Sky Business News – The Perrett Report

Senator the Hon Mathias Cormann
Minister for Finance






Economy, commodity prices, Budget

JANINE PERRETT: And now as promised it is time to hear for the first time this year from the man who has kept a reign on the finances and the political message. The hardworking Senator from the great State of Western Australia, Federal Finance Minister Senator Mathias Cormann in Perth as we speak. Welcome back to the show and Happy New Year.

MATHIAS CORMANN: Good to be back and Happy New Year to you Janine.

JANINE PERRETT: Now I actually felt sorry for you today. There you go, you go out and give a press conference, you give some interviews, talking about wanting to say how good things are and the positive signs in the economy and all they wanted to talk about was some irrelevant royal on the other side of the world. Isn’t it a bit frustrating?

MATHIAS CORMANN: And I am sure that tonight of course, you will talk to me just about the opportunities in the economy and our progress on repairing the Budget mess that we have inherited from our predecessors to make sure we talk about the important matters at stake.

JANINE PERRETT: Well given I saw that all day you did not go off message and play on that other issue, I am going to give you a nice start to the year and just if you could sum just the main things that make you confident that 2015 is going to be a good year.

MATHIAS CORMANN: Well firstly we did do a lot of work over the past 12 months or so to ensure we put Australia on the best possible foundation for the future. We removed the Carbon Tax and the mining tax which will help improve the international competitiveness of our economy. We have reduced red tape costs for business by more than $2 billion a year. We have finalised three new Free Trade Agreements with South Korea, Japan and China, which will start to deliver dividends in terms of increased trade investment and jobs. We are rolling out a record infrastructure investment program. Minister Hunt has made approvals for projects across Australia to the value of about $1 trillion. Environmental approvals that is. And of course we have made significant progress when it comes to repairing the Budget. Yes, we have been facing some global economic headwinds. We don’t control global prices for our commodities, we don’t control some of the other global economic conditions, but we are today in a much stronger position than we would have been if we had not made some of the decisions we made and if we hadn’t made the significant progress we made last year in implementing our plan for a stronger, more prosperous economy and more jobs.

JANINE PERRETT: Well that’s all very well, but what about the main thing? Prince Phillip? Ha, that was a joke Senator Cormann. Actually what I was going to say is that all that is all very well but why is the message not getting through even to business? We saw the NAB business survey. There was another CEO survey last week. Why isn’t anyone else getting this message of how good it is?

MATHIAS CORMANN: Well this is a marathon, not a sprint. We have been facing some significant global economic headwinds in recent months. We have been facing some geopolitical dynamics in recent months and over the past year that obviously has created some additional challenges. From my point of view, there are always some things that happen that are not under our direct control and it is very important therefore that all of the things that are under our direct control, we do the best we can every single day to put ourselves into the strongest possible position to take advantage of the opportunities and to be as resilient as possible in the face of any challenges coming our way. Over the past 12 months we have been doing that and we are totally committed and focused on doing that again over the next 12 months. Over time it will go onwards and upwards. If you look at some of the outcomes, in 2014, last year, the first year of our Government, more than 210,000 jobs were created across the economy. That is more than three times more than the year before. So we are making progress. We are not yet creating enough jobs to absorb population growth, but we are heading in the right direction. We need to continue to build on what we have done so far and not put that at risk which is why I am very concerned about statements today that Labor wants to bring back the carbon tax and the mining tax.

JANINE PERRETT: I knew you’d get to the mining tax. Before we go down that well trodden path, given your positiveness today, did your new Assistant Treasurer Josh Frydenberg not get the memo? Because over in Europe he was talking about the Australian economy being vulnerable and listed a whole lot of headwinds that you are talking about. But his was a far more negative message.

MATHIAS CORMANN: We are optimistic. We are optimistic that...interrupted

JANINE PERRETT: He didn’t sound overly optimistic.

MATHIAS CORMANN: We are optimistic that 2015 is going to be a good year for Australia, a good year for the Australian economy. But of course it is true that we do face global economic headwinds. We always, at all times, are exposed to global risks and that is why we are making it very clear that it is so important, that is why it is so important, that we continue to implement our plan for a stronger, more prosperous economy so that everyone has the best possible opportunity to get ahead.

JANINE PERRETT: Well let’s look at some of those global headwinds, where they are on your radar and what our plan is on it. Of course the most immediate one at the moment is the Greek elections at the weekend. Lots of nervousness on world markets about a “Grexit”, what is your feeling on what is going to play out on Greece and the impact for us?

MATHIAS CORMANN: The Greek democratic process is a matter for the people of Greece. The people of Greece made a decision over the weekend to elect a new Government. That is still very early days. Let’s see how that evolves. These are going to be matters for Greece and Europe in the first instance to work their way through. This is one of the things that I mentioned earlier. We don’t control things that are happening in other parts of the world. We don’t control global prices for our commodities. We don’t control outcomes of elections in places like Greece. These are things that happen and we need to make sure that domestically here in Australia we put ourselves in the strongest possible position so that we can take advantage of opportunities and be as resilient as possible in the face of any challenges.

JANINE PERRETT: You talk about the elections in Greece, that was a backlash against austerity and JP Morgan put out a warning a couple of weeks ago that the last thing a Government here needs to do is more austerity. We actually need more stimulus. Now the whole message of this Government has been about austerity, we might see it in Queensland this weekend, voters don’t like austerity do they?

MATHIAS CORMANN: I’m very confident that Campbell Newman and the LNP Government will be returned on the weekend. They have provided strong Government over the past three years or so. They have worked very hard to get the Budget mess that they inherited from Labor under control and to improve frontline services. The problem in Greece and the problem across a large parts of Europe is that they stayed on a bad trajectory for too long. The decisions that needed to be made when they eventually hit the wall so to speak, or got to a serious problem situation, was that the decisions were very, very hard. Much harder than they would have been if the necessary decisions had been made earlier along the way. That is what we’re saying here in Australia. We need to make the decisions to get ourselves back on a stronger foundation now. We can’t wait until we get to the sort of situation that some of the countries across Europe have got to. If we stay on an excessive, unsustainable spending and debt growth trajectory for too long, eventually we will end up in a situation where the decisions to correct these sorts of consequences will become more and more difficult. We want to make the decisions now.

JANINE PERRETT: Okay, one more question on the global issues before we have to go to a break and we’ll have a look at the domestic side. The oil price, while it’s great for consumers, a lower petrol price, the fact is that world markets are very nervous and there’s talk of this collapse in oil prices being sustained. Does that worry you?

MATHIAS CORMANN: Again, as I’ve said a number of times now during this interview, we don’t control global prices for our commodities. Whether that is iron ore, whether that is oil and gas. As you’ve said, it’s not all bad news to have low oil prices. It does mean that consumers at the petrol pump have the benefit of lower petrol prices. But it also means that some of our significant oil and gas producing export businesses in Australia are facing challenges. That does have implications for government and government revenue into the future. The point here though is that global economic conditions are what they are whoever is in Government. What is different is we are working very hard to ensure that we can deal with the challenges coming our way from a position of comparative strength. That is what the previous government wasn’t doing. The previous government faced with falling revenues, continued to ramp up expenditure on a permanent basis, in particular in the period beyond the forward estimates. We need to get spending back under control.

JANINE PERRETT: We’re going to get the domestic situation at the Budget after this short break.


JANINE PERRETT: Welcome back, I’m here in conversation with Federal Finance Minister Senator Mathias Cormann who is in Perth. Senator you talked about our domestic financial situation, the Budget. We are now into 2015 and there are still large parts of the Budget that haven’t been passed from last year. I know in our last interview of last year you said “don’t worry about that, we’ve got plenty through”, you were comfortable with it. But we’ve seen another back flip on Medicare; you’re still arguing the education reforms. At the very least, you can understand maybe why business out there is not confident. Are you already working on the next Budget? Have you given up on this one yet?

MATHIAS CORMANN: We haven’t given up on last year’s Budget and we are working on the 2015-16 Budget. There is one Budget. The Budget is a living document. Every Budget and Budget update provides an update on our plan to strengthen the economy, create more jobs and to get the Budget back into surplus. We are still dealing with some of the Budget measures from Labor’s last Budget. The 2013-14 Budget when Labor announced that they would save more than $1 billion over the forward estimates by removing subsidies, tax subsidies for businesses generating more than $20 billion a year in assessable income for their research and development. Now Labor put that particular savings measure on the table in their last Budget, they initiated it, they banked it in their Budget, they failed to legislate it, we are putting the legislation forward and under Bill Shorten the Labor Party is even more reckless than they were under Julia Gillard and Kevin Rudd and they’re now opposing it.

JANINE PERRETT: Let’s not go back. We’re looking forward, it’s 2015.

MATHIAS CORMANN: Yes, but I am looking forward and it’s very important. That legislation is currently before the Parliament.

JANINE PERRETT: Okay what I want to put to you, are Budgets from now on going to be something of an ambit claim? You put them out there and if you get half through you consider that a success?

MATHIAS CORMANN: It has always been thus that Governments that do not have the numbers in the Senate, and most Governments in Australia over the last 30 or 40 years have not had the numbers in the Senate, that Governments have to negotiate their agenda through the Senate. We have 33 Senators. We need 39. In order to get any legislation through that Labor and the Greens oppose we need to have six crossbench Senators... interrupted

JANINE PERRETT: We know the numbers, but it is a very good point that you make that most Governments have faced this situation. Yet most Governments don’t seem to have had the problems that you have. Would you say there are lessons learnt about what happened last year? It was your first year, are you being nicer to the crossbenchers? Is there more of a campaign? You say you are working on 2016, are you actually working on talking to them and finessing how to get things through, like many Governments in history have done.

MATHIAS CORMANN: Janine I am sure that you have a very nostalgic and romantic recollection on how easy everything was in the years of the Howard Government and how everything just swam through the Senate very easily. That is not my recollection and I was involved as an advisor along the way in some of these issues at the time. If you were to talk to John Howard and Peter Costello that would not be their recollection either. I know that with the passage of time and looking back, it always looks much easier than when you are actually dealing with the issues of the day on a day to day basis. From my point of view we have put forward our plan for a stronger, more prosperous economy, our plan to repair the Budget mess that Labor left behind...interrupted

JANINE PERRETT: Yes, but it is not much good if you can’t get it through and we know that Labor is going to be obstructionist, I agree with you on that, but what is the plan? Do you have a plan as you are working out this next Budget on how to get it through? Are you going to be more careful in what you propose, maybe talk to people more, more consultation? Unlike the Knighthood.

MATHIAS CORMANN: You should never assume that because something doesn’t go through the first time that it won’t go through the second or the third time. There is nothing new under the sun. The previous Labor Government, a number of their proposals went to the Senate two or three times. The Howard Government, a number of their proposals went to the Senate two or three times. We will continue to focus on one simple thing and that is to continue to repair the Budget. The fundamental task of the Government when it comes to the Budget remains the same, we have got to repair the Budget mess that we have inherited from our predecessors. We have made significant progress, there is more work to be done, there is more work to be done on structural reforms in particular. Some of them don’t take effect for some time yet and we will continue to work to get our agenda through.

JANINE PERRETT: On that issue of structural reform, you have had the BCA who sound exasperated, they want a better and bigger and more long-term plan. Given that revenues are falling and obviously will continue to fall, are you more open to revenue enhancement measures or do you think you can still do it but just by slashing spending?

MATHIAS CORMANN: Under Labor the spending…interrupted

JANINE PERRETT: Not Labor, I’m talking about you.

MATHIAS CORMANN: Janine you have to just listen for a second to let me make my point. Because under Labor the spending growth trajectory was taking us to 26.5 per cent of spending as a share of GDP. The tax revenue as a share of GDP over the last 20 years has averaged at about 22.4 per cent and since the introduction of the GST to the period to the GFC, about 23.9 per cent. The truth is there is a gap there. At the moment, we are borrowing in order to fund a large chunk of our recurrent expenditure. We can’t make up that gap by lifting revenue to that same level as expenditure was tracking for because it would hurt the economy, it would hurt jobs, it would make us less competitive internationally…interrupted

JANINE PERRETT: So where is the money going to come from?

MATHIAS CORMANN: What we need to do is we need to get our spending back under control…interrupted

JANINE PERRETT: So you are saying you can make up the shortfall, the money can come purely from spending cuts, from austerity?

MATHIAS CORMANN: You are verballing me there Janine. In the last Budget, I’ve made this point on your program before, about 80 per cent of the Budget repair measures were on the spending side, about 20 per cent of the Budget repair measures were on the revenue side. Moving forward, we have got to make sure that our economy grows to its best potential. Stronger economic growth will mean stronger revenue flows. We need to make sure that spending is affordable and is sustainable over the medium to long term and Labor did make commitments in the lead up to the last election for the period beyond the published forward estimates, to ramp up spending, permanently and unaffordably...interrupted

JANINE PERRETT: Okay, at some point we all have to look at this Government and not keep going backwards.

MATHIAS CORMANN: We are looking at this Government.

JANINE PERRETT: Okay, I want to bring you something the Assistant Treasurer, the Shadow Assistant Treasurer Andrew Leigh said today, there is a debate over profit shifting. One way that you can get revenue is to try and get those global tax dodgers. He has argued you should get the new economy, get Uber and Airbnb should be included. What do you say to that suggestion?

MATHIAS CORMANN: We are working to ensure that every business that operates in Australia and generates profits in Australia pays their fair share of tax in Australia. We have one of the toughest anti-avoidance tax laws in the world. There are always new business developments and new technological developments…interrupted

JANINE PERRETT: Would you rule out, do you see Uber and Airbnb, would you rule out looking at them?

MATHIAS CORMANN: I am not going to talk about the tax affairs of individual taxpayers. That would be entirely inappropriate. What I am talking about is that this government is totally committed to making sure that every business that generates profits in Australia pays their fair share of tax on those profits generated in Australia as is appropriate.

JANINE PERRETT: Okay thank you very much for that. Unfortunately we have run out of time, we didn’t even get to the knighthood question and I know you haven’t had any questions on that today. Thank you very much for your time, Senator Mathias Cormann.

MATHIAS CORMANN: Always good to be here.


Senator the Hon Mathias Cormann, Minister for Finance, Perth