Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 5 March 2015
GRAHAM RICHARDSON: Thanks for your company here on Richo. A couple of hours ago I spoke to Mathias Cormann, our Finance Minister in Canberra. Always a good performer. Always a battler. I’ll tell you what, he is one of those guys who does more media. In a Government that won’t sell, at least this guy tries. Have a look at this.
Mathias Cormann welcome to the program.
MATHIAS CORMANN: Good to be back.
GRAHAM RICHARDSON: Good. Now I don’t know where to start because there’s just way too much. First off, the progress of all these cuts that you were making, that you announced in the Budget in the Senate. Now you’ve backed off on Medicare co-payments. Why did you take so long? Why not do it, you have known you couldn’t get this through the Senate since at least what, August of last year, you knew you couldn’t do it. Why bat on so long?
MATHIAS CORMANN: When it comes to measures implemented out of the Budget, we are now in a much stronger position than we would have been if we hadn’t done what we have done. What the Intergenerational Report that the Treasurer is releasing tomorrow will show is how much progress we actually have made compared to the situation we have inherited. In relation to the co-payment proposal, look, with the benefit of hindsight, we could have handled that much better. There is no two ways about it. With the benefit of hindsight, in our first Budget, we were too ambitious. We bit off more than we could chew. We probably should have come to that conclusion more quickly. I totally accept that.
GRAHAM RICHARDSON: But I think, the other thing you do, I mean I think that’s been pretty obvious to everybody, but it wasn’t simply a matter of biting off more than you could chew. It wasn’t terribly fair was it? ‘Cause if you’re on $500,000 a year you lost $10,000 and if you’re on $70,000, with three kids in the Western suburbs, you lost $10,000 in benefits. I mean, it wasn’t fair. It certainly didn’t look that way to me. What is your view of that, because you’re going to have to prepare another Budget in May. It’s not far away and if you go down the same path as last time, it will suffer the same fate won’t it?
MATHIAS CORMANN: The challenge that we have got is that we want to ensure that Medicare is strong and protected over the medium to long term. That Medicare is affordable and sustainable for taxpayers over the medium to long term. The truth is that spending on Medicare has been growing more rapidly than revenue. Spending on Medicare has been growing more rapidly than the size of the economy for some time and is expected to continue to grow more rapidly for many, many years to come. We are dealing with the challenges of an ageing population, which means that there is a growing demand for healthcare services and what we believe is that it is a good policy principle to ensure that the limited resources from taxpayers are deployed in the health system to stretch as far as possible. What is the policy challenge that we face as a Government, as policy makers in health? It is to ensure that all Australians can have timely and affordable access to quality healthcare in a way that is also affordable for taxpayers. What we felt is that we wanted to protect vulnerable patients, pensioners, concession card holders, children to ensure that they could continue to benefit from bulk billing arrangements. But we also felt that those of us who can afford to make a small contribution towards the cost of healthcare, towards the cost of GP services when accessing that service, that that would be an appropriate way to go. Now, the co-payment is gone. It is not going to be reinvigorated. But what we will continue to do is work with the medical profession and other key stakeholders to ensure that we come up with a better way to put Medicare on a strong and sustainable trajectory for the future.
GRAHAM RICHARDSON: Even if you wanted a minor reform, what about means testing? I went to see a specialist yesterday, which would normally cost a lot of money and I actually got bulk billed. Now, I mean, he’ll take it if it’s happening, but somebody like me should not get bulk billed for a service, surely. I mean there must be ways, in that respect you can make the saving?
MATHIAS CORMANN: Graham, you’re a former Health Minister, so you understand the challenges that the Government is facing when it comes to financing the healthcare needs of the Australian population very well. The comment that you have just made in relation to people like you and I, not being bulk billed when we access relevant medical services, I would personally agree with. What we have thought we should do and what we remain committed to do, is to ensure that Medicare is protected and is strong for the long term so that vulnerable patients, so that people who really need that support can continue to benefit from bulk billing arrangements forever. But what we also know, and what we also understand is that in order to ensure that that happens, we need to find a better way to control spending growth in this space moving forward. The way that we put forward in the last Budget, with the benefit of hindsight, was not the right way. I am not going to pre-empt what a better way would be. The Health Minister Sussan Ley is consulting with the medical profession, is talking to all of the key stakeholders on the best way forward and as soon as we have got something more to say about how that will be done, we will be making relevant announcements.
GRAHAM RICHARDSON: I don’t expect you to announce the Budget at the start of March. But by the same token, there are a number of things I just wonder if they’re under consideration. I mean for a start, the Medicare Levy now pays only a smidgen of the health bill, a tiny bit. Why don’t we increase the Medicare Levy? I mean, it seems to me it’s obvious, it’s fair, because if you increase it everybody is going to be increased incrementally. It seems to me to be the way to go. Why don’t we even hear talk of that?
MATHIAS CORMANN: The practical effect of that would be to take income tax rates, the top marginal tax rate, effectively above 50 per cent. Right now, we have got the top marginal tax rate at 45 per cent, we have got the temporary Budget Repair Levy, we have got the Medicare Levy. The Medicare Levy was increased in order to help fund the NDIS. There comes a time where increasing the top marginal tax rates actually becomes a serious disincentive for people to work harder and to stretch themselves and to make the best possible contribution to economic growth. It is really a matter of balance. Our spending growth trajectory in Australia right now is heading to 26.5 per cent as a share of GDP by 2023-24. That was in the Commission of Audit report and it is growing beyond that in the decades beyond that. I watched the interview by Kerry O’Brien with former Treasurer and Prime Minister Keating. One of the key achievements that he put on the table was that he was able to take spending, Government spending, Federal Government spending as a share of GDP down to 24 per cent in order to put Australia on a stronger, more sustainable footing for the future. And that was a good achievement, to do that in those Hawke Government years. But we are now back on a trajectory where we are heading to in excess of 30 per cent of Government spending as a share of GDP. If we try to chase that spending growth trajectory with ever more new taxes we would be hurting the economy. It would cost jobs. It would seriously put us into a vicious downward cycle that we don’t want. We want to protect living standards. We want to strengthen opportunity for people moving forward. We want to strengthen the economy so that we can create more jobs, so that people have better opportunities to get ahead. So we have got to balance all of these things. We have got to make sure that the spending that we commit ourselves to as a Government is sustainable in the economy, in a way that doesn’t reduce living standards and doesn’t reduce opportunity.
GRAHAM RICHARDSON: Yeah, I know, I understand that, because that levy is temporary, it’s only for two years I think isn’t it? So you know, you can always announce something that takes effect in a year’s time, it’s always possible. But it seems to me, you’ve got to be looking at a whole range of measures.
MATHIAS CORMANN: I think you should put your hand up at the next election proposing a permanent increase in income tax rates.
GRAHAM RICHARDSON: I’m happy to and remember this Mathias, I actually support co-payments. So I don’t follow the Labor line on this. I never have. I believed in co-payments for twenty years because I think there’s got to be a price signal. I think you went way over the top suggesting a $7 one out of the blue, having promised not to touch health. I don’t think that was handled brilliantly. That having been said I support them. I think that the growth in health costs is going to be so great in the coming decade that it is the single biggest danger to us. Bigger danger in my mind than welfare and that’s something we have to observe. You’ve got to go about it the right way, but an ambush, which is basically what you did last time because no one saw it coming, is definitely not the way to go. People get very upset. But that’s not the only thing from the last Budget. Now let me go to Family Tax Benefit A and B. Where are we up to on those?
MATHIAS CORMANN: There is a range of Budget measures in social services that are still stuck in the Senate. We were able to pass about $2.7 billion worth of savings in the social services space over the forward estimates. There’s another $11 or $12 billion that is currently blocked in the Senate. Scott Morrison is working very hard to come up with the best way forward. Everything remains on the table as he says, until such time as we’ve got something better that can replace it. Ultimately from where we sit, we need to continue to make progress. We need to continue to ensure we head in the right direction. We need to ensure that we put our Federal Government spending on a sustainable foundation for the future and we are going to be pragmatic in terms of focusing on those areas where we can make progress. We're quite open to getting understandings across the Senate on how that can best be done.
GRAHAM RICHARDSON: Well looking at that progress, you’re sitting in the Senate every day, like today. You look over at those crossbenches, I mean how is it going with them? Indeed, if those Palmer Senators don’t vote, that must be a help to you? Why don’t you rush a few things through because it seems to me there are quite a few of the crossbenchers who will put their hand up for cuts, even if the Palmer mob won’t.
MATHIAS CORMANN: Actually where I sit, I’m looking right across to the Labor Party and it’s the Labor Party that caused the problem that we’re dealing with in the first place. The terrible thing about all of this is the Labor Party in their last Budget initiated a whole series of savings that they never ended up legislating before the election. What we did, we decided we would do the right thing and we would do the hard yards and legislate their savings for them. In comes Bill Shorten and he decides that ‘no no no no no, these may have been Labor savings which we banked in our last Budget, which were part of the financials in the lead up to the last election, but we’re going to vote against them'. So arguably Bill Shorten right now, Labor under Bill Shorten is more reckless and irresponsible on Budget matters than the Gillard or Rudd Labor Governments and that is saying something. So the situation, I’m looking across…interrupted
GRAHAM RICHARDSON: Yeah, but even if we can see that, it still doesn’t change the fact you’ve got to get the crossbenches, and I just wonder how much work has been done. Now they’re telling me I’ve got to go, so one last quick question.
MATHIAS CORMANN: I think we should get the Labor Party, because to be frank, it is actually in their interests too to help us fix the public finances. One day, hopefully not very soon, but one day in the future, Labor will be back in Government and surely they would much rather that we had fixed the finances for them again than to start up with the challenging situation they left behind for us.
GRAHAM RICHARDSON: Well if and when they get back, I hope they go back to the Hawke Keating model and don’t get themselves into strife. Now one final question. In the last Budget, had all the savings measures been passed, even with that, in terms of expenditure you still finished up a couple of hundred million extra. You never made an overall saving. How serious were you about saving, if you’re still making all those spending decisions.
MATHIAS CORMANN: Actually that is not quite true. Any new spending was more than fully offset in our…interrupted
GRAHAM RICHARDSON: Well that’s David Uren in the Australian, who’s pretty good.
MATHIAS CORMANN: Again, much more will be revealed when the Intergenerational Report is released by the Treasurer tomorrow. Over the first Budget, we essentially improved the Budget bottom line by about $43 billion over the forward estimates. But the important point here is that many of the reforms that were passed were actually structural reforms, which start low and slow and which build over time. In particular, some of the measures we took in the health space and in the education space. The truth is that what you will see in the Intergenerational Report is that we have actually been able to stabilise the spending as a share of GDP trajectory moving forward as a result of the decisions that we’ve made. The decisions that have already been implemented have actually delivered quite a bit of progress, much more than people would appreciate based on what you read in the media day to day. We still have got a fair way to go. There is still much more work to be done. We recognise that. We haven’t reached the point yet that we want to be in. But look at the challenges that we face by trying to do as much as we wanted to do in last year’s Budget. I mean obviously we did try to do too much, we have got to ensure...interrupted
GRAHAM RICHARDSON: Too fast, Australia doesn’t like to be ambushed. They want you to tell them about it and they want you to do it slowly. Listen, I’ve got to leave it there, I could go on all night. I really do appreciate your time. The Parliament’s sitting, I know how busy you are, but Mathias Cormann thank you very much.
MATHIAS CORMANN: Good to be here.
GRAHAM RICHARDSON: He does well doesn’t he, Cormann. Even if you don’t like the case he’s selling, he manages to sell it pretty well.