Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 5 March 2015
DAVID SPEERS: For more now on the Intergenerational Report itself, we are joined by the Finance Minister Mathias Cormann, thank you for your time.
MATHIAS CORMANN: Good to be here.
DAVID SPEERS: When you look at the figures that are in this report, do they concern you that unless you do get through measures you proposed last year, we are heading for a debt of $2.6 trillion in 40 years?
MATHIAS CORMANN: What it shows was the trajectory that we were on when we came into Government, which was clearly unsustainable. What it also shows is the progress that we have made so far and we have made significant progress. The debt will be half, about half of what it would have been if we hadn’t made some of the decisions that have already been implemented so far. Of course, if all of the measures in the Budget had been implemented, we would have been in surplus all the way through from 2019-20 to 2054-55. So what that really shows is that in one Budget we tried to essentially implement reforms for 40 years.
DAVID SPEERS: This on the face of it does make the case for what you were tried to do last year, but you have since acknowledged that you tried to do too much.
MATHIAS CORMANN: It really goes to the way we go about things rather than what it is we ultimately have to achieve. Ultimately, we have to ensure that Australia is on the strongest possible foundation for the future. That we are as resilient as possible to deal with future global economic challenges. That we are in the strongest possible position to take advantage of the opportunities. Sometimes and that is I guess something that we certainly have learned over the last few months, sometimes we go faster by going more slowly. Sometimes you go faster by making sure that everyone clearly understands what it is you’re trying to do and why...interrupted
DAVID SPEERS: This is what I am getting to. Clearly what you are trying to do. This makes the case doesn’t it for this scale of cuts that you presented last year. And now you’re saying that is not the scale that we should have.
MATHIAS CORMANN: That is not what we’re saying. What we are saying is here is the context. Here is the situation and the unsustainable trajectory over the next four decades that we inherited on coming into Government. Here is the progress that we have made so far which has been quite significant and yes there is more work to be done. Let’s now have a conversation on how best to go about it. Now, clearly, I mean it is a matter of public record, some of the past proposals that we have put forward in last year’s Budget will not proceed. There clearly has to be a better way to achieve some of the savings and efficiencies that we think are still necessary. That conversation is now underway across a whole range of areas. But the objective, the fundamental task remains. In order to ensure we are on the strongest possible economic foundation for the future, one of the things that we need to achieve is to ensure that Government spending on important benefits and services that are provided by the Government to the Australian population need to be sustainable and affordable in the economy and for taxpayers over the medium to long term.
DAVID SPEERS: So to that end, some of the specifics that you are still trying to get through, I know you already dropped the GP co-payment but you are still trying to get through the change to the indexation of the pension and increasing that pension access age to 70. Will you water that down, drop that or will you absolutely stick to that? How important is it?
MATHIAS CORMANN: To take the increase in the pension age first up. So right now the pension age is increasing as a result of decisions that Labor made, which we supported out of Opposition, to 67. We are proposing for it to increase to 70 by 2035. By 2035, so 20 years from now. Not tomorrow. 20 years from now. The context for this is that back in the early 1900s when the pension age was set at 65, our life expectancy was 58. We are now heading to a life expectancy of 90. Between 70 and 90, there is 20 years where...interrupted
DAVID SPEERS: You’re also trying right now to change the indexation rate. So how important is that?
MATHIAS CORMANN: Ultimately what is important is that we ensure that Government support across the board is sustainable in the economy and is affordable for taxpayers. So just on the pension age for a while here. One of the challenges that comes from the ageing of the population, which incidentally is a good thing, living longer and living healthier is a good thing for all of us. It is something that we should celebrate. But it does have implications for economic growth. It does have implications for Government expenditure. The implications for economic growth are that the ageing of the population means lower participation rates, which means a drag on economic growth, which means that we need to convince more older Australians to work for longer. Obviously adjustments to the pension age essentially fit into that context. The important thing is that these changes are not immediate. They are implemented over a long period of time, so that people can plan for it.
DAVID SPEERS: Okay but getting back to the change right now to the indexation rate of the pension. Are you still committed to that?
MATHIAS CORMANN: We are. It is part of the Budget. It is in the Budget. It is not due to come into effect incidentally again until 2017, until after the next election...interrupted
DAVID SPEERS: But how committed are you to it? It is not something you’re going to drop or work down?
MATHIAS CORMANN: It is in the Budget. We are totally committed to it. It is not due to come into effect until 2017 and again this is a very gradual adjustment. The pension continues to increase. Right now, male average weekly earnings are actually growing less quickly than CPI. Male average weekly earnings are tracking below CPI.
DAVID SPEERS: And Chris Bowen today suggested that according to the report, it is only an interim measure. That you then go back to the existing indexation rate.
MATHIAS CORMANN: The proposition is that is that after a period we go back to average weekly earnings as the indexation...interrupted
DAVID SPEERS: Was that always the Government’s policy?
MATHIAS CORMANN: That was always the Government’s policy. And in a 40 year trajectory you can see very clearly how that plays out.
DAVID SPEERS: And what about superannuation? How open are you? Either in changing the way superannuation is taxed on the way or on the way out?
MATHIAS CORMANN: In the lead up to the last election we made some very clear commitments that we would not make any adverse, unexpected changes to superannuation policy settings in the first term of an Abbott Government and we will be sticking to that commitment. However, we also said that we would pursue a Tax White Paper reform process. That we would have a discussion paper and these are the sorts of issues that I am sure that in the context of the Intergenerational Report will be discussed. Whatever recommendations or whatever proposals we decide to progress we will take to the next election to ensure that people across Australia can pass judgment on those...interrupted
DAVID SPEERS: You can’t afford not to can you? When you look at the pressures on the Budget, either we are all going to be paying more and more tax or you are going to have to do something?
MATHIAS CORMANN: I am not going to pre-empt any policy prescriptions. What I would say though is that the situation that we inherited from our predecessors was taking us to Government spending as a share of GDP up to 37 per cent. A staggering 37 per cent. The highest receipts to GDP ratio in our history was at 26 per cent. So there is a massive gap of 26.2 per cent back in 1986. Now we can’t chase Government expenditure heading for 37 per cent as a share of the economy with increased taxes. We need to bring that spending growth trajectory down. Because if we try to chase it with increased taxes it would kill the economy, it would hurt jobs and that’s not something that we would want to...interrupted
DAVID SPEERS: Okay, so there will be measures in this Budget to bring that spending down?
MATHIAS CORMANN: There will be measures in this Budget and in future Budgets, to ensure that Government expenditure is on a sustainable foundation for the future.
DAVID SPEERS: Even though you are spending more on families and small business?
MATHIAS CORMANN: Let’s just see what the Budget is going to be. As we have said consistently all the way through, wherever there is new expenditure, wherever there is new expenditure on high priority areas, there will have to be offsets on comparative lower priorities. In relation to the families and child care package, what I would just remind you and the jobs and small business package, we have said that we would not proceed with the Paid Parental Leave scheme that we took to the last election. The Prime Minister has already said that we would seek to redirect some of the resources that would have gone into the enhanced Paid Parental Leave scheme into more affordable child care. Don’t make any assumptions on how this is going to be done.
DAVID SPEERS: Okay, so you’ll keep the levy on big business?
MATHIAS CORMANN: We will be announcing all of the detail and all of the arrangements sometime between now and the Budget.
DAVID SPEERS: Final question, China has just announced that its growth target for this year is going to be around seven per cent, down from 7.5 last year. How much is that going to affect the Budget?
MATHIAS CORMANN: Global economic conditions impact on us. What happens in China is relevant to Australian economic growth. What that means in the specifics will obviously be part of the work that is done between now and the Budget.
DAVID SPEERS: Does that mean that this report is out of date already?
MATHIAS CORMANN: No. This is a report that looks at 40 years ahead. It is based on the best available information at the time it was put together. It is based on the data that was available to Government in the context of the Mid-Year Economic and Fiscal Outlook for 2014-15. You’ve got to draw a line in terms of putting these sorts of documents together. There will be further updates for the next Budget and these sorts of estimates and projections will continue to be updated as we move forward.
DAVID SPEERS: Finance Minister Mathias Cormann thank you for joining us.
MATHIAS CORMANN: Always good to be here.