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
MICHELLE GRATTAN: Hello I’m Michelle Grattan and this is The Conversation’s Budget podcast. After the Government’s pre-election Budget on Tuesday, Ministers have hit the airwaves to promote what Treasurer Scott Morrison describes as not just an ordinary Budget, but an economic plan. One of those on the sales trail is Finance Minister Mathias Cormann. He’s doing 22 interviews would you believe in a day, and he’s with us now. Minister this is Scott Morrison’s first Budget but it’s the third one that you’ve been very much at the centre of. Have you found it easier this time around?
MATHIAS CORMANN: Every Budget is different. When we came into Government we inherited a weakening economy, rising unemployment and a rapidly deteriorating Budget position from our Labor predecessors. So we have had to make decisions in every Budget to put Australia on a stronger economic and fiscal foundation for the future. In this Budget, the Treasurer last night delivered our plan for jobs and growth. He delivered our plan to secure a successful transition from resources investment driven growth to broader drivers of growth in a stronger diversified and innovative economy. That is what we are explaining to people today.
MICHELLE GRATTAN: When you’ve done it before though, does it get easier or is it just as hard every time?
MATHIAS CORMANN: Every Budget is different. But from my own personal point of view, I feel like I’m more experienced than when I was part of the team putting the first Budget together, of course.
MICHELLE GRATTAN: Now the Treasurer has indicated that spending needs to come down a good deal further than you have been able to get down this time. This obviously would be a task for a re-elected Turnbull Government. Ideally how much further down do you think it needs to go?
MATHIAS CORMANN: When we came into Government we inherited a spending growth trajectory taking spending as a share of GDP to 26.5 per cent within the decade at that time and rising beyond that. The Intergenerational Report found that spending as a share of GDP was expected to increase well in excess of 30 per cent. Now we have been able to stop that increase at 25.8 per cent. Over the forward estimates we are expecting to reduce that to about 25.2 per cent. We would like to get it below the long term average. That is a few more points of a percentage down.
MICHELLE GRATTAN: How many more?
MATHIAS CORMANN: The long term average is about 24.9 per cent.
MICHELLE GRATTAN: So that would be the ideal?
MATHIAS CORMANN: That is the aspirational target for down the track.
MICHELLE GRATTAN: That would be very difficult though wouldn’t it? Because there are not really soft areas left.
MATHIAS CORMANN: You are assuming that this can only be achieved on the spending side of the Budget. A good way of reducing spending as a share of the economy is to grow the economy faster. That is why we have put forward this national economic plan for jobs and growth. That is why we are pursuing a plan with an ambitious innovation agenda, an ambitious tax reform agenda, an ambitious infrastructure agenda, our export trade deals, our defence industry plan. All focussed on strengthening growth and creating more jobs because a stronger economy will help generate more revenue so that we can afford the levels of expenditure that are required to maintain an appropriate level of social safety net and so on.
MICHELLE GRATTAN: So does this mean you are saying that people don’t need to fear that a re-elected Turnbull Government would wield the axe?
MATHIAS CORMANN: We are working very hard to control expenditure growth. We inherited unsustainable and unaffordable spending growth from the previous Labor government. We have been able to get that under control. Spending growth is now below 2 per cent above inflation where it was running about 3.7 per cent above inflation per annum under the previous government. We will continue to control spending. What we have done in this Budget again is wherever there was a requirement for increased spending, we have paid for that by reducing spending in other parts of the Budget, not through increased taxes. Our criticism of the Labor alternative is that their proposal is to increase taxes by more than $100 billion over the next decade, which would hurt the economy and cost jobs. But they want to use all of that money to spend more and even spend more beyond that which would mean more deficit and more borrowings.
MICHELLE GRATTAN: You can see why the ordinary voter might think ‘well the Government’s been soft in this Budget because there’s an election around the corner, but once they got in again they could turn the dial to toughness’.
MATHIAS CORMANN: We haven’t been soft in this Budget.
MICHELLE GRATTAN: Relatively soft.
MATHIAS CORMANN: The policy decisions of the Government improve the Budget bottom line by $1.7 billion over the forward estimates. That is taking together both the revenue and the expenditure side. On the expenditure side alone, the net impact of policy decisions of the government reduced spending by $3 billion.
MICHELLE GRATTAN: That’s not a lot over the Budget period.
MATHIAS CORMANN: In the mean time we have paid for an additional $2.9 billion for state hospitals. We have paid for another $1.2 billion in funding for state schools. We have paid for a whole range of other things that came out of savings rather than out of increased taxes.
MICHELLE GRATTAN: The Budget estimates that the tax changes that you’re proposing over a decade will lift GDP by some 1 per cent, but what is the timeline on that lift. It’s longer obviously than the decade, which even seems to be a very long time.
MATHIAS CORMANN: The advice from Treasury is that our 10 year enterprise tax plan will permanently increase the size of the economy by one per cent. We need to have the opportunity to implement this plan which will reduce the corporate tax rate to 25 per cent over the decade, prioritising small and medium sized businesses in the first instance. What this will help us to achieve is to attract additional investment into Australia to increase productivity, increase the level of job creation and also importantly to increase real wages over time and as such increase living standards. That is really the driver of helping people across Australia to get ahead.
MICHELLE GRATTAN: So when would we get to the one per cent?
MATHIAS CORMANN: That is something that would start to come into effect once the whole plan has been implemented. So it is progressively ... interrupted
MICHELLE GRATTAN: When would the full one per cent be seen?
MATHIAS CORMANN: This is going to progressively come on board once the whole ten-year enterprise tax plan is in effect and is implemented. What we will see over time is a permanent increase in the size of the economy by one per cent, which is a very significant increase.
MICHELLE GRATTAN: It is, but although one could say it is not huge.
MATHIAS CORMANN: One per cent is quite significant. A permanent increase in the size of the economy of one per cent which increases the base from which future growth then takes place has a significant compound effect.
MICHELLE GRATTAN: There is no timeline for this one per cent?
MATHIAS CORMANN: The timeline for implementing our plan is 10 years.
MICHELLE GRATTAN: But the timeline for one per cent is some time in the future beyond that? It is undefined.
MATHIAS CORMANN: It will continue to take effect in the economy over the medium to long term indeed, yes.
MICHELLE GRATTAN: It has become a bit of a fashion on both sides of politics to talk not just in four year, forward estimate terms, but in a decade long term. In the Budget now or in Labor’s policies, whatever, but isn’t that really pretty unrealistic because often within a decade governments change, certainly Ministers change, circumstances change?
MATHIAS CORMANN: What we want to show the Australian people is the destination that we want to reach in a realistic time frame. We have done as much as we can realistically afford over the current forward estimates. The 10 year enterprise tax package costs the Budget about $2.7 billion which is paid in full by a series of tax integrity measures, cracking down on tax avoidance and making sure that we close certain loopholes. This is something that we quite openly and transparently take the Australian people into our confidence about - that is what we believe the medium term direction for Australia should be. People often say that governments take too much of a short term view. We are giving a very clear indication about what our medium to long term direction is intended to be, but also being open and transparent about what we can afford over the short term.
MICHELLE GRATTAN: Do you think that we will be talking about this Budget in a couple of weeks into the campaign? Because it does seem to have gone down relatively smoothly, admittedly everyone built it up in the media both political sides beforehand as being really critical to the campaign, but I just wonder whether in a week or so it will fade away and really the election will become substantially a contest of leadership, whether you trust Malcolm Turnbull or whether you think Bill Shorten is up to it.
MATHIAS CORMANN: The contest at this election is a contest about who the Australian people trust to continue to successfully transition our economy from resource investment driven growth to broader drivers of growth in a strong, innovative, diversified economy. We have put forward our plan on how we propose to achieve that. Our plan involves an ambitious innovation agenda, an ambitious defence industry plan, focusing on high level manufacturing. It involves export trade deals, it involves tax cuts for small business and hard working families. It involves cracking down on tax avoidance on making sure that tax concessions, in particular in the superannuation space are better targeted. So the Australian people will have our plan which is funded and sustainable. Then they have got Labor’s approach of increasing the tax burden in the economy, which will hurt the economy and cost jobs. It will be up to the Australian people to decide.
MICHELLE GRATTAN: What will your role be in the campaign?
MATHIAS CORMANN: I will do my bit to help make sure that we explain our plans and explain our record.
MICHELLE GRATTAN: And last time you spent most of your time in Canberra I think as the campaign spokesman here. Will this be what you are doing next time?
MATHIAS CORMANN: I will be based in Canberra for the duration of the campaign, yes.
MICHELLE GRATTAN: We hope to talk to you as the weeks go by.
MATHIAS CORMANN: I’m sure we will.
MICHELLE GRATTAN: Mathias Cormann, thank you very much and that is all for our podcast for today.