Senator the Hon Mathias Cormann
Minister for Finance
STUART BOCKING: As we know there was this mini economic summit held in Canberra yesterday, with a number of key industry groups, a number of leading politicians, including our Finance Minister Mathias Cormann and I’m pleased to say the good Senator is back on the line. Minister, good morning.
MATHIAS CORMANN: Good morning Stuart. Good morning to your listeners.
STUART BOCKING: Thank you. How would you describe the general tenor of the discussions yesterday?
MATHIAS CORMANN: It was a very good discussion. It was very positive, very constructive. It was the start of a process. There will be further engagement, further discussion from here to pursue some of the specific issues that were raised.
STUART BOCKING: I know there were some suggestions that basically what we’ve got now under Malcolm Turnbull is Tony Abbott in a better cut suit. Do you agree or disagree that in fact policies are changing on some of the direction previously under Tony Abbott?
MATHIAS CORMANN: Inevitably there is a significant degree of continuity. Malcolm Turnbull our new Prime Minister was a senior Minister in the Abbott Government. Scott Morrison as our new Treasurer was a senior Minister in the Abbott Government. As a team we went to the last election with a plan for stronger growth, more jobs and to repair the Budget. All of us were part of implementing that plan over the past two years. Our focus now is on building on the progress that we’ve made over the past two years moving forward.
STUART BOCKING: But there are some marked departures, I mean for instance, Joe Hockey had made it very clear when he was Treasurer that there would be no move in relation to negative gearing. That there would be no move in relation to superannuation tax concessions for the wealthy. It seems those issues are now very much back on the negotiating table.
MATHIAS CORMANN: What we’ve said and what was very pleasing to note yesterday was the broad consensus that Australia needed stronger growth, that we needed to be more productive, more competitive, more innovative and that we should look at everything and anything that might help encourage people to work more, save more and invest more. As such the Government certainly made a commitment to leave everything on the table and to go into the conversations with an open mind. We haven’t put any specific proposals on the table. From our point of view, yesterday was very much about listening to the perspectives of those community, business and union leaders. There will be a process now from here to take this further.
STUART BOCKING: Do you think that if the Government is to have any credibility in terms of further cuts that may be needed, more difficult cuts that may be needed, that unless you are prepared to do something about superannuation tax concessions for higher income earners that that sales job is going to be almost impossible for you?
MATHIAS CORMANN: In the end, we’ve got to continue to focus on how we can put Australia on the strongest possible economic and fiscal foundation for the future. We are a trading nation. What happens in the global economy matters to us. We’ve got to ensure that we are in an appropriately strong position to deal with any future shocks. We’ve got to ensure that the social safety net and all of the important services that Government provides and funds continue to be sustainable over the medium to long term. So it’s ... interrupted
STUART BOCKING: You also know that the fairness argument can kill a budget, as we saw in relation to aspects of that first one. I couldn’t imagine there wouldn’t have been one person gathered around that table, whether it was from business, ACOSS, any of those groups yesterday, that would have had an objection to some pulling back in the generosity of tax concessions for higher income earners.
MATHIAS CORMANN: There certainly was a broad consensus that we have to look at our tax system and to ensure that our tax system is as efficient and as well targeted as possible and that it doesn’t detract inappropriately from economic growth opportunities into the future. There is a conversation to be had. There is a conversation that will take place in the weeks and months ahead on how we can improve our tax system. How we can ensure that the tax system encourages people to work, to save more and to invest more. But what that will mean in practice that will all need to continue to be worked through in the weeks and months ahead.
STUART BOCKING: There’s a story around today, some of these common pain killers that you may require a prescription. Now some of the suggestions are that if that’s the case, you’ve got to go in for Nurofen Plus, Panedine, get a prescription for those. That could add $170 million to the annual bill for Medicare every single year. Does Government get a say in any of these sorts of things from a budgetary viewpoint or would this be simply looked at from a medical, a therapeutical viewpoint?
MATHIAS CORMANN: Any issue of that nature and the one that you describe there, the first person in Government to take a close interest in this would be the Minister for Health. If there is any issue that has got a budget implication, I would expect the way the process works, is that the Minister for Health would bring that forward for consideration by the team as a whole and then the right decision is made. Whenever we make decisions in any part of Government that involves increasing expenditure on comparatively higher priorities that has to be fully offset by reductions in expenditure in other parts of the relevant portfolio.
STUART BOCKING: In this case though, that decision could be out of your hands. It could be made by the Therapeutic Goods Administration. In a case like that, they alter the rules, do you have much come back in terms of budgetary implications or you’ve just got to wear it?
MATHIAS CORMANN: Without boring you about all of the technical details, if there is something that was not the result of a policy decision by government, if there is a cost that is incurred because of somebody else’s decision then the technical description of that is an estimates variation. That is something that as you say, we have to wear. But bearing in mind, that we always will keep our eye on the overall sustainability of the Budget position.
STUART BOCKING: And from that viewpoint, I saw some comments from the International Monetary Fund yesterday. They’re saying that for all the talk about us having a spending problem that it is a spending and a revenue problem. It seems that Scott Morrison has backed away from the idea of it being purely a spending problem. When you consider tax reform, do you accept that the overall tax take can only increase in Australia as an absolute? That the overall amount of money we get from all taxes will have to rise?
MATHIAS CORMANN: We don’t accept that it will have to rise as a share of the economy beyond what is in our current trajectory. What I would say is that ...interrupted
STUART BOCKING: What’s that, about 26 per cent of GDP?
MATHIAS CORMANN: No, no, no, it’s quite a bit less than that. But just to unpack that a bit, because there are a range of things that drive revenue. One of the key determinants of the revenue for Government is the strength of the economy. The stronger the economy grows, the more revenue Government ultimately will collect without actually increasing taxes or coming up with new taxes. The point here is we don’t have a problem with the level of taxes as a share of the economy based on the way the tax system currently operates. What we have got an issue with is that we should be able to raise those taxes in a better way, in a more efficient less distorting way in the economy. But because of what’s happening in terms of our terms of trade, because of what’s happening with national income, tax revenue is less than what it would have been if the economy was growing more strongly. That is quite different from this proposition that there is a need to come up with new or increased taxes to increase the overall tax burden in the economy.
STUART BOCKING: But effectively what you are saying is that there is a revenue problem, courtesy of the economy not travelling at what we might describe as being trend growth.
MATHIAS CORMANN: If the economy grows less strongly then government among other things, government will raise less revenue. The key here is to strengthen growth so that you increase prosperity but also you increase revenue for government. The problem with increasing the tax burden in the economy as a whole when you actually are already facing some challenges on the economic growth front, is that actually would reduce economic growth by more and it would actually take us into the wrong direction.
STUART BOCKING: So effectively you are saying that there is then a need for fiscal stimulus because the IMF is talking about a growth rate of around two and a half per cent. The forecast projections in the budget, they are higher than that, both the Reserve Bank and Treasury forecasts are higher aren’t they?
MATHIAS CORMANN: Spending as a share of GDP is too high at about 26 per cent. We have to continue to work to bring that down to put us on a more sustainable foundation for the future. When it comes to our tax system, we do have to ensure that it is internationally competitive. That is that the taxes as a share of the economy are at an appropriate level and that the way the revenue is raised is the most efficient, least distorting way possible and that the design of the tax system is such that it encourages people to work more, to save more and to invest more so we can drive stronger growth into the future.
STUART BOCKING: What are we looking at then? We’ve had a number of summits. There was a National Reform Summit, now you’ve broken that down to a mini-summit yesterday. A lot of discussion, a lot of ideas out there, are we expecting that you will have a package of tax reform measures to take to the next election?
MATHIAS CORMANN: That is the plan. When we went to the last election, we always said in our first term of Government that we would remove some of the bad Labor taxes, like the carbon tax and the mining tax. We said we would reduce taxes for small business and we have done that. We have also decided not to proceed with Labor’s bank deposit tax. We have said we would have a conversation in our first term about tax reform priorities as part of our second term agenda. That process is currently underway. There is a discussion paper which has been out for a little while. The next step will be a green paper which is a draft set of proposals from Government on how the tax system can be improved. Ultimately the objective is to have a set of proposals to improve our tax system which we can take to the next election for the Australian people to pass judgement on at that election and hopefully give us a mandate for reform.
STUART BOCKING: Tell me, given that the round of interviews Tony Abbott’s done this week, some commentary in relation to Malcolm Turnbull, not trusting him, dirty water going under the bridge, is he living up to his claim that he wouldn’t snipe, that he wouldn’t wreck?
MATHIAS CORMANN: I’m not going to provide a running commentary on the interviews of former Prime Minister Tony Abbott. What I would say is that two and a half weeks ago or so Tony Abbott went through a very difficult moment. It was a very public and a very traumatic experience for him. I think the way he has been conducting himself over the past few weeks has been completely appropriate. That he has actually gone out of his way to conduct himself in a constructive and positive way in all of the circumstances.
STUART BOCKING: As a West Australian Senator, can I hazard a guess that you will be at the MCG tomorrow afternoon?
MATHIAS CORMANN: Yes. I was there in 2006 when we won by one point against Sydney. That was very traumatic. I hope it will be a bit more comfortable tomorrow, but let’s see how we go.
STUART BOCKING: Well good luck to the West Coast Eagles for your sake Senator.
MATHIAS CORMANN: Thank you so much.
STUART BOCKING: All the best to you, I appreciate your time.
MATHIAS CORMANN: Talk to you soon.
STUART BOCKING: The Finance Minister Mathias Cormann, a proud West Coast Eagles fan and he will be there at the MCG tomorrow when they take on Hawthorn.