Senator the Hon Mathias Cormann
Minister for Finance
GRAHAM RICHARDSON: Welcome back to Richo and Reith I might as well just call it by what it really is. In Perth waiting for us and I might say doing the last interview he is doing apparently on all this, is Mathias Cormann the Finance Minister. Welcome to the program.
MATHIAS CORMANN: Good to be here. Good evening.
GRAHAM RICHARDSON: Can I just ask you, what happened to the crisis Mathias? Now you were part of the talk two and a bit years ago, an election campaign, we’re all in terrible trouble, we needed to get rid of the deficit. This deficit is going to go on until 2025, what happened?
MATHIAS CORMANN: We inherited a very bad and deteriorating position. Imagine if we hadn’t done the hard yards over the last two years to turn that situation around. Given what has happened in the global economy, given what has happened to our terms of trade, given what has happened to the price we are able to achieve on global commodity markets for key exports like iron ore and coal. Can you imagine if we hadn’t worked so hard to strengthen growth, to create more jobs and to put the budget in a stronger position for the future? Yes, we are facing challenges as we are working through the economic transition from resource investment driven growth to broader drivers of growth. Yes, we had to deal with significant revenue write downs outside of our control. But if you look at this budget update, expenditure is down by $13.3 billion and the effect of policy decisions by the Government, the things that we actually control, has actually improved the budget bottom line slightly rather than to take us backwards. That was the objective for this update. We did not want to go backwards as a result of the decisions made by the Government, either on spending or on revenue. We have been able to achieve that objective.
GRAHAM RICHARDSON: I’ll give you leeway for all the reasons you just suggested, but you didn’t give Labor any leeway with the GFC which was pretty serious at the time.
MATHIAS CORMANN: I’m happy to re-litigate that whole argument. The argument at the time in relation to the GFC was that the level of expenditure was excessive given the very different circumstances that Australia was in at the time with a strong economy and a strong balance sheet and with comparatively high official cash rates by international standards. In our judgement, the Reserve Bank through monetary policy settings would have been able to stimulate economic growth more efficiently at the time. We would have been left with a lesser deficit and debt trajectory moving forward at the time. The problem is that Labor not only increased spending by 17 per cent above inflation in their first two budgets in the context of the GFC, they locked in that crisis level spending as the new base. Then just before losing government, when the terms of trade were already starting to come off, they locked in further unaffordable and unsustainable spending growth. In particular in the context of things like Gonski payments, unaffordable and pie-in-the-sky promises in relation to payments to the States on hospitals and schools in the period beyond the published forward estimates at the time. These are all things that we have had to work our way through. We made a commitment to support the then government’s approach to the National Disability Insurance Scheme, but that was also an unfunded initiative, which is one of the reasons we have got to make space in the Budget now to be able to afford the investment and the expenditure on that sort of high priority area of spending.
PETER REITH: And can I just ask you about the numbers you have got for the GDP going from 3.5 to 3 per cent, I think that’s going in the right direction, a more realistic figure I’d have to say and you’ve brought back the figure to I think 2.5 per cent this time, which is pretty well where we are or we’re going to 2.75 in the following year. But all the same, even though you’ve had some good numbers on unemployment recently, what’s the basis for thinking that we’re going to charge out of 2.5 and slip into 3 per cent in a couple of years time? What makes you feel confident that’s going to be possible? Because the truth of the matter is the China story may not improve and we might be looking at a pretty flat GDP performance for some years to come, mightn’t we?
MATHIAS CORMANN: Estimates are that, they are estimates. For the first two years of the Budget forward estimates period, these are forecasts that are based on relevant advice by Treasury, taking into account assessments in terms of what is happening in terms of the global economy and what is happening in the domestic economy. We waited for the National Accounts data for the third quarter of growth before making final judgements in relation to those numbers. In the final two years of the forward estimates period, these are the projection years and the three years after the published Budget forward estimates period. There is essentially a series of technical assumptions that are used including a return to long term average rates of unemployment and in terms of the level of economic growth and so on. The further in the distance you go, the less certain you are about the ultimate success of achieving these sorts of projections. That is why you keep updating that information as you go forward as better information becomes available.
PETER REITH: I’m not a critic about the three per cent, except to say I’m just not quite sure how you’re going to get there and then that brings me to the second part of the question really, is that what do you think are going to be the big levers for the growth that you talk about? I agree with the thinking there, but I’d like to be a bit more convinced. I’d like to be convinced for example that you are going to have a more flexible labour market. I’d be more convinced if I thought you’d given up, you’d agreed to the sale of the Kidman stock business for example. If you’d allowed people to have cheaper cars for example, like they have in New Zealand for second hand cars. All of those things would be really good for growth wouldn’t they? Are we going to have a big package of reforms?
MATHIAS CORMANN: We have since coming into Government been pursuing an agenda for stronger growth. That is why we have been removing some of the lead that the previous Labor government had put into our saddlebag. That’s why we removed the carbon tax and the mining tax. That’s why we reduced red tape costs for business by $2 billion a year. That’s why we’ve pursued an ambitious free trade agenda, helping our exporters to be more successful into key markets like China, Japan and South Korea, incidentally broadening our exports into China beyond exports of iron ore and other resources into other areas, in particular agriculture and services. That is why we are pursuing an ambitious infrastructure investment program. That is why the Turnbull Government last week announced its science and innovation agenda as a core of future economic growth and success. That is why we are having a conversation about the need to ensure we have a more growth friendly tax system. Across all of the areas of public policy, of course we have got to keep working to put Australia on a stronger economic foundation for the future, to ensure we are more competitive, we are more productive, we are more innovative and in the best possible position to take advantage of the opportunities coming our way. Let me say, we are quite optimistic. We are part of the Asia Pacific. This is where most of the global economic growth will be generated in the years and decades to come. The key is to position Australia in the best possible way to ensure we are in the most competitive position to seize those opportunities.
GRAHAM RICHARDSON: Mathias, I know that it’s a great time to be an Australian, a great man said that recently. With $108 billion of deficits in four years, I’m not sure how great. Let me take you to some of the spending cuts that were raised today because I think they do matter. Now when you’re removing bulk billing for pathology services and we’re talking also about diagnostic imaging, CTs and MRIs or whatever, to whom does that apply? Are pensioners and low income people looked after or do they have to get out their wallet?
MATHIAS CORMANN: A couple of points. Firstly, in terms of your point about the deficit over the forward estimates. The deficit is reducing every year over the forward estimates despite the additional global economic headwinds and despite the revenue write downs. Now in relation to the savings measure in relation to diagnostic imaging and pathology services, the bulk billing incentive payment arrangements were actually introduced by the Howard Government first, in relation to GP services. So not only did the Howard Government decide to pay 100 per cent of the Medicare fee as a benefit, but on top of that, in order to incentivise bulk billing, they decided to make an additional bonus payment, a bulk billing incentive payment and that was targeted to patients on concession cards or children under the age of 16. When the Gillard Government expanded this bulk billing incentive payment to diagnostic imaging and pathology, they applied it to everyone. So what we’ve decided to do is to make the arrangements for diagnostic imaging consistent with the arrangements that apply to GP services. We think that is only fair and reasonable. So the bulk billing incentive payment will continue to apply for pensioners, concession card holders and children under 16 years of age, for diagnostic imaging services that is. In relation to pathology, the evidence is that the bulk billing incentive payment did not actually make a difference in terms of the bulk billing rates. The bulk billing rates before the bulk billing incentive payment was introduced was 86 per cent or thereabouts, it’s now 87 per cent. So that is not a material change. There is actually a very competitive market when it comes to pathology services and we believe that the expenditure here is not very well directed in the context of the broader health system. If you look at some of the spending pressures we’ve got in health. We’ve had to commit $621 million in additional expenditure on cancer related drugs on the Pharmaceutical Benefits Scheme. Given the broader financial position we’re in, given the broader fiscal challenges we’re facing, we made a judgment that in the circumstances, it was appropriate to align bulk billing incentive arrangements for diagnostic imaging with those that apply to GP services. In relation to pathology, the evidence is that the bulk billing incentive payment did not make a material difference to the rates of bulk billing. So we believe that that taxpayers’ money is better directed into funding new drugs mainly in relation to cancer treatment that have been listed on the Pharmaceutical Benefits Scheme since the Budget.
GRAHAM RICHARDSON: Every Government has a crack at cracking down on Centrelink and what people declare and all the rest of it. Every Government. When I was Social Security Minister we were doing that, and everybody makes very brave assertions as to how much they’re going to save. Now you’ve got down $704 million over three years from looking at discrepancies between what is declared to Centrelink and what’s declared to tax. Do you really think that is a realistic figure because it looks very big to me?
MATHIAS CORMANN: There are actually two figures there that go to the integrity of welfare payments, which relate to income data matching. Overall, the expected saving from those two measures is just short of $2 billion. Yes that’s an important figure in terms of our efforts to repair the Budget. But in the context of the Government’s welfare payments overall, it is a very small percentage. The Government expects to pay more than $660 billion on social security and welfare related payments. This is essentially, through an increased integrity measure, a 0.3 per cent saving. In fact, less than a 0.3 per cent saving. There is now better opportunity through information technology and digital technology to enhance data matching when it comes to matching the income declared to Centrelink with the income that is assessed by the ATO and through other sources. We are very confident that this is a conservative estimate of the saving that we will be able to achieve through this process.
GRAHAM RICHARDSON: Tell me, is it the case recently as I read recently, that 8 out of 10 Australian workers go to work and pay tax to pay for the welfare system?
MATHIAS CORMANN: I’d have to take that on notice. It’s certainly true that a lot of people do not pay tax and that a comparatively smaller proportion than you would expect pays tax to essentially pay for all of the benefits and services provided by Government, but the exact numbers I’ll have to take that on notice.
GRAHAM RICHARDSON: Yeah okay, it wasn’t a trick question. I just wonder about how serious this is getting.
PETER REITH: I’m going in to get a blood test. That's a pathology type thing. Will it cost me or will it not? Simple answer, I just want to know.
MATHIAS CORMANN: It shouldn’t because the Government will continue to pay 100 per cent of the Medicare Benefits Schedule fee. Just because from next year, the Government will not provide a bonus payment to encourage the provider to bulk bill, that is not a reason for the provider to stop bulk billing. The evidence is that the additional bonus did not actually lift bulk billing rates for pathology services materially, it was 86 per cent before this payment was introduced, it is 87 per cent now. Essentially, it was not a very effective use of taxpayers resources when it comes to financing affordable access to quality healthcare.
PETER REITH: So the guts of this is the person who is going to be unhappy about this proposal is not going to be a pensioner, and it’s not even going to be me, it’s the bloke who runs the pathology service, that’s what you’re saying isn’t it?
MATHIAS CORMANN: Volumes through those services have been increasing. Their turnover is a function not just of price but also of volume. Given the level of growth in healthcare generally across Australia, given the growing demand on the back of an ageing population, I’m quite confident that pathology providers and diagnostic imaging providers and other healthcare providers for that matter, will continue to do well.
PETER REITH: I think you completely answered that question. I just had to give you a bit of support because Richo was hoping there might be, he was looking for a couple of unhappy pensioners.
GRAHAM RICHARDSON: I was seeking information. I knew pensioners would be covered. They were never going to hit pensioners. By the way, the other question on these cuts. Why did it take so long to make a cut on childcare for people on $250,000 and more? Alan Jones and I have talked about this on this program a dozen times, and Alan isn’t exactly a red hot socialist, it always struck us as ludicrous that somebody on $300,000 a year could be getting help from the Government on childcare.
MATHIAS CORMANN: I agree with you. That is a conversation that we’ve been having within Government for some time and I’m pleased that you support the judgments that we’ve made on that front.
PETER REITH: So why didn't you go to $200,000 then, because quite frankly $200,000, that’s a hell of a lot of cash. Anybody on $200,000, they’re doing pretty well.
MATHIAS CORMANN: We’ve made a judgment on the appropriate line in the sand. This is part of the broader families package. Let’s just see where this settles down and we’ll take it from there.
PETER REITH: Well it’s only one point to make though and that is to say look, we do really have a problem about spending. Even $250,000, if you’re really pushing it hard, you’d say $200,000 would be unfair.
GRAHAM RICHARDSON: That’s if there was a crisis Peter, but there’s no crisis so no problem.
MATHIAS CORMANN: I must say Peter before I came on. I heard you say that this is a budget update, it’s not a Budget and that’s exactly what it is. The job for this budget update was to make sure that we didn’t go backwards as a result of policy decisions, as a result of spending decisions and we’ve more than achieved that. So from our point of view now, our focus is on the 2016-17 Budget which will be delivered in May.
GRAHAM RICHARDSON: I noticed that you also, when one looks at the jobless rate, that’s been cut to 6 from 6.5, is that heroic as well? Is there real evidence that that is likely to happen?
MATHIAS CORMANN: Don’t take my word for it, look at what the Reserve Bank Governor has been saying in recent times. Look at the actual data right now. Compared to what has been expected in the past the unemployment rate is lower than what had been previously anticipated. The evidence in the economy is that we are shifting from resource investment driven growth to growth in those sectors of the economy that are somewhat more labour intensive. If you look a the lead indicators such as job advertisements, the job advertisements shows that there has been higher and increasing levels of job advertisements out there across the Australian community. So all of the relevant indicators give us a lot of confidence that the forecasts that we’ve put into the Budget and into this budget update in the context of the expected employment rate moving forward are realistic.
GRAHAM RICHARDSON: In the next six months, between now and when you have the Budget, am I to take it that there will not be any more big expenditure announcements?
MATHIAS CORMANN: Obviously I can’t give you that sort of blanket commitment. There are always circumstances that might arise where there is a need for unexpected expenditure. The reason we have a half-yearly Budget update… interrupted
GRAHAM RICHARDSON: Emergencies aside…
MATHIAS CORMANN: … is to account for that… interrupted
GRAHAM RICHARDSON: Emergencies aside…
MATHIAS CORMANN: … the thing is I can’t predict what I don’t know. What I can say to you is that our commitment our fiscal discipline that we impose on ourselves is that wherever there is a need for additional expenditure because there is a higher priority area of expenditure that arises, our commitment is to pay for that by reductions in expenditure in other comparatively lower priority areas. That is what we have done in this update released today. That is what we would aim to do in the future.
GRAHAM RICHARDSON: Well Mathias Cormann can I just thank you very much. I wish you well. You couldn’t come on last week. I wasn’t sure given what was happening today that you’d make it tonight. I’m delighted that you have and I want to thank you very much and wish you and your family a very merry Christmas.
MATHIAS CORMANN: Same to you Graham and to you Peter. Thank you.
PETER REITH: My thanks too and I think you had a pretty good day today, Mathias. Well done.
GRAHAM RICHARDSON: He’s done pretty well in the interview too.