Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
DAVID SPEERS: For more now on the new corporate tax plan for the Government, I am joined by the Finance Minister and Government Senate Leader, Mathias Cormann. Thanks for your time this afternoon.
MATHIAS CORMANN: Good to be here.
DAVID SPEERS: I will come to Peter Costello in a moment, but just on the new plan that has been formalised today, two months ago in August, you said, a turnover cap in relation to the business tax rate would be very bad for jobs. You said that an artificial incentive for Australian businesses to downsize and in worse case scenario, some businesses may actually lay people off to get smaller. Is that still your view?
MATHIAS CORMANN: That was a comment that I made in the context of a proposed $500 million cap that was promoted by some Senators at the time. We had already legislated for a $50 million cap, reducing the business tax rate for businesses with a turnover of up to $50 million down to 25 per cent. What the Prime Minister has announced today is our decision to fast track that decision, the impact, the implementation of that decision by five years and reducing businesses taxes for small and medium sized businesses faster, five years faster.
DAVID SPEERS: Nonetheless it is still the same problem at $50 million isn’t it? You are going to have an artificial incentive there to downsize.
MATHIAS CORMANN: Everybody knows what we were trying to achieve. We put forward a ten year enterprise tax plan, proposing to reduce business taxes for all businesses. The Senate rejected that... interrupted
DAVID SPEERS: And this is one of the arguments that you made. The concerns were to have this artificial, this two tiered tax system.
MATHIAS CORMAN: Indeed, everybody knows the arguments I have made. The arguments that I have made I stand by. But we have to work in the real world. In the real world, the Senate rejected the plan that we put forward. We said that we would come back with a revised plan. The revised plan that the Prime Minister has announced today is that we will be accelerating the business tax cuts for small and medium sized businesses with a turnover of up to $50 million.
DAVID SPEERS: But if you stand by your previous remarks, do you agree that a business, say a supermarket that is having a turnover of near $50 million what are they going to do?
MATHIAS CORMANN: What is going to happen now is that small and medium sized businesses, 3.3 million businesses, employing about 7 million Australians will have more money in their pockets to invest into their future growth, to hire more people … interrupted
DAVID SPEERS: But what if they are getting near that $50 million turnover? What are they going to do?
MATHIAS CORMANN: We are doing, in all of the circumstances, what we believe is in the best interests of families around Australia. By supporting smaller businesses we are supporting about seven million Australians working for small and medium sized businesses. That is the reason why we have made the decision.
DAVID SPEERS: But will this stop them growing? Will this see them lay off staff?
MATHIAS CORMANN: We would have preferred to legislate our ten year enterprise tax plan in full. That was not possible. We have revisited this whole policy area in the context of the Senate’s refusal to pass our plan. We will now seek to legislate the revised plan when we get back.
DAVID SPEERS: And will you ever return to the big business tax cuts?
MATHIAS CORMANN: We have taken them off the table. We have now made judgements which have an impact on the Budget bottom line. As such we have made very clear that this is what we now propose to legislate. We have taken the …interrupted
DAVID SPEERS: But is taking them off the table mean you won’t return to them in Government, after the next election?
MATHIAS CORMANN: What we are putting forward now is what is our commitment for the next term of Parliament. We have made very clear that we are not proposing to reduce the business tax rate for... interrupted
DAVID SPEERS: You won’t in the next term of Parliament?
MATHIAS CORMANN: No.
DAVID SPEERS: You have sat here many times making the case that those bigger businesses are the ones who really need help. That is the biggest bang for buck. To make them globally competitive, they need tax relief. As you have pointed out, the US has a tax rate now of 21 per cent for their companies, UK 19 per cent, Singapore 17 per cent, even New Zealand 28 per cent. What are you going to do to help Australia businesses be competitive?
MATHIAS CORMANN: I never realised that you were actually listening to what I was saying at the time…interrupted'
DAVID SPEERS: Taking it all in, taking it all in.
MATHIAS CORMANN: It would have been good if more people had listened to all these very compelling arguments at the time. Again, I stand by the arguments that I pursued at the time. I think that everybody from an economic point of view understands those arguments very well. It is true that we need to continue to ensure that the Australian economy is internationally competitive, so that we can continue to attract more investment, to generate stronger growth, so that businesses can ... interrupted
DAVID SPEERS: So how will you do that?
MATHIAS CORMANN: A very important part of us doing this is by reducing business taxes for small and medium sized businesses faster, five years faster than under our original plan …interrupted
DAVID SPEERS: But they are not competing globally.
MATHIAS CORMANN: We are continuing to rollout policy. We will continue to roll out policy to ensure that our economy is as competitive internationally as it possibly can be. We will have more to say over coming weeks and months about our plan for a stronger economy and more jobs for the next... interrupted
DAVID SPEERS: So a bit more for big business?
MATHIAS CORMANN: We will continue to make announcements about how we believe we can best strengthen the economy, create more jobs, create better opportunities for families around Australia to get ahead and have better living standards.
DAVID SPEERS: We will wait and see on that. You could have, with this revenue, in fact let me just go through the cost of this. Does today’s announcement cost the Budget any more?
MATHIAS CORMANN: No. Over the medium term it clearly has a lower impact on the Budget bottom line …interrupted
DAVID SPEERS: So you are saving a bit?
MATHIAS CORMANN: There is a lower impact on the Budget bottom line.
DAVID SPEERS: What is the difference?
MATHIAS CORMANN: Over the forward estimates, the additional cost is about $3.2 billion. Over the medium term the cost is just over $10 billion. If you compare that with what we previously released publicly in terms of the cost of the remaining unlegislated ten year enterprise tax plan component, that was about $35.6 billion. There is …interrupted
DAVID SPEERS: So just to be clear, over the four year forward estimates, is this costing the Budget more or less?
MATHIAS CORMANN: Over the four year forward estimates, it is about $3.2 billion additional, but over the medium term it is quite a bit less.
DAVID SPEERS: About 10 …interrupted
MATHIAS CORMANN: About $25 billion less compared to the previously published projection … interrupted
DAVID SPEERS: Okay so you are saving about $10 billion.
MATHIAS CORMANN: … and the revised projection that we have now.
DAVID SPEERS: And where is that, so it will cost $3.2 billion over the next four years to do this. Where is that coming from?
MATHIAS CORMANN: All of these movements up and down as I have said to you and others on many occasions are reconciled in the half-yearly Budget update …interrupted
DAVID SPEERS: But hang on, isn’t the Government’s position that any new commitment will be offset somewhere else?
MATHIAS CORMANN: Firstly, this is not a spending commitment. I know that Bill Shorten either dishonestly or …interrupted
DAVID SPEERS: But it has a Budget impact though?
MATHIAS CORMANN: Okay, but there are different components here. If I may answer the question. This is actually an important point. Bill Shorten either dishonestly or out of ignorance keeps referring to this as spending. It is not spending. It is the Government raising less tax, which is a policy decision on the revenue side of the Budget as opposed to a decision on the spending side of the Budget. Very important point. So you are right, under our fiscal rules, our commitment is to offset any decision to increase spending with spending reductions in other parts of the Budget. This is not an item of expenditure …interrupted
DAVID SPEERS: So when you are cutting taxes you do not have to offset?
MATHIAS CORMANN: The numbers have to add up. We do have a commitment to ensure that overall policy decisions do not detract from the bottom Budget line. All of these things will be reconciled at Budget time. You might recall in the last Budget, we had a significant plan to lower personal income tax rates. In the last Budget the net effect of policy decisions on the revenue side was actually a reduction in revenue.
DAVID SPEERS: You mentioned the personal income tax cuts, I might just bring them up because I wanted to just quickly ask you about this, a reminder of what the Budget announcement was. These personal income tax cuts phase in over three stages, the bulk of them do not really hit until 2024, so some six years away from now. Why not bring those forward instead of the small business tax cuts?
MATHIAS CORMANN: We did what we could afford in the circumstances of our Budget position. Personal income tax cuts in terms of the fiscal impact, this was a $144 billion package that the Senate agreed with when we legislated this towards the end of June. So the fiscal impact of personal income tax cuts is pretty significant …interrupted
DAVID SPEERS: It would have cost a lot more essentially?
MATHIAS CORMANN: That is it essentially. We did as much as we could, prioritising low and middle income earners in the first instance in terms of income tax relief and providing incentive and encouragement to hardworking Australians, as part of a plan over the medium term to provide income tax relief to all working Australians.
DAVID SPEERS: So today’s announcement, just to come back to the Budget impact, $3.2 billion over the four years, you are probably going to be helped a little bit though when you look at what you released today, the Budget Statements for July and August. The bottom line is about $6.6 billion, already, better than forecast.
MATHIAS CORMANN: And that is just for this financial year. You might remember that when we came into Government under Labor we inherited a deteriorating Budget position as well as a weakening economy and rising unemployment. Invariably, under Labor, the actual Budget performance compared to Budget forecasts was a deteriorated Budget bottom line, a worsening in the deficit. We have now had the 2016-17 Final Budget Outcome and the 2017-18 Final Budget Outcome, which were substantially better than forecast and this of course continues to consolidate this improving trajectory.
DAVID SPEERS: Well in the first two months of the new financial year we are looking at, here, $6.6 billion better than expected. The forecast deficit …
MATHIAS CORMANN: It is just for two months.
DAVID SPEERS: It will bounce around perhaps, but the forecast deficit was only, what, just under $10 billion? It raises the question, could we get a surplus this year?
MATHIAS CORMANN: This is an update for the first two months. Again if you look at the 2017-18 financial year, we had forecast at the time of delivering the Budget, a $29.4 billion deficit. In the end that was a $10.1 billion deficit. So that was a $19.3 billion turnaround. We will be providing …interrupted
DAVID SPEERS: So you could, could you?
MATHIAS CORMANN: I am not going to speculate. No, I am not going to speculate. Our most recent … interrupted
DAVID SPEERS: But it could [inaudible]
MATHIAS CORMANN: We are heading in the right direction. Our message to the Australian people is, having inherited a weakening economy, rising unemployment and a rapidly deteriorating Budget position, today’s economic growth is stronger, the outlook is better and employment growth is stronger, the unemployment rate is below what it was anticipated it would be. The Budget position is stronger and on a better, more sustainable foundation and trajectory for the future. So this is not the time to change direction.
DAVID SPEERS: Despite all of that, Peter Costello says he is not sure what the Government’s economic narrative is. If he doesn’t get it, is there a problem?
MATHIAS CORMANN: I disagree with him. In this job there are a lot of commentators expressing opinions from time to time. He is entitled to his opinion. We have a job to do. Again, it is very simple. Our economic mission is to ensure that Australians today and into the future have the best possible opportunity to get ahead. In order to ensure that can happen, that living standards can continue to improve, what we need to ensure is that businesses have the best possible opportunity to be successful, that the economy is strong, that jobs are being created because more investment is coming into Australia. All of that, ultimately, will help to drive stronger wages growth into the future. As the economy strengthens, what we can see again in our monthly financial statements today, the revenue of the Government improves, which then helps to underpin a more sustainable foundation for the expenditure on important, essential services.
DAVID SPEERS: Maybe Peter Costello is watching and is listening to all of these very fine points. Before I let you go, I know you are not a market commentator but the markets just closed and it is their worst daily result since the Brexit result, I think all of the gains for the entire year have been wiped out in one day. What is your message to Australians at the end of this day?
MATHIAS CORMANN: You are right, I am not a market commentator. From day to day and from week to week, the markets can move around a bit. But you have to look at the fundamentals and the fundamentals for the Australian economy are strong and indeed, in terms of the global economic growth outlook it is better than what it has been, so … interrupted
DAVID SPEERS: So there is no need to panic?
MATHIAS CORMANN: People should never panic based on market movements on one particular day.
DAVID SPEERS: Finance Minister Mathias Cormann, thanks so much for joining us this afternoon, appreciate it.
MATHIAS CORMANN: Always good to talk to you.