Senator the Hon. Mathias Cormann
Minister for Finance and the Public Service
Leader of the Government in the Senate
Senator for Western Australia
TICKY FULLERTON: Let us go straight to our interviews now and joining me live here in Canberra is the Finance Minister Senator Mathias Cormann. Senator great to have you on the show.
MATHIAS CORMANN: Good to be here.
TICKY FULLERTON: Let’s go to the centrepiece first, your income tax offsets. You have more than matched Labor on this, but why shouldn’t the public see this as a cash splash, indeed really a $1000, $2000 bribe to vote you back in?
MATHIAS CORMANN: Because it is not. This is part of our plan for a stronger economy and to ensure that hardworking Australians have the best possibly opportunity to get ahead. This comes on top of our income tax relief in last year’s Budget of $144 billion, which was a comprehensive long-term plan to provide cost of living pressure relief to low income earners, to address bracket creep, because that is a drag on economic growth and to simplify our tax system. What we are doing here is the next step in that tax reform journey by reducing the 32.5 per cent tax bracket to 30 per cent, but again also prioritising low income earners with cost of living pressure relief and continuing to address bracket creep. It is part of a long-term plan.
TICKY FULLERTON: That is all bundled up with the income tax offsets. The question is though, it is back to the old question of what happens with the equality when you are looking at the amount of tax, you go from 32.5 to 30 for someone earning $200,000 as opposed to someone earning $30,000.
MATHIAS CORMANN: The system remains highly progressive. The top five per cent of income earners will continue to pay a third of all income tax revenue generated and furthermore, this is about making sure that 94 per cent of working Australians do not pay more than 30 cents in the dollar in tax and…interrupted
TICKY FULLERTON: But can you get it through on the fairness front in these days when people look at absolute numbers?
MATHIAS CORMANN: It is entirely fair. It is entirely fair. It is about providing working families the right incentive and the right reward for effort because that is good for the economy overall. Leaving Australians with more of their own hard-earned money, where the Government can afford to do so and providing them the incentive to work harder is good for the economy overall. It helps to lift opportunities for all Australians, including lower income Australians who are breaking into the labour market or looking for more hours to work or who are looking to work in…interrupted
TICKY FULLERTON: Minister, why didn’t you deliver a surplus this year? It was the Treasurer’s first Budget, could well be, on the polls, his only Budget as Treasurer. You have never brought down a surplus. I mean the risk is that neither of you will ever bring down a surplus.
MATHIAS CORMANN: We are making the right decisions for Australia’s future. We inherited a rapidly deteriorating Budget position when we came into Government. You are also wrong. The Treasurer’s first Budget is a surplus Budget. The Treasurer’s first Budget is the 2019-20 Budget and that is a surplus Budget…interrupted
TICKY FULLERTON: Well is not there yet.
MATHIAS CORMANN: …of $7.1billion.
TICKY FULLERTON: I mean Wayne Swan’s promised Budgets didn’t get there.
MATHIAS CORMANN: But here is the difference between Wayne Swan and us. Wayne Swan made heroic assumptions on things like commodity price forecasts, which never came through. He assumed the best, he assumed high revenues to continue, he spent all the money and more and then when the revenue dropped away he ended up in a big Budget mess. He also lost control of expenditure. Expenditure growth under Wayne Swan was running at four per cent above inflation, it is running at about 1.9 per cent above inflation under us. We have halved it. Spending under Labor was going to 26.5 per cent as a share of GDP and rising, it is going to 24.5 per cent under us…interrupted
TICKY FULLERTON: Let us go to some of your assumptions, so some of these savings, for example your tax to GDP stayed at well under 23.9 per cent…interrupted
MATHIAS CORMANN: We have made policy decisions to make sure that is.
TICKY FULLERTON: You have had your tailwinds of commodity prices…interrupted
MATHIAS CORMANN: That is not right. That is actually not right. So the iron ore price for example was $120 a tonne when we came into Government. It is $80 a tonne now. When you talk about tailwinds, you are comparing it to our prudent assumptions…interrupted
TICKY FULLERTON: Exactly.
MATHIAS CORMANN: Yeah okay, so you are comparing it to our more prudent assumptions…interrupted
TICKY FULLERTON: That is fine, I am happy to accept that.
MATHIAS CORMANN: And so under Wayne Swan, the Budget outcomes were worse than anticipated. Under us over the last three years, they were better…interrupted
TICKY FULLERTON: Let’s move on from Wayne Swan.
MATHIAS CORMANN: I am comparing it. Under our Budget, over the last three financial years, our Budget outcomes have been better than anticipated at Budget time. Materially better…interrupted
TICKY FULLERTON: Let me ask about some of your savings. Your parameter-driven payments is interesting, saving $28 billion by changes to parameters, in other words changes to programmes over the forward estimates. Isn’t that a bit heroic?
MATHIAS CORMANN: No that is actually not right. We are not changing parameters. Parameters are things that we do not control. Parameters in demand driven programmes…interrupted
TICKY FULLERTON: These are, well these are movements, well changes of the parameters they are.
MATHIAS CORMANN: No, no, no. So the things that we change, we change as a result of policy decisions. When there are changes in economic parameters, when there are changes in demand pressures, up or down, for example there is stronger demand expected for public hospitals so we…interrupted
TICKY FULLERTON: You are going to get $28 billion in savings from these.
MATHIAS CORMANN: We are going to have to spend $1.9 billion more on public hospitals than previously anticipated. But the rollout of the NDIS has been slightly slower than the ambitious rollout timetable that was previously anticipated so we are projected or we are forecast to spend $1.6 billion less than previously anticipated. Not because we have made a decision to reduce funding, but because we are making an assessment of what is likely to happen over the next four years based on the best available information in front of us about parameters on things like economic indicators, utilisation trends and the like.
TICKY FULLERTON: I must move on. All right. Let us go to this target of eliminating net debt by 2030. Now clearly it has gone up from 10 to 18 per cent of GDP even under you guys, I realise you were handed not the greatest of situations, but equally I am just looking at this cumulative Budget surplus of $45 billion you have got now over the forward estimates. Shouldn’t we really be looking at the cumulative headline cash balance which is more like $5.5 billion, because the difference being some of these financial assets that you have got to put cash to, NAB loans, drought and rural assistance loans, this is money that is just going to go up against the wall isn’t it?
MATHIAS CORMANN: Firstly, Government net debt is much lower than it would have been if we had not made the decisions that we made to reduce real expenditure growth from four per cent under Labor to 1.9 per cent under us. Self-evidently, given that expenditure growth is half, government net debt is already less. It has grown by less. It has continued to grow because we inherited a forward trajectory that was unsustainable. We inherited a forward debt growth trajectory. Now that we are in surplus, we will be able to pay down gross debt and net debt is the difference between gross debt and the value of relevant assets…interrupted
TICKY FULLERTON: Does that include writing down the NBN for example, that is going to be a lot of money surely, surely?
MATHIAS CORMANN: Governments do not make discretionary political decisions in relation to the asset value, the value of assets that we hold on behalf of taxpayers. I am completely bemused by the suggestions by some commentators, that somehow the Government should make an arbitrary political decision determining the value of assets, rather than to follow accounting standards and follow the process…interrupted
TICKY FULLERTON: The bottom line is you have got a $100 billion infrastructure program, it is a massive program over 10 years, the infrastructure sector is calling for some transparency in how this is done, but…interrupted
MATHIAS CORMANN: There is transparency in how this is done.
TICKY FULLERTON: Part of that is a lot of these enormous projects are done off balance sheet one way or the other, off Budget sorry, one way or the other, either NBN, Snowy, Inland Rail. Now, how can we keep an eye on what our debt actually is?
MATHIAS CORMANN: Well debt is reported, the value of assets is reported, so the proposition that this is off balance sheet is wrong…interrupted
TICKY FULLERTON: Off Budget, sorry.
MATHIAS CORMANN: Okay. The previous Government made the decision to invest, to fund the rollout of the NBN through equity investments and that had to comply with certain criteria. There has to be an appropriate level of return for an investment to be classified that way. That continues to be the case. Let me also say that judgment was made when the equity investment was made. So when people are suggesting that somehow there would be a change in Budget treatment, there would be a hit to the underlying cash balance if the return were to be less into the future is wrong. That is not the case…interrupted
TICKY FULLERTON: It is not going to happen.
MATHIAS CORMANN: Well it does not work that way. That is a complete misunderstanding in some sectors…interrupted
TICKY FULLERTON: So, there is no impact on our overall net debt if you write down value of the NBN?
MATHIAS CORMANN: Well we were talking about the underlying cash balance. There is…interrupted
TICKY FULLERTON: Well I am talking about, in the context of paying down the net debt to zero overtime and I said if you have to write down the value of the NBN, that is not going to help, is it?
MATHIAS CORMANN: We do not foresee that. Everything that we assume will happen is reflected in our Budget’s numbers.
TICKY FULLERTON: Let me ask you finally about business and small business tax cuts. Obviously, they will be greatly welcomed; once again, you have to get this through haven’t you? You are slowly creeping up in terms of larger and larger companies looking forward to instant asset write-offs and bringing forward company tax cuts to 25 per cent, it has got to get through the Parliament.
MATHIAS CORMANN: Well we have already legislated the reduction in the corporate tax rate to 25 per cent for all businesses with a turnover of up to $50 million and we have accelerated that timetable for that to happen. On the instant asset write off, we have legislation in front of the Parliament already to…interrupted
TICKY FULLERTON: Yes, but can you get that through?
MATHIAS CORMANN: Yes, we believe we can. We are going to put our case to the Parliament and it is up to the Parliament to decide.
TICKY FULLERTON: Finance Minister Mathias Cormann. It was great to have you on. Thank you so much.
MATHIAS CORMANN: Always good to talk to you.