Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Sunday, 24 June 2018
ANNABEL CRABB: Mathias Cormann, welcome to the program.
MATHIAS CORMANN: Good morning. Good to be here.
ANNABEL CRABB: Thank you. It is a time of economic uncertainty right now. We've got a trade war brewing, we have got flat wage growth, higher interest rates around the corner, and you've just legislated the biggest selection of tax cuts in Australian political history. Now, you can't seriously continue to lay claim to the mantle of economic responsibility, can you?
MATHIAS CORMANN: It is absolutely economically responsible to provide income tax relief to hard working families around Australia, prioritising low and middle income earners, providing cost of living pressure relief for low and middle income earners in the first instance, but making sure that we address bracket creep. Because if we do not address bracket creep, it means working Australians go backwards. It is a drag on our economic growth. It means that our economy will be weaker than it could be. Just to respond to Bill Shorten's comment there. He asserts that because we do not know what the economy will be like in seven years time we should not be making decisions to provide income tax relief. Well Bill Shorten is pushing for higher taxes and higher spending. I would say that higher taxes and higher spending would put Australia into a weaker position in seven years time. If Bill Shorten is so concerned about what Australia's economic circumstance will be in seven years time, why is he locking Australia into higher spending and higher taxes now.
ANNABEL CRABB: What you're effectively saying, this is a 7-year term, and it takes us through to 2025 when we will be enjoying the fifth term of the Turnbull Government and possibly your twelfth year as Finance Minister. But what you are actually saying with this package is we can’t afford to do these income tax cuts now, but we are taking a gamble we will be in a position to do so down the track. It's pretty risky, isn't it?
MATHIAS CORMANN: Not at all. What we are doing is making sure that hard working Australians get to keep more of their own money. Money that they earn. Because our position is that the Government should raise as much in tax as necessary, but as little as possible. We should raise it as efficiently as possible in the least distorting way in the economy and in a way that is appropriately fair and equitable. That is what we are doing. To continue to push middle income earners into higher and higher income tax brackets, on the back of wage inflation, on the back of additional hours worked because of overtime, we do not believe provides the right incentive, the right encouragement, the right reward for effort for people across Australia. Any credible economist will tell you that bracket creep, if left unaddressed, is a drag on economic growth. That means that our economy would grow more slowly than it could. A more slowly growing economy hurts low and middle income earners the most, because it means that it would be harder for low income earners to either get into the jobs market or to get the additional hours of work that will help them boost their income. What we are focusing on here is to ensure that all working Australians have the right incentive, the right encouragement, the right reward for effort so that all Australians, today and into the future, have the best possible opportunity to get ahead. The vote in the Parliament last week to lock in a long-term plan for income tax relief for working families was a win for those hard working families right around Australia.
ANNABEL CRABB: Minister, John Howard, like you inherited high net debt and budget deficits. His decision and strategy was to pay down debt, bring the government back into surplus and then start giving out tax cuts. Why is it okay for you to do it the other way around?
MATHIAS CORMANN: We inherited a forward trajectory of a weakening economy, rising unemployment and a rapidly deteriorating Budget position on the back of an unsustainable spending growth and debt growth trajectory. We have made the necessary decisions to get on top of that. As a … interrupted
ANNABEL CRABB: You inherited about $184 billion of net debt and now it's more than $300 billion, so that’s a ...
MATHIAS CORMAN: You are ignoring the fact that Bill Shorten's team, when they were in government, locked in expenditure growth of about 4 per cent a year above inflation, including … interrupted
ANNABEL CRABB: Whoever's fault it is, it is what it is. But it is a situation that you need to deal with. You have a staggering net debt and you're handing out tax cuts.
MATHIAS CORMANN: If I may finish the answer to your initial question.
ANNABEL CRABB: Of course.
MATHIAS CORMANN: As of this year, we are no longer borrowing to fund our day-to-day living expenses. We are now getting on top of the debt situation. Government net debt as a share of the economy will peak at 18.6 per cent this financial year and will go down to 3.8 per cent as a share of GDP over the next decade. Over the current forward estimates period, we are paying off $30 billion of government net debt. Over the next decade we are paying off $232 billion worth of Government net debt based on current predictions. At a time when we are providing $144 billion worth of income tax relief, over that same period, we are paying off about $232 billion worth of government net debt. What we are saying is that we have the spending growth trajectory that Labor left behind under control. Spending is now growing at 1.6 per cent above inflation, year on year on average over the upcoming forward estimates period as opposed to 4 per cent under Labor. Spending growth is now the lowest it has been over the last 50 years. Lower than it was under the Howard Government period in office, and ... interupted
ANNABEL CRABB: And in the financial year where you've reached peak net debt, that's the year when you announce 7 years’ worth of the biggest income tax cuts in Australian history?
MATHIAS CORMANN: The cost of the personal income tax plan that we have legislated last week starts to come into the Budget in 2019-20. The year when we are forecast to return to Budget balance. If you look at the medium-term projections in our Budget, we are projected to remain in surplus all the way through the medium term to 2028-29. We are projected to exceed a surplus of 1 per cent as a share of GDP in 2026-27. We have worked very hard to turn the disastrous situation around that we inherited from Labor. Instead of a weakening economy now, we have a strengthening economic outlook. Instead of rising unemployment, we have employment growth. Instead of a rapidly deteriorating Budget position, our Budget now is on a believable track to budget surplus. We are now on track to pay down debt. It is a much better situation than we inherited. In those circumstances, we made a judgement that it was appropriate to provide income tax relief to working families around Australia, including by addressing bracket creep which, if we did not address it, would mean that working families would go backwards.
ANNABEL CRABB: The Prime Minister, when he was talking to Sabra Lane on AM on Friday said, "I would love to think that we would be able to bring some of these tax cuts forward if the economy and the Budget enables it." Do you agree with the Prime Minister?
MATHIAS CORMANN: Of course. We have all said that in our own ways. Our instinct always is to deliver lower taxes if that can be responsibly done in the circumstances. At every Budget and at every Budget update, we consider the economic information in front of us, we consider the policy decisions that we believe need to be made in the national interest and the fiscal implications of those. If there is an opportunity to lower taxes, we will always pursue that opportunity. Whereas Labor under Bill Shorten stands for higher taxes, we stand for lower taxes. Labor stands for less investment, lower growth, fewer jobs and lower wages. We stand for more investment, stronger growth, more jobs and higher wages. That is the contrast in Australian politics today.
ANNABEL CRABB: OK. If you will allow for some flexibility in the delivery of these tax cuts to respond to changes in the economy and improvements in the economy, does it also then follow that you would respond to a deterioration in the economy by pushing back the cutting of those different tax rates?
MATHIAS CORMANN: The economy will be stronger as a result of the tax relief that we have legislated last week. The economy …interrupted
ANNABEL CRABB: Well, you think they will pay for themselves?
MATHIAS CORMANN: They are already reflected in the Budget bottom line. The economy will be stronger as a result of the income tax relief that we legislated last week. If Bill Shorten got his way and was able to legislate more than $200 billion in higher taxes on everyone across the community, it would hurt the economy, it would hurt families and would cost jobs. And … interrupted
ANNABEL CRABB: Let’s assume that you hold onto government, though okay, and that the happy result that you hope for at the next federal election next year comes to pass. You will be in government. In the event of an unforeseen economic circumstances, and Lord knows over the last decade we've seen a few of those, would you respond flexibly by delaying some of those tax cuts?
MATHIAS CORMANN: Our commitment always is to keep taxes as low as possible. We have legislated a seven year plan that we believe is in the best interests of working families and in the best interests of our economy. If we continue to let bracket creep run rampant, it will have a negative effect on our economy, it will slow down growth. The people who would hurt the most would be low income earners in particular.
ANNABEL CRABB: So there is no way that you would ever delay those cuts, you would prefer to repair the Budget in other ways?
MATHIAS CORMANN: I think I have answered your question. We have legislated … interrupted
ANNABEL CRABB: I don't think you have at all.
MATHIAS CORMANN: I have actually. We have legislated … interrupted
ANNABEL CRABB: Just looking for a simple answer. I understand that you have a general ...
MATHIAS CORMANN: We have legislated a seven year plan to provide income tax relief to hardworking families around Australia. That is the plan that we believe is in our national interest. It is a plan that is in the interest of all working families around Australia who pay tax.
ANNABEL CRABB: So it's L-A-W, law, and there is no way that they will ever be pushed back, only brought forward if it allows?
MATHIAS CORMANN: Again, you can go to the next election campaigning for higher taxes, as that is what Bill Shorten will do. We will be campaigning for lower taxes in the lead up to the next election.
ANNABEL CRABB: I just think it is a fair enough question because these are big tax cuts and it is a big economy and you never know quite what's lying ahead?
MATHIAS CORMANN: We have made a judgement on what we believe will put Australia on the strongest possible economic foundation and trajectory for the future. We have made a judgement on what we believe is necessary to ensure that Australians today and into the future have the best possible opportunity to get ahead.
ANNABEL CRABB: Why is it fair for someone on $40,000 to be paying the same tax rate as someone on $200,000?
MATHIAS CORMANN: Somebody on $200,000 will pay substantially more tax. As … interrupted
ANNABEL CRABB: No I know, but the tax rate?
MATHIAS CORMANN: That is what actually matters. So somebody on $30,000 today pays $2,200 worth of tax. Somebody on $200,000 today pays $67,000 worth of tax. So somebody who earns less than seven times as much pays more than 30 times as much in tax. I know that the Labor party throws these sorts of percentages around as it suits them, but let me tell you, somebody on $30,000 a year gets an 8.3 per cent income tax cut under our plan every year over the next 4 years. Whereas somebody on $200,000 a year gets a 0.2 per cent income tax cut every year over the next four years. Our plan is fundamentally fair. Last year, those Australians in the top income tax bracket were responsible for 30 per cent of the income tax revenue generated across Australia. At the end of our plan fully coming into effect, that increases to 36 per cent. So those on the highest incomes, those on the highest income tax bracket will actually become responsible for an increasing proportion of the income tax revenue generated in Australia. So the proposition that somehow this is disproportionately and inappropriately advantaging high income earners is wrong. It is just part of Bill Shorten's class warfare politics of envy type rhetoric that he pursues in 2018 … interrupted
ANNABEL CRABB: Minister, we're running out of time, so I will move you onto your difficult second album, company tax cuts. This is your last chance before the recess, before the by-elections to get this legislation through. How serious are you about getting it through and are you prepared to compromise on the threshold at which the company tax cuts kick in?
MATHIAS CORMANN: We are very serious, because working families around Australia need us to legislate those business tax cuts for all businesses around Australia in full. Bill Shorten is standing up for the big end of town in the US and the big end of town in just about every other country around the world that imposes lower business taxes on their businesses, helping those businesses take business, investment and jobs away from Australia. We want to ensure that ... interrupted
ANNABEL CRABB: Minister, I understand you want to get the tax cuts through. I'm asking you how far you prepared to compromise to achieve that result?
MATHIAS CORMANN: We have been very clear. We want to see our proposal for a lower, globally more competitive business tax rate for all Australian businesses to a reasonable 25 per cent legislated in full. The same as we said we would not be splitting the personal income tax bills, even though journalists and commentators were egging us on to do so, we will not be splitting the company tax cut plan from here. It is very, very important. If we continue to impose higher taxes on businesses here in Australia than are faced by just about every other business in just about every other part of the world, we are putting the workers in Australia at a disadvantage with workers in other parts of the world. Because making it harder for businesses in Australia to compete with businesses in other parts of the world means that we are putting workers in other parts of the world at a competitive advantage at the expense of workers here in Australia. This is what Bill Shorten is standing for.
ANNABEL CRABB: Minister, will you bring the company tax legislation on even if you don't think you can win it?
MATHIAS CORMANN: Our intention is to deal with it this week. Our intention is to secure the necessary support through the Senate, in order to legislate those business tax cuts in full. Nine out of ten working Australians work for a private sector business. Their future job opportunities, their future job security, their future career prospects, their future wage increases depend on the future viability and the future profitability of the businesses that employ them and Bill Shorten wants them to be at a competitive disadvantage with businesses in other parts of the world. He is making a decision to put Australian workers at a competitive disadvantage with workers in other parts of the world. He should be condemned for that. I agree with Anthony Albanese .. interrupted
ANNABEL CRABB: That’s nice to see some consensus at last. If you can't get this through the Senate and it fails, is that the end of it, or do you keep re-introducing and re-introducing it and campaigning on this at every election?
MATHIAS CORMANN: This is critically important for working families around Australia. We want working families around Australia to have the best possible opportunity to get ahead. So we need to ensure that the businesses that employ nine out of ten working Australians have the capacity to compete, to be competitive. This was important before when we went to the last election. It is even more important now, because since we went to the last election, the United States reduced their business tax rate from 35 per cent to 21 per cent. France has legislated to reduce their business tax rate from 33 per cent to 25 per cent. We now have one of the highest tax rates in the world. We are an open trading economy with our businesses competing with businesses around the world. Anthony Albanese is absolutely spot on when he says that Bill Shorten's anti-business agenda is bad for Australia … interrupted
ANNABEL CRABB: I'm sure he is very, very grateful for your support.
MATHIAS CORMANN: Bill Shorten should listen to what Anthony Albanese has to say.
ANNABEL CRABB: We are right out of time, Minister. Thank you very much for joining us and we'll see what the Senate has to say about your tax.