Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 10 May 2017
SOPHIE KAMARUDDIN: Let us discuss all that with Finance Minister Mathias Cormann. Minister, thank you so much for joining us today. Now, something that of course has been at the heart of the conversation surrounding the Federal Budget is whether or not that AAA rating can be kept intact. Now, with austerity out of the picture and with that ten year plan to boost infrastructure spending, is this going to be the case in your view?
MATHIAS CORMANN: Moody’s has already come out and confirmed our AAA Credit Rating. Ultimately, these are matters for the credit ratings agencies to decide. I will just point out that as a result of the decisions of this Government, spending as a share of the economy is back down very close to the long-term average. We will be bringing it down to 25 per cent as a share of GDP, just slightly above the long-term average of 24.8 per cent, so we have reversed the deteriorating trajectory that we were on when we came into Government. Overall, we remain on the pathway back to surplus by 2020-21, a $7.4 billion surplus, which is quite a bit higher than what was anticipated a few months ago in our pre-Christmas half yearly Budget update.
SOPHIE KAMARUDDIN: Moody’s also pointed out that they do see the debt pile growing to about 45 per cent potentially, in the coming years here. They also pointed out that Australia has been coming from a very low base compared to its top rated peers. Do you see that fiscal discipline can be maintained given the desires of this Budget?
MATHIAS CORMANN: Our projections show that we go back to surplus in 2020-21 and that we remain in surplus over the whole period of the medium term to 2027-28. In fact, if you exclude new net capital investment, if you just look at our net operating balance, we actually are projected to return to surplus by 2019-20, and our cash flows are positive and we are not further adding to net debt from the next financial year onwards, from 2018-19 onwards. Net debt, which is the most important indicator, will be peaking as a share of GDP in the 2018-19 financial year at 19.8 per cent and over the medium term to 2027-28 that is projected to reduce down to 8.5 per cent. By international standards, that is a very healthy trajectory indeed.
RISHAAD SALAMAT: Minister, let us just get to what the Opposition Minister said about this, the Shadow Minister of Finance said about this. Jim Chalmers was saying that while it is something, it is a finance bill that his Party would never have countenanced.
JIM CHALMERS [EXTRACT]: There are important differences in this Budget, it is not a Labor Budget by any stretch. We would not have given the $50 billion Company Tax cut, we would not have taken the deficit levy off the highest income earners, we would not have cut schools and universities and TAFEs because that hollows out the future of the country. So there are still important differences between us on the Labor side and the Government when it comes to the Budget.
RISHAAD SALAMAT: Naturally, he is giving us the differences between them and you. What about you, what is your reaction?
MATHIAS CORMANN: Firstly, we are significantly bosting our investment in schools, so he is quite wrong there. When it comes to the Corporate Tax cut that he mentioned, yes we do have a plan over a ten year period to reduce Australia’s Corporate Tax rate from 30 to 25 per cent for all businesses. We have been able to deliver the first three years of that ten year plan recently through our parliament, which means that all businesses with a turnover up to $50 million AUD are seeing their tax rate reduced to 25 per cent, and we will roll that out to all businesses. That is critically important for us to remain competitive internationally in attracting investment, boosting productivity, generating stronger growth, protecting our economy and over time being able to increase real wages. In the end, jobs and better paid jobs come from successful, profitable businesses and given what is happening in the UK and the US and other parts around the world with Corporate Tax rates, the 30 per cent Corporate Tax rate in Australia is quite high by international standards and we believe that we have to bring that down at least to 25 per cent at this point.
RISHAAD SALAMAT: Minister, I am going to pick up on that whole wage growth story, because you want to increase real wages by something like three per cent. Now, virtually every developed country has really struggled to do that, how on earth are you going to do it?
MATHIAS CORMANN: That is towards the end of the forward estimates period. We take advice from experts in our Treasury and the assessment is based on a read of the improving global economic outlook. Domestically, we have continued to have a low official cash rate, we have got a lower exchange rate, we have got a flexible labour market, we have got a pro-growth agenda from the Government focusing on Company Tax cuts, focusing on getter better access to key markets around the world, focusing on a significant infrastructure investment program. The best advice in front of the Government is that these forecasts are prudent, are credible and are responsible.
SOPHIE KAMARUDDIN: Minister, this Budget is being painted as nation-building, pro-growth, as you just put it. When it comes to the surprise tax that we saw levied against the banking industry, that is something that might be at odds with perhaps some of the historical views of the Party and could be seen as punitive. Could this perhaps set a precedent for other sectors and might we see other tough measures laid against the financial industry?
MATHIAS CORMANN: What we have put forward in the Budget last night is not dissimilar to what other countries around the world have done in the past, including, I might add, the United Kingdom. Our preference was to get the Budget back into balance as soon as possible through spending reductions. We did make significant progress, in recent years, in bringing spending growth under control However, the Australian Senate was not prepared to pass all of our spending reduction measures. If you want to bring your Budget back into surplus, and we must, and you cannot get all of your spending reductions through the parliament, then the only other alternative is to look at the revenue side of the Budget. That is what we have done. Australian banks generate about $30 billion worth of after-tax profits a year, this is a $1.5 billion levy targeted at the major banks and we believe that that is a fair and proportionate contribution for them to make to Budget repair in Australia.
RISHAAD SALAMAT: Minister, we have already seen these banks being hauled over the coals for not passing on some of the interest rate cuts that were, of course, led by the Reserve Bank. What is to stop them actually passing on this levy to the customers and actually hurting the average Australian?
MATHIAS CORMANN: There is no reason for them to do that. With the way that we have designed the levy, there is definitely no reason for them to do it. All of the day to day bank accounts, all of the day to day mortgage accounts have all been excluded from the scope of this levy and, as I have indicated, $30 billion worth of after-tax profits, a $1.5 billion levy, we believe that that is fair and proportionate. The smaller banks will not be subject to the levy, which will help them better compete with the major banks and help keep pricing behaviour in check.
RISHAAD SALAMAT: Minister, great talking to you.