Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 29 September 2014
LYNDAL CURTIS: Medibank Private will be sold in December and the Government is letting those interested in buying in letting them know that they can begin the process now. Pre-registration to receive a prospectus for the share offer for the largest private health insurer is open. The Government doesn’t believe it needs to own a health insurer and doesn’t believe selling will lead to increased premiums. The Finance Minister Mathias Cormann is in charge of the process and he joins me now. Mathias Cormann welcome to Capital Hill.
MATHIAS CORMANN: Good to be here.
LYNDAL CURTIS: It is the case that once Medibank Private is sold that the obligations of those running the company will be to shareholders over policy holders won’t it?
MATHIAS CORMANN: Well the obligations of the leadership of Medibank Private is to the shareholder now except that the shareholder is the Government, whereas once it has been sold the shareholders will obviously be mums and dads and institutional investors. Now the truth is that Medibank Private operates as a commercial business in a competitive market now. It will do so in the future. Its capacity to increase premiums will continue to be tempered by competitive forces in the market place and of course by the regulatory arrangements that continue to be in place unchanged.
LYNDAL CURTIS: You say there are good reasons for the Government not to be in the private health insurance business but Medibank Private like a lot of Government entities does give you a revenue stream. Are you giving up that ongoing revenue stream for a one off big payment on privatisation?
MATHIAS CORMANN: No. Medibank Private as a profitable private sector business into the future will continue to pay company tax. The sort of cash grabs that Labor imposed on Medibank in the past were never going to be sustainable into the future. Labor imposed one special dividend after the other on Medibank Private. And that is of course not the way to run this sort of business in a sustainable way. We actually believe that in private ownership, Medibank policy holders will be much safer when the Government of the day is not going to be able to go after the capital reserves of that business in the way the previous Government did.
LYNDAL CURTIS: You mention mum and dad investors but given what happened in the Telstra float where the share price was below the price investors bought in. Do you expect a certain amount of weariness from ordinary investors?
MATHIAS CORMANN: We believe that there will be strong public interest in the Medibank Private Share Offer. Obviously every individual investor has to make their own judgment as to whether investing in Medibank Private makes sense for them. We would certainly encourage them to carefully consider the prospectus when it comes out and to take advice as appropriate. But obviously, the reason that we have pressed the button on proceeding with the Medibank Private Share Offer now is because we believe that market conditions are right, that the interest is strong and that we will be able to achieve an appropriate net return for taxpayers from the sale.
LYNDAL CURTIS: On another market, the housing market, the Governor of the Reserve Bank says regulatory agencies are looking at tighter controls on lending. Do you believe there is a case for tighter lending standards to protect people against the risk of falling house prices or higher interest rates.
MATHIAS CORMANN: Well there is a reason why the Reserve Bank and the Australian Prudential Regulation Authority are independent statutory authorities operating separate from the political processes of a Government and indeed the Parliament. We let the Reserve Bank and APRA make their judgments in the way they see fit.
LYNDAL CURTIS: But in your view, should people be able to borrow all or nearly all of the cost of the house?
MATHIAS CORMANN: I’m not going to provide a running commentary on the activities undertaken appropriately by the Reserve Bank according to their mandate, under their legislation. From the Government’s point of view, we obviously observe that the market continues to operate and when there are high prices over a sustained period of time, there will inevitably be a supply response which will no doubt put downward pressure on prices.
LYNDAL CURTIS: But given that the risk of a housing bubble is an economic risk as well as a regulatory risk, do you believe, are you concerned as the Reserve Bank Governor is about the higher prices, the increased investment particularly in the Sydney and Melbourne housing markets?
MATHIAS CORMANN: Well we think that the system is working appropriately. The Reserve Bank and APRA are monitoring the market as they should and we don’t believe that at this point there is anything else that the Government at the political level should be doing.
LYNDAL CURTIS: But with interest rates where they are, with the economy where it is, the Reserve Bank does have to look doesn’t it, outside monetary policy, or else risk harming a relatively fragile economy?
MATHIAS CORMANN: I’m not going to tell the Reserve Bank what to do. The Reserve Bank has got the job to make these sorts of judgments and I’m very confident that they will.
LYNDAL CURTIS: On the question with the Budget, in a press release you and the Treasurer put out last week, on the Final Budget Outcome, it says receipts had to be written down but they since broadly stabilised. Does this mean that you’re forecasting better or are revenues actually looking healthier?
MATHIAS CORMANN: Not at all. The previous Labor Government always got their predictions wrong. In the 11 weeks from the Budget in May last year to the Economic Statement just before the election, the Budget just for the 13/14 financial year deteriorated by more than $1 billion a week. What we did in the MidYear Economic and Fiscal Outlook in December last year, putting forward more realistic forecasts based on more realistic assumptions, was present a true picture of the state of the Budget that showed a deficit at that stage projected at $47 billion for 2013/14, $123 billion projected over the forward estimates. For the 2013/14 financial year, the final outcome was $48.5 billion, so broadly in line with what we predicted nine months earlier.
LYNDAL CURTIS: So when you say receipts have since broadly stabilised, what does that actually mean?
MATHIAS CORMANN: Stabilised against our projections. If you look at the projections that we made in the Mid Year Economic and Fiscal Outlook before Christmas last year, both on the revenue and on the expenditure side, our forecasts were significantly more accurate than those of the previous Government in similar circumstances.
LYNDAL CURTIS: So does that mean it’s not possible to say at the moment that things are looking a bit healthier?
MATHIAS CORMANN: Well we are working to implement our agenda to build a stronger, more prosperous economy and obviously one of the positive consequences of that will be, over time, increases in Government revenue on the back of stronger economic growth. That is part of the strategy that we are pursuing as we set out to repair the Budget. And obviously also, we are working to implement in a methodical fashion, all of the measures that we put forward in the Budget in order to get spending growth and the debt growth trajectory under control and get us back onto a believable path back to surplus.
LYNDAL CURTIS: One final question on housing, one of your backbenchers who we’ll hear from in a moment has suggested people being able to access their superannuation to purchase housing. Is that possible, is that attractive, given that it would be an investment too that would last a long time?
MATHIAS CORMANN: Well the purpose of superannuation is to provide an income stream in retirement. There is a sole purpose test, which means that the reason you attract tax concessions as you make savings through superannuation is that those savings and the returns that they generate should be available to fund your retirement. Now for those who are concerned about housing affordability, pumping more money into the housing market by letting people access their superannuation savings more freely will not bring down the cost of housing, indeed if anything, it would probably lead to further increases in the cost of housing.
LYNDAL CURTIS: Mathias Cormann, thank you very much for your time.
MATHIAS CORMANN: Always good to talk to you.