Senator the Hon Mathias Cormann
Minister for Finance
PAUL MURRAY: Okay. It’s a Budget for elite men prepared for elite men. Not quite. The man who helped put it together is Mathias Cormann, Finance Minister here with Janine Perrett from Sky Business and the boss of all things Canberra at Sky News, the great David Speers. I’ve decided to wear a tie in honour of you dear man.
DAVID SPEERS: It’s the first time I’ve seen you in a tie for a very long time.
PAUL MURRAY: I haven’t been in a court room for a while either. Finance Minister, good evening to you.
MATHIAS CORMANN: Good to be here.
PAUL MURRAY: Alright, let’s get straight into the small business thing. How does it work? Are we right in saying that a business that makes less than $2 million and has an ABN, they qualify?
MATHIAS CORMANN: That’s right.
PAUL MURRAY: Alright, in practical terms, if I was running a lawn-mowing business, can I go off and buy a hedge trimmer, a lawn mower and each of those items are separate in the count to 20?
MATHIAS CORMANN: You can essentially purchase as much as you can afford, because ultimately the business has got to put up the money for several items up to $20,000 each from Budget night tonight until 30th June 2017. We have put this measure in place for just over two years from tonight until 30 June 2017 and really we want business to get out there and invest and we want business to go out there and grow and employ people.
PAUL MURRAY: Also, it seemed in the press conference in the Budget lockup that this is the one number that you don’t really care whether you get right or wrong, about how much it costs the Budget. Do you know how many businesses could access this from now?
MATHIAS CORMANN: 96 per cent of all businesses in Australia are small businesses with less than $2 million worth of turnover. So there are a lot of businesses out there that do qualify. What we’re doing here is we’re not spending money, we’re not doing what the previous Government did sending out cheques. What we’re saying to businesses is we want you to decide what makes sense by way of investment in your business so that you can grow your business, so that you can employ more people, so that you can help take Australia forward.
DAVID SPEERS: Why the two years? If it works really well, will you think about going further than that?
MATHIAS CORMANN: Let’s cross that bridge when we get there. In the meantime, we want to see how it works, whether it works. We want to encourage people to make decisions now and not to wait until two or three or four years down the track.
DAVID SPEERS: So it’s an incentive to really get started now, to get out there and spend?
MATHIAS CORMANN: We believe that this is a very efficient and effective way to strengthen growth at a time when we need to strengthen growth.
JANINE PERRETT: So this is a stimulus package really, to get confidence back, to get business spending. Because that’s been one of the problems, hasn’t it? That business just, especially big business, hasn’t put their hand in their pocket?
MATHIAS CORMANN: A lot of businesses out there do have a lot of cash reserves. We do believe that a lot of businesses have the capacity to invest in future growth. We need to continue to strengthen growth, in particular in the non-mining part of the economy and this is a very important part of making that happen.
DAVID SPEERS: You’re not going to use the word stimulus though, are you?
MATHIAS CORMANN: We are not spending. This is not a fiscal stimulus, in as much as we’re not spending taxpayer’s money. We are letting taxpayers have more of their own money. We’re saying to business, we want to let you have more of your own money to make your own decisions on where you can best invest to grow your business and make it the most successful it can be to employ more Australians.
PAUL MURRAY: How does it differ from a system where people already buy things for their business and claim part of it back on tax? Is it about the threshold of $20,000? How does it change again in those practical terms?
MATHIAS CORMANN: At the end of the day, people in businesses make decisions every day about what to invest in and what they need to do in order to take their business forward. What we’re saying from Budget night tonight until 30 June 2017, there is this particular incentive over that specific period of time. This is essentially to encourage businesses who perhaps haven’t been spending and investing as much as they could have to get underway.
DAVID SPEERS: The difference I suppose is that by computing it you can only write it down over a number of years, can’t you? Whereas this you’d write it down instantly. Or a lawn-mower for example it would be over a longer period of time to write it down?
MATHIAS CORMANN: This is an instant asset write off up to $20,000, that’s right.
PAUL MURRAY: David Leyonhjelm sat here a couple of minutes ago, the Liberal Democrats Senator and he doesn’t think you’ve got hard enough. There are hardcore conservatives who would love you to go harder because we are in this scenario still where the country is spending more money than it is making. You tried last year and you were handed your backside, politically. Give us an example of where you have gone hard this year?
MATHIAS CORMANN: Our Budget is measured, it’s responsible and it’s fair. We did make a significant effort last year and with the benefit of hindsight, in last year’s Budget we probably did try to do too much at once. Nobody is any better off if we put forward really hard proposals that ultimately don’t get the support of the Parliament and don’t get the support of the community. What we’re doing here is, we had an economic plan going into Government after the last election, strengthening growth, creating more jobs, repairing the Budget. The economy is strengthening, more jobs are being created and the Budget is now heading in the right direction. We are getting the Budget under control, we are going back to a Budget surplus in this Budget in the same timetable as in last year’s Budget.
PAUL MURRAY: But what about the size of Government, because that is something that when you look at the numbers, I mean it is still a behemoth and it is still a behemoth that spends more than what it makes. You are very responsible in that area. How have you shrunk the size of Government this year?
MATHIAS CORMANN: This financial year, Federal Government spending as a share of the economy sits at 25.9 per cent. It will reduce down to 25.3 per cent over the forward estimates and the size of the public sector out of Canberra is now back down to the size it last was in 2006-2007. So we are making progress. We are now heading in the right direction. Yes, there is more work to be done. It would be nice to have been further down the track, but we are where we are. We had to adapt our plan to changing economic conditions, globally and also within Australia. We have made judgements about what is the right balance in terms of continuing to strengthen growth, continuing to create more jobs but also getting the Budget back into surplus in a responsible fashion.
DAVID SPEERS: Do you ever worry that some of the rhetoric does sound similar to what we heard from Labor. Things are getting worse globally, I am sure you never thought you would have six years at least of deficits, but that is what we are going to have.
MATHIAS CORMANN: Firstly, I don’t accept that our rhetoric sounds like Labor’s. What I would say to you is that when we came into Government the price for iron ore was at $120 a tonne. Now 21 per cent of our national export income comes from iron ore. When we downgraded the forecast, the assumptions on iron ore to $60 a tonne by MYEFO last year, everybody said we were being too pessimistic. Well guess what, in this Budget, we have had to downgrade it further to $48 a tonne. We have lost about $90 billion in tax revenue that we had expected when we came into Government. The truth is when Labor was starting to face the challenge of revenue below expectations, exactly at that point in time, they decided to ramp up expenditure by more, in particular in the period beyond the forward estimates. They permanently and structurally decided to ramp up expenditure by more, knowing that it was not funded. What we are trying to do, while we are faced with challenging economic conditions is to reduce spending to get spending growth under control and to actually bring down the size of Government.
JANINE PERRETT: Actually that is one of the criticisms that is being made by the economists, that you are too optimistic in your forward projections. You’ve seen us, David just pointed out and you agreed, things happen, we had the iron ore price that you somehow think in your projections, that this is the worst of it and all of it will be fine from now. Some would say that that is too optimistic in your forecast.
MATHIAS CORMANN: We don’t accept that at all. Firstly we have a growth Budget. Secondly right now we have record low interest rates, low petrol prices, low electricity prices, we do have businesses out there with a lot of cash reserves that they are able to invest. We are basing our revenue assumptions on an iron ore price of $48 a tonne. Right now, the iron ore price is $58 a tonne.
DAVID SPEERS: How did you come to the $48? I’m interested and how did you come up with it?
MATHIAS CORMANN: We had to make a judgement on 1 May as to what our forecast would be and we looked at the average over the previous four weeks and that was what we though a sensible way of going about it. Now since then, the truth is that the iron ore price has actually strengthened. So if anything, people might say there is actually upside risk there. The point is we have made judgements on what we genuinely believe are the most realistic assumptions. Sometimes people tell us we are being too pessimistic. Then they tell us we are being too optimistic. The truth is we are making the best possible judgements. There will be adjustments along the way, depending on what actually happens in the economy. In the end nobody actually knows. All of our predictions are always based on assumptions on what is likely to happen and we’ve relied on the best available information to make those judgements.
JANINE PERRETT: That is the problem. The market unfortunately, even though you have got a path back to surplus, you have got a lower than expected deficit this year, when they look forward four or five years, most of the market just says ‘meh’ we don’t believe the figures, not just yours but Labors too, because it has been so hard to hit those figures, hasn’t it.
MATHIAS CORMANN: If you look at our forecast at MYEFO and you look at our expenditure since MYEFO you will actually see that over the current forward estimates, we are spending $7.3 billion less. So our forecasts weren’t that bad. We have made additional efforts to get expenditure under control and we are continuing to build that effort over the current forward estimates.
PAUL MURRAY: Last question, not only are you the Finance Minister, obviously you are a Senator as well. What is the process with dealing with the crossbench because it seemed that last year there was an awful lot that was done through the media, which meant that the rhetoric was ramped up to a stalemate very quickly. How is it different this year? Do you go into meetings from tomorrow? Have you briefed them today? How do you state the case, not in front of the television?
MATHIAS CORMANN: Last year, the new Senate hadn’t actually started yet. When we had the Budget last year the Labor party and the Greens had still complete control over the Senate. People seemed to forget that. The new Senate only came into place on 1 July. Personally I have had lots of conversations with crossbench Senators. For example, on the mining tax repeal which Janine and I have talked about on many occasions, I was able to negotiate with the relevant and required number of Senate crossbenchers to get rid of Labors failed mining tax, which delivered $50 billion worth of improvements to our bottom line over the decade. We are talking to the crossbench and it depends on what comes out at particular point in time. You can’t talk to them about everything at once, because essentially, all of us, there is only so much you can talk about on one particular day. We are doing it sequentially in an orderly and methodical fashion. But this year the new Senate is in place, last year the new Senate wasn’t.
PAUL MURRAY: Alright Finance Minister Mathias Cormann. Thank you very much.
DAVID SPEERS: Thank you Minister
MATHIAS CORMANN: Always good to talk to you.