Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
EMMA ALBERICI: Finance Minister Mathias Cormann joined me just a short time ago.
Minister, if you call this Budget fair and responsible, how would you describe the 2014 Budget?
MATHIAS CORMANN: The 2014-2015 Budget was a budget for that time. We came into Government then inheriting a Budget position that was rapidly deteriorating and a very significant effort had to be made to get spending back on a more sustainable, affordable trajectory. We have made significant progress since then. There is about $14.7 billion worth of spending reductions though that clearly despite our best efforts were not going to pass the Senate. So we have made some pragmatic judgements in this Budget, because we need to get back into surplus as soon as possible, to replace them with alternative Budget repair measures.
EMMA ALBERICI: By your own admission, $15 billion odd worth of measures from 2014 have been junked because the last Senate and the new Senate thought they were unfair and unacceptable to most people in the public as well.
MATHIAS CORMANN: We are not going to re-litigate all of the past arguments except to say that since the last election we have been able to secure the passage of a further $25 billion worth of Budget repair measures. Since we came into Government in September 2013, the value of net spending reductions over the medium term is more than $250 billion. That is $250 billion that we either don't have to borrow or that becomes available to pay down debt once we are in surplus.
EMMA ALBERICI: The Treasurer has repeatedly said that we have a spending problem in Australia, not a revenue one. Why is it then in this budget we see $5 in every $6 of your Budget repair over the next four years comes courtesy of increased taxes?
MATHIAS CORMANN: This Budget is the next instalment. You have to look at the totality of what we have done since we came into Government. When we came into Government, spending as a share of GDP was headed for 26.5 per cent within a decade and rising. Now it is ... interrupted
EMMA ALBERICI: Spending as a share of GDP was 25.9 per cent. In this Budget it is 25.7 per cent. A whisker between them.
MATHIAS CORMANN: That is actually quite wrong. Your numbers there are wrong. It is true that spending was just below 26 per cent two years ago. In this Budget it is going down to 25 per cent. Spending as a share of GDP this year is at 25.2 per cent. Next year because of the reversals we have had to undertake goes up to 25.4 per cent. It goes down to 25 per cent in the final two years of the forward estimates, which is just slightly above the long-term average of 24.8 per cent. So we actually ... interrupted
EMMA ALBERICI: Coming back to my question then, if we weren't having a revenue problem and it was in fact a spending problem, why is it that $5 in $6 worth of Budget repair are increased taxes?
MATHIAS CORMANN: Because we have made significant progress in getting spending growth under control. That is reflected in the much lower spending as a share of GDP number in this Budget compared to the forward trajectory that we inherited. The spending growth year-on-year that we inherited was 3.7 per cent on average per year above inflation, it is down to 1.9 per cent now. There is no going away from the fact that we would have liked to achieve more Budget repair by spending reductions. But in the end, the Senate clearly wasn't going to pass about $14.7 billion worth of spending reductions that we had on our books. We were very committed to ensuring that our Budget was credible and it withstood scrutiny and we made the relevant judgements. That includes judgements to increase revenue. If you can't get back into balance by reducing expenditure as much as you would like, there is only one alternative and that is to increase revenue, unless you are happy for deficits to continue to blow out and for debt to continue to increase, which we were not.
EMMA ALBERICI: You have introduced a new tax on the big five banks. It's a political no-brainer. There are no votes in being nice to the banks. Is that the motivation here?
MATHIAS CORMANN: That is not the motivation. The motivation is to get the Budget back into balance in a way that is fair and responsible. This is a tax that is levied, that is focused on the five biggest banks. It doesn't include the smaller banks and non-bank financial institutions. I have heard tonight that Labor has already said they would support it. You have to put this into the context of about $30 billion in after tax profits per year. This is a $1.5 billion levy per year in the context of $30 billion of after tax profits.... interrupted
EMMA ALBERICI: They already pay something like $11 billion in taxes already per year, they employ hundreds of thousands of people between them. Aren't you concerned there could be a number of unintended consequences to this measure in terms of the way they might approach this in terms of passing it on to customers and so on?
MATHIAS CORMANN: This is a carefully calibrated measure. It is a very carefully designed measure. It very specifically and explicitly excludes the day to day banking deposits. It excludes any deposits up to $250,000 that are subject to the Financial Claims Scheme. It is designed in such a way that there should be no reason why the banks should pass this on to banking customers. We will have the ACCC do some important work here to review certain pricing arrangements to ensure that all of the decisions in this space are appropriate.
EMMA ALBERICI: What's curious here is you're effectively increasing the rate of tax on these five banks from 30 per cent to 35 per cent. And it seems to fly in the face of your claims that Australia can't compete for investment while our company tax rates are so much higher than those elsewhere in the world. Are you now saying we don't want more investment by the banks?
MATHIAS CORMANN: You are actually missing a very important point here and that is that we will continue to deliver our full 10 year Enterprise Tax Plan designed to reduce corporate tax for all businesses across Australia down to 25 per cent over a 10 year period. We have been able to legislate the first three years of that plan, reducing tax to 25 per cent for all businesses with a turnover of up to $50 million. We will be introducing later this week, the remainder of that ten year enterprise tax plan. That is ... interrupted
EMMA ALBERICI: Can I draw you back to the banks? Are you saying their investment is not as important to you?
MATHIAS CORMANN: The point here is the corporate tax rate, the business tax rate for all businesses, under our policy settings, under our Budget settings, will reduce down to 25 per cent. But we do believe ... interrupted
EMMA ALBERICI: The banks not for another 10 years?
MATHIAS CORMANN: It was always a 10 year enterprise tax plan. It was always over a 10 year period. There is nothing new there. What we are also saying is that we believe in the context of our current fiscal settings there is an opportunity for banks to do more to help get the Budget back into surplus. Incidentally, we also believe there will be some competitiveness benefits in the banking market because this will help level the playing field for the smaller banks and the non-bank institutions to compete with the banks in providing services to Australians.
EMMA ALBERICI: You have announced $75 billion in infrastructure spending. When Labor announced its own plan to invest in infrastructure, specifically the NBN, you baulked at the idea of $35 billion being spent on a national optic fibre network because there was no cost benefit analysis. Your Melbourne to Brisbane rail network via every National Party marginal electorate in between, will that be subject to a cost benefit analysis?
MATHIAS CORMANN: It already has been subject to a cost benefit analysis. That is a very cynical tack you're taking there.
EMMA ALBERICI: Will it be made public?
MATHIAS CORMANN: It is public. Infrastructure Australia has assessed the inland rail project. It has clearly spelled out the benefits that come with it. We have gone through a market testing exercise, which is a matter of public record. We are proposing to deliver this project through an $8.4 billion equity injection into the Australian Rail Track Corporation. The Australian Rail Track Corporation, a Government Business Enterprise, will be able to pursue some further borrowings. There will also be some public private partnerships. It will be a very significant economic piece of infrastructure which will absolutely deliver productivity enhancements and economic benefits for Australia.
EMMA ALBERICI: Does it satisfy your test in these Budget papers that all Government spending should be subject to rigorous project assessment and program evaluation?
MATHIAS CORMANN: Absolutely.
EMMA ALBERICI: Mathias Cormann, thank you very much for your time.
MATHIAS CORMANN: Always good to talk to you.