Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
ORIEL MORRISON: Okay, Matt, Paul stay right there in Sydney. We are heading now to Canberra to link up with Mathias Cormann the Finance Minister of Australia. Minister, it is always a pleasure to have you with us on the program. Thank you so much for joining us once again.
MATHIAS CORMANN: Good to be here.
ORIEL MORRISON: Economists are telling me that more fiscal reform is going to be needed in Australia in order to hold onto the AAA rating. What would you say to that?
MATHIAS CORMANN: What we would say is that the Government always works to put the Australian economy and the Australian Budget on the strongest possible foundation and trajectory for the future. We have made significant progress since our election to Government in 2013. The net effect of savings on the Budget bottom line is an improvement over the medium term of $250 billion. That is $250 billion, the Government will not have to borrow or is able to use to pay down debt once the Budget is returned to surplus.
ORIEL MORRISON: Mathias how sure and how certain can we be in terms of the budget forecasts that were released this morning? Treasurer Scott Morrison projected the Budget would get back to surplus as we have heard before by 2020-21, that is unchanged from the previous forecast. Can we rely on that?
MATHIAS CORMANN: The Budget update today is based on the most current and the best available information and advice at this point in time. This projection of a return to surplus by 2020-21 has been in place now for some time since last year’s Budget Update and indeed this year’s Budget. So this is not a new projection. The key features of the half-yearly Budget update released earlier today is that the Budget deficit this year is slightly less than what had been anticipated. Yes, there is a deterioration of just over $10 billion over the remaining three years. But the return to surplus remains projected to occur in 2020-21. Importantly, the key effort here, this is despite significant additional revenue write downs, this is despite additional global economic headwinds, based on the Government’s efforts to control expenditure. Expenditure is down by another $18.5 billion in this Budget update compared to what was anticipated, which brings it to a total of $32.5 billion in lower payments since last year’s Budget.
ORIEL MORRISON: Given we were talking earlier about the fact that more progress on fiscal reform is needed in Australia, Paul Bloxham mentioned a little bit earlier and we will be hearing from him in just a bit, the rise in commodity prices, in particular of course iron ore really helped to improve these figures. You said just yesterday though that these rising commodity prices were not enough to offset some of these hits to the other revenue sources. Is this cost control that you are talking to then going to be enough?
MATHIAS CORMANN: The numbers today clearly show that the effect of increased commodity prices has not offset losses in revenue in other parts of the Budget, because the net effect overall in terms of lower tax revenues as a result of economic and parameter variations is $31 billion less tax revenue than what had been anticipated at Budget time. But despite that, the Government maintains an improving Budget trajectory. Despite that we are still projected to return to surplus by 2020-21, consistent with what we have been projecting since last year’s Budget update.
MATTHEW TAYLOR: Hi, Finance Minister it is Matt here in Sydney as well. Of course we were helped out significantly by the rise in terms of trade, particularly over the last few months. But when you strip that out, how sluggish is the broader economy looking because we had that negative GDP print for the third quarter? How can you kick-start growth and what are you going to be doing over 2017? I know you have some policy settings that you are going to try and pull, but there might be difficulties getting those corporate tax cuts for instance through the Senate.
MATHIAS CORMANN: The terms of trade certainly are higher in 2016-17 than previously anticipated, though we are predicting a slight reduction in the terms of trade in the 2017-18 financial year and we are certainly taking a cautious approach when it comes to reflecting the recent increases in commodity prices into our revenue forecast. The Government continues to implement our plan for the economy, for stronger growth and more jobs and certainly reducing the company tax rate for every business over a 10-year period down to 25 per cent, to ensure it is internationally competitive, to ensure we can continue to attract more investment and increase productivity and over time increase real wages, that continues to be an important part of our plan. This is one of the next cabs off the rank when we come back to Parliament in February-March next year.
PAUL BLOXHAM: Mathias it is Paul Bloxham from HSBC here in Sydney. The Australian Government does have a structural Budget deficit, that is, you have to make changes to either the tax system or to spending in order to get back to a sustained Budget surplus position. How much progress would you judge that you are making in terms of headway in terms of reducing that structural Budget deficit at the moment?
MATHIAS CORMANN: As I have indicated we are very focused on the impact of our decisions in particular over the medium term because the best savings and the best Budget improvement measures are measures that start low and slow and build significantly over time. If you look at all of the Budget improvement measures and all of the savings measures that we have implemented since we came into Government in 2013, the net effect of implemented measures, not proposals, not things that are still before the Parliament, measures that have actually been implemented, is a $250 billion improvement to the Budget bottom-line over the medium term to 2026-27. We are very conscious that there is more work to be done, but we would argue that we are now heading in the right direction and if you look at what is happening to the spending as a share of GDP equation for example, when we came into Government that was headed for 26.5 per cent as a share of GDP, it is now down to 25.2 per cent. We are working every single day to continue to make progress heading in the right direction.
ORIEL MORRISON: Minister, in your view what do you believe that the new President-elect, soon to be President of the United States, Donald Trump means for Australia? We have already seen bond rates move up worldwide that of course is increasing any kind of debt-servicing costs, over the longer term though what does Donald Trump’s Presidency means for Australia?
MATHIAS CORMANN: We look forward to working with the new Trump administration after President Trump is sworn-in on 20 January next year. In the meantime our Prime Minister has spoken to President-elect Trump. We are talking to the transition team where we can and as appropriate and let’s wait and see. We are strong and long-standing friends and allies of the United States. We believe that there is much scope for us to keep doing good things together both economically and strategically.
PAUL BLOXHAM: Paul Bloxham again here in Sydney. There has certainly been a lot of local discussion about the idea that it’s recurrent spending that really is the Budget problem and that we really still ought to be very focused on supporting constructing infrastructure. Do you think there is a case for separating the Budget into investment and consumption decisions and making those two things separate in terms of the Budget framework?
MATHIAS CORMANN: It is certainly very true that what we are seeking to address in particular is the fact that we are spending too much on our day-to-day living expenses and that we are not living within our means on day-to-day living expenses. We don’t believe that we should be paying for today’s welfare payments with increased taxes tomorrow or down the track. When it comes to infrastructure, of course we do need to increase investment in infrastructure. We do have a record $50 billion infrastructure investment program already, but we are always looking at innovative and creative ways we can leverage traditional private sector investment, better align federal and state government investment into infrastructure projects to ensure that we get the best possible bang for our buck.
ORIEL MORRISON: Alright Minister it’s a pleasure to have you with us on the program. Thank you so much for joining us today. Mathias Cormann Finance Minister of Australia. And thank you also to Paul Bloxham from HSBC for joining us from Sydney and to our own Mathew Taylor.
MATHIAS CORMANN: Always good to talk to you.