Senator the Hon Mathias Cormann
Minister for Finance
Date: Friday, 6 March 2015
PAUL MURRAY: To take our discussion on the Intergenerational Report further, I’m joined now by Finance Minister Mathias Cormann. G’day Mathias.
MATHIAS CORMANN: Good afternoon Paul.
PAUL MURRAY: Mathias, we’re already having quite a lively discussion about this on the program. Talkback callers want to know where the jobs will come from for all the older workers who need to stay employed into their 70s. That is what is exercising people’s minds.
MATHIAS CORMANN: It is great that we are having that conversation and of course the reason we are making some of the changes we are making is to ensure that the economy is in the best possible position to adjust. The truth is nobody can predict all of the things that are going to happen over the next 10 or 20 years in terms of the specifics. But what we do know is that we need to change our attitude and our approach to these things and we need to open our mind to the transition into a new approach.
PAUL MURRAY: One of the things in the report is that GDP growth is assumed to be 2.8 per cent. Now we have had 3.1 over the past 40 years in this country. Doesn’t that suggest that there will be less jobs?
MATHIAS CORMANN: No. Firstly, obviously it is 2.8 per cent from a higher base. But moving forward, the reason we have made that conservative assumption is because one of the consequences of the ageing of the population is that you will have lower participation rates, which is a drag on productivity and a drag on growth. We want to do better than this but that is what we believe is a realistic assumption for the purposes of this exercise. Furthermore, we also believe that the terms of trade, that the prices that we can achieve for our commodities will stabilise at more normal levels, rather than continue at the elevated levels that we have experienced in recent years. The key is to ensure that we put ourselves into the strongest possible position so that we are resilient in the face of global economic headwinds that no doubt will continue to come our way. But also to ensure that we are in the strongest possible position to take advantage of the opportunities coming our way. The truth is that the Asia Pacific is the part of the world where most of the global economic growth will be generated in the years to come. We need to ensure that we are competitive, that we are productive, that we are in the best possible position to get our piece of the action.
PAUL MURRAY: Mathias, does the report write into its assumptions that it is a big part of the workforce, that people who work manually, physically with their bodies who are just unable to work like that or maybe in any way through their 60s and further.
MATHIAS CORMANN: This is the thing. That is where we have to be more creative and smarter about the transitions from one career into another career. I believe that the next generation of Australians is already thinking that way. Joe Hockey, the Treasurer tells the story of a guy he knows who worked as a builder for many, many years. He reached the point in his late 50s where he was no longer able to physically do that job, which he had done for many years. He transitioned successfully into the job as a property manager in a real estate agency. He was actually doing an excellent job because of all of the experience and all of the knowledge that he had acquired in his previous career, knowing everything about buildings, everything that there is to know about maintenance and everything else. He was able to add real value in that sort of context. So obviously you can’t do a physical job like be a builder into your 80s, that is understood. But that doesn’t mean that over your 60s and 70s you can’t pursue a different career, perhaps more flexibly than you might have in your earlier years but nevertheless continuing to contribute and continuing to make a difference.
PAUL MURRAY: You came out of the health insurance industry before you entered politics and you have just successfully flogged off Medibank Private. The report shows that spending on healthcare goes up from $2,830 per person now to $6,460 per person in 2055. How do we possibly fund that?
MATHIAS CORMANN: This is one of the significant policy challenges that we face as a nation. Our challenge is to ensure that over the medium to long term, indeed forever, all Australians can have timely and affordable access to quality healthcare in a way that is also sustainable in the economy and affordable for taxpayers. The truth is that right now, indeed for the last decade, health expenditure has grown much faster than our revenue. Health expenditure has grown much faster than the economy. It is projected to continue to increase faster than our revenue and faster than our economy. So if we don’t do anything to get spending, healthcare related expenditure under control, then what it means is that it will absorb an ever larger part of the Budget. So either we reduce spending on other areas or we increase taxes. If you look at the expenditure growth trajectory in the Intergenerational Report what it shows is that if we did not make any change over the next few decades we would be heading for Federal Government spending as a share of the economy of 37 per cent. To put that into context the highest level of Government revenue as a share of the economy back in 1986 was 26.2 per cent. So there is a big gap. That means we would be entrenching a massive deficit. If we didn’t want to bring spending down, we would be forced to increase taxes to that level. If we did that we would be killing the economy, we would be destroying investment, we would make ourselves uncompetitive and it would put us in a vicious downward cycle. In relation to health, for example, we want to ensure that Medicare continues to be strong and sustainable over the medium to long term. We want to ensure that people who need the support that bulk billing provides can continue to have access to that support forever. But we also believe that those of us who can afford to make a contribution, a small contribution towards the cost of accessing a healthcare service, when they do should be required to do so. We put a co-payment proposal on the table. That didn’t work. We didn’t quite get that right and we have taken it off the table. That’s not going to come back. We need to continue to engage in the conversation on how we can ensure that the limited resources available from taxpayers to fund healthcare services for the Australian population are deployed in the most efficient way possible, so they can stretch as far and wide as possible, given that we are confronted with a growing demand in the context of an ageing population.
PAUL MURRAY: Finally Mathias, is it sort of undeniable when you read that report in its totality that those who do work in future will be paying more tax to support those who can’t?
MATHIAS CORMANN: The thing is, there is a limit to how much tax we can raise before you actually then start to provide perverse incentives. There comes a point where essentially higher taxes mean that you discourage people from working harder. That is obviously not a situation we want to get to. It is a matter of getting the balance right. It’s a matter of making sure that spending over the long term is affordable in the economy in a way that doesn’t detract from growth into the future, doesn’t detract from the opportunity to create more jobs into the future.
PAUL MURRAY: What’s your take away message from this report?
MATHIAS CORMANN: My take away message is that we were on a trajectory that was unsustainable, that we laid out a plan on how we could get ourselves back into a position where Federal Government spending was sustainable. We haven’t quite got to the destination yet that we want to get to, but we have made significant progress. But as a nation, there is a lot more work that we need to do if we want to protect our living standards and build better opportunities into the future.
PAUL MURRAY: Thanks for talking to us.
MATHIAS CORMANN: Always good to talk to you.