Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 4 May 2016
TOM ELLIOT: Joining me on the line now the Federal Finance Minister, Mathias Cormann. Minister, good afternoon.
MATHIAS CORMANN: Good afternoon Tom, good afternoon to your listeners.
TOM ELLIOT: We had a mischievous call just before the news wanting to know if you smoked a cigar after this Budget like you did last year, did you?
MATHIAS CORMANN: No I didn’t. And it wasn’t last year, it was actually two years ago.
TOM ELLIOT: It was three years ago was it?
MATHIAS CORMANN: Two years ago.
TOM ELLIOT: Time flies doesn’t it. Now, one of the things that struck me about the forecast last night was that Budget deficits are going to be with us for at least another four years. Do you think we will ever get back to a surplus?
MATHIAS CORMANN: The timetable for a return to surplus projected in this Budget is the same as what we have previously advised in our half yearly Budget update before Christmas. That is, at this stage 2020-21. So there is no change to that in this Budget. What you would have seen is that the Budget position, the underlying cash balance, continues to improve year on year, with the deficit progressively reducing both in dollar terms and as a share of GDP, down to $6 billion or 0.3 per cent as a share of the economy by the end of the forward estimates period.
TOM ELLIOT: Now what about superannuation? One of the big issues in this Budget was there has been a lot of changes to superannuation rules. Concessional contributions have been changed, the amount of non-concessional amounts of super you can stick in over the last 9 years has been changed, the total amount of money you can have in your super fund is being changed. Can you guarantee you will stop fiddling with super for a while now?
MATHIAS CORMANN: The important point here is that 96 per cent of Australians with superannuation are either completely unaffected or better off as a result of the changes that we have made. What we have done is at the very high end is made some adjustments designed to ensure that the tax concessions available for superannuation are better targeted and are fit for purpose. We have got to remind ourselves that the reason there are tax concessions for income directed into superannuation is to encourage people to save more to provide an income in retirement to replace or supplement the aged pension, not to create a tax effective intergenerational wealth transfer vehicle.
TOM ELLIOT: No I get that, but my question was, because I’m still a director of a business which is involved in this sort of stuff. They just say it is so complicated to try and keep up with all these changes. Will you leave the rules of our superannuation now alone for a year or two?
MATHIAS CORMANN: What we have said in the lead up to the last election is that we would keep the policy settings in place in relation to superannuation for this term of Parliament and we can make the same commitment for the next term of Parliament.
TOM ELLIOT: So only one year?
MATHIAS CORMANN: No, the next term of Parliament is a 3 year term... interrupted
TOM ELLIOT: You won’t fiddle with super for 3 more years if you win the election?
MATHIAS CORMANN: If we wanted to make any further improvements, we would take that to a subsequent election. That is our commitment. This is our plan for the next 4 years, we are putting this to the Australian people and the Australian people on 2 July will have the opportunity to pass judgement. If we are successful we will implement our plan. But our commitment is that if at some point in the future we would want to make some further changes, we would take that again to an election first, asking the Australian people for their support before going ahead.
TOM ELLIOT: Now speaking of the election, I didn’t see a lot of vote winning moves in this particular Budget. You’re trimming super for the top end of town, you’re giving companies a tax cut. There’s a whole lot of other things and we’re going to speak to Michaelia Cash about job training and so forth later on. Do you think it’s going to win you the next election?
MATHIAS CORMANN: This is not about winning the next election. This is not about your typical Budget with giveaways and takeaways. This is about the Government putting forward our national economic plan for jobs and growth. This is about us taking people into our confidence about what is required to ensure we secure our successful transition from resource investment driven growth to broader drivers of growth in a stronger, more innovative, diversified economy. We are facing certain challenges in the context of ongoing global economic headwinds, our economy is performing comparatively well but we want to do better. We want to ensure that people across Australia have secure jobs, have the best possible opportunity to get ahead, which is why we want to drive stronger growth and more jobs.
TOM ELLIOT: Ok. Can we look at the company tax cuts. Over ten years you are going to reduce the tax rate for all companies in Australia down to 25 per cent. Now I know it goes in stages and it’s only for smaller companies to start with and gradually to bigger companies. Do you accept though that is you have got a top marginal tax rate of 47 per cent, so that’s 45 plus the Medicare levy, plus at the moment the deficit levy which I know is disappearing. So you’re paying 47 to 49 per cent at the top tax bracket and yet in ten years you are going to have a company tax rate that is just about half that. Do you accept that this almost tells people they have got to restructure themselves as companies to avoid tax?
MATHIAS CORMANN: The reason we are pursuing a more competitive company tax rate is to attract more investment, to improve productivity, to create more jobs and over time, to increase real wages and living standards across Australia.
TOM ELLIOT: But where is that investment coming from? From overseas or do you just want more people to turn themselves into companies here in Australia?
MATHIAS CORMANN: We certainly want more people across Australia to do the best they can to be as successful as possible. We understand that the only way for Australia to be as successful as possible is if individual Australians and individual Australian businesses are as successful as possible. In Australia we do need to continue to attract foreign capital, we do need to continue to attract capital investment from all available sources. Right now our corporate tax rate is high by international standards. Reducing it in a sensible and responsible fashion to 25 per cent over a decade brings us back to the middle of the pack of OECD countries... interrupted
TOM ELLIOT: So just so we are clear, so that’s what it’s really about, it’s about trying to get the Googles of this world possibly to relocate here to Australia?
MATHIAS CORMANN: No it’s not about that. It’s about making sure that we attract additional investment across the board, that we create more jobs. This is a proven way to increase real wages and living standards for the whole population. This is part of an overall economic plan and this is one feature of an overall plan. It is part of making our tax system more growth friendly, so that there is more opportunity for people to get good and better paying jobs.
TOM ELLIOT: I understand that, but I don’t understand why you particularly favour corporate arrangements or a company, whereas someone who sets themselves up as a sole trader or a partnership doesn’t get the same tax benefits. That’s what I struggle to understand.
MATHIAS CORMANN: We are providing tax benefits for sole traders too. In last year’s Budget we provided an equivalent tax cut to small businesses that were unincorporated and in this year’s Budget, we have also made provision for businesses that are not incorporated. Specifically, we are increasing, the Government increased the tax discount for unincorporated small businesses incrementally over the next decade from 5 per cent to 16 per cent and that tax discount will in fact increase to 8 per cent from 1 July 2016. That is for small businesses up to an annual turnover of $5 million. Once you get into the $10 million and above range, there is a view that it would actually be sensible for that to be structured inside a corporation.
TOM ELLIOT: I know you have got to go and I do appreciate your time. Very quickly, the Reserve Bank decided to cut interest rates yesterday afternoon, just hours before the Budget. Did you regard that as good news?
MATHIAS CORMANN: Monetary policy and fiscal policy is very much heading in the same direction. The Reserve Bank Governor observed what we have observed, that the Australian economy continues to rebalance. He explicitly pointed to the low inflation rate. We had also factored that in. We were aware of market expectations in relation to interest rates given the low inflation rate and so we have already factored that into our numbers in the Budget. This is all about making sure that we continue to transition successfully from resource investment driven growth to a more diversified economy.
TOM ELLIOT: Mathias Cormann I know you have got to go, I appreciate your time.
MATHIAS CORMANN: Thank you, Tom.