Senator the Hon Mathias Cormann
Minister for Finance
JOHN MCGLUE: Gone is the Budget emergency, in its place, a political emergency. The need to put in place a Federal Budget that has broader appeal community spirit, distinctly different from what happened last year. And of course, given the Abbott Government some time to reset its credentials if you like with voters. Getting the Budget back to surplus, well that is going to take a little longer and it is also, even then, contingent on increases in tax revenues, there is going to be a lot of bracket creep out there, all of that. And in large part, the growth is going to be driven by a boom in small business activity, that’s the intention of the Government, expansion of existing small businesses and a surge of people getting into business from themselves for the first time. The Government has laid out tax incentives to do that. But I wonder, is that what it takes, is that all it takes to get people to back themselves, to have the confidence to either invest in business or get going in the first place. Here to explain why the Government believes this, Finance Minister Senator Mathias Cormann, welcome to the program, good to have you back on Drive.
MATHIAS CORMANN: Good evening John, good evening to your listeners.
JOHN MCGLUE: Now, two years ago we had this big Budget emergency with deficit far below where it is now. What happened to it, where did it go?
MATHIAS CORMANN: The deficit that Labor delivered was actually much worse when it eventually was revealed after the election. Just because Labor said before the election that they had an $18 billion deficit didn’t make it true. It ended up at $48 billion in 2013-14. What we have done since coming into Government is implement our plan for stronger growth, more jobs and to get the Budget back to surplus as soon as possible. I have got to correct something that you said in your introduction. It is not taking us longer to get back to surplus. If you look at the numbers in the Budget last night, the timetable for a return to surplus remains unchanged from last year’s Budget and that is despite the additional unexpected global economic challenges that we faced over the past year.
JOHN MCGLUE: But there is a very clear change of strategy here though. Closing the Budget gap, the deficit gap, you’re hoping to do that by driving revenue flows from tax rather than imposing big spending cuts which was sort of the tone of last year’s Budget. So the focus now on revenue, growth, rather than on tightening the belt and spending cuts. Why the change of approach?
MATHIAS CORMANN: The approach has always been focussed on both revenue growth on the back of stronger economic growth as well as constraining expenditure growth. When we came into Government, we inherited expenditure growth at about 3.6 per cent above inflation. In our first Budget we were able to bring that down to just one per cent above inflation. In this Budget it is at 1.5 per cent above inflation, principally because we’ve got the ramp up of the NDIS that is coming into the forward estimates. We’re still well below Labor’s spending growth and we’re still below what was their supposed two per cent target when it came to controlling spending. Importantly, if you look at the forward estimates, spending as a share of the economy comes down every year from 25.9 per cent this year to 25.3 per cent at the end of the forward estimates and we are on a credible pathway back to surplus with the size of the deficit both in dollar terms and as a share of the economy reducing every year. This year, in the 2015-16 financial year, the deficit is expected to come in at $35 billion which is well below market expectations as you would have appreciated and it is expected to come in just below $7 billion in 2018-19.
JOHN MCGLUE: But Mathias Cormann, you are forecasting this return to fiscal equilibrium based on growth forecasts that are pretty bullish. You’re looking to economic growth next year, the year after next of 3.25 per cent, which is pretty high and you’d know that coming from Western Australia. You hear all the anecdotal evidence about a slowdown and how tough some people are doing it, and your expectation is that there’s going to be a boom in small business activity. You hope that the tax flows coming back to Canberra are going to be driven by small business and sitting behind that, this small business package that you have announced and you just believe that people are going to, in the words of the Treasurer, give it a go. Why do you think people are going to do that? What is it about the confidence that will boost them, or force them or lead them to do so?
MATHIAS CORMANN: If your proposition is that our assumptions in our forecasts are overly optimistic I would reject that. Our assumptions are realistic assumptions. They're based on the best available information and advice. Economic growth has actually been strengthening over the past 12 months compared to the previous 12 months, in large part as a result of the policies that we have been implementing, getting rid of the carbon tax, getting rid of the mining tax, getting rid of business costs related to red tape, more than $2 billion a year in costs.
JOHN MCGLUE: My point here though Senator is that you’re predicating your return to surplus eventually and predicating this growth on the fact that people who are small business people will invest and that people who are not in business will have the confidence to get in there. Now what makes you think they’ll do that?
MATHIAS CORMANN: We certainly would like to see small business invest and have a go. We do believe they will. Our economic growth forecasts, our consensus growth forecasts they’re broadly consistent with what the Reserve Bank has said will happen. And if you look at what the economists, the various chief economists of the various banks have been saying today, they have all come out to say that they believe that the economic growth forecast that we have put forward are realistic. I will just give you one example; we have based our revenue assumptions on a forecast iron ore price of $48 US a tonne. Now you would know that we had to make that decision about 10 days ago, 1st of May actually. Since then the iron ore price has been trending up, it is currently up at $58 US a tonne. The truth is when we delivered last year’s Budget people said we were too pessimistic. When we delivered the Mid Year Economic and Fiscal Outlook, people said we were being too pessimistic when we downgraded revenue forecasts on the back of falls in the iron ore price and we were proven right. Now we believe that the economic growth forecasts that we have put into the Budget are realistic. Ultimately they’re based on the best available information. Things can always change and as more and better information becomes available, we make the relevant adjustments.
JOHN MCGLUE: 20 to four on Drive, the Finance Minister Mathias Cormann is my guest on Drive. We are talking about the Federal Budget handed down yesterday and the Minister telling you directly why he believes strongly why the growth forecasts that are included in the Budget are realistic. I am curious though Minister, what do you think gives people the confidence to get into small business or to expand their existing small business? Just tell me what is it that drives that confidence?
MATHIAS CORMANN: Small businesses want to see the opportunity to make a profit. That is ultimately what will drive people to make an investment. Right now across Australia we have got record low interest rates, we have lower petrol and electricity prices, we have low inflation and we have advice that there are a lot of cash reserves out there, that businesses have got cash reserves to invest, but they are waiting and looking for some encouragement and some incentive and what we have done in last night’s Budget, delivering a 1.5 per cent tax cut for small business and giving small business the opportunity to immediately write off up to $20,000 worth of investment in new assets or equipment that helps make their business more successful into the future. We believe that these are the sort of initiatives that will encourage small business to have a go, to get out there, to invest and grow and to employ more Australians.
JOHN MCGLUE: One of the things that have happened today, the economics aside, you have got a political bounce out of this, a political victory for you with the Budget. What chance now, Mathias Cormann that the Government will go back to the voters with an early election before the next Budget? Say in March next year? What chance of that?
MATHIAS CORMANN: Look, we have got a lot of work to do. Our intention is to go to the election in the second half of next year, which is when it is due in the ordinary course of events. We are not focused on politics, we are focused on making judgements in the national interest and we are focused on making judgements about how best to put Australia on a stronger foundation for the future.
JOHN MCGLUE: Good to talk with you today.
MATHIAS CORMANN: Always good to talk to you.