Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 7 October 2020
BROOKE CORTE: Mathias Cormann is the Federal Finance Minister and he is with us tonight on Money News, Senator good evening.
MATHIAS CORMANN: Good evening.
BROOKE CORTE: We have to talk about debt and deficit to begin with. I think people are genuinely interested but confused when it comes to national debt. I think we understand that this big spending was necessary because of what we have been through, but we all know there is no such thing as a free lunch. Should we be worried about this level of borrowing?
MATHIAS CORMANN: No. Again, we did not really have any alternative. Australia did go into this crisis in a comparatively stronger fiscal position as a result of the Budget repair work that we did during our first six years in Government. Our Budget had returned to balance in 2018-19. When we got into this, when we went into this crisis, we did have the fiscal firepower to respond, by boosting the health system, by cushioning the blow on the economy and jobs and now by putting forward this plan to help restore the jobs that were lost and to create as many new jobs as possible, to ensure that we can maximise the strength of the economic and jobs recovery moving forward. If we had not stepped up in this context, the level of disruption and economic harm and ultimately the harm to the Budget longer term would have been worse. Yes, we are having a deficit of 11 per cent as a share of GDP this financial year, but that is going to go down within the decade to about 1.6 per cent as a share of GDP. Our payments actually, the fiscal support on the payments side, is very much going to be temporary. We are very quickly going to go back to the pre-crisis payment trajectory within two or three years. The problem is the economy has contracted in the context of the coronavirus pandemic and even though the economy is expected to start growing again, it will grow from a smaller base and as such is going to be consistently smaller than it was anticipated it would be, which will continue to hit revenue for some time. Our debt position, even at its peak of 44 per cent as a share of GDP in Government net debt terms is well below that debt position of comparable countries around the world. Even our gross debt position, which is expected to stabilise at about 55 per cent as a share of GDP is well below that of countries like the US, the UK, Europe more generally and Japan.
BROOKE CORTE: JobKeeper has been like a bullet proof vest for businesses and you have received a lot of congratulations for that program, you have been commended for it. I was looking at the Budget forecast, which expect the unemployment rate to peak at eight per cent in December. If I am thinking aloud, you get unemployment peak in December, but JobKeeper doesn’t finish until after that in the New Year. So that says to me that you don’t expect any job losses from the end of JobKeeper or that you don’t expect any business failures once JobKeeper ends, is that right?
MATHIAS CORMANN: No, the truth is and that is perhaps not well understood. For the first six months, any business that qualified because of a relevant drop in turnover at the beginning of the program, once you were in, you were in for the full six months. But there are now regular re-assessments taking place to ensure that the support still goes to businesses that actually need it, to make sure that their fall in turnover is still such that they need that ongoing support. Because ultimately what we want to happen is that businesses go back to paying for the wages of their employees out of their income rather than based on a taxpayer funded subsidy. What you will find, over the next few months, many, many businesses, as the economy recovers, as businesses continue to recover and as business income and profitability continues to recover, many businesses will, in the natural course of events, drop out of this program. Treasury is …interrupted
BROOKE CORTE: And not lose any workers based on the pending unemployment rate?
MATHIAS CORMANN: No, because they will go back into paying for the wages of their employees out of their business income as they did before this crisis. Businesses that …interrupted
BROOKE CORTE: But some businesses will realise without those subsidies they just fail and they will have to lose workers.
MATHIAS CORMANN: And that is another reason why we should not be extending JobKeeper, because it does not help the economic recovery to keep businesses alive artificially that do not have the capacity to be viable and …interrupted
BROOKE CORTE: Absolutely.
MATHIAS CORMANN: … profitable in this context. We have to allow the economy to adjust …interrupted
BROOKE CORTE: Which means that have been held up, float artificially, which was the right thing through this time, but come March you will get job losses, businesses failures because that has pulled away.
MATHIAS CORMANN: We are not saying there is not going to be any business failures. We are not saying there is not going to be any adjustment in the economy. But what we are saying is the recovery across the economy more broadly will absorb any failures to such an extent as is reflected in our forecasts in terms of the unemployment rate moving forward.
BROOKE CORTE: Can I ask about older Australians? Pensioners get a couple of small cheques, self-funded retirees get absolutely nothing and I ask you this tonight because this is by far the biggest feedback we have had from our listeners. Have you forgotten about them?
MATHIAS CORMANN: No we have not. At the beginning of the COVID crisis we made a very important decision in terms of adjusting the compulsory or the mandatory draw down rates in terms of their superannuation savings. That was an important measure that we took very early on. The most important thing that we can do for self-funded retirees, people that live from the returns from their investment and their savings is to ensure that the economy recovers to the greatest extent possible. Because to the extent that businesses become profitable again, that businesses start growing again, that businesses start paying dividends and indeed, increase in value again, that is where the value comes for self-funded retirees. Self-funded retirees have a direct stake in the strength of the economic and jobs recovery moving forward. They as much as any other Australian will want to see this plan succeed in getting Australia out of this COVID recession and back into the strongest possible economic recovery moving forward.
BROOKE CORTE: Federal Finance Minister Mathias Cormann, thank you very much for your time on Money News. It has been a long day for you and we appreciate it.
MATHIAS CORMANN: Thank you so much, talk soon.