Senator the Hon Mathias Cormann
Minister for Finance
Date: Sunday, 5 October 2014
PETER VAN ONSELEN: Our first guest is the Finance Minister Mathias Cormann. The Budget is front and centre in his mind no doubt. There has been some developments on that during the week. How do you see the Budget sell as well as the passage of the Budget?
PAUL KELLY: Well this week the Government broke up some of the Budget bills in order to get savings through the Parliament. A modest savings of up to $3, possibly $4 billion. This was a perfectly sensible decision to take. What it is means is that where the Government can get the support of Labor and Greens for savings, then it will take those savings. The bigger Budget picture however I believe remains very grim because too many of the major Budget measures remain blocked in the Senate. Whether we are talking now about the Medicare co-payment, the university fee reform measures and other pension and welfare changes. This totals over $20 billion all up. So there is no doubt the Senate is not just blocking individual measures, but it is sabotaging the Government’s overall Budget strategy and the consequences of that in fiscal and political terms will be serious. The Prime Minister has made it clear, the Government is still committed to getting back to a Budget surplus in its forth year. What this means is that we will need further spending cuts and more hard decisions. I think the reality is that these Budget measures will continue to dominate most of the rest of this Parliament leading into the next election.
PETER VAN ONSELEN: Paul Kelly as always, thanks very much for your analysis. And on this very issue, we are joined now to speak to the Finance Minister live from Perth, very early in Perth. Mathias Cormann, appreciate your time.
MATHIAS CORMANN: Good morning. Good to be here.
PETER VAN ONSELEN: Let me ask you, following on from what Paul Kelly has just been talking about. No doubt, obviously from your perspective, frustration with dealing with the major party that is the Labor party and some of the things that they are blocking from your Budget. But beyond that, it is true isn’t it that there is also some issues on your own side. Some of your forecasts from the Budget don’t appear to be bearing accuracy. You are spending more on things like for example the conflict in Iraq. And on top of that, you’re in a situation where you have done some negotiating down to some of the things like the FOFA reforms and other legislation that you have already passed with compromise by dealing with the minor parties. How are you going to get the Budget to measure up I guess when you next have a Budget to some of the forecasts for reducing the deficit that were in your first Budget?
MATHIAS CORMANN: Well it is obviously a work in progress. In September last year we inherited a Budget in very bad shape, a weakening economy, rising unemployment and our Budget position was deteriorating rapidly. In MYEFO we stabilised the situation. In the Budget we delivered our plan to repair the Budget mess that we have inherited and we are going through the process in an orderly and methodical and sequential fashion to implement that Budget. A lot has gone through the Parliament. Some of the structural reforms, mostly structural reforms which don’t take effect until 2015, 2016, 2017 and beyond are still subject to conversations in the Parliament. Some of them like Paul just mentioned the Medicare co-payment are not actually before the Senate. That is a measure for example, which doesn’t come into effect until 1 July 2015. So obviously the conversations across the Senate are continuing. This is situation normal. Whenever you have a Government, which is most times, that doesn’t have the numbers in the Senate, you have to engage as a Government with other parties and that is what we are doing.
PETER VAN ONSELEN: You really think though; I mean you were there as a staffer at different moments during the life cycle of the Howard Government. Do you really think that there is a similarity here in the way that the Howard Government had to deal with a hostile Senate and the Abbott Government? Because John Howard’s mantra was always if you can get 80 per cent through then you are doing well, but it seems that that percentage might have to go down when it comes to these sorts of measures within the Budget.
MATHIAS CORMANN: Well I disagree. Looking back, I know that people always look back to ten, twenty years ago, with a level of nostalgia, forgetting all of the battles and difficulties of the time. But I spoke to Peter Costello the other day, who reminded me of some of the challenges he faced in getting Budget measures through the Senate. It has always been thus. The only time in recent years where Governments have had a majority in the Senate on a good day was for three years on the tail end of the Howard Government and for three years, the second three years of the Gillard/Rudd Government, when Labor and the Greens controlled the Senate.
PAUL KELLY: Minister, how are you approaching the mid-year review and how significant will the new savings measures be attached to that review?
MATHIAS CORMANN: How significant the savings measures will have to be? You will have to wait for the Mid-Year Economic and Fiscal Outlook to be released in December. Obviously, as Peter just mentioned, we have had additional expenditure related to security measures. The Prime Minister announced a few weeks ago, $630 million in additional expenditure on our national security, in order to keep Australia safe. There has been obviously an impact from delayed passage of some savings measures. But at any one point in time in any Budget, there are lots of moving parts, up and down, and the reason we have regular updates as part of an orderly process is because you need to deal with that in a methodical fashion and that is what we are doing in the Mid-Year Economic and Fiscal Outlook.
PAUL KELLY: But to what extent is the situation actually getting significantly worse? Given that the Government has got new spending commitments as you say relating to national security and Iraq. And there is also the possibility of more weakness on the revenue side. So in that sense, how concerned are you about the outlook?
MATHIAS CORMANN: Well we are focused on getting the Budget back to surplus in an orderly fashion. We inherited a challenging situation. The Budget was our plan to repair the Budget, and obviously to the extent that there are changes you have got to address them. To the extent that there is additional expenditure or less revenue or lower savings, it is self-evident that you have to make some adjustments and we will make those adjustments as required in the Mid-Year Economic and Fiscal Outlook.
PAUL KELLY: Alright, now just on that point, can I just confirm that the Government remains committed to its existing timetable of getting back to surplus in the fourth year? That’s still the position?
MATHIAS CORMANN: Well what we have said is that we will put the Budget back on a believable path to surplus and get to broad balance in the final year of the current forward estimates. We are committed to building a surplus beyond that with an aim of getting to a surplus of 1 per cent as a share of GDP by 2023/24. That is still our commitment, yes.
PAUL KELLY: Now in relation to the measures that were announced in the last Budget but which had not yet been passed by the Senate. Will the Government keep those measures in its existing estimates? In its existing Budget estimates?
MATHIAS CORMANN: We remain committed to all of our Budget measures. The Budget we delivered is the Budget Australia needs if we are to protect our living standards and build opportunity and prosperity for the future. Now a number of the Budget measures that are often talked about as I have mentioned, don’t come into effect until some time down the track. A number of them have not been presented to the Parliament yet. So while there is a lot of speculation, a lot of noise and a lot of commentary, what matters to us is what comes out the other end of the parliamentary process. And obviously we won’t pre-empt those judgments until we actually get there. Now in terms of your specific question, Budgets reflect Government policy. Budgets reflect Government policy decisions and there has been no change to Government policy decisions. So of course the measures will continue to be reflected in the Budget.
PAUL KELLY: Sure, but I know that Budgets do reflect Government policy decisions. But at the end of the day, Budgets have got to reflect decisions taken by the Parliament.
MATHIAS CORMANN: Indeed and you might recall that the previous Government was committed to means testing the private health insurance rebate for example. It took them two or three years to get that through the Parliament. Even so, the savings from that particular Budget measure stayed in the Budget, stayed on the books in the Budget all the way through. So there is nothing new in this. The Government has a plan. That plan is of course based on a whole series of Government policy decisions and we will keep at it...interrupted
PAUL KELLY: So all these unpopular measures stay embedded in the Budget estimates?
MATHIAS CORMANN: Well all of the necessary measures to repair the Budget, to strengthen the economy, to get Australia back on a sustainable track will stay in the Budget, yes.
PETER VAN ONSELEN: I think a lot of our viewers are interested in when the moment in time comes, if it hasn’t already, where this new Government takes ownership for both the good and the bad. We hear a lot obviously from new Governments, as has always been thus, blaming the previous organisation. Now when Joe Hockey delivered his first MYEFO at the end of last year, he said that this rules a line under the situation. So does that mean that if we do see deteriorating numbers in the next round of MYEFO or if we do see a result courtesy of changed economic circumstances, higher unemployment for example, these are all things which the Government owns as the decision making body?
MATHIAS CORMANN: We take responsibility, absolutely. It is a matter of fact that 2013/14 was Labor’s last Budget and that 2014/15 is our first Budget. We didn’t start with a blank sheet of paper. We did start with a situation where our Budget position was deteriorating, our economy was weakening and unemployment was rising. We have been working hard to turn that situation around. We have been implementing our Economic Action Strategy, our plan to build a stronger, more prosperous economy and to repair the Budget. Now in the lead up to the next election, people will assess our performance against what we said we would do, of course.
PETER VAN ONSELEN: Do you think that the growth targets have been too optimistic though? I mean I am particularly also thinking about what has happened with commodity prices. It is just hard to see how the Government is going to get itself to its forecast that it has already laid down. And we saw from Labor just how politically painful it is if you fall short of these forecasts.
MATHIAS CORMANN: Well it is very interesting that you should say that our forecasts are too optimistic, because the Labor party keeps saying that we deliberately were too pessimistic in order to make the numbers look worse. Now look, the first time that we actually were responsible for the forecasts and the assumptions underpinning our Budget estimates was in the Mid-Year Economic and Fiscal Outlook in December last year. At that time, we predicted a deficit for 2013/14 of $47 billion, up from $18 billion as predicted by Labor at Budget time. And our Final Budget Outcome came in at about $48.5 billion. So what you can see is that we actually were able to stabilise the situation. We were able to come up with assumptions underpinning our Budget forecasts which actually were broadly in line with what happened. So moving forward, there will be variations at various times, of course. There always are. But our commitment has been to use more realistic assumptions underpinning our forecasts than Labor did. Wayne Swan inevitably overestimated revenue, underestimated expenditure because he always assumed blue skies would continue. We are taking a more realistic approach. But at the end of the day, we will be judged on our performance against our estimates, of course.
PETER VAN ONSELEN: I just wanted to clarify your answer to Paul Kelly’s earlier question about the time line for the return to surplus because it seems that the Prime Minister has been a little bit more absolute than you want to be about this. Is it right that in the fourth year of the forward estimates that there will be a return to surplus then?
MATHIAS CORMANN: Well that is not what the Prime Minister has said and the Prime Minister, the Treasurer and myself are using the same language...interrupted
PETER VAN ONSELEN: So that may not happen?
MATHIAS CORMANN: Well if you let me finish my answer. What we have said is that we are focused on getting the Budget back into broad balance in the final year of the forward estimates and that remains our commitment. And we then will seek to build a surplus from there. If you look at the Budget forward estimates, it actually does show a very small deficit of course. Essentially right now we are on track to get into broad balance by 2017/18.
PETER VAN ONSELEN: Can you define broad balance for me? What do you mean by that?
MATHIAS CORMANN: If you are $1 or $2 billion in just above or just below balance, then that is broad balance. But obviously our focus is to get back into strong surplus. Our focus and our commitment is to get into a surplus of one per cent of GDP by 2023/24.
PAUL KELLY: Let’s just stay on that issue. I mean, as you know, the former Labor Government got into terrible trouble because it had a commitment to get back to surplus by a particular year and was not able to do that. So as far as the Abbott Government is concerned, is this commitment on the return to surplus fixed or are you prepared to be flexible on it?
MATHIAS CORMANN: Well look at what’s in the Budget papers at the moment. Obviously I can’t predict what may or may not happen in the years ahead, but from where we are now, including based on how we’ve been progressing things through the Parliament so far, our commitment remains to get the Budget back into broad balance over the current forward estimates and to build a stronger surplus up to 1 per cent as a share of GDP by 2023/24.
PAUL KELLY: Okay if we look at the foreign aid budget, to what extent do you think there’s capacity for more savings in foreign aid?
MATHIAS CORMANN: Between now and the release of the Mid-Year Economic and Fiscal Outlook we will be looking right across Government for opportunities for additional savings in order to make up for the additional expenditure or the cost of the delayed savings. Our commitment is not to add to the deficit, not to add to debt and as such to the extent that there is new spending or lower savings then we will have to find ways across Government, across the whole of the Government, to make up that ground.
PAUL KELLY: Now in approaching this task, to what extent might you look again at the taxation side? Obviously you’re going to be focused on savings on the spending side, but given there have been new national security commitments, might you look at particular tax measures to finance them?
MATHIAS CORMANN: From where I sit now, I’m not going to rule anything in or rule anything out. Our commitment is as you say, to get Government spending back under control, to get back onto our trajectory as a result of decisions to reduce spending. In the Budget forward estimates, in the last Budget, about 80 per cent of our Budget repair effort was on the spending side and just over 20 per cent was on the revenue side. We are obviously going through all of these considerations now. I’m not in a position to give you an indication one way or the other, except to say that we are looking right across the board for ways and means to deal with additional expenditure and any impact on savings from slower passage of various measures.
PETER VAN ONSELEN: Does that mean that if you’re going to rule anything in our out, does that mean that the pre-election commitment of no new taxes expires at the end of the first year?
MATHIAS CORMANN: No it doesn’t mean that. We, obviously, as you would have seen in the Budget, and the same will apply for MYEFO, we are absolutely, totally committed to deliver our commitment to repair the Budget in a way that is consistent with the commitments we took to the last election.
PETER VAN ONSELEN: Medibank Private, the sale of that, that’s something that you’ve overseen. Are these sort of asset sales potentially one of the ways you can address Budget problems as well as improve productivity through privatisation?
MATHIAS CORMANN: The sale of Medibank Private is obviously a sensible microeconomic reform because Medibank Private in private ownership will perform even better without the constraints of public ownership for their policyholders and will continue to be available as an important service provider in our economy. Furthermore it is a commercial business operating as a commercial business in a competitive well regulated market so there’s no reason for the Government to continue to own Medibank Private and we’ll be able to remove the current conflict the Government as a regulator as well as the largest market participant. Now, in terms of the proceeds from that sale, as we’ve said at various times in the past, our intention is to reinvest the proceeds from that sale into productivity enhancing genuinely economic infrastructure as part of our plan to build a stronger more prosperous economy. It really is a win-win all round.
PETER VAN ONSELEN: And when will we get the details on the next step in privatisation, Australia Post?
MATHIAS CORMANN: We’ve indicated in the context of the last Budget that the Government had no present intention to privatise Australia Post. I think it’s fair to say and this is no secret, Australia Post does face a series of structural challenges which the Government needs to continue to consider how best to address in the next little while.
PAUL KELLY: Minister, given that you’re standing by your unpopular Budget reforms and you’re keeping them in the Budget estimates, presumably that means that you’ll be prepared to take these issues to the next election and fight an election on them?
MATHIAS CORMANN: The short answer is yes. The longer answer is, that this really becomes a question for Mr Shorten, because we haven’t heard much from Mr Shorten about his commitment to getting the Budget back to surplus. They left behind massive deficits, $123 billion in projected deficits, Government debt heading for $667 billion. As we get closer to the next election, he will have to explain whether one, he agrees that we need to get the Budget back to surplus and two, if he doesn’t agree with the measures that we’ve put forward, what measures would he pursue in order to get the Budget back to surplus? We have heard very, very little from Mr Shorten in relation to this. Closer to the next election the full fiscal impact, the full cost of what Mr Shorten appears to be suggesting at present will be very obvious to the Australian people.
PAUL KELLY: Now Minister, as you know, the Labor Party attack on your measures is essentially an attack on fairness. Labor says these measures are particularly unfair. What’s your response to that point?
MATHIAS CORMANN: Firstly, it’s completely unfair to make people believe that Government can afford certain benefits and services when the Government can’t. The second point is that Labor right now wants the Government to keep borrowing from our children and grandchildren in order to fund consumption today. That means if we were to keep doing this, if we were to keep adding to our deficit and to our debt, then really what we are doing is forcing our children and grandchildren to accept lower living standards, because they have to pay the price for our living standards today. We don’t think that is fair. What Labor really is doing is the same as if parents were to put a proportion of their groceries on to their credit card every month and towards the end of their life hand that credit card to their children and say well, we’ve never paid any of this off, took out a second credit card in order to pay the interest, but here it is now your inheritance, we now hand you this credit card with a significant proportion of our grocery bill all throughout our life and we expect you to pay it off through your life. Now no parent would do that. But that is essentially what the Labor Party wants the Australian Government to keep doing, because our debt, our deficits are not there funding investment in our economic future. They are debt essentially just to underwrite our lifestyle and that is not fair. We need to get this back under control in order to ensure we leave better opportunity for our children and grandchildren not lesser opportunity.
PETER VAN ONSELEN: Senator Cormann, who’s wrong out of the Prime Minister and Senator Parry, the President of the Senate and Bronwyn Bishop, the Speaker, when it comes to whether people wearing burqas or niqabs should sit behind glass when watching Question Time?
MATHIAS CORMANN: Look, the Presiding Officers issued an interim statement in relation to security arrangements at Parliament House. I understand that there is some further advice sought in relation to these matters. All I can say is that I hope commonsense will prevail.
PETER VAN ONSELEN: Well what’s commonsense?
MATHIAS CORMANN: Commonsense is an approach where there are appropriate security arrangements consistent with what would apply in any other secure area whether that be an airport or wherever around the world, for those areas where there is a need for secure access and once that secure access has been granted that we, as I say, take a commonsense approach and treat everyone the same.
PETER VAN ONSELEN: So in other words, it wasn’t commonsense what Bronwyn Bishop and Senator Parry did?
MATHIAS CORMANN: Let’s just see what can be resolved between now and when Parliament goes back in two weeks time.
PETER VAN ONSELEN: But that’s a fair question, I mean it doesn’t sound like you think what they chose to do was commonsense?
MATHIAS CORMANN: I think it’s appropriate to ensure that there is a secure access to Parliament House and beyond that, let’s just see how this play out over the next two weeks. But it is important that we take a commonsense approach to this.
PETER VAN ONSELEN: So you hope that Senator Parry and Bronwyn Bishop get overruled on this?
MATHIAS CORMANN: I hope that we end up with a commonsense approach.
PETER VAN ONSELEN: Alright, Senator Cormann, Finance Minister, appreciate your time this morning on Australian Agenda. Thanks very much.
MATHIAS CORMANN: Always good to talk to you.