Senator the Hon Mathias Cormann
Minister for Finance
SABRA LANE: I am joined now from our Perth studio by the Finance Minister Mathias Cormann. Minister thank you very much for talking to 7:30.
MATHIAS CORMANN: Good to be here.
SABRA LANE: As we just heard in Hayden Cooper’s report, the Government can’t control the iron ore price, but certainly, that plunge is punching billions of dollars out of your Budget. How is the Government going to make up for that revenue shortfall?
MATHIAS CORMANN: That point is exactly right. Whoever is in Government, what has happened to the iron ore price, what is happening to the iron ore price would have happened in any event. What we do need to make sure is that we get our spending under control in that context. And the first point I would make is that when the previous Government was confronted with falling revenue or lower revenue than expected as a result of falling iron ore prices, at that point, exactly at that point, they decided to ramp up expenditure permanently by significant amounts over the forward years...interrupted
SABRA LANE: But they are not the Government now and you are so it is your problem now.
MATHIAS CORMANN: Which is why we are working to get spending on a more sustainable foundation for the future.
SABRA LANE: The markets are expecting the Reserve Bank board tomorrow to cut interest rates further. How worried are you that another cut will simply overstimulate particularly the housing market in Sydney at the expense of the rest of the country?
MATHIAS CORMANN: The judgment tomorrow in relation to the official cash rate is entirely a judgment for the Reserve Bank to make independently. We of course have every confidence that as the Reserve Bank always does, and as they must do, they will take all of the relevant factors into account and then make a judgment independently on the best way forward.
SABRA LANE: It is independent, it guards that fiercely, but you as Minister; what do you think? Is there some worry there that Sydney, that there might be a bubble prompted in Sydney at the expense of the rest of the country which is not experiencing the kind of investor led buying that we have been seeing in the market here?
MATHIAS CORMANN: I am not going to be providing a running commentary. The Reserve Bank will make its judgment tomorrow independently. I am very confident that the Reserve Bank has got all of the relevant information in front of it as it is making these decisions.
SABRA LANE: You’re not worried about a bubble?
MATHIAS CORMANN: Well again, the Reserve Bank will make its judgment in the right way as they always do, independently, and they will take these factors into account. The circumstance in Sydney is not a universal circumstance across the whole of the country incidentally.
SABRA LANE: Yes and that is the point I’ve been making. The Reserve Bank might be cutting rates, it might be doing good things for the rest of the country but it simply might prompt a bigger bubble in Sydney?
MATHIAS CORMANN: I am not going to pass a judgment on a decision that the Reserve Bank is yet to make. That is a matter entirely for the Reserve Bank to decide tomorrow.
SABRA LANE: A further cut in interest rates might be viewed negatively by some in the community like business and consumer groups. They might take a further hit in confidence there. Does that worry you too, that people may not respond to it in the way that the bank might hope for?
MATHIAS CORMANN: I am not going to pre-emptively comment on a decision that the Reserve Bank is yet to make. But what I would say is that the Reserve Bank five or six weeks ago, in front of a parliamentary committee has pointed out that business confidence has been increasing since late 2013. Obviously we are facing some global economic headwinds. We are facing some challenges. Iron ore represents about 20 per cent of our export income. When you have the iron ore price go from a high of $180 a tonne to below $50 a tonne right now, then clearly that has got implications for our economy and that is something that we have to work through.
SABRA LANE: Okay, let’s talk about things that you can have control over. Can you cut Government spending further in five weeks time in the Budget and leave the economy, well leave the country unharmed?
MATHIAS CORMANN: We are focusing on repairing the Budget in a way that is economically responsible of course. Our focus is on pursuing policies to strengthen economic growth, to create more jobs and a part of that is to ensure that our spending is on a sustainable and affordable trajectory for the future. Over the current forward estimates, expenditure growth has been reduced down to about one per cent on average per annum above inflation. We of course have already significantly reduced the deficit that we were headed for under the previous Government. There is more work to be done and we will keep focusing on getting the Budget back to surplus as soon as possible in a way that is economically responsible.
SABRA LANE: The Government is promising a families package and something for small business. Can policies for those particular groups pump up the tyres of the Australian economy?
MATHIAS CORMANN: We are working through all of that at the moment. You would recall that earlier in the year the Prime Minister announced that we would not be proceeding with the Paid Parental Leave scheme that we took to the last election and instead we would be targeting the funding that is freed up from that decision towards more access for more affordable child care, to help lift work force participation, to help lift productivity, to help boost economic growth.
SABRA LANE: So they’re the things that you’re hoping will stimulate the economy?
MATHIAS CORMANN: There is a range of things that we have done in order to stimulate economic growth. Firstly we got rid of those taxes which were making us less competitive internationally like the carbon tax and the mining tax. We reduced red tape costs for business...interrupted
SABRA LANE: Hang on, for a tick, please. The GDP rate is 2.5 per cent that is below trend. Unemployment is 6.3 per cent; it is not making much of a movement downwards, so something is clearly not working here?
MATHIAS CORMANN: The economy in 2014 grew at 2.5 per cent, up from 1.9 per cent the year before and jobs growth was running at triple the rate from the year before in 2014. But yes, there is no doubt, we are facing global economic headwinds. When you have commodity prices like for iron ore and coal and gas decline to the extent that they have, that is always going to have an impact. What we are working on is to ensure that we make the economy as a whole as competitive as possible to bring down the cost of doing business, which is why we got rid of some of these taxes which were undermining our international competitiveness, which is why we are reducing red tape costs for business so far by about $2 billion a year. Which is why we are opening up new opportunities in significant markets like China, Japan, Korea, with the finalisation of significant Free Trade Agreements which will continue to come on stream over the coming months and continue to deliver enhanced opportunities across the whole of the economy.
SABRA LANE: Minister, there are calls for an independent review of retirement income in this country looking at pensions and superannuation. Do you favour a review?
MATHIAS CORMANN: We’ve got right now a review of our tax system that is very significant and which will look at how we can ensure that our tax system is as competitive as possible and deliver lower, simpler, fairer taxes. When it comes to retirement incomes we do have to ensure that on the expenditure and on the tax side, the system is sustainable for the long term and indeed forever. That is always going to be a focus for the Government, through the Tax White Paper review and through whatever other policy processes we will be embarking on over coming months.
SABRA LANE: So you’re not particularly enamoured to having a separate independent review on this in particular?
MATHIAS CORMANN: We haven’t announced a review. Let’s just see what decisions the Government will announce in the coming months.
SABRA LANE: The Government is doing the sums on a proposal that was put last week by the Australian Council of Social Services to tighten the assets test for the pension. What do you think about substituting that policy for what the Government had planned last Budget, the idea to change the way that pensions were indexed?
MATHIAS CORMANN: Our focus is on making sure that the pension as a safety net is affordable and sustainable over the medium to long term and indeed forever. We put a proposal on the table in the Budget last year and as Minister Morrison has said very clearly, that proposal remains on the table until such time as it can be replaced by a better proposal. We are currently...interrupted
SABRA LANE: Is it a better proposal?
MATHIAS CORMANN: I am not going provide a running commentary. We haven’t made a decision to go with any other proposal. The proposal that is on the table is the proposal that was in the Budget last year. But suffice to say, Scott Morrison is having conversations with stakeholders and we are always prepared to have conversations with well meaning and well intentioned members represented across the parliament to see whether there are better ways of ensuring that we can make sure that the pension is sustainable over the medium to long term.
SABRA LANE: Minister Mathias Cormann, thank you very much for talking to 7:30 tonight.
MATHIAS CORMANN: Always good to talk to you.