Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
DAVID SPEERS: With me now for more on the pre-Budget outlook is the Finance Minister, Mathias Cormann.
MATHIAS CORMANN: Good morning.
DAVID SPEERS: This will be your fifth Budget. Thank you very much for joining us this morning. But why are you embarking on tax cuts and new spending when we are deficit. We are still borrowing to fund the Budget.
MATHIAS CORMANN: Firstly the reason we want to ensure that the overall tax burden in the economy does not go past 23.9 per cent is because we want to keep the economy strong. We want to ensure that more jobs can continue to be created. That there is more investment. That all Australians have the best possible opportunity to get ahead, Australians today and into the future. If we allowed the overall tax burden in the economy to just continue to go up and up and up, which is what Labor is suggesting, it would harm the economy, it would cost jobs. And I have to correct you in the context of some of the things that you have said. We have maintained discipline on the spending side of the Budget all the way through our period in Government. You have to remember that we inherited spending growth from the Labor party of about four per cent in real terms above inflation on average per year and a forward trajectory along those lines. We have more than halved that if you look at our past reporting. What I can tell you is that in this year’s Budget, policy decisions on the spending side of the Budget have not added to the Budget bottom line. We have more than paid for any spending on new priorities with spending reductions in other areas.
DAVID SPEERS: But has it been enough? Just on that, I don’t disagree you have been able to wind back spending...
MATHIAS CORMANN: That is very important.
DAVID SPEERS: ... or at least the trajectory of the spending increase. But, when you did come to office, you ran the audit commission, Tony Shepherd did and he said that, and the Government agreed, that on Labor’s terrible policy platform debt was going to hit $667 billion in a decade’s time. Well it has now hit $684 billion.
MATHIAS CORMANN: We inherited a deteriorating trajectory. There is no question about that. In the eleven weeks prior to the pre-election ... interrupted
DAVID SPEERS: But the debt forecast has proven to be worse.
MATHIAS CORMANN: Let us see what is revealed on Tuesday, by the Treasurer... interrupted
DAVID SPEERS: It will be better than that will it?
MATHIAS CORMANN: The point I would make to you is this. We inherited a deteriorating trajectory. We have improved the trajectory. When we came into Government, based on the policy settings that we inherited from Labor spending as a share of the economy was heading for 26.5 per cent within the decade and rising. If you look at our most recent Budget update, we have been able to bring spending as a share of the economy down, to below 25 per cent. There will be a further update in this Budget. But there is no question that we have demonstrated very significant discipline on the spending side of the Budget. We have reined in spending. We have reined in spending in a structural way. We have significantly reduced the spending growth trajectory. That has helped give us the room to help make certain decisions that we have made ... interrupted
DAVID SPEERS: Will that forecast of $684 billion debt be lower?
MATHIAS CORMANN: The Budget will be delivered on Tuesday at 7:30pm by the Treasurer. We will be able to have that conversation on Wednesday morning.
DAVID SPEERS: Alright, will we be able to be getting back to surplus faster than 2020-21?
MATHIAS CORMANN: Again, the Budget will be delivered on Tuesday at 7:30pm. We will be able to have that conversation on Wednesday morning.
DAVID SPEERS: Will there be any new spending cuts? Or is it too tricky now.
MATHIAS CORMANN: Again, I have actually already answered that question for you. To the extent that we have had to make decisions to increase spending on higher priority areas, as we have done in previous Budgets, we have more than paid for that with spending reductions in other parts of the Budget. Policy decisions on the spending side of the Budget have not added to the Budget bottom line.
DAVID SPEERS: So when you announce new funding for home care packages for example on Tuesday night, or when the Treasurer does on Tuesday night, there will be offsetting savings?
MATHIAS CORMANN: Every bit of expenditure based on a policy decision on a higher priority area of spending has been more than offset by spending reductions in other parts of the Budget.
DAVID SPEERS: And that will still be the case?
MATHIAS CORMANN: That will still be the case.
DAVID SPEERS: Alright so there will be some spending cuts to offset whatever new spending there is?
MATHIAS CORMANN: It is a reprioritisation of expenditure. We have been committed to keeping spending growth under control. We inherited spending growth of about 4 per cent in real terms above inflation, year on year on average. We have more than halved that if you look at our half yearly Budget update before Christmas, you would have seen that spending growth had been contained to 1.9 per cent. One of the lowest in living memory.
DAVID SPEERS: Now I take your point about trying to keep overall taxation at a limit, 23.9 per cent is now your priority.
MATHIAS CORMANN: That used to be Labor’s point of view too by the way, that there should be a speed limit. But under Bill Shorten, they have blown that speed limit out of the water…interrupted
DAVID SPEERS: I get that. I get that. But getting back to my first point we are still in deficit. We are still adding to the overall debt burden. We therefore carry a greater and greater interest bill every year. That too has a pretty big impact on the economy doesn’t it?
MATHIAS CORMANN: We are making judgements to get the Budget back into surplus as soon as possible and as soon as is responsible. That has always been our position. We have projected now, since December 2015 when we released the half yearly Budget update then that the Budget would be returning to surplus based on the information that we have consistently put out into the public domain over that period, by 2020-21. The Treasurer will be providing an update on the trajectory on Tuesday at 7:30pm.
DAVID SPEERS: But how much interest are we paying each year at the moment on this debt? Just getting back to what the economic cost is of this debt.
MATHIAS CORMANN: Again, you have to look at what it is that we are borrowing for. In last year’s Budget we already made the point that very soon we will not have to borrow for recurrent expenditure. We will have to borrow only for investment in infrastructure, for investment in defence capability. We made the decision in last year’s Budget not to start raiding the Future Fund. We have decided to keep the money in the Future Fund and that is very important.
DAVID SPEERS: Sure, but we are still borrowing and the interest bill I think what is it, $15, $16 billion a year. That could have a big economic impact.
MATHIAS CORMANN: Just let me make the point on the Future Fund. The Future Fund, we could have taken $61 billion out of the Future Fund, but we decided not to. The Future Fund is achieving a return of about seven plus per cent per year. We are paying significantly less on our borrowings. It would be a very bad decision for us to take the money out of the Future Fund and to, instead ... interrupted
DAVID SPEERS: And I don’t disagree with that, but ...
MATHIAS CORMANN: Every bit that I say, you say that you don’t disagree with it, but then... interrupted
DAVID SPEERS: I am just trying to get back to the debt problem that you rightly identified when you came to office, spoke about a lot in 2013. Now it is a whole lot worse and the priority is now talking about how the debt is okay, the debt is good debt. The debt is being used for good purposes.
MATHIAS CORMANN: The situation is better than it would have been if Labor had still been in Government and if we had not changed Labor’s policy settings.
DAVID SPEERS: Not according to the forecast from your Commission of Audit, it is actually worse than that.
MATHIAS CORMANN: That is actually not right.
DAVID SPEERS: The forecast was $667 billion peak debt, now it is $684 billion.
MATHIAS CORMANN: Labor had imposed an assumption on their budget projections that spending would not increase by more than two per cent above inflation year on year when in fact it was increasing by about four per cent year on year. They just imposed an assumption on their spending projections which was unrealistic. They never told anyone how they would actually achieve those savings. We had to do the hard yards to turn the budget position around.
DAVID SPEERS: Alright, let’s turn to where you might get a bit of extra revenue, tobacco crackdown. This announcement coming in the Budget. Do you really think you will be able to raise $3.6 billion?
MATHIAS CORMANN: Self-evidently. That is why that is the number we have put into the public domain. It is based on advice. We are giving additional resources to the Australian Taxation Office. The Minister for Revenue, Kelly O’Dwyer, is putting together a taskforce that will better coordinate relevant efforts across all relevant agencies. Based on all relevant advice and all of the information in front of us, that is the additional revenue number, over a four year period, incidentally though, that we believe we can collect.
DAVID SPEERS: Has this problem worsened, the problem of illegal tobacco sales?
MATHIAS CORMANN: The evidence to us over a period is that there has been an increasing problem that needs addressing. That is what we are doing.
DAVID SPEERS: Because of the tax increases, the excise increase that you have put in place?
MATHIAS CORMANN: I think that there will always be an element in the community that will seek to avoid paying their fair share of tax across any area. It is always incumbent on the Government, as we are doing, to make sure we have the measures and the resources in place to ensure that we can pursue any wrongdoing.
DAVID SPEERS: But I suppose if it has always been a problem, why haven’t you done this earlier?
MATHIAS CORMANN: We are always looking for ways to protect the revenue. We are always looking for ways to better secure the necessary revenue to ensure that revenue is paid as it must under our laws.
DAVID SPEERS: Let’s look at the personal tax cuts that you are set to unveil. Who deserves a tax cut at the moment?
MATHIAS CORMANN: It is not a matter of who deserves what, it is a matter of what makes sense and what is affordable. We are focused on doing the right thing by the economy. We are focused on doing the right thing by the Budget. We are making judgements on what can sensibly be afforded and in what sort of progression. The judgement that we have made is to prioritise low and middle income earners with tax relief in the first instance. That is good for them, that is good for the economy.
DAVID SPEERS: This year? Will they see something this year?
MATHIAS CORMANN: Again, the details and the specifics will be in the Budget on Tuesday. But in terms of the overall approach it will be a phased approach. As the Treasurer was reported as saying yesterday, prioritising low and middle income earners in the first instance. But over time we do need to ensure that all Australians have the right incentives, are encouraged to work hard and make the best possible contribution that they can to the Australian economy so that we can continue to grow the economy and continue to create opportunity for all Australians today and into the future to get ahead.
DAVID SPEERS: High income earners, according to the Tax Office data, have been carrying a heavy, heavier burden than perhaps they have historically, in terms of the taxation returns, but they won’t receive any relief, according to that story quoting the Treasurer yesterday, until 2024.
MATHIAS CORMANN: I am not sure that the Treasurer was quoted putting specific years on the phased approach. But what I can say to you is that we will be prioritising low and middle income earners in the first instance, but there will be a phased approach moving forward. We do recognise that high income earners are carrying a very significant tax burden in our economy today. We do need to ensure that all Australians have the right incentive and are encouraged to work harder and make an even better contribution to the Australian economy.
DAVID SPEERS: But is a tax cut promise five or six years down the track worth believing?
MATHIAS CORMANN: We think it is important to set out the direction that the Government wants to go in. That is what we did with our business tax cuts. We put forward a Ten Year Enterprise Tax Plan which indicated to the community and to the economy, signals to the economy what the Government’s intentions are. People are able to make judgements now based on what they expect the future tax policy settings will be.
DAVID SPEERS: And just to be clear on the company tax cuts then, they will still be in the Budget, you are not changing those?
MATHIAS CORMANN: We are not changing those.
DAVID SPEERS: And you will be putting it to a vote in the Senate?
MATHIAS CORMANN: It is a matter of public record that 37 Senators support our business tax cuts, which are very important for working families across Australia, because if we continue to disadvantage business in Australia compared to businesses in other parts of the world who pay less tax, then we are putting jobs at risk here in Australia. We are putting Australian jobs at risk and we are preventing business from creating as many new jobs as we would like them to create …interrupted
DAVID SPEERS: So you put them to a vote, you put them to a vote?
MATHIAS CORMANN: We will continue to engage with the Senate crossbench given the reckless and irresponsible approach that Bill Shorten has been taking …interrupted
DAVID SPEERS: But if you do not have the votes, you won’t be?
MATHIAS CORMANN: If and as soon as we are able to secure the necessary support, we will press ahead.
DAVID SPEERS: If you do not you will take them to an election?
MATHIAS CORMANN: That is very clearly what we have said. The business tax cuts are even more urgent and more important now than when we went to the last election. When we went to the last election the corporate tax rate in the US was still 35 per cent. It is now 21 per cent. In France, the President of France, who was the Economy Minister in the socialist administration of François Hollande, decided to reduce their corporate tax rate from 33 per cent to 25 per cent. Sweden, I was watching your interview the other day with Peter Strong from the Council of Small Business, he was pointing out that Sweden, generally a high taxing country, has a business tax rate of 22 per cent. You know who their Prime Minister is? He is a social democratic leader, he the leader of their Social Democrat Party, he is a former union leader in Sweden. He understands that for Sweden as a trading economy to be internationally competitive, they have to have a competitive business tax rate. Bill Shorten is completely out of step. We know that he is not arguing against business tax cuts because he does not believe in them. He knows that business tax cuts deliver more investment, more jobs and higher wages. He said so many times. The reason he is opposing them is because of politics and because he believes that he can win on an anti-business, anti-opportunity, politics of envy agenda. It is completely reckless and irresponsible.
DAVID SPEERS: Alright, but corporate Australia isn’t helping its own cause at the moment is it?
MATHIAS CORMANN: This is not about corporate Australia. This is about making sure that Australians today and into the future have the best possible opportunity to get ahead. If we put Australian business at a competitive disadvantage by forcing them to pay higher taxes, we are putting Australian workers at a competitive disadvantage …interrupted
DAVID SPEERS: But you are asking us to trust corporate Australia to do the right thing with these company tax cuts, to hire more people, to pay higher wages, to invest in Australia. Trust right now, you have to agree, in corporate Australia is at a low.
MATHIAS CORMANN: Let me tell you, if there is a lower business tax rate, there will be businesses that will pursue opportunities to grow their business. As they grow their business and compete with other businesses, they will be hiring more people than they otherwise would. If more businesses across Australia hire more people then there will be more competition for workers and wages will go up. This proposition where people think oh well, business unless they give us a signed guarantee now that they will pay more in wages then we will not trust them is just crazy. Businesses are not charities. They are not going to do things out of the goodness of their heart necessarily. They are going to do things because they have to if they want to grow their business. If they need to hire people, the increased competition for workers in the market means they need to pay more, they will have to pay more to secure their services.
DAVID SPEERS: Take the banks for example, again they have been posting record profits over the past week or so and where are the wage rises?
MATHIAS CORMANN: Actually wage rises have been picking up including among the banks. This proposition that somehow in Australia we have not had wage rises is just wrong.
DAVID SPEERS: So we are seeing wage rises? People should stop complaining.
MATHIAS CORMANN: That is not what I am saying. Wage rises could be more if we pass our business tax cuts in full.
DAVID SPEERS: That is a guarantee?
MATHIAS CORMANN: Wages will be higher if we have a globally competitive business tax rate than they otherwise would be, I can guarantee you that. Because what I can also guarantee you is if we continue to keep our business tax rate among the highest in the world, we will lose investment and jobs to other parts of the world and wages will be lower. If we continue to put Australian business at a disadvantage and if we lose capital investment for Australia, people in Australia will end up with wages that will be lower than they otherwise would be.
DAVID SPEERS: But we need to point out, just finally, these company tax cuts as you say are staged over some years. If there are wage rises, they won’t be for some years.
MATHIAS CORMANN: Again, that is not right. People ignore the signalling effect. The bigger businesses who are on the forefront of global competition, if they can see that there is a legislated tax cut, if they can see that there is a tax cut down to 25 per cent, they make decisions ... interrupted
DAVID SPEERS: They will boost wages?
MATHIAS CORMANN: …they make decisions today, in terms of their investments, based on their expectations of future profitability after tax. If they invest based on their expectations of future profitability, they will hire more people. As they hire more people, there is more demand for workers. As there is more demand for workers in the economy, wages will go up. That is the key ingredient for wage increases, stronger competition for the workers that are available across the Australian economy.
DAVID SPEERS: Finance Minister and Government Senate Leader, Mathias Cormann. We will have to leave it there. I know you have a very busy week ahead. We look forward to seeing you throughout it. Thank you for your time this morning.
MATHIAS CORMANN: Always good to talk to you.