Senator the Hon Mathias Cormann
Minister for Finance
Date: Monday, 23 March 2015
DAVID SPEERS: Mathias Cormann, thank you for your time. Can I start by asking how you would characterise, how you would frame the Budget which is now seven weeks away?
MATHIAS CORMANN: It will be a continuation of our efforts to strengthen the economy, create more jobs, help families and ensure that our nation is safe and secure and to do so in a fiscally sustainable way. It will build on the progress that we made last year when it came to our strategy to strengthen economic growth and repair the Budget. As such it will be a continuation very much of the efforts that were started last year.
DAVID SPEERS: That doesn't sound like a dull Budget.
MATHIAS CORMANN: I'll leave others to provide the commentary in terms of how they want to describe it. As I have said I think on your show before, it might have been with Kieran actually, Finance Ministers think that all Budgets are exciting. Other people might have different views. But from where I sit it is essentially a matter of building on the progress that we made last year. Last year was the first Budget of a new Government. Obviously there is a lot of change in direction, there was a need to change the forward trajectory for Australia. We did that. A Budget is a four year plan. Three years of next year's Budget are already reflected in the Budget. So there will be one more year coming into the forward estimates.
DAVID SPEERS: The trajectory that you have been able to achieve, not the one that you've laid out, but the one that you've been able to achieve, is well spelled out in this Intergenerational Report and it shows that the trajectory is going to leave us heading towards a pretty significant level of debt, 50 to 60 per cent debt to GDP ratio in 40 years.
MATHIAS CORMANN: What the Intergenerational Report shows is that the trajectory that the previous Government left behind would have taken us to a government deficit of 12 per cent…interrupted
DAVID SPEERS: I'm asking about the…interrupted
MATHIAS CORMANN: It is very important though to put that into perspective. The trajectory the previous Government left behind would have taken us to a deficit of about 12 per cent as a share of the economy by 2054-55. We have been able to halve that. Obviously we would have liked to have achieved more. We would have liked to have been in a stronger position by now. If you look at the trajectory that reflects if all of the Budget had been implemented, we would be in surplus all the way through, all other things being equal, from 2019-20 onwards to 2054-55…interrupted
DAVID SPEERS: No wonder we're wrong though. Is that good enough? Is that glass half full as the PM called it?
MATHIAS CORMANN: It shows that we've made progress. It also shows that we're not yet where we would want to be. It shows that we need to continue to work to get the Budget back into surplus as soon as possible, that we need to continue to work to ensure that Australia can live within its means and that over time, we will be able to pay off the Government net debt that has been accumulated.
DAVID SPEERS: Because at the moment, that doesn't show that you'll be able to pay that off. Would you use the words Tony Abbott used, that it's pretty good compared to the rest of the world?
MATHIAS CORMANN: What it shows is that we have made progress. Taking a glass half full view of the world, obviously we are in a much stronger position than we would have been if we hadn't made some of the difficult though necessary decisions we made last year. But there is still further to go. We don't shy away from that. The Prime Minister doesn't shy away from that. The Treasurer doesn't shy away from that. I don't shy away from that. None of my colleagues shy away from that.
DAVID SPEERS: Do you need to find equivalent savings to those you have put forward last year?
MATHIAS CORMANN: We need to continue to pursue structural reforms. The one lesson that we have learned over the last year and I've had this conversation with you before, is that sometimes you can go faster by going a bit more slowly, particularly when it comes to structural reform. It is important for us to continue to adjust the trajectory so that over time we can be absolutely confident that the important benefits and services provided by Government are sustainable and affordable within the economy over the medium to long term and indeed forever.
DAVID SPEERS: So that's yes you do need to find equivalent savings but not straight away?
MATHIAS CORMANN: What it means is that over time we have got to ensure that we get ourselves as fast as possible onto a sustainable trajectory for the future and we will do that in a way that works in the context of what the Australian community can bear.
DAVID SPEERS: And yet spending is continuing to rise this year and as The Australian reports today, won't come down to the long term average until 2021.
MATHIAS CORMANN: I saw the story in The Australian today. The numbers that are at the basis of that story were reflected in the Mid-Year Economic and Fiscal Outlook, as the story sort of makes clear. We have said all the way through that there are a range of challenges that we are facing. One of them relates to falling Government revenue, whoever is the Government. What happened to our terms of trade, what happened to commodity prices, would have happened whoever was in Government. But we do need to ensure that we have spending growth under control over the current forward estimates. Spending growth is down to about one per cent on average per annum above inflation. That is down from around 3.6 per cent over the first five years of Labor's Government ... interrupted
DAVID SPEERS: But still growing.
MATHIAS CORMANN: Well it is still growing, that's right ... interrupted
DAVID SPEERS: What are the main drivers?
MATHIAS CORMANN: You have got population growth and you've got a whole range of demand driven programs. If you look at some of the reasons why expenditure was higher than expected at Budget time in the Mid-Year Economic and Fiscal Outlook, $3.2 billion related to family tax benefit payments, $2.4 billion related to childcare payments. Incidentally since the previous government changed the childcare rebate from 30 per cent to 50 per cent, there have been blowouts, expenditure above expectations of about $14 billion all up, $6.1 billion of which happened in the period since the last election. So it is ... interrupted
DAVID SPEERS: Are you going to bring it back?
MATHIAS CORMANN: It is an area where Scott Morrison is doing a lot of policy work at the moment to ensure that Government support for childcare, access to childcare, is as well targeted and as effective as possible when it comes to lifting workforce participation in particular.
DAVID SPEERS: Okay, but do we need to specifically rein in childcare spending?
MATHIAS CORMANN: We've got to make sure that all spending is sustainable over the medium to long term. When it comes to childcare spending, childcare funding, there are some announcements that will be made in the next few weeks, over the next month or so, which has already been flagged by the Prime Minister and by Scott Morrison.
DAVID SPEERS: But I'm just wondering big picture though, if these are the big spending growth areas, is this where you need to try to claw things back?
MATHIAS CORMANN: These are areas where between Budget and MYEFO there have been expenditures above expectations. That is what happens with demand driven programs. With demand driven
programs, as demand increases for a range of reasons, there is higher expenditure than anticipated even without policy decisions in relation to those matters.
DAVID SPEERS: What about foreign aid? I note the Foreign Minister, Julie Bishop seemed a little surprised at the reports today that that might be cut back further.
MATHIAS CORMANN: I've got to admit I had missed that line in the middle of Greg Sheridan's story. But when I saw those reports I made it my business to go and have a look at the Sheridan piece and I've got to say that it came as a surprise to me. So if it came as a surprise to Julie Bishop, it came as a surprise to me, I think that probably gives you as much as you need to know about that particular proposition.
DAVID SPEERS: So, you're not going to cut it further?
MATHIAS CORMANN: I think we have done as much as we can. We have made some significant effort in the first Budget and in the Mid-Year Economic and Fiscal Outlook last year. Julie Bishop has done an outstanding job to ensure that our foreign aid spend is as well targeted as possible, is better targeted and is as effective as possible in achieving outcomes.
DAVID SPEERS: One more question on the Budget, is the Prime Minister attending all the Expenditure Review Committee meetings, like he did in the lead up to last year's Budget?
MATHIAS CORMANN: The Prime Minister chairs the Expenditure Review Committee. So he's essentially there, pretty well there all the time, yes.
DAVID SPEERS: So last year they were pretty keen to let everyone know that it was his Budget as much as Joe Hockey's and yours. Is that the case this year as well?
MATHIAS CORMANN: It is the Government's Budget. The Prime Minister, the Treasurer, myself as Finance Minister, but also you have the Deputy Prime Minister on the Expenditure Review Committee, last year we had Peter Dutton as a portfolio Minister there, this year we have Scott Morrison and Josh Frydenberg. So there is a number of us on the Expenditure Review Committee. The Prime Minister by and large chairs those meetings. On occasions the Treasurer chairs them. It is just usual process.
DAVID SPEERS: And are you all heading in the same direction here? It's not the Prime Minister trying to softening things up for political reasons and you and Joe Hockey trying to maintain the fiscal purity?
MATHIAS CORMANN: We are all heading in the same direction. We all want to strengthen the economy, create better opportunity, create more jobs, help families and do so in an economically and fiscally sustainable fashion and obviously we want to ensure that we have got the space to make all of the necessary investments to ensure Australia is safe and secure.
DAVID SPEERS: Is Australia going to sign up to the China Development Bank, the Asia Infrastructure Investment Bank?
MATHIAS CORMANN: That is an issue that has been under consideration for a little while. No final decision has been made and when we are in a position to make a final decision, no doubt an announcement will follow soon after.
DAVID SPEERS: Cabinet is meeting today to consider this and you're heading off to the Boao Forum in China later this week, you're not going to go empty handed are you?
MATHIAS CORMANN: I can't possibly talk about what may or may not be discussed by Cabinet. I don't think that that takes you by surprise. I'm very much looking forward though to attending the Boao forum later this week. It is a great opportunity to engage with government and business leaders from across the region and indeed from across the world.
DAVID SPEERS: When earlier the Cabinet was concerned about national security implications of joining this, are they still there? Are you still worried this could be used by China as a foreign policy tool?
MATHIAS CORMANN: I'm not going to provide a running commentary on what might be considerations by Government in the next little while. No final decision has been made. When a final decision is made, no doubt there will be an announcement very soon thereafter.
DAVID SPEERS: Alright, Finance Minister Mathias Cormann thank you.
MATHIAS CORMANN: Always good to talk to you.