Senator the Hon Mathias Cormann
Minister for Finance
ALI MOORE: Well do you know that feeling when you’ve got the best paid plans for the family budget and they all go awry? You thought something would cost x and actually it cost y. Or perhaps you bargained on earning a certain amount and you over estimated. Well add in lots and lots and lots of zeros to the sums and that’s pretty much the dilemma that is facing the Federal Government today. It is MYEFO day. That is the Mid-Year Economic and Fiscal Outlook statement and it means we get to see the damage, for want of any other word, to the Government’s finances since the May Budget. Mathias Cormann is the Finance Minister and he joins us now. Mathias Cormann good morning.
MATHIAS CORMANN: Good morning Ali and good morning to your listeners.
ALI MOORE: Is it a good morning? How bad is it going to be today?
MATHIAS CORMANN: It is of course a good morning. The good news is that the Australian economy is going quite successfully through a transition from significant resource investment driven growth to broader drivers of economic activity and growth. When it comes to the half yearly budget update today, what it will show is that the Government has continued to focus on controlling expenditure by more than offsetting any increases in spending by reductions in spending in other parts of the Budget. And that spending overall is down compared to what was anticipated at Budget time.
ALI MOORE: So if we look at that spending between the Budget in May and now. How much are you putting on it and how much have you managed to save. Labor says the new measures are $6.5 billion over four years. Are they right?
MATHIAS CORMANN: The specific numbers will be released later today, when the Mid-Year Economic and Fiscal Outlook is released. Some of the spending, is spending which Labor would know a lot about, because, for example, the biggest single additional spending measure since the Budget, $1.1 billion in additional investment in the Roads to Recovery program was a condition of getting Labor’s support to pass the fuel excise indexation related legislation through the Senate. So we have had to find savings elsewhere in the Budget in order to pay for that. Then there is the expense related to the decision to welcome about 12,000 additional refugees from Syria to Australia. There is additional expenditure related to the listing of some cancer treatment related pharmaceuticals on the Pharmaceuticals Benefits Scheme. There is the Innovation Statement. So from time to time there is additional expenditure that is incurred across a range of areas. The discipline that the Government has imposed on itself is that, wherever there is additional expenditure on comparatively higher priority areas, that it is more than fully offset by reductions in expenditure elsewhere.
ALI MOORE: So where are the cuts?
MATHIAS CORMANN: The detail of all of that will be revealed later today. But our focus has been on making sure that payment arrangements across Government are consistent. That there is integrity in the system. That we ensure that spending is as efficient and as well targeted as possible. And that where there was opportunity to remove duplication that we have done so. So … interrupted
ALI MOORE: So not even a hint of what area it is in?
MATHIAS CORMANN: We’ve looked across the whole of the Government. The detail will be revealed later today.
ALI MOORE: So you’re making spending cuts to match the extra spending, but you’ve got problems on the revenue side too haven’t you? If you look at iron ore prices, that’s a really obvious one. They’re sitting at around $37 a tonne. In the Budget you assumed $48 a tonne. There’s a $5 billion hole in the Budget on an annual basis because of lower revenue as well as higher spending. Is that what we’re looking at? A deficit blow out?
MATHIAS CORMANN: It is not as well as higher spending. As I said, spending will be lower than anticipated at Budget time. But you don’t have to be Einstein to figure out that given what has happened to the iron ore price over the past two years, that that has continued to flow through in terms of revenue to Government. When we came into Government, the price for iron ore was at about $120 a tonne. We progressively had to downgrade that to $90, to $60, to $48 a tonne at Budget time as you’ve mentioned. There has been a further downgrade. Now the specifics in terms of the numbers will be revealed later today. But yes a lower price for our key commodity in global markets, which is something that is beyond our control, does lead to lower company tax receipts, comparatively low levels of inflation and low wages growth means that the revenue from personal income tax doesn’t grow at the same rate as it otherwise might have. So all of these sorts of things are having impacts on the revenue side of the Budget.
ALI MOORE: So what do you do about that in the longer term because there’s no upward trend in commodity prices, there’s no upward trend in tax receipts. How key is it that you now have to find other areas that you will have to reform the tax system, you will have to increase taxes, you will have to do something to try and fix that revenue side.
MATHIAS CORMANN: That is not right. The way to fix the revenue side as you say and the way to boost revenue for Government is by strengthening growth. As I’ve mentioned to you earlier Australia is going through a transition from predominately resource investment driven growth to broader drivers of growth. The reason the Government is focused on improving our competitiveness, on reducing the cost of doing business, the reason we got rid of the carbon tax and the mining tax, reduced red tape costs for business, pursued an ambitious free trade agenda, pursued an ambitious infrastructure investment program and the reason last week we released the Innovation Statement, is because we want to encourage, back and support broader drivers of growth across the economy.
ALI MOORE: Sure Minister. But no one suggests that’s going to happen in a hurry. That’s a long term outlook isn’t it and you’ve got a Budget problem now.
MATHIAS CORMANN: That is why we are controlling expenditure. It certainly wouldn’t be sensible to chase down falling revenues on the back of below trend growth by deeper cuts in expenditure than what we are already pursuing at the moment. But the final point I would make is, when it comes to the tax system, what we need to do there is to look at how we can make our tax system more growth friendly. How we can raise the necessary revenue for Government in a better, more efficient, less distorting way in the economy. Not on how we can increase the overall tax burden above the trajectory that we are currently on. Because… interrupted
ALI MOORE: So what do you think is the best way to make it more efficient?
MATHIAS CORMANN: That is a conversation that is currently underway. The Government hasn’t reached a landing point in relation to the specifics that are proposed. But that is something that we will do over the next few months.
ALI MOORE: Superannuation the easiest thing to change?
MATHIAS CORMANN: It is not a matter of what is easy. Really the question is how do we make our tax system more growth friendly. How do we ensure that the tax system provides the right incentives to encourage people to work, save and invest. The last thing you want to do if you want to strengthen growth is increase taxes overall because that will make it harder to strengthen growth. These are all the sorts of things that the Government will continue to balance.
ALI MOORE: A number of people have said prior to today that this is an opportunity of course for you to clear the decks, because you’re, well not so much you and Scott Morrison, because of course, new Treasurer are taking over from Joe Hockey, is there going to be any element of taking out the trash? As it was put by one economist?
MATHIAS CORMANN: This is very much going to be a continuation. The Turnbull Government with Scott Morrison as Treasurer and me continuing as Finance Minister, we are building on the progress that we’ve made in our first two years in Government. This is very much making sure that Australia continues to transition well from resource investment drive growth to broader drivers of growth. It is making sure that the Budget is put on a stronger and more sustainable foundation for the future and that we get back into surplus as soon as possible but also in a way that is economically responsible.
ALI MOORE: Mathias Cormann thank you for talking to us today. I’m sorry you couldn’t give us numbers, but how long until the announcement is actually made?
MATHIAS CORMANN: It will be 10 o’clock in Perth this morning, which is at 1:00pm Eastern time.
ALI MOORE: The Eastern States. Mathias Cormann, many thanks.
MATHIAS CORMANN: Talk to you soon. Bye.