Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
MICHELLE GRATTAN: Mathias Cormann, this has been widely described by commentators as a “Labor Lite Budget”. How can you credibly dispute that?
MATHIAS CORMANN: I leave the commentary to commentators. This is a Budget where we made all of the decisions about what in our judgement was in the national interest, about what is the best way forward, what are the right choices today to put Australia on the strongest possible footing for the future.
MICHELLE GRATTAN: Now, your new tax on banks has sparked a furious reaction from them. You have been very prescriptive that the banks should not pass this on to customers. But when a business has to pay more tax, surely it is up to that business to find the ways that it does pay it? If, for example, you were putting a tax on the big supermarkets, you wouldn’t say don’t put up the price of butter or jam?
MATHIAS CORMANN: We do not believe that there is any reason for them to put up prices, because banks in Australia are very, very profitable and those five major banks between them generate more than $30 billion in after-tax profits. This is a $1.5 billion levy a year, which we believe is a fair and proportionate contribution for the major banks to make to Australia’s national Budget repair effort. The way that we have designed the measure it specifically and explicitly excludes day to day bank accounts, it excludes mortgage accounts, it excludes any account that is subject to the Financial Claims Scheme. So there really is no reason for the banks to pass on this cost. Because there is going to be increased competition from the smaller banks and non-bank financial institutions who are competing with the banks, they will keep the banks honest in terms of their pricing arrangements. We have also given some additional resources to the ACCC and asked them to do work to keep an eye on what the major banks might be doing in this space.
MICHELLE GRATTAN: If the tax does not go into customer charges, it’s got to, in fact, be paid for by shareholders. Now, one of the bank executives has claimed that this is a stealth tax on retirees because super funds invest in bank shares. What is your answer to this?
MATHIAS CORMANN: The banks are not happy to pay the increased tax. That is not entirely surprising. The truth is that given that the Senate hasn’t been prepared to pass all of the spending reductions that we’ve put forward. Given that the Senate was not willing to pass $14.7 worth of Budget repair measures on the spending side of the Budget. The only other way to get the Budget back into surplus on the appropriate timetable was through revenue measures. Any revenue measure has to be paid by somebody. As far as this measure is concerned, it is consistent with what other countries around the world have done. It will help to level the playing field between the major banks and smaller banks, and as such improve competition. We believe, in the context of a very profitable banking sector, that it is a fair and proportionate contribution for them to make to Budget repair. Indeed, the Labor Party has already come out to say that they will support it and so it will become law.
MICHELLE GRATTAN: The Budget commits big dollars to equity investment in infrastructure projects: Sydney’s second airport, the Melbourne to Brisbane new freight line. Doesn’t this go against Liberal philosophy to stand back and let the private sector do the investment?
MATHIAS CORMANN: Firstly, when it comes to Western Sydney airport, the reason we are developing the airport is because a commercial investor who has to look at a more immediate commercial return, does not necessarily have the same capacity as Government to take a long-term view. Our intention is, once the Western Sydney airport is developed and operational, is to put it on the market for sale. We believe that whichever Government is going to be in a position to sell it, I think we will get a very good return from it. When it comes to inland rail, we will be developing this in partnership with the private sector. Yes, we will be making an $8.4 billion equity contribution through the Australian Rail Track Corporation. But the project will be developed in partnership with the private sector, because the full cost of the project of course is higher than this and we will be seeking to share risk and engage the private sector, in particular in relation to the development of some of the more complex segments of the project.
MICHELLE GRATTAN: It does strike me that the Nationals have got a pretty good deal in this Budget, especially on that freight line. Because this project has been around since Adam was a boy and if it was so good, one would have thought, that it would have been developed already, and, the cost-benefit study show that the benefit over cost is pretty marginal.
MATHIAS CORMANN: We believe that the country has got a good deal. We believe that there is a good case for the inland rail project as an alternative to road freight to be developed between Melbourne and Brisbane. Parts of the route are more commercial than others, but in totality, Infrastructure Australia has assessed the cost-benefit of this project and it has assessed a positive cost-benefit. We believe that it is a good project, we believe that it is an important project. Yes, a lot of work has been done on this, which is why we are very confident that we can deliver it. We have gone through a market testing exercise, which is a matter of public record, over the last few months. We have taken advice on how best to structure the project financing arrangements, and we believe that we have got a very good way forward.
MICHELLE GRATTAN: For a long time the Government was very insistent that the Budget problem was a spending one, not a revenue one. Given the new taxes, do you now acknowledge that there was a revenue problem?
MATHIAS CORMANN: No, the problem was clearly a spending problem. We worked very hard to arrest the unsustainable and unfunded spending growth that we inherited. We did make significant progress, but we were not able to get all of the measures that we put forward on the spending reduction side of the equation through the Senate and we have made some judgements to the extent that we could, that the only other way that we were going to be able to make up ground was on the revenue side of the Budget. If you look at what has happened on the spending side, when we came into Government, spending as a share of the economy was heading for 26.5 per cent within the decade and rising. We have arrested the increase over the current forward estimates. We did get spending back down to about 25 per cent as a share of the economy, which is just slightly above the long term average of 24.8 per cent. So we have made progress, we are heading in the right direction, spending growth is under better control now than what it was. It would have been our preference to keep making progress on the spending side of the Budget, reducing expenditure, but we were not able to get all of our own way and so we had to make decisions that are reflected in the Budget last night.
MICHELLE GRATTAN: There are always questions about the assumptions in Budgets. But this time a number of economists have been somewhat sceptical about your healthy growth in wages that you think will come, because wages are flat lined. Are you confident that that assumption will hold?
MATHIAS CORMANN: Yes, we are confident. We take advice on these things. We do not just pluck these things out of thin air. We take advice from the experts in Treasury. The forecasts are based on credible, responsible, prudent assumptions. It is all laid out in the Budget papers as to how Treasury comes to its view. We take responsibility of course, the Treasurer and I, as having our name on the front page of the Budget papers, we take responsibility. But if you look at the global economic outlook, it has improved. If you look at the domestic economic outlook in Australia, it continues with low interest rates, it continues with lower exchange rates, with a flexible labour market, with a pro-growth agenda pursued by the Government across a whole range of public policy areas. We believe that growth will strengthen in the three out years to three per cent, and there are some consequences on the wages side as well.
MICHELLE GRATTAN: You have become the Government’s Crossbench whisperer in the Senate. You will this time have an easy task with the bank levy because Labor has signalled its agreement. But there is likely to be a call for an amendment to the Medicare levy hike to protect lower income earners. Do you think that the Government will be flexible enough to get that through even if you have to make some changes?
MATHIAS CORMANN: Firstly, low income earners are already protected. Very low income earners don’t pay the Medicare levy because they are exempted. The lower your income, the lower the tax that you would pay. The higher your income, the higher the tax you will pay. That is the function of applying a percentage. Zero point five per cent of a higher wage is a higher dollar number that 0.5 per cent of a lower wage. Let us not get ahead of ourselves. We put our Budget forward last night. We haven’t even heard the official response of the Opposition yet in the Budget reply speech. Our focus of course is on achieving outcomes but we believe that we have struck the right balance and that we have conformed with a Budget that fully funds the NDIS in a way that is responsible and fair.
MICHELLE GRATTAN: Just finally, is this the Budget you had to have rather than the Budget you would have desirably wanted to have?
MATHIAS CORMANN: Every Budget deals with the circumstances and challenges and opportunities that you face at the time. You make judgments on what you believe is in the best interest of Australia and we make judgments on what we believe is the right way forward to put us on the strongest, best possible foundation and trajectory for our future.
MICHELLE GRATTAN: Mathias Cormann, thank you for talking to us.
MATHIAS CORMANN: Always good to talk to you.