Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
TICKY FULLERTON: As we were saying we have had a horror week on the markets, but apart from those markets we did have yet another rate cut from the Reserve Bank with the cash rate now down to the all time low here of 0.75 per cent. The RBA is worried about flat wages growth and growing geo-political risk everywhere you look really. The Government has responded to the RBA decision with another bash at the major banks for not passing on the cuts in full. But is this the right way to go and should the Government be doing more to stimulate the economy.
ADAM CREIGHTON: Indeed, these are good questions for the Finance Minister Mathias Cormann, who became Australia’s longest serving Finance Minister last week. I spoke with the Minister from Perth and I asked him first about the highlight of his experience over the last six years.
MATHIAS CORMANN: When we came into Government in September 2013, we were faced with a pretty challenging fiscal and economic situation. The economy was weakening, unemployment was rising and the Budget position was rapidly deteriorating. The focus straight away was on implementing our plan to turn that situation around. Employment growth has been very strong under our Government. The unemployment rate has come down. It is certainly well below where it was anticipated it would be. We have certainly got the Budget under control through more disciplined control of our spending growth, to the point where the Final Budget Outcome for 2018-19 showed that we returned to Budget balance.
ADAM CREIGHTON: Well certainly the Government has made a great deal about the return to surplus, which of course is expected this year. But would you concede that part of the reason that we might have a surplus is actually a large increase in Government taxation revenue. As a share of GDP it has gone from I think in 2013, 22.5 per cent to almost 25 per cent last financial year.
MATHIAS CORMANN: We have always been very disciplined on the revenue side of the Budget, imposing a cap of 23.9 per cent in terms of tax revenue as a share of GDP on ourselves, something that our political opponents refused to do. They went to the last election with a threat to increase the tax burden as a result of policy decisions by $387 billion. We have been reducing the tax burden through our policy decisions. In particular, more than $300 billion worth of personal income tax relief that we have legislated through the Parliament over the last two years as well as significant tax cuts for business, in particular small and medium sized business. Getting rid of the mining tax, the carbon tax, you name it over the last six years … interrupted
ADAM CREIGHTON: Well just in terms of those tax cuts for households, if I can just interrupt there. Yes, certainly it is $300 billion over ten years. But the bulk of those cuts do not really take affect for five years. Are there any circumstances under which you would bring those tax cuts forward? Say if the economy started to weaken dramatically.
MATHIAS CORMANN: We have made judgements based on what we thought was economically necessary and responsible and what was fiscally affordable and sustainable. We have a series of objectives. We want to ensure that Australians have the best possible opportunity to get ahead, to have the right incentive and reward for effort and to ensure that our tax settings help underpin strong economic growth into the future. But by the same token, we want to ensure the Budget returns and remains in surplus at the same time as we are also boosting funding for schools, hospitals, national security, you name it. We have phased in income tax relief for all working Australians in a way that is economically necessary and fiscally responsible. We have prioritised low and middle income earners in the first instance. About $19 billion worth of income tax relief has already been paid into people’s bank accounts in the first two and half months or so … interrupted '
ADAM CREIGHTON: There is not much sign that that money is affecting the economy yet though is there. We saw retail sales this week and they are still pretty sluggish. They were lower than economists expected. Do you worry that we won’t see the pick up in growth this quarter that the Government is surely expecting?
MATHIAS CORMANN: $19 billion worth of income tax relief will have an effect in terms of stimulating the economy. Retail figures in August were significantly stronger than they were in July. We will assess the third quarter national accounts data when that is reported in early December. We will continue to assess all of the economic data and information and make judgements about what is required from there on in.
ADAM CREIGHTON: Now let’s talk about the biggest issue of the week and that is the Reserve Bank’s third interest rate cut this year. The cash rate now, I think, at 0.75 per cent is about a quarter of what it was during the financial crisis. Does that concern you?
MATHIAS CORMANN: Monetary policy is entirely a matter for the Reserve Bank. It is a very important feature of our system that the Reserve Bank acts independently, assesses all of the economic information and data independently. It is not for me to provide a running commentary. We will respect the decisions that they make. They make the decisions within the framework of their mandate. We take responsibility for fiscal policy. The Reserve Bank takes responsibility … interrupted
ADAM CREIGHTON: But surely as Finance Minister you could have some view say on quantitative easing. I noticed that former Treasurer Peter Costello in recent days said that that would be an unwise position in his view, for Reserve Bank to take. What do you make of that view?
MATHIAS CORMANN: Former Treasurers are at liberty to express views in a different fashion than currently serving Treasurers or Finance Ministers. As far as I am concerned, I am as Minister for Finance I have got responsibility as part of the economic team of the Government that is currently taking responsibility for the economic management of our country, in terms of the fiscal side and macroeconomic matters and the like. We leave monetary policy entirely to the Reserve Bank. It is not up to me to provide a running commentary on … interrupted
ADAM CREIGHTON: What about the fact that the major banks, the big four banks have only passed on something like half of the official cut in the cash rate. Does that concern you?
MATHIAS CORMANN: Yes, that is disappointing. We would have liked to see the banks pass on the cut in the official cash rate in full. That is a very clear position that the Government has articulated in recent days. We would still urge the banks to reconsider their decision in relation to … interrupted
ADAM CREIGHTON: So therefore you do not care about depositors because obviously if banks pass on the full cut then that also means that the deposit rates go down by the same amount.
MATHIAS CORMANN: When there is a reduction in the official cash rate we would like to see that passed on in full onto those who have home loans through the banks. That is the appropriate thing to do. The Reserve Bank has been very clear in its assessment, the cost of funds has significantly reduced for the banks. Ultimately the banks are private businesses. They make their own judgements. But we have expressed our view. That is very clear.
ADAM CREIGHTON: Now the Government has recently announced a review into the superannuation system. In fact the retirement system more broadly. Now you must have done that because you see some possible flaw in the system. What do you see as the major flaw in the super system?
MATHIAS CORMANN: No, no you are quite wrong. That is actually not the motivation behind it. The reason we are doing it is because this is one of the outstanding recommendations in the Productivity Commission review, that such a review is conducted. Compulsory super has been in place now for twenty-seven years. This is designed as fact finding, it is a comprehensive review across the entire retirement income system including aged pension, compulsory super, voluntary savings to establish a fact base that will help inform public debate into the future.
ADAM CREIGHTON: Now certainly the Government is still on the record as supporting the Labor party’s increase in the SG rate from 9.5 per cent to 12 per cent, which of course was legislated under the Rudd Government. Why would a Liberal Government or a Coalition Government support such an expansion of Government and such a reduction if you like in people’s take home pay?
MATHIAS CORMANN: We keep faith with the commitments that we made to the Australian people. We went to the 2013 election and to subsequent elections making very clear what our position would be in relation to the increase to the rate of compulsory super. We did delay the increase. It is now only going to reach the twelve per cent by 2025. That was part of legislating the repeal of the mining tax. But we made commitments to the Australian people. The Australian people want to see certainty and stability in terms of policy settings when it comes to superannuation. That is something that we respect.
ADAM CREIGHTON: One final question on tax. The Government has put to bed if you like the company tax cuts. That is going to be stalled at 25 per cent just for some companies. But what about the prospect for some sort of investment allowance. I know the Treasurer flagged this recently.
MATHIAS CORMANN: We have a half yearly Budget update later this year, which is just an update. The next Budget is due on the second Tuesday in May. As much as you might like me to announce our next Budget on your program, I will not do that. There are a whole range of things that are up for consideration. We will be reviewing all of the data, all of the potential options to adjust policy settings to ensure that we put the Australian economy on the strongest possible foundation and trajectory for the future.
ADAM CREIGHTON: Okay Senator Cormann we have to leave it there. But thanks so much for joining us.
MATHIAS CORMANN: Always good to talk to you.