Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
DAVID SPEERS: For more on this Budget update I am joined now by the Finance Minister Mathias Cormann. Good afternoon to you. The bottom line is looking better than it has for some years, but for households, is income growth where you would like it to be?
MATHIAS CORMANN: Well employment growth is much stronger than what had previously been anticipated. We would like income growth to strengthen into the future and the Budget forecast has strengthening of wages growth over the forward estimates from 2.25 per cent this financial year to 3.5 per cent, which will be about 1 per cent above where our CPI is expected to be by 2020-21. Wages growth is certainly the one part of the Budget, part of the economic indicators, that we would like to see strengthened, which is one of the reasons why we need to get our business tax cuts legislated in full as soon as possible.
DAVID SPEERS: So that is the answer to the wages growth, is the company tax cuts?
MATHIAS CORMANN: Nine out of ten Australians work for a private sector business and their future job security, their future career prospects and their future wages growth depends on the future success and the future profitability of the businesses that employ them. The way to boost wages sustainably is by boosting productivity on the back of increased investment and businesses in Australia compete for investments around the world and our corporate tax rate is too high by international standards today.
DAVID SPEERS: But with income growth clearly not where you would like it to be, you have still got an increase in the Medicare levy coming in mid 2019 as well. Penalty rates for many are going to be going down and down over the coming years. Can you understand some households are not exactly popping the champagne corks?
MATHIAS CORMANN: You have to look back at the situation we inherited in 2013. The economy was weakening, unemployment was rising, the Budget position was rapidly deteriorating. If you look at a speech that Chris Bowen gave in December 2013 at the National Press Club, putting down some of the markers and benchmarks that we would need to reach. One of the key things out of three that he mentioned was that we should try and keep the unemployment rate below 6.25 per cent. Well it is at 5.4 per cent. We are still waiting for his press release congratulating us on our …interrupted
DAVID SPEERS: You might be waiting a long time for that.
MATHIAS CORMANN: We have just completed out 26th year of continuous growth. We are entering our 27th year of continuous growth, but we have gone through a difficult transition. Coming out of a period of growth that was driven by investment and construction going into a period now of broader drivers of growth and we have been able to manage that adjustment without a major blowout in unemployment. The slightly lower than previously experienced wages growth is part of that. If wages had grown by more, the unemployment rate would have been higher.
DAVID SPEERS: Back to this point though, do you acknowledge there are households out there this Christmas who will be thinking, income tax for all intents and purposes through the Medicare levy is going to go up. We are not seeing much in terms of wages growth. If someone is in a job that brings in some penalty rates, they are going to be going down. There would be some worries there.
MATHIAS CORMANN: The question is what is the counter factual. We want every Australian to have the best possible opportunity to get ahead. Part of being able to achieve that is to ensure that the businesses that employ them have the best possible opportunity to get ahead. Bill Shorten is running on an agenda of increasing the overall tax burden in the economy. That will make business less successful. Less successful businesses will hire fewer people and be able to pay them lower wages. Wages under the Coalition over the medium term will be higher than they would be under a Labor Government, just by virtue of the fact that Bill Shorten’s economic agenda is designed to make it harder for business to be successful, which makes it harder to hire people and pay them higher wages.
DAVID SPEERS: Why is putting more money in the pocket of the company through company tax cuts a better stimulus for wages than not proceeding with the increase in the Medicare levy, which is coming straight of the pocket of the wage earner?
MATHIAS CORMANN: In the end, the services that Australians expect the Government to provide have to be funded and they have to be funded out of the economy. If you look at the tax burden in the economy under our Government, we have self-imposed a limit of 23.9 per cent as a tax as a share of GDP cap. Labor has already said that they would blow that tax as a share of GDP cap out of the water … interrupted
DAVID SPEERS: I am just asking about why putting up the levy on workers is a good idea while cutting the tax on the company?
MATHIAS CORMANN: The point I am making is the Coalition is always committed to keeping taxes as low as possible. But in the end we have to pay for the services that Australians expect us to provide. The Prime Minister has already indicated we will be pursuing income tax cuts, in particular focusing very much on middle-income earners, in future Budgets and Budget updates.
DAVID SPEERS: So the levy will go up, but they will get a tax cut?
MATHIAS CORMANN: Overall taxes will be lower under the Coalition than under Labor by virtue of what has already been announced. We have already clearly indicated that not only will we be reducing business taxes, we will be reducing income taxes moving forward.
DAVID SPEERS: It would be simpler just to say we are not going to go ahead with the levy increase.
MATHIAS CORMANN: You have to make sure that the funding commitments that are made and the funding commitment to the NDIS was a commitment that was bipartisan, Labor did not fully fund that particular ... interrupted
DAVID SPEERS: They do not back the levy increase.
MATHIAS CORMANN: It is very clear that Labor did not fund the National Disability Insurance Scheme in full. We are committed to ensuring that it is on a sustainable funding trajectory for the future. That is something that we will have to continue to pursue. But we are committed to keeping taxes as low as possible.
DAVID SPEERS: When will we see an income tax cut?
MATHIAS CORMANN: The Government is currently working through what we will be able to afford. There will be announcements in due course.
DAVID SPEERS: Will it be around the time that the Medicare Levy goes up?
MATHIAS CORMANN: There will be announcements that go as far as we can sensibly afford in the context of the fiscal situation at the time, at the right time. But let me say, again, we have already imposed a tax as a share of GDP cap on ourselves of 23.9 per cent and in the Budget forward estimates period over the medium term we have already built in, future tax cuts are already built into our revenue assumptions because our revenue forecasts are based on an assumption that tax as a share of GDP will not go past 23.9 per cent.
DAVID SPEERS: A few other things in today’s Budget update. Universities, you have tried a few different ways to rein in spending on universities, now you are going for measures that do not require legislation. You want to save $2.1 billion by freezing funding at this year’s levels for the next couple of years. Do you accept that is, essentially, reinstating a cap on student places?
MATHIAS CORMANN: No, that is not what we are doing. We are freezing the overall Commonwealth funding.
DAVID SPEERS: Commonwealth funding is based on per-student funding.
MATHIAS CORMANN: There is still per-student funding that is separate to this. But what we are saying is Commonwealth Grants Scheme funding is frozen at 2017 levels. You have to remember here, overall funding to universities has grown much more strongly than the cost of providing the service, and right across government, right across the community, efficiencies have had to be absorbed in order to help get the Budget back into surplus. We believe that the Budget repair effort ought to be sensibly shared. Universities, as you just indicated, have benefited from a demand-driven program for some time now. Utilisation, the number of students at universities, has gone up dramatically, overall funding has gone up dramatically, it has gone up much more than the cost of providing the service ... interrupted
DAVID SPEERS: If you freeze the funding, how does that not cap student numbers? How else do they pay for extra student numbers?
MATHIAS CORMANN: We are not getting rid of the demand drive program. What we are saying to universities is that there is opportunity to achieve efficiencies. We believe that $1.9 billion in efficiencies which is the effect of the freeze over two years, over the forward estimates is eminently achievable and efficiencies for universities to absorb.
DAVID SPEERS: They point at other universities in the region who are spending more on higher education, this is the way you make a more productive economy.
MATHIAS CORMANN: We have a budget challenge. All other parts of the community and of Government have had to contribute. So far the higher education sector has not contributed or not materially contributed. The higher education sector on the back of the demand driven approach now and significant increases in enrolment numbers and overall increases in funding on a per-student basis, their funding has increased much more than their costs and it is not unreasonable for universities to contribute their proportionate share to the overall effort.
DAVID SPEERS: The other area, you’re wanting to save $1.3 billion, is making new migrants wait three years rather than two for Newstart and wait three years for family payments, paid parental leave. This is going to make life harder for them, isn’t it?
MATHIAS CORMANN: Overwhelmingly our migration program these days is very much focussed on attracting skilled migrants who are coming here to work and who are crucial to the economy, not to access welfare payments from day one. Across a whole range of welfare payments there is already a two-year waiting period as you say, for Newstart Allowance or for Youth Allowance, and a series of other payments. We are proposing to increase that from two to three. A range of welfare payments do not actually have a waiting period at all. We believe in order to make that consistent, there should be the equivalent waiting period across the board. I hasten to add a range of categories of migrants or potential migrants are exempted, for example humanitarian refugees are exempted, families under financial pressure are exempted and there are a range of other exemptions.
DAVID SPEERS: Do you need legislation for this one?
MATHIAS CORMANN: Yes.
DAVID SPEERS: And any sign you’ll get the support?
MATHIAS CORMANN: We will engage as we always do after every Budget and every Budget update with non-Government senators. Everybody knows the numbers. We have 29 senators in a Senate of 76. We need ten non-Government senators to get anything through.
DAVID SPEERS: One of the smaller line items in the Budget update is the legal cost of the citizenship fiasco. It’s $11.6 million. Small in the overall context, but how do you feel taxpayers will feel that they’re forking out nearly $12 million because people couldn’t sort out their citizenship.
MATHIAS CORMANN: In all of the circumstances we made a judgement that it is an appropriate item of expenditure. There were some legal issues, some Constitutional issues that needed to be clarified. We are going through a period where these issues are going to be settled once and for all. We think that is very much in the public interest.
DAVID SPEERS: Just away from the Budget update. George Brandis looks like he’s off to London. Are you hoping to become the Government’s new Senate Leader?
MATHIAS CORMANN: David, you have known me for long enough to know that I do not comment on speculation. That is just speculation. These are matters that are well beyond my pay grade.
DAVID SPEERS: You’ve known me for long enough to know that I can try, I can try. Alright, Finance Minister Mathias Cormann, thank you very much for joining us this afternoon.
MATHIAS CORMANN: Always good to talk to you.