ABC News24 – Greg Jennett

Senator the Hon Mathias Cormann
Minister for Finance






Mid-Year Economic and Fiscal Outlook

GREG JENNETT: Now we are able to go to one of the co-authors of today's mid-year economic and fiscal outlook, that is the Finance Minister, Mathias Cormann. He's joining us now live from Perth, and Mr Cormann, thanks for joining us.

MATHIAS CORMANN: Good to be here.

GREG JENNETT: This holiday analogy that your colleague, Scott Morrison, has used to explain a long, slow and patient journey back to surplus, it's a very, very long ride, isn't it, if we are waiting until 2021. Why can't that be hastened?

MATHIAS CORMANN: Well the important point that Scott Morrison made during the press conference earlier was that we are continuing to make progress and we are continuing to head in the right direction. Some people will say why can't we get there faster, why can't we get there this way or that way, but the truth is we are actually making progress. In the context of obviously more challenging global economic conditions than had been anticipated in the context of further falls in the price we can achieve for our key commodity exports, we have been able to keep a budget trajectory over the forward estimates that is improving year-on-year with the deficit reducing year-on-year, and with expenditure being at about $13.3 billion below the level anticipated at budget time.

GREG JENNETT: It is true to say that each and every deficit you post after next year does decrease, but if you actually compare it back to budget, the three latter years after the current year of 15-16 are some $23 billion worse in cumulative deficits than they were at May. So things are actually substantially worse on the bottom line overall. Do you accept that?

MATHIAS CORMANN: Well as a result of external factors beyond our control. The discipline that we imposed on ourselves for this budget update and indeed what we were able to achieve is to ensure we don't go backwards as a result of the policy decisions that we have made. In fact, if you take the effect, the overall effect of policy decisions on the budget bottom line, it has actually improved by nearly $400 million. We are controlling expenditure by making sure that wherever there has been a need for additional expenditure, for example, in relation to the welcoming of an additional 12,000 refugees from Syria, , in relation to $620-odd million in additional expenditure or various drugs principally related to cancer treatment on the Pharmaceutical Benefits Scheme. When we have incurred that sort of additional expenditure, we have been able to more than offset that by spending reductions in other areas. That was obviously the objective. This is a budget update. This is not a budget and we are continuing to make progress in implementing our plan and that is a plan that is focused on stronger growth, on more jobs and on repairing the budget as soon as possible, but in a way that is also economically responsible.

GREG JENNETT: There are various spending savings there, some of them in aged care. If we just talk about two as they relate to health costs, can you assure people that they won't be left worse off as a result of this removal of bulk billing incentives in both pathology and in medical imaging scans?

MATHIAS CORMANN: Well, there shouldn't be any impact on patients in need of the sort of support that is provided as a result of bulk billing incentive payments. If you look at the way the bulk billing incentive payment operates for GP services, for example, it is provided for patients on concession cards and for children under 16. We have made that arrangement consistent when it comes to the bulk billing incentive payment for diagnostic imaging services. That is essentially removing an anomaly that was created by the Gillard Government by making sure there is consistency in the way these sorts of arrangements are applied across various healthcare providers. In relation to pathology services, we have put a measure there to remove the bulk billing incentive payment all together. At present the bulk billing rates for pathology are nearly at 90%. We believe there is opportunity for this money to be spent better within the health system. Incidentally, the $650 million saving helps us to pay for the $621 million in additional expenditure that we will be incurring in relation to various new drugs in the context of cancer treatments that have been listed on the Pharmaceutical Benefits Scheme. So the money has been redirected within the health system.

GREG JENNETT: All right. On the revenue side, let's talk about iron ore prices and GDP growth, both are key assumptions that are built in to this budget update. I think you were asked in the media conference about iron ore prices, but what gives you the confidence that it won't go very much lower than where it is now, which is slightly under the $39 that you are forecasting.

MATHIAS CORMANN: The answer the Treasurer gave is that this is based on a technical assumption. The methodology that we have used is the same methodology that was used in previous budgets and budget updates ...interrupted

GREG JENNETT: But methodology that has proved to be inaccurate in the past?

MATHIAS CORMANN: Well it is the best available. Nobody actually knows what is going to happen. So the methodology that we have used, and it's transparently declared in the budget papers and in the MYEFO update, is that we have taken the average price over the previous four weeks prior to the closing off the books for this budget update. The number that we have used for the iron ore price is $39 a tonne. People now can form their own judgments as to whether the risk is on the up side or the down side. But let me just say, when we came into Government, the iron ore price was running at about $120 a tonne. We reduced it down to $90 a tonne in our first budget update and we were being accused of being too pessimistic and trying to make the numbers look worse than what they actually would be in order to make ourselves look better down the track. We then had to reduce it down to $60 a tonne and then to $48 a tonne and we are using the same methodology. The truth is nobody precisely knows where the iron ore price is going to be in the weeks and months ahead. But this is the best methodology that is available.

GREG JENNETT: When revenue is falling away, as it is, at the tune of $33 billion, there's a lot Governments can't do and there are some things they can do. What are the implications for the current settings on tax reform? Can it be achieved? Is the need for it any greater because of the revenue situation that you face?

MATHIAS CORMANN: Well the need for tax reform is of course important in the context of our efforts to strengthen growth. We need a more growth friendly tax system. We need to ensure that the revenue needed by Government to fund the important and necessary benefits and services provided by Government from the social safety net to the defence of our nation, that that revenue is raised in the best possible, in the most efficient least distorting way in the economy possible so it detracts the least amount possible from our economic growth potential. There is of course an ongoing conversation on how the tax mix can be improved, but the last thing you would want to do, if you want to strengthen growth, among other things to drive stronger revenue for Government, is to increase the overall tax burden beyond the trajectory that we are currently on.

GREG JENNETT: So is that something that happens for the May budget, ahead of the May budget, or beyond it, for an election?

MATHIAS CORMANN: Well every single day our Government, the Turnbull Government, is focused on strengthening growth, which of course will help create more jobs, which will help improve living standards across Australia, which will help improve opportunity for people to get ahead and will also lead to increased revenue for Government. Obviously budgets are a point in time, at budgets you present your plan for the four years ahead and at budget update time you provide an update on how you are tracking against your plan. That's what we have done today, but we'll continue every single day to pursue policies and to implement our plan to strengthen growth and create more jobs.

GREG JENNETT: But we heard words today, descriptions by you and the treasurer, workmanlike, sensible, measured, safe, careful and patient for your approach. At what point does some sense of urgency kick in and some bigger solutions get unleashed on the economy, such that we didn't really see today?

MATHIAS CORMANN: Well, I don't know that that is what people would want us to do. I actually don't think that people would want us to do that. People want us to take a responsible and measured approach. People want us to focus on stronger growth and more jobs. People want us to ensure that we get the budget back into balance as soon as possible, but in a way that is economically responsible. And that is exactly what we are doing and today we have provided an update on how we are tracking and what the update today shows is that we are making progress and that we are heading in the right direction.

GREG JENNETT: Which is a very stark contrast to talk of a budget emergency under a different economic leadership team not so very long ago?

MATHIAS CORMANN: When we came into Government in 2013, we inherited a rapidly deteriorating position, we inherited a weakening economy from the previous Labor Government, we inherited rising unemployment, and we inherited a rapidly deteriorating budget position. I mean, we have, of course, over the last two years, made decisions to turn that situation around, to strengthen growth, to create more jobs, and to repair the budget. Today is another instalment providing an update on how we are tracking and when you look at the level of job creation in the economy, for example, that is extremely pleasing. Jobs growth has been strengthening. The unemployment rate today is below where it was anticipated to be in the past and indeed the outlook moving forward for the unemployment rate is below where it had previously anticipated to be. So we are just pressing ahead with implementing our plan, the Turnbull Government is building on the progress made and the achievements of the Abbott Government, but this is very much continuing to head into the direction of stronger growth, more jobs and get the budget back into balance as soon as possible in the way that is economically responsible, and we of course will continue to do everything we can to make the best amount of progress in the appropriate period of time.

GREG JENNETT: You are in the Senate. I think you noted earlier there's about $13 billion worth of savings essentially still caught up in the senate. What gives you the confidence that all or most of that can be passed and so be achieved as it’s stated in this update?

MATHIAS CORMANN: Well, $89 billion worth of budget repair measures have been legislated and have been implemented. $89 billion. So, I mean, obviously there is a remaining body of work and the Government continues to work positively and constructively with the Senate to make progress in relation to these outstanding measures. But you clearly, in the context of putting this half yearly budget update together, we did make an assessment on which measures warranted revisiting, further adjustment, and which measures we continue to persist with in their current form and all of those decisions are reflected in this mid-year economic and fiscal outlook.

GREG JENNETT: Mathias Cormann, the reason why we have had this update delivered in Perth is that you are expecting the birth of another child very soon, a surplus present for that child when they turn 4 or 5. Is that a gift you can guarantee?

MATHIAS CORMANN: Well, we will get back to surplus as soon as possible, and as soon as is economically responsible, because that is what future generations of Australians expect us to do. Future generations of Australians, of course, want to be able to inherit a strong and successful Australian economy and they don't want to have to pay for our expenditure deficit expenditure today. So that is why we are working on strengthening growth and improving the budget.

GREG JENNETT: Best wishes for what lies ahead in the immediate future and we'll be tracking the path to 2020-21 surplus. Thank you.



Senator the Hon Mathias Cormann, Minister for Finance, Perth