Senator the Hon. Mathias Cormann
Minister for Finance
Special Minister of State
Leader of the Government in the Senate
Senator for Western Australia
Date: Monday, 16 December 2019
GARETH PARKER: So the Budget update from the Federal Government released by Josh Frydenberg this morning. The surplus down, not just this year but in several years to come. Growth revised down. Wage growth revised down. So can the Morrison Government still claim it is managing the economy well? The Finance Minister is Mathias Cormann. Senator good morning.
MATHIAS CORMANN: Good morning.
GARETH PARKER: Thank you for your time. The outlook is tough. That is the excuse, but was the Budget back in April too optimistic?
MATHIAS CORMANN: No. The Budget back in April was based on the most reliable information available at that time. The half yearly Budget update gets compared to the Pre-Election Economic and Fiscal Outlook, which is released independently, that is non-politically, by the Secretaries of Treasury and Finance. Estimates are estimates. They get updated as more information comes to hand. Since the election there are things that have happened internationally, there are things that have happened domestically that have had a bearing on our numbers. That is why we provide an update.
GARETH PARKER: Well this is proof if any further were needed that the economy is really sluggish.
MATHIAS CORMANN: The economy in the first three quarters of this year has actually grown more strongly than in the last two quarters of last year. Things are heading in the right direction. But yes, we are facing some significant global economic headwinds. Everybody knows about the global trade tensions in particular between the US and China. The IMF has downgraded the global growth outlook on a number of occasions. For Australia, as a global trading economy and for Western Australia as a trading state, when there are downgrades in the global economic growth outlook that has implications for us, inevitably.
GARETH PARKER: These surpluses that were projected, $7 billion, then $11 billion in 2020-21, we’re now talking $5 billion and $6 billion. In the context of a massive Federal Budget, they are basically rounding errors aren’t they?
MATHIAS CORMANN: It is a small adjustment yes. The key here is that our Budget is still on track to return to surplus and to remain in surplus despite more than $30 billion worth of revenue write downs, after we have made really some significant additional investments into aged care, to deal with the drought and into infrastructure.
GARETH PARKER: But the bigger issue here isn’t it that this is evidence that this real economy is sluggish. And if you look at the revised down growth figures, 2.25 per cent down from 2.75 per cent. Even 2.25 per cent looks optimistic given the growth currently trudging along at 1.7 per cent isn’t it?
MATHIAS CORMANN: Again, the growth in the first three quarters of this calendar year was stronger than the growth in the two last quarters of 2018…interrupted
GARETH PARKER: So it is going to get stronger next year?
MATHIAS CORMANN: That is our projection, that growth would strengthen…interrupted
GARETH PARKER: Why do you think it will strengthen?
MATHIAS CORMANN: Because of our assessment of what is happening. More than $300 billion worth of income tax relief legislated. About $100 billion investment into infrastructure. The lower official cash rate. An exchange rate that is internationally competitive. A pick up in the resources sector. Stabilisation in the housing market. These are all things combined with our ambitious free trade agenda, which continues to help exporting businesses around Australia get better access to markets around the world. These are all things, our deregulation agenda, our efforts to bring down the cost of electricity, these are all things that are designed to help strengthen the economy and help strengthen the opportunity for Australians to get ahead.
GARETH PARKER: This mid-year update suggests that workers, if they were hoping for a Christmas present or a New Year present of wage rises, then they probably really need to temper their expectations, doesn’t it?
MATHIAS CORMANN: Wage rises do not get delivered by half-yearly budget updates. They get delivered by successful …interrupted
GARETH PARKER: No, but the projections are that wage rises are going to see a real economy that is softer, including wage growth that’s softer.
MATHIAS CORMANN: Wages continue to increase faster than inflation. Real growth in wages is stronger than what it was when Labor lost government in 2013. If you look at what actually matters to people, it is how much of their own money, the money they have earned, they keep in their pocket. If you look at the third quarter National Accounts data, the growth in disposable income, in household disposable income of 2.5 per cent in the last quarter is the highest and strongest growth in disposable income in more than a decade. More than five per cent growth in disposable income over the most recent 12 month period.
GARETH PARKER: And I’m sure you’ll tell me that the Government has already got plans for $100 billion worth of infrastructure spending over the long term, but doesn’t this set of budget numbers or this mid-year update give further impetus to the idea that it might be a good idea for the Treasurer and you and the Government to unleash further stimulus spending and further infrastructure spending?
MATHIAS CORMANN: Firstly, we have delivered more than $300 billion of income tax relief. We have a $100 billion infrastructure investment package …interrupted
GARETH PARKER: But people aren’t spending it, Senator. It seems as though people are using that to pay down their mortgages or they’re saving it.
MATHIAS CORMANN: You know what, that is up to them. Individual Australians are entitled to make their own decisions.
GARETH PARKER: Sure.
MATHIAS CORMANN: Saving more or paying your mortgage off faster does put you in a stronger position for the future in terms of consumption into the future. In terms of this constant question around stimulus, what people need to remember is the Government does not have any money of its own. The only money that we can spend, and we would say less well than individual Australians or businesses, the only money that we can spend is money that we take out of people’s pockets or out of the pockets of businesses. That is money they cannot spend and cannot invest. What we are saying is it is actually important for our economy that we can keep our tax burden low at a reasonable level. Instead of doing the alternative which would be to increase taxes, which is obviously the debate we had at the last election. At the last election the Australian people decided to back in our plan for lower taxes rather than higher taxes.
GARETH PARKER: With Government basically sticking to its plan, what’s going to encourage the private sector to spend more, to grow more, to invest more when, as you keep saying, international headwinds are strong and people are very nervous about the state of global growth after a 10-year expansion.
MATHIAS CORMANN: That is why we are pursuing a pro-growth agenda with significant tax cuts, significant infrastructure investment, an ambitious free trade agenda, a deregulation agenda. But also, in terms of the international environment, our expectation is that some of those issues that have weighed on global growth in recent times will start to improve. You had the election result a few days ago in the UK which means that the whole Brexit situation will now be resolved. Brexit will get done. There will be certainty in relation to an issue where there has been uncertainty for a long time. With some of the recent developments between the US and China in relation to resolving their trade tensions, that is positive from and Australian point of view and in particular a West Australian point of view.
GARETH PARKER: Okay, Senator, thank you for your time.
MATHIAS CORMANN: Always good to talk to you.