Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
PATRICIA KARVELAS: We have had a Budget last night, a special Budget edition of RN Drive last night, and now we are picking over it and because it is the day after the Budget, it means it has been a very full day in Canberra. The Government’s plans have been put under 1000 microscopes and received 1000 different assessments. I am sure you have got your own and also some questions you want answered. To that end I spoke a very short time ago with the Finance Minister, Mathias Cormann.
Mathias Cormann, welcome back to RN Drive.
MATHIAS CORMANN: Good to be back.
PATRICIA KARVELAS: On company tax cuts, how much will the company tax cut cost over that 10 year period?
MATHIAS CORMANN: Budget measures are costed over the forward estimates and as we have indicated in our Budget papers the cost of the company tax cut is $2.7 billion over the forward estimates. The important point here is that all of that is paid for by tax changes in other parts of the tax system, specifically strengthening the integrity of the tax system, cracking down on tax avoidance in particular by multinationals and other related measures.
PATRICIA KARVELAS: Why can’t you give us the 10-year figure though, because it is a 10 year plan that you tell us in the Budget, but you are not giving us a 10 year figure of how much it is going to cost. That seems odd to me. Is it because you are scared of the figure? Is it really big? Is it going to scare us?
MATHIAS CORMANN: There is nothing odd about that at all. There are certain costing conventions under the Charter of Budget Honesty and that is how we put Budgets together. That is how Governments in the past have put Budgets together and that cost over the forward estimates is $2.7 billion. We have been very transparent about the fact that... interrupted
PATRICIA KARVELAS: But it is a 10 year plan, so that is a four year period.
MATHIAS CORMANN: The reason it is a 10-year plan is because we are doing as much over the current forward estimates as we can afford in the current forward estimates. We have deliberately calibrated this reduction in the corporate tax rate to 25 per cent over a 10 year period because that is what we can afford both over the forward estimates and over the medium term. The important point here is that this 10 year enterprise tax plan will help us attract additional investment, will help us improve productivity, it will help us increase the level of job creation and will help us increase real wages over time and as such living standards. That will help people across Australia to get ahead.
PATRICIA KARVELAS: Okay, but when Labor had a 10 year plan, they still do for Gonski and for health, you’ve mocked that, saying it is a fairy tale that we can’t trust the figures. How can we trust a 10 year plan that you have, but when Labor says the same about their 10 year plan, apparently it is all fantasy?
MATHIAS CORMANN: Well the problem with Labor is that they always propose an increase in tax to fund increases in expenditure and indeed they end up committing more in spending than what the tax measures raise... interrupted
PATRICIA KARVELAS: Is that your way of saying to the electorate, trust us, just trust us, it will be okay.
MATHIAS CORMANN: No what we are saying to the electorate is that we are implementing our plan for jobs and growth by, among other things, making our tax system more growth friendly. Our enterprise tax measure has been fully costed, it is fully funded over the forward estimates.
PATRICIA KARVELAS: It isn’t fully funded over 10 years. It is fully funded over four.
MATHIAS CORMANN: It is absolutely reflected in our medium term forecasts and you have to remember that our medium term forecasts have for some time had a tax as a share of GDP cap in it. As such there are over the medium to long term, there are already certain assumptions in the Budget.
PATRICIA KARVELAS: Is it an aspirational promise? An election promise? How do we see it then if we can’t see the figures?
MATHIAS CORMANN: This is not just an aspiration, this is a firm plan. This is part of our national economic plan for jobs and growth. This is a firm plan as part of our plan to continue to successfully transition our economy from resource investment driven growth to broader drivers of growth. Incidentally, this time last year Bill Shorten was calling for a bipartisan approach on bringing the corporate tax rate down to 25 per cent.
PATRICIA KARVELAS: He was and I am talking to Tanya Plibersek next and I will ask them about that, of course I will challenge them about that, but I still find a bit of an inconsistency with what you say about Labor’s10 year plans and your own 10 year plans. I want to move on to something else because I don’t know if we are getting anywhere on this one. It is something that wasn’t even really addressed in the Budget last night and it is housing affordability. Here is Malcolm Turnbull on Jon Faine’s radio program in Melbourne this morning.
PRIME MINISTER: What, are your kids locked out of the housing market Jon?
JON FAINE: Yes.
PRIME MINISTER: Well you should shell out for them, you should support them, a wealthy man like you.
JON FAINE: That’s what they say.
PRIME MINISTER: Well exactly, there you go you have got the solution in your own hands.
JON FAINE: That is hardly national policy.
PRIME MINISTER: You can provide a bit of intergenerational equity in the Faine family.
PATRICIA KARVELAS: That became the focus of Bill Shorten’s first question in Question Time today. How many Australians does the Prime Minister think can and should just buy houses for their children?
MATHIAS CORMANN: The Labor Party today completely overreacted to a bit of harmless humour.
PATRICIA KARVELAS: So it is a joke? It’s not really an idea that you have?
MATHIAS CORMANN: There was a bit of humorous banter between the Prime Minister and Jon Faine and I can’t believe that Bill Shorten overreacted to the extent that he has. The truth is, and we all know how to improve housing affordability in a sustainable fashion and that is by increasing the supply of housing. The price of anything is a function of supply and demand. If demand is higher than supply, prices go up.
PATRICIA KARVELAS: Onto tax matters, how does an extra $6 a week for people earning more than $80,000 grow the economy so much that it benefits everyone including lower income earners? How does that work?
MATHIAS CORMANN: What we have sought to do here is to ensure that full time average weekly earners do not move into the second highest tax bracket, because we think that additional four and a half percent tax, taking their top marginal tax rate from 32.5 to 37 per cent tax would be a disincentive to work harder and to earn more. We have always said that our instinct is to provide lower taxes and to reduce personal income tax, but we also said we would only be able to do what we can sensibly afford. This is as much as we can afford in this Budget, when the Budget position improves down the track on the back of a strengthening economy, then we would like to be able to do more.
PATRICIA KARVELAS: On RN Drive, my guest is the Finance Minster, Mathias Cormann. It is the day after the Budget, it is the day well all the questions are asked about what is in the Budget. 0418 226 576 is our number if you want to text us, you can also tweet us at RN Drive, what do you make of this Budget, how has it gone down? You have had almost 24 hours to digest it now. Scott Morrison once called it an ironclad rule that you wouldn’t change superannuation retrospectively, but you have.
MATHIAS CORMANN: No we haven’t.
PATRICIA KARVELAS: Tell me, how are they not retrospective changes? I mean last night he put $500,000 lifetime cap on non-concessional contributions back dated to 2007.
MATHIAS CORMANN: Well anyone who has put in more than $500,000 into their superannuation account in non-concessional contributions before last night will not be required to remove that. That is a changed requirement that applies prospectively into the future. In relation to the $1.6 million transfer cap to tax free retirement income accounts, that only applies to earnings on that asset base moving forward. On future earnings, post 1 July 2017. It is very clearly a prospective tax measure. It is a measure that applies to income generated after 1 July 2017.
PATRICIA KARVELAS: You have taken on your base I know some of them are very grumpy. Have you got some sort of terse calls, emails? You must have got a bit of backlash on this one?
MATHIAS CORMANN: Well what we are doing here is to ensure that the tax concessions on superannuation are better targeted and fit for purpose.
PATRICIA KARVELAS: I know that is what you did. My question was have you got some angry text messages, emails, mail, calls to your office?
MATHIAS CORMANN: You are my 20th interview today I have not been dealing with my correspondence today.
PATRICIA KARVELAS: So you may have?
MATHIAS CORMANN: I may well have.
PATRICIA KARVELAS: The Budget is predicated on growth in nominal GDP of 5 per cent year on year from 2017. Are you comfortable with that?
MATHIAS CORMANN: Well that is obviously based on the expert advice from Treasury and we believe that we have made very realistic assumptions in this Budget. Moving forward the assumptions in this Budget are based on the best available information at this point in time. In the future we might need to update it, hopefully positively, hopefully on the upside, because we are very confident that our plan for jobs and growth will deliver stronger growth and more jobs.
PATRICIA KARVELAS: But if we are in this transitioning economy that the Government keeps referring to and it is quite obvious that is what we are doing here as a nation, don’t we have even less room for optimism in these forecasts?
MATHIAS CORMANN: You have got to look at how we have performed so far. When we came into Government we inherited a weakening economy, rising unemployment and a rapidly deteriorating Budget position. The economy now is growing at three per cent which is double the rate of Canada. It is higher than any of the G7 economies around the world. Employment growth is strong, at 5.7 per cent the unemployment rate is well below what was previously anticipated. So our plan in last night’s Budget is building on the progress that we have made so far. So we are quietly confident that if we continue to execute our plan that we will continue to strengthen growth and create more jobs.
PATRICIA KARVELAS: Just finally on this youth jobs measure that is going to put these young people into these paid internships, there has been a lot of critique, as you know, from the ACTU and others, that it is a bad thing, that it is going to exploit young people. What safeguards are you going to put in so there isn’t exploitation? Are you going to sort of try and create really strict rules around what employers can do?
MATHIAS CORMANN: We are very excited about this initiative, it is a very positive initiative, obviously targeted at disadvantaged young people trying to break into the jobs market... interrupted
PATRICIA KARVELAS: But dodgy employers will exploit it, they have done it before, there have been wage subsidy schemes.
MATHIAS CORMANN: Funny that a union is coming out and immediately criticising rather than to give this initiative a chance to work. What we are wanting to do here is to ensure that disadvantaged young people are better prepared when they approach employment opportunities, that there is an opportunity for employers to try out a potential prospective future employee and there will be ongoing income support for the employee. There will be additional payments for the employee and for the employer and there will be an aspiration…interrupted
PATRICIA KARVELAS: What can you tell me about the compliance to make sure that they don’t churn them through, because that is what has happened before. You know I have written a lot about this subject.
MATHIAS CORMANN: There will be appropriate compliance arrangements. There will be appropriate design measures in place in relation to this program.
PATRICIA KARVELAS: Can you give us a guarantee on this program that they will be very tough, so that, well this is the vulnerability of this policy Mathias Cormann, that people think that employers will rort it. So can you say there won’t be any rorts?
MATHIAS CORMANN: We don’t believe that this will be rorted and we will ensure that the program is properly designed to achieve the outcomes that we want it to achieve. The outcomes we want to achieve is to get more disadvantaged young people into ongoing employment and off welfare.
PATRICIA KARVELAS: Okay Minister thank you for your time.
MATHIAS CORMANN: Thank you.