ABC 936 – Mornings with Leon Compton

Senator the Hon Mathias Cormann
Minister for Finance






Intergenerational Report, Budget, Dole, Higher Education Reforms, Pensions

LEON COMPTON: Good to have your company this morning right around the State. You’ve seen the Intergenerational Report ads on television or radio. You know the ones with Dr. Karl? 

DR. KARL Kruszelnicki (EXTRACT): The Romans knew that you couldn’t have civilisation without plumbing. A thriving economy needs infrastructure and that is where the latest Intergenerational Report is leading us. 

LEON COMPTON: We need infrastructure, we’ve got not more resources boom, we have got to create new jobs. It is a big conversation. The Government is out talking about it this morning. Mathias Cormann is the Finance Minister. Minister good morning to you.  

MATHIAS CORMANN: Good morning Leon. Good morning to your listeners. 

LEON COMPTON: Can we talk about your approach to young people in the Budget strategy at the moment? You want to cut funding to universities by 20 per cent, you want to cut any dole for the under 30s. Why does it seem that you are treating young people as the Budget problem in Australia rather than the people that need to be protected from Budget problems into the future? 

MATHIAS CORMANN: Actually what we want is to make sure that young people across Australia can have access to the best possible university education in the world. We want to ensure that the universities across Australia are globally competitive, are in the top universities in the world so that young people across Australia can have the best possible preparation for a fantastic career into the future. In relation to the dole, we want young people to move from school either into employment or into further learning. 

LEON COMPTON: Everybody wants that. That’s what they for the most part want for themselves. What about saying to them, there is literally no dole available if you don’t have a job and you’re not in school? 

MATHIAS CORMANN: There are safeguards in relation to that particular proposal to ensure that it doesn’t inappropriately impact on people. As a matter of principle though, young people should either go from school into employment or from school into some further learning. Everybody would agree with that as you say. What we are focused on is on implementing a plan that will create a stronger, more prosperous economy where there are more jobs, where everyone has the best possible opportunity to get ahead. Given some of the structural challenges that we are facing with an ageing population, with a reliance on exports and also with the fiscal challenges we are facing given that we are spending $100 million more than we are raising in revenue every single day, we have to develop ways to put Australia on a stronger foundation for the future for young people and for future generations.

LEON COMPTON: And part of that is cutting funding to Australian universities by 20 per cent? 

MATHIAS CORMANN: Part of that is putting funding for Australian universities on a more sustainable foundation for the future. Let me just say here that virtually all Vice Chancellors across Australia, of universities across Australia, agree with our reforms. Not only Vice Chancellors agree with our reforms, significant senior Labor figures support our reforms, John Dawkins, the former Labor Education Minister here in Canberra, Peter Beattie today described our reforms as a no-brainer. So anybody who is actually focused on the content of the policy proposals we have put forward is very supportive of what we are trying to do. 

LEON COMPTON: So in terms of the next generation, investing in universities is in a way investing in intellectual infrastructure for generations to come. And yet, we heard Dr. Karl say it is important but you’re cutting funding to universities by 20 per cent under this proposal? 

MATHIAS CORMANN: Firstly, I totally agree that investing in universities is about investing in our future, absolutely. But the point though is that we need to ensure that our universities, in a systemic way, have got the option to be among the best universities in the world and that means to put them onto a foundation where they can innovate, where they can differentiate, where they can specialise, where they don’t just have to rely on taxpayer support but where they are able to compete with each other for students based on what they can genuinely be the best at in the world. 

LEON COMPTON: And that’s an argument, a discussion that we can have here on Mornings this morning. What do you make of Christopher Pyne taking scientists effectively hostage in this discussion? Pass these reforms or our science research community gets it? 

MATHIAS CORMANN: He is not talking scientists for hostage at all. What has happened here is that the Labor party scrapped funding for this particular research infrastructure. It is the Labor party that has stopped the funding for the National Collaborative Research Infrastructure Strategy. What Christopher Pyne has done, he has identified how that particular very important piece of research infrastructure can continue to be funded. He has identified savings and the savings are part of the higher education reform package, in order to ensure that we can continue to fund the National Collaborative Research Infrastructure Strategy into the future, which Labor defunded, which Labor defunded. That is one of the many reasons why we need to pass these very important higher education reforms. 

LEON COMPTON: And now the Senate is saying unless you take that off the table, this is the Senate crossbench and the Labor, unless you take off the table, they won’t negotiate with you on this higher education reform at all. 

MATHIAS CORMANN: We are at the beginning of this week. Let’s see how the week plays out. I think there is still a lot of water to go under the bridge. We have got very important reforms on the table. They are important reforms for our universities, for students and for Australia moving forward and Christopher Pyne has identified a way to ensure ongoing funding for the National Collaborative Research Infrastructure Strategy which Labor had defunded. 

LEON COMPTON: Can we talk about pensions and where you’re thinking is up to at the moment Minister? A lot of my listeners this morning listening to this conversation will be concerned about the move to link pension increases to inflation rather than wages. What’s your thinking on that structure at the moment? 

MATHIAS CORMANN: Right now, the system right now is that pensions will increase either by CPI or by male total average weekly earnings. That is the possibility, but right now they actually do increase by CPI because CPI is running higher than male total average weekly earnings as an indicator. The truth is what we are keen to do is to ensure that the pension remains sustainable, remains available forever. In order to ensure that we can do that we need to put it on a sustainable foundation for the future. The most gradual, the most seamless way of doing it is by making a slight adjustment to the indexation trajectory for a period until such time as our Budget is back in a more sustainable position.

LEON COMPTON: What do you make of the argument that rather than cut the pension effectively.

MATHIAS CORMANN: We’re not cutting the pension.

LEON COMPTON: Well reduce the pension to everyone across the board.

MATHIAS CORMANN: No, we are not reducing the pension.

LEON COMPTON: Well it would effectively reduce the amount that was paid in real terms over time, that is what you just said.

MATHIAS CORMANN: No, no, no. Let me just correct that. The pension will continue to increase.

LEON COMPTON: It will continue to increase but at a reduced rate and fall behind the average increase in wages.

MATHIAS CORMANN: You are making an assumption. What I have just said to you is that right now CPI is actually running above indexation as a function of male total average weekly earnings. That is what is happening right now. Moving forward, assuming that that is going to reverse itself into the future, the question is what is the best way to ensure that we put the funding of pensions on a sustainable foundation for the future, given that we have an ageing population, given that the traditional working age taxpaying population continues to decline as a proportion of the Australian population 65 years and over. How do we best ensure that funding, that taxpayer funding for pensions continues to be affordable forever? What we are proposing to do from 2017 onwards. incidentally from the period beyond the next election so that people can pass judgement on this, is that the best thing we can do is to make an ever so slight adjustment to the forward indexation trajectory because that is the easiest transition to a more sustainable trajectory into the future.

LEON COMPTON: And the challenge of perhaps reducing the number of people to whom the pension is eligible, pension eligibility, how are you thinking about that at the moment?

MATHIAS CORMANN: There is a measure in the Budget last year which also seeks to do that in the most seamless, most gradual way possible and that is by freezing the eligibility thresholds for access to the pension. The pension is a safety net. It is a means tested safety net. There is an asset test and an income test that applies and in the Budget last year we had a measure, which would freeze the relevant eligibility thresholds for three years from 2017 onwards, which is effectively a tightening of the means test. But again what we set out to do is to do that in a way that was essentially as gradual as possible to ease the transition for people into the future.

LEON COMPTON: Do you think we should be having a conversation around changing the asset test so that it asks people to draw down on the value of their assets before they are eligible for the pension?

MATHIAS CORMANN: We can have all sorts of conversations, but what the Government has decided to do is to ensure that the transition that we believe needs to be made in order to ensure the pension is sustainable into future is as gradual as possible, so that people can actually ease themselves through the transition in the best possible way. Now that is the judgement that we have made and that is the judgement that is reflected in the Budget papers. You have got to remember that right now we are paying about $40 billion of our budget on our pensions, or about 10 per cent. That is expected to increase to $70 billion within the decade. There is the pressure of an ageing population. There is the pressure from the fact that the working taxpayer population continues to decline as a proportion of the pension population, for want of a better word. We need to ensure that we find a way to keep the very important safety net which is the age pension affordable and sustainable over the long term.

LEON COMPTON: It is interesting to think about, if you live in an $800,000 house, why not say to people what about you draw down on the value of that home until you have say $200,000 in equity left. That would keep you going for 10 or 15 years before you needed to ask for a pension from the federal government. It seems that we are just not capable of having that conversation.

MATHIAS CORMANN: You can have that conversation if you like…interrupted 

LEON COMPTON: We have been having it.

MATHIAS CORMANN: Exactly. Well what I think and what the Government thinks is that we respect the fact that people have a particular connection to their family home, that there is a particularly strong bond to the family home and we respect that. So the judgement that we have made is that we actually can put the pension on a sustainable foundation for the future, we can secure the pension for the future, by making a very slight, gradual adjustment, one to the indexation rate over a period until the Budget is in a stronger position and secondly by tightening the means test effectively through freezing eligibility thresholds in relation to the existing means testing arrangements, the income test and the asset test. We think that is the best way of putting the pension arrangements on a sustainable foundation for the future. Now other people will have other ideas. If the Labor Party thinks it is a good idea to put the family home into the mix or if the Labor Party think they should reduce the asset test or the income test then they should say so. We have put our plan on the table. We think that it is the best, most gradual way to ease people through that transition that we believe is necessary. If there are other ways, other people can promote other ways.

LEON COMPTON: I know you have to go but a quick question on this Asian Investment Bank the Chinese are proposing at the moment. Would you give Australia’s involvement in this Bank the thumbs up?

MATHIAS CORMANN: We always said that we were keen to be part of it subject to it being approached in the right way. We are obviously part of this region. It is an important initiative. There are certain corporate governance arrangements that are important to us for us to be able to be party to it. The conversations are ongoing and these are really matters for the Treasurer and the Foreign Minister and others to continue to pursue.

LEON COMPTON: Good to talk to you this morning.

MATHIAS CORMANN: Always good to talk to you.


Senator the Hon Mathias Cormann, Minister for Finance, Perth