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
ANDREW BOLT: Mathias Cormann thank you so much for joining me. Two years ago, you gave a speech to the Sydney Institute and you said Australia has a spending problem not a revenue problem and you said we should not be talking about a plethora of new taxes. But this Budget increases the Government’s tax take in just one year by 7.8 per cent and of course you have got all these new taxes. Have you lost the argument?
MATHIAS CORMANN: It clearly was not our first preference. When we came into Government in 2013 we did inherit a completely unaffordable, unfunded, unsustainable spending growth trajectory from the previous Government. Spending as a share of GDP was heading to 26.5 per cent within the decade and rising. We have made significant progress since then in controlling expenditure growth. Spending as a share of GDP over the current forward estimates now is projected to go down to 25 per cent. Which is quite close to the long-term average of about 24.8 per cent. Now having said that, our preference would have been for the Senate to pass all of our outstanding, unlegislated savings measures, our spending reduction measures. But clearly, $14.7 billion worth of savings were not going to be passed by the Senate and we had to make some judgments in that circumstance on the right way forward. We did not want to add to the deficit, we did not want to add to the debt, we wanted to get back into surplus in the same timetable so we could stop living at the expense of future generations in forcing them to pay with interest for our living standards today. So regrettably, we had to make these judgements but that certainly was not our first preference.
ANDREW BOLT: But, it seems in part, like it is a Labor Budget now. You just wonder whether the Liberals are able to connect now with people. Convince enough that small Governments in their favour when even a Liberal Government is increasing taxes, increasing debt in the next few years and increasing the spend as well. I mean it is just very much a Labor Budget.
MATHIAS CORMANN: I completely reject the proposition that this is a Labor Budget. We are still working to fix the Budget mess that Labor left behind. Over the last three and half years, we significantly did that on the spending side of the Budget. I am the one who even since the last election was centrally involved in negotiating as many of the spending reduction measures through the Senate as possible. I negotiated the $6.3 billion savings through the original Omnibus Savings Bill through the Senate in September. I negotiated the second Omnibus Savings Bill through the Senate and I have got to tell you having being involved in all of these negotiations, we gave it our best possible crack. We reached the limit of what the Senate was going to pass. Now the alternative would have been Andrew, we could have left all of these measures on our books knowing that we were not going to get them through the Parliament, which meant that at every Budget update we would have had to write down the savings that had not been legislated, which would have meant that at every Budget update we would have had a bigger deficit than what had been anticipated and we would have forced future generations to pay higher taxes or accept deeper cuts because they would have had to pay for it with interest in the years ahead.
ANDREW BOLT: No I get the argument but I just wonder it is a bit sad for I guess Tony Abbott. He lost his career trying to push for these cuts to spending. If he had only known that he would just need to whack up taxes he would still be Prime Minister wouldn’t he?
MATHIAS CORMANN: The truth is we had measures on the revenue and the spending side of the Budget in the Abbott Government in the same way as we have measures on the revenue and the spending side on the Budget in the Turnbull Government. When I was the Finance Minister in the Abbott Government, we reintroduced fuel excise indexation, we introduced the temporary Budget repair levy, we pursued various other measures. Predominantly, since we won Government in 2013, our Budget repair effort was on the spending side of the Budget. We were seeking to reduce expenditure and we have given it out absolute best shot of getting as much of those savings through the Parliament as we possibly could given the Senate that we had to deal with. In this Budget, in the end the question was do we leave measures on the books that we know we are not going to get through this Parliament, that we are not going to get through this Senate and take the hit at every Budget update with bigger deficits and bigger debt as result, or do we pragmatically accept that it is incumbent on us to get the Budget back to surplus as soon as possible and to ask major banks and people across Australia to make a further contribution to budget repair on the tax side.
ANDREW BOLT: Well let us look at those tax rises. Now Labor seems to be moving to arguing that the rise in the Medicare levy is unfair, the Greens seem to be going there as well, they will try to block it I presume except for may be on higher income earners. If they do block this, isn’t it the case that your Budget surplus which you first predicted will happen in 2021 will be wiped out?
MATHIAS CORMANN: It is not the case that it would be wiped out, it would be less that is true. But I am not prepared to concede that point I have got to tell you. Labor did something pretty cruel, they put forward an initiative that had strong and broad bipartisan support in the National Disability Insurance Scheme, but they did not properly fund it. Right now Australia is facing a $56 billion funding gap over the period to 2027-28. The NDIS is not properly funded, is not fully funded. We wanted to fund it through spending reductions in other parts of the Budget, the Senate did not agree with that. Which is why we have said okay well then we need to fully fund it by making up the difference to the extent that we have not been able to pass all of the savings by an increase in the Medicare levy from 1 July 2019 onwards which is when the ramp up in expenditure really kicks in. The beauty in relation to a percentage increase in the Medicare levy is that it proportionately impacts people on difference income levels in different ways. So the higher your income, the higher the contribution in dollar terms that you have to make. The lower your income, the lower the contribution you are making in dollar terms. If you are on a very low incomes, you are completely exempt from having to pay the Medicare levy. So we believe that this is a fair measure and we believe that it will help us appropriately guarantee funding for an important service which has got broad bipartisan support.
ANDREW BOLT: I do think it would wipe out your surplus, it is projected at less than $8 billion. But this tax would raise $4 billion every year, every year and it comes in in two years. So you if you do not have that what it would be cumulative $8 billion, you have no surplus.
MATHIAS CORMANN: I have got to correct you there, that is factually incorrect. So the surplus in 2020-21 is projected at $7.4 billion. That is in that one year. You are applying here revenue over a two year period into a one year…interrupted
ANDREW BOLT: Correct because it comes in two years.
MATHIAS CORMANN: The revenue is about $4.1 billion per year on average so if the surplus is $7.4 billion than we would still have a surplus. That is my point…interrupted
ANDREW BOLT: Not if you lose two years of revenue, if you lose two years of revenue from this tax the surplus you expect in four years will not be there. That is my point, I am just adding them up.
MATHIAS CORMANN: No that is not right. The deficit would be higher in 2019-20, but there would still be a surplus, though a lesser surplus in that scenario in 2020-21. But we cannot believe that the Labor Party would stand in the way of fully funding the National Disability Insurance Scheme. People across Australia want the political games to stop, they want the Labor Party to lower their arms and just get on board with this so that we can tell people across Australia with a disability that the support will be available for them and that the funding for it is guaranteed.
ANDREW BOLT: Now John Howard the former Liberal Prime Minister said today was troubled by your moves against the banks. He says your bank tax is like the super profits tax that Labor whacked on the mining companies and that you removed saying that was unfair. Why have you picked on the banks for an extra tax?
MATHIAS CORMANN: This is a levy that applies to the major banks. The Treasurer has explained this in some detail. The major banks between them make about $30 billion worth of after tax profit and in all of the circumstances with all of the challenges that we are facing as a nation in terms of getting our Budget back into surplus, we believe that this is a fair and proportionate contribution for the banks to make. It also helps improve competition between smaller banks and the major banks in levelling the playing field somewhat because the levy only applies to the major banks. We do not believe that there is any reason for the banks to pass this on to their customers because we believe that they can fund this out of their profits.
ANDREW BOLT: Well on that point David Murray the former Commonwealth Bank head, former Future Fund boss has said that it probably will be passed on, Westpac has said it probably will be passed on, the Commonwealth Bank said of course it would have to be passed on. David Murray says that if it is, this is like adding 25 points to interest rates which would hurt home borrowers, would hurt business, do you accept that?
MATHIAS CORMANN: We believe that with improving competition in the market which this measure will help facilitate by giving additional resources to the Australian Competition and Consumer Commission to monitor the activities of the banks, the relevant activities in terms of pricing arrangements of the banks in this sort of context, given that out of more than $30 billion in after tax profits, a $1.5 billion contribution is actually affordable for them, we can’t see that this is something that needs to happen. But in the end banks will always make their own judgements about their pricing arrangements. It is not as if they have not increased their prices in the past off their own back. Am I surprised… interrupted
ANDREW BOLT: My point is those prices that you say they will probably increase are paid by maybe depositors, maybe borrowers and maybe shareholders and that includes millions of Australians, is that not correct?
MATHIAS CORMANN: If you raise an additional levy, if you raise additional income this is going to be paid. The banks are paying it and in the end of course the money is going to come from somewhere. What we are saying is more than $30 billion in after tax profits, it is possible for the banks to make a contribution to Budget repair in Australia to the level that we have put forward.
ANDREW BOLT: My point just being it is not the banks so called that pays inevitably the consumers, the customers, the shareholders they are the individual Australians who end up paying that bill. But listen can I ask the Government yesterday lifted the debt ceiling to $600 billion, $600 billion. Now what do you think our peak debt will be? What will the level be? Will it go beyond that at any stage do you think?
MATHIAS CORMANN: We are working on keeping debt as low as possible. Let me tell you that debt is lower than what it would have been if Labor had won the 2013 or the 2016 Election. Now Government net debt which is actually the most important indicator is expected to peak in 2018-19 at about 29.8 per cent as a share of GDP at about $375 billion. Then both in dollar terms and in terms as a share of GDP is projected to come down, all the way down to about 8.5 per cent within the decade.
ANDREW BOLT: What about gross debt – can you tell me?
MATHIAS CORMANN: The gross debt numbers are published in the Budget papers.
ANDREW BOLT: That is what I am asking you, I didn’t see them so maybe you can tell me what will it peak at? The debt ceiling you say must be $600 billion, its likely to go beyond that. I am after the figure that you would have in your mind as to what that would be?
MATHIAS CORMANN: What I am saying to you is we are working to keep gross debt under control.
ANDREW BOLT: I do not doubt it, I am just asking if it is a secret. I would like the figure that is all.
MATHIAS CORMANN: The Treasurer has made the administrative judgement that he has made.
ANDREW BOLT: Not to tell us?
MATHIAS CORMANN: The decision that he has had to make was in order to ensure that Government can continue to function, that there is certainty for ….interrupted
ANDREW BOLT: I have got that, I am just after the figure. I don’t know why it’s a secret. Why is peak gross debt a secret? Why can’t you tell us how much the debt will go to. I mean, this is very important. You were the guy that was very strong on debt and deficit, I would like to know what the figure is.
MATHIAS CORMANN: What I am telling you is that the debt number that actually matters is Government net debt and it will peak at $375 billion in 2018-19. It will peak at 29.8 per cent as a share of GDP.
ANDREW BOLT: I got that. I am just asking that the debt ceiling is $600 billion, when will you go above that? You are the ones that talked about the debt ceiling yesterday. I want to know is it going to be broken?
MATHIAS CORMANN: Actually I have not talked about the debt ceiling. The Treasurer has made a decision to ensure that the operations of Government can continue in an orderly fashion and he has made an administrative decision which is there one the public record which is to take the debt ceiling to $600 billion.
ANDREW BOLT: I will not push it but obviously it’s going to be more than that. Lastly, is one of the reasons you have lost the argument on raising taxes, you are going that way and all that kind of stuff, isn’t it because do you think that Australians are so now dependent on the teet, most Australians are now in receipt of more Government money through salaries or benefits or pensions than actually they pay in taxes. Now does that make it really hard for you to sell austerity?
MATHIAS CORMANN: I think you did not really hear one of my earlier answers. We are actually bringing Government expenditure back down to 25 per cent as a share of the economy. The long term average is 24.8 per cent. So we are talking about a 0.2 per cent difference. We actually have made significant progress that is not widely understood. We were on an increasing trajectory and we have now stabilised it and we are now bringing it down to 25 per cent. And that is despite having to accommodate significant increases in areas like the NDIS, it is despite having to reverse decisions on the spending reductions side of the Budget so we are still bring down spending as a share of the economy to 25 per cent.
ANDREW BOLT: Mathias Cormann thank you so much for your time.
MATHIAS CORMANN: Always good to talk to you.