Sky News - Richo

Senator the Hon Mathias Cormann
Minister for Finance


Date: Wednesday, 21 October 2015

Joe Hockey, Economy, China-Australia Free Trade Agreement, Australia-Germany Advisory Group, Mid-Year Economic and Fiscal Outlook

JANINE PERRETT: Well we saw the farewell to one former Treasurer today. We have a new one in, but we still have the same Finance Minister and he’s been at an important G20 summit of the G20 Finance Ministers’ finding out how it’s all looking globally and he’ll be preparing important documents, the MYEFO one coming up. I caught up with Senator Mathias Cormann earlier.

Minister I know you’re just back from a Finance Minister’s meeting in Lima and we’ll get to what came out of that and the world situation, but firstly I have to ask you about Joe Hockey’s farewell speech to Parliament today. You worked closely with him. What did you make of the speech. 

MATHIAS CORMANN: It was a very honest, very personal speech by Joe Hockey. I have worked very closely with Joe. Joe is a very good friend of mine. I have loved working with him. I will miss him in the Parliament. By the same token, I wish him all the best. I am very excited for what lies ahead for him and his family.

He was very proud of his speech about the age of entitlement. But some critics have pointed out that his age of entitlement is about to begin in Washington. And there is also going to be a by-election. As Finance Minister is that a worry that politicians cause these costs on by-elections? Would you agree with that?

Joe Hockey has provided distinguished service to Australia for nearly twenty years in the Parliament, about seventeen years as a frontbencher in the Coalition and more than ten years as a Federal Minister. I believe that people across Australia and people in Joe’s electorate in particular understand the circumstances of his departure. In terms of the other point you raised, it is not up to me to speculate about what Joe might do next, except to say that given his extensive experience at the most senior levels in Government, given his international contacts, given his general qualities, I would like to think that Joe will have the opportunity to make a bit more of a contribution in our national interest. 

There was some eyebrows raised about some of the things in the speech. He called for an end to some of the super tax breaks. He talked about his support to crack down on negative gearing. These were all things that was no movement on during the time. I sort of compare it to maybe, in your farewell speech if you suddenly thought there were merits to the mining tax. Isn’t it when you are in power you should say those things?

I can assure you that I will never, ever, ever say that there was any merit whatsoever in Labor’s disastrous mining tax. I can assure you that I will never ever say that Australia should ever pursue the sort of mining tax that the worst Treasurer in Australia’s history in Wayne Swan put on the table during his time in government. Today, the speech that Joe Hockey gave was a speech he gave as a backbencher. As far as the Government is concerned we are involved in a process when it comes to tax reform. We are involved in a public conversation about how our tax system can be improved. Sometime in the next few months, we will be releasing a draft set of proposals on how we believe the tax system can be improved in the form of a green paper, which will be the subject of further consultation. Sometime between now and the next election, you will know exactly what a Turnbull Government would intend to do in a second term of our Government, when it comes to improving our tax system with a view to helping people work harder, save more and invest more. 

As I said, you’re just back from Lima. A meeting of the global financial leaders. What is the mood at the moment, Senator Cormann? Are people concerned about the global economy at the moment? Are there any green shoots anywhere? Should we be worried given how we are hostage to international fortunes. 

You’re certainly right that Australia as a trading nation is very interested in what happens in the global economy. As a trading nation which has a particularly important trade relationship with China, which has a very important relationship with the United States and other places around the world, we look very carefully at global economic trends and economic trends in those countries. At the IMF and World Bank annual meetings everybody, like us, was focused on ensuring we properly understand developments in China, that we understand what is happening in the United States and what is happening in emerging markets in particular. Let me say from an Australian point of view, talking about China in particular, the IMF is forecasting growth in China of about 6.8 per cent in 2015, 6.3 per cent in 2016. By any international standard that is strong growth. That is compound growth as well, which comes from a much larger base than double digit growth in China sometime ago. China is going through an important transition from investment driven, construction driven growth to a more sustainable domestic consumption driven growth. There is lots of opportunity in that for Australia. Our outlook in terms of Chinese growth is optimistic. The China Australia Free Trade Agreement will broaden the opportunities for Australian exporters beyond just resources, in terms of accessing the Chinese market, with increased exports of in particular, agricultural goods and also services. 

Just before we get to the China Free Trade Agreement, you sound less pessimistic than many economists out there. Or perhaps even the US Federal Reserve, which has held of lifting interest rates because of concerns on China. Why are you more optimistic about the Chinese outlook than many others around the world?

MATHIAS CORMANN: Just look at the figures. 6.8 per cent growth ...interrupted 

JANINE PERRETT: But nobody believes the figures really.

MATHIAS CORMANN: But this is an IMF figure, this is not a Chinese figure. 6.8 per cent, that is an IMF forecast. The IMF does take a very considered view of these things. Just look at the lived experience in Australia. We have gone through a very significant transition and we have adjusted rather well. We’ve had to deal with the biggest fall in our terms of trade in about 50 years. We’ve had to deal with significant falls in global prices for our key commodity exports and yet the Australian economy continues to grow. If you look at the reasons why that is, there are some structural arrangements that were put in place by previous Governments, Labor and the Coalition. The floating exchange rate obviously helps us to adjust to the fluctuations in our terms of trade. We do have an independent Reserve Bank setting monetary policy which helps. The Government has pursued a policy agenda focussed on improving our international competitiveness, taking costs out of our economy, pursuing an ambitious free trade agenda to improve access for exporters to overseas markets, pursuing an ambitious infrastructure investment program. So all of these things taken together have put Australia into a situation where despite the global economic headwinds, despite the challenges that we’ve been facing, we continue to grow. We are in our 25th year of continuous growth. 

JANINE PERRETT: Okay. We know that the Chinese Free Trade Agreement, that a consensus was reached today on that. You are also brokering a European free trade agreement, can you tell us about that? We’ve only just digested the Trans-Pacific Partnership. What will a Europe FTA mean and how far off are we on that one? 

MATHIAS CORMANN: Firstly, the important point to make here is that it is very early days. Europe as a block is the biggest economy in the world. So certainly a free trade agreement with Europe would be very good for Australia. What we are looking at and what we seem to be successful with so far is to get the negotiation process with the European Union underway. European Trade Commissioner Cecilia Malmstrom has made an announcement recently that put Australia on to the list of countries with whom the European Union would next negotiate a free trade agreement, seek to negotiate a free trade agreement. That follows representations by our Trade Minister Andrew Robb, but it also follows representations earlier this year by the European-Australian Business Council, which I accompanied on a visit to Brussels earlier this year.   

JANINE PERRETT: Because as well as the Europe free trade agreement you’re also involved in trying to improve bilateral relations with Germany in particular. Can you tell us about that?

: Yes. After the G20 Heads of Government meeting in Brisbane last year the then Prime Minister Tony Abbott and German Chancellor Angela Merkel had a bilateral meeting, which I attended over dinner and as a result of some of those discussions they concluded that while the relationship between Australia and Germany is warm and friendly and we have a lot of shared values, when it comes to international affairs, it wasn’t a very deep or a very strong relationship or at least it could be deeper and stronger. They decided to establish a working group which I have been co-chairing over the past twelve months to come up with recommendations on how we could broaden, deepen and strengthen the relationship between Australia and Germany across trade and investment, across culture and the arts, across research and science, education, people-to-people links, you name it. We have done a lot of work over the last twelve months. In the middle of November, our Prime Minister Malcolm Turnbull and Angela Merkel are due to meet, to receive our report and our recommendations and hopefully it will make a tangible difference. If I might just make this final point, Germany is the fourth biggest economy in the world. It is the biggest and clearly dominant economy in Europe. In my view it is clearly in Australia’s national interest for us to work on the quality and the depth and the strength of that relationship moving forward. 

JANINE PERRETT: And you are the man to do it, because you speak German obviously.

MATHIAS CORMANN: German is my mother tongue. I was born and I grew up in the German speaking part of Belgium, that is right.

JANINE PERRETT: Okay let’s get back to domestic matters, no doubt you are working on MYEFO, the Mid Year Fiscal Outlook which is due in December. Despite all of the optimism that you expressed earlier about the Australian situation what are going to be the challenges, what are going to be the things, we know what you are confident about, what are the things that are maybe causing you concern ahead of that?

MATHIAS CORMANN: We are going through the usual process of putting our half-yearly Budget update together. As the Finance Minister, the one issue that I am focused on is that wherever we have had to make decisions to incur additional expenditure on comparatively higher priority areas that we find ways to offset that additional expenditure with expenditure reductions in other areas. Just to give you one example, since the Budget we made the announcement that we would welcome an additional 12,000 refugees from Syria. That comes at a cost to the Budget bottom line. We have to find ways to pay for that without that hitting the underlying cash balance. These are the sort of things that we are currently working our way through. The reason we are releasing the Mid-Year Economic and Fiscal Outlook in the middle of December is because we want to have the benefit of the national accounts data from the third quarter so that we can feed the information from that data into our economic forecasts. All of that, taken together, will provide the community with an update on where our Budget is at.

JANINE PERRETT: Just finally, how is Mr. Hockey’s successor going? There has been some criticism that he is taking a while to get on top of the brief, it is a hard job being Treasurer isn’t it?

MATHIAS CORMANN: I think that Scott Morrison is doing exceptionally well. He was an outstanding senior Minister in the Abbott Government. I believe he is doing an outstanding job in his current role. The issues that we are dealing with day-to-day are challenging issues but he is deploying all of his considerable skills and talents into putting Australia on the strongest possible economic and fiscal foundation for the future.

JANINE PERRETT: As are you, thank you for your time today Senator Cormann.

MATHIAS CORMANN: Always good to talk to you.