Senator the Hon Mathias Cormann
Minister for Finance
LAURA JAYES: Thanks Peter, Minister thanks so much for your time and joining us from Perth this afternoon.
MATHIAS CORMANN: Good to be here.
LAURA JAYES: There’s been a decline in growth, the deficit has blown out further, it’s quite a grim outlook for commodity prices and the terms of trade. What’s the good news?
MATHIAS CORMANN: Well the good news is that jobs growth is very strong and the unemployment rate is now forecast to peak below previous forecasts. The other good news is that we continue to make progress, strengthening growth in the context of global economic headwinds and we continue to make progress in repairing the budget by focussing on controlling expenditure.
LAURA JAYES: Its clear the government’s mantra remains to be about jobs and growth. But growth is down over the forward estimates, I know you talk about that in the context of the global economy. But unemployment has improved, or you project it to improve over the forward estimates but isn’t that only because of slow wages growth? I also note that the Treasurer says he hopes that might improve but what is that hope based on?
MATHIAS CORMANN: Well firstly, right now the unemployment rate is lower than previously forecast. So it’s not just what we’re projecting, it is actually the situation we are in right now when it comes to jobs which is better than what has previously been anticipated. And yes our economy is in a transition. We are a trading economy. What happens in the global economy matters to us. The price we can get for our key commodity exports matters to us. If we hadn’t pursued our economic growth agenda, if we hadn’t removed some of the burdens that we inherited, if we hadn’t pursued an ambitious free trade agenda, if we hadn’t pursued an ambitious infrastructure investment program, if we weren’t pursuing our innovation agenda - our science and innovation agenda - we would be in a less strong position than we are now. Our outlook is positive. Yes we are in transition from a resource investment driven growth period to broader based growth, but we’re working through that transition reasonably well.
LAURA JAYES: I’ll get to some of the spending and saving measures in a moment, but the Treasurer and you today have talked about the need to be patient and responsible when it comes to the budget. Is that really the only thing you can promise at the moment? And does that suggest that perhaps the previous Prime Minister and the previous Treasurer weren’t doing that?
MATHIAS CORMANN: No that’s not right. This is a budget update. You’ve got to remember this is not a budget. This is a budget update. So the job for us when it came to this budget update was to ensure we don’t go backwards as a result of policy decisions that we’ve made since the budget and we are not. We are in fact slightly improving our budget position as a result of the overall effect of policy decisions. Any decision to incur additional spending has been more than offset by reductions in expenditure in other parts of the budget and policy decisions overall have improved the budget bottom line by about $400 million. So that was an important fiscal discipline for us to apply. Expenditure overall in this half yearly budget update is expected to be $13.3 billion lower than anticipated at budget time in May.
LAURA JAYES: The approach you’re taking with offsetting any new spending with savings, is that an approach you will take to the budget and in to an election year? So can we expect this government in the announcement of any new spending measures even in an election campaign to also announce offsets?
MATHIAS CORMANN: Well yes. This is our fiscal strategy. That is the discipline that we have imposed on ourselves ever since we came into government. It’s the discipline that we have applied in every Budget and Budget update including in this one. Part of our approach to repairing the Budget is to ensure that wherever there is a need for additional expenditure on comparatively higher priority areas it is fully offset by spending reductions in other areas. A combination of stronger growth and controlling expenditure will get our Budget back into balance as soon as possible.
LAURA JAYES: When you look at the MYEFO document there’s the words used quite a lot and that is ‘streamlining’ and ‘tightening’ words to that effect. It appears on the surface of it many of these streamline approach are being made in health and education. So how can we be sure that the most vulnerable people aren’t bearing the burden of these so-called tweaks.
MATHIAS CORMANN: We have had a program of work underway for some time now and the Treasurer Scott Morrison and I have been working with our colleagues in the Expenditure Review Committee and in the Cabinet to identify areas where the quality of spending could be improved. Where the appropriate priorities could be pursued and where we can improve the efficiency and effectiveness of government spending. Every part of government is always under review from that perspective and that is what we have done on this occasion. Just to put this into perspective, for example we have identified about $2 billion worth of savings through integrity measures in terms of our welfare payment arrangements by using better income data matching capabilities that are now available to us and we expect to save about $2 billion. But if you put that into the context of about $660 billion worth of expenditure in that social security and welfare space over the current forward estimates then that is an eminently achievable efficiency of zero point three per cent ...interrupted
LAURA JAYES: But these efficiencies Minister are achievable but don’t you need to start making some significant cuts? Aren’t you putting off the difficult decisions here?
MATHIAS CORMANN: No we are not putting off difficult decisions. We are making sure that we implement our plan to strengthen growth, to create more jobs and to repair the Budget in a sensible and in a balanced fashion. Today is another instalment. It is another update on how we are tracking. What today’s update shows is that we are making progress. That we are now heading in the right direction. The economy is in a stronger position than it would have been if we hadn’t implemented some of our growth policy initiatives in the past two years and of course the Budget position is in a better position than it would have been if we hadn’t pursued some of the Budget repair measures that we have pursued. Incidentally, right now, even just based on the spending promises and other promises that Labor has made since the last election, the Budget right now would be at least $50 billion worse off over the forward estimates than what it is right now based on the promises that Labor has made so far.
LAURA JAYES: The Treasurer also used the phrase in that media conference there, he said he will be avoiding any extreme responses, taking a measured approach. So does this mean the Budget emergency is dead, buried, cremated? Will we not hear those words uttered anymore?
MATHIAS CORMANN: We inherited a very bad forward trajectory when we came into Government. A weakening economy, rising unemployment and a Budget position that was rapidly deteriorating. Over the past two years we have taken action to strengthen growth and to repair the Budget. Today is another update and we are now on an improving trajectory. The underlying cash balance ...interrupted
LAURA JAYES: So there is no longer a Budget emergency?
MATHIAS CORMANN: ...will continue to improve year on year over the forward estimates. The underlying cash balance is expected to improve year on year over the forward estimates. Spending as a share of the economy is expected to continue to fall from about 25.9 per cent this year to about 25.3 per cent at the end of the forward estimates. So we are making progress, heading in the right direction. As I have said, spending in this Mid Year Economic and Fiscal Outlook is expected to be $13.3 billion less than anticipated at Budget time just six months ago.
LAURA JAYES: Minister the Budget surplus projection has been pushed out once again. This is now not only not at the end of this decade but beyond 2020. You say there is a clear path back to surplus in this MYEFO document but to many Australians I would say that this path is probably as clear as mud. Now it is not going to be achieved for almost a decade. How is that a clear path?
MATHIAS CORMANN: Well I am not sure how 2021, if that is when it is achieved would be a decade. When I last looked that is about six years from now. But the point I would make is that we have always said, and we have been consistent with that, in the lead up to the last election and ever since, we will bring the Budget back into balance and into surplus as soon as possible and as soon as it is economically responsible. We have laid out our plan on how we intend to achieve that. Obviously from time to time there are changes in global economic conditions. From time to time there are various external factors beyond your control that will have an impact on your capacity to reach your objectives and you have got to be flexible and nimble and agile enough to adjust to changing circumstances. That is of course exactly what the Government is doing. We have been hit with a significant fall in the price that we can achieve in global markets for our most important export earner - iron ore. Iron ore represented only a short time ago more than 20 per cent of our national export income. Now that has got consequences. But all things considered, the Australian economy is transitioning very well from significant resource investment driven growth to broader drivers of economic activity.
LAURA JAYES: You talk about the consequences and I appreciate those consequences. But could one of those consequences be that we lose our AAA credit rating?
MATHIAS CORMANN: I don’t expect that to be the case at all. The ratings agencies will make their own judgements, but what the ratings agencies look for is a clear plan. They want to see that the Government is making progress and implementing its plan and that they stick to their fiscal strategy. That is exactly what we have done. The ratings agencies understand about changes in global economic conditions. The ratings agencies understand about what has been happening to prices for our key commodity exports and in the context of all of that we continue to have an improving Budget position over the forward estimates on the back of controlling expenditure.
LAURA JAYES: Okay I just want to ask you one final question that was quite curious to me when you look at the document. China growth, the growth in China is unchanged since the Budget that is still projected to be 6.75 per cent. Why are you so positive and sure about the growth in China?
MATHIAS CORMANN: Well the International Monetary Fund only a few months ago in Lima as part of the G20 Finance Ministers Meeting indicated that they expected 6.8 per cent growth in China. So that is you would have to say broadly consistent. We take advice on these sorts of matters. These assumptions are based on the best possible and best available information at the time. If down the track there is better information, up or down for that matter, you will make adjustments. But from where we sit now that is a realistic assessment of what we believe is likely to happen.
LAURA JAYES: Finance Minister Mathias Cormann you have been very generous with your time. Good luck with everything. We will speak to you soon no doubt.
MATHIAS CORMANN: Thank you. See you.