Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 5 March 2015
CHRIS UHLMANN: The report sets out the effect of the Budget under three scenarios, previous policies being the first, that is code for Labor really, currently legislated, so that is what the Government had been able to get through the Parliament and proposed policies, that is what the Government wants to get through the Parliament. Well under the previous policies, the report predicts a Budget deficit of more than $530 billion by 2055, a net debt of more than $5 trillion. Under the currently legislated scenario, the Budget deficit by 2055 has halved to around $260 billion and debt is down to $2.5 trillion. Under the final scenario, the report says the Budget would be back in sustainable surplus by 2019 and debt would be paid off by 2031. Well now here in the studio I am joined by Finance Minister Mathias Cormann. Welcome.
MATHIAS CORMANN: Good to be here.
CHRIS UHLMANN: Well that scenario that you wanted by 2031 is now not going to happen, clearly, is it?
MATHIAS CORMANN: What the report shows is that we have made a lot of progress and that we still have a lot of work to be done. We are entirely open and transparent about this. What the Intergenerational Report shows is the challenges and opportunities we face as a nation over the next few decades and what we need to do in order to prepare ourselves.
CHRIS UHLMANN: Just to put it into perspective, under the currently legislated plan, which is the middle one we were just looking at there, there would be Budget deficits for the next 40 years even if we had 40 years of uninterrupted growth?
MATHIAS CORMANN: That is exactly right. Under the scenario that we inherited from our predecessors we would have had 40 years of deficits, heading for a deficit, a massive deficit, of 12 per cent as a share of GDP by 2054-55. We have been able to half that as a result of what we have legislated so far and if all of our measures in the Budget had been implemented or were to be implemented, we would have surpluses all the way through from 2019-20 onwards, all the way through to 2054-55. So what it shows is that in last year's Budget, we essentially tried to give effect to structural reforms to put the Budget in a strong and sustainable position for the next four decades and clearly with the benefit of hindsight we were perhaps a bit too ambitious in one Budget ...interrupted
CHRIS UHLMANN: Well, perhaps you were, because Treasurer Joe Hockey said you bit off too much?
MATHIAS CORMANN: The Prime Minister, the Treasurer and myself, we have all said that in different ways over the last week or two. We have clearly acknowledged that that has been an issue last year.
CHRIS UHLMANN: Yet that is the measure of the savings that you are going to have to try and find isn't it?
MATHIAS CORMANN: We have got some more work to do that’s right. But what we also understand is that perhaps sometimes going a bit more slowly helps you go faster. Perhaps making sure that the Australian people have a better appreciation of the full context and the reasons why we need to make some of the more difficult, or we would say necessary decisions helps get some of these structural reform proposals through. And then of course we can do better in terms of making sure we get the design into the best possible shape.
CHRIS UHLMANN: You have lost so much political capital on the way through. How do you now start a conversation with the Australian people that they are prepared to listen to?
MATHIAS CORMANN: We are focused on putting Australia on the strongest possible foundation for the future. We are focused on strengthening economic growth, creating more jobs and making sure that Government help for families is sustainable and affordable over the next four decades and beyond. We are putting it all on the table. People will ultimately form their own judgments. But what we are very keen to do is to engage in the conversation about the challenges that we are facing as a nation, the structural economic challenges that come with the ageing of the population as well as the opportunities and the challenges that we are facing in the context of our exposure to global economic conditions. And then prepare ourselves in the best possible way so that we are as resilient as possible to deal with challenges and in the best possible position to take advantage of the opportunities.
CHRIS UHLMANN: Alright, let’s look at some of those challenges. Obviously one of the biggest, or in fact, the biggest Budget item that you need to look at is pensions. Over time they grow to an ever larger part of the Budget, it is already a bigger part of the Budget at the moment. You have to get changes through to the pension age, don’t you?
MATHIAS CORMANN: If you look at what happens as a result of the ageing of the population, right now we have 4.5 Australians of the traditional working age, between 15 and 64 that are looking after Australians 65 and over. That is going to go down to about 2.7 Australians for every Australian over 65. So clearly there is an implication there in terms of workforce participation, in terms of the pressure on our taxpayers and the like. So really what we do need to do, in order to keep up economic growth, we need to lift workforce participation by convincing more older Australians to work for longer and...interrupted
CHRIS UHLMANN: And that has to shift up?
MATHIAS CORMANN: Clearly. The previous Labor Government increased the pension age over a period to 67. We kept the same trajectory and proposed to increase it to 70 years of age. Incidentally when Labor increased the pension age, we supported it. When we are proposing to increase the pension age gradually to 2035, so still 20 years away, the Labor party takes a political position and opposes it.
CHRIS UHLMANN: Now Ian Yates from the Council of the Ageing did praise some parts of this, but he said the glaring omission in it is superannuation and concessions to high income earners. Don’t you need to look at that when you’re looking at the retirement age in its totality?
MATHIAS CORMANN: The Intergenerational Report is not a report of policy prescriptions. It is essentially laying out the challenges and opportunities we have in front of us as a nation and of course the conversation will now take place and it will no doubt shape some of the policy discussions and some of the discussions about ideas on the best way forward. When it comes to tax arrangements on superannuation, we made some commitments in the lead up to the last election about what we would do in a first term of Government, that we wouldn’t make any adverse unexpected changes to superannuation policy settings, but we also said that we would have a conversation through the Tax White Paper review process about medium to long term tax policy settings and in that context I’m sure there will be a very wide ranging conversation on how we can improve our tax policy settings to put ourselves on the best possible trajectory for the future.
CHRIS UHLMANN: I guess a question about that too is that one of the reasons that people got concessions on superannuation, it’s forced savings by the Government. If I’m a high income earner, I might say well don’t force me to save and I’ll invest my money how I like.
MATHIAS CORMANN: The key really is how do we ensure, as the proportion of working Australians for people in retirement continues to fall, how do we ensure that more and more Australians are able to look after their own requirements in retirement. There will be an ongoing conversation. It is not something that we will be able to resolve here today, but this provides the context for the conversation we need to have about adjustments to policy over the years ahead.
CHRIS UHLMANN: Looking at one of the P’s – Productivity. Now in the 1990’s it was 2.2 per cent, you’re sitting at 1.5 over the long term. Do you think that we will ever get back to that 2.2 per cent, because apart from the structural changes that were made in the economy, we also saw the rise of the personal computer and things like that. There was a huge boost in productivity.
MATHIAS CORMANN: From where we sit today we don’t know what we don’t know and who knows? There might be further technological explosions and massive innovation that will have significant positive disruptive effects. But from where we sit right now, at 1.5, we’ve put it transparently on the table as being the assumption we’re working on and if we can do better we should. If there is technological advance that helps us improve productivity by more, than even the better. That’s fantastic. But we think that we need to be open and transparent about what our current working assumptions are.
CHRIS UHLMANN: Among your working assumptions is that at some stage, workplace relations have to become a little bit looser don’t they?
MATHIAS CORMANN: Again, we had certain policies that we took to the last election. We are acting consistently with what we said before the last election, implementing the policies we took to the last election. But there will be a conversation about a second term agenda between now and the next election. No doubt that will go across a whole range of policy areas including tax, including the governance arrangements in the federation, including workplace arrangements and we’ll be announcing our policies for a second term as we approach the next election.
CHRIS UHLMANN: Finally, how do you sell this Intergenerational Report? For you, what’s the top line, what are you trying to tell the Australian people?
MATHIAS CORMANN: We are a great country. We are facing a series of challenges and we have a number of opportunities. We have to put ourselves in the strongest possible position to be as resilient as possible in the face of global economic headwinds that will continue to come our way and to put us in the strongest possible position to take advantage of the opportunities we have being part of the Asia Pacific, where most of the world’s economic growth will be generated over the next few decades. We have made a lot of progress in recent times, but there is much more work to be done and we’re all in this together.
CHRIS UHLMANN: Mathias Cormann thank you.
MATHIAS CORMANN: Always good to be here.