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
PETER BEATTIE: Let’s get to Mathias, because there has been a number of major things today. Mathias, thank you for joining us.
MATHIAS CORMANN: Good to be here.
PETER MCGAURAN: Mathias, what are you trying to do with this Budget? As you know only too well, the best budgets, that is that are well received as well as achieved their economic purpose have a narrative. What is the take out of this? Who are you trying to assist? What problems are you trying to overcome? And how do you want people to view this Budget?
MATHIAS CORMANN: The Budget will be delivered next week. I will leave it to the Treasurer at 7:30pm next Tuesday to set it all out when he delivers the Budget in the House of Representatives. But what we have been trying to do, since we came into Government and in particular since the last election, is to strengthen our economy, create the opportunity for more jobs to be created and to ensure that our Budget expenditure is on a sustainable trajectory, an affordable trajectory for the future. That we get our Budget back to balance as soon as possible.
PETER MCGAURAN: Agreed Mathias. And of course we wouldn’t insult your intelligence thinking you are going to let anything slip tonight. You are one of the safe ... interrupted
PETER BEATTIE: He’s a bit too disciplined.
PETER MCGAURAN: Yes he’s very disciplined and a safe pair of hands isn’t he Peter. But nonetheless, let me rephrase my earlier question in a different way as a barrister would. Unless the Government has a narrative, unless there are people who are inspired with new confidence, new stability and certainty from this Budget, how are you going to reverse your position in the polls?
MATHIAS CORMANN: Our narrative is to ensure that the economy is in the strongest possible position, so that people across Australia have the best possible opportunity to get ahead. Our narrative is that we need to ensure that in our Budget we can pay for our day-to-day living expenses within the revenue envelope that we are able to responsibly raise out of the economy. Our narrative is that we will continue to do what we need to do to ensure that Australians can be as safe and secure as possible given all of the circumstances that we face today.
PETER BEATTIE: Mathias, Chris Richardson from Deloitte today was talking about the dysfunctional political system in Australia. I blame, as many Australians do, the Senate for that. When you sit down in the Expenditure Review Committee and you are trying to work out what to do, how much of an eye do you keep on what you can get through the Senate. That has got to be how you think. Do you actually think can I get this measure through, or do I do this because it is the right thing to do.
MATHIAS CORMANN: Our starting position is what is the right thing to do. But one of the filters, there is no sense, you can have the best budget, if it is a budget that can’t be effectively implemented over time, then nobody is going to be served at all. Our focus in on doing the right thing by Australia, putting Australia on the strongest possible economic and fiscal foundation for the future. But in terms of the individual measures, one of the things that we do consider is what the prospect is of a particular initiative to be successfully passed through the Parliament for sure. I would just say though, that since the last election we have made significant progress in getting measures through the Parliament, including measures that no commentator thought we would have any prospect of getting through the Parliament, both on the savings side and the revenue side of the Budget. Including for example our company tax cuts, legislating the first three years of our company tax cuts successfully through the Senate.
PETER BEATTIE: I know this has got nothing to do with the Budget, but Mathias, do you think the reform of the Senate, anyone is ever going to have the guts to actually take it on, so that if you have got a Budget, you were elected by the people, you have got a mandate in the Lower House, then there is limitations on what the Senate can actually block.
MATHIAS CORMANN: We have pursued significant reform of Senate voting arrangements, which given we had a double dissolution election last year didn’t actually play out the way they would in a normal half Senate election. The key of our reforms last year is that we wanted to ensure that our result in the Senate more properly reflected the will of the people, by empowering people to not just determine where their first preference goes, but also where their preferences go. We believe that over time, that will mean that the result in the Senate is going to be a more accurate reflection of the actual will of the people, the same as the House of Representatives is a reflection of the will of the people.
PETER BEATTIE: Mathias, we want to ask you a bit about education, which has been announced tonight, but just for our views, I hope you don’t mind me, we might just play a small clip from Simon Birmingham about the announcements that he has made. And then we might come back to you. Simon Birmingham.
SIMON BIRMINGHAM [EXTRACT]: Tonight I will announce we will not proceed with the unlegislated higher education measures that remained in last year’s budget, but in their place we will propose to the Parliament a package of reforms that we believe are fundamentally fair, reasonable and necessary. We start from clean slate with a guarantee that no student will pay one cent up-front for their higher education, students will no longer face the prospect of fee-deregulation and universities will not face a 20 per cent cut to their funding.
PETER BEATTIE: Mathias, in terms of what Simon Birmingham has announced tonight the 2.5 per cent productivity requirement of the universities, what is the thinking behind that?
MATHIAS CORMANN: The funding for universities has grown quite significantly in recent years. In fact, it has grown more rapidly than their cost base has grown. You have got to remember that back in 2009 the then Labor government introduced a demand driven system into higher education, so the previous student enrolment cap was removed. That is a system that we have kept in place. So student enrolments themselves have increased by 31 per cent in the period since 2009. Funding per student has increased quite materially and costs have increased by less. So there is an efficiency here that is able to be achieved. The universities have clearly been able to benefit from economies of scale, given larger student populations. We think it is only fair that the taxpayer has a share in that efficiency gain. That is what we do within the public sector generally, there is an efficiency dividend that applies across the public sector generally. We think that university funding, the same as other government funding, should be required to share in the burden of budget repair in an appropriate and measured and balanced fashion.
PETER MCGAURAN: Yes and it would appear, Mathias, that it is a shrewdly crafted change to funding for both students and universities. But it is highly unusual that a senior Cabinet Minister in the second or third biggest spending portfolio would be doing all this a week before the Budget. What is your thinking there?
MATHIAS CORMANN: I am not sure that it is highly unusual. We have been going through a very thorough process. Minister Birmingham, as the Education Minister, has gone through a thorough, consultative process with the sector and all of the relevant stakeholders. There have been about a thousand submissions, I believe, in response to the discussion paper that he released about a year ago. The Government reached a landing and we ... interrupted
PETER MCGAURAN: But Mathias, aren’t they, and I agree there has been a lot of consultations, I do not think this will turn universities into a battleground. But nonetheless, aren’t these Budget measures that would normally be released on Budget night?
MATHIAS CORMANN: I think if you look through the history of budgets, I am sure that Peter Beattie would well remember this in Queensland and I am sure that you would well remember it the Howard Government era and the Rudd and Gillard era and indeed in the Abbott and Turnbull era, there are some key reforms that are publicly announced in the lead up to the Budget. It is always a prerogative of the Government as to when particular policy initiatives are announced. Ultimately, they all will be reflected and brought together in the Budget released next week. In any Budget there are moving parts, there a lot of different components and this has been an issue of particular public interest. So we felt it was important to make this particular announcement this week.
PETER BEATTIE: Mathias, on the education issue, one of the increases, of course, is seven per cent for student fees which is about $3,600 a year. Do you expect a backlash from university students in relation to that seven per cent increase?
MATHIAS CORMANN: It is a 1.8 per cent increase per year in the period from 2018 to 2021. We believe that that is a measured increase in all of the circumstances. The important point that Senator Birmingham made in that clip you played is that no student will have to pay one cent up front. The personal financial means of the student or their family are not a barrier to accessing high quality, higher education. All students who access higher education, all of the data, all of the evidence shows that they are more likely to get a job, they are more likely to get a better paid job. We believe that in all of the circumstances and all of the requirements to get the Budget back into balance, so that future generations of Australians do not have to pay, with interest, higher taxes to pay back the debt that we have had to incur today, we believe that this is an entirely fair approach.
PETER MCGAURAN: And that is the balance you are striking. But Mathias just to return to Peter’s question on the Senate, you are the master of the Senate tactics and negotiations, but that is not your only hurdle. Honestly speaking, what can a government do to effect economic reform and change? In the old days, fiscal policy, monetary policy, wages policy were the major levers in addition to microeconomic reform more generally. Monetary policy and wages policy is much less within the scope of the Federal Government. It seems that the Chinese economy whether it rises and falls ... interrupted
PETER BEATTIE: The price of iron ore.
PETER MCGAURAN: ... the price of iron ore or not, is likely to have more effect on Australians’ livelihoods and standards of living than any other major Government announcement. What can a modern Federal government really do to improve the lives of Australians?
MATHIAS CORMANN: In terms of the economy, the first point is that an independent monetary policy setting is a very important part of our system. The floating exchange rate, the independent Reserve Bank, are very important features of our system. Beyond that, this Government in particular is pursuing a very ambitious growth agenda and that goes across a whole range of areas, whether it is reforming our tax system to ensure that our tax system is more growth friendly, whether it is our efforts to get better access for Australia’s exporting businesses to key markets around the world through our ambitious free trade agenda, whether it is our infrastructure investment program, whether it is our innovation agenda. There is a whole range of areas across public policy where a government is able to put in place the sort of policy settings that will help business across Australia be the most successful they possibly can be. Because in the end, it is not Government that creates jobs, it is not Government that creates prosperity. Government only puts in place the policy framework within which businesses have the best possible opportunity to be successful, to be profitable, to hire more Australians and pay them better wages over time.
PETER BEATTIE: Mathias, the Productivity Commission Review of the GST. This is a real headache. I sat around the table when the Prime Minister, John Howard, actually implemented the GST. I know how difficult it was then amongst the States. Your home State of Western Australia, of course, as you know has been concerned for some time about how much they get. Regardless of what the Productivity Commission comes down with, how do you ever get agreement about distribution of revenue as part of the GST? You will need the wisdom of Solomon to do it.
MATHIAS CORMANN: As somebody who sat around the table at the time, let me ask you a question. Did anybody around the table at the time expect that any State would get less than 30 cents in the dollar back from their GST? Bearing in mind that this was meant to be a reliable growth revenue for State Governments. As far as Western Australia is concerned that has not been the case.
PETER BEATTIE: The answer to that is no. No one expected that. But you see... interrupted
MATHIAS CORMANN: That is what I thought.
PETER BEATTIE: ... what happened was, it’s true that there were individual negotiations. In fact I was the last person to sign off, because Queensland had less taxes than anywhere else. New South Wales and Victoria had a lot more taxes. I was the one who insisted that all of the States had to agree before there was a 10 per cent movement or an increase beyond it. Because, beyond the ten per cent, I did not trust New South Wales and Victoria. That is why Queensland ended up with such a good deal, which I have always said to the Prime Minister. He said you never gave me credit and I said yes I did, an extra year of pre-school came as a result. As I say, Mathias, I sat there, I do not know how you are ever going to resolve this. So is there some magic wand that you are going to wave to get everyone agreeing when the Productivity Commission comes down?
MATHIAS CORMANN: In public policy there is never such a thing as a magic wand. This is a very serious national interest issue.
PETER BEATTIE: It is.
MATHIAS CORMANN: Essentially, what we have asked the Productivity Commission to do is to assess the current GST sharing arrangements and the way in which the horizontal fiscal equalisation arrangements currently operate, what impact that is having on national productivity and economic growth. We want all States to have the right incentives to put their best foot forward, to grow and develop their economies, to pursue balanced budget reforms on the spending and revenue side of the budget and credible propositions have been put to us that the current arrangements, the way that they currently operate, might be disincentivising individual States to put their best foot forward. It is self evidently in the interests of every Australian, it is self evidently in the national interest, for us to optimise growth in each jurisdiction so that we can have the strongest possible growth nationally, so that we can have the biggest possible GST pie to share. Because everybody focuses on the individual shares. In the end all States could be better off if the GST pie overall is bigger.
PETER BEATTIE: If the pie is bigger. No, I agree.
PETER MCGAURAN: Mathias, you outlined that the functions of government and of course you are right. You can create the environment by way of taxation policies especially infrastructure, spending, education, training, there is a multitude of responsibilities. But one of them is also, you would agree reduction of national debt. Now I understand that the gross Government debt is now $430 billion, which is $19 billion a month in interest repayments, which is $192 billion in interest repayments a year. To what extent can you reduce that?
MATHIAS CORMANN: The numbers will be updated in the Budget next week. If I can refer you back to the numbers in the half yearly Budget update released before Christmas. What it showed is that the Government net debt was expected to peak at about 19 per cent as a share of GDP by 2018/19 and then to progressively reduce to less than ten per cent over the medium term. Whatever your view on the debt position, the debt position is better than what it would have been if we had not changed the policy settings we inherited from the previous Federal Labor government. Even in the lead up in the last election, Labor by their own admission went to the election with Budget deficits $16.5 billion higher than what we took to the last election. Since then they have made further decisions that would have deteriorated that by more. We are working very hard to ensure that spending growth is brought under control. We are working very hard to ensure that the spending growth trajectory is affordable and sustainable, to get into balance as soon as possible so that we can pay back debt as soon as possible. We inherited a particular trajectory which was locked into legislation. We are working our way through addressing that as fast as we can.
PETER BEATTIE: Mathias just one final question in relation to this. Deloitte as you know, Chris Richardson had some comments to say today about the deficit. Do you think there is any, regardless of who is at fault and we understand how the Senate works and it is has had its issues over the years over successive governments. Is there a threat to our AAA credit rating? How secure do you believe our AAA credit ratings is?
MATHIAS CORMANN: The AAA credit rating is a matter for the ratings agencies to determine after they have seen the numbers in the Budget. I would just point out that in the lead up to last year’s Budget update and previous Budgets and Budget updates, Labor federally was just about hankering for us to lose the AAA credit rating. After the half yearly Budget update was released before Christmas, within only a few hours all of the major credit ratings agencies immediately confirmed that our policy settings remained consistent with that of a AAA economy. The truth is we do value our AAA credit rating. It is important to us. It is important for our economy and the cost of borrowing and so on. So we continue to work to ensure that the Budget is in the strongest possible position. But ultimately, these are going to be judgements for the ratings agencies. But I would point out that previous commentary that somehow our AAA credit rating was about to be lost were proven to be false. We will work to continue to put our best foot forward into the future.
PETER MCGAURAN: Well Mathias, thank you for giving us your time tonight. You have dragged yourself away from Budget deliberations of the last few days. You are speaking from Canberra when Parliament is not sitting, so you are a very busy man and we are very grateful. Thank you.
PETER BEATTIE: Thanks Mathias. Good luck with the Budget.
MATHIAS CORMANN: Always good to talk to you. See you guys.