Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Date: Wednesday, 4 May 2016
CLINTON MAYNARD: It’s probably fair enough to say that last night’s Budget is pretty much what we expected. We’ve been talking about various measures for several weeks. We certainly knew that the increases in smoking taxes was on, that there probably would be an adjustment to company tax as we’ve heard, and also a change in the $80,000 bracket for income tax payers. Joining me this morning is the Finance Minister Mathias Cormann. I’m pleased to say he’s on the line. Good morning Minister.
MATHIAS CORMANN: Good morning Clinton and good morning to your listeners.
CLINTON MAYNARD: Thank you for joining me. The Budget deficit is extraordinary I’ve got to admit Minister, $39 billion. It will dip, but why are we still looking at 2020 until we reach a surplus?
MATHIAS CORMANN: $39.1 billion, that is this financial year. That is reducing next financial year and every year of the forward estimates to about $6 billion in the final year of the forward estimates, or just 0.3 per cent as a share of the economy. Importantly, the timetable for the return to surplus is the same as we’ve previously announced, namely in our pre-Christmas half yearly Budget Update, the Mid-Year Economic and Fiscal Outlook.
CLINTON MAYNARD: What worries me though Minister is that when the Coalition was in opposition, you would harp on the issues of budget deficits and government debt when Labor was in power and rightly so. But we don’t seem to be seeing great improvements since the Labor days.
MATHIAS CORMANN: Labor recorded some years ago, record deficits in excess of $50 billion. The concerning thing from the Coalition’s point of view out of opposition was that we were dealing with a weakening economy, rising unemployment and a rapidly deteriorating budget position with an unsustainable spending growth trajectory over the medium term. What we’ve done on coming into Government, growth is now stronger, the unemployment rate is lower than what had been anticipated and we are controlling expenditure growth. Instead of spending growth of about 3.7 per cent on average per annum above inflation, we brought that down to below 2 per cent.
CLINTON MAYNARD: That’s still expenditure growth though Senator. Shouldn’t we actually be backwards, shouldn’t we be cutting expenditure?
MATHIAS CORMANN: We’ve got to bring the Budget back into balance in a way that is sensible. The overall focus in our Budget is to deliver a plan for jobs and growth, a plan to help us successfully transition from the resources investment driven growth to a more diversified stronger economy. Also our plan is to get ourselves on a strong and sustainable fiscal foundation, that we have a strong and sustainable Budget position. We're doing it by controlling expenditure. When we came into Government, spending as a share in the economy was on track to increase to 26.5 per cent by 2023-24 and increasing further beyond that. We have halted that increase. We've plateaued it at 25.8 per cent and are projected to reduce spending as a share of GDP, as a share in the economy, to 25.2 per cent over the forward estimates. We are now heading in the right direction. We are making progress despite additional global economic headwinds that we have faced in recent times, despite what has happened in terms of significant falls in prices that we were able to achieve for our key commodity exports like iron ore and coal in overseas markets. We are transitioning well. We have got to ensure that we continue to press ahead, heading in the right direction, implementing our plan for jobs and growth.
CLINTON MAYNARD: The Government debt is more than $424 billion. It is increasing at $1 billion a week. That is going to draw an interest bill of more than $13 billion annually. How do you cope with that huge interest bill?
MATHIAS CORMANN: Government net debt is due to peak in 2017-18 at about 19.2 per cent and is then projected to reduce over the medium term to about 9.1 per cent. Government net debt now, because we’ve kept spending growth under control, because spending growth is lower than what it would have been if we had not changed Labor’s policy settings, Government net debt is lower than it would have been if we had stayed on the same trajectory that Labor left behind. It is true that because of what has happened in the global economy, because of the impact that has had on the revenue side of the Budget, we are continuing to face certain challenges that we’ve got to work our way through in a reasonable and sensible fashion.
CLINTON MAYNARD: I’m with the Finance Minister Mathias Cormann and Minister I know you’re very pressed for time so a couple points about issues that affect the everyday person. The switching of the tax bracket from $80,000 to $87,000, what prompted that decision?
MATHIAS CORMANN: Our intention here was to ensure that people who are on full time average wages are not going to move into the second highest tax bracket for the next three years. We want to encourage people to earn more and one way that you can do that is by making sure that they don’t get hit with an additional 4.5 per cent tax from that additional effort. We’ve lifted the threshold from $80,000 to $87,000 which means that people in that tax bracket will pay 32.5 instead of 37 per cent tax. We would have liked to have done more, but this is as much as we can sensibly afford in the current fiscal position we’re in given where the Budget is at. As the Budget position improves, as the Budget position strengthens, we would like to provide further incentive…interrupted
CLINTON MAYNARD: The full 12.5 per cent increases in the tobacco excise. Is the strategy there to raise revenue or to discourage people from smoking?
MATHIAS CORMANN: We believe that it will lead to a reduction in smoking rates, which is obviously a very beneficial public health outcome but it will also generate about $28.2 billion in additional revenue for the Government. Importantly, we haven’t used this to increase the overall tax burden in the economy, we haven’t used this to increase spending. We have used this to invest it in tax cuts in other parts of the Budget to help jobs and growth. The help the economy grow more strongly and to help us secure that successful transition in our economy.
CLINTON MAYNARD: And just finally Minister, the Reserve Bank yesterday as we know cut the official cash rate to the record low of 1.75 per cent. Is that actually a concern for you? Is that an indication the economy is not travelling as you would expect?
MATHIAS CORMANN: No it isn’t. Monetary policy and fiscal policy are very much heading in the same direction. What the Reserve Bank Governor noted yesterday was that the Australian economy continued to rebalance and they pointed to the low inflation rate which is something that meant that market expectations were that a rate cut would occur sometime in the future, which is something that we had already reflected in our Budget numbers. We had reflected market expectations in relation to interest rates in our Budget numbers. Importantly, the other point that the Reserve Bank made is that because the increases in property values in Sydney and Melbourne in particular have come back a bit, that gave them a bit more capacity here to make the judgements that they have made.
CLINTON MAYNARD: Minister, thank you for your time. I know you are pressed for time this morning, so I appreciate a few minutes to spend with our listeners.
MATHIAS CORMANN: Always good to talk to you.