Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 14 May 2015
STUART BOCKING: The hard sell for the Budget continues and I’m very pleased to say this morning the Finance Minister Mathias Cormann is on the line and he joins us. Minister, good morning.
MATHIAS CORMANN: Good morning.
STUART BOCKING: Thank you for your time again. You’re a key Government member of the Senate, what sort of negotiations have you had to this point to try and break this impasse that’s currently there in the Senate?
MATHIAS CORMANN: The question today really is a question for Bill Shorten and the Labor party. Bill Shorten will be making his Budget reply speech tonight and there is an opportunity for him, in a bipartisan way, to come out in support of our plan for stronger growth, more jobs and to repair the Budget.
STUART BOCKING: One of the problems seems to be, and I heard him interviewed on Melbourne radio yesterday, where seemingly there is this refusal by him or anyone within Labor to accept any sort of responsibility for the deficit that it is now?
MATHIAS CORMANN: Not only is Labor blocking many billions of dollars in savings, they are actually blocking savings that they themselves initiated when they were in government in their last Budget. So what we are asking Bill Shorten to explain to the Australian people today is where the money is coming from. How is he going to pay for his new spending and how is he going to pay for the savings that he continues to oppose?
STUART BOKING: Well tell me, where is your money coming from for the deal for small business because the instant asset write-down, this was a feature of a Wayne Swan Budget, capped at $6,500. Joe Hockey scrapped it in the Budget last year and now it’s back but this time around $20,000 albeit not open ended, just for two years. Was this a last minute sweetener for the Budget?
MATHIAS CORMANN: Not at all. We’ve been thinking through and consulting about our small business package for a number of months now. The Prime Minister first announced in January that we would have a small business package. We have been having extensive consultations with small business and people right across Australia. What we’ve put forward is a responsible long term economic plan. The Budget on Tuesday was the next step in our plan to strengthen growth, create more jobs and to repair the Budget. What you’ll see is that despite having faced significant additional and unexpected challenges with the iron ore price falling into the 40’s over the last few months, $90 billion of write-downs in expected tax revenue since we came into Government, but despite all of that the deficit continues to reduce year-on-year and despite all of that we are still on a credible pathway back to surplus, on the same timetable as in last year’s Budget.
STUART BOCKING: Well it is a long way off though, it is effectively two elections away. Just in terms of the small business asset write-down, it is a good move but you have been adamant right the way along that any new spending had to be offset by requisite savings. What has happened here?
MATHIAS CORMANN: Well first of all this is not spending, this is a tax cut. This is letting people have more of their own money to decide where to invest to be the most successful they can be…interrupted
STUART BOCKING: It is a reduction of tax revenue so where is that being paid for? Where are the requisite savings to make up for that?
MATHIAS CORMANN: And here is the second point, all of our policy decisions which had a negative impact on the Budget bottom line have been more than fully offset by savings or other policy measures in other parts of the Budget. If you look at the Budget papers what you will see is that all of the decisions we have made actually improve the Budget bottom line by about $1.6 billion over the forward estimates. We have kept our discipline with keeping spending growth under control and we have kept our discipline with fully offsetting all new policy decisions and the effect of all new policy decisions with policy decisions to save or raise…interrupted.
STUART BOCKING: The difficulty is though, look at the proposed deficit in this financial year which ends at June 30, it will be $41 billion. Back in December it was around $30 billion that is $11billion more in the space of just a few months.
MATHIAS CORMANN: In 2015-16 the projected deficits is $35 billion and that is well below market expectations…interrupted
STUART BOCKING: But I am talking about 2014-15, the current financial year we are in. It wasn’t so long back with MYEFO we were talking about $30 billion, we are now looking at $41 billion, so in fact it has worsened.
MATHIAS CORMANN: If you look at what has driven that it has been entirely drops in revenue in the context of massive falls in the price of iron ore. If you look at the spending side of the Budget, since MYEFO before Christmas, spending over the 2014-15 forward estimates is actually down by $7.3 billion. We have a responsible economic plan. It is a plan that is adaptable to changing global economic conditions. We made a conscious decision not to chase down falling revenue by further drastic cuts in spending because we don’t think that would be the responsible thing to do in the current economic conditions. The numbers are there for all to see.
STUART BOCKING: And that is the point. They are actually getting worse there under you before they start to get better, bit by bit. We are not walking potentially of a predicted surplus of 2019-20. That is not just beyond this electoral phase, it is not just beyond the next electoral phase, but the one after that.
MATHIAS CORMANN: We are in a better position than we would have been if we had stayed with Labor’s trajectory, because the point here is that whatever is happening to global commodity prices would have happened under either Government. No Government controls what happens to commodity prices…interrupted
STUART BOCKING: I understand that, but it leaves you basically with this scenario that really the marketing line for you at the next election now is effectively, the deficit will always be lower under us than under Labor. That is effectively your tag line now.
MATHIAS CORMANN: Never mind the marketing line, what we will say in the lead up to the next election is that we are now heading in the right direction. That the economy is now strengthening, jobs are now growing and the Budget is heading in the right direction. We are now in a stronger position than we were. We are now in a stronger position than we would have been and despite all of the additional challenges that have come our way, we are still heading back to surplus on the same timetable as we outlined in last year’s Budget.
STUART BOCKING: But in reality you are no closer to a surplus now than Wayne Swan ever was and I remember you all laughing when he stood up, I think it was 2012, and he said well I announce tonight four surpluses and we all had a chuckle, rightly so.
MATHIAS CORMANN: Indeed.
STUART BOCKING: But equally, you are now in a situation where it is hard to imagine even if you win the next election that you are going to be around to see a surplus.
MATHIAS CORMANN: We have always been very honest and open with the Australian people about this. In the lead up to the last election we said we would bring the Budget back to surplus as soon as possible. We didn’t lock ourselves into a specific timetable. Our Budget last year showed that with all other things being equal and depending on what happens in the global economy, that we were on track for a surplus by 2019-20. Our Budget on Tuesday showed that we are still on track for a surplus in 2019-20. When you are managing an economy, when you are managing a Budget, yes you have to focus on where you want to get to, but you also have to ensure that you are flexible and adaptable enough to respond to changing circumstances and that is what we are doing.
STUART BOCKING: But in part those circumstances have been forced on you and you are right when you talk about the iron ore price. There are so many variables within this and one of them, we got another indication yesterday, the latest wages growth figures released by the ABS, they show growth slipping to a new long term low of 2.3 per cent. Now that is the lowest this century. It is below the Budget forecast over the next two years of 2.5 per cent, so that is immediately going to be impacting on tax revenue estimates? Already.
MATHIAS CORMANN: And on payments. Because as you have lower wages growth it means you have a whole range of people stay within certain entitlements for various social services payments for longer than they otherwise would have. So it does have an impact and all of this is ultimately related to what has been happening to our terms of trade. Because of these massive falls, unexpectedly fast falls in the price of iron ore we have had lower nominal growth and that has flowed through the economy as a whole which is why it is so important that we implement our plan to strengthen growth in the non-mining parts of the economy, and that is what I am doing.
STUART BOCKING: The point I make though and this is the difficulty, just a day after the Budget had landed in our laps, suddenly one of the key factors underpinning a number of these estimates has already moved against us.
MATHIAS CORMANN: In any Budget there is always a lot of moving parts. For example, the iron ore price forecasts in the Budget is $48 US a tonne, which was based on the average price over the four weeks prior to 1 May when we had to lock that particular assumption in. It has actually right now tracking quite a bit higher at $58 US a tonne. The truth is that somewhere along the way when you put a Budget together you have to draw a line and make a judgement based on the best available information at that point in time. Later this year before Christmas, there will be another update and people can see how we have been tracking against our forecast.
STUART BOCKING: Just on the so-called ‘double dipping’ of paid parental leave which again I think is a sensible move to close it off, Scott Morrison, Joe Hockey, they have used terms like rorters, fraudsters to describe those who at the moment are legally double dipping if you like, as it stands, do you feel like that language is too harsh? How would you describe it?
MATHIAS CORMANN: Nobody that is currently accessing two paid parental leave schemes is doing anything illegal. There is no two ways about that.
STUART BOCKING: So they are not rorters and they are not fraudsters are they?
MATHIAS CORMANN: No. No. What we are saying is…interrupted
STUART BOCKING: So was Scott Morrison wrong to say that?
MATHIAS CORMANN: I haven’t heard him say that. What we are saying, the proposition that we are putting, is that most Australian women have access to one paid parental leave scheme that is funded by the taxpayer and provided by the Government. Some women are able to access two, both a more generous paid parental leave scheme through their private or public sector employer and also, on top of that, have access to the default scheme funded by the taxpayer. Now our proposition is, that that is not really fair. The taxpayer should not be required to pay for a second scheme when a more generous scheme is available through the private or public sector employer.
STUART BOCKING: But importantly, you disagree with what your cabinet colleagues are saying with the use of terms like rorters and fraudsters.
MATHIAS CORMANN: I haven’t heard anyone say this. Obviously, right now, it is legal for certain women to access both schemes.
STUART BOCKING: Tell me, this knee-jerk decision to suddenly overturn approval for a modest aged-care facility on Middle Head, we have opened ourselves up to potentially compensation from the operator of that. Do you know what sort of compensation we could be looking at, as a result of that decision?
MATHIAS CORMANN: That is not an issue that I am across, I am sorry.
STUART BOCKING: I just wondered as Finance Minister, whether that was something you would be aware of. Just one other while I have got you, it’s emerged now that a women by the name of Miss Lola Lang Wee apparently is the person who has now purchased this Villa Del Mare which Joe Hockey has determined had to be divested by another foreign purchaser who had broken the rules. Now I note today that she runs a company from her luxury apartment at Piermont’s Waterfront, it is worth a little under $3 million, she has a mortgage against that premises of $1 million and yet supposedly we are meant to believe she has taken a caveat out on a property worth close to $40 million. Do you have concerns that I have, that some of these foreign purchasers are going to find clever ways around the new crackdown on these rules, because I would wonder how someone with a mortgage of $1 million over a $3 million property could suddenly be able to upgrade to one worth $40 million.
MATHIAS CORMANN: I am not personally aware of the specific circumstances that you are talking about, but by way of a general point. We are committed to ensuring that our foreign investment rules and compliance with our relevant foreign investment rules is properly enforced. There are compliance arrangements in place and the appropriate authorities will assess any issues that need to be assessed if that is appropriate.
STUART BOCKING: Because you would have to wonder, whether someone now thinking about tricky ways to get around these rules that you are imposing, which are reasonable rules, but it seems perhaps some might be intent on trying to bend them.
MATHIAS CORMANN: I don’t know what the circumstances are here, but by way of general comment, I think that it is always a challenge for regulatory authorities to try and ensure that anyone who is trying to circumvent rules that should apply to everyone is properly enforced to comply with them.
STUART BOCKING: Could you have a look at it because I would be keen once you get a few more details on it to see what your view is and to see what we can possible do to follow up on it.
MATHIAS CORMANN: I will pass on the enquiry to the Treasurer, for sure.
STUART BOCKING: Okay, alright. Look I appreciate your time this morning Minister. Thank you.
MATHIAS CORMANN: Always good to talk to you.
STUART BOCKING: All the best to you, the Finance Minister that is Senator Mathias Cormann.