Senator the Hon Mathias Cormann
Minister for Finance
CHRIS KENNY: But first up I caught up with Finance Minister Mathias Cormann in Canberra a few moments ago.
Mathias Cormann thanks for joining Viewpoint again.
MATHIAS CORMANN: Good to be back.
CHRIS KENNY: I want to talk about some of the reform issues you will be looking at in the lead up to the Budget and of course there has been a lot of talk about superannuation. Now is it a good idea for first home owners, first homebuyers to be able to access some of their superannuation savings to get into the real estate market? Is it a good idea as Tony Abbott suggestion or a bad idea as Malcolm Turnbull says?
MATHIAS CORMANN: Tony Abbott didn’t say it’s a good idea, he said it’s an idea worth having a conversation about. Incidentally that is ... interrupted
CHRIS KENNY: Yeah he said it was a good idea, worth having a look at.
MATHIAS CORMANN: This has been brought up from time to time. My view on these matters is on the record. I was quite explicit in October, November last year when I was asked questions about it. When it comes to housing affordability the issue that we’re facing as a nation is a supply issue. The price of anything, including the price of housing, is a function of supply and demand. If we want to genuinely and sustainably improve housing affordability we have got to increase supply. All of us, the Prime Minister, the Treasurer, Malcolm Turnbull, myself, we all understand that. From time to time people put to us a proposition that young people, first homebuyers, should be allowed to access their superannuation. Personally I don’t believe that that is a good idea for a range of reasons that I have...interrupted
CHRIS KENNY: It is, the issue that the country is grappling with as outlined really of course in that Intergenerational Report is the elderly, the retired, and how to fund the pensions and the like so this is the opposite to what we should be doing isn’t it? Talking about this sort of issue, the idea of people accessing savings early, what you need to be focussing on is ways of encouraging people to put more money into superannuation so that they’re not reliant on pensions at the end of the day.
MATHIAS CORMANN: It is a bit more involved than that. It is true that we need to encourage Australians to save in order to be able to look after their needs in retirement as much as possible. That is self-evident. But with increasing life expectancy, which is a good thing, all of us live longer, healthier, there will be a structural change to the way we work throughout our whole life. The conversation that the Treasurer is very keen for people to have and for us to pursue is that the structure of our career through a lifetime might well be quite different, is likely to be quite different to what it has been in years gone by. How does that impact the way we structure things like superannuation and pension arrangements. Our challenge as a country, to ensure we are in the strongest possible position moving forward, is to convince as many older Australians as possible to stay in the workforce for longer so that we don’t have an excessive drag on economic growth from the falling workforce participation rates that come with an ageing population. Also, because right now the number of Australians of traditional working age as a proportion of the number of Australians 65 and over continues to decline. So there are fewer and fewer working taxpayers funding the needs of a growing population in the older age brackets and so in that context we do need to have a conversation about how we adjust, sensibly adjust some of the vehicles that we have had in place for a long time and including how we can perhaps improve flexibility for people to save towards their retirement throughout their working life.
CHRIS KENNY: Well you need more than a conversation don’t you? You need to have reforms in this Budget in the second Abbott Budget coming up in only 8 or 9 weeks. And one of the areas where you could find extra money, find some savings for the Budget and deliver on fairness in superannuation would be to get rid of some of the concessions or curb some of the superannuation concessions for wealthier Australians, for the higher earning Australians. Are you looking at those superannuation concessions as a Budget measure?
MATHIAS CORMANN: We made very clear commitments in the lead up to the last election that we wouldn’t make any negative, unexpected changes to superannuation in...interrupted
CHRIS KENNY: Hey, hey, Mathias Cormann undertakings before the election haven’t stopped you introducing other changes. Are you going to look at those superannuation concessions for high income earners?
MATHIAS CORMANN: What I was about to say before you jumped in after my first sentence and a half was that what we have said all the way through was that in the context of the tax white paper review process we will be looking at the whole tax system. Because what you are essentially asking me is whether we are looking at increasing taxes on superannuation savings. That is the question that you are asking me. Our view overall is that we want to actually continue to reduce the tax burden in the economy so we can strengthen economic growth and so that we can increase the opportunity for everyone to get ahead. The question is how within an overall envelope of taxes, tax revenue being raised, how can we do that in the simplest, most efficient, fairest and best possible way. That is what the tax white paper review process will explore. I am not going to pre-empt what will come out of that process except to say that we are going in to the conversation with an open mind.
CHRIS KENNY: Okay well feeding into this whole scenario of course is pensions. Now it fits into the superannuation arrangements of course and it also touches on the real estate issues and you are looking at reforms at the moment that will claw back on the rate of increase of the pension payments, age pension payments. Wouldn’t it be better and fairer I dare say to be looking right now at getting rid or tightening up the eligibility requirements for the age pension especially for wealthy Australians. Wealthy Australians should not be receiving the age pension.
MATHIAS CORMANN: Wealthy Australians shouldn’t be receiving the age pension. You are quite right. The age pension is a safety net and it is a means tested safety net. Right now we have the income test and the asset test, which are both part of a means test to ensure that the pension is appropriately well targeted. In the Budget last year, not only did we make an adjustment in the period beyond the next election incidentally to the rate of indexation, we actually also proposed to tighten the means test by freezing the pension eligibility thresholds for three years from 2017 onwards. So that is actually, you see what...interrupted
CHRIS KENNY: So Mathias Cormann the key issue here, the elephant in the room if you like, the one that neither side of politics will touch is the family home. We’ve had NATSEM research just recently showing that there is 260,000 families in this country that have net worth of over $3 million that are receiving $1.4 billion in Government payments. Now a large slice of that is aged pensioners. If pensioners are sitting in family homes that are worth, $2 million, $3 million, $4 million it is simply unfair for them isn’t it to be living from taxpayers, from the benefits of taxpayers? Effectively taxpayers are subsidising a tax-free inheritance for these people’s children.
MATHIAS CORMANN: The family home has got a particularly important value. We have been very clear that we are not planning in any way shape or form to include the family home into the means test for the pension. Having said that and if you listen carefully to what I said in response to your previous question, in the Budget last year we actually did have a measure which sought to tighten the means test in a sensible fashion. What we set out to do in the Budget last year was to make sure that the changes we made, the reforms that we pursued had a gradual impact, essentially made the transition, made the adjustment as easy and as straight forward for people as possible. On the indexation side, we essentially proposed to change the measure of indexation. Incidentally right now while the pension can be indexed by CPI or Male Total Average Weekly Earnings, it is actually being indexed by CPI because CPI is running higher than Male Total Average Weekly Earnings as an index. And secondly... interrupted
CHRIS KENNY: Yeah, that’s fine on the means testing and I agree you are looking at reforms there. Tough reforms that are going to save the Budget considerable sums, but in the end the key here is the family home. While you don’t touch that you’re never getting a fair representation of assets. Now both the Henry Tax commission review under Labor and your own audit commission suggested that you should count in assets in the family home whether it’s above $1 million or you can set it higher. When there’s an asset there over that amount, you could deem that there are earnings coming from those assets. I mean it’s the only fair way to stop people living in $2 million, $3 million, $4 million houses and still getting the aged pension.
MATHIAS CORMANN: But family homes don’t generate income. That’s the point. It’s not something that generates... interrupted
CHRIS KENNY: But they can. We know they can.
MATHIAS CORMANN: Yes, but there’s obviously... interrupted
CHRIS KENNY: We know that they can and people take the pension, rather than draw down on their family home’s value then taxpayers are just ensuring that the children inherit more from the family home, tax free, rather than people actually living off their savings.
MATHIAS CORMANN: There is a particular emotional connection that people have to their family home. As a Government we respect that. The point though here is that we are making adjustments, we have put forward in the Budget last year, adjustments that are designed to be as gradual as possible to make the transition to a more sustainable pension system into the future as easy as possible. By making a slight adjustment both to the rate of indexation and also by ever so gradually tightening the means test by freezing the eligibility thresholds, the thresholds under the income test and the asset test for three years from 2017 onwards, it does make a significant difference, but it does so in a very gradual way that eases the transition into that particular, more sustainable pension arrangement.
CHRIS KENNY: Okay just leaving Budget matters alone for a while. Obviously you’ve got plenty of work to do in the lead up to this second Budget. But as a Western Australian Senator I just wanted to test you out on the Barnett Government’s controversial moves to shut down 100 or more very small, remote indigenous communities. Obviously this is what has triggered the big controversy last week with the Prime Minister Tony Abbott’s comments. Can you tell me whether the Barnett Government in Western Australia is actually driven in this exercise by saving money, is saving money from the Budget the most important priority, or is this a reform that is actually directed at delivering better outcomes, better services for indigenous Australians.
MATHIAS CORMANN: I would say both. Firstly, you are quite right, it is a matter for the State government. The provision of municipal and essential services into indigenous communities is very much a matter for State and Territory governments. But I support the decisions the Barnett Government has made. Ultimately, what should our objective be? Our objective should be that indigenous children receive an education, that indigenous people have the opportunity to work, that indigenous communities are safe and secure. There is a limit to how much the taxpayer is able to invest in making sure that is the case in really remote communities. So the State government in Western Australia has made certain decisions in that context and we support what they are doing.
CHRIS KENNY: Alright thanks again for your time. Finance Minister, Mathias Cormann.
MATHIAS CORMANN: Always good to talk to you.