Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
Date: Monday, 1 May 2017
EMMA ALBERICI: The Finance Minister, Mathias Cormann joined me earlier from Canberra.
Minister, thanks for your company.
MATHIAS CORMANN: Good to be here. Welcome back Emma.
EMMA ALBERICI: Thank you. If we can agree that the Budget is a reflection of the Government's financial priorities, doesn't this attack on universities indicate that Malcolm Turnbull's innovation and skills agenda is not as vital to the economy as he led us to believe?
MATHIAS CORMANN: I completely disagree that this is an attack on universities. Universities have received significant boosts in funding in recent years, well beyond the increased cost of operating universities. All areas of Government and all areas that are funded by Government need to deliver value for money, value for taxpayer's money, need to be as efficient as possible. In the context of university funding increasing by about 15 per cent over recent years, compared to an increase of 9.5 per cent in costs, there is an opportunity for the taxpayer to receive a fairer, better deal.
EMMA ALBERICI: Well, just look at those figures, the Treasurer today in fact accused universities of profiting from taxpayer dollars, that is revenue as you have indicated higher than cost. But the Deloitte report is basing his analysis on, only examines the costs of teaching, it doesn’t take account of the cost of conducting research, maintaining buildings, investing in their communities and other things.
MATHIAS CORMANN: Universities get funding from a range of sources, but if you look at what has happened since the demand driven system was introduced, since the cap on student enrolments was removed by the Labor government back in 2009, student enrolments since 2009 have increased by about 31 per cent. Overall funding has increased by 71 per cent. There has been not only a dramatic increase in the number of students, there has been a dramatic increase in funding per student. Not unexpectedly, what universities have been able to achieve is economies of scale on the back of significant increases in student numbers, but the taxpayer has not been able to receive a benefit from that. In the context of a fiscally constrained environment, in a context where every part of the Government and every part of the community has to share in the effort to repair the Budget and get the Budget back into balance, it is entirely appropriate for universities to play a small part in that Budget repair effort.
EMMA ALBERICI: To your point about a fiscally constrained environment we face ourselves with, how is it that the Budget can sustain a $5 billion tax cuts for business but cannot afford to invest roughly half of that to shore up the education sector, our third biggest export market?
MATHIAS CORMANN: Making our business tax rates internationally more competitive is designed to protect our economy, it is designed to protect jobs, it is designed to ensure that we can continue to attract investment, to boost productivity, to boost growth and to ensure that over time we can boost real wages, which is a key ingredient to ensuring that Government revenue to fund, among other things, universities, continues to grow into the future. Right now, Australia’s business tax rate is at the high-end internationally. You are aware that the United Kingdom has significantly reduced their business tax rate already down to 19 per cent. They are reducing it further to 17 per cent. The United States has flagged that they will reduce their business tax rate to 15 per cent. In Australia, we are an outlier with a corporate tax rate of 30 per cent. Reducing it to 25 per cent over a ten year period, prioritising small and medium sized businesses, is a very measured approach. It will ensure that we are middle-of-the-road when it comes to OECD countries when it comes to our corporate tax rate.
EMMA ALBERICI: Will this cut in funding to universities actually improve the Budget bottom line? Given those $2.4 billion worth of zombie measures from the 2014 Budget are still there over the four years to 2020.
MATHIAS CORMANN: If you look at what the Government has achieved since the Budget, we have been able to implement a further $20 plus billion worth of budget improvement, which brings ... interrupted
EMMA ALBERICI: Could I go back to the specific of my question. That is that $2.4 billion worth of what has been labelled zombie measures, they were those 2014 education, higher education, so-called higher education reforms that have not managed to get through the Senate. Given they are still sitting there having not been passed, will be latest raft of changes actually improve the Budget bottom line?
MATHIAS CORMANN: I don't agree with your characterisation of unlegislated budget measures. Many budget measures that Labor opposed for a long time were subsequently passed through the Parliament including over $20 billion worth of savings that went through the Parliament, including through the Senate since the last election. Leaving that to one side, what Minister Birmingham, the Education Minister, has announced tonight is a very measured approach. It is a 2.5 per cent efficiency dividend for universities over two years which, if you compare that to what applies across the public sector is essentially on par. Some measures in relation to student contributions, increasing them over a period from 2018 to 2021 by 1.8 per cent a year until it gets up to about a 7.5 per cent cumulative increase. This is a very measured approach. It is a recalibration of the previous package. We have already previously announced that we would not proceed with certain features of our previous package, namely full fee deregulation and the 20 per cent funding cut to universities. What Minister Birmingham has done is gone through a thorough process of consultation with all stakeholders, gone through thousands of submissions, more than a thousand submissions all up. The announcement that he has made tonight is a reflection of where the Government has landed.
EMMA ALBERICI: I want to learn a little more about your Government’s whole good debt versus bad debt narrative. Is the investment for instance in military equipment, good debt or bad debt? Because it does not make an income or a financial return, and it can’t be sold at a profit like say the NBN can.
MATHIAS CORMANN: This is a very important conversation for us to have. The basic principle is this, our day-to-day living expenses, our operating expenses should be funded from the revenue that we raise and should not rely on borrowings. We should not increase our level of debt to fund our day-to-day expenses. That is ... interrupted
EMMA ALBERICI: Like what sorts of things? Caring for the disabled? Caring for people on welfare?
MATHIAS CORMANN: All of our day-to-day living expenses including welfare payments, including payments for schools and hospitals and all of our operating expenses, should be able to be funded through the tax revenue that we raise... interrupted
EMMA ALBERICI: Okay, so let me draw you back to military equipment. The specific of the question.
MATHIAS CORMANN: So if I may, I am actually answering the specific of your question. When you invest in infrastructure, or things that have a useful life that goes beyond the year in which you have to expend it then there is a case to fund in appropriate circumstances, these sorts of investments through borrowings. So the basic principle is this, operating expenses should absolutely be able to be funded through the revenue that you raise on a year to year basis. When it comes to investment in infrastructure, it is appropriate in those circumstances, when you have infrastructure that has a useful life of several decades, in particular, in many circumstances, that is in the right circumstances funded through borrowing.
EMMA ALBERICI: So spending $50 billion building submarines in Adelaide that we could have got for half the price if we had bought them from the Germans, does that satisfy your definition of good debt?
MATHIAS CORMANN: I think that your proposition there is highly simplistic, highly simplistic. A very thorough procurement process was gone through. The proposition that you have put completely disregards the expert assessment of the capability that Australia requires from a national security point of view, completely disregards the expert assessments that were made of the technology that was proposed and put forward by various proponents. Essentially, it is a complete oversimplification.
EMMA ALBERICI: So just to be clear, borrowing to ensure that an additional 10 per cent of Australian students can get university degrees, that is bad debt?
MATHIAS CORMANN: I go back to the way I have put it to you before. Day-to-day living expenses, operating expenses, should be able to be funded from the revenue that we raise on a year-to-year basis. Investments in infrastructure can appropriately be funded through borrowings. When it comes to students, student loans are an asset on our balance sheet. At the same time as being funded in current circumstances through borrowings. That is something that we treat that way now. The important point when it comes to higher education is that no student in Australia will miss out on a university degree because of their personal financial circumstances. Personal financial circumstances are not a barrier to access to higher education because the Australian Government, on behalf of taxpayers, will fully underwrite relevant degrees with students only having to repay after they reach a certain income.
EMMA ALBERICI: And just on the question of the GST distribution. Five years ago Wayne Swan asked Nick Greiner and John Brumby to review the GST sharing formula, notwithstanding that as Premiers they had both argued strongly for what your state, Western Australia is now suggesting, that they deserve more of the carve up. But when they did their review, in the end they recommended against any radical changes. They said many of the concerns had turned out to be overstated. What makes you think the Productivity Commission will come up with a different conclusion this time around?
MATHIAS CORMANN: The Brumby Greiner review did not focus specifically on the impact of GST sharing arrangements on national productivity and growth. The Productivity Commission has got particular expertise when it comes to assessing the impact of certain policy settings on national productivity improvements and growth. As the Government, as a national Government focused on the national interest, we want to ensure that all States have the right incentives to grow and develop their economy, to pursue budget reform on the spending and the revenue side of their Budget. It has been put to us that current GST sharing arrangements might be providing, might be providing some disincentives in that regard. So the Productivity Commission will assess all of these issues. They will come forward with some findings and some recommendations at the end of January next year. That will be an important input in the broader consideration in relation to these matters.
EMMA ALBERICI: WA and New South Wales are arguing for an equal per capita distribution. In 2017-18 on current figures that would mean taking almost $2.5 billion from Queensland. It is no wonder Annastacia Palaszczuk was pretty cranky with the Prime Minister today.
MATHIAS CORMANN: I completely do not understand why the Queensland Premier had the outburst that she had. When it comes to what we announced yesterday, it is a national Productivity Commission review to ensure that all of the States have the right incentives to put their best foot forward in growing their economies. It is in the interest of every Australian, it is in the national interest, for every state to do the best they can in growing their economy, because then we have the best possible national economic growth and the largest possible GST pie to share around. In the end, everybody focuses on the individual share, what is actually much more important is that we have the largest possible pie to share around in the first place.
EMMA ALBERICI: Senator, thank you very much for your time.
MATHIAS CORMANN: Always good to talk to you.