the Budget was. We did that. In the Mid Year Economic and Fiscal Outlook in December last year, we predicted that the deficit for Labor's last Budget would in fact be $47 billion, not $30 billion and we came in at $48.5 which is pretty well on par.
JONATHAN GREEN: There is a big problem on the revenue side of the Budget. Have you done anything to correct that? I mean that’s what’s driving significantly this deficit isn’t it?
MATHIAS CORMANN: That is actually inaccurate. The problem in the Budget is on the spending side. The previous Labor Government when they kept talking about limiting expenditure growth to two per cent in real terms per annum were actually increasing spending by about 3.5 per cent per annum. And in the period beyond the forward estimates of the time, spending as a result of decisions made by the previous Government is increasing by six per cent per annum. The previous Government put us on the trajectory where Government spending as a share of GDP, as a share of the size of the economy, was heading for 26.5 per cent when over the last 20 years, tax revenue as a share of GDP has averaged at 22.4 per cent as a share of GDP. So there is a big gap there which meant that we kept spending more than we were raising in revenue, which meant that we were continuously adding to the debt, which meant that we were continuously adding to the debt interest liability. Right now we are having to pay $1 billion a month just to service the interest, just to pay for the interest on the debt that the previous Government has accumulated.
JONATHAN GREEN: We are looking at years and years of deficits are we not?
MATHIAS CORMANN: No. We are working very hard to put the Budget on a believable path back to surplus. But a very important point here was the first job we had to do was to find the bottom. To have a foundation from which to repair the Budget in a credible way and of course if you look at the Budget that we delivered in May this year, that is our plan to repair the Budget and get us into surplus as soon as possible.
JONATHAN GREEN: On another matter, Mathias Cormann, your Senate colleague Cory Bernardi is co-sponsoring at attempt to amend the Racial Discrimination Act. Will other Liberal Senators support him?
MATHIAS CORMANN: I don’t know what other Liberal Senators will do. The position of the Government is that we will not be making changes to section 18C of the Racial Discrimination Act. Senator Bernardi is a backbench Senator and he is of course entitled to do what he has done as every backbench Senator is entitled to make his or her own judgments.
JONATHAN GREEN: Bill Shorten has said he is on ‘team idiot’. Have you had a quiet word with Cory Bernardi?
MATHIAS CORMANN: Bill Shorten is out of his depth as a leader and I will let people make their own judgments about Bill Shorten’s descriptions of people. Senator Bernardi is a fine man. He is doing what he should do and that is to make his own judgments, representing the people of South Australia.
JONATHAN GREEN: He is a fine man but in a moment of considerable national tension is trying to reform the Racial Discrimination Act and trying to ban the burqa. Shouldn’t the Government do something to stop him?
MATHIAS CORMANN: I think what should happen is that Bill Shorten should stop playing politics on these things at this point in time...interrupted
JONATHAN GREEN: He is not the one trying to change 18C or ban the burqa.
MATHIAS CORMANN: Bill Shorten is playing politics at a time where he should show leadership. He is a leader. He is supposedly the alternative Prime Minister of Australia.
JONATHAN GREEN: Well what about Cory Bernardi Minister Cormann?
MATHIAS CORMANN: Cory Bernardi is not the alternative Prime Minister of Australia. Bill Shorten should actually show some statesmanship. He should step up and show that he is capable of being a leader rather than go down this sort of path.
JONATHAN GREEN: Is it within his power to make Cory Bernardi back down on the 18C or the burqa ban?
MATHIAS CORMANN: Bill Shorten instead of playing politics should actually start focusing on the national interest and one of the things he should do is he should start working with the Government to help clean up the mess that the Labor party left behind.
JONATHAN GREEN: Mathias Cormann, thanks for your time.
MATHIAS CORMANN: Always good to talk to you.