Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
MATT ABRAHAM: We’re going to look for some answers now if you are worried about the tax you pay or are not going to pay. You might be delighted about the tax you won’t have to pay. New thresholds, super, is the Government dipping into your super, is it giving you super breaks or a bit of both? I’m going to do that right now with the Finance Minister, somebody who is right at the heart of assembling a federal Budget. Mathias Cormann, Minister welcome.
MATHIAS CORMANN: Good morning.
MATT ABRAHAM: The South Australian treasurer Tom Koutsantonis is underwhelmed saying there is nothing really for South Australia in this Budget. Is this as good as it gets for South Australia?
MATHIAS CORMANN: This is a very good Budget for South Australia, because of course one key feature of our national economic plan is our defence plan for local high-tech manufacturing and technology. I would have thought that recent announcements that the Government has made in the lead up to the Budget, for example in relation to our submarine procurement and more generally in relation to our naval ship building plan, have been very good news for South Australia in particular and of course good news for Australia overall.
MATT ABRAHAM: Do you think sometimes, what do we have to do for these people to make them happy. We give them a $50 billion defence contract, bring forward the Offshore Patrol Boats, they have got frigates, basically anything that floats is going to built in Adelaide. Do you sometimes think they’re a little ungrateful in Adelaide?
MATHIAS CORMANN: I wouldn’t say that the failed Labor Treasurer in South Australia is representative of the view of the people of South Australia. I wouldn’t expect a Labor state treasurer in South Australia to provide and honest and fair assessment of the effect of our Budget. The truth is that our Budget is an economic plan for jobs and growth, it is our plan to secure our successful transition from resource investment driven growth to a more diversified strong economy and it is also our plan to live within our means by getting the Budget onto a sustainable foundation for the future. That is what people right across Australia expect us to do, including in South Australia.
MATT ABRAHAM: How is Tom Koutsantonis a failed treasurer?
MATHIAS CORMANN: Look at what happened to the debt and deficit situation on his watch. South Australia has got a very bad budget position after years of Labor state government.
MATT ABRAHAM: Mathias Cormann have we seen in this Budget a fundamental change to super and to the Government’s view about super? And that is, do you not regard super anymore as a means of having a comfortable or even a very comfortable retirement. It is an alternative to the pension.
MATHIAS CORMANN: What we have done here is to ensure that the tax concessions in superannuation are better targeted and fit for purpose. The purpose of superannuation is to provide an income in retirement to replace or supplement the aged pension, not to be a tax effective intergenerational wealth transfer vehicle. The changes that we’ve made leave 96 per cent of Australians with superannuation either completely unaffected or better off. Some of the changes at the very high end that we have made impact just 1 per cent of people with superannuation. For example, the proposition that you should only be able to transfer as an individual Australian $1.6 million into a retirement income account where the income continues to be provided to you tax free. We think that is a sensible line in the sand to draw.
MATT ABRAHAM: If people have over that amount in their accumulated transition or T2R they’re called aren’t they, transition to retirement schemes or income streams, where the earnings and the income is tax free, you’re now saying, and is this a significant shift, that really there is a retrospective change?
MATHIAS CORMANN: There is no retrospective change. It is a tax change that applies in the future in relation to income generated on the back of... interrupted
MATT ABRAHAM: But if they already have balances over that though, in good faith made a super decision, I’ve got a windfall from Grandma, or I’ve sold my house and I’m in the caravan, I’m banging all that money into one of these T2R schemes and I don’t have to worry because that won’t be retrospective. It is now though, is it not?
MATHIAS CORMANN: It’s not retrospective in as much as it only applies to future income. In the economy... interrupted
MATT ABRAHAM: Future income from money that you have salted away in that fund in the belief that the Government had said that would be tax free and there was not limit.
MATHIAS CORMANN: People invest in property, people invest in shares, people invest in all sorts of income producing assets and from time to time, income tax rates change for the future... interrupted
MATT ABRAHAM: But the treatment of super is not normally retrospective. And do you agree that certainly the tax treatment in this case is retrospective?
MATHIAS CORMANN: No I don’t agree. The tax treatment is not retrospective... interrupted
MATT ABRAHAM: How would you describe it?
MATHIAS CORMANN: The way I just did. What we are applying is still a concessional rate of tax of 15 per cent by making sure that people have to leave any amount, above $1.6 million in their accumulation phase, where earnings are still taxed at a concessional rate of 15 per cent. That only capital of $1.6 million can be transferred into the retirement income phase where it attracts no tax whatsoever. That is $1.6 million per individual, $3.2 million for a couple. As I said, only 1 per cent of people across Australia are actually in that category and we believe that was an appropriate line in the sand to draw.
MATT ABRAHAM: But if you’re a younger worker, say you’re under 40, can you now assume that superannuation will only be as you say, a replacement for the pension, that’s it? Where in the past you would have thought, I have modest ambitions my superannuation will make me comfortable, now it will replace the pension, well big deal.
MATHIAS CORMANN: Well I actually said two things and you conveniently dropped the second bit off. Replacement of the age pension or supplement the age pension in order to have a more comfortable retirement. That is of course part of the purpose. The question is, to what extent should the tax payer effectively cross subsidise that zero tax rate. Should there be no limit at all, or should there be some limit? What we have said, it’s a threshold that is indexed based on CPI. We’ve said that you can put $1.6 million into a retirement income account where the income generated off that asset base doesn’t attract any tax at all. Incidentally you are able to keep those earnings in that fund so the capital can increase in that fund, on that basis in that retirement income account. But, what we are saying, and that is a very conscious and deliberate decision that we have made is that there was a need to rebalance and to retarget some of these concessions.
MATT ABRAHAM: You’re listening to Mathias Cormann Minister for Finance, we’re talking about the Budget handed down last night. Can you just explain on the flip side though, the changes for low income, there are changes for low income spouse tax offsets and the thresholds have been changed on super. That would be important for a lot of listeners as well.
MATHIAS CORMANN: Yes indeed. There are a range of positive things we’ve done. We’ve extended and we’ve continued the Low Income Super Tax Offset to ensure that people earning less than $37,000 a year don’t pay more tax on income going into super than on income that they take as take home pay. We’ve also ensured that people are effectively able to play catch up on their concessional contributions. For example, the contributions into super of up to $25,000 attract a lower tax rate. But many people don’t reach that concessional cap in any given year. Sometimes because of disrupted work patterns or because they just haven’t got the spare capacity in any given year. So we allow them to accumulate any unused amount of that towards that concessional cap over a five year period. If there is a circumstance where they have finished paying their mortgage, or their kids have left school or they have a one off income event that enables them to put in more, they can do so tax effectively using any unused concessional caps in the previous five years.
MATT ABRAHAM: I think, people who have got super or who are into it will understand what you just said, but anyway.
MATHIAS CORMANN: It’s a very, very important feature that one.
MATT ABRAHAM: That it is, and also the threshold for the low income spouse. It will go from $10,800 to $37,000.
MATHIAS CORMANN: Indeed. That’s right.
MATT ABRAHAM: You’re imposing bigger taxes on those sums above $1.6 million.
MATHIAS CORMANN: Not on the sums above $1.6 million, on the income generated off capital above $1.6 million. And when you say bigger taxes, we are continuing to apply the concessional tax rate of 15 per cent that applies on earnings in the accumulation phase.
MATT ABRAHAM: Okay, but what effect do you think these changes will have on savings and investment patterns? Where do you think the money is going to go now?
MATHIAS CORMANN: People who are in that circumstance, about 1 per cent of people across Australia with superannuation, will either leave their money in the accumulation phase of their superannuation account where they pay 15 per cent tax and that is still I would have thought, a very good investment and a very attractive tax rate, or they might decide to invest in businesses or property.
MATT ABRAHAM: Or property and negative gear, which you’re not touching.
MATHIAS CORMANN: That is actually not a very insightful observation. People in the retirement phase wouldn’t want to negative gear. Negative gearing is something that you do as you try to get ahead as a younger person because you are expecting future capital gain.
MATT ABRAHAM: Older people negative gear as they are trying to accumulate wealth and if you are trying to bump it up, say you’re 55 or 60 and you were salting it away in one of these accumulation funds. You might think ‘nup, I’m going to whack it into a property’.
MATHIAS CORMANN: I suspect that the older you get, the more interested you are in a reliable income stream rather than in income losses now with the prospect of a capital gain 10 or 15 years down the track.
MATT ABRAHAM: Mathias Cormann the Treasurer Scott Morrison, and we’re glad you call this a Budget and not a plan for jobs and growth but he’s calling it that…
MATHIAS CORMANN: But it is a plan for jobs and growth.
MATT ABRAHAM: I shouldn’t have given you the invitation there, I smack myself. What is your target for jobs in 12 months time?
MATHIAS CORMANN: As you would have seen the unemployment rate in Australia at 5.7 per cent now is below what had previously been anticipated, because our employment growth has actually been strengthening and it certainly below the OECD average. What we are predicting and forecasting in the Budget is that the unemployment rate will continue to fall to 5.5 per cent.
MATT ABRAHAM: How many jobs will be created?
MATHIAS CORMANN: We have created 442,000 jobs in the two and a half years since we got into Government. We want to create as many jobs as possible.
MATT ABRAHAM: What is the target? If you’ve got a plan….
MATHIAS CORMANN: We do have a plan and the plan is to bring the unemployment rate down at least to 5.5 per cent over the current forward estimates period.
MATT ABRAHAM: Now if we could finish where we began with Treasurer Tom Koutsantonis, he says there’s nothing in this Budget for Whyalla and the troubled steel maker Arrium. Can you say anything about Arrium? What is the Federal Government prepared to do to help those people?
MATHIAS CORMANN: The people of Whyalla are looking for the Government to implement a plan for jobs and growth and that is of course what we are doing. The people of Whyalla will do well because of the decisions that we have made, for example to invest in the railway extension in South Australia, to invest in the submarine procurement. We’ve obviously made a whole series of decisions in recent times that will increase…interrupted
MATT ABRAHAM: They are going to need something that’s targeted at Arrium, aren’t they? Quite specifically. Have you got, and you might not be in a position to give us chapter and verse here, but have you got something that you’re prepared to do for Arrium?
MATHIAS CORMANN: What I suggest you do is that you keep talking to your very hard working senior South Australian Industry Minister. That is of course squarely in his area of responsibility, Minister Pyne.
MATT ABRAHAM: But he hasn’t told you, look I’m sorry Mathias we are going to need a bucket of money, you’d better keep something aside for Whyalla otherwise that town is going to disappear.
MATHIAS CORMANN: Arrium hasn’t asked us for a bucket of money. That is actually not what they are looking for. We have great confidence in their future success and what we are focusing on, through our economic plan is to, among other things, is to increase the domestic demand for steel and we believe that is going to be good news for the people of Whyalla over time.
MATT ABRAHAM: We played an Alanis Morissette song called Ironic earlier. Do you think it’s ironic that the people of South Australia, the taxpayers of South Australia, have sold their assets that made a fortune, that’s the electricity grid, and are going to have to buy into an asset that’s losing money and that is the steel maker.
MATHIAS CORMANN: I’ll let the State Government in South Australia make their own judgements.
MATT ABRAHAM: I just thought you might have observations on irony.
MATHIAS CORMANN: To be honest, I think it would have been very sensible to put into private hands an asset that can better perform in private hands and continues to provide a service to the community in a more efficient way. But in terms of other judgements the State Government in South Australia wants to make, that’s a matter for them.
MATT ABRAHAM: Mathias Cormann, we appreciate your time with our listeners.
MATHIAS CORMANN: Always good to talk to you.
MATT ABRAHAM: Same here.