Senator the Hon Mathias Cormann
Minister for Finance
Date: Saturday, 16 May 2015
DAVID LIPSON: G’day, great to have your company this morning. This week’s inoffensive Budget has had a soft landing, certainly compared to last year’s shocker of a Budget. Several polls have indicated an improvement in the Governments standing, including this morning’s Galaxy poll in News Corp papers which gives the Government a 52 to Labor 48 per cent on a two party preferred basis. A big improvement since February. The Government it seems has survived the politics of Budget week, but what about the much bigger and much more difficult task of Budget repair? Finance Minister Mathias Cormann joins me now. Thanks for your company. How do you think the Budget has been received?
MATHIAS CORMANN: The Budget this week was our next step in our long term economic plan to strengthen growth, create more jobs and to repair the Budget. I think that what people appreciate is that we are now heading in the right direction, that we are making progress, that the economy is strengthening, that more jobs are being created and the Budget is now on a credible path to surplus.
DAVID LIPSON: That surplus is projected, not forecast, but projected after 2020 according to these Budget papers. Those projections include earnings from the Future Fund for the first time. Why is that?
MATHIAS CORMANN: Not for the first time at all. The treatment of earnings from the Future Fund are the same as they have always been. The truth is we are on the same timetable back to surplus as what we were in last year’s Budget. Which is really quite an achievement considering we had to write down about $90 billion worth of tax revenue compared to expectations since we came into Government.
DAVID LIPSON: When were Future Fund earnings previously included in Budget forecasts?
MATHIAS CORMANN: Future Fund earnings have always been reflected in Budget forecasts.
DAVID LIPSON: Okay. Because between 31 and 56 per cent of the hoped for surplus will come from the Fund according to Saul Eslake from Bank of America Merrill Lynch. Are those numbers right and is that unusual at all for such a significant portion of that projected surplus to come from those earnings?
MATHIAS CORMANN: As you say, the surplus that we are talking about here is projected for 2019-20, which is actually the period beyond the published forward estimates. So we can have an academic conversation about all of the different things that will go in to this projected surplus in the period beyond the forward estimates or we can look at what exactly is published in the Budget papers and what is published in the Budget papers is consistent with the way that it has always been done.
DAVID LIPSON: Okay, it is just, just to be clear, according to this report in the Financial Review today, the accounting change it says, includes for the first time earnings from the Future Fund in the Budget bottom line. Is that report correct?
MATHIAS CORMANN: The earnings of the Future Fund have always been reflected in the Budget papers.
DAVID LIPSON: In the Budget bottom line though?
MATHIAS CORMANN: They have always been reflected in the Budget bottom line.
DAVID LIPSON: Okay, let’s go on. The paid parental leave changes haven’t gone down so well. The politics weren’t handled as well as they could have been with words like ‘double-dipping’ and rorting and the like. I want to leave all of that politics aside though and just ask you from the perspective of a business that has a scheme in place, what do you want them to do? I mean, should they be allowed to offer other incentives for parents on top of the minimum wage paid parental leave scheme that is still there from the Government? Should other incentives be able to be offered?
MATHIAS CORMANN: What businesses offer is a matter for businesses. Businesses offered paid parental leave schemes long before the previous government introduced the current scheme which is currently in place. Once the changes we have put forward in the Budget have taken effect, I can’t see why the situation would be any different from what it was before. Businesses that make a judgement that in terms of attracting the best possible employees to their business to offer particular terms and conditions. I can’t see why all of a sudden they would make changes to that just because the Government has decided that in the current environment it is not appropriate for the taxpayer to be asked to fund access to a second scheme.
DAVID LIPSON: If a business for example, essentially changes the name of an existing employer funded paid parental leave scheme to something like a ‘back to work bonus,’ is that a scam?
MATHIAS CORMANN: I think that you are now well and truly going into hypotheticals. Unless you are telling me that that is something that is currently proposed by anyone I think you are really clutching at straws…interrupted
DAVID LIPSON: There have been suggestions from some accountants of reports that businesses are considering going down that path if this goes through.
MATHIAS CORMANN: That is not been the experience in the past before the current Government scheme was in place and I don't expect that that will be the experience in the future.
DAVID LIPSON: This is all about making paid parental leave fair, you have said this week. But people for example, pay private health insurance but then still access Medicare, what is the difference here? That is not seen as ‘double dipping’ or anything unfair.
MATHIAS CORMANN: The judgement that we have made is that most women across Australia can get access to just one paid parental leave scheme and that is the default scheme provided by the Government. Some women are able to access a more generous scheme either through their public or private sector employer and good luck to them, that is great. But if you are accessing a more generous paid parental leave scheme through your public or private sector employer, the judgement that we have made is that it would not be reasonable in those circumstances to expect the taxpayer to fund access to a second scheme. We understand what the system is as it currently exists, but into the future as part of our plan to get the Budget back into surplus and as part of our plan to boost investment in better, more affordable, more flexible and simpler child care, we think that this is a reasonable change to make.
DAVID LIPSON: Have you spoken to the crossbenchers about it at all, it seems two are against, two are for and Xenophon, Muir and Madigan haven’t yet decided?
MATHIAS CORMANN: Well this is obviously in Scott Morrison’s portfolio. Scott Morrison is very good at discussing these things with all parties in the Senate. This is really a question for the Labor party too. This is really a question for Bill Shorten. Bill Shorten gave his Budget reply speech on Thursday night and he was very critical, suggesting that the Government didn’t go hard enough in reducing expenditure. We didn’t go hard enough in getting the Budget back into surplus more quickly, but confirmed again that he would be opposing most of the savings that we were putting forward. Again hasn’t identified a single saving of his own and then proceeded to spend more money, $6.6 billion in additional promises which are worsening the Budget bottom line on top of a $52 billion Budget black hole that Bill Shorten had before Thursday night. Under Labor the Budget bottom line right now would be nearly $60 billion worse off.
DAVID LIPSON: We will question Labor after we are finished with this interview. I want to look to the iron ore inquiry that the Government has indicated support for into allegations of predatory behaviour by Rio Tinto and BHP. Why is this inquiry needed because this was clearly one of the big areas were huge dollars were written off. The iron ore spot price coming down substantially, is that the sort of thing you want this inquiry to look at?
MATHIAS CORMANN: Iron ore is our most significant export. Income driven by iron ore production represents 21 per cent of our national export income. So it is very important in terms of our economic prosperity and growth and opportunity into the future. From time to time when you have got a significant market like this that is so central and so significant for your economy and there are significant changes in that market, it is actually business as usual and usual practice for the Parliament to have an inquiry, to look at the facts and see whether there is anything that ought to be addressed. That ought to be done in a serious and responsible and mature fashion and we are currently working our way through how that is best done.
DAVID LIPSON: The claim from Fortescue and other smaller miners is that Rio Tinto and BHP have deliberately driven down the price of iron ore and that is to try and drive out those smaller competitors. It has also, as I say though, has a huge impact on the Budget. Is there evidence of Rio and BHP doing that sort of thing?
MATHIAS CORMANN: It is not the job of Government to take sides with one business against another. What is the job of Government is to focus on the national interest. The job of Government is to look at the facts. I do believe that there is a case here for assessing the facts in an orderly and methodical fashion, to have a proper inquiry and see what is actually happening as opposed to what some of the commentary that is taking place, to see that everything is actually working the right way. If it isn’t, make judgements on what may or may not have to be changed.
DAVID LIPSON: Sticking with the Budget, I just want to put to you a couple of the often repeated statements made by you and other senior members of the Government. One of them that we have heard so many times is the ‘debt and deficit disaster,’ what happened to that because…interrupted
MATHIAS CORMANN: We are fixing it.
DAVID LIPSON: We have seen the deficit actually double from last year’s projections of $17 billion to $35 billion this coming financial year.
MATHIAS CORMANN: We inherited a $123 billion in projected deficits when we came into Government. We have reduced that down to $82 billion in projected deficits in this Budget. Government gross debt was heading to $667 billion and rising by 2023-24. We have reduced that by about $112 billion in terms of the forward trajectory. We are making progress. We are now heading in the right direction. Obviously there is more work to be done, but at least we are now bringing expenditure down as a share of the economy, 25.9 per cent this year to 25.3 per cent at the end of the forward estimates. We are controlling expenditure growth down to 1.5 per cent above inflation from 3.6 per cent on average by the previous government, so it is a matter of continuing to make progress in a measured and responsible fashion and that is what we are doing.
DAVID LIPSON: The other often repeated line from the Coalition was a promise for ‘lower, simpler taxes.’ Taxes are now at the highest level since 2007-08 as a share of GDP, they are going to get higher each year of the forward estimates, 24 per cent of GDP now up to 25.2 per cent by 2018-19. That is largely due to bracket creep, but how do you explain that to the Australian people?
MATHIAS CORMANN: Taxes as a share of the economy are clearly lower than what they would have been under Labor. That is because we have got rid of the carbon tax, we got rid of the mining tax, we now have delivered a 1.5 per cent tax cut for small business, there are other tax measures where we brought down the tax burden. Having said that, we are very conscious of the fact that bracket creep is getting more and more middle income Australians into the higher income tax brackets and we would like to deliver income tax cuts for middle Australia. The problem is that when you are in a situation where the alternative government is not prepared to engage in a sensible conversation about savings in the Budget you can’t deliver tax cuts, further tax cuts, personal income tax cuts, unless you are able to bring expenditure down. I go back to Bill Shortens Budget reply. Since Bill Shorten became opposition leader, he has not identified a single alternative spending reduction. He is opposing about $17 billion in government savings and revenue measures. He is opposing $6.5 billion in Labor’s own savings and revenue measures which they initiated and banked in their last budget. He wants us to restore about $31 billion worth of spending where we have already banked the savings. He now, on Thursday night, added to the problem with another $6.6 billion in unfunded promises. Bill Shorten couldn’t run a Banana Republic. That is the circumstance that we are currently in so we are pressing ahead with our plan, which is a long term, responsible economic plan, which is focused on driving stronger growth, creating more jobs and getting the Budget back to surplus in a responsible fashion. As soon as we are back in surplus, of course we would like to deliver tax relief to address the issue of bracket creep and in fact in our Budget papers we have put in a cap at 23.9 per cent as a share of GDP, when it comes to tax revenue as a share of GDP, to ensure that our costings are actually based on the assumption that there will be corrections for bracket creep down the track.
DAVID LIPSON: Labor, just briefly, is offering bipartisanship on a goal to reduce small business tax all the way down to 25 per cent, it is 28.5 per cent under your measure and Labor will support that. Will you work with Labor, will you consider an attempt at bringing it down further? Or is that a bad idea?
MATHIAS CORMANN: That statement in Bill Shortens speech on Thursday is a sick joke. It is a sick joke. He is raising expectations and making promises he knows he can’t keep. The only way a promise like that makes sense is if Bill Shorten at the same time points to the savings, the spending reductions, he would support in order to pay for such a promise. On Thursday night Bill Shorten failed the most fundamental test, he failed to point to the spending reductions that he would support in order to pay, not just for his increased spending promises, not just for the cost of not proceeding with savings that he continues to oppose, but also for the sort of promise that you just mentioned. Unless he points to how he would pay for it, unless he shows us the money, he really can’t take any such statement seriously, in any way shape or form.
DAVID LIPSON: Finance Minister Mathias Cormann, thanks so much for that.
MATHIAS CORMANN: Always good to talk to you.