Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
GARY ADSHEAD: Growth and jobs. That’s the message from this Federal Budget. If you’d had a chance to have a look at it, what do you think, what are your impressions so far? Some are saying it’s the perfect pre-election Budget because it doesn’t really hurt anyone. Of course some of those wealthier superannuants, they might be complaining about it, it’s about 4 per cent of people in our population that may have some concern around the Budget. Alright, well it is the morning after the Federal Budget was released. Mathias Cormann is the Federal Finance Minister and he joins me on the line thank you very much for your time Minister.
MATHIAS CORMANN: Good morning Gary, good morning to your listeners.
GARY ADSHEAD: There’s nothing in this Budget for battlers though. In fact if the battler is a smoker, they’re much worse off.
MATHIAS CORMANN: This is not your typical Budget of giveaways and takeaways. This is a Budget that seeks to put Australia on a stronger economic foundation for the future. It’s a plan for jobs and growth. It’s a plan to ensure we continue to successfully transition from resource investment driven growth to broader drivers of growth in a stronger more diversified economy. In Western Australia of course, we are on the frontline of that economic transition and we very much need this plan to be effectively executed. Finally, it’s a plan to ensure our Budget is on a sustainable foundation for the future, based on continuing to control expenditure growth but also cracking down on tax avoidance and making sure that various tax concessions are better targeted.
GARY ADSHEAD: What would you say to smokers though, that are feeling a bit aggrieved right now. They’re not doing anything illegal, but they’re being smashed for it. What would you say to them?
MATHIAS CORMANN: Smoking is unhealthy. There is no level of healthy smoking. So one of the expected consequences of this tax increase is that we expect fewer people to smoke and that will lead to beneficial public health outcomes. But there will be a revenue benefit from this. About $28.2 billion over the next decade. We have decided to direct all of that into lowering taxes across the economy. We haven’t spent any of it. We haven’t used any of it for increased expenditure. We’ve used all of it to make our tax system more growth friendly, to help us strengthen the economy and strengthen job creation moving forward.
GARY ADSHEAD: You’ve given two tax breaks essentially, changing the tax threshold for those on $80,000 or more, and ending the 2 per cent deficit levy for those on $180,000 or more. What have you given to the battlers though, earning nowhere near those amounts?
MATHIAS CORMANN: Actually we haven’t made any decision in this Budget whatsoever in relation to the temporary Budget repair levy. That was a measure that was put in place in 2014-15, imposing another top up on what is already a very high top marginal tax rate and that continues in 2016-17. What we have done in the middle income range, what we have done in relation to those people who are on full-time average weekly earnings, we have set out to ensure that they don’t end up in the second highest tax bracket. We’ve said all the way through that our instinct is to provide lower taxes to encourage people to work harder and earn more without being slapped with higher taxes. But we’ve also said that we would do as much as we could sensibly afford. This is what we could do and this means that we can ensure that average full time wage earners do not enter the second-highest tax bracket over the next three years, which we believe is a good thing.
GARY ADSHEAD: Given that the deficit is going to hit close to $40 billion, worse than expected in the recent pre-Budget financial outlook by the way. You’ve hardly reined in spending in the 3 years that you’ve been in Government, have you?
MATHIAS CORMANN: That’s not quite right. We’ve stopped the spending growth trajectory. Spending as a share of GDP when we came into Government was heading to 26.5 per cent within the decade and rising. We’ve plateaued it at 25.8 per cent in this financial year and it’s projected to reduce to 25.2 per cent as a share of the economy over the forward estimates. Importantly, the return to surplus is forecast on the same timetable as what we announced in our half-yearly Budget Update before Christmas. In this Budget, Government policy decisions overall have improved the Budget bottom line by about $1.7 billion and the net effect of policy decisions on the spending side of the Budget have actually improved the Budget position by about $3 billion. So we have continued to impose that fiscal discipline on ourselves. Wherever there was a requirement to increase spending on a higher priority area, we’ve paid for that by reducing spending in other parts of the Budget. All of the tax changes, all of the positive revenue impacts from changes in the tax system have been reinvested in lowering taxes in other parts of the economy, very much with a view of making our tax system more growth friendly so that we raise the revenue in a more efficient, less distorting way in the economy and in a way that facilitates stronger growth and more jobs.
GARY ADSHEAD: Because in 2014 the message was we were facing a Budget emergency. A lot of that met with derision, what the Budget contained in 2014. Would you say that this is a fairer Budget?
MATHIAS CORMANN: The problem when we came into Government was that we inherited a weakening economy, rising unemployment and a budget position that was rapidly deteriorating. On that front, we were particularly concerned about the medium to long term trajectory and where that was taking us. Now across all these three indicators we are doing better. The economy is now growing more strongly at 3 per cent instead of the 2 per cent in the previous 12 months. The unemployment rate at 5.7 per cent is well below what had previously been anticipated. Employment growth is much stronger and on the Budget front as I’ve indicated to you, we’ve got spending growth under much better control. Spending as a share of the economy, instead of continuing to increase is now trending down and we are on a believable path back to surplus on the same timetable as what we’ve previously announced.
GARY ADSHEAD: Just on the tax cuts that will come for small business. How do you define a small business as one that has a turnover of up to $10 million, when the last time tax cuts were passed on to small business it was for businesses with a turnover of up to $2 million. It’s grown. How?
MATHIAS CORMANN: We have made a deliberate decision to expand the benefit of the lower tax rate to more small businesses. From 1 July this year, not only will we increase the turnover threshold for small businesses to access this lower tax rate from $2 million to $10 million, we are also reducing the tax rate to 27.5 per cent. What that means is, there are about 870,000 businesses employing about 3.4 million Australians which will have access to that lower tax rate. It’s part of a 10 year enterprise tax plan, over a 10 year period designed to bring down our company tax rate to 25 per cent. A more competitive tax rate like that, what that helps us to achieve, is to attract more investment, to increase productivity, to create more jobs and over time, to increase real wages and increase living standards. That is what all Australians, low and middle income earners and all Australians, want us to do so that people have the best possible opportunity to get ahead.
GARY ADSHEAD: Why 10 years on that one, why not sooner given that it’s all about helping business innovation and so on that we are hearing from the Prime Minister? Why wait 10 years to bring it down to a level which makes us competitive with the rest of the world?
MATHIAS CORMANN: We are progressively bringing it down over that period. So we are not waiting 10 years. Every year we are increasing the threshold, so it’s from $2 million to $10 million this year, to $25 million the year after to $50 million, to $100 million and so it goes. So it is a progressive increase in the turnover threshold that applies. The reason we are doing it this way, one is because unashamedly, we wanted to prioritise small and medium sized businesses in providing the benefit of this tax cut. But also, because we have had to do it in a way that was affordable, that didn’t add to the deficit. We’ve paid for this with changes in other parts of the tax system, not by adding to the deficit or other ways.
GARY ADSHEAD: Now, many of these assumptions from what you can see in the Budget are based on an iron ore price of around $55 per tonne. But a report that was published in the latter part of April, there’s a consensus of respected analysts that say that the figure should be around $41 a tonne on iron ore. That’s a huge difference, who do we trust here?
MATHIAS CORMANN: We have always transparently disclosed what our revenue assumptions are in relation to commodity prices. We are using a technical assumption and it is not something that we control. It is essentially an average price over the previous four week period at the time when we closed the books. At MYEFO, in the half yearly budget update before Christmas, that price that we put into the Budget forecast was $39 per tonne. Right now it is $55 per tonne. The actual price right now is a bit higher than that. What we are doing here is using a technical assumption. We are disclosing it openly and transparently in our Budget papers. People can form their own judgements, but in times gone by people have suggested that we are being too optimistic, they have suggested we are being too pessimistic. The truth is, there is no reliable way to predict what will happen to these sorts of prices in the future. The best we can do is to look at the average price over the most recent four week period.
GARY ADSHEAD: Alright, just one other thing in the Budget papers, there is reference to $1.5 billion for, and I will quote “decisions taken, not yet announced”. What does that mean?
MATHIAS CORMANN: That is a line that is in every Budget. In fact in this Budget, because we are so close to an election it is a much smaller number than what it normally is. So at various times there are decisions that are taken but more work needs to be done before these decisions are ready to be announced. What I can reassure you of, and reassure your listeners of, in the lead up to the election when under the Charter of Budget Honesty the Pre-Election Economic and Fiscal Outlook is published by the secretaries of Treasury and Finance, all of that information is made public, which is why the Government will be making these announcements between now and then.
GARY ADSHEAD: Just finally, you are from Western Australia obviously Minister so can I just ask you, just a couple of things. As far as Western Australia is concerned, I know there has been some lobbying for a bridge over the freeway from Armadale Road to in some of the congestion areas around Cockburn, Central, was that considered at all in this Budget? I think it was about $100 and something million dollars?
MATHIAS CORMANN: We always work very closely with the state government on state government priorities when it comes to infrastructure. The most recent additional investment we’ve made is an additional $490 million towards the Forrestfield Airport Link. Of course there is the $1.2 billion for the Perth Freight Link project and we look forward to working with the State Government in relation to other projects that are identified as high economic priorities.
GARY ADSHEAD: Just a final question, what is the cost of the company tax plan over the full 10 years of that plan?
MATHIAS CORMANN: The company tax plan is fully funded, it is fully costed. In the forward estimates period we have published this in the Budget papers, I am looking at it now and it is about $2.7 billion or thereabouts over the forwards estimates period. Over the medium term we have reflected that into our medium term forecasts.
GARY ADSHEAD: Minister thanks very much for joining us on your busy day, I appreciate it.
MATHIAS CORMANN: Always good to talk to you.