Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 20 October 2014
ROSS GREENWOOD: Well the Government today announced the terms and conditions under which it will sell Medibank Private via a public stock market float. The shares are expected to hit the stock market on November 25. But in the meantime, you as individuals, Australians, have a chance to bid for those shares. But what are you buying? Let's go to Australia's Finance Minister Mathias Cormann who is in charge of the sale details. Mathias we appreciate your time. What exactly is it that Australians will be buying if they buy into these shares?
MATHIAS CORMANN: Well they will buy an opportunity to share in the future of Medibank Private. Medibank Private is a very strong business, it is a very well recognised brand and it is a business which provides heath cover to more than 3.8 million Australians. As the largest market participant, the largest business in the private health insurance market today it is involved in a market that is growing strongly.
ROSS GREENWOOD: Well if it is such a good business, why does the Government want to sell it? Why doesn't it simply accept the dividends that will otherwise go out to private shareholders and keep them for the taxpayers.
MATHIAS CORMANN: We actually believe that Medibank Private in private ownership will be able to perform even better without the constraints that comes with Government ownership. As a truly independent commercial business for example, Medibank Private will have more flexibility to access capital markets and to pursue future growth opportunities. But as a fundamental point, Medibank Private is a commercial business in a competitive, well functioning, well regulated market. There is no market failure here. There is no reason why in 2014 the Federal Government should own a private health insurance business. We can release the capital that is currently tied up in Medibank Private. Medibank Private will continue to perform its important function, it will continue to provide its products and services to Australians and we believe that they will be able to do that even better. In the meantime we will be able to recycle the proceeds from that sale and reinvest it in job creating, productivity enhancing economic infrastructure.
ROSS GREENWOOD: A lot of people will raise questions about that and ask the question as to why you would not put that to decrease the national debt as distinct from reinvesting that money into other infrastructure.
MATHIAS CORMANN: Well we thought it was important that the proceeds from the sale of a valued and significant asset like Medibank Private were reinvested in productivity enhancing infrastructure. This is part of our plan to build a stronger, more prosperous economy which over time will lead to increased revenue for Government, which will make a contribution to repairing the Budget challenges that we have inherited from our predecessors.
ROSS GREENWOOD: And are you confident that there will be enough competition in that private health insurance market? Because the two big players, Bupa has about 27 per cent market share, Medibank Private has more than 29 per cent market share. Do you believe that the competition is sufficient in that market to keep the premiums down for ordinary Australians?
MATHIAS CORMANN: Well there are 34 private health funds operating in the private health insurance market now. Some of them are larger players than others, that is right. But none of that will change after November 25, when Medibank Private is expected to float on the Australian Securities Exchange. The composition of the market won't change, it is just that the ownership of Medibank Private, one of the companies in that market will change. Importantly we are conducting the sale consistent with the requirement of the Medibank Private Sale Act and one very important feature of that legislation is that no single investor is able to own more than 15 per cent in Medibank Private as a result of this sale.
ROSS GREENWOOD: Just one other thing, the Chief Executive of Medibank Private George Savvides in his first year, including bonuses will receive $3.99 million in total remuneration and will also receive a $750,000 bonus for the float of Medibank Private.
MATHIAS CORMANN: My advice is remuneration arrangements are broadly consistent with what is usual at that level in the market and of course, much of the remuneration is linked to incentive payments that are linked to performance. And of course future investors, shareholders in Medibank Private will want the Managing Director of Medibank Private to meet all of the performance targets that are set for him by the Board.
ROSS GREENWOOD: Have you had a look outside your door today by any chance. Is there a line out there of other public servants who might also be lining up to get their assets privatised so they can get this sort of bonus as well?
MATHIAS CORMANN: Well right now we are pursuing the privatisation of Medibank Private. We have announced in the Budget that there are a number of other assets that we think might be appropriate for sale and we are currently going through the process of running scoping studies in relation to those assets.
ROSS GREENWOOD: The other thing also I did note today, the Parliamentary Budget Officer Phil Bowen are reasonable uncertain international outlooks right now. So maybe the float of Medibank Private are well timed because he shows a projection of Budget moving from a deficit of a $3.1 per cent of Gross Domestic Product to a surplus of 1.4 per cent of GDP but it is not for another ten years, 2024/5. Is that too far away for most Australians?
MATHIAS CORMANN: Well we inherited a very challenging situation from our predecessors. Not only did they deliver $240 billion in deficits in their first six Budgets, they also left projected deficits of $123 billion over the forward estimates and debt heading for $667 billion within the decade and growing. So we are working very hard to turn that situation around, to adjust the trajectory, to get ourselves back onto an appropriate trajectory moving forward so that we get back into surplus as soon as possible. We think it is inappropriate that we should keep borrowing from our children and grandchildren to keep funding our recurrent expenditure today. And that is why we are so focused on getting the Budget back into surplus.
ROSS GREENWOOD: Okay so does his comment at the very end of the report I am reading. I am not crying wolf or trying to inject the flavour of panic, I am simply talking about the need for sensible Budget management which does include building a sensible buffer against such shocks. Do you believe you can build that buffer?
MATHIAS CORMANN: That is exactly what we are trying to do. And that is exactly why we are pursuing a strategy we are pursuing to repair the Budget. The truth is that Australia today sadly is less resilient in the face of potential future shocks and in lesser position than we should be as a result of the bad Budget mismanagement by our predecessors over a six year period in Government. So we are now working as hard as we can to get ourselves into the strongest possible situation so we can be more resilient in the face of challenges coming our way from time to time and so that we can be in a stronger position to take advantage of the opportunities.
ROSS GREENWOOD: And Mathias I can't let you go without playing this to you at least anyway:
MATHIAS CORMANN (EXCERPT): The problem that the Labor Party has today is that Bill Shorten is an economic girlie man.
ROSS GREENWOOD: Mathias?
MATHIAS CORMANN: Well you should have also given your listeners the benefit of the next couple of sentences because what I did of course in that interview was use a bit of humour, playing on my accent, to make a very serious point. The serious point is that Bill Shorten is out there promising that he would deliver a surplus more quickly than the Coalition. When he was a senior member of the Government that created the mess that we are now dealing with. When he is leading the Labor Party which is opposing most of our savings measures that we have put forward and when he as leader of the Labor Party can't even get Labor to support the measures, the savings measures that they themselves initiated and banked in their last Budget. So what I was saying there was really a humorous way to point to Bill Shorten's performance with the fundamental point being that he doesn't have what it takes to repair the Budget mess that they left behind.
ROSS GREENWOOD: Mathias, never lose your sense of humour. I got to tell you, absolutely classic. Don't worry, nobody is going to be blowing up too much at you. You will get your politically correct people blowing back you but keep the sense of humour.
MATHIAS CORMANN: Thanks mate, see you.
ROSS GREENWOOD: Mathias Cormann Finance Minister.