Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 29 September 2014
LEON BYNER: Privatisation isn’t something which rings bells of confidence within the community. It has failed the electricity consumer miserably and has resulted in price increases as social obligation has taken a back seat to shareholder interest and profits. The Federal Government is of a mind to sell Medibank Private. It could be worth $4 billion. Now Mathias Cormann, Finance Minister says premiums won’t rise because competition will keep a cap on the hikes. But it is not a dead certainty that this theory of competition will work. There are fears that corporate pressures on the new company will actually reduce competition because it takes out of the marketplace a player that arguably kept the breaks on premiums. While Penny Wong was Finance Minister in Government she extracted $300 million in dividends twice as well as the ordinary profit dividends. This plus tax to the ATO was worth $1.2 billion which works out around $1000 per membership, paid to the Government in taxes and dividends. This was never advised to members of the public. Now there are two groups of the health funds. There is the for profits like Bupa, NIB, Medibank Private and not for profits or mutual funds. Bupa paid to its shareholders in the UK between $100 and $200 million in profit annually. The not for profit health funds if they have a surplus just increase their fees less the following year as there is no dividend required. Now these are HCF, People Care, a few restricted funds. But the sale of Medibank Private may mean nothing or, or, it may mean potential future price hikes. But there appears to be no compelling reason to sell it. The Government says well we shouldn’t be in health insurance. Well what should they be in? Should they be in electricity or gas? Not be involved in education? Leave it to the private sector? Where do we draw the line? Well let’s talk to the Finance Minister Mathias Cormann. Mathias thank you for joining us today.
MATHIAS CORMANN: Good morning. Good morning to your listeners.
LEON BYNER: Can you tell the people of this State, what is this compelling case to sell Medibank Private?
MATHIAS CORMANN: We believe that Medibank Private will perform even better in private hands without the restrictions that it is subject to as a Government owned fund. Secondly as you have quite rightly pointed out, there is actually no reason at all for the Federal Government to run a private health insurance business given that it is a very competitive market, there is no market failure, there are 34 funds competing for business. Right now the Federal Government from a policy point of view is actually exposed to a serious conflict of interest because we are both the regulator, the umpire if you like, in a marketplace and its largest participant, which doesn’t make for a very good arrangement.
LEON BYNER: The thing though is Mathias it is a very good income producing asset, isn’t it?
MATHIAS CORMANN: Because the previous Labor Government has changed Medibank Private from a not-for-profit into a for profit company a more strongly performing Medibank will continue to pay company tax to the Federal Government, so it will continue to provide revenue to the Federal Government. It would have never been sustainable to continue to draw dividends out of Medibank, at the expense of Medibank policyholders, at the rate that the previous Labor Government forced them to pay dividends.
LEON BYNER: So you think that there is a conflict of interest. But I could give you a lot of other areas of regulation where the Government has a vested interest also on a conflict but doesn’t seem to bother you.
MATHIAS CORMANN: Such as?
LEON BYNER: Well the electricity industry for example. It is all over the shop.
MATHIAS CORMANN: The Federal Government doesn’t run the electricity industry. I think that in a general sense at a State level there is a case to be made that maybe State Governments should more assertively pursue opportunities for privatisation in those areas and indeed a number of States have.
LEON BYNER: Well yes and look what happened to the price. The market now has failed, it has failed.
MATHIAS CORMANN: I don’t necessarily agree with that characterisation. There are a range of challenges we face in that space. I am here to talk about the benefits ...interrupted
LEON BYNER: Absolutely, okay, so how will a member of Medibank Private be better off with it in private hands when there will be more pressures to get dividends and returns to shareholders?
MATHIAS CORMANN: Medibank Private operates as a commercial business now. It provides dividends to its shareholder now. The previous Labor Government went after Medibank Private capital reserves on several occasions with a demand for special dividends on top of ordinary dividends. I think you’ll find that in private hands, the dividend payments of Medibank will operate in a more orderly fashion than what they have at the tail end of the previous Government.
LEON BYNER: Look while I’ve got you there as the Finance Minister, we’ve had media reports today that one third of companies paying less than 10 cents in the dollar in tax and of course if companies were paying the right amount of corporate tax, 30 cents in the dollar, then many are saying the Budget would be in surplus, and this report suggests that successive governments have forgone $80 billion since 2004. What’s your comment on that?
MATHIAS CORMANN: It’s a report put forward by the unions so let’s just check exactly the information that’s in there before we make conclusive comments on this. From a policy point of view, clearly the Government expects any business that generates profits in Australia to pay their fair share of tax consistent with the laws of the land. Our advice is that the anti-avoidance laws in Australia are among the toughest in the world. That doesn’t mean that we don’t accept that there’s room to improve and that there’s always a need to be vigilant in the face of new developments in the marketplace, but the policy objective is very clear, but we’re not just going to accept the assertions made by the union movement in relation to these matters.
LEON BYNER: So you’re not accepting that one third of companies are paying less than 10 cents in the dollar in tax?
MATHIAS CORMANN: We are going to review the information that has been put out there. The basic proposition that I put to you is that we have one of the toughest tax anti-avoidance legal arrangements in the world. The Tax Office, under the leadership of Tax Commissioner Chris Jordan is always working to better and more effectively enforce those tax laws across Australia. We will have a look at what has been reported and obviously if there are further steps that will need to be taken, we will take them.
LEON BYNER: Mathias, a few listeners have sent in some questions. One is from Nancy, who wants to know, will you use, let’s say it’s worth $4 billion and that’s the amount that’s been suggested, will you use that money to put into the health system or will it go into general revenue?
MATHIAS CORMANN: It will not go into general revenue. The value of Medibank Private will be set by the market and that’s why we’re engaged in the process that we are engaged in now and the capital released from the sale of Medibank Private will go into an asset recycling fund and will be reinvested in productivity enhancing infrastructure so we can build a stronger more prosperous economy into the future.
LEON BYNER: Okay. What if one of the current big funds wants to buy a substantial stake in Medibank Private?
MATHIAS CORMANN: No single investor can purchase more than 15 per cent of shares in Medibank Private. That is because we’re conducting the sale consistent with the provisions of the Medibank Private Sale Act 2006, legislation which was passed in the tail end of the Howard Government and incidentally never repealed by the previous Labor Government.
LEON BYNER: Alright so you’re saying in a nutshell that consumers who are members of Medibank Private, when it’s sold will be better off?
MATHIAS CORMANN: That is very firmly what we believe. We believe that Medibank Private in private ownership will be able to deliver better services more efficiently than what they’ve been able to do now.
LEON BYNER: Without putting the premiums up?
MATHIAS CORMANN: Without putting the premiums up by more because as I’ve indicated there are two elements to this. One, Medibank Private will continue to operate in a highly competitive market so that puts a natural limit on the prices that Medibank can charge without losing customers to other funds; and secondly, premium changes in Australia are regulated and those regulations don’t change as a result of us selling Medibank Private as a Federal Government business.
LEON BYNER: Mathias Cormann, thank you.