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
MATTHEW TAYLOR: Let’s bring in the Finance Minister of Australia, Mathias Cormann, joining us now live from Canberra this morning. Minister, thank you very much for joining us as always. The budget surplus has downgraded as I outlined. How challenging is the revenue environment at the moment?
MATHIAS CORMANN: Australia is not immune from what is happening in the global economy. We have obviously had several downgrades in the global economic growth outlook. That has had flow on impacts on the Australian economy. On top of that, we are dealing with a significant drought in large parts of regional Australia and the impact of bushfires. Our economy continues to grow, employment growth remains strong, but we have had significant downgrades in revenue forecasts and projections. Despite those revenue downgrades, we continue to return the Budget to surplus and to keep it in surplus over the forward estimates period and the medium term.
MATTHEW TAYLOR: With the respect to the growth levels, I just outlined the numbers when it comes to the 2019-20 year. The expectation is for growth at 2.25 per cent, down about half a per cent from what the Government estimated at Budget time, but isn't that still a little bit too optimistic. I was running through some of the numbers there. In Q3 Australia only managed growth of 1.7 per cent, so is it perhaps still a little bit too on the optimistic side?
MATHIAS CORMANN: We don’t believe so. Our forecasting assumptions are broadly consistent with those of the RBA and relevant international organisations. Since the election we have legislated a further $158 billion worth of income tax relief. We had several reductions in the official cash rate. We had significant additional investment into infrastructure. The housing market has stabilised. The resources sector is picking up. Our exchange rate remains internationally very competitive. Our outlook is quietly optimistic. We have built in some conservatism into our forecasting assumptions. With some of the more recent events in relation to US-China trade tensions and the resolutions that are now imminent in relation to Brexit, we actually believe that the global outlook will probably become somewhat more benign than what it was when we were putting this half-yearly Budget update together.
MATTHEW TAYLOR: I want to ask you about the trade issue in a moment, but just back to what you were talking about with respect to the RBA lowering interest rates. Really doing a lot of the heavy lifting to try and stimulate the economy, yet it doesn't appear as though it’s having any impact. If you look at the latest reads on consumer sentiment showing that Australian consumers still remain fairly pessimistic. Why isn't it time for the Government to unlock perhaps a little in the way of some sort of fiscal stimulus package?
MATHIAS CORMANN: We will continue to work calmly and in a considered fashion to implement our plan. If you look at the growth in the first three quarters of 2019 it was stronger than during the two last quarters of 2018. Things are heading in the right direction. The global environment has been challenging. We do understand about some of the domestic factors which are assumed to be temporary like the drought in particular. The forecasting assumptions are based on what we believe is likely to happen based on where we sit today.
MATTHEW TAYLOR: Why is the surplus necessary? It is only a slim surplus come 2019-20 at $5 billion and I know this question has been asked of the Government, of the Morrison government, time and time again. If the economy needs a bit of a helping hand, shouldn't perhaps foregoing a budget surplus be a more prudent way of managing the economy rather than sticking to the target of quite a meagre budget surplus come 2019-20 at $5 billion.
MATHIAS CORMANN: Except what you are suggesting would not be a prudent way of managing the economy. The Government doesn't have any money of its own. The only money that we can spend, and less well than people and businesses, is money that we take out of peoples’ and businesses pockets and that has a harmful effect on the economy. That is precisely the argument that we had at the last election when Australians supported our plan for lower taxes instead of higher taxes, which people understand actually leads to stronger growth over time and better opportunities for people to get ahead. This proposition that somehow we should take more money out of people’s pockets in order to spend more money through government is not one that we support and it is not one that the Australian people supported at the last election.
MATTHEW TAYLOR: Let’s talk about the US-China trade deal reaching some sort of resolution late on Friday and at the weekend. What is your response to this phase one deal that has now effectively been agreed upon? It hasn't been signed off yet and of course with respect to the United States anything could still happen on this one. Clearly it’s a step in the right direction, but do you think people are perhaps overestimating the impact that this resolution could have on the global economy more broadly?
MATHIAS CORMANN: No, we don’t. We very much welcome the recent developments. There is no question that trade tensions, in particular between the US and China, have weighed very heavily on global economic growth and the global economic growth outlook and confidence in countries around the world. Australia is an open trading economy, a globally focused and a globally exposed trading economy, so when you have tensions like this weighing on global growth that has an immediate impact on growth domestically here in Australia so we of course welcome the recent developments in that regard. With Brexit, the same. The uncertainty over the last three or so years in relation to Brexit, that was just another factor weighing on global growth and the election result a few days ago now provides a clear path forward and provides certainty to the world in terms of how this is now going to be resolved.
MATTHEW TAYLOR: There’s clearly still a way to run on the trade dispute between the China and the US. Yes, we have this phase one deal now, but who knows how many other phases there will be – two, three, four, five. We know that the US President has said that he is willing to take this issue right up to the 2020 election campaign. From Australia’s point of view then, how do you mitigate this if it goes on for another one, two, three or even four years?
MATHIAS CORMANN: Well we are very encouraged by the conversations that have been going on for some time and by this recent development. Things are heading in the right direction. In our Budget we have factored in the downside risk from continued global trade tensions. We have been cautious in relation to our outlook and we certainly haven’t banked on any assumed outcomes. From our point of view, we are keen to see those trade tensions resolved conclusively. We would like to see a sustainable accommodation between the US and China in relation to trade matters that they are working their way through. We think that would be good for them. It would be good for us and it would be good for all countries around the world.
MATTHEW TAYLOR: We have to leave it there we are out of time. Finance Minister Mathias Cormann, as always thank you very much for joining us to run us through those numbers there. Mathias Cormann, the Finance Minister of Australia joining us there from Canberra.
MATHIAS CORMANN: Always good to talk to you.