Senator the Hon Mathias Cormann
Minister for Finance
Date: Wednesday, 13 May 2015
MATTHEW ABRAHAM: Mathias Cormann is Federal Finance Minister and joins us now. Welcome to the program Minister.
MATHIAS CORMANN: Good morning.
MATTHEW ABRAHAM: Minister are we in the middle of the Global Financial Crisis you have when you’re not having a Global Financial Crisis?
MATHIAS CORMANN: I am not sure what you are asking me here. We came into Government in September 2013 facing a weakening economy, rising unemployment and a Budget position that was rapidly deteriorating on the back of unsustainable spending growth. So we have been working very hard to turn that situation around. We came in with a long term plan to strengthen growth, create more jobs and to get the Budget back to surplus as soon as possible and... interrupted
MATTHEW ABRAHAM: And you’re still spending as we had to in the Global Financial Crisis, correct?
MATHIAS CORMANN: Not right at all. The economy now is strengthening, jobs are growing, jobs growth is strengthening and the Budget is now heading in the right direction. What we did last night of course was take the next step in implementing our agenda for stronger growth and more jobs.
MATTHEW ABRAHAM: Spending is about a quarter of the GDP or 26.2 per cent?
MATHIAS CORMANN: No, spending as a share of the economy, Federal Government spending as a share of the economy this year is at 25.9 per cent and it is reducing over the forward estimates down to 25.3 per cent. And if you...interrupted
MATTHEW ABRAHAM: Spending on general Government services?
MATHIAS CORMANN: Federal Government spending this year is at 25.9 per cent and it is heading down to 25.3 per cent over the forward estimates. And importantly, if you look at what was projected at the time of MYEFO just before Christmas, since then and over the 14-15 forward estimates, we have reduced spending by a further $7.3 billion. Spending growth has been contained in this Budget. We inherited spending growth of about 3.6 per cent above inflation from the previous Government. We have been able to contain that at 1.5 per cent above inflation despite the NDIS ramping up over the current forward estimates which significantly adds to outlays.
MATTHEW ABRAHAM: Listening to ABC commentary last night, Alan Kohler wasn’t convinced that the NDIS is paid for.
MATHIAS CORMANN: The NDIS was unfunded by the previous Government, that is true and expenditure on the NDIS is projected to increase by 67 per cent above inflation over the forward estimates, which is what is causing a 3.1 per cent increase in spending in the final year of the forward estimates. So much of the effort that we have made in other parts of the Budget does help us make space...interrupted
MATTHEW ABRAHAM: Okay.
MATHIAS CORMANN: But there is still more work to be done.
MATTHEW ABRAHAM: So are you confident that the NDIS, that is the National Disability Insurance Scheme, will be fully funded?
MATHIAS CORMANN: That is what we are working on. We are working to put our spending on a sustainable trajectory for the future, that includes making sure that the NDIS is affordable over the medium to long term.
MATTHEW ABRAHAM: Yeah, but are you confident?
MATHIAS CORMANN: We are confident.
MATTHEW ABRAHAM: And net debt? It is almost 18 per cent of GDP, correct or not?
MATHIAS CORMANN: Net debt is peaking at 18 per cent... interrupted
MATTHEW ABRAHAM: And is that a record?
MATHIAS CORMANN: Net debt is peaking at 18 per cent as a share of GDP in 2016-17 and then is reducing back down to seven per cent as a share of GDP by 2025-26 or... interrupted
MATTHEW ABRAHAM: Well that is a long way away. But based on some fairly heroic projections in terms of cash balance, underlying cash balances?
MATHIAS CORMANN: We don’t accept that at all. The strange thing is, one time people tell us that we are being too pessimistic, then they tell us we are being too optimistic. We are being realistic. We are making, we are using realistic assumptions when it comes to things like economic growth, commodity prices and the like. The iron ore price that is underpinning our revenue forecasts is $48 US a tonne, right now it is actually tracking at $58 US a tonne, so if anything, there is upside risk there. We are making judgments based on the best available information from Treasury about what our forecasts should be and that is how we proceed.
MATTHEW ABRAHAM: Well in a moment we want to ask you, how does this $20,000 for small businesses work. Let’s just hear quickly from Spence Denny, our roving report, because he went to an office supplies store and started by asking a small business operator, Andrew what he made of last night’s Budget.
ANDREW [EXTRACT]: We actually have a really good feeling about watching the Budget and it gave us a bit of hope actually for the future because we are trying to build a business, we are trying to actually manufacture, we want to employ people, so it all is well for us.
SPENCE DENNY [EXTRACT]: Did it take you by surprise at all?
ANDREW [EXTRACT]: Yes, totally. It really did. As I said before, we don’t really watch the Budget, but we were glued to it last night. Going, how good is this for us, because we are just in the right space at the right time, going to take advantage of all those measures.
SPENCE DENNY [EXTRACT]: Well it is not a comprehensive purchase, you’ve bought something, a laminator, it’s a start. Can I ask you, any idea how you might go about taking advantage of this $20,000 opportunity? Is that too big a question with only a few hours since the announcement?
MEMBER OF THE PUBLIC [EXTRACT]: We have so much on our plate; I don’t know where to start. It will defiantly come in handy.
SPENCE DENNY [EXTRACT]: Is there anything that immediately springs to mind for you?
ANDREW [EXTRACT]: Not so much cars but certainly plant and equipment we will be looking at because as I said, we manufacture our own product so anything we can buy that we can write off, that will give us incentive to do it.
SPENCE DENNY [EXTRACT]: Enjoy your laminator.
ANDREW [EXTRACT]: Thank you very much. Enjoy your day.
MATTHEW ABRAHAM: Minster, Mathias Cormann, we have got little detail about this. Can you explain how the $20,000 will work?
MATHIAS CORMANN: What it means is that any business across Australia with a turnover of less than $2 million can purchase equipment or assets to help them grow their business, help them be more successful, help them employ more Australians and immediately write it off against their income. This is very much an initiative targeted at strengthening growth, at strengthening growth in the small business sector.
MATTHEW ABRAHAM: So before last night, if they bought that equipment, if he bought his laminator, he would have to depreciate that over the life of the asset, so I don’t know how long a laminator lasts, maybe three years and he can claim a little bit each year. Now he can claim all of his tax in one year?
MATHIAS CORMANN: That’s right. Before you could only do that up to $1000. If you bought an asset for above $1000 before you would have had to depreciate at 15 per cent in year one and at 30 per cent each year after that.
MATTHEW ABRAHAM: The statement says that small businesses with turnover below $2 million can claim an immediate tax deduction for every asset they acquire that is valued up to $20,000 for tax purposes. So you can acquire multiple assets up to the value of $20,000 in a financial year?
MATHIAS CORMANN: Yes, that’s right but there will be a natural limit, because the business still has to make the investment, the business still has to put their own money on the line. They won’t be able to get all of it back through their tax return. So businesses will still make judgments about what investments will help them make their business more successful.
MATTHEW ABRAHAM: We are getting a lot of questions about this so that clarifies it. It is not just one lot of $20,000?
MATHIAS CORMANN: No, it is unlimited... interrupted
MATTHEW ABRAHAM: Let me just put it like this, if you want to put $100,000 on your credit card and go out and spend five lots of $20,000 on five lots of equipment, you can claim $100,000 off your tax immediately?
MATHIAS CORMANN: You can if it makes sense for your business, if it makes commercial sense, if it makes sense in terms of strengthening your business and making your business more successful, then that is what some people may want to do.
MATTHEW ABRAHAM: Now this might be a dumb question but if you spend your $100,000 on five items worth $20,000 each, how much tax would you get back? When you say you can claim the whole lot in the year, what would you get back?
MATHIAS CORMANN: It depends on your personal tax circumstances. If it was a company, if you were generating a profit as an incorporated company, the tax rate is 30 per cent, you get 30 per cent back and the rest of it you would still outlay. Businesses still have to make decisions about what is a sensible investment...interrupted
MATTHEW ABRAHAM: Oh yeah but in that scenario that we have been talking about, the $100,000 that you have just spent on five items worth $20,000, you would get back $30,000?
MATHIAS CORMANN: That’s right.
MATTHEW ABRAHAM: Okay, you can buy five items for $20,000, save 30 per cent on them and sell them at a profit?
MATHIAS CORMANN: No, the truth is, you have got to remember, this is bringing forward the deductibility of the costs. Over time businesses would have been able to deduct that expense in any event but they would have taken longer to do it.
MATTHEW ABRAHAM: Okay, Tom Koutsantonis, the Treasurer here in South Australia says that you have delayed funding for the Torrens to Torrens upgrade.
MATHIAS CORMANN: I just shake my head at the incompetence. We are committed to this project. We were keen to get moving, but the State Government, the State Government in South Australia, asked us to go more slowly because they were not in a position to commence with the project. I am quite flabbergasted actually.
MATTHEW ABRAHAM: Do you have that in writing? Did they actually write to you and say we haven’t decided what to do with the Torrens junction upgrade, can you just hold off on it for a while, hold off on the dough?
MATHIAS CORMANN: The relevant Department in the South Australian Government has been in touch with our Department here in Canberra and has said that we are not actually ready to proceed, can you please slow down and give us the money at a later stage.
MATTHEW ABRAHAM: We understand that there is a letter to that effect?
MATHIAS CORMANN: That is right. That is exactly right. If you want me to send you a copy of the letter, then I am happy to do that too.
MATTHEW ABRAHAM: Okay.
MATHIAS CORMANN: Look, Tom Koutsantonis, he is always just playing politics. He has spent his time for the last however long, just attacking the Federal Government. It would be much better for South Australia if the Treasurer in South Australia actually started to work with the Australian Government for the benefit of the South Australian people rather than just playing politics and...interrupted
MATTHEW ABRAHAM: He praised you this morning, said that what you’re doing for small business will actually have a particular effect, a good effect, a positive effect, particularly in South Australia.
MATHIAS CORMANN: Well it would have been very hard for him to criticise what is a very good initiative.
MATTHEW ABRAHAM: Okay, he also says that South Australia has only got an extra $120 million in funding from the Federal Government. Now the Opposition leader, Steven Marshall says no, it is almost $1 billion over three years. What do you say?
MATHIAS CORMANN: South Australia has been getting significant additional revenue ever since we came into Government from the Federal Government, well over $1 billion...interrupted
MATTHEW ABRAHAM: Except you’ve cut all the Gonski money and you’ve cut the money that was promised for health. We are not getting anything like that money.
MATHIAS CORMANN: That is actually not right either. So over the first four years when we came into Government, we have stuck with the commitment that the previous Government has made in relation to the Gonski funding. Beyond the forward estimates at the time of the last election, the previous Government hadn’t actually allocated any money for Gonski in the Budget, they made some unfunded, pie in the sky promises that were never funded. We made a decision as we said we would do in the lead up to the last election to put funding for State schools and hospitals on a more affordable and more sustainable trajectory for the future and that is exactly what we have done.
MATTHEW ABRAHAM: Now, you are listening to Mathias Cormann, the Federal Finance Minister, one of the key people who put your Federal Budget together. We are getting lots of calls still about the small business tax break; one says can you ask Mr Cormann if a deduction is lodged now or after the end of the financial year, Minister?
MATHIAS CORMANN: The instant asset write off for asset purchases up to $20,000 is available as of Budget night last night and it will be available until the 30th of June 2017. In that period, for any assets that are purchased in that period, it will be available.
MATTHEW ABRAHAM: Wow. Mark from Hedley Beach. When I say ‘wow’, I normally have to wait to see the accountant but, Mark from Hedley Beach, welcome to the program.
MARK: Hello boys. I think the Federal Government’s incentive for small business is excellent and I am a small business owner. And it is going to encourage me to invest more money. But the critical thing here is, you’ve got to stop thinking about the $20,000 as only the savings you make in the tax you pay. The other critical thing is you have to be profitable to get that benefit...interrupted
MATTHEW ABRAHAM: Well, I am assuming that if you’re not profitable, you’re not going to be in business for very long.
MARK: Well yes and no. I think from my point of view, our businesses are doing okay but they will all invest more going forward. The other thing I would like to say...interrupted
MATTHEW ABRAHAM: Will you employ more people as a result Mark?
MARK: Probably, yeah, I have got three small businesses that will probably grow as a result of this. We will invest more in things like barrels which will hopefully drive more domestic and exports up. The other thing is, I am sick of hearing Tom Koutsantonis bag anything and everything the Federal Government does and Mathias is right. We could not afford Gonski and we could not afford the health reforms.
MATTHEW ABRAHAM: Mark, thank you for your call. Mathias Cormann, before we go to Senator Penny Wong, your shadow, well she is the shadow Minister for Trade and Investment, former Finance Minster herself, before we go to her, what is in this Budget for South Australia in terms of submarines and Air Warfare Destroyers? Nick Xenophon, independent Senator, made it quite clear that if you want his support in the Senate, you have to show a commitment to those projects.
MATHIAS CORMANN: The procurement of submarines of course is in our long term funding trajectory, it is part of the defence capability plan. I think what Senator Xenophon and my Liberal colleagues in South Australia are interested in is the procurement process and of course when it comes to the procurement of submarines, we are going through a competitive evaluation process at the moment, which is due to take ten months. It will be concluded by the end of the year and at that point, we will make a decision about how to purchase the best possible submarines at the best possible price and how to best maximise Australian industry involvement in that project.
MATTHEW ABRAHAM: We have a text here saying Mathias, wake up, you’re doing what Labor did during the GFC and you canned them for that. You won’t use the word stimulus will you when you look at things such as giving small businesses big tax breaks? How is it not a stimulus?
MATHIAS CORMANN: Well the Labor party spent like drunken sailors and we are letting people have more of their own money to make their own decisions about how to invest in their own business and make their own businesses more successful.
MATTHEW ABRAHAM: What impact do you think this will have on the Budget bottom line though? Have you costed that?
MATHIAS CORMANN: Of course we have costed it and if you look at the Budget bottom line it is improving every line over the forward estimates.
MATTHEW ABRAHAM: I meant the $20,000 write off, or it could be $100,000 or it could be $80,000. You don’t know what people will do. How does Treasury cost that?
MATHIAS CORMANN: We’ve obviously made assumptions and Treasury has got experts that model these sorts of things and if you look at the Budget bottom line it is improving every year over the forward estimates both in dollar terms and as a share of GDP. The deficit is reducing and we’re due to get back into surplus on the same timetable as in last year’s Budget.
MATTHEW ABRAHAM: Are they the same experts who said in 2015-16 that the deficit would be $31 billion and it’s going to be $35 billion?
MATHIAS CORMANN: Global economic conditions have changed, global commodity prices have changed. We have had to write down $90 billion worth of revenue since we came into Government.
MATTHEW ABRAHAM: They didn’t see it coming though.
MATHIAS CORMANN: Sure and nobody will ever be able to 100 per cent predict everything that happens in the future. The key is to have an economic plan which is adaptable, which we have. The key is to continue to focus on heading in the right direction, which we are. The key is to continue to make progress which we are doing as well.
MATTHEW ABRAHAM: Minister, you’re welcome to Senator Penny Wong.
MATHIAS CORMANN: I’ve got to talk to your colleague in Hobart.
MATTHEW ABRAHAM: Thank you for being generous with your time with us. We appreciate it.
MATHIAS CORMANN: Talk to you soon.