Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
OLIVER PETERSON: The Mid-year Economic and Fiscal Outlook has been updated today and the headline number is the Budget deficit will blow out by a further $10 billion. A lack of wage growth, high unemployment and a decrease in company profits resulting in tax revenue plummeting. Debt will climb from $496 billion to $601 billion by the end of the decade. One small offset has been the rise of iron ore prices, up from US$55 a tonne to US$80 a tonne and thermal coal prices. The Federal Government is scrapping programs, a local environment and heritage project called the Green Army, the assets recycling scheme is gone. And as announced last week the establishment of the black economy taskforce. To tell us more Mathias Cormann is the Finance Minister and he joined me a short time ago from our Canberra studio.
Senator Cormann welcome to Drive.
MATHIAS CORMANN: Good to be here.
OLIVER PETERSON: Now the results today, they will make ratings agencies nervous and put our AAA credit rating under threat, won’t they?
MATHIAS CORMANN: Two out of the three ratings agencies have already come out and confirmed what we have announced today, that in terms of the Budget position, it is consistent with a AAA economy. We welcome that. But at the end of the day ... interrupted
OLIVER PETERSON: Standard and Poor’s haven’t announced what they will be doing yet.
MATHIAS CORMANN: That is a matter for them, what their ultimate judgement will be. But what I would just say is that at this point, two out of the three have already come out and one of them very quickly, to confirm that the state of the Budget is consistent with that of a AAA economy. We welcome that.
OLIVER PETERSON: If we lose that though, how much harder will it make your job of managing the economy?
MATHIAS CORMANN: We are working very hard every single day to ensure that the Australian economy is on the strongest possible economic and fiscal foundation for the future. This Budget update, despite additional global economic headwinds, despite additional and significant revenue write downs, we have been able to maintain the trajectory to a projected Budget surplus in 2020-21. The deficit this year is actually slightly less than what had been anticipated at Budget time. Yes there has been somewhat of a deterioration of just over $10 billion over the final three years of the forward estimates, but in all of the circumstances, given that we have been able to lower the payments by $18.5 billion over the current forward estimates period, the numbers are what they are.
OLIVER PETERSON: But you mentioned there that you will be getting back into surplus by 2020-21, but all of the Treasurers before Scott Morrison, you look at Wayne Swan, obviously Chris Bowen, Joe Hockey said that as well, but in the last 12 Budgets, we have all said that we will get back to surplus and not one occasion has this come true. So why even make the promise?
MATHIAS CORMANN: We are not making a promise. We are releasing the numbers and the information consistent with the best available advice, consistent with the best available information at this point in time on the state of the economy and the impact of the decisions that we have made. Again, in this Budget update, the policy decisions we have made, the things that we actually control, are improving the Budget bottom line by about $2.5 billion over the forward estimates. Consistent with what has been the case now, this is the third update, this is since MYEFO last year, the projection of a return to surplus by 2020-21 is consistent. The promise that we made is to return to surplus as soon as possible. Based on the numbers and the way that the numbers fall at this point, it is projected to take place in 2020-21.
OLIVER PETERSON: And to do that though you have had to axe a bunch of programs including the Green Army, the Asset Recycling Scheme and for pensioners who are moving overseas as well, you are looking at trying to tighten up how much of a pension supplement they will get, so what will these measures actually achieve for the Government?
MATHIAS CORMANN: You are quite right, we are closing the Green Army program to new projects. That will achieve a saving of about $224 million over the forward estimates and that increases to a net saving of about $830 million over the medium term. In relation to the issue of the seniors supplement, that is a supplement that is paid to deal with cost of living pressures here in Australia. If Australians are permanently, or if pensioners permanently depart Australia or depart for extended periods, then the judgement that we have made is that in all of the circumstances, it is not appropriate for the Government to continue to make that payment.
OLIVER PETERSON: Now you have also indicated that fines will get more expensive and the penalty unit, I’m reading will increase from $180 to $210. You are hoping to increase revenue by $80 million. Obviously that goes some way, but it is certainly a very small part, why is it that fines are going to be seen as a source of Government revenue?
MATHIAS CORMANN: That is dealing with some of the cost pressures, in particular across our courts. It is a matter of making sure that where possible, increases in expenditure that are funded through fees and charges are adjusted according to increases in costs.
OLIVER PETERSON: You obviously got elected again this time around saying it was all about jobs and growth, but it is not really happening is it? National unemployment at 5.7per cent, here in WA 6.9 per cent, this is going to be contributing to less Government revenue being collected in tax receipts, what are you going to do to stimulate the economy and in particularly here in WA?
MATHIAS CORMANN: The economy is in better shape than it would have been had we not made some of the decisions that we have made in recent years, like our decision not to proceed with the mining tax and the carbon tax, our decision to conclude export trade deals with key markets in our region like China, South Korea and Japan and our decision to make a record investment in infrastructure and so on. It is true that our economy is in transition. The great State of Western Australia, which has contributed to much of the economic growth in Australia for most of the past decade is currently on the frontline when it comes to the transitioning economy from record mining investment related construction to broader drivers of growth. One of the reasons why we say that we need to bring down our business tax rates is to make them more competitive internationally, is because we do want to attract more investment, in particular in the non-mining parts of the economy. We want to attract more investment so that we can increase productivity, increase our international competitiveness and over time increase real wages and increase jobs.
OLIVER PETERSON: Yeh but we look here obviously, you have been saved, if you would like, this time around, by the fact that the iron ore price has increased from US$55 a tonne to more than $80 a tonne and the thermal coal price, but we are so reliant on the volatility of these commodities, if they hadn’t risen, we wouldn’t be in the positive spin that you and the Government are trying to put on the numbers today, it wouldn’t look like this, would it?
MATHIAS CORMANN: You are not quite right there. Firstly, tax revenue write downs in this Budget update are in the order of $31 billion. So revenue is down $31 billion. We have taken a very cautious and prudent approach when it comes to reflecting the recent and what we believe to be temporary increases in key commodity prices in our revenue forecast. So yes right now, in 2016-17, the terms of trade are 14 per cent higher than what had been anticipated at Budget time. We know that that is the case for 2016-17, but we are assuming that the terms of trade will reduce again in 2017-18. We are making assumptions, contrary to what was previously the case, that we expect those prices to come down again from 2017-18 onwards. That is reflected in our revenue forecasts. We certainly have not relied on, as you call it, the commodity price volatility to somehow artificially boost our revenue forecasts.
OLIVER PETERSON: You have also given out your State WA Liberal colleagues a bit of a kick in it, saying yesterday in The Sunday Times that you are not going to be fixing the GST before the State Election, how much of a blow will that be to the local Liberal party here in WA trying to get re-elected for a third term?
MATHIAS CORMANN: You should not always believe everything that you read in the newspapers. What I said to the journalist at The Sunday Times is 100 per cent consistent with what the Prime Minister had said to the Liberal party State Conference earlier this year. That is that it is expected that under the current arrangements, the current GST sharing arrangements, WA’s share of the GST will again increase in the ordinary course of events and that as that happens, the Prime Minister has flagged that it will be appropriate in the future to put in place a floor below which WA’s share of the GST or the share of the GST for any jurisdiction for that matter, could not fall in the future. The reason the Prime Minister put that proposal forward that way is because that means that this would not require taking away funding from any other jurisdiction in order to pay for it. The context here is that a national government can’t side with one State Government against other State Government’s. The GST ... interrupted
OLIVER PETERSON: But you are a Senator for Western Australia? Don’t you have to sometimes remove your hat as Finance Minister and put your hat on as WA State Senator and fly the flag and the good fight for our own State?
MATHIAS CORMANN: We do that all the time. All of the Liberal Members and Senators for Western Australia of course strongly advocate for Western Australia. We have been able to attract record additional infrastructure investment into WA and various other things that we have been able to have some very important wins on, like for example …interrupted
OLIVER PETERSON: So is WA’s GST share unfair Senator Cormann?
MATHIAS CORMANN: The GST is a State tax. All of the money goes back to the States. The Prime Minister’s statement I 100 per cent support and that is that it will be appropriate in the future as WA’s share of the GST increases under the current arrangement to put in place a floor. In the meantime what the Federal Government has done is that we have effectively stopped the drop in the WA share of the GST by making additional infrastructure investment grants to the tune of about $1 billion over the last two years. That is the way that we have sought to ensure that the GST share for WA doesn’t continue to fall.
OLIVER PETERSON: All right Senator Cormann I appreciate your time on Drive this afternoon. Busy day for you and the Federal Government. Thank you for talking to us.
MATHIAS CORMANN: Indeed, always good to talk to you.
OLIVER PETERSON: That is Senator Mathias Cormann who we spoke to just before coming on air this afternoon. And I need to clarify that since I interviewed Senator Cormann that the third ratings agency Standard & Poors has now said as well that it will not be downgrading Australia’s AAA credit rating at this stage. But there is still a negative rating outlook, meaning that the downgrade is a real possibility.