Senator the Hon. Mathias Cormann
Minister for Finance
Special Minister of State
Leader of the Government in the Senate
Senator for Western Australia
Date: Friday, 11 October 2019
ANNELISE NIELSEN: To news back home, and the big news in Canberra is the Treasurer meeting with his State counterparts to talk about how to stimulate the economy. For more on this we are joined by the Finance Minister Mathias Cormann all the way from Perth, Western Australia, where it is very early so we thank you for your time this morning.
MATHIAS CORMANN: Good to be here.
ANNELISE NIELSEN: Now with this meeting with the Treasurers we are expecting a call from the States to get more Federal funding through to help them put more infrastructure projects on to help stimulate the economy. Do you think that the Federal Government could be bringing forward this funding?
MATHIAS CORMANN: We have put forward a record $100 billion federal infrastructure investment pipeline. The Prime Minister has written to all of the State Premiers to ask them to identify projects that they could deliver more quickly. We stand ready, willing and able. A number of State governments have taken up the offer to work with us. The funding is available. The question is with what speed individual State and Territory governments might be able to get the projects actually rolled out. That is a matter over which we do not have direct influence. Certainly the Prime Minister has reached out to State and Territory Premiers to see where we can accelerate the implementation of the projects that we are funding all around Australia.
ANNELISE NIELSEN: How much of that funding is going to come through to the Australian economy in the next year?
MATHIAS CORMANN: The Australian economy continues to grow. We have legislated $300 billion worth of personal income tax relief. When it comes to infrastructure investment, about half of the $100 billion infrastructure investment pipeline is over the forward estimates. So there is a substantial level of infrastructure investment. We want to get this right for the future. When Kevin Rudd, Julia Gillard and Wayne Swan sought to stimulate the economy through infrastructure investments so called, they wasted billions of dollars on school halls that we did not need and pink batts that had to be taken out of people’s roofs again. We want to ensure that our investment into infrastructure is into high quality, productivity enhancing, economy growing infrastructure. We are working to a plan. We are prepared to bring things forward where that makes sense, where the projects are ready. But still, we are committed to ensure that the funding goes into high quality projects and is appropriately prioritised.
ANNELISE NIELSEN: There are some alarming figures that show that there is a slow down in the economy. National accounts revealed the three year average annual growth figure was 0.4 per cent worse since it has been since the 1990s recession. Australia’s economy grew by 1.4 per cent in the year to June. That is the lowest annual rate since 2009. Should we be concerned? These sound like weak figures.
MATHIAS CORMANN: We have gone through twenty-eight years of continuous growth so far and are continuing to grow. We are one of only ten economies in the world with a AAA credit rating by all three major credit ratings agencies. More than1.4 million new jobs over the last six years. Record workforce participation. The lowest welfare dependency in thirty years. But yes, we are facing a whole series of global economic headwinds. We are dealing with the implications of the floods earlier in the year and a serious drought across large parts of Australia. So we have some challenges. But unlike other economies around the world which contracted in the June quarter, our economy continued to grow in the June quarter. Even though that was the quarter in which we had a federal election, which traditionally is a period in the lead up of which there is a slow down in economic activity and investment activity. We will be very interested to see the third quarter national accounts data for the September quarter which comes out in early December. That will inform our final decisions in relation to the Mid-Year Economic and Fiscal Outlook. We continue to monitor economic developments. We will continue to make judgements as appropriate. But it is very important that we continue to calmly work to our plan. We knew in April when we delivered the Budget that we are facing a series of headwinds, that we need to take action in that context. Indeed we have and we will continue to do so.
ANNELISE NIELSEN: Our interest rates set by the Reserve Bank is 0.75 per cent. That is a record low and there is not many moves left before we are hitting zero. This is bad news for people who have deposits in banks, particularly pensioners, sorry retirees not pensioners. That is a big concern for them. Why is this not a time where we should be discussing quantitative easing?
MATHIAS CORMANN: Firstly, monetary policy is entirely a matter for the Reserve Bank. The Reserve Bank makes these judgements independently. That is appropriate. It is important that these are not political decisions but decisions taken independently based on an independent analysis of the economic data. In relation to interest rate settings in Australia, as the Governor of the Reserve Bank has said, we live in an interconnected world. We cannot ignore the structural changes in interest rate settings around the world. Because ultimately if we kept an interest rate in Australia that was materially higher than in other parts of the world that would have an impact on the value of our currency at a time that is already quite challenging for us. If we had the value of the Australian currency go up right now because we had comparatively higher interest rates, that would impact on the competitiveness of large sections of our trading economy. That would not be a good thing. When it comes to quantitative easing, all I can do is point to comments by the Governor of the Reserve Bank when he last appeared before the House of Representatives Economics Committee when he said words to the effect that he could not see a scenario where unconventional monetary policy options would be required for Australia. But ultimately these are matters that the Governor of the Reserve Bank and the board of the Reserve Bank have to continue to assess independently as they must.
ANNELISE NIELSEN: But since then, there have been a number of rate cuts and speeches given the by the Reserve Bank governor and he said fiscal stimulus from the Government would be welcome. Why not dip into that surplus to stimulate the economy now?
MATHIAS CORMANN: Firstly, there is fiscal stimulus. There is fiscal stimulus on the back of $300 billion worth of personal income tax relief, $20 billion of which has gone into the economy over the last two and a half or so months. So there is substantial fiscal stimulus. The second point I would make is that the Government does not have any money of its own. All of the money that the Government can use to spend is money that the Government first has to take out of the pockets of hardworking Australians or out of the pockets of businesses around Australia which would have a negative rather than a positive impact on our economic growth opportunities into the future. The Government does not have any money of its own. The Government only has the money available to spend that it takes out of the economy. Whether that is taking it out of the economy now or whether it is forcing taxes up higher over the future because of higher levels of deficits and debt, it would have a negative impact on our Australian economy over time. That is not something we want to do. We want to put the Australian economy on the strongest possible economic and fiscal foundation, not just for now but over the medium and long term. That is why we have to ensure, among other things, that Government lives within its means, that we can pay our way in terms of our recurrent expenditure rather than to spend money that we have not got.
ANNELISE NIELSEN: So why is the Government ignoring the suggestion from the ANZ CEO Shayne Elliot that there should be a summit to discuss quantitative easing? If the banks are concerned about it and they want to talk to the Reserve Bank, why would the Government not want to get on board?
MATHIAS CORMANN: It is not the Government’s decision to determine what should happen in relation to monetary policy. Unconventional monetary policy and conventional monetary policy options are entirely a matter for the Reserve Bank. It is not a matter of applying political pressure to the Reserve Bank. The Reserve Bank needs to make its own judgements. I note that the Reserve Bank Governor is on the record as saying he cannot foresee a scenario where unconventional monetary policy options would be required for Australia. That is a matter for the Reserve Bank ultimately to judge. It is not something that the political level of government should be interfering with.
ANNELISE NIELSEN: It’s not a matter of interfering though, is it, if he is suggesting that more fiscal stimulus coming through because we have seen those tax cuts hit a lot of figures that would indicate the health of the economy, including consumer confidence, including consumption data, and those tax cuts haven’t had the impact that was expected. If the Reserve Bank is saying why not increase fiscal stimulus, why not at least go to the table with the banks? Just discuss it.
MATHIAS CORMANN: I think it is entirely premature to make the assessment that you have just made about the impact of personal income tax cuts. There was a level of hyperventilating and quite frankly, entirely premature commentary coming from some quarters on the back of very early data when the effect of the personal income tax cuts was not even two weeks old. We are working to a plan. We believe it is very important that we continue to calmly and steadily work to our plan. We have made what we believe are the appropriate judgements. There is third quarter national accounts data coming out in early December. We believe that the data will show that economic growth has strengthened compared to the previous quarter. But again, the Australian economy continues to grow. We are into our 28th year of continuous growth. In the last financial year, employment growth was running at 2.6 per cent against a forecast of 1.5 per cent. That is a 1.1 per cent higher employment growth than was anticipated when the Budget was delivered. Welfare dependency is at the lowest level in 30 years. Workforce participation is at the highest level on record. Everybody knows there are a whole range of challenges because of what is happening in the global economy and because of some of the things that are happening in our domestic economy such as the drought and earlier in the year the massive floods in North Queensland. But we are working our way through it and the last thing that Australians need is for the Government to get distracted by, quite frankly, premature and uninformed commentary.
ANNELISE NIELSEN: Just finally, do you foresee any scenario where the Reserve Bank will have to use quantitative easing?
MATHIAS CORMANN: Again, that is not our judgement to make. That is a judgement for the Reserve Bank to make. As I have said earlier, I would note that the Reserve Bank Governor, who has got the responsibility with the Reserve Bank board to work through this, has said that he does not foresee a scenario in which unconventional monetary policy options would be required for Australia. But ultimately, it is a matter for the Reserve Bank to continue to monitor all of the economic data and information, to monitor what is happening to monetary policy settings all around the world and make judgements as appropriate, recognising that we live in an interconnected world and that what happens in other parts of the world does have an impact on us. So far, that is what the Reserve Bank has been doing and we would expect and we are very confident that that’s what they will continue to do into the future.
ANNELISE NIELSEN: Finance Minister Mathias Cormann, thanks for your time.
MATHIAS CORMANN: Always good to talk to you.