Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 6 February 2019
GRAHAM RICHARDSON: Well thanks for staying with us here on Richo because I think this will be a very interesting part of the program. A person who does come here on this show occasionally, someone whom I like. But also someone who I think who does a pretty fair job. Now I am saying that about a Liberal, which as you know that’s hard for me. That’s difficult for me to do. Mathias Cormann is the Leader of the Government in the Senate and the Minister for Finance joins us. Welcome Mathias.
MATHIAS CORMANN: Good evening. Good to be back Graham.
GRAHAM RICHARDSON: Yes, it is good to have you on. Now can I start off, the mantra from your Government, the Prime Minister and yourself and other senior people has always been jobs and growth. So, as we look at the next couple of years, where do you see growth going and where do you see jobs going?
MATHIAS CORMANN: That is indeed our mantra. You have to remember when we came into Government in September 2013 we inherited a weakening economy, rising unemployment and a rapidly deteriorating Budget position. Today growth is stronger, the growth outlook is better, employment growth is much stronger, the unemployment rate has come down. With continued strong employment growth, we are expected to keep the unemployment rate at least down at five per cent. To remind everyone, Chris Bowen back in 2013 said the test would be whether we could keep the unemployment rate below six per cent and a quarter. I do not think that he said that in order to give us an easy challenge. We have been able to turn a deteriorating Budget trajectory around into an improving Budget trajectory. To the point where we are now expected to return the Budget to surplus next financial year. Over the next decade, over the 2019-20 Budget medium term we believe that we will be able to fully extinguish Government net debt.
GRAHAM RICHARDSON: Really because debt has been a problem hasn’t it?
MATHIAS CORMANN: When we came into Government we inherited a legislated forward trajectory. People often forget that. Our political opponents conveniently try to ignore it. We inherited a legislated spending growth trajectory which was unsustainable, with much of the spending growth legislated for the years beyond the published forward estimates, from years five and six onwards. We inherited an unstainable debt growth trajectory … interrupted
GRAHAM RICHARDSON: Excuse me, this was the NDIS and education, is that right? Are they the two …interrupted
MATHIAS CORMANN: There are a whole range of spending areas where there were massive spending growth promises made, which were not provided for in the Budget forward estimates period, but which conveniently for political management purposes and fiscal management purposes started in years five and six. To put it into some numbers, when we came into Government, spending growth in real terms, that is above inflation averaged about four per cent, year on year. We were on track for Government expenditure over that medium term of 26.5 per cent and rising. We have been able to halve that spending growth to below two per cent, looking back. Our forecast is for 1.9 per cent real spending growth year on year, that is above inflation moving forward over the forward estimates. Spending as a share of the economy has massively come down to 24.9 per cent and is projected to come down to 24.6 per cent. In order to pay down debt, you have to get into surplus. We have been able to get ourselves in a position where through better spending control, through stronger economic growth and the additional revenue that generates, stronger employment growth and the revenue that generates, we are now in a position where the Budget is expected to get back to surplus next year. That means that the debt reduction will start to accelerate.
GRAHAM RICHARDSON: Because it has been a long time since we had a surplus in Australia.
MATHIAS CORMANN: The last surplus was the last Howard Government Budget in 2007-08. You might recall in the eleven weeks between Labor’s last Budget in government and the pre-election economic and fiscal outlook before the 2013 election the Budget bottom line deteriorated by a staggering $33 billion. That deterioration did not just stop then. But if you look at our last two financial years, our actual performance when we released the final budget outcome both in 2016-17 and in 2017-18 was materially better than forecast at Budget time by about $4 billion in 2016-17 and by more than $19 billion in 2017-18. We are on the right track. The economy and the Budget are now heading in the right direction despite some of the challenges we are facing.
GRAHAM RICHARDSON: Look I am never sure if what you are saying in one respect is correct because I have sat in a Cabinet room and I’d hear the Treasury experts come experts come in and sit there and tell us what the projected surplus or deficit was going to be next year while they explained why, how far they were wrong in the previous year. You were regarded as an idiot if you didn’t agree with them and yet I can’t remember a time when they got it right. I mean it really is a guess, isn’t it?
MATHIAS CORMANN: It is a very important point you raise, because budget estimates are exactly that, they are estimates. They are estimates based on the best available information about economic parameters and the fiscal impact of policy decisions at that point in time. But of course things change. The global economy can change, dynamics in the domestic economy can change, and demand for government services can change. So you do adjust as better information becomes available, you do make adjustments. But the only thing that you are really certain of is when you look at the actual performance against Budget. That is the point I am making. If you look at our last two Final Budget Outcomes, the actual performance against Budget was materially better than forecast at Budget time. So yes, nobody will ever 100 per cent precisely predict everything that will happen. But you put forward a plan, a plan for the economy, a plan to fund the necessary services provided by government. You try to base it on the best possible information. Then you adjust your expectations based on when more information becomes available. Under Labor, the actual performance invariably was worse than forecast. Whereas under us it is better …interrupted
GRAHAM RICHARDSON: Can I interrupt for just a second, wait a minute, just hang on, you are actually dressed in a pink suit at the moment because our picture is playing up and I don’t think it’s the image you want, if you can just hang on a moment., we will have a very short break and I will come back to you.
I am back with Mathias Cormann. I’m really glad Mathias, because it just didn’t suit you, that pink suit. I can’t quite envisage senior Liberals in pink suits. It just doesn’t work for me, so I’m very glad to have you back.
MATHIAS CORMANN: I am back. I am back in non-pink.
GRAHAM RICHARDSON: In non-pink, mate you are looking really good. Now meanwhile, back at the ranch as they say, as you prepare for this Budget, you know that you are coming up to a surplus. Are we able to expect that there is that usual little surprise that will be a little bit bigger and a little bit better than what we are told?
MATHIAS CORMANN: We are currently working our way through all of the decisions, all of the policy decisions as we do in the lead up to every Budget. We are reviewing all of the information about economic and fiscal parameters and what has changed since our half-yearly budget update before Christmas. All of that will be reconciled in time for the Budget on 2 April. All will be revealed then. But it is certainly true if you look back at our past performance …interrupted
GRAHAM RICHARDSON: You can reveal it here, we won’t tell anyone. I will keep your secrets, you know that. I wouldn’t tell a soul.
MATHIAS CORMANN: Sure. What I would say is that if you look at our past performance and you contrast that with the past performance of our political opponents, what you can see is that we clearly have been quite prudent and cautious in our forecasting assumptions. That is why our actual performance against Budget in the last few years has been better than anticipated at Budget times. Whereas under the previous Government the situation we inherited was that the actual performance invariably was worse than what was anticipated at Budget time. So, we will continue to make decisions based on what we consider to be in the best interests of Australian families wanting to get ahead. We are looking at making sure we make our country stronger, create more opportunities for more jobs to be created so that the unemployment rate is low, that wages can grow more strongly and to ensure that the Government has the necessary resources to fund the important services Australians rely on.
GRAHAM RICHARDSON: But let’s say I give you all that and I don’t necessarily agree, but let’s say I give you all that, that you are right on every front. Why aren’t you favourites to win the election? Why are the polls telling us you won’t win?
MATHIAS CORMANN: I have not been around Australian politics as long as you have, but in the 20 plus odd plus years that I have been close to it, what I have observed is that incumbent governments in between elections, before people actually have to make a judgement on who they want to run the economy, who they want to run the country, who they trust to keep the economy strong, who they trust to keep Australians safe and secure, in between elections the Government of the day often is running behind in the polls. Every election John Howard contested successfully as the incumbent Prime Minister, I think you will find that he was quite a way behind in the polls. So I expect the polls to tighten as we get closer. There will be a very sharp contrast between our track record and our agenda into the future, delivering stronger growth, more jobs and making sure that Australians can rely on sustainable funding for the services they expect. We would argue that Bill Shorten’s high taxing agenda which would make our economy weaker, make our country weaker, which would make our Budget position weaker and less sustainable as a result and which you know as you have lower growth, lower employment growth, fewer jobs being created, higher unemployment, lower wages, less revenue for Government to fund the important services Australians rely on.
GRAHAM RICHARDSON: One of the things that worries me, I don’t necessarily accept everything you just said there,
MATHIAS CORMANN: I would not expect you to.
GRAHAM RICHARDSON: Let’s face it in 1996 Howard went into the election as red hot favourite, so he wasn’t behind every election, but anyway …interrupted
MATHIAS CORMANN: No, hang on, I said every election that he contested as the incumbent Prime Minister. If you look at in the lead up …interrupted
GRAHAM RICHARDSON: Oh sorry, I missed that. Ok you’re right.
MATHIAS CORMANN: That is a very important qualifier. If you look at the lead up to the election in 1998, 2001, 2004, I think you will find, even against Mark Lathan, John Howard was quite a way behind. In fact if you look at the published polls at the time, you will find that he was further behind than we are in the published polls today. You know what happens is that people in between elections …interrupted
GRAHAM RICHARDSON: Your problem is Shorten is not Mark Lathan, when you find the real Bill Shorten you don’t mind, when you find the real Mark Lathan everyone minded.
MATHIAS CORMANN: Let us have a proper comparison. The most appropriate comparison is Kim Beazley who was the Opposition Leader for two terms. He was running for Prime Minister when John Howard went for his third term. I would argue that Kim Beazley in many ways was more electable than Bill Shorten. We know what the result was there.
GRAHAM RICHARDSON: Well, he was the best bloke who never got elected I think, Kim Beazley, I think he would have made a very fine Prime Minister, but we were never ever to find out where we? Sorry go on?
MATHIAS CORMANN: In the end, at the next election the Australian people will get to make a very important choice about the future direction of our country. We believe that under our stewardship and under our Government into the future, the economy will be stronger, there will be more jobs, the unemployment rate will be lower, wages will go up more strongly and the Budget will be in a stronger and improving position to sustainably fund the important services in health, education and you name it. Whereas, under a high taxing Bill Shorten government there will be less investment, lower growth, fewer jobs, higher unemployment and as a result of higher unemployment, lower wages and less revenue for government to fund the important services the government provides. That ultimately will be the choice on the economic front that the Australian people will have to make.
GRAHAM RICHARDSON: Okay, last question, we got the banking Royal Commission today. Are you disappointed that there are no actual scalps? We know that there is criticism of the behaviour of the National Australia Bank, but they do not get to say that Ken Henry and the Chief Executive Thorburn should go. Do you think people should go as a result of the practices that have been unveiled?
MATHIAS CORMANN: The reason you have a Royal Commission is to have a completely independent process. That is a process completely independent from the political process, independent from Government, independent from the Opposition. A highly regarded former High Court judge in Commissioner Hayne had responsibility for the conduct of the Royal Commission. His findings and his recommendations are there for all to see. The Government will action all of the recommendations that he has made. In terms of the reflections and findings, I think that everyone in the financial services sector and everyone in the public policy space has to reflect on what he said, what his findings are, what his recommendations are and make judgements on how to proceed from here. It is not up to, as I have said on another program yesterday, it is not up to politicians to determine who should and should not be the Chairman or the CEO of a particular private sector company. That is a matter for those individuals, their shareholders and their respective boards.
GRAHAM RICHARDSON: I think everybody out there has got an opinion on some of these people that is for sure.
MATHIAS CORMANN: Sure.
GRAHAM RICHARDSON: Look, thanks for your time Mathias, it is always a pleasure to talk to you and great to see you back in a blue suit. It is much more edifying.
MATHIAS CORMANN: Excellent. Thank you.
GRAHAM RICHARDSON: Mathias Cormann, thank you very much for your time.