Senator the Hon Mathias Cormann
Minister for Finance
Date: Tuesday, 24 March 2015
PATRICIA KARVELAS: Not dull and frugal according to the PM but responsible and fair. That is how the Treasurer Joe Hockey has described his second Budget which he will hand down in just over seven weeks time. In today’s last Coalition joint party room meeting before the May Budget, Mr Hockey says that the Government is committed to returning to surplus as soon as possible. Joining me now is one of the Budget’s Finance Minister’s co-authors, Finance Minister Mathias Cormann. Welcome, Minister.
MATHIAS CORMANN: Good evening Patricia, good evening to your listeners.
PATRICIA KARVELAS: Now six days ago, the Prime Minister insisted the Federal Budget would be back in balance within five years. Today Treasurer Joe Hockey said as soon as possible. That’s not the five years the Prime Minister talked about. Why has it changed?
MATHIAS CORMANN: We have actually been making very clear that we would bring the Budget back to surplus as soon as possible for a very long time. That is what we said in the lead up to the last election, that is what we have been saying ever since. What the Prime Minister was pointing out is that on current indications, all other things being equal, that we are on track to bring the Budget into balance within five years. But that assumes that there are no further changes for example to global economic conditions. We have seen a significant deterioration in commodity prices for some time for some of our key commodities, iron ore for example from a high of $180 a tonne down to just $50 a tonne right now, which is even lower than what we had anticipated at the time of the Mid-Year Economic and Fiscal Outlook just before Christmas.
PATRICIA KARVELAS: So based on your current estimations, when will the Budget be in surplus?
MATHIAS CORMANN: Our commitment is to get into surplus as soon as possible. That remains our commitment, but ...interrupted
PATRICIA KARVELAS: So that could be five, 10, 15 years? Can you give me a timeframe?
MATHIAS CORMANN: The most recent update in the Mid-Year Economic and Fiscal Outlook indicates that we would bring the Budget back into balance within five years. But we have got to be mindful of global economic conditions. We have got to be mindful of things outside of our control which occur irrespective of who is in Government. What we are saying is that we are working very hard to ensure that we are getting the Budget back into surplus as quickly as possible, in a responsible fashion, bearing in mind that there are always external factors that can influence what can responsibly and sensibly be done.
PATRICIA KARVELAS: I am going to give you a couple of quotes from two pretty high profile people that are usually in your corner. John Roskam from the free market think tank, the Institute of Public Affairs has criticised the Government’s new fiscal approach. He has told Fairfax that what this does is that saps the initiative of reform and I fear that we are missing the opportunity to communicate to the public that difficult decisions and choices are going to have to be made. Is he right?
MATHIAS CORMANN:I disagree with that characterisation. In our first Budget we pursued a lot of structural reform and a lot of structural reform which will deliver benefits for the Australian economy and the Australian community over many years to come. But, when you pursue structural reform it is also important that you take people with you. One lesson from the experiences over the last year is that sometimes you can go more quickly and you can make more progress by going more slowly. That is making sure that people across Australia can clearly understand what it is that we’re trying to address, why we are pursuing particular reforms so that those reforms ultimately are more sustainable because they are widely supported and founded on a broad community consensus.
PATRICIA KARVELAS: Former Howard Government Minister Peter Reith has expressed fear the Government’s claims of a budget emergency before the election and subsequent fiscal response just do not add up. Is he right?
MATHIAS CORMANN: I disagree with him. In the lead up to the last election, we inherited a very challenging situation, we inherited a weakening economy, rising unemployment, a Budget position …interrupted
PATRICIA KARVELAS: With the benefit of hindsight Mathias Cormann, would you have not used the language ‘budget emergency’?
MATHIAS CORMANN: The language was absolutely right in pointing to the problem that we were facing. If you can let me finish my answer for a moment. We were facing not only a weakening economy and rising unemployment, we were facing a challenging starting position with our Budget but also a Budget that was rapidly deteriorating. At the time when our revenue was falling, the previous Government decided to lock in massive additional expenditure growth in the period beyond the published forward estimates. So the trajectory that we were on was bad for Australia. It was a trajectory that had to be addressed and in our first Budget we did address it. We’ve made significant progress since then. Not as much progress as we would have liked, but certainly we are now in a much stronger, more resilient position than if we hadn’t made some of the changes we’ve made over the last year. Now the key is to continue to build on that and our second Budget will build on the progress that we’ve made since our first Budget. The first Budget of a new Government is always part of a change in direction, putting the country on a better trajectory for the future. Our second Budget will be a consolidation Budget. The detail of all of that will be released on the second Tuesday in May.
PATRICIA KARVELAS: It will, I can’t wait. One of the criticisms though of the last Budget was that it failed the fairness test. Does this mean that some of the savings that you were looking at will come from higher income earners? The top end of town?
MATHIAS CORMANN: What is unfair is that the previous Labor Government put us on a trajectory where we were borrowing from our children and grandchildren in order to fund our day-to-day living expenses today, which will undermine their living standards in the future because they will not only have to pay back for our cost of living today but also their own challenges and their own expenditure. What we have said is that we have got to make sure that Government expenditure is sustainable and affordable within the economy. The challenge is this Patricia, in the Federal Budget, less than five per cent of the Federal Budget goes on public sector wages. So to people who say that we just cut the public sector harder, that is not going to fix the Budget. Then we have 10 per cent which goes into expenditure on the aged pension which is growing more rapidly than revenue and the economy. We are going to have fewer and fewer taxpayers for every person of the traditional pension age. There is a range of expenditures across government, most of the expenditure across the Federal Government goes to welfare services, it goes to medical benefits, pharmaceutical benefits, payments for the States on schools and hospitals and the like, so if we agree that it is not sustainable and it is not sensible for Federal Government spending to go to a share of the economy of 37 per cent because …interrupted
PATRICIA KARVELAS: But there is lots of money you could get from reforming the superannuation system. The tax breaks for higher income earners, so there are other places that you could look.
MATHIAS CORMANN: Here is the point. So the highest level of receipts that the Federal Government has ever generated, ever, in the history of the Commonwealth was 26.2 per cent as a share of the economy. The trajectory that the previous government put Australia on was taking us to spending as a share of the economy of 37 per cent. If we tried to chase that spending growth trajectory up to that level it would kill the economy, it would make us uncompetitive, it would create massive unemployment because it is just not conceivable that we could increase taxes to chase up Federal Government spending up to that level. So we have got to make sure that we get spending under control.
PATRICIA KARVELAS: On RN Drive, my guest is Finance Minister Mathias Cormann, our number is 0418 226 576 if you want to text us. Now the Opposition in Question Time has been continuing its attack on your pension plans. Currently pension increases are linked to either inflation or wage growth, whichever is higher, do you want to cancel the wages growth option and only link the payment to inflation still? Critics say that would leave pensioners worse off. Can you give an unequivocal guarantee that they won’t be worse off?
MATHIAS CORMANN: The Federal Government payments on pensions and the aged pension have been increasing faster than revenue and they have been increasing faster than the size of the economy. As I have mentioned to you earlier, the number of taxpayers across Australia, working Australians as a share of the number of Australians of traditional pension age will continue to decline. In the context of an ageing population and growing expenditure in relation to pensions, we actually have a smaller and smaller cohort of working Australians of the traditional working age paying taxes to fund all of this. So we have got to ensure that we make pensions sustainable and affordable over the medium to long term and indeed forever. There is an adjustment that needs to be made and if you need to make an adjustment, the best way to do that is in an incremental, gradual way, to ease the transition and an adjustment to the indexation arrangements does that. Right now CPI indexation is actually running above Male Total Average Weekly earnings.
PATRICIA KARVELAS: So you are sticking to the policy?
MATHIAS CORMANN: Our proposition is that to make the adjustment to ensure that pensions are affordable and sustainable forever as a safety net for people across Australia, that this is a sensible way to do so. But if Labor has a better idea, if there are better suggestions on how this can be achieved, we are all ears.
PATRICIA KARVELAS: You have been saying that Labor has been making the Budget position worse by blocking legislation but Opposition leader Bill Shorten says that that is not the case. Let’s take a listen:
BILL SHORTEN (EXTRACT): We have supported nearly $20 or about $20 billion worth of their cuts. But there are some proposals which they simply don’t deserve support on do they? Imagine if Labor had been the rubber stamp that some in the Liberals want us to be. We would have a GP tax now.
PATRICIA KARVELAS: How long can you blame Labor for your woes? Isn’t Bill Shorten right that they have supported $20 billion worth of the cuts?
MATHIAS CORMANN: Bill Shorten is wrong and he is even more reckless than Labor was under the leadership of Kevin Rudd and Julia Gillard. You have got to understand that right now Bill Shorten is opposing more than $5 billion worth of savings that Labor themselves initiated and banked in their last Budget, which they said were part of their costings in the lead up to the last election. Now that Labor is in Opposition, Bill Shorten has turned around and said yeah, no I can’t really persuade my caucus to support Budget measures from the 2013-14 Budget, which we the Labor party initiated and banked in that Budget. So you talk about how we are still dealing with measures, well not you, but the media often raises with us how we are still dealing with Budget measures from last year’s Budget, well we are still dealing with Budget measures from Labor’s last Budget, measures that Labor in Opposition are now opposing when it was them who themselves initiated it.
PATRICIA KARVELAS: Mathias Cormann, I know you have been very generous with your time but I have to ask you a very cheeky little question. Are you and Joe Hockey smoking cigars in the preparation of this Budget?
MATHIAS CORMANN: Well, we are not smoking cigars in public.
PATRICIA KARVELAS: Oh okay, I love it. Thanks so much for joining me on RN Drive.
MATHIAS CORMANN: Always good to talk to you.