Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
ROSS GREENWOOD: Great to have your company here on Money News right around Australia. Plenty of stuff happening in Government today. There has been, what some people would suggest is an unlikely victory by the Government today. They have managed to a new GST deal through the Senate through the Parliament as it were in regards to the way in which it will be carved up between the States. This means that there will be guarantees of additional revenue for the States and especially Western Australia, which as you know has been very upset about the way in which the GST revenue was handed out. Also the Government today has announced it will actually give a boost of $2 billion worth of well finance, for the small business sector. Now effectively this is almost a bank, the Government is setting up a small business bank in some ways, to provide credit to companies that might otherwise not be able to get it. So plenty of stuff going on inside Government. Let’s go to the Finance Minister, Mathias Cormann, who is on the line right now. Mathias as always, many thanks for your time.
MATHIAS CORMANN: Great to be back.
ROSS GREENWOOD: Okay, let’s start with the GST. Just explain, this was something that a lot of people said could not get through the Parliament. You have managed to navigate its way through the Parliament. How did you do that?
MATHIAS CORMANN: This is an important reform that has been in the too hard basket for too long. When we came into Government the WA share of the GST was in freefall, headed to below 30 cents in the dollar and on track to fall even further down from there. It was clearly unfair. It was clearly unsustainable in a Federation. It had to be fixed. Initially by way of a short term measure, we made federal top-up payments to Western Australia in order to stop the further drop in WA’s share of the GST to below 30 cents in the dollar. In this year’s Budget we made a further top up payment, which lifted it effectively to 50 cents in the dollar. But what we announced in July was a plan to fix GST sharing arrangements on an ongoing basis in a way that is fairer for WA, which is good for national economic growth and which is also fair to every other State in that it leaves every other State better off. So … interrupted
ROSS GREENWOOD: Dumb question for you, why if I am living on the East Coast of Australia, why do I actually care about WA and whether it gets a fair share of GST?
MATHIAS CORMANN: Because if you provide a disincentive to a State like Western Australia, which has got significant growth potential which benefits the whole country, then that damages the opportunities for people on the Eastern Seaboard too. What was happening is that Western Australia pursuing growth opportunities penalised them in terms of the level of revenue that they were able to generate or retain locally. WA was hit with a double whammy. They were, on the back of lower prices for key commodity exports their royalty revenue was going down and at the same time they continued to be penalised for high royalty income in the past, which meant that their GST revenue was going down at the same time. If we did not make the system fairer, that is what the Productivity Commission found. What the Productivity Commission found was that the GST sharing arrangements as they operated, essentially provided a perverse incentive against States pursuing growth opportunities in their jurisdiction to the best of their ability. What we have done now by making the system fairer is to ensure that all states have the right incentive to ensure that they reach their full potential.
ROSS GREENWOOD: Okay, I want to move you onto the announcement today by the Prime Minister and also by the Minister for Small and Family Business, that is Michaelia Cash, in regards to the Government offering small businesses $2 billion worth of credit, effectively becoming a small business bank. Why is it the role of Government to become a bank in this way?
MATHIAS CORMANN: I have to very politely correct you there. The Government will not lend directly to small and medium sized business. What we are proposing to do is to invest up to $2 billion into the securitisation market and we are proposing to do that through the Australian Office of Financial Management, which has had prior involvement consistent with this in the residential mortgage backed securities market, which worked very well. The problem we are trying to fix is that small business is finding it difficult to obtain finance, other than on a secured basis, typically against their family home. Even when they are able to access finance, funding costs are substantially higher than they should be and need to be. By the Government, not lending money to small business directly, but putting $2 billion into the securitisation market, what we are doing is we are providing more liquidity and more depth into that market. We are making it easier for small banks and non-bank lenders to provide additional finance at competitive prices to small business. So we are making the system more competitive, which will help small business get access to debt finance at lower cost.
ROSS GREENWOOD: And where does that $2 billion come from? Has the Government plucked that out of where?
MATHIAS CORMANN: That is $2 billion that comes from our Budget, but it will sit on our balance sheet, it will be an asset.
ROSS GREENWOOD: And bad and doubtful debts in that sector, will you actually wear that or will it be the lenders of that money that will wear any bad debts that might arise?
MATHIAS CORMANN: Firstly, the Australian Office of Financial Management has got substantial experience in this type of market and they will ensure that the risk profile associated with its investment in the fund is appropriately managed and that the necessary due diligence is done, including working with the credit agencies. The credit agencies have a very important role here. The Government is in the market for good debt. What this is all about it, it is about making sure there is more liquidity, more depth and more competition in the securitisation market and that there are more institutions offering small business loans other than just the big banks.
ROSS GREENWOOD: Okay, so this is the way, I can understand the way in which it works. So you are providing the credit to those small lenders, the small lenders will do it, but they cannot actually do it on a secured basis against the value of a home, it has got to be against the value of the business. So as a result they have got to manage any of the potential bad debts that could come from those businesses into the future, as I see it at least anyway.
MATHIAS CORMANN: This will operate like any other securitisation market, except that it is a securitisation market in the context of small business lending.
ROSS GREENWOOD: I do know say for example right now that the Prime Minister having been in Singapore and one of the things that is very much on the agenda is the free trade agreement with Indonesia. Given what has taken place and in particular, just before the Wentworth by-election, there was obviously talk about whether the Australian embassy should be moved to Jerusalem, that caused upset in Indonesia as you would be well aware. Is that free trade agreement really now off the table as something that can be negotiated?
MATHIAS CORMANN: No. Firstly, the Australian Government and the Indonesian Government reached substantive agreement in relation to the Indonesia-Australia Comprehensive Economic Partnership Agreement on the 31st of August. What was agreed then is that both sides would now do the usual work in terms of finalising the text in both languages, which is the normal process. Both sides, both Indonesia and Australia, remain committed to reaching a final landing in relation to this agreement …interrupted
ROSS GREENWOOD: But it is fair to that say in the words of the Indonesian Trade Minister, that the delay in the Indonesians signing anything is because of Palestine? So it is because of that decision, the suggestion that the Israeli embassy could be moved to Jerusalem, that is the key here isn’t it?
MATHIAS CORMANN: Well I was in Jakarta the week before last for about five days. I had a series of meetings with very senior Ministers. Nobody raised that issue with me and the Ministers that I met with acknowledged and recognised that this Indonesia-Australia Economic Partnership Agreement is an important agreement both for Indonesia and for Australia. It is an agreement that is both in the interests of people both in Australia and in Indonesia and that is why both countries remain committed to reaching a final conclusion.
ROSS GREENWOOD: All right, just a final one for you. Could you please answer this question for me? I still do not have a proper answer for this and indeed the former Prime Minister, Malcolm Turnbull, was asked this just a short time ago.
[ABC Q&A EXCERPT]
QUESTION: Why aren’t you still Prime Minister?
MALCOLM TURNBULL: Well, well thanks Stephen and that is the question I cannot answer of course, the only people that can answer that are the people that engineered the coup. They are people like Peter Dutton and Tony Abbott and Greg Hunt and Mathias Cormann.
ROSS GREENWOOD: So you were one of those people named there, I notice that the Prime Minister Scott Morrison, he says he cannot answer this question, Malcolm Turnbull thinks you might be able to answer it. Can you answer it? Why is Malcolm Turnbull no longer the Prime Minister?
MATHIAS CORMANN: I have answered this question on many occasions in recent weeks…interrupted
ROSS GREENWOOD: Do it once for me, just humour me on this occasion, if that is okay?
MATHIAS CORMANN: If I may, it is very simple. Personally, as I have made clear on many occasions, any proposition that I was involved in engineering any coup is false. There cannot be any such suggestion. On the Tuesday when the first leadership ballot happened, which was initiated by Malcolm Turnbull himself, I supported Malcolm and all of the people that would listen to me supported Malcolm. Now subsequent events are a matter of public record, I have commented on them extensively. The very simple answer on why there has been a change is because a majority of people in the Liberal Party party room made a decision to make a change and to support Scott Morrison and Josh Frydenberg as our leadership team. To be Prime Minister you have to ensure that you retain the confidence of a majority of the members in your party room.
ROSS GREENWOOD: Okay, just one thing for you Mathias. You and I both know this. The Budget is in pretty good shape at the moment, it is improving, wages growth is going, you have got the Reserve Bank saying that the economic growth rate over the next two years will be 3.5 per cent. Surely, you had a good economic narrative to tell? Problem is if you dump a Prime Minister it puts you right backwards and makes it more difficult for you to govern beyond the next election. Would you concede that maybe consistency might have been a better way to go?
MATHIAS CORMANN: Well Ross, again, I think you will find and I am sure that you would agree and accept that I was a hard-working, committed, senior member of the Turnbull Cabinet, that I did everything…interrupted
ROSS GREENWOOD: 100 per cent.
MATHIAS CORMANN: …that I did everything I could to help Malcolm and his Government be the most successful Government we could be…interrupted
ROSS GREENWOOD: But at a point you changed your support.
MATHIAS CORMANN: Well I did not want the events that unfolded to occur. They did occur as a result of the ballot on the Tuesday. In the end, all I can ever do is make judgements based on what I believe to be right in the circumstances and in the circumstances we were facing after the initial ballot on the Tuesday, I stand by the judgements that I made. But any proposition that this involved a level of engineering or organising coups, I completely and utterly reject.
ROSS GREENWOOD: Our Finance Minister, Mathias Cormann, always great to have you on the program, Mathias.
MATHIAS CORMANN: Thank you Ross.