ABC News

Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia


Date: Monday, 18 December 2017

Mid-Year Economic and Fiscal Outlook

ANDREW PROBYN: Joining me in the studio again is the ABC's business editor Ian Verrender and we have a very special guest, we have the Finance Minister, Mathias Cormann. Let us deal with some of the good news. You have been able to reduce the deficit for 2017-18 from 29 down to 23. What has driven that?

MATHIAS CORMANN: Predominantly over the forward estimates period, we have been able to reduce the size of the deficit and improve the Budget bottom line by $9.3 billion and predominantly that is because of lower than expected expenditure and decisions on the spending side of the Budget to reduce expenditure to the tune of about $6.5 billion and there is about $2.8 billion in that improvement which comes from higher revenue than expected at Budget time. 

ANDREW PROBYN: We have got some not so good news when it comes to wage growth. It does seems to be not just Australia's problem but a problem around the Western world and GDP has also been brought down. Wage growth is a major issue for your Government and others in the Western world.

MATHIAS CORMANN: A couple of points here. Firstly, wages growth in Australia while low by Australian standards is still higher than in other parts of the Western world as you describe it, it is certainly better  than what it has been in the United States. If you look at the most recent national accounts figure, wages growth of 1.2 per cent over the recent quarter, 3 per cent over the year, that is certainly trending up. If you look at what has happened on the employment front, employment growth is much stronger than what we had anticipated at 5.4 per cent. The unemployment rate is now lower than what previously had been anticipated. Over time we would expect, that in particular that if Parliament passes our business tax cuts in full, that the impetus will be there for future increases in wages growth.

ANDREW PROBYN: But there is no guarantee of that. What we have seen in recent years is there seems to be some de-linking between the labour market and wage growth. How can you say that lower taxes would simply produce higher wages?

MATHIAS CORMANN: I do not accept that proposition of de-linking. The Australian economy in recent years has gone through a major transition on the back of significant falls in our terms of trade and transitioning from an economy that was very much drive by an investment and construction boom, now to broader drivers of growth. In the context of that transition, instead of having higher unemployment, we have had slower wages growth, that is true. The alternative would have been high unemployment. If you look at what has been happening in the Australian economy, we have now completed our 26th year of continuous growth. We are entering our 27th year of continuous growth. The economic growth outlook moving forward is positive. The global growth outlook is much better now than what we expected it to be at Budget time. Overall, we believe that subject to the Parliament passing all of our economic reform agenda, that wages growth will start to pick up by more.

IAN VERRENDER: Just getting to the domestic economy though. We have had a mining boom that drove us really through the early part of this century, that has been replaced by a housing boom and now you are talking about an infrastructure boom. Do you think that is going to be enough to really drive the economy forward?

MATHIAS CORMANN: We need all parts of the domestic economy to fire on all cylinders and that is why we have a very comprehensive plan for jobs and growth. Pardon to go back to what we talked about in the lead up to the last election. That is why we want a more a growth friendly tax system, because only more successful, more profitable businesses will be able to hire more Australians and pay them better wages over time. That is why we are pursuing an ambitious free trade agenda, because we want our exporting businesses to sell more Australian products and services in key markets around the world. That is why we are pursuing an ambitious infrastructure agenda, but it is also why we are pursuing our energy reform agenda. to ensure business across Australia has got better access to affordable and reliable energy. In the end, the way to drive stronger domestic economic performance is by helping business be more successful and more profitable, so that they can hire more Australians and pay them better wages and those Australians can pay more on consumption. Particularly with nine out of ten Australians working in the private sector, it is very important…interrupted.

ANDREW PROBYN: It is a bit of a wing and a prayer though isn’t it? It is just praying that they get paid more, clearly that has not been the experience of wage earners in Australia.

MATHIAS CORMANN: You are ignoring what I have just said in previous answers. We have gone through a difficult transition and instead of having a massive increase in unemployment, we have been able to achieve strong employment growth and keep the unemployment rate lower than what had been anticipated. But yes, that is part of the reason why we have had somewhat slower wages growth. Let me just pick up one point here, the Shadow Treasurer, Chris Bowen and go and check it out, he gave a speech to the Press Club in December 2013, where he gave three benchmarks for the success or otherwise of the economic stewardship of the Coalition Government. He said we needed to keep the unemployment rate below 6.25 per cent. Well it is at 5.4 per cent and I am still waiting for his press release congratulating us on our stewardship of the economy.

IAN VERRENDER: You may be waiting for quite a while. You talked about wages. Why is it when you have had such a stellar year in terms of jobs growth, I mean 350 thousand new jobs this year, most of them fulltime, which is you know, unheard of for years. Why is it then that we have had to downgrade our wages forecast from 2.5 per cent growth down to 2 per cent? Can you explain it?

MATHIAS CORMANN: We downgraded it for each year of the forward estimates by a quarter of a per cent. That is on the back of expert advice out of Treasury. In the end, the only way you can sustainably drive wages growth up over the medium to long term is by making sure that we attract more investment, our economy performs more strongly, which means businesses across Australia perform more strongly. That is the only way that we will be able to afford the higher wages that we would like Australians to earn. 

IAN VERRENDER: Are you still confident that we can get to 3.5 per cent wages growth by the end of forward estimate? That seems a heroic assumption.

MATHIAS CORMANN: I disagree with the proposition that it is a heroic assumption. The reason it is there is because we believe that it is a realistic assumption to use. Based on all of the information in front of us, again, I go back to the national accounts for the third quarter and they show wages growth in that quarter of 1.2 per cent, 3 per cent over the year. It has been trending up ever so slightly. In recent quarters there have been some positive signs and we are hoping that the jobs and growth plan of the Government will continue to drive that up.

ANDREW PROBYN: Let us go into higher education because that is taking the brunt of your renewed savings...interrupted.

MATHIAS CORMANN: Well it is actually costing us more.

ANDREW PROBYN: It is costing you more but only because you wanted a bit more in May. Let us remind viewers, you wanted savings in the order of $2.7 billion. I think these savings are getting you $2.1 billion. Now some of those you can do without legislation by simply freezing those Commonwealth Grants. How is that going to work because that is generating a lot of money?

MATHIAS CORMANN: It is precisely as you have just said. We had some very important structural reform proposals in front of Parliament. Everybody knows that the Government has not got the numbers in the Senate, so if we cannot achieve our fiscal objective one way, then we will look at other ways of achieving the same outcome or at least as close to it as we sensibly can. What we are proposing to do from 1 January 2018 is to freeze relevant Commonwealth payments to universities…interrupted.

ANDREW PROBYN: For 2017 levels.

MATHIAS CORMANN: … at 2017 levels for 2018 and 2019. All up that is going to be the largest chunk out of the $2.1 billion in savings out of the higher education reforms.

ANDREW PROBYN: Another chunk of your savings was you have revised this plan that you had when it comes to HECS and HELP repayments. You currently have to repay at $55,000, you wanted to reduce that to $42,000 and once you hit $42,000you start repaying your debt. Now, you have increased this to $45,000, it is a bit of a barter. You know the Crossbench very well through your negotiations, is this $45,000 figure informed by your discussions with NXT for example? 

MATHIAS CORMANN: I am not going to talk about conversations that happen between the Government and non- Government Senators. What I can say is that in particular the Education Minister, Simon Birmingham, has had a lot of engagement with non-Government Senators in relation to these reforms. The Expenditure Review Committee has very much relied on his advice on what the most sensible way forward is in making sure that we continue to have record level of Federal Government funding for our higher education sector, but in a way that is sustainable for future generations.

ANDREW PROBYN: So there is some confidence there?

MATHIAS CORMANN: I am always optimistic, but I never take anything for granted.

IAN VERRENDER: $45, 000 is a fairly small amount of money for somebody to be earning and to start repaying the debt. Do you think that that is going to result in some kind of backlash at all?

MATHIAS CORMANN: We feel that that is the appropriate level, that is why we made the judgement that we have made. Different people will have different views. Our view is in all of the circumstances, that is the appropriate level.  

ANDREW PROBYN: Another one here,  lifetime limits. This is brand new for MYEFO. Quite a few new measures for MYEFO.  Now this lifetime limit will effectively cap the amount of money that you can receive from the for your higher education. How is this going to work and what courses are we talking about?

MATHIAS CORMANN: It is going to work precisely as you have just described it.

ANDREW PROBYN: You give us the numbers.

MATHIAS CORMANN: The numbers are published in the Budget papers. But Simon Birmingham will be releasing a very detailed statement later today where he will go through all of the ins and outs of all of that…interrupted.

ANDREW PROBYN: What is designed to stop? Is it people who stay in the…interrupted.

MATHIAS CORMANN: Well it is making sure that the taxpayer funded support is appropriate to ensure that everyone has the opportunity to achieve a high quality university education in Australia. But you have got to also ensure that the deal is fair for taxpayers. That is what our package is very much designed to achieve.

ANDREW PROBYN: You are aiming to hit that surplus in 2021. That has been the case for a few years, you have not adjusted it. But you must be getting ever so close to bringing that forward by a year?

MATHIAS CORMANN: The numbers are as they are presented in the half-yearly Budget update. Our expectation, based on the information in front of us today is that we will be able to return to surplus by 2020-21. As you have indicated, we have projected that surplus now consistently since the 2015-16 Mid-Year Economic and Fiscal Outlook. We will continue to work to deliver on that trajectory.

ANDREW PROBYN: Are you leaving it there in 2020-21 because, well we know there are tax cuts coming?

MATHIAS CORMANN: These are the numbers in our half-yearly Budget update. Future Budgets and Budget updates will be a reflection of policy decisions and parameter variations between now and then. I cannot pre-empt either future policy decisions or future parameter variations.

IAN VERRENDER: You put this 23.9 per cent ceiling in place, which actually commits you then to delivering tax cut. When do you think that is going kick in?

MATHIAS CORMANN: The Budget papers actually show that the 23, at Budget the 23.9 per cent tax as a share of GDP cap was projected to kick in at 2022-23. That is a matter of public record. You are quite right, the 23.9 per cent tax as a share of GDP cap means that future tax cuts are already built into our Budget bottom line for trajectory, because if we did not cut taxes we would exceed the 23.9 per cent tax as a share of GDP cap. Our commitment is not to increase the overall tax burden in the economy beyond 23.9 per cent. Labor, on the other hand has already made policy announcements to increase taxes over and above by $164 million, which would take tax as a share of GDP to around 25 per cent.

ANDREW PROBYN: Well Mathias Cormann, with that political note, thank you very much for joining us on ABC 24 and thank you very much for the year you have given us, a very arduous year. Merry Christmas to you and your family.