Sky News – Saturday Agenda

Senator the Hon Mathias Cormann
Minister for Finance






COAG, Tax Reform, MYEFO

DAVID LIPSON: First up though to the Finance Minister, Mathias Cormann who joins me now from Perth. Thanks very much for your time. 

MATHIAS CORMANN: Good to be here.

DAVID LIPSON: After the Leaders’ talks yesterday at COAG there was no agreement on tax reform. Have the Government’s plans for tax reform including the States stalled?

MATHIAS CORMANN: The conversation is ongoing. We’ve set ourselves a deadline to bring this conversation to a conclusion in the first quarter of 2016. At the moment, it is essentially just what it was before. We are continuing to explore various options. The objective is to improve our tax system, to make it more growth friendly, so that we can facilitate stronger growth and stronger job creation.

DAVID LIPSON: So if you don’t have a deal by March, what happens then, clearly the government has plans to go it alone. Could those plans include for example, a GST or do you need the States on board for that?

MATHIAS CORMANN: I’m not going to get ahead of ourselves. Our preference is to achieve a consensus with State and Territory governments around how our tax system can be improved and how we can make it more growth friendly. But by the same token, if in the end it is not possible to achieve a consensus, we will have to make judgements on what we can sensibly do ourselves within our respective jurisdictions to improve our tax system. 

DAVID LIPSON: The South Australian plan to lift the GST to 15 per cent and then give a portion of income tax collected by the Federal Government to the States seems to be the preferred option. That’s going to be modelled by the Treasurers. Is that correct? Is it alright to frame it as the preferred option?

MATHIAS CORMANN: That is the proposal put forward by the South Australian Premier. The Commonwealth has not put any option as a preferred option on the table. We are engaging in good faith in the conversation with all of the State and Territory governments. Our objective is very clear. We want to achieve an improvement in the tax mix. We want to ensure that our tax system is more growth friendly. We want to ensure that the necessary revenue for government, to fund the important and necessary services provided by government is raised in the most efficient, least distorting way in the economy possible. But there is still a way to go. 

DAVID LIPSON: So is it the Government’s intention then to announce the full tax reform plan, including any tax cuts and compensation in the Budget?

MATHIAS CORMANN: Our intention is to take a tax reform package, our agenda to improve our tax system, our agenda to make our tax system more growth friendly, our intention is to take that to the next election for the Australian people to be able to pass judgement on, so that we would get a mandate and implement that after the next election. 

DAVID LIPSON: Could you introduce the details though in the Budget, with the actual effect of any changes to come into effect after the election, so that you can seek a mandate and in the process sort of explain it to Australians?

MATHIAS CORMANN: Again, you’re getting ahead of yourself. The Budget is due on the second Tuesday in May as it always is. It depends on when certain decisions are made as to whether that would be reflected in next year’s Budget or whether it will be reflected in next year’s half yearly Budget update. At the moment, we are focussed on the half yearly Budget update for 2015-16. We are also involved in a conversation with the Australian people and with the State and Territory governments around how we can improve our tax system. Depending on the timing in terms of when we reach certain landing points, when we actually make specific decisions, then that will be reflected in the relevant Budget or Budget update at the earliest opportunity. 

DAVID LIPSON: Okay well, looking ahead at that mid year Budget update, which is going to be released on Tuesday, what spending does the Government have to pay for in that statement? You’ve had a few things like the Innovation Statement, the cost of relocating Syrian refugees and the like. Is that the sort of thing you’re talking about and how much does that equate to?

MATHIAS CORMANN: The specific numbers will be released on Tuesday when we release the Mid-Year Economic and Fiscal Outlook. But as a matter of principle, where ever we have incurred higher expenditure on comparatively higher priority areas we have more than fully offset that by a reduction in expenditure elsewhere. Our focus in this half yearly Budget update continues to be, as it has been in every Budget and Budget update since we came into Government, we are focussed on controlling expenditure and on strengthening growth. Because that is the way over time, we will be able to get our Budget back into balance.

DAVID LIPSON: Will it show that the Budget is in a better position or have commodity price falls and the like actually eaten away at revenue so much that the Budget is going to be at a worse position?

MATHIAS CORMANN: What it will show is that the policy decisions taken by the Government overall have improved the Budget bottom line since the Budget. But there is always a range of various ups and downs in any Budget. There are always a lot of swings and roundabouts at any time. Some things are outside of our control. Everybody knows, it’s a matter of public record, that the price of iron ore has continued to fall. Iron ore is our biggest national export earner and when you’ve got falls in the price of iron ore to the extent that we’ve continued to experience since the Budget, then that self evidently is going to flow through in terms of revenue. Again, what the specific numbers are going to be, that will all be reflected and revealed in the Mid-Year Economic and Fiscal Outlook on Tuesday. 

DAVID LIPSON: So spending may have been reined in some what is what you are suggesting, but the deficit may actually be higher? 

MATHIAS CORMANN: We are focussed on controlling expenditure. That is right. So where we have either made judgements to increase spending on comparatively higher priority areas or where we have been required to increase expenditure we have been focussed on paying for any spending increases in one area with spending reductions in other areas. We have certainly been able to stick to that discipline. By the same token there are broader developments in the global economy, there are broader developments in terms of our terms of trade, in terms of the price we get for our key commodities like iron ore, that have had an impact since the Budget on the revenue side. That is not some major revelation. I think that everybody well understands that. These are things that are outside of our direct control. So we’ve got to work to ensure that we are in the strongest possible position to deal with these sorts of challenges when they come our way. 

DAVID LIPSON: It sounds like you’re all but confirming that the deficit will be higher?

MATHIAS CORMANN: I am not confirming any numbers. I’m just explaining to you some of the challenges that we’ve been dealing with. I am explaining to you the strong commitment that we’ve maintained to control expenditure and to ensure that we continue to improve our position in the context of the policy decisions we’re making. So with the things that we control, we’ve continued to focus on making sure we improve our position. The things that are outside of our control, these trends are there for all to see. 

DAVID LIPSON: So does the Government then now accept that getting the deficit down is not your number one priority?

MATHIAS CORMANN: Our number one priority always is to strengthen growth and create more jobs. As part of strengthening growth and creating more jobs, getting the Budget under control, getting the Budget on a sustainable foundation for the future, is an important part of achieving that objective. We continue to focus on getting the Budget back to balance, getting the Budget back into surplus as soon as possible. But we are doing it in an economically responsible fashion.

DAVID LIPSON: And just briefly on election timing, Goldman Sachs says that there is quote ‘an economic incentive’ to go to an election in March or April because of the double jeopardy situation of a sluggish economy expected next year. And also demands from ratings agencies to curb rising debt. Any truth in that?

MATHIAS CORMANN: The election is due in the second half of next year. We’ve got a lot of work to do. I would have thought that our intention is to serve the full term. The second point I would make is that we are optimistic when it comes to the economic outlook for Australia. Australia is in a period of transition from resource investment driven growth to a more broadly based growth and we are going through that transition quite well. We are optimistic about what lies ahead for Australia in the future.

DAVID LIPSON: Finance Minister, Mathias Cormann, thanks so much for joining us. That is our last chat for the year, it has been great talking to you all throughout the year. We do appreciate it.

MATHIAS CORMANN: Always good to be here.


Senator the Hon Mathias Cormann, Minister for Finance, Perth