Senator the Hon Mathias Cormann
Minister for Finance
Date: Thursday, 21 January 2016
EMMA ALBERICI: Should Australians be worried about the rocky financial outlook for the coming year? Finance Minister Senator Mathias Cormann is attending the annual world economic Forum in the Swiss resort of Davos and joins us now by telephone. Good morning - or good evening to you I should say - Senator Cormann.
MATHIAS CORMANN: Good morning Emma.
EMMA ALBERICI: Tell us first of all what's on your schedule while you are there in Davos?
MATHIAS CORMANN: Davos as the World Economic Forum has a key focus on global growth, the state of the global economy and initiatives to strengthen growth. I'm meeting with a whole series of Finance Ministers from around the world and also a whole series of global business leaders. It is a great opportunity to get a good sense, to get some ideas, get some new ideas and also to just share information.
EMMA ALBERICI: How concerned are you personally about the sell-off on global markets which has seen something like $3.6 trillion worth wiped off the global markets, just in this past month?
MATHIAS CORMANN: Our focus is on economic fundamentals and not on short-term fluctuations on the stock market. When it comes to the economy, we are facing a series of external global economic headwinds and in Australia we have been working to position ourselves for that. Our focus is on making sure that Australia is as strong as possible to deal with any global economic headwinds and also in the best possible position to deal with opportunities coming our way. That is what we have been working on over the last two and a half years. If you look at the outcomes, the Australian economy continues to perform comparatively well. 2.5 per cent growth is above the OECD average. Employment growth of 3 per cent with an unemployment rate of about 5.8 per cent is well below the OECD average of 6.5 per cent and below what was previously anticipated. Our economy is going through a transition. We are dealing with global economic headwinds but we are performing comparatively well.
EMMA ALBERICI: What about the oil price falls that we've seen over the past week? It can obviously be viewed through two separate prisms, either it's a boon for production costs or - in terms of keeping them lower - or resources companies more specifically could take a hit. Where do you sit on that equation in terms of the effect of these lower oil prices?
MATHIAS CORMANN: It is very simple. The price for any product and the price for any commodity in the market is a function of supply and demand. If you have got increasing supply and softening demand you will get lower prices. You are exactly right, for those who have oil or petroleum-based products as a significant input cost, that is good news. For those who are producers, that brings with it some challenges. In terms of the Australian economy, we are an open trading economy. We've had to deal with significant falls in prices for some of our key commodity exports, but we have gone through that transition that comes with that quite well. The automatic stabilisers in our system, the floating exchange rate with the value of the Australian dollar set by the market, a lower value of the Australian dollar helping to make other parts of the economy more competitive internationally, combined with the efforts by the Government focussing on a more growth friendly tax system, pursuing deregulation to reduce the cost of doing business, pursuing an ambitious free trade agenda to help our exporting businesses to have better access to key markets in our region, pursuing an ambitious innovation agenda, pursuing an ambitious infrastructure investment program. These are all initiatives by the Government to help our economy transition from resource investment driven growth to broader drivers of economic activity and growth.
EMMA ALBERICI: You must be disappointed that the Trans-Pacific Partnership trade agreement doesn't look like it's going to get passed in the United States any time soon?
MATHIAS CORMANN: The Trans-Pacific Partnership is a very important trade liberalisation initiative. It covers 40 per cent of the world's economy and from an Australian point of view we are very keen to see the enabling legislation pass in the United States and indeed in other countries that are participating, in all of the other countries that are participating. Look, let's see how it goes.
EMMA ALBERICI: How confident are you that the Chinese Government can turn things around given what's going on in that part of the world and how much that is influencing the global economy?
MATHIAS CORMANN: China is one of the, if not the biggest, economic success story of the past decade. China has experienced very strong growth over the past decade or so. The Chinese economy today is more than double the size of the Chinese economy 10 years ago. Growth now is still very high by international standards. 6.9 per cent growth in 2015, slighter higher than what was forecast by the IMF towards the end of last year. Our own forecast in the Mid-Year Economic and Fiscal Outlook before Christmas anticipated this level of growth. The Chinese economy is also working through a transition from infrastructure investment driven growth to broader drivers of growth, specifically domestic consumption and growth in the services sector. That presents lots of opportunities for Australia, including through the China-Australia Free Trade Agreement. In particular, our opportunities in agriculture and food exports and the services space are very exciting. It is a great opportunity for us to broaden and expand our trade relationship with China beyond resources into other sectors of our economy.
EMMA ALBERICI: Senator, given the shifting structural issues in Australia's economy, how urgent do you see the need for tax reform?
MATHIAS CORMANN: Tax reform has been and continues to be a very important focus for us. Since our election, initially the first things we did was to get rid of the mining tax and carbon tax, to reduce company tax for small business. We always said that we would focus on the broader medium to long-term tax agenda as part of the policies that we would take to the election after our first term. That process is currently underway. We have been engaged for some time now in a tax reform conversation with the Australian people. The focus is on how we can make our tax system more growth friendly. How we can as part of a broader plan to strengthen growth and create more jobs, raise the necessary revenue for government in the best, most efficient and least distorting way in the economy. Between now and the election we will be making some decisions about the best way forward. We will be putting that to the Australian people to seek their mandate and their support for us to implement those reforms in what we hope will be a second term.
EMMA ALBERICI: Mathias Cormann, I thank you for taking the time to speak to Breakfast this morning.
MATHIAS CORMANN: Always good to talk to you.