CCIWA Breakfast – Q&A

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






2018-19 Budget, by-elections, WA GST sharing arrangements, Company tax cuts

RICK NEWNHAM: Minister, I will kick off. While people are thinking about what they want to ask and please go on Slido and put your questions in, especially vote up and down people’s questions, it makes it much easier for me to ask the best questions to the Minister. I want to ask a nerdy economist question to get things started. We will get that out of the way first. Minister, you referenced that interest rates are quite low, it is quite cheap for the Government to borrow at the moment. How much does that play into your mind when you think about building up new infrastructure around the country? This is a golden opportunity to go and borrow at quite low rates and then spend up on majorly in infrastructure and get the economy going, which might underpin quite significant growth over the longer term. Does that play much into your discussions?

MATHIAS CORMANN: The short answer is yes. We have a ten year $75 billion infrastructure plan, including very substantial investments in infrastructure here in Western Australia. We do hope that the Government here in Western Australia, with whom we have worked together very well in putting the program for WA together, we do hope that they get cracking and get as much of that built as soon as possible. In the end, it is about investing in productivity enhancing infrastructure that will help to underpin, not just growth and jobs during construction itself, but by improving the efficiency of our trading infrastructure, bringing down the costs of getting products to market, but also generally improving the connectivity within Perth and across Western Australia, making sure that we can get people to and from work faster and safer and generally, contribute to the mission of the CCI, making sure that Perth and WA is a great place to live, to invest and to work.

RICK NEWNHAM: Absolutely and a major part of the Budget, particularly to WA, was the investing in Metronet here. What was it like dealing with the State Government with Mark McGowan and Ben Wyatt, how forceful were they and how much did they point out that the State does not have a lot of money right now to build infrastructure?

MATHIAS CORMANN: There is no need for us to run political lines at each other in these sorts of meetings. From our point of view, we want to do the right thing by WA, we want to make sure that WA gets its fair share of investment, including and in particular into infrastructure. It was just a matter of working through the projects that were on the table, making sure that they made sense, making sure that in relation to substantial projects, there was a rigorous process of assessment through business cases and the like, that they stacked up and making judgements on what is affordable within the constraints that all of us face. I always, put it this way, there are times to fight and there are times to get things done and people in WA and people around the country for that matter, expect their Federal Government to work with the elected State Government of the day, to make the best possible decisions for our future and that is what we sought to do.

RICK NEWNHAM: Why don’t we go to our first question from Slido, this is the highest rated, so far. What is the cost or the damage to the Budget that would come from Bill Shorten’s proposed tax cut, which is apparently double what the Coalition is promising? Did you put that one in there?

MATHIAS CORMANN: No I did not put a question to myself I promise. Karen did you? I have always struggled with Bill Shorten’s maths. He says that he delivers double the tax cut, he says it is low and middle income earners which is all we do over the forward estimates. He says its double but it somehow does not cost double. I am not quite sure how he does that. The worst problem with Bill Shorten’s approach to this and with Bill Shorten’s approach generally is that he really is running on a politics of envy type agenda. Yes, we want to prioritise low and middle income workers with our tax relief to provide support in terms of cost of living expenses and the like, but that is not all we are doing. We have a long-term plan that also deals with bracket creep and simplifies the tax system. Bill Shorten has decided to exclude dealing with bracket creep and simplifying the tax system on the basis that these are the undeserving rich. Anybody who earns more than $95,000 a year is part of the undeserving rich. Now it is crazy and if you do not get your policy settings right to ensure that there are the right incentives, the right encouragement and the right reward for effort in terms of encouraging people to stretch themselves, to work harder, work more hours, without getting hit with a higher tax rate, then ultimately that will have negative consequences for our economy. If it has negative consequences for our economy it will have negative consequences in terms of future employment growth. As I have said in my presentation, the first people to hurt when employment growth weakens are low income workers, because they are the most exposed in terms of the number of hours of work they can secure or they are the ones that will be the most exposed in terms of accessing the labour market in the first instance. Shorten generally is running on an anti-success, anti-opportunity, anti-aspiration and we would say anti-growth, anti-jobs agenda. We are running on an unashamedly pro-business, pro-growth, pro-opportunity, pro-aspiration agenda. We want people to work harder to get ahead, but we also understand, when we say we are pro-business, we are not pro-business for the sake of being pro-business in its own right. We are pro-business, because we understand that nine out of ten working Australians work for a private sector business. That the future job security, the future career opportunities, the future wages and wage increases of nine out of ten working Australians depend on the future success and profitability of private sector businesses. We do not help business or individual Australians become more successful by essentially going after, in your rhetoric and in your policy agenda, against those that are driving that success.

RICK NEWNHAM: So let us come at that from a slightly different angle, there is a question in here about AI, the impact that AI will have on the workplace. It is linked to the Budget in that the question is really, how will future generations pay off the debt when AI comes through and is a major risk to employment in Australia? Is that something that plays on your mind?

MATHIAS CORMANN: There used to be a day when we had a horse and carriage maintenance industry and the horse and carriage maintenance industry is much less than what it was. That is because…interrupted

RICK NEWNHAM: Much to the dismay of the horse and carriage lobby.

MATHIAS CORMANN: Indeed and that is probably because somewhere along the way somebody invented the car and the car was able to get us from A to B faster. I am not being flippant, but the point is innovation is a great way to improve productivity. We could now say let us just protect ourselves from innovation, let us protect ourselves from competition, let us protect ourselves from everything else that is going on in the rest of the world. That will not stop innovation from taking place. It is just that we will all of a sudden not be staying in touch with where the rest of the world is at. Innovation creates a lot of new opportunities. It means that we can focus on all sorts of other areas. It creates jobs in other areas that we perhaps cannot envisage now, but human ingenuity is quite incredible. The proposition that somehow if we slow down innovation, which is disruptive, somehow we protect ourselves from competition and somehow we are going to be better off. No. If we protect ourselves from all of these things, we will grow more slowly, the rest of the world will continue to have increases in living standards way ahead of what we do and we will find it harder to compete down the track and find it harder to connect down the track. It is only when you stay at the global competitive edge and embrace all the opportunities that come with innovation and competition, that you remain in the best possible position to succeed over the medium to long term.

RICK NEWNHAM: So let us get a little bit more into politics now because that is apparently where this room wants to go straight away. Is this an election Budget and what are the chances that there will be a Federal Election in 2018?

MATHIAS CORMANN: Well it is the second Budget in the 2016-2019 term. There is at least one more Budget update, perhaps another Budget to come. The election is due in the first half of next year. What is implied in that question is that clearly the person asking it is saying that it is a pretty good, pretty popular Budget. Well that is great if that is what you think. In every Budget, we try to make the right decisions for Australia’s future. We try to make the right decisions for a stronger economy, for more jobs, to guarantee funding for the essential services that Australians expect and to ensure that over time, Government lives within its means. That is what we have done in this Budget and if people think that it is so popular that it could be a pre-election Budget, thank you.

RICK NEWNHAM: Anonymous asks also along the same lines, I have lost that question. The thing is when people vote them up and down, they jump all over the place. Here we go, “Just as the public appears to be warming to the Budget, the WA Liberals decide to not run a candidate in the Perth by-election. What is behind this?”

MATHIAS CORMANN: Firstly, we are just under a year away from the general election and we will run in Perth and every seat around Australia at the next general election. When it comes to by-elections, as a political party, you have to be pretty pragmatic. We are the incumbent Government of the day. In Australia no incumbent Government has won a seat off an Opposition since 1911. To put Perth into perspective, when Labor was at its worse in WA, at the end of the mining tax fiasco, chaos at our borders, illegal boat arrivals arrived as far south as Geraldton, we had a two-party preferred vote as a Liberal Party of 57-43. We held 12 out of 15 seats in Western Australia, the highest high water mark we have ever had in Western Australia ever. We still did not win Perth. The proposition that at a by-election, when people can safely issue a protest vote against the Government of the day, which they do, that somehow we could win a seat like Perth at a by-election is not realistic. Political parties are like business, we have to make judgements on the rational allocation of limited resources to a whole range of priorities. The priority in Western Australia right now is to send Labor a message in the Darling Range by-election, where a Labor Member of Parliament had to resign in disgrace. We think that is a good opportunity for us to win the seat. We have by-elections in other parts of the country and in all of the circumstances it did not make sense to us to come to the business community to ask for donations for a campaign in Perth that, hand on heart, we did not believe we could win and hand on heart, would not have made any difference to Government. Business would have said to us, will it change the Government? No it will not. Are you likely to win? Probably not. There is an election less than 12 months away, where we will field candidates in all of the seats. I understand the decision that the local Party has made. I think it is the right decision. I know that our supporters always want us to run and fight elections everywhere, but these sorts of Federal campaigns cost a bit of money and I think that there are better areas that we can deploy the limited resources we have to better effect.

RICK NEWNHAM: Let us come back to the Budget. A big part of your role is negotiating in the Senate, you have to take this Budget through the Senate, some of the measures will go through as a whole. Tell us about that process and what does the next six months look like for you?

MATHIAS CORMANN: We have 30 seats in the Senate. The majority is 39. If Labor and the Greens are opposed, that means we need to get nine out of the 11 crossbenchers on board with what we are proposing and that is a diverse bunch of people. They range from David Leyonhjelm as a Libertarian on one side and Cory Bernardi as a Conservative. Then you have the One Nation people. They are three now, they started with four. You have a senator called Fraser Anning, who used to be One Nation and is now an independent and you have a senator called Steve Martin who is a former Mayor out of Devonport who replaced Jacqui Lambie. Then you have a senator called Tim Storer who used to be with the Xenophon Team but now sits as an independent. Then you have two Xenophon Team senators, they used to be Xenophon Team senators and have now left the Xenophon Team and have rebranded themselves as Centre Alliance. So you can see there are shifting sands on the crossbench and essentially you have to convince nine out of those 11 to side with the Government in relation to anything that Labor and the Greens oppose. That has been our life for the last couple of years and it will be our life until the next election. Hopefully at the next election, people not only give us a majority of votes in a majority of seats, they also give us a stronger result in the Senate, so that it is a little bit easier to get things through the Senate.

RICK NEWNHAM: Sounds like a difficult time. If we roll through all of the GST questions we will never get there, but let me try and summarise a couple of them. The Productivity Commission Report is handed to the Treasurer tomorrow. In its draft report, it summarised essentially that the GST distribution was holding the national economy back. Is that what you were expecting to see out of that draft report and what do you think might be in the report that comes tomorrow?

MATHIAS CORMANN: Firstly, a couple of things. The first point to make is that when we came into Government, I mean the GST share started dropping well and truly under the Rudd-Gillard era and the first Government that did anything about it was actually the Abbott Government when I was Finance Minister then too. The GST share for WA was on its way to less than 30 cents in the dollar and it was our Government, and we have kept this approach going ever since, that provided what was always designed as a short-term fix. We recognised it was only a short-term fix. We provided Federal GST top-up payments to Western Australia, which we have now done to the tune of $1.4 billion. Now Bill Shorten says, effectively, that is all he will do. He has copied our GST top-up payments and has has rebranded them as a GST Fair Share Fund of $1.6 billion down the track. Effectively, what he has done is taken our short-term measure of top-up payments, rebranded it and re-packaged it and said that is all I will do. People asked him are you going to look at reform to the GST sharing arrangements beyond that and he said, no. What we have done because we had a suspicion that the GST sharing arrangements did have a negative impact on national productivity and national growth, as a way to help inform the national conversation around reforming this space, because we have always recognised that WA’s share of the GST is unfair and unreasonable, we have commissioned this Productivity Commission Review. I was not surprised that it showed what it showed in its draft report. I will not pre-empt what may or may not be in the final report. Once the final report has been received, there is a process to be gone through both internally within the Federal Government and between the Federal Government and all interested State Governments, which is all of them. Sometime over the next little while there will be a Government response. I hasten to add by the time we go to the next Federal Election, we understand that we would have to have dealt with this from a Government point of view in the appropriate fashion.

RICK NEWNHAM: The front page of the West Australian last Monday was the Federal Treasurer saying that the GST will be fixed for the next election. What changed or what spurred him on to make that commitment?

MATHIAS CORMANN: When you look at what he said, what he said is what he has been saying all the way through. We have provided a short-term fix. We have said what we thought should happen by way of medium to long-term reform and he gave the commitment that I just repeated too, that we understand that once the Productivity Commission Review and the recommendations have been received, that we will have to make decisions in relation to it by the time we get to the next election. It will be fixed by the time we get to the next election and people will be able to pass judgements as to whether or not they think the way it has been fixed is adequate. Again I put it into the context of, all Labor is proposing to do is to copy our GST top-up payments, rebrand them and call them the GST Fair Share Fund and that is all they are proposing. They have ruled out making any change to the structure of the system of GST sharing arrangements whatsoever.

RICK NEWNHAM: We pointed out that 70 cent floor that they intend to create lasts for just one year and one day with $1.6 billion…interrupted

MATHIAS CORMANN: I cannot resist here. Bill Shorten is a liar. Bill Shorten told everyone that his people did not have any problems with citizenship. That was not true when he knew they had problems with citizenship. Bill Shorten lied on Mediscare. He knew that bulk-billing rates for patients were at record highs when he said that Medicare was under threat under us. In relation to company tax, he is out there saying, day-in, day-out, he is getting all of his team members to say day-in, day-out, that our corporate tax cuts are a tax giveaway to multinationals, the banks and the big end of town. That is a blatant lie. He knows it to be a lie. He knows that about half of the cost of the company tax cuts is actually going to small and medium sized businesses. Many of the businesses here in this room. When it comes to GST sharing arrangements, he is telling you that he is taking the WA share of the GST to 70c cents in the dollar at a time when under the current system, without any change, it goes past 60 cents in the dollar. He is deliberately trying to create the impression that he is taking the WA share of the GST from in the 30s to 70 cents in the dollar. Not true. Not true. The reason he is saying that he is going to put this WA fair share of the GST fund in place in a few years down the track, is because he knows that in a few years down the track, under the current system, the projection is, without him doing anything whatsoever, the projection is for WA’s share of the GST to exceed 60 cents in the dollar in any event. I think you know that to be true.

RICK NEWNHAM: Well we have highlighted some of the issues of continuing top-ups. Let us change tack a little bit here, Steve asks, “Can you talk us through what the Government is doing to pursue multinational companies shifting profits and avoiding Australian tax?”

MATHIAS CORMANN: There is a long list of things that we have done including giving additional powers to the Tax Commissioner, additional resources and increasing the penalties for anyone who does seek to divert profits into other jurisdictions. Even in this Budget, we have taken some more measures in the thin-capitalisation space and in a whole range of other areas. If you are really interested, I can send a list to Rick of the long-list of measures that we have taken implementing, effectively all of the recommendations of the OECD/G20 Base Erosion Profit Shifting Action plan. Whether it comes to sharing information across jurisdictions, whether it comes to changing the laws so that we can see through any contrived tax constructs that are deliberately designed just to divert profits to other parts of the world and then tax them as if these contrived arrangements had not been put in place. There is a long list of measures we have taken in the last two or three years, which are working. If you look at what is happening on the multinational tax front, we are having an effect and more tax is being paid in Australia, as it should be.

RICK NEWNHAM: So you see a lot of data, a lot of analysis on the economy and you talk to a lot of people here in WA. What are you seeing now here in WA? Has WA hit a turning point? Are things improving?

MATHIAS CORMANN: That is certainly anecdotally what people are telling me and this is what the data seems to suggest. WA for a long time was on the forefront of national economic growth and success. We had very high global prices for our key commodity exports, which helped attract a lot of capital investment, in particular in relation to iron ore and LNG, capital investment, which drove significant construction activity. Everybody knows the story. On the way up it was unbelievable. The level of growth and success that was able to be achieved on the way up. But when global prices for our key commodity exports came down, by the same token a lot of the bigger businesses had to go through a serious exercise of cutting costs. As smaller and medium sized businesses around Western Australian know, if the big guys have to cut costs it has a flow on effect in terms of the opportunities and the prices and the volume of work that is available to the rest of the economy. Which has an impact on confidence and so on. We are at the tail end of the drag effect on the economy including here in Western Australia when it comes to the wind down of the mining investment and construction boom, as it was described. Our outlook is positive and optimistic. Western Australia is the ultimate trading economy in Australia. So our pro-trade, our very ambitious pro-trade agenda combined with our significant infrastructure investment as well as people in Western Australia finding opportunities to sell more West Australian products and services around the world. We believe that the outlook is positive and certainly, anecdotally, including in the mining sector, things have started to look up in recent months. That is what we are seeing and what we are being told.

RICK NEWNHAM: So do you think what we have been through is once-in-a-lifetime or will we come close to that again?

MATHIAS CORMANN: I am not going to predict the future to that extent.

RICK NEWNHAM: I do not think anyone can. There is a little bit of speculation in the papers over the weekend that Labor is considering reversing the tax cut for businesses under $50 million. What impact do you think that would have on the Budget and on the economy?

MATHIAS CORMANN: I do not understand why people are speculating about it because if you listen to Bill Shorten’s Budget reply speech, it was very clear that that is what he was doing. Because he was spending the money in terms of the cost of the business tax cuts again in his Budget reply. He had previously spent the money once in the lead up to the last election and he re-committed to some of that expenditure again and he allocated it again. The amount of times that I have heard Bill Shorten spend $80 billion in so called tax giveaways to big business, the big end of town, multinationals and the banks, it just does not add up. Let me just make a couple of points on company tax. The reason we believe that we need to reduce our business tax rate to 25 per cent is because we are very focused on making sure that Australian workers today and into the future have the best possible opportunity to get ahead. If we put the businesses that employ them at an ongoing disadvantage, an ongoing competitive disadvantage with businesses in other parts of the world, we lose investment and jobs to those other parts of the world. Yes again, we prioritise small and medium sized business, but let me tell you, it is in the interest of smaller and medium size business that we reduce tax for big business. I do not have to tell you what it means to you if a big business is less successful. If a big business is less successful not only does it impact on the job security of their direct employees, it also impacts on the volume of work or the volume of business that they can do with small and medium sized businesses. It impacts on the job security of every employee all throughout the economy that works in a private sector business. Qantas started as a small business. Three employees in Longreach. Today it’s a big business which operates in a fiercely competitive industry. If we put a business like Qantas on an ongoing basis at a competitive disadvantage with businesses in other parts of the world, it would mean less investment, fewer jobs and lower wages for the people that work for them and it will mean less investment, fewer jobs and lower wages for the many employees who work in the 3,000 businesses that supply goods and services to them. Whether it is BHP, whether its RIO, whether its FMG, whether it is Wesfarmers, you name it, these are our global champion businesses who not only employ a lot of people directly themselves, they also buy a lot of products and services from businesses all around the country. If we put our biggest businesses on an ongoing basis at a competitive disadvantage by forcing them to pay higher tax than the businesses they compete with. It is not just competing into export markets incidentally, it is also dealing with import competition. If you have businesses in other parts of the world, the US now down to 21 per cent, I mean even France, the President of France is a guy called Emanuel Macron, he was when I first met him, the socialist Minister for the Economy, in the socialist Administration of François Hollande. So he is not a right wing ideologue is the point I am making. He is not a trickle-down economics type ideologue who the Labor Party snears at when talking about people who support a globally competitive tax rate. He is reducing the tax rate in France from 33 to 25 per cent. Sweden is a high-taxing jurisdiction. People look at Scandinavia as a high taxing part of the world. Their corporate tax rate, with a Labor Prime Minister, is 22 per cent. The reason it is 22 per cent, the Labor Prime Minister in Sweden is a former union leader, he is a former leader of the equivalent of the ACTU, business tax rate of 22 per cent, they understand the need to be competitive as a trading economy. In Australia we are crazy if we think we can get away with charging a business tax rate of 30 per cent into the future without that hurting our economy, without that hurting jobs. We are an open-trading economy. We compete with the rest of the world. We compete for capital investment with the rest of the world. If the after tax profit in Australia into the future is less than what it could be in other parts of the world, investment will go to other parts of the world. If we want our children and grandchildren to be able to build a career here in Australia, we need the businesses that have to create those opportunities to have the best possible opportunity to be successful. That means every business. Sometimes people say that we are all about small business. Yes we are. But because we are for small business is why we also have to be for big business. Because big business gives a lot of business to small business.

RICK NEWNHAM: Minister you have the Chamber’s support on company tax…interrupted

MATHIAS CORMANN: Tell all your friends, every day.

RICK NEWNHAM: We certainly do, so thanks very much for your time. We look forward to seeing the Productivity Commission Report when it is released and hearing your thoughts on that. But thank you Minister.



Senator the Hon Mathias Cormann, Minister for Finance, Perth