Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 29 September 2014
KIERAN GILBERT: First though to the multi-billion dollar float of Medibank Private. It’s expected to generate around $4 billion for the Government. I spoke to the Finance Minister, Mathias Cormann a bit earlier this morning.
MATHIAS CORMANN: We haven’t put a price on it. The value of Medibank will be set by the market and that is why we are engaged in this process. From the Government’s point of view as the seller, we are working to achieve the best possible net return from the sale for taxpayers.
KIERAN GILBERT: Well but $4 billion, is that in the ballpark? Would that be something the Government would be happy with?
MATHIAS CORMANN: We are not going to speculate. We have put Medibank Private up for sale because we think in 2014 there is no good policy rationale for the Government still to be involved in a private health insurance business, given it is a highly competitive market with 34 private health funds and now through this process we will determine what the market value of Medibank Private truly is.
KIERAN GILBERT: Now for institutional investors, you have capped the limit at 15 per cent share of Medibank. Why is that? Can you talk us through that?
MATHIAS CORMANN: Essentially we are conducting this sale consistent with all of the requirements in the Medibank Private Sale Act 2006. You have to remember that the legislation to sell Medibank Private was passed by Parliament in the final years of the Howard Government. The previous Labor Government never repealed that legislation incidentally and that legislation includes a limit on individual ownership of 15 per cent.
KIERAN GILBERT: Okay and the reasons for that? Is that to allow for retail investors, mum and dad investors to have more of the stake?
MATHIAS CORMANN: It is making sure that no one purchaser, no one buyer of shares has got dominant control of the business and to make sure that the ownership is as well spread as possible.
KIERAN GILBERT: When NIB and MBF both went public they gave their members shares as part of the float there. How come we are not seeing that with Medibank?
MATHIAS CORMANN: Well those were mutuals whereas Medibank Private is a business owned by the Government. All of the shares in Medibank are held by Government, the Government has the right to sell those shares. Policyholders of Medibank Private don’t purchase a share in Medibank, they purchase private health insurance cover. It is really like anyone going into any business and buying a product or service, they don’t then become an owner of that business, they buy whatever product or service a particular business has up for sale.
KIERAN GILBERT: Do they get any benefit at all? Members, long-time members of Medibank Private?
MATHIAS CORMANN: What we have said yesterday is that any policy holder of Medibank who pre-registers an interest in purchasing shares in Medibank will get a greater allocation than any other general member of the public that also pre-registers for shares. So there is a benefit where members of Medibank and ahm for that matter, another Medibank brand, will be able to get a greater allocation of shares if they pre-register, or if they don’t pre-register, they will get the same shares as those members of the public that do pre-register.
KIERAN GILBERT: How much is being spent on the advertising campaign to promote the float?
MATHIAS CORMANN: Our budget to conduct the whole IPO is consistent with what has been in place with previous privatisations. Those numbers will be released in due course. Right now we are in the process of giving it our best shot to sell this asset.
KIERAN GILBERT: Do you really need to advertise given all the free media that the Government gets from this Government owned asset? Is advertising really necessary?
MATHIAS CORMANN: It is a big asset and we have a level of free media today and yesterday and maybe a bit more tomorrow. But in order to ensure that all people right across Australia are absolutely aware of the opportunity of one to pre-register and two to buy a part of Medibank, we do believe it is necessary to ensure that there is a strong information campaign out there.
KIERAN GILBERT: And can you just recap for us, where is the money going to go? The funds generated from the Medibank sale, what’s the Government doing with those?
MATHIAS CORMANN: So what we’ve said for some time, is right now there is a level of capital tied up in Medibank Private, which we want to release through this sale and the objective is to reinvest that capital through our asset recycling initiative into productivity enhancing infrastructure.
KIERAN GILBERT: So ports, roads, rail that sort of thing?
MATHIAS CORMANN: That sort of thing, productivity enhancing infrastructure, which will help us build a stronger, more prosperous economy into the future.
KIERAN GILBERT: Finally I want to ask you about this story that Fairfax is covering today. It’s a concerning report to the extent that it seems to provide a bit of a snapshot of a hole in government revenue. Fairfax says almost a third of Australia’s largest companies, stock market listed companies, are paying less than ten cents in the dollar in corporate tax, vis-a-vis the 30 per cent rate. So much less than the corporate tax rate.
MATHIAS CORMANN: Our expectation is that any business that generates profits in Australia pays their fair share of tax in Australia. Our advice is that our anti-avoidance laws, our tax anti-avoidance laws are among the most stringent in the world. Having said that, we are very conscious of the need to remain vigilant and we are working with the tax office to further improve the effectiveness of tax administration in Australia and to pursue whatever other responses may be required to ensure that we do get a fair share of tax from all those that generate profits in Australia.
KIERAN GILBERT: Will you be looking at this report and have your officials look at this?
MATHIAS CORMANN: Of course. You’ve got to remember this is always work in progress because in relation to tax laws there is an element to where over a period of time, there is a response in the marketplace that requires another response from Government to ensure that the Australian community does get access to a fair share of tax from the profits generated in Australia.
KIERAN GILBERT: If you tighten up a number of these companies, if you look at the list, you’d generate, you’d have quite a windfall. In terms of tight Budget times that would be very much welcome by the Government.
MATHIAS CORMANN: It’s very hard for me to comment on the individual tax affairs of individual companies, given privacy and other considerations. But, the general point being that from the Government’s point of view, we expect that every company that generates profits in Australia pays their fair share of tax on those profits.
KIERAN GILBERT: When you look at it, the Treasurer’s really driving this issue as part of the G20 process, this shifting profits offshore. On most occasions the companies that come to mind are the tech companies, the multinationals, but some of these companies are Australian household names. We’re talking about a fraction of what they should be paying.
MATHIAS CORMANN: There is a need to have both an international and a domestic response, but I just hasten to add again, we do have one of the most stringent anti-avoidance laws when it comes to tax avoidance in the world. That doesn’t mean that we can’t always continue to do better. The policy objective is very clear. We want to ensure that every company that generates profits in Australia pays tax on those profits consistent with the laws of the land.
KIERAN GILBERT: But you would expect that this is obviously, it’s caught your attention, the attention of Tax Commissioner Chris Jordan as well you would have thought.
MATHIAS CORMANN: I’m very confident that Tax Commissioner Chris Jordan will be looking very closely at those reports.
KIERAN GILBERT: Senator Cormann, thanks for your time.
MATHIAS CORMANN: Always good to talk to you.