Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 16 October 2019
ANNELISE NIELSEN: Our top story this morning is all about the International Monetary Fund and its outlook for Australia, in particular, with some not too great figures. Joining us live is the Finance Minister Mathias Cormann for more on this. Mathias, what do you think? Is Jim Chalmers right? Are you over playing this?
MATHIAS CORMANN: No. We have said for some time that we are facing global economic headwinds. Everybody can see the global trade tensions and the geopolitical issues that are weighing down on global economic growth. We have been planning for dealing with the impact of global economic headwinds we are facing. On top of that, we had a significant flood earlier in the year with a significant impact and we are dealing with a significant drought which has a significant impact on the domestic economy. If you look at the IMF figures, they have again downgraded their outlook for global growth. Australia is globally focused, which also means a globally exposed, open trading economy. When global growth slows down that inevitably has an impact on our Australian domestic economy. Irrespective, if you look at the Australian growth outlook that the IMF has put forward, it is higher than all of the G7 nations except the United States. In an international context, the Australian economy continues to perform well. We are into our 29th year of continuous growth. 1.4 million new jobs. The highest workforce participation on record. The lowest welfare dependency in three decades. We continue to be a AAA-rated economy. Yes, we are facing challenges. We are dealing with those challenges. We have a plan to deal with those challenges. The key is to continue to monitor the situation and make any adjustments in an orderly fashion, but continue to execute our plan.
ANNELISE NIELSEN: Now when you say you have a plan and you’re going to adjust, this forecast has come out now looking ahead. This is after we have already had the tax cuts come through. What kind of fiscal stimulus is in the pipeline? Is there any because that is what this report is calling for?
MATHIAS CORMANN: The IMF report is very focused on the implications from global geopolitical dynamics and trade tensions on the global economy and the flow-on effect, as they see it, on economies around the world, including the Australian economy. We factored those global economic headwinds in when we put the Budget together. That is why we prioritised $300 billion worth of income tax relief which has already been legislated through the Parliament. That is why we do have a $100 billion infrastructure investment pipeline. That is why we are pursuing such an ambitions free trade agenda, to ensure that our exporting businesses have the best possible access to markets around the world. That is why we are focused on bringing electricity prices down. We will continue to implement our plan. But the third quarter national accounts data for Australia will come out in early December. We will of course consider the information that flows from that. That will help inform our final judgements in relation to the half-yearly budget update, as we have always said.
ANNELISE NIELSEN: But why not move for more fiscal stimulus when this is the worst growth forecast in 10 years? Why not agree with them? This is a call that’s also coming from the RBA Governor and it’s also coming from the Opposition. Why not listen?
MATHIAS CORMANN: We have provided significant additional stimulus to the economy. $300 billion worth of income tax relief. That is $300 billion of additional money into the pockets of Australians … interrupted
ANNELISE NIELSEN: That’s over the next 10 years though, isn’t it?
MATHIAS CORMANN: … and $20 billion over the last two and a half months or so so far and continuing to roll out. That is a significant stimulus over the economy… interrupted
ANNELISE NIELSEN: And we’re still hearing this bleak forecast.
MATHIAS CORMANN: When you say weak forecast, the second highest growth outlook compared to G7 economies. Highest except for… interrupted
ANNELISE NIELSEN: It’s still down to 1.7 per cent. Down 0.4 per cent. Global growth down, Australia’s growth. By 2020, you’re still predicted to be down half a per cent to 2.3 per cent.
MATHIAS CORMANN: We have a plan to deal with all of this. We are implementing that plan. We think it is very, very important that we continue to stick to that plan. I should just say, making sure that government lives within its means is actually a very important part of ensuring that we are as resilient as possible economically and fiscally. As I have said to you the other day, the Government does not have any money of its own. Increased spending means increased taxes. Increased taxes would harm the economy. Labor went to the last election proposing to increase taxes … interrupted
ANNELISE NIELSEN: It doesn’t necessarily mean increasing taxes though. It could just mean a lower surplus. Still a surplus, but still just less than $7 billion.
MATHIAS CORMANN: Increased spending over time, if you increase a spending growth trajectory you will expose yourself to a higher tax burden. Labor went to the last election… interrupted
ANNELISE NIELSEN: You can afford it though.
MATHIAS CORMANN: Labor went to the last election proposing to increase spending and to increase the tax burden. We made the point to the Australian people that that would weaken the economy. It would lead to higher unemployment and lower wages over time. The Australian people agreed with our judgement. We are sticking to our plan as we always do Of course we have continued to assess all of the economic information in front of us. We will make judgements in the context of the half-yearly budget update in an orderly fashion to continue to adjust our plan moving forward. Next year we will have another Budget.
ANNELISE NIELSEN: We’ve had comments this morning from former Liberal Treasurer Peter Costello, one of the most revered treasurers in the Liberal Party’s history, saying there’s only so many interest rate cuts left in their pocket, we are at 0.75 per cent, that it’s time for fiscal stimulus. If you have got Peter Costello saying it, surely it’s time to pull the trigger?
MATHIAS CORMANN: I have not seen him say it is time for fiscal stimulus. I have heard he made comments about the level of interest rates. It is a mathematical fact that there is not much more scope. Ultimately, these are decisions that the Reserve Bank makes independently. That is a very important feature of our system. The Government will continue to make decisions on fiscal policy settings. What I am putting to you is that we knew that these global economic headwinds were coming. We were quite candid with the Australian people in the lead up to the last election. We were very candid in fact, in the lead up to the last election with the Australian people about the global economic headwinds that we were facing, which is a key reason why we made the point that this was precisely the wrong time for Labor’s high taxing, high spending agenda, because it would have weakened the economy at a time when we were already facing a whole series of challenges. Whereas our agenda is of course entirely focused on strengthening the economy into the future. Incidentally, the Reserve Bank Governor has repeatedly said in recent weeks that he expects the economy to gradually strengthen on the back of lower interest rates, lower taxes, continued high investment in infrastructure. Our housing market has started to stabilise on the east coast. The resources sector has picked up. We have to actually also look at the upside … interrupted
ANNELISE NIELSEN: The upside of 0.75 per cent interest rates?
MATHIAS CORMANN: In terms of the economic position we are in. Again, in an international context, the UK, Germany, Singapore, they had negative growth. They were contracting … interrupted
ANNELISE NIELSEN: For the depositors though, that means paying the bank to hold onto your money. That’s extraordinary thing to be putting onto the people.
MATHIAS CORMANN: Australia continues to grow. We are in our 29th year of growth.
ANNELISE NIELSEN: Talking about a person with a savings account, you don’t have a mortgage. There’s a lot of them out there and a lot of the retirees that helped put you guys into government, don’t you want them to be confident about savings?
MATHIAS CORMANN: So the point here is, when I talk about negative growth, I am talking about negative economic growth in Germany, the UK and Singapore. When it comes to interest rates, at times of lower interest rates, part of the reason why that helps to strengthen economic growth into the future is that investors and people with savings look for opportunities to invest in business-growing, economy-growing opportunities … interrupted
ANNELISE NIELSEN: Or they put their money under their mattress.
MATHIAS CORMANN: In the end, every individual Australian makes their own judgement as to how they invest their money. Clearly, as interest rates are lower, that enhances the incentive for people to invest their savings in economic activities that offer them the opportunity of a higher return.
ANNELISE NIELSEN: Do you think banks are going to be happy with that though? They rely on deposit holders. They rely on rely on people having money there so they can make money to the lend it out. You’re telling them to go spend it somewhere.
MATHIAS CORMANN: I am not saying to just go and spend it somewhere. This is just normal economics. lower official cash rates, lower interest rates, in general, mean that it becomes more attractive to invest in commercial activities that help to grow the economy into the future. That is just basic economics. In terms of the banks, I do not think that we have to worry about the profitability of the banks just yet. I think our banks are in a very strong position. They should have passed on the cuts of the official cash rate in full. The comments from the Reserve Bank Governor in recent times have indicated that the banks’ funding costs have been coming down. We now have this ACCC review which will look under the bonnet, so to speak. We will look at all of the facts and we will see what comes out of that.
ANNELISE NIELSEN: Just finally, do you envisage at all that we’ll see quantitative easing in the next six months?
MATHIAS CORMANN: You asked me that the other day. Monetary policy is entirely a matter for the Reserve Bank. It is not something for the Australian Government … interrupted
ANNELISE NIELSEN: It is something you’re planning for though?
MATHIAS CORMANN: The other point I would make is that the Reserve Bank Governor has been absolutely explicit, he cannot foresee a scenario where there would be unconventional monetary policy settings required in Australia. I look at the person that actually has responsibility for this together with the Reserve Bank Board, and the Reserve Bank Governor has been very clear that he cannot foresee a scenario where Australia would require unconventional monetary policy settings.
ANNELISE NIELSEN: Well, we’ll have to wait and see. Mathias Cormann, thank you for your time.
MATHIAS CORMANN: Always good to talk to you.