Sky News – Australian Agenda

Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate






Budget, iron ore prices, foreign debt, Senate voting reform, negative gearing

PETER VAN ONSELEN: As mentioned off the top of the program. We are joined off the top we are joined first up though, live from Perth, in the early hours of the morning there by Senator Mathias Cormann. He is the Deputy Leader of the Government in the Senate as well as the Special Minister of State and of course the Finance Minister. Thanks very much for your company, Senator.

MATHIAS CORMANN: Good to be here.

PETER VAN ONSELEN: We will get to issues around electoral reform very shortly. That is a big issue coming up this week and you will be mounting the case for it particularly there in the Senate. But can I just ask a quick one on the timing of the Budget. You are obviously part of the Expenditure Review Committee, right in the thick of it. Can you rule out any chance of there being an early Budget? Is that entirely off the table?

MATHIAS CORMANN: The Budget is scheduled for the second Tuesday in May, the 10th of May. That is the date that I am working towards. That is the date that the Treasurer is working towards. That is the date that all of us from the Prime Minister down in Government are working towards.    

PETER VAN ONSELEN: So it would be inconceivable, it would be rushed and fool hardy and the Government wouldn’t really be able to dot it’s i’s and cross it’s t’s if it was to try and bring that forward?

MATHIAS CORMANN: As I’ve indicated, the Budget is scheduled for the second Tuesday in May. You are putting a hypothetical there. I am working, the Treasurer, the Prime Minister, all of us we are working towards delivering the Budget in the usual timetable on the second Tuesday in May. 

PETER VAN ONSELEN: Just one last one on this Senator, you would be surprised, would that be a fair comment. You would be surprised to find out if there was any change to that. You are working on 10 May as the timing?

MATHIAS CORMANN: I am working on 10 May. The Treasurer is working on 10 May. The Prime Minister is working on 10 May. We are all in Government, working towards delivering the Budget on the second Tuesday in May as scheduled. 

PAUL KELLY: Minister, we have seen the iron ore price kick up quite significantly this week, which is potentially good news for the Government on the revenue side. To the extent that you get more revenue, what would happen to that revenue? 

MATHIAS CORMANN: Firstly, there are always a lot of moving parts, up and down in any Budget in between Budget updates. You are right, the iron ore price this past week has been higher than forecast in the Mid-Year Economic and Fiscal Outlook before Christmas. But there are other parts of the Budget that are relevant to this. The next update in terms of where revenue is tracking overall will be in the Budget on the second Tuesday in May. At that time everything will be reconciled on the expenditure and on the revenue side of the Budget.  

PAUL KELLY: I know that everything will be reconciled, but my question is what will happen to the revenue and in particular, in particular, is there a decision or an inclination on the part of the Government to the extent that it gets extra revenue to use that on the deficit side? To improve the deficit?

MATHIAS CORMANN:The inclination of the Government is to continue to repair the Budget. To continue to get ourselves back into balance as soon as possible. But don’t make an assumption, because there has been a few days of higher than anticipated iron ore prices, that that necessarily has a positive net effect on revenue. That is the point I am making. There are all sorts of different drivers in different parts of the Budget, including on the revenue side. Between now and the Budget, these sorts of things will be reconciled so that we can make informed decisions on the next four years. 

ADAM CREIGHTON: Can I just ask you a question Minister, about the national accounts, which came out last week. We saw that growth went back to thee per cent and that was very impressive. Everyone was very happy about that. But we also saw if you dig a bit deeper that foreign debt went over a trillion dollars for the first time ever in Australia’s history. The reason I ask this, is because in 1996, of course, the Coalition ran a whole election campaign on Australia’s foreign debt, which was then $180 billion. And so now it is five times that. So I am just wondering if it is a problem then, why is it not a problem now?

MATHIAS CORMANN:We are not in 1996, we are in 2016. The Government is working to facilitate a successful transition from resources investment and construction driven growth to broader drivers of economic activity and growth. A lot of that foreign debt that you are talking about is as a result of the massive capital investment that Australia has been able to attract, in particularly in the resources space. Projects like Gorgon, which have now started to produce LNG and are about to significantly boost our export volumes in LNG. Projects like the Roy Hill project in Western Australia, which is now well and truly underway. What we have been able to do over the past decade or so, on the back of very high prices for our key commodity exports is attract massive additional investment, capital investment into Australia, which was driving significant construction activity, which has increased our productive capacity and our export volumes as a nation. Now that prices have come down these increased export volumes are a very important part of cushioning some of the price effect for us.

ADAM CREIGHTON: It is certainly true that some of the debt has gone to the resources sector, that is definitely right. But lots of the debt has also gone into the housing market and indeed sometime last year Australian households became the most indebted in the world actually. Just overtaking, I think Denmark, with household debt at 120 per cent of GDP. So, my question is does it concern you that Australian households are the most indebted in the developed world? 

MATHIAS CORMANN:It doesn’t concern us. We have appropriate prudential standards in Australia. These are very modern prudential standards that are always under review to see whether there is any need for further improvement. If you look at the performance of the Australian economy, we have been growing at three per cent, which is higher than any of the G7 economies in the world, which is above the OECD average, which is a real credit to people across Australia who have been working hard to help transition our economy from resource investment and construction driven growth to broader drivers of economic activity and growth. The Government is working hard to assist in that transition, to help that transition be as successful as possible. That is why we have been working to make our tax system more growth friendly, getting rid of the mining tax and the carbon tax, reducing taxes for small business and now continuing that work. That is why we are pursuing an ambitious free trade agenda, with free trade agreements with China, South Korea, Japan, the Trans-Pacific Partnership agreement. That is why we are pursuing an ambitious infrastructure investment program. That is why the Prime Minister before Christmas released the $1.1 billion innovation statement. Because in the end, for us to be as successful as possible through this transition, we have to be as competitive, as productive and as innovative as possible. The cities agenda will complement this, as Peter mentioned, in the next few days and weeks. There is lots going on and our focus is on making sure that the Australian economy is in the best possible position to transition from the incredible growth driven by resource investment and construction activity and going to broader drivers of economic activity and growth. 

PAUL KELLY: The Prime Minister made it crystal clear on Friday that the issue of a double dissolution depends on the fate of the Government’s two main industrial bills. Given that statement, are you confident that the Senate will be able to reconsider the ABCC Bill before the 11th of May?

MATHIAS CORMANN: The Prime Minster made a statement of the obvious. In the constitution, the arrangement that is there to resolve a deadlock between the two houses of Parliament, the House of Representatives and the Senate on key legislation, is a double dissolution, in order to give people across Australia the opportunity to settle any issues that the two houses of Parliament cannot agree on. Our preference is to go to the election in the ordinary timeframe, in August, September or October. Our preference is to pass all of the key legislation that we are putting in front of the Senate, including the re-establishment of the Australian Building and Construction Commission and the Registered Organisations legislation. What we would say to the Senate, we want to pass this legislation. The only reason you would go to a double dissolution election as the Prime Minister rightly indicated, is if you have an unresolvable deadlock between the House of Representatives and the Senate.  

PAUL KELLY: So just to confirm the obvious, the Senate will be reconsidering the ABCC Bill?

MATHIAS CORMANN: Yes of course. Our priority for this week is the successful passage of Senate voting reform, that is a time sensitive piece of legislation. At the earliest opportunity when we come back in May we will be putting the Australian Building and Construction Commission legislation back to the Senate. 

PETER VAN ONSELEN: This week though, as you say, the focus will be your other portfolio area, electoral reform. Are you concerned that the Greens might be getting the wobbles when it comes to supporting these reforms to the Senate?

MATHIAS CORMANN: Not at all. The position that we are advocating when it comes to Senate voting reform is one where we want to empower the Australian people to direct not just their primary vote when voting above the line in the Senate, but also what happens to their preferences. Right now, people across Australia who vote above the line in the Senate, and at the last election that was nearly 97 per cent of all voters in the Senate, lose the capacity to direct their preferences. Once you put a one in the box above the line, you essentially hand over the fate of your preferences to political parties who trade them away, who direct those preferences through very opaque and non-transparent group voting ticket arrangements. There has been a broad consensus in the Parliament, strongly advocated incidentally for a number of years by the Labor party, strongly advocated by the Greens and strongly advocated by the Coalition. That is what we are giving effect to. What we are giving effect to, is a long standing policy position of the Greens, it is a long standing policy decision of the Coalition and it was for a long period, the policy position of the Labor party, which has only changed because Bill Shorten was being put under pressure by some union heavies and by some backroom operators in his Senate caucus. 

PETER VAN ONSELEN: Why would, and I assume you are referring to the CFMEU in particular, why would they care about whether or not the Senate voting structure changed?

MATHIAS CORMANN: You would have to ask them why they would care. I have to say, Gary Gray who was the Labor spokesperson for electoral matters for most of the past two and a bit years, he put it very succinctly when he said that we need to ensure as policy makers that the electoral process delivers a result which reflects the will of the Australian people. That is what we are seeking to do. At the moment, with the system of group voting tickets, with this opportunity for political parties to trade away and direct preferences in three different directions through three different group voting tickets, it becomes a lottery as to who is elected to the Senate. That is not a circumstance that any of us would want. Surely all of us would want to ensure that the result at an election for the Senate reflects the will of the Australian people.

PETER VAN ONSELEN: Has the Government given any strategic consideration to the impact on lower house preference deals that remove any ability to do preference exchanges above the line in the Senate via reform might have? Because it strikes me that there is a considerable Coalition advantage in removing that co-dependence between the Greens receiving Labor preferences in the Senate to get elected would the Labor party therefore do a deal with the Greens in the lower house to get them in key marginal seats? 

MATHIAS CORMANN: I will let you do this sort of scenario analysis. 

PETER VAN ONSELEN: Surely the Government’s looked at it?

MATHIAS CORMANN: I haven’t actually. My very simple objective is to ensure that the Australian people have the opportunity to direct who is elected to the Senate. Essentially, we want the Australian people to be able to determine not only what happens to their primary vote when voting above the line, but also to determine what happens to their preferences. We think that is eminently sensible and reasonable. The result at the next election, whether that is in the Senate or in the House of Representatives, is entirely a matter for the Australian people. That is not something that I can speculate on sitting here some months out from the next election. 

PAUL KELLY: Minister you’ve been negotiating with the Greens. To what extent do you think there’s been a change in the approach of the Greens under Senator Di Natale? Do you think that they are now a more pragmatic Party that the Government can reach arrangements with?

MATHIAS CORMANN: I have a very good working relationship with Senator Di Natale. My sense is that under Senator Di Natale’s leadership, the Greens are more outcomes and more policy focused. Just to put that into context. I did try to have a conversation with former Greens Leader Christine Milne about our Budget measure in 2014-15 to reintroduce fuel excise indexation, something that I would have thought at the time was not inconsistent with the Greens view of the world, but the Greens were not prepared to engage with the Government on that in any way, shape, or form. These days, we are having a very constructive working relationship. There are areas of disagreement as you would expect there to be. There are areas of very strong disagreement. But where there is an opportunity to achieve consensus because we have a similar view on a public policy outcome that is in the national interest, as there is in the context of empowering people across Australia to determine what happens to their preferences when voting for the Senate, well then the Greens under Senator Di Natale’s leadership have been prepared to work with us. 

PAUL KELLY: So you think that there’s scope for further deals down the track between the Government and the Greens?

MATHIAS CORMANN: We are always hopeful to be able to get support from anyone represented in the Senate for what we think is the necessary policy agenda for Australia. We are working to transition the Australian economy from resource investment driven growth to broader drivers of economic activity. Whether that is the Labor Party, whether it is the Greens, whether it is any of the minor parties or independents, we are always keen to get support from anyone for the policy agenda that we are putting forward. Over the past year we’ve been able to achieve some reforms with the support of the Greens and we have been very happy with that. We have been able to make the reforms to the pension means testing arrangements, bringing them back to what they were under the Howard Government years. We are now able to pursue, with the support of the Greens, important reforms to Senate voting arrangements. Let’s see what the future brings.

ADAM CREIGHTON: Minister, can I just ask you a question about the housing market which has certainly been talked about a lot recently, presumably the Government is very in favour of housing affordability I understand, but you have also been very critical of the Labor party policy to change negative gearing, which of course to some extent would reduce house prices. I want to know, how can the Government both be in favour of housing affordability and also anything that would reduce house prices?  How do you square that circle?

MATHIAS CORMANN: You have to think very carefully what it is that Labor is preparing to do with negative gearing. If you look at the tax system the way it currently operates, income tax arrangements 101, that is that you are able to deduct from your gross income any relevant costs incurred in generating that income. People across Australia, in seeking to get ahead, leverage their existing income and their existing assets to increase their income and increase their wealth. That is a way that families across Australia have got ahead for a very long time. If Labor’s policy were to change that, if Labor’s policy were to stop people not only from borrowing in order to invest in established property, but also borrowing to invest in shares and any other asset class and appropriately deduct the interest on any such borrowings from their relevant income then that is going to have a very negative impact on the price of established property. That is not something that is going to be good for the economy. That is not something that is going to be good for families, because it will undermine their wealth. It will also have a very bad impact on the cost of rental accommodation, which would increase significantly. That is the evidence in the past. To the extent that Labor has actually applied this also to borrowing to invest in shares, it will have a significant impact on our share market. These are all things that I’m sure Labor didn’t properly think through. The established principle in our tax system that you are able to deduct relevant expenses incurred in generating income from your overall income is a very important principle. It is a very important engine of wealth creation and of increasing your income, your revenue base as a family and as a business. We believe that Labor’s policy is very bad in relation to that.

PETER VAN ONSELEN: Senator Mathias Cormann we appreciate you finding the time to talk to us on Australian Agenda, thank you for you company.

MATHIAS CORMANN: Always good to talk to you.


Senator the Hon Mathias Cormann, Minister for Finance, Perth