Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
Date: Monday, 19 December 2016
DAVID SPEERS: With me now is the Finance Minister Mathias Cormann. Thank you for joining me this afternoon. Let me get your reaction though to the fact that all three of the ratings agencies have said at least for now they are keeping a AAA status.
MATHIAS CORMANN: We welcome that. The Government has always said we are working very hard to put Australia on the strongest economic and fiscal foundation for the future. The decisions the Government has made in this half-yearly Budget update again improved the Budget bottom line. All up the deficit this year, as you say, is slightly less than had been anticipated. There is a $10.3 billion deterioration over the forward estimates, but a return to surplus project for 2020-21. That is despite the additional global economic headwinds, it is despite future revenue write-downs and it is principally because payments over the forward estimates are about $18.5 billion less than had been anticipated at Budget time.
DAVID SPEERS: Let’s get to some of the specifics then in the document you have produced today. You now want to spend, and this is not a big number I appreciate, but you now want to spend $9 million more a year hiring more staff for MPs. At a time when you are asking those on welfare benefit, the dole to tighten their belts, why do politicians need more staff?
MATHIAS CORMANN: Certain decisions were made in the context of the independent review into parliamentary work expenses. That is one of the measures that comes out of it. Again, it is a spending measure that is full offset through savings... interrupted
DAVID SPEERS: But why do you need additional staff?
MATHIAS CORMANN: Because of the makeup of the 45th Parliament there are certain decisions that were made on the staffing side... interrupted
DAVID SPEERS: Wooing the crossbench, is that what it is?
MATHIAS CORMANN: We want to ensure that we are in the best possible position to implement our plan for the economy and jobs. That is reflected across the board.
DAVID SPEERS: So what does that mean? You want to help try to sweeten the deal with the crossbench by giving them more staff?
MATHIAS CORMANN: What it means is that we recognise the workload, both for Government and for non-Government Members of Parliament and ... interrupted
DAVID SPEERS: All Parliaments have a higher workload.
MATHIAS CORMANN: Again, this measure, like every other measure on the spending side of the Budget, is more than fully paid for in other parts of the Budget.
DAVID SPEERS: Sure, you get my point. You are asking people to tighten their belts everywhere else, and then its more staff, you are also putting in more offices for MPs with big electorates. They get a third electorate office. Is how the time really do all this?
MATHIAS CORMANN: Again, that is implementing a specific recommendation that was made by the independent review into Parliamentary work expenses.
DAVID SPEERS: Alright. Now, some of the savings you are making are slashing the nannies pilot program from 3,000 places to just 500 places. That saves $170 million. Why?
MATHIAS CORMANN: That is a reflection of very low demand compared to what had been anticipated. When you do a trial ... interrupted
DAVID SPEERS: And then it terminates, is that right?
MATHIAS CORMANN: So far we have taken the saving that is reflected in the half-yearly budget update. We haven’t made the decision to terminate. When you conduct a trial, by definition it’s a trial. Once it has been underway for a while you may make a judgement on what is and isn’t working and you make adjustments. That is what we have done in this budget update.
DAVID SPEERS: So no-one is taking it up?
MATHIAS CORMANN: Certainly the uptake has been less than what was anticipated.
DAVID SPEERS: The Green Army – it’s gone.
MATHIAS CORMANN: The Green Army is being closed to new projects, that is right. That achieves a saving of approximately $224 million over the forward estimates, but importantly that saving grows over the medium term to $830 million.
DAVID SPEERS: Do you think that Tony Abbott will feel a bit miffed that some of his projects, nanny pilot, Green Army, are all getting the chop?
MATHIAS CORMANN: Again, we are in a challenging budget environment. We have to find savings. Whether it was under the Abbott Government or under the Turnbull Government, at all times you have to reassess spending priorities in the context of competing pressures.
DAVID SPEERS: You have a saving there of $154 million, not proceeding with the plebiscite on same-sex marriage this year, at least. It’s pretty obvious that it is not going to happen in this financial year, but explain this to me, the $154 million saving, but if you do manage to convince the parliament to go ahead with the plebiscite you will pay for it out of the contingency reserve.
MATHIAS CORMANN: Our plan was to have a plebiscite on 11 February. It is very clear that given the Parliament has not legislated for that, that cannot now happen. So we did not want to keep spending money on something that clearly is not going to happen. It was a one off item of expenditure. What we have said is that we remain committed to conducting a plebiscite to give the Australian people... interrupted
DAVID SPEERS: Still it is still your policy?
MATHIAS CORMANN: We remain committed to conducting a plebiscite, to give the Australian people their say on whether the definition of marriage should change or stay the same. If the Parliament sometime in the future were to legislate, we would allocate money at that point. It is included as a contingent liability in our Statement of Risks in the half-yearly Budget update.
DAVID SPEERS: Your biggest saving, as far as I can tell, is from childcare. It’s a slower take-up of the childcare benefit and the childcare rebate, you are going to save something like $7.6 billion. It seems like a big number. You only spend around $5 million a year on this.
MATHIAS CORMANN: The important point here is that it is not actually a savings decision. If you look at what has happened - this is a demand driven program and if you look at what has happened over the last series of Budget updates since the 2013 election, we actually had increased expenditure of about $7.8 billion over the respective forward estimates at that point in time. There is still an expectation that demand for subsidised childcare will increase by about 300,000 or so over the forwards …interrupted.
DAVID SPEERS: Yeah but someone seriously overestimated the take-up back in May didn’t they?
MATHIAS CORMANN: We are very confident that the information that is reflected in the half-yearly Budget update now is based on the best available information on what is expected utilisation on a demand driven program.
DAVID SPEERS: That is a big number there, someone got it way wrong.
MATHIAS CORMANN: It is over the forward estimates, it is a big number one way now and it was a very big number roughly the same the other way before, so you get these sorts of swings and roundabouts on the spending …interrupted
DAVID SPEERS: And you have a couple of others that are pretty big in there as well, where the take-up hasn’t been as much as you thought it would be on carers and seniors, is this the sort of stuff that does help you keep spending as a proportion of GDP under control?
MATHIAS CORMANN: If you spend less than expected that does help and if you look at what has happened on the spending side of the Budget since the 2015-16 Budget, last year’s Budget, Government payments are now $32.5 billion less than had been anticipated at those last two Budgets over the relevant forward estimates periods. When you look at the effect of the positive estimate variations like lower than expected expenditure combined with the beneficial effect of Government policy decisions, then that helps and it partially offsets the lower than expected revenue.
DAVID SPEERS: Spending as a percentage of GDP, I want to ask you about this. It still remains at 25.2 p er cent across each of the four year forward estimates.
MATHIAS CORMANN: That is very good. When we came into Government we inherited a forward trajectory over the medium term at the time of spending as a share of GDP of 26.5 per cent and rising.The Intergenerational Report showed that under the Labor policy…interrupted
DAVID SPEERS: Is that good enough to, three years in Government…interrupted
MATHIAS CORMANN: Hang on, we inherited spending as a share of GDP trajectory going to 26.5 per cent and rising beyond that by 2023-24. The Intergenerational Report showed that it would go to in excess off 30 per cent. We were able to stabilise it previously at about 25.8 per cent, it is now coming down to 25.2 per cent. Not only is it no longer increasing, it is now actually, over the current forward estimates, consolidating at a much lower level.
DAVID SPEERS: It’s plateauing.
MATHIAS CORMANN: There is always more work to be done, but 25.2 per cent ... interrupted
DAVID SPEERS: Is it enough?
MATHIAS CORMANN: It is much better than where Labor had the country heading, which was to in excess of 30 per cent as a share of GDP.
DAVID SPEERS: They contest that as you know, but let me ask you about Government receipts, what you are collecting as a percentage of GDP, that is actually going up every year over the next four years.
MATHIAS CORMANN: It is going up by less than what we had previously anticipated. That is why we have had the $31 billion write down in tax receipts in particular.
DAVID SPEERS: But it is still going up though. It means the size of government as a percentage of the economy is increasing over the next four years.
MATHIAS CORMANN: The size of government is lower than what it was. It is lower certainly now, if you look at what was reflected in the 2016-17 Budget, we were expecting Government spending as a share of GDP at about 25.8 per cent in 2016-17.
DAVID SPEERS: I’m talking about Government receipts though, they're at 23.3 per cent this year and climb and climb and climb until 24.8 per cent in 2019-20.
MATHIAS CORMANN: The size of Government is a function of how much Government actually spends ... interrupted
DAVID SPEERS: Which is staying flat.
MATHIAS CORMANN: ... and at this stage the Government is still spending more than what we are raising by way of revenue. We have got to close that gap. That is not a surprise to anyone...interrupted
DAVID SPEERS: So you need to collect that money?
MATHIAS CORMANN: So clearly we are going to have to close the gap between spending and revenue if you want to get back into balance. That is right.
DAVID SPEERS: Finally, debt. Debt is now going to peak at 19 per cent of GDP which is a little better than you had forecast in May when it was 19.2 per cent. But at a high dollar figure it will be $363.8 billion and it is going to go up in the final two years of the forward estimates.
MATHIAS CORMANN: Government net debt is actually well below where it was anticipated at Budget time. This financial year, instead of 18.9 per cent as a share of GDP it is down to about 18.1 per cent. You are right it is now expected that Government net debt will peak lower than previously anticipated at 19 per cent and one year later before it declines. In the end you have to look at your Government net debt as a share of the economy. That is the equation that is most significant. After peaking at 19 per cent the projection is that it will continue to decline beyond that.
DAVID SPEERS: But can you understand that when the Coalition was Opposition, the debt problem, the sky was falling in, it was a crisis, it was $202 billion. It is now going to hit $363 billion.
MATHIAS CORMANN: You have always got to look at the counter factual. If we had kept Labor’s policy settings, we would be in a worst position. Even just looking at what Labor took to the last election. They took by their own pre-election costings, commitments to the last election which would have deteriorated the Budget bottom line over the forward estimates by $16.5 billion. That puts them $19 billion behind where we are. I saw that Chris Bowen was making some comments today about 2020-21 and commenting about the size of the surplus. Under Labor and under Labor’s own pre-election policy costings we would be projecting a deficit in 2020-21 because their election costings where showing a worse position to the tune of about $8 billion ...interrupted
DAVID SPEERS: And he says bigger surplus’ after that.
MATHIAS CORMANN: Based on massively higher taxes which would be very bad for the economy.
DAVID SPEERS: Mathias Cormann Finance Minister, we will have to leave it there. But thank you and if I do not talk to you a Merry Christmas to you and your family.
MATHIAS CORMANN: Merry Christmas to you and your family too.