Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
MATT TAYLOR: Mathias Cormann is the Finance Minister of Australia and he is joining us now live from Canberra to talk us through all of those numbers. Finance Minister, pleasure to chat to you as always. What is underlying this improvement when it comes to the deficits and also the surplus over the forward estimates? What is driving that improved performance?
MATHIAS CORMANN: Well, predominately and to the tune of about 70 per cent, the improvement is driven by lower expenditure than anticipated at Budget time. That is about $6.5 billion in the bottom line improvements over the forward estimates comes from lower expenditure compared to what was anticipated at Budget time. About $2.8 billion, the remaining 30 per cent comes from higher than anticipated revenue.
MATT TAYLOR: Okay, talk to us about the growth forecasts, I note for this year, for the 2017-18 year, you have pulled back the dial a little bit on your growth expectations. Why is that? Is the economy going to hit a rough patch over the next six months, because we have had some pretty strong growth over the last six months since the May Budget was released. In particular, the latest growth numbers that we just got a couple of weeks ago.
MATHIAS CORMANN: We have adjusted it by a quarter of a per cent for the 2017-18 financial year before returning to 3 per cent year-on-year growth in the final three years of the forward estimates period. Essentially, that is linked to the outcome in the last national accounts quarterly data, when it comes to domestic consumption. Treasury has advised that an adjustment in 2017-18 was warranted in that context. But overall, if you look at the employment growth performance, if you look at the unemployment rate, which we have been able to downgrade compared to what was anticipated at Budget time, that is, the unemployment rate is now expected to be lower than what we thought at Budget time. Overall, if you look at the economic outlook, we would say that it continues to be positive and you have to remember, we have just finished our 26thyear of continuous growth, we are entering out 27thyear of continuous growth and we continue to successfully transition from growth driven by record investment and construction activity in recent years.
MATT TAYLOR: Talk to us about the jobs market, because that has really been one of the standout performers in the Australian economy over this year. You mentioned the revisions to what you were expecting on the unemployment side, but wages are still stubbornly low. How long do you think it is going to be before we see that pickup in wages, which is then going to drive inflation and hopefully growth as well?
MATHIAS CORMANN: Part of the reason why employment growth has been stronger and the unemployment rate is lower than what was previously anticipated, is because wages growth has been somewhat lower. It has been picking up in recent times. If you look at the most recent National Accounts Quarterly data it showed wages growth of 1.2 per cent over the most recent quarter and three per cent over the year. We have downgraded it ever so slightly by a quarter of a per cent in each year of the forward estimates period. But we do believe that with the unemployment rate at 5.4 per cent and a positive economic outlook, if we can continue to unlock that additional investment, continue to drive stronger growth and at an unemployment rate of 5.4 per cent, we believe that the wages growth should start to pick up more strongly in the years ahead.
MATT TAYLOR: Okay, Finance Minister I have got Katrina Ell, an economist over at Moody’s here to wants to jump in for a question as well. Katrina, go ahead.
KATRINA ELL: I think we saw that one of the key weaknesses that really emerged more clearly in this mid-year Budget was that the consumer sector isn’t in good shape. So, do you think that households really need a bit more support from the Government to lift spending and perhaps some more support on the income front to really get that growth stronger?
MATHIAS CORMANN: Well, that is a key reason why we are so committed to bring down the business tax rate to 25 per cent for all businesses, because a key driver of wages growth into the future is productivity improvements on the back of additional investment into our business sector. Nine out of ten working Australians work in a private sector business. Their future wages growth depends on the future success and the future profitability of those businesses. For example, with the Trump Administration bringing the corporate tax rate down to 21 per cent, the United Kingdom going down to 17 per cent by 2020, France going down to 25 per cent, it is now urgent for Australia to reduce its corporate tax rate from 30 per cent down to 25 per cent for all businesses, so we can attract more investment, increase productivity and over time sustainably increase real wages.
MATT TAYLOR: The Prime Minister has also flagged personal tax cuts as well. Given the numbers that you have handed down today, yeah they show an improvement, but shouldn’t the priority be to get the Budget back into surplus soon rather than offering personal tax cuts?
MATHIAS CORMANN: Well, we are on a believable trajectory back to surplus by 2020-21. That is a surplus trajectory that we have maintained now since the 2015-16 Mid-Year Economic and Fiscal Outlook. We have also imposed on ourselves a 23.9 per cent tax as a share GDP cap. The revenue forecasts are based on the assumption that tax as a share of GDP is not allowed to go beyond 23.9 per cent, which means that we actually have already inbuilt into our Budget forecast over the medium term an assumption of future tax cuts and that is while maintaining the budget in surplus. Beyond that we continue to look for opportunities to lower the tax burden, in particular on low and middle income earners in order to facilitate stronger growth and to also help boost domestic consumption.
MATT TAYLOR: The Government had a win at the weekend. Of course, we saw the Bennelong by-election with John Alexander returned. Were you surprised by the swing against the Government, because it was about a 5 per cent or so? Some pundits out that had suggested that the swing could be as much as 10 per cent. What do you think of that by election and what will it mean now regaining your one seat majority in the House?
MATHIAS CORMANN: It was a good win. It was an important win. To a large degree, in John Alexander, the people of Bennelong have a trustworthy, hardworking local Member. There was a vote of confidence for John Alexander expressed in that vote, but from the Government’s point of view, we also take a lot of heart from the result. There had been predictions of swings of 10 per cent and more and that the seat could fall to the Labor Party. By-elections are famously tricky potentially for incumbent Governments. So to achieve that win, to secure that win and to secure it with a 55-45 per cent result is a very good result for John Alexander and a good result for the Government.
MATT TAYLOR: What is 2018 going to hold for the Government, because 2017 by some was characterised as fairly chaotic. We of course had the dual national saga for one, but there were some legislative wins for the Government. Are you more confident now, moving into the start of 2018, than you were at the start of 2017 about how the Government is being received and the job that you are doing?
MATHIAS CORMANN: Well, I disagree with your assessment of 2017. What I would say first up is that since the election in 2016 we have continued to implement our plan for the economy, for jobs and for Budget repair. If you look at all the economic and employment indicators I think that the results are there for all to see. On the Budget repair front, we have been able to legislate about $37 billion in additional Budget repair measures since the last election. Less than $3 billion in Budget repair measures from Budgets before 2017-18 remain unlegislated. That is an important bit of progress. We have been able to pass in 2017 our company tax cuts for businesses with a turnover of up to $50 million dollars, the first three years of our enterprise tax plan. Now, in 2018 we will continue to focus on implementing our plan to ensure the economy is as strong as it possibly can be, that we are on the strongest possible economic and fiscal foundation for the future. That will mean that we will continue to pursue company tax cuts for all businesses, it means that we will continue to pursue our reforms to bring down the cost of electricity and ensure that electricity supplies are reliable and stable for both business and for families, and a whole range of other parts of our economic and fiscal agenda that we will continue to pursue in the 2018 calendar year.
MATT TAYLOR: Finance Minister Mathias Cormann, a pleasure to chat to you as always. Always very generous with your time coming and speaking to us, so thank you very much for joining is on mid-year Budget update day. Thank you so much.
MATHIAS CORMANN: Always good to talk to you.