Senator the Hon Mathias Cormann
Minister for Finance
JANINE PERRETT: Budget, Budget, Budget, where are we at? I am confused but here to help guide you through the pre-Budget hype and other matters, the good Senator from Western Australia, Federal Finance Minister Senator Mathias Cormann in our Parliament House studio in Canberra. Welcome back to the show, Senator.
MATHIAS CORMANN: Good to be back.
JANINE PERRETT: Now the Budget, are you feeling the pressure? It is crucial to the Government, crucial to the PM’s future, crucial apparently to the entire future of the country. How’s it feeling?
MATHIAS CORMANN: What is crucial is that we continue to implement our plan for a stronger, more prosperous economy and to ensure that the important benefits and services for families provided by Government are sustainable and affordable within the economy over the medium to long term and indeed forever. So that work is ongoing. Our second Budget is going to be important but it will build on the progress that has been made all the way since September 7, 2013 and through all the Budget updates and our first Budget in May last year.
JANINE PERRETT: Okay, let’s just get to that first Budget. Very simple question, even up until last week when the Senate knocked back the higher ed proposals, that put another hole in the Budget, how do you work on numbers when up until the very moment you’re doing it, you’re still not sure on the numbers from last year?
MATHIAS CORMANN: We are sure of the numbers. Out of about 400 measures in the Budget last year, three quarters of them have been passed. Until recently, we were still dealing with measures from Labor’s last Budget, which hadn’t been implemented. You have got to remember, a Budget is always a four year plan. The higher education reforms are not due to come into effect according to our Budget delivered last year until January 2016. There is absolutely no hole in the Budget as a result of what has happened so far. There is an ongoing conversation in relation to the implementation of what we would say is important structural reform. There is nothing new under the sun. That’s what always has happened for Governments that haven’t got the numbers in the Senate, which most Governments don’t have. There is obviously a democratic process to be worked through and we are working our way through that process.
JANINE PERRETT: Calm and cool as ever. So I suppose the continued drop in the iron ore price, $54 dollars, now talk of $40. That’s not worrying you and putting a hole in revenues?
MATHIAS CORMANN: That is a significant challenge, for sure. We have been facing additional global economic headwinds. We have been facing global economic challenges. Iron ore represents about 20 per cent of our export revenue and when we came into Government, the price was at about $110 a tonne, down from a high of about $180 a tonne. By the time of the Mid-Year Economic and Fiscal Outlook in December last year, we had downgraded that down to $60 a tonne, we are now looking at about $50 a tonne. So of course that has got an impact, slightly offset by the lower Australian dollar. But the important point here is Janine, that whoever is in Government, global commodity prices will be what they will be. There is not much that we as an Australian Government can do about global economic conditions and commodity prices in the world. However, what we can do is to make sure that we are in the strongest, most resilient position possible to deal with challenges coming our way and in the best possible position to take advantage of our opportunities. Whereas the previous Government ramped up expenditure to unsustainable levels in the face of falling revenue, we are actually working on getting expenditure growth under control.
JANINE PERRETT: Okay, there has been a lot of criticism in the past week that the narrative from the Government is too mixed. It is not clear what the priority is in the Budget. Last week we had Tony Abbott telling the party room according the leak, but saying that we could return to surplus in five years. Today Joe Hockey says it will happen when it happens, as soon as you possibly can. In the meantime we have had different arguments on what’s happening, how serious the situation is. Tony Abbott seemed to indicate that a debt to GDP ratio of 60 per cent was okay. Tell me now because you certainly have been one warning of the debt crisis. Do we have a debt crisis still?
MATHIAS CORMANN: There is so much in that question, so please give me the space to answer it properly.
JANINE PERRETT: Okay, sure.
MATHIAS CORMANN: Firstly, the Prime Minister, the Treasurer, myself, all of us, since before the last election have always been very careful not to lock ourselves into a specific timetable when it comes to a return to surplus. We have always said that we would get back to surplus as soon as possible and as soon as responsible. What the Prime Minister indicated last week though, is that on current indications, as reflected in the Mid-Year Economic and Fiscal Outlook released in December last year, it shows all other things being equal without further deterioration in global economic conditions, that we would return to balance in about five years. That is what the Budget papers indicate as updated at the Mid-Year Economic and Fiscal Outlook. Also, the Prime Minister never ever said that 60 per cent of Government net debt as a share of the economy was acceptable. The point the Prime Minister made, and that was drawing on the information in the Intergenerational Report, is that the previous government put us on a trajectory, a spending growth and debt growth trajectory, that would have seen Government net debt increase to about 122 per cent as a share of the economy over the next four decades. In contrast, the trajectory that our Budget put the country on would have seen us pay off Government net debt in full by 2031. That would get us into a positive net asset position by 2054-55. But that the progress that we have made so far on the basis of the measures in the Budget that have already been implemented, we have already been able to halve the debt trajectory we were on before down to about 60 per cent, down from the 122 per cent that Labor left behind. So the Prime Minister wasn’t saying that it was acceptable. The Prime Minister was indicating that we made significant progress, but yes of course, there is more work to be done, none of us shy away from that.
JANINE PERRETT: Okay well just given what you said earlier, about the need to continue to keep a tight rein on spending, you have had both the Prime Minister and the Treasurer say it is going to be a reasonable Budget. Joe Hockey again today indicated that there would be things for small business and for families, how can you do both? How can you move towards bringing us back to surplus, keep a tight rein on everything while still promising what appears to be tax cuts to small business or immunising families from any hurt? Surely everyone has to share pain and there is no room for throwing any election style goodies at any sector?
MATHIAS CORMANN: We are not going to be throwing election style goodies at any sector. What we are going to do is to continue down the path that we started in last year’s Budget, focusing on strengthening economic growth, creating the framework and the environment for more job creation and to create the opportunity for everyone to get ahead. When it comes to how do we keep going down the path of getting expenditure growth under control, by making sure that wherever there is spending on identified higher priority areas across Government, that they are offset by responsible and fair savings in relation to comparatively lower priority areas. To give you an example, earlier this year the Prime Minister indicated that on reflection, we will not be proceeding with the Paid Parental Leave Scheme that we took to the last election, given current fiscal constraints and given the current state of the Budget. But we would seek to redirect some of the funding that is freed up from that into reforms to ensure that we can provide more affordable access to childcare to help lift workforce participation, to help drive productivity improvements, to help drive stronger economic growth, which over time will help grow stronger revenue for Government. The key here is that wherever there is additional expenditure, it has got to be offset by savings in other areas and we are working very hard to ensure that the controls we have put in place on spending growth in last year’s Budget are preserved and protected into the future.
JANINE PERRETT: You still talk quite tough about what needs to be done, but the fact is that there has been a change in tone. In fact many people in the leadership have admitted the last Budget was too tough. You were a great defender of that Budget. Would you now say that it was too tough? Would you agree? Even though you defended it to the hilt all through last year?
MATHIAS CORMANN: Firstly I’ll leave the commentary to you in terms of how I’m describing the Budget that is coming up. You say I’m describing it as, I’m being tough about it. I don’t know what you mean by that. What I would say is that we are building in this second budget, which will be a consolidation Budget, on the progress we have made last year …interrupted
JANINE PERRETT: I guess what I am saying is that the others have all said that we were too ambitious, there has been a tacit acknowledgement it was a bit tough and you have had criticism from your own side, there was a leak that there was criticism in the party room, that the Budget was not sold well. Given that you were one of the chief sellers, do you take, do you drop back from anything you said last year?
MATHIAS CORMANN: Janine, I actually on your show have made the point myself, that with the benefit of hindsight perhaps we were a bit too ambitious in the amount of structural reform that we put into our first Budget. When you have got a new government, the first Budget of a new Government is always going to be where the most substantial change in direction will occur. We were very bold and very ambitious in our first Budget and with the benefit of hindsight we probably should have taken a bit more time to set the scene and create the context. I’ve said in a number of interviews now …interrupted
JANINE PERRETT: Is that an admission that perhaps people like you didn’t sell it well? Or do you think you sold it the best you could?
MATHIAS CORMANN: Of course we sold it the best we could. That doesn’t mean we can’t do better. When you have to make difficult, but we would say necessary decisions, there is a limit to how much the sales job in itself can make these decisions popular that are inherently difficult. We have got to be a bit realistic about this. I said at the time, it was always going to be a marathon not a sprint. We were always going to have to be patient in working our way through, explaining the challenges that we are facing as a nation and why what we are proposing to do is important to protect living standards and create better opportunities into the future. Now the point the Prime Minister has made ... interrupted
JANINE PERRETT: Now we have got to go to a break, but I want to ask one question if you could just do it quickly before we move on to other things. The BCA this week put you on notice that they don’t want you to back down on reform. Are you going to ease off on the reform pedal?
MATHIAS CORMANN: No, we are not backing down on reform. But what I was about to say is that the one thing that we have learnt very clearly over the last year is that sometimes going a bit more slowly actually helps you go more quickly. What I mean by that is that you have got to spend more time in getting the community on board with what it is we are trying to do and why and if we do more work to prepare the ground so to speak, we believe it will be easier to get things through the Senate, over time.
JANINE PERRETT: Okay, we are going to take a short break and then we are going to move on to some other areas if you just sick with us. We will see you in a minute.
JANINE PERRETT: Welcome back, I’m speaking with Federal Finance Minister Senator Mathias Cormann in Canberra. Senator Cormann, a lot was made yesterday of Julie Bishop’s rolling of the eyes about razor gangs and the like. You seemed to pour oil on troubled waters today saying that her foreign aid budget is safe. Are you having to do a lot of this with other Ministers, calm them down? Are you the great peacemaker now?
MATHIAS CORMANN: I was essentially just dealing with an erroneous story that was published in The Australian yesterday. Hidden in the middle of an article about the very good announcement by Julie Bishop was half a sentence suggesting that there will be further cuts to the foreign aid Budget in this year’s Budget. We made some significant effort in last year’s Budget and in the Mid-Year Economic and Fiscal Outlook when it came to putting our foreign aid funding on a more sustainable foundation for the future, reducing spending on foreign aid by more than $11 billion over the current forward estimates. I was essentially just stating the fact that, as far as the foreign aid budget is concerned, we did all of the work that we felt sensibly needed to be done in last year’s Budget and in the Mid-Year Economic and Fiscal Outlook.
JANINE PERRETT: Just while I’m on your peacemaker role, I noticed a couple of the Independents last week were criticising most of the Government members for not reaching out to them or being able to deal with them. You were singled out by David Leyonhjelm as someone who knew how to negotiate with them, who’s been successful. What’s the secret to your success and why aren’t the others your example, given our crucial the Senate is?
MATHIAS CORMANN: We all give it our best Janine. We all give it our best every single day. Some issues are a bit more complex than others so I wouldn’t want to pass any judgment in relation to that.
JANINE PERRETT: Okay we won’t pick up David Leyonhjelm said you talk to him, you do things. Okay, you’re modest, we’ll go there. Let’s go to a couple of other things, there’s been so much to-ing and fro-ing over superannuation changes. I know they’re all speculation. The latest one, today, is that there will be a push to get rid of lump sum payments. Do you have a view on that?
MATHIAS CORMANN: What we have said in the lead up to the last election is that we would not make any unexpected detrimental changes to superannuation in this first term of Government and that we would have a Tax White Paper review process in the context of which, any proposal to improve our tax system can be considered. People are proposing that, one way or another, that we should increase taxes on superannuation. Overall our view is that we should aim for lower, simpler, more efficient, fairer taxes. We’re prepared to consider proposals that are being put forward, consider them with an open mind and at the end of the process we’ll make a judgment on what can sensibly be progressed moving forward. We’ll take that as we said we would to the next election for people to pass judgment.
JANINE PERRETT: When can we expect to see that Tax White Paper?
MATHIAS CORMANN: Very soon, very soon Janine.
JANINE PERRETT: Okay, not giving anything away tonight. Another story around today, there was a big announcement a couple of weeks ago that you were going to clamp down on illegal foreign buying of Australian property. The head of the FIRB which monitors this, came out today and virtually threw his hands up and said we can’t do it, we need more resources and that such transgressions were inevitable. That would’ve been a bit disappointing from the head of the body that should police it, isn’t it?
MATHIAS CORMANN: I’m yet to come across a body in Government that doesn’t think it could do a better job if only they had more money. Our job is to ensure that we prioritise the allocation of limited resources from taxpayers in the best possible way, to ensure that the allocation of resources is as efficient and as effective as possible. When it comes to foreign investment, we expect relevant regulatory authorities to enforce compliance with the law. In relation to the matters that you’ve raised, the Treasurer has taken some action in recent times to ensure that happens and we’ll continue to progress that into the future.
JANINE PERRETT: I remember when the ASIC chief made some inflammatory comments. You were on the phone to him to find out what he meant and check out what was happening. Will you be making call to head of the FIRB to get more information on his apparent inevitable breaches comments?
MATHIAS CORMANN: ASIC was an agency in my portfolio at the time when I was the Acting Assistant Treasurer and I felt it was my duty to better understand what the head of ASIC had supposedly said in a public forum, to understand exactly what he was suggesting. In relation to the Foreign Investment Review Board, that is an agency in the Treasurer’s portfolio so I’m sure that the Treasurer, I know in fact that the Treasurer has got regular interactions with that agency and I’m sure that these matters will continue to be discussed.
JANINE PERRETT: Just finally on that, we spoke a lot last year about FOFA reforms, the CBA crisis, call for a royal commission. Since I last spoke to you we’ve seen more allegations now about NAB, even members on your own side are calling for a royal commission into this area. Where do you stand on the royal commission?
MATHIAS CORMANN: We made our decision in relation to that last year. We’re dealing with a range of legacy issues still from a period before recent regulatory reforms and reforms in the industry. There are some processes that need to be put in place and have been put in place, certainly by the CBA and I suspect will be put in place by others, to ensure that any legacy issues are dealt with effectively and efficiently. These are no longer areas in my area of responsibility. These are now matters for the hardworking Assistant Treasurer Josh Frydenberg. I’m sure that you will ... interrupted
JANINE PERRETT: Well you’ve got one now, you’re not doing both jobs.
MATHIAS CORMANN: Indeed.
JANINE PERRETT: Is it easier now that you’re just doing your own job?
MATHIAS CORMANN: I think it is better to have two people deal with some very important areas of public policy.
JANINE PERRETT: Good for you. Keep up the good fight and you’re seeming cool and calm, we’ll be talking to you around Budget time. Always a pleasure to speak to you.
MATHIAS CORMANN: Talk to you then.