Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 5 March 2015
PATRICIA KARVELAS: The Intergenerational Report is out and as expected, it contains some sobering projections of our ageing population and how we are going to pay for Government services in the future. Now the report is a five yearly look into the economic crystal ball to see where Australia might be in 40 years. A headline figure is that in 40 years there could be more than two million people over 85 years old and there could be 40,000 people of 100 years old or over. The Government is being accused of politicising what is meant to be an independent report. It was produced by Treasury. Finance Minister Mathias Cormann is here to tell us all about it. Minister, welcome to the program.
MATHIAS CORMANN: Good to be back.
PATRICIA KARVELAS: Is this report an attempt to sell all of the Coalition’s policies that are currently languishing in the Senate?
MATHIAS CORMANN: This is a report that presents the challenges and opportunities we have in front of us as a nation over the next few decades. It is of course very important for all of us to clearly understand the trajectory that we were on and the trajectory that we need to be on if we want to protect our living standards and build better opportunities into the future.
PATRICIA KARVELAS: But haven’t you done it in reverse? This seems to me like you are making the case for Budget reform for major fiscal reform but you are doing it after you have announced all of these measures that you are currently scrapping.
MATHIAS CORMANN: As a matter of course and consistent with legislation, the report that was released today is to be released every five years. The last one was released in 2010, so it was due for 2015. If your argument is that we could have done a better job last year, putting the context around why we believe that some of the structural reforms to put Australia on a stronger foundation for the future were necessary, then I readily accept that. We are where we are. We need to do the best we can moving forward to ensure that everyone across Australia has got a good appreciation of the challenges and opportunities in front of us and of what we need to do in order to have the best possible future across Australia.
PATRICIA KARVELAS: On RN Drive my guest is Finance Minister Senator Mathias Cormann and you can text us your views, 0418 226 576, 0418 226 576 or of course you can tweet us at RN Drive. Minister it is the first time there has been three Budget scenarios modelled in the Intergenerational Report. So there is a vision of Australia in 40 years if you pass your full suite of policies, a vision of 40 years based on policies you have now managed to get through the Parliament and finally a vision of Australia under Labor policies. That is deeply political. Is that the right approach?
MATHIAS CORMANN: It is not deeply political, it’s about ...interrupted
PATRICIA KARVELAS: Well it is. You’ve modelled against your Opposition.
MATHIAS CORMANN: This is a very important document about Australia’s future. It is about engaging in a public conversation about the trajectory that we were on as a country if we made no changes after the last election, the progress we have made in getting ourselves on a stronger trajectory for the future and essentially making very clear the work that remains to be done. Now if having a public conversation about how best to strengthen Australia into the future, how best to ensure that everyone across Australia has the best opportunity to get ahead and how to protect living standards, if you say that that is political, well then let’s call it political. But it doesn’t really matter what label we put on it. What is important is that we have a conversation about Australia, about where we are headed...interrupted
PATRICIA KARVELAS: Sure, but do you concede that by modelling what would have happened under Labor, that you are using a Treasury document that the Government releases in a pretty political fashion?
MATHIAS CORMANN: This is our document. This is the Treasurer’s document as it always has been. It was the Treasurer’s document when Wayne Swan was the Treasurer. It was the Treasurer’s document when Peter Costello was the Treasurer. It is the Treasurer’s document now that Joe Hockey is the Treasurer. The truth is that it is very important for all of us to understand the trajectory we were on and what that would have meant over the next 40 years in terms of Australia’s economic fortunes and what the alternative scenarios are moving forward. There can be a temptation to just look in isolation at the current position we are in and to assume that there is not going to be any changes moving forward. There are consequences of different policy choices. We are facing a range of structural challenges in Australia right now irrespective of who is in Government. That is not a partisan position. The ageing of the population is a structural economic challenge for Australia irrespective of who is in Government. It is not a challenge that is unique to Australia. Nevertheless, it is there and has got implications for our quality of life moving forward. There is obviously an implication in terms of economic growth because the ageing of the population without reform means that there will be falling workforce participation rates, which means that there will be a drag on productivity and on economic growth. We need to persuade more older Australians to work longer and that is where some of our reforms for example to the pension age come in. Secondly, there is of course a structural economic challenge given our exposure to global economic conditions as a trade exposed economy, as an economy where what happens to commodity prices internationally matters. So we have got to set all of this out, we have got to show what the consequences are of just ramping up expenditure without taking into account what our capacity is…interrupted
PATRICIA KARVALES: We are about to hear from Labor’s Andrew Leigh who says there is no reference to inequality in the report, unlike the previous Intergenerational Report. Why weren’t questions of inequality addressed in this report?
MATHIAS CORMANN: The best way to ensure that we have the best possible opportunity for everyone across Australia to get ahead is to continue to strengthen economic growth and to continue to create more jobs and to continue to ensure that government help for families, government support for families is affordable for taxpayers and sustainable in the economy. That is what we are setting out very clearly.
PATRICIA KARVALES: Minister, given one of the big criticisms of your Budget delivered last year that we are still talking about was that it was a real class issue, that it was unfair, it failed the fairness test in the public and even Ministers in your Government have conceded that there is a fairness issue with the way that the Budget was delivered. Given that, wouldn’t it have been logical to address this in it through a statement about inequality in this report?
MATHIAS CORMANN: The Intergenerational Report goes right to the heart of what is fair. What is not fair is that right now, as a result of the trajectory that we inherited from the previous government, we are continuing to live at the expense of our children and grandchildren. We are borrowing from our children and grandchildren in order to fund part of our day to day living expenses today. So what that means is that we are forcing future generations of Australians, our children and grandchildren to pay the cost for our living standards today back with interest on top of their own expenses. That means that they would have to accept higher taxes or deeper spending cuts down the track in order to make up the consequences of the bad decisions that have been made in the past.
PATRICIA KARVALES: ACOSS says, ACOSS being the peak welfare lobby group, says there is a large gap in analysis, there is no reference to distributional analysis and the social impact to Australia’s vulnerable. Isn’t this a charge against the Government that can be established that you are not really looking at the way that poorer people, people who are reliant on Government benefits, are being impacted by policies?
MATHIAS CORMANN: This report is actually critically important when it comes to Government support for those Australians that most need Government support, because what we are focused on is making sure that Government support, taxpayer funded support for families in need, for all Australians in need, for everyone that is in need of Government support is sustainable in the economy and affordable for taxpayers over the medium to long term. We can't continue to be on an unsustainable spending growth trajectory. Spending growth with the trajectory that we were on was heading for 37 per cent as a share of GDP. The highest ever level of Government revenue as a share of GDP back in 1986 was at 26.2 per cent. That is there is a big gap. If we were trying to chase the trajectory that Labor put Australia on, the 37 per cent spending as a share of GDP with increased taxes, it would kill the economy, it would damage investment, it would make us uncompetitive internationally, it would cost jobs and it would put us into a vicious downward cycle which would actually make many challenges that we are currently facing worse.
PATRICIA KARVALES: So Finance Minister, Mathias Cormann, what are you asking of the public? Are you asking the public to be prepared now, we are weeks away from the next Budget, the May Budget, are you asking the public to be prepared for more cuts given that you are trying to establish a case here through these numbers that the current system is unsustainable. The Minister, the Treasurer, everyone has been talking about the unsustainability of our current system, are you trying to set up the conditions for more cuts in the coming Budget?
MATHIAS CORMANN: What we are asking the public to do is to engage with us in a conversation about how best to put Australia on the strongest possible foundation for the future. How can we best ensure that we can maximise economic growth, maximise job creation …interrupted
PATRICIA KARVALES: So what does it mean for things like superannuation reform?
MATHIAS CORMANN:…That we can maximise the level of support in a sustainable way that is available for families and for pensioners and others. What does it mean in terms of specific policy proposals? That is a conversation that we will be having in the next few months and indeed in the lead-up to the next election.
PATRICIA KARVALES: Do you stand by things like cutting the indexation of the pension rate? Are these policies that are still ones that you are sticking to? Or are we likely to see a back down on more policies from last year’s May Budget?
MATHIAS CORMANN: We are focused on making sure that the important support available from Government to everyone across Australia who needs it is sustainable and affordable for taxpayers over the medium to long term. We want pensioners to be able to benefit from increasing pensions forever. Now in order for us to do that we need to ensure that we put pensions, that we put all of the expenditure across Government, on a sustainable foundation. Given that when the pension age was set at 65 male life expectancy was 58, we believe that it is sensible to continue with the policy started by the Labor Government, which we supported, of increasing the pension age, which is moving from 65 to 67 years of age as a result of the decisions of the previous government. We think that should increase to 70 years of age, not today, not tomorrow, but in 20 years from now, 2035. We think that that is an important structural reform that will help us ensure that Government payments such as the pension, continue to be sustainable for the long term.
PATRICIA KARVALES: Thank you so much for joining me on RN Drive Mathias Cormann.
MATHIAS CORMANN: Always good to talk to you.