2GB Drive with Ben Fordham

Senator the Hon Mathias Cormann
Minister for Finance


Date: Monday, 9 March 2015

Super, Budget

BEN FORDHAM: Owning your own home, it is known as the great Australian dream, but these days for most Australians it will only remain a dream. It is out of reach for the average young Australian growing up trying to get ahead, particularly in Sydney. What can we do about it? Two ideas have been floated today to make home ownership easier for everyday Australians. One has been endorsed by the Treasurer, Joe Hockey, well he says he wants to start a conversation about it. Joe Hockey is open to the idea of Australians being able to dip into their super to buy their first home. Super was designed as retirement savings so what do we think about relaxing those rules? The other suggestion comes from the NSW Opposition Leader, Luke Foley. Mr Foley says he wants some flexibility over paying stamp duty so instead of having to pay it in one whack, Mr Foley is suggesting a scheme that’s a bit like HECS for houses. First home owners would be able to spread out the cost of stamp duty over five years. So with housing becoming increasing unaffordable, what are we going to do? Will these ideas help? Mathias Cormann, the Minister for Finance, happened to be dropping into our studio this afternoon, so he is unlucky enough to have to answer these questions. Good afternoon Minister.

MATHIAS CORMANN: Good afternoon Ben. Good to be here.

BEN FORDHAM: Was this a thought bubble was it from Mr Hockey, the idea of being able to dip into one’s super to be able to buy your first home?

MATHIAS CORMANN: Joe said that we should have a conversation about how we can put ourselves onto a stronger foundation for the future, given the ageing of the population, given the changing nature of our careers over a much longer period of time. We need to have the conversation and then we can make some informed judgments at the end of that process.

BEN FORDHAM: What do you think about it? What do you think about the idea of someone being able to access their super? Owning your own home isn’t really a rite of passage any more for a lot of people because a lot of people miss out on it. But it is a significant moment in someone’s life and for their financial security as well. What do you think about someone being able to access it earlier for those reasons?

MATHIAS CORMANN: Home ownership is very important and it is something that we should continue to encourage. When we look at house prices though, prices of anything are a function of supply and demand and what we have to be careful of is that we actually fix the problem and don’t exacerbate the problem. By increasing demand, in the end with supply staying the same, you will be at risk of pushing up prices further. The only way to really sustainably bring down housing prices and make housing more affordable is to ensure that supply keeps up with growing demand. In Australia sadly that hasn’t been the case.

BEN FORDHAM: There is always going to be a danger that there is going to be more pressure on the taxpayer down the track because someone may have been able to buy their first home, but they have got less money in retirement savings.

MATHIAS CORMANN: Exactly and the problem is that if you make it easier for more Australians to put more money into housing with the supply staying the same, the risk is that you will end up taking money out of your super and it just pushes up the cost of the house that you buy for the same amount, then nobody is better off. That is a real risk and that is something that as part of the conversation we need to properly assess and to see whether these sorts of risks could be properly addressed.

BEN FORDHAM: You guys seem to be obsessed with having conversations at the moment. Not even having the conversations, but just saying that it is something we need to have a conversation on. A lot of conversations that you’ve got on in your diary.

MATHIAS CORMANN: Conversations are very important. If you want to ensure that the public at large goes along with us on the journey of implementing the sort of reforms that we need to put Australia on a stronger foundation for the future, then obviously we have got to take people into your confidence, you have got to have a conversation about what it is we are facing in terms of challenges and the opportunities in front of us and how best to go about  being as resilient as possible in the face of challenge and in the best possible position to take advantage of opportunity.

BEN FORDHAM: The other idea comes from New South Wales Opposition Leader Luke Foley, we have got a State election not far away as you know in New South Wales. He has proposed flexibility over paying stamp duty, so you don’t pay it upfront, you spread it out so it could be like HECS for houses. What do you make of that idea?

MATHIAS CORMANN: I’ll let the State Members of Parliament resolve these issues through the democratic processes in the lead-up to the next election. I’m not going to get myself in the middle of that debate here in New South Wales.

BEN FORDHAM: Okay. As Finance Minister you would be as worried as most about the billion dollars we are paying every month just to pay off the interest on the spiral of debt.

MATHIAS CORMANN: Very much so.

BEN FORDHAM: $244 billion tipped to be $1 trillion by 2037 if we don’t do anything. Now your colleague Joe Hockey is appealing for Labor to help get these measures through the Senate, even though they have been reluctant to help thus far, but Joe Hockey admitted to me on Thursday on this program that he hadn’t knocked on Chris Bowen’s door in about three months, the Shadow Treasurer. Is there any light at the end of the tunnel here, Mathias Cormann, to suggest that you are going to get some help from Labor or the other minor parties to get these Budget measures through?

MATHIAS CORMANN: I certainly hope that Labor will change their attitude. They were the Government that created much of the challenges that we are now dealing with and right now Labor appears to still be in denial about the state of the Budget and what it would mean for our long term prosperity and living standards.

BEN FORDHAM: What are you doing to woo them? What are you doing to schmooze them?

MATHIAS CORMANN: I have had a number of conversations with people on the Labor side and I have had a number of conversations with people on the crossbench, but the key is this. It is actually in Labor’s interest, as much as in our national interest, for us to put the Budget on a more sustainable foundation for the future. One day down the track, they’ll probably, hopefully not too soon, but one day down the track they will be back in Government and surely they don’t want to have to deal with the same mess that we have had to deal with when we came into Government in 2013. Surely they would want us to fix the mess up for them by then.

BEN FORDHAM: Isn’t that against the way that politics works these days? I mean you run your opposition person down, when you’re in opposition you run the Government down until they have got no life left in them and then you deal with whatever you have got when you go into Government.

MATHIAS CORMANN: That is not the way that we did it in Opposition. For example, we do face the challenge of an ageing population, which is a good thing. Living longer and healthier is a good thing, but it means that our workforce participation rates are falling, it means a drag on economic growth, Labor in Government said we needed to increase the pension age from 65 to 67. We supported that in Opposition. What we say now is that in the context of significant increases in our life expectancy, that it is absolutely important for us to continue that trajectory that Labor started to take the pension age to 70 by 2035. Not tomorrow, not next week, not next year but by 2035, as part of an orderly transition to a new circumstance really to ensure that the pension continues to be affordable for taxpayers over the long term forever and to really ensure that all Australians contribute to our economic prosperity into the future to the best of their ability.

BEN FORDHAM: Minister some of my listeners have got ideas, they have got thoughts, they have got comments, would you happily take a few calls after the break?  


BEN FORDHAM: I will be back in one moment with Mathias Cormann, the Finance Minister and your calls on 131 873.


BEN FORDHAM: Mathias Cormann the Finance Minister joining us in the studio. You may have just heard then Minister, the Treasurer Joe Hockey in court today against Fairfax. A big day for your colleague.

MATHIAS CORMANN: It’s a big day for Joe. It is important that he fights what were outrageously defamatory assertions that were made by Fairfax Media and I wish him every luck. 

BEN FORDHAM: Okay. Let’s go to the open line, we are with Mathias Cormann. Grant, good afternoon.

CALLER: G’day Ben. How are you?

BEN FORDHAM: I’m okay. Go right ahead.

CALLER: Not so much a question mate. I was on hold before, just a couple of comments. I applaud Joe Hockey for coming up with any sort of alternate to help young people buy a home. It was difficult when we bought ours a few years back but a couple of quick points. If you leave school, even if you get a fairly decent paying job and you’re looking at buying a house in your early 20’s. Super only pays 9 per cent of your salary, so you’re not going to have a hell of deposit anyway to buy as the houses are going up in price every day. That’s one point. Second point is, the banks will have to change their criteria as well because banks want to normally want to see six months’ worth of savings. It’s no good having a $100,000 deposit if you can’t show that you can rub brass razoo’s together. So they’ll have to change legislation so that the banks will take on superannuation as a deposit. Third thing, a friend of ours has just sold their house for almost $500,000, a Singaporean investor, they come to the country twice a year to buy homes. They fly back out, they’ve got to stop foreign investment buying up houses, which at the end of the day pushes up rental prices and it pushes up supply and demand.

BEN FORDHAM: I know that final point Mathias Cormann will want to jump in on because you have been doing something about that actively in the last couple of weeks Minister. 

MATHIAS CORMANN: When it comes to foreign investment, foreign investment is important for Australia’s economic development, but when it comes to foreign investment in residential property, Joe Hockey has started to take very strong action in enforcing our laws to ensure that we don’t have foreign investment which is contrary to the national interest. We are pursuing a whole range of regulatory changes to ensure that there is appropriate scrutiny of the level of foreign investment that comes in, in particular when it comes to agricultural land, but also when it comes to residential investment. There is a discussion paper out at the moment that I would encourage you to get involved in.

BEN FORDHAM: What relief can you offer parents who are listening at the moment thinking, look we don’t think that our children growing up in Sydney are going to be able to do what we once all took for granted.  The idea of being able to buy your own patch and call it your own home because people are genuinely worried about their kids not being able to do that.

MATHIAS CORMANN: I totally appreciate that people are genuinely worried about it. The most sustainable and most effective way to ensure that housing is more affordable is to increase supply, such that it exceeds demand, new demand coming on stream. The biggest problem when it comes to housing affordability is the fact that there is very strong demand and supply is not keeping up.

BEN FORDHAM: So you unlock that supply, what have we got to do to unlock it?

MATHIAS CORMANN: Much of that is at the State level. Planning laws, it’s about approvals. It’s about essentially freeing up land for new residential…interrupted

BEN FORDHAM: So we have Liberal Government’s in charge in New South Wales and in Canberra, so why can’t we sort that out?

MATHIAS CORMANN: We are working on it.

BEN FORDHAM: We are working on it, okay. Should we hold our breath?

MATHIAS CORMANN: It’s an area where progress needs to be made.

BEN FORDHAM: Can you see what I’m saying. While I have a lot of sympathy for what you guys are trying to undertake at the moment, you’re getting zero help from Labor and also the minor parties. There seems to be constantly this discussion about yes it’s something we’ve got to look into, eventually you reach a point where people are listening and they go, I’ve heard these guys too much saying that they’re going to looking into, they’re going to be having a conversation about it.

MATHIAS CORMANN: It’s not as if we haven’t done anything over the last 18 months.

BEN FORDHAM: No one is suggesting…interrupted

MATHIAS CORMANN: Yes, but this is the point. If anything, some people suggest and we accepted that perhaps in last year’s Budget we tried to do too much at once. The reason we are having a few more conversations now is because we’ve recognised that some of the structural reforms that we think are necessary haven’t been surrounded by enough context and by enough of an appreciation as to what it was that we were trying to fix in terms of the problems that we saw coming down the road.

BEN FORDHAM: The Finance Minister is with us, feel free to give him some advice or if you need some free financial advice, he might have some of that as well. Mick good afternoon, go right ahead.

CALLER: Mathias, I’ve got a bit of an idea and I’ve been thinking about it for a while. We’ve still got this Future Fund have we?


CALLER: Why can’t the Government go into partnerships with first homebuyers using the Future Fund?

MATHIAS CORMANN: The Future Fund was set up in order to cover what was until then the unfunded superannuation liability of the public sector and we still haven’t got that properly funded. Essentially they’ve got a mandate to maximise investment returns in order to get us to a position where we can afford future pension liabilities. Up until that point we are unfunded. So what you’re suggesting is that we should essentially use it like a Government development bank. 

CALLER: Investing in the Australian people. Giving young people that want to buy their first home that boost, only for that first home, they have to pay that money back out of any funds that they receive on the property and so forth, but at least it will give them that edge to get into the property market?

MATHIAS CORMANN: So you’re suggesting that Government’s should get back into banking effectively.

BEN FORDHAM: It’s something you’re not keen to do that this point?


BEN FORDHAM: Scott, good afternoon.

CALLER: Good afternoon gentlemen.

BEN FORDHAM: Go right ahead.

CALLER: My question to the Minister is a simple one. Why won’t the Government consider a 2 per cent GST levy to raise in the vicinity of $50 billion over four years to get the Budget back into surplus? Very simple question.

BEN  FORDHAM: 2 per cent GST levy Minister to help us get out of the debt bomb that is ticking at the moment.

MATHIAS CORMANN: The problem is that the debt bomb that is ticking is ticking because of excessive expenditure. In the last year of the Howard Government, government expenditure as a share of the economy was at 23.1 per cent. The trajectory that we inherited from the previous Government was taking us to 37 per cent spending as a share of GDP. There is no way that we can responsibly track increasing spending with increased taxes to that level. It would hurt the economy, it would cost jobs, it would make us completely uncompetitive. Now the truth is that we’ve got to get spending growth under control rather than always turning around and coming up with new ideas for new taxes and increasing the tax trajectory. 

BEN FORDHAM: How do you get those spending matters under control when everything you talk about cutting or bringing back, the other mob say you can’t possibly that. You can’t do that to the teachers, you can’t do that to the nurses, you can’t do that in education, you can’t do that to the pensioners, you can’t do anything.

MATHIAS CORMANN: It’s a marathon not a sprint. You’ve got to remember that at a Federal level, public sector wages, I mean you talk about teachers and nurses, at the Federal level, public sector wages only make up about 5 per cent of the Budget, pensions make up about 10 per cent of the Budget, welfare payments overall 30 per cent and once you add medical benefits, pharmaceutical benefits and payments to the States for schools and hospitals, you get to 60, 70 per cent of the Budget. There is no easy way to get the spending growth trajectory under control, but there is no alternative. We have to ensure that we live within our means over the medium to long term, otherwise we would force future generations to accept either higher taxes or deeper cuts in order to get themselves back into a sustainable position.

BEN FORDHAM: There don’t seem to be too many magic bullets out there in sorting this thing out although there are large areas where you guys are having a very close look at, including what Scott Morrison’s doing at the moment in the area of social services and welfare. Is that enough? I mean that’s an area that’s got a lot of fat in it and you’ll be able to do something about our current situation based on pulling those things back, although once again, no one likes to lose a benefit.

MATHIAS CORMANN: In social services the important point here is that we have to target taxpayer funded resources to provide support to those families in genuine need of support, most in need of support. There is scope we believe to ensure that welfare support is better targeted and that is what we put forward in last year’s Budget and that conversation, to use that word again, is ongoing.

BEN FORDHAM: Okay, we have got time for one more call from Jack. Jack good afternoon.

CALLER: Good afternoon Ben, Minister.

MATHIAS CORMANN: Good afternoon Jack.

CALLER: My question is about one for the sort of middle-aged. With this discussion going on about borrowing your super to pay off your home, why couldn’t their be some legislation brought out that once your home is paid off by using your super, why couldn’t you then pay in to your superannuation fund?

MATHIAS CORMANN: At the moment if you are employed you have to make your compulsory superannuation contributions all the way through. They attract a very advantageous tax rate because you are forced to lock up that superannuation into your super fund for 10, 20, 30, 40 years depending on your age so that it is available to help fund your retirement. That is the reason for the tax incentive that is available including if you make additional contributions to your superannuation fund. I'm not quite sure what your specific proposal here is, but right now you have got to make contributions to your superannuation all the way through your working life through compulsory super arrangements.

BEN FORDHAM: You have got a hell of a challenge on your hands Mathias Cormann, along with your colleague Joe Hockey, we saw last time when you were putting the last Budget together those famous photographs of the two of you with stogies in your mouth. You were sucking on cigars and contemplating life and times. Have you given up the cigars? I know Mr Hockey has struggled to give up the cigars, are you still smoking?

Well we have given up the cigars in public.

BEN FORDHAM: Is that right? You smoke inside instead? Isn’t that illegal?

MATHIAS CORMANN: No we don’t smoke inside but we are more circumspect.

BEN FORDHAM: A little bit more private. Thank you so much for coming into the studio this afternoon.

MATHIAS CORMANN: Always good to talk to you.        

BEN FORDHAM: Mathias Cormann the Finance Minister joining us.