Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 1 December 2014
LYNDAL CURTIS: The Finance Minister is Mathias Cormann and he joins me now. Mathias Cormann, welcome to Capital Hill.
MATHIAS CORMANN: Good to be here.
LYNDAL CURTIS: There is news this morning that you will be writing down revenues because of falls in iron ore prices by 40 per cent. At what cost to the Budget?
MATHIAS CORMANN: The numbers will be updated in the Mid Year Economic and Fiscal Outlook, which is due to be revealed in the middle of December. Suffice to say that since the Budget in May our terms of trade have fallen more sharply than was predicted at that time. Commodity prices have fallen more sharply than was predicted at that time. May I just say here that when we updated our assumptions in last year's Mid Year Economic and Fiscal Outlook and in the Budget in order to ensure that they are as realistic as possible, it was the Labor Party who said that we were taking an overly pessimistic outlook, when of course what has turned out to be the case is that we were being overly optimistic.
LYNDAL CURTIS: Is the order of $2 to $3 billion a year an overstatement or is that about right?
MATHIAS CORMANN: I am not going to go into the specifics, but suffice to say, in any Budget, there are things under direct control of the Government, like new spending decisions or savings decisions. Then there are things that are outside the immediate control of the Government. Whether Labor or the Coalition was in Government the changes in the terms of trade would have been the same. These are global economic developments that are outside of our direct control.
LYNDAL CURTIS: Will you be trying to fill that hole in the Mid Year Budget update with spending cuts or tax rises?
MATHIAS CORMANN: It is very important that wherever the Government makes decisions to spend additional money like we have in the context of the additional security requirements, the additional investment in our national security in the context of the heightened security threat environment, whenever you make decisions to spend more then you have to find offsetting savings in order not to add to the deficit by decisions that you are making. But in relation to events that are outside our immediate control, we have to take a very careful look at these matters as we are finalising the Mid Year Economic and Fiscal Outlook.
LYNDAL CURTIS: So there might be decisions to try to trace that revenue fall to plug that gap with some further spending cuts or tax rises?
MATHIAS CORMANN: We will make specific announcements in the Mid Year Economic and Fiscal Outlook. Our overarching commitment is to repair the Budget. Our overarching commitment is that whenever there is additional expenditure, because of higher priority spending commitments that have come up, then we will offset those with additional savings. Beyond that, essentially we are still working our way through all of that.
LYNDAL CURTIS: Does this write down and every other thing that will happen with the Budget make the task of getting back to surplus more difficult? At this stage are you still looking at having a relatively small deficit in the final years of the four year estimates?
MATHIAS CORMANN: There is no doubt that the significant reduction in commodity prices has had an impact on our capacity to bring the Budget back to surplus on the timetable that we have previously envisaged. Since we came into Government, we have made significant progress in repairing the Budget. Fundamentally, we've been able to do a lot of the things that we said we would do. We are focused on building a stronger, more prosperous economy. That is why we got rid of the Carbon Tax and the Mining Tax, and that is why we have removed all of the unfunded spending that Labor had attached to the mining tax and we are progressing a whole range of other savings. A lot of them have already gone through the Parliament, of course.
LYNDAL CURTIS: We will talk about one of those in a moment, but first thing, I thought when in Opposition you were highly critical of the forecasting of the then Labor Government. Weren't you going to be better? Weren't you going to be more conservative? What's happened?
MATHIAS CORMANN: Indeed. We were totally committed to ensure our forecasts and our assumptions, the assumptions that we use were more realistic than those used by the Labor Party. But remember that when we adjusted the forecast, when we adjusted our revenue assumptions in the Mid Year Economic and Fiscal Outlook last year, the Labor Party said that we were being overly pessimistic, that we were exaggerating the downgrades and that we were trying to make the numbers look artificially bad. As it turned out, we were not aggressive enough in readjusting those particular revenue assumptions.
LYNDAL CURTIS: Maybe the whole forecasting business is a little more difficult?
MATHIAS CORMANN: This is not a perfect science and what we said in Opposition and are still saying now is that at the end of the day, we are accountable for our performance against the Budget. There will always be challenges, always be things that will happen outside your immediate control. The question is, is there a proper explanation for the change and does the Government have a plan to deal with whatever challenges come our way. As a result of the decisions that we have made over the last year, we are now in a more resilient position to deal with some of these challenges that come our way that are not in our immediate control.
LYNDAL CURTIS: Two quick final questions, there is a deal being struck or in the process of potentially being struck on higher education. The Education Minister has agreed to lower the interest rate at which student loans will be repaid from the bond rate to CPI. Do you know how much that will cost the Budget?
MATHIAS CORMANN: Those conversations are still ongoing. I don't believe that we have reached a final landing point in terms of the majority of Senators being able to support our very important reform package through the Senate. If an agreement is reached with a sufficient number of Senators there will be information provided to the Senate in the form of an Explanatory Memorandum in the usual form.
LYNDAL CURTIS: One final question, given the write downs because of commodity prices, is it time to look again at whether you either deliver the PPL, Paid Parental Leave scheme at all, or whether you revise it to include some childcare measures?
MATHIAS CORMANN: The Paid Parental Leave scheme is an important part of our plan to build a stronger, more prosperous economy. We do have certain challenges in terms of falling workforce participation. We do need to lift workforce participation by women. But as the Prime Minister has indicated, we constantly look at whether some sensible adjustments can be made given the changes in the environment.
LYNDAL CURTIS: Mathias Cormann, thank you very much for your time.
MATHIAS CORMANN: Always good to talk to you.