Senator the Hon Mathias Cormann
Minister for Finance
Special Minister of State
Date: Friday, 19 February 2016
KIERAN GILBERT: Good morning and welcome to the program. As the week ends we are a lot closer to knowing the full detail of what Labor will take to the election on tax reform. But despite the Treasurer’s address to the National Press Club, we are still no closer to knowing what the Government is going to do. So what are its options. What will it end up doing. How brave will it be. Coming up this morning, the former Howard Government Minister Peter Reith, former Labor Minister Grahame Richardson. First though we are live to Perth. The Finance Minister, Mathias Cormann joins me to go through some of this. And I want to start with this issue of bracket creep, Minister, because various papers are reporting this morning that you’ve hit the reverse button when it comes to this issue of bracket creep. That by referring to the lower rates of inflation and wage inflation that you are playing this down as a problem. Can you clarify for our viewers this morning, what is the Government’s position here and has it shifted?
MATHIAS CORMANN: Thank you Kieran. I’ve seen those strange and entirely inaccurate characterisations and interpretations of what I said yesterday. I am not downplaying the importance of bracket creep. What I said yesterday was that bracket creep is a problem, that bracket creep creates a drag on growth and that we want to address it with personal income tax cuts. But what I also said was that we would do as much as possible and as much as we can sensibly afford to address bracket creep with personal income tax cuts, which I would have thought was an entirely unremarkable boundary to set. Of course we are going to do as much as possible and as much as we can sensibly afford. Finally, I did point to the fact that wage inflation today is lower than previously anticipated, which is a fact that is reflected in our half yearly Budget update in December. Let me explain. Since we have been in Government we have based our revenue forecasts on an inbuilt assumption that tax revenue as a share of GDP would not go past 23.9 per cent. In last year’s Budget in May, we thought that we would hit that cap by 2020/21. In the half yearly Budget update in December, and for those friends in the gallery, I would refer you to page 19 of the Mid-Year Economic and Fiscal Outlook from December, we point out that we expect to hit that cap one year later. That is driven by lower tax receipts than previously anticipated, one of the reasons for that being lower wage inflation. So that is a statement of fact. So the statements that I made yesterday, they were entirely unremarkable.
KIERAN GILBERT: Alright, yes, but do you concede that the tone of the statement sounds like you are trying to manage expectations here, that people shouldn’t expect too much in terms of tax relief?
MATHIAS CORMANN:As a country we continue to work our way out of the deficit that Labor left behind. We are working hard to control expenditure growth in order to achieve this. We are working hard to strengthen growth and create more jobs to help strengthen revenue growth for the Government. There is a limit to what we can do. We want to do as much as possible. But self evidently, we will do as much as we can sensibly afford. Right now we are working our way through what else we can do on the revenue side in order to help pay for personal income tax cuts. The detail of that will be released in the Budget.
KIERAN GILBERT: Do you hope to go beyond just lifting the $80,000 a year threshold at which people will move into the 30 per cent tax rate? Do you hope to be more ambitious than that? Or is the fiscal situation as such at that you can only do that. You can only deal with that particular component of bracket creep?
MATHIAS CORMANN:The specifics will be announced as part of the Budget. I refer back to what I said yesterday. We want to do as much as we possibly can. We want to do as much as we can sensibly afford. This Government, unlike the Labor party, whenever we pursue policy change that has a negative impact on the Budget bottom line, we impose a discipline on ourselves that we have to identify how we are going to pay for that. That is what a good government does. If you make commitments that have a negative impact on the Budget bottom line you should be required to show how you pay for it. Labor has made about $50 billion plus in spending promises, without showing us how they would pay for it. What they have shown us so far is that they want to again tax more to spend more. Our commitment is to tax less and tax better to strengthen growth and create more jobs and to raise more revenue on the back of stronger growth.
KIERAN GILBERT: Just clarify for me once and for all, given these reports from the other day that you’ve backed away from the previous language on bracket creep, that it’s going to be a drag on growth, is this still a top priority for you and will the Government deal with it sufficiently in the Budget in May?
MATHIAS CORMANN: If you look at my interview on Radio National yesterday, I said quote unquote, bracket creep is a problem and that bracket creep is a drag on growth. Self evidently, if wages grow at a faster and stronger rate people will move through these various income tax brackets more quickly than when wages grow more slowly. It’s a fact which is reflected in our Mid Year Economic and Fiscal Outlook that right now, wage inflation is running below what was previously anticipated. So that means that it is slightly less of a problem than what it might have been in the past. That doesn't mean that it is not a problem. Of course it is. It doesn't mean that we won’t want to address it. Of course we do. We will address it to the extent that we sensibly can afford. I would have thought that is a sensible boundary and a sensible limit to put on our commitment.
KIERAN GILBERT: Can I ask you now about superannuation, the Treasurer says he hopes to have the detail finalised and out there as soon as possible, implying that it will be there before the Budget. I want to ask you about this suggestion that he wants to the contribution phase to be taxed more fairly and sustainably. What about the retirement phase, where the association relevant to this industry says there are more than 450 individuals in Australia with super funds with $10 million in them, earning tax free interest every year. Surely the Government should look at that as well if you’re talking about being fair and sustainable.
MATHIAS CORMANN: I’m not going to go into the specifics today. As Scott said in his Press Club speech on Wednesday, the Budget is delivered in May, not in February. The work that we are doing at the moment when it comes to our tax system is focussed on how we can best further strengthen growth and create more jobs. How can we ensure that our tax system is as growth friendly as possible. How can we make our tax system is more growth friendly in a way that is also fair. In that context, we are looking at a whole range of options across the whole of the tax system. We have made some decisions in relation to the option of a GST income tax switch and we have rejected that as an option, because having gone through the work, it wasn’t sensible for us to pursue that further. But we are looking at a whole range of options ...interrupted
KIERAN GILBERT: But on super you are talking about being fair and sustainable, the association of superannuation funds, ASFA, says there are 475 Australians with super balances of more than $10 million a year and I think on average it is about $1.5 million a year interest they would generate tax free. So if you want to be fair and sustainable, surely the retirement phase has to be looked at?
MATHIAS CORMANN: I’m not going to announce any specifics here for you today, but we are looking at the tax system as a whole. We are looking at how we can make sure our tax system more growth friendly in a way that is fair. We are looking at everything other than what we have taken off the table by now ...interrupted
KIERAN GILBERT: And the retirement phase as well?
MATHIAS CORMANN: I can’t be any clearer. We are looking at the tax system as a whole with the view of making it more growth friendly and in a way that is also fair.
KIERAN GILBERT: Alright, we’re out of time Finance Minister thank you for your time as always, I appreciate it.