Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 2 September 2020
KIERAN GILBERT: Australia’s economy is officially in recession after the June quarter data revealed GDP had seen the economy shrink by seven per cent due to the pandemic, the COVID crisis, representing an annual decline of 6.3 per cent. It is the biggest drop since records began in 1959. With me live in the studio is the Finance Minister Mathias Cormann. Thanks very much for your time. The Treasurer pointing to the impact in the UK, and France, the US, Canada, all much worse than Australia’s seven per cent. Is the point that it could have been a lot worse if not for the health story being as good as it has been in this country.
MATHIAS CORMANN: The coronavirus pandemic has hit economies around the world very hard. It has hit our economy very hard. Today is a hard, tough day for Australia. Many Australians have gone through a difficult period over the last six, seven or so months. There is no sugar coating this. But Australia did go into this crisis, which is an external event, it is something that was beyond our control, Australia did go into this crisis in a stronger position than others. We were able to respond to the health threat more swiftly than others, and more effectively than others … interrupted
KIERAN GILBERT: Because it could have been twenty per cent.
MATHIAS CORMANN: … and in June, July our economy was heading back in the right direction. To the extent that jobs were being restored. 280,000 jobs were restored in the economy in June for example. But then the outbreaks in Victoria happened. That had a renewed very negative impact on the economy as a whole.
KIERAN GILBERT: But Treasury in March saying it could have been twenty per cent, contraction.
MATHIAS CORMANN: There is no question that things are not as bad as they could have been. They are certainly not as bad as they are in many other parts of the world. They are still bad. But we know why we are here. We know what has caused this. We do know that the fundamentals of the Australian economy are sound. When we get out of this on the other side, we will have a strong economic and jobs recovery.
KIERAN GILBERT: In recent decades it has largely been the RBA that has had to lead the economy out of downturns via rate reductions. That scope for the RBA is not there. So how is the Government going to stimulate private sector investment?
MATHIAS CORMANN: We have already provided historically unprecedented fiscal support into the economy. One, to provide a safety net under the economy, to cushion the blow of the coronavirus hit on the economy. We have also, and it is perhaps not as widely known given the prominence of JobKeeper and the enhanced JobSeeker program, but we have also provided very significant incentives for businesses to invest in their future growth and success already. Through our instant asset write off arrangements for businesses with a turnover up to $500 million. Through our accelerated depreciation arrangements. In the context of the Budget, we are assessing what more we can do in terms of providing the appropriate incentives to business, lowering the tax burden, providing incentives to businesses to invest, so that they have the best chance to grow and will hire more Australians. But also to reduce the regulatory burden on business, reducing the cost of doing business, reducing the cost of energy for business, making sure that we give our exporting businesses the best access to markets around the world, pursuing our skills and training agenda to ensure that the workforce is in the best position to take advantage of these opportunities. So there are a lot of things that we have been doing that we continue to do and that we will do. In the Budget we will have the next instalment of our five year plan to maximise the strength of the economic recovery on the other side.
KIERAN GILBERT: And so on that Budget, is there the prospect that you will bring forward all the tax cuts? Because the next two phases were scheduled for 2022 and then 2024, 2025. Given the urgency, given this unprecedented situation we are in, why not bring them all forward to this year?
MATHIAS CORMANN: Interesting suggestions. I am not going to deliver the Budget for you tonight. But I can tell you, and I think the Prime Minister, the Treasurer, all of us, myself, we have all confirmed that we are looking at how we can adjust tax policy settings with a view to maximise the strength of the economic recovery moving forward. We have already legislated $300 billion worth of income tax relief. To the extent that we can do more in order to facilitate stronger growth moving forward, we will be considering that. But we are also very much considering what we can do to give businesses the confidence and the encouragement to invest in their future profitability, their future success, their future growth, because growing businesses will hire more Australians.
KIERAN GILBERT: Indeed. That flat rate though that you announced a few years ago, 2018 it sounded quite drastic at the time. A flat rate for all those earning up to $200,000. Now it seems almost a minor change. Given how crazy things are in terms of the economy. Now is the time for big changes, isn’t it. Because it is needed to pull us out of this mess.
MATHIAS CORMANN: The tax reforms that we pursued and legislated in the past were the right reforms for the time. They were designed to put Australia on the strongest possible economic growth trajectory from where we were at that time. We have been dealing with a one in a one hundred year event, a serious hit on our economy. We do have to reassess whether policy settings can be further improved. We face … interrupted
KIERAN GILBERT: Do you think people are more open to that, because certainly the sense I get from talking to family, people in business, whatever else they want something to happen.
MATHIAS CORMANN: I think that Australians overwhelmingly understand that we cannot continue moving forward, forever and a day, with this crisis level expenditure, which is here to facilitate the best possible transition through this period. But Australians also understand that we do need to put reforms in place that ensure that businesses will invest, that businesses have the best chance to grow, because we know that growing businesses will hire more people.
KIERAN GILBERT: And the incentive for workers too via the tax system obviously, which you have been arguing for a long time. Do you also, as a member of the razor gang for so long, does it weigh upon you how long it is going to take to pay all this back?
MATHIAS CORMANN: I am relieved, I am really truly and genuinely relieved that we had the opportunity to repair our Budget over our first six years in Government. We put our Budget on a stronger, more sustainable trajectory. We went into this crisis in a fiscally stronger position compared to what we inherited in terms of the outlook. So that has enabled us to provide very significant support through this crisis. The Australian economy will return to growth. We will return to growth, we believe above trend for a period. There will be an opportunity for us on the back of stronger growth to generate increased revenue and also to bring down that expenditure on income support, welfare payments again as people return back to work.
KIERAN GILBERT: Is your home State of WA, has it been vindicated with the hard border because the Treasurer there Mr Wyatt says that their State, your State hasn’t contracted as much as the national economy has or as much as Victoria or New South Wales has, the two States most affected.
MATHIAS CORMANN: I am not sure that Victoria is a valid comparison given what has been happening in Victoria in terms of the extent of the outbreak. Western Australia, the West Australian economy is contributing to our national economy in a very important way. As a result of the resources sector in Western Australia, the agricultural sector, both resource exports and agricultural exports have been maintained at high levels. Prices are very strong. The price of iron ore, which in our Budget is assumed to reduce to US 55 a tonne continues to run at about US$115 a tonne. There are a lot of things that the West Australian economy is contributing appropriately. Talking about State borders specifically. There is a place in a crisis context to pause and to give yourselves the tools to best manage the risks you are facing in the best possible way. But moving forward and I am sure that the Premier in Western Australia would agree with this, we do need to get ourselves into a position where we can get back to as close as normal as possible. Where we can, in a practical and common sense way, facilitate the strongest possible economic recovery by opening those borders in a way that is COVID-safe. That ought to happen as soon as possible, in a way that is sensible, but certainly as soon as possible.
KIERAN GILBERT: You spoke about the iron price, it is interesting because from the WA perspective and Mark McGowan obviously wanting to continue a strong trading relationship with China. We are in a difficult time in terms of that relationship. How would you like to see that unfold over coming weeks and months? Would you like to see both sides take an off ramp in terms of the escalating tensions, because right now it seems that some of the rhetoric, not just in China but in Australia as well as part of the debate, it is only heading in one direction.
MATHIAS CORMANN: The Australian Government is committed to having the best possible bilateral relationship with China. Our relationship with China is a very important trade relationship. It is an important strategic relationship. It is a mutually beneficial relationship. It is a relationship where both parties draw benefit out of in particular our trading relationship. But in any relationship, from time to time, there are issues that will arise on which there is a difference of opinion. Our view would be that where there is a difference of opinion, these issues ought to be worked through in a positive and constructive and mutually respectful fashion. That is certainly our commitment. That is the way we are approaching it.
KIERAN GILBERT: Let’s, if we return back to the emergency response JobKeeper. Labor says you shouldn’t be reducing it in the face of this economic crisis, the teeth of the crisis pretty much. What do you say to that in terms of tapering the size of JobKeeper?
MATHIAS CORMANN: I fundamentally disagree with them. It is very important that we manage an appropriately well calibrated phasing out of this historically unprecedented crisis level support. There was an initial crisis. We responded to the crisis. We enabled the economy to adjust its settings in the context of the coronavirus pandemic hitting us unexpectedly. But moving forward, we have to allow the economy to adjust. We have to allow businesses to adjust. We have to get ourselves into the new normal in as efficient a way possible, so that the economy can start growing again from its new base. If we continue to provide support that delays the level of adjustment that is required, what it means is that we will delay the recovery.
KIERAN GILBERT: Does that mean a further tapering as of March next year is inevitable as well?
MATHIAS CORMANN: I am not going to pre-empt. This has been, looking back, a rapidly evolving situation. The Government has demonstrated that we were prepared to respond pragmatically to a rapidly evolving situation. As the facts change, our decisions were made consistent with that revised context. Moving forward that is what I expect that we will continue to do. From where I sit here now, the intention is to phase out that historically unprecedented crisis level support by the end of March in a carefully, calibrated and responsible fashion. That is what we think is important to maximise the strength of the recovery on the other side.
KIERAN GILBERT: Tony Abbott, the former Prime Minster has spoken about virus hysteria. He says now that each of us has six months to consider the pandemic, to make our own judgements about it. Surely it is time to relax the rules so that individuals can take more responsibility and make more of their own decisions about the risks they are prepared to run. Is that an argument that resonates with you?
MATHIAS CORMANN: I have not read the speech in detail. Some of the things that have been reported I disagree with. When you talk about a public health threat and a pandemic of this nature, decisions that individual Australians make can have very significant consequences for the community as a whole. It is appropriate that we make decisions in that context. The Australian Government’s approach has very clearly been that we are committed to protecting people’s lives, protecting people’s health. We are also committed to protect people’s livelihoods. We have to do both. We have to continue to do everything we can to minimise to the greatest extent possible the risk of further outbreaks, so that we can also increase and reopen to the greatest extend possible and maximise the level of economic activity to the greatest extent possible, in a way that is COVID-safe. When you are hit with an unexpected crisis, you have to pause, you have to give yourself the tools to manage the risk and testing, tracing, rapid response to outbreaks and COVID-safe work practices in workplaces around Australia. So that there is minimum risk and maximise opportunity to restore the economy to the highest level possible.
KIERAN GILBERT: You have been around this place for a while, you have only got three or four months left. It must, are you able to contemplate that because you are obviously in the face of Budget preparations, whatever else, but your time in Parliament is going to wrap up shortly.
MATHIAS CORMANN: I love this job. I am part of a great team. I am going to give it my everything until the last day, the last minute that I have the privilege of being in this job. When Parliament is sitting you do not have much time for self-contemplation. So I am just focused on the job.
KIERAN GILBERTThat is true, Mathias Cormann thanks, we will talk to you soon.
MATHIAS CORMANN: Always good to talk to you.