Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 7 October 2020
GARETH PARKER: My first guest this morning who has been behind every Federal Budget since 2014, is WA Senator and Finance Minister, Mathias Cormann. Good morning.
MATHIAS CORMANN: Good morning Gareth. Good morning to your listeners.
GARETH PARKER: Did you ever think you’d be responsible for a financial document like this? Two hundred and thirty billion dollars of deficit, debt heading over a trillion dollars.
MATHIAS CORMANN: Well no. That is because I never expected to be in this position at a time when we are hit with a one in 100 year crisis event. It is a significant deficit this year and over the forward estimates, but we know why we're here. We're here because we were hit by a massive global pandemic with massive consequences for our economy, for jobs in Australia and all around the world and consequently for our budget.
GARETH PARKER: And as the Treasurer made clear in his speech last night, the strategy is a private sector led recovery. I want to go through some of this. The tax cuts for individual taxpayers will no doubt be popular, they will be welcomed by people. The point, if I understand it correctly, is to get them to use that money to stimulate the economy. Are you sure that people will spend their tax cuts rather than save them?
MATHIAS CORMANN: In the end decisions about how people spend their money is a matter for them individually. The Government is not going to direct what people do with their own money. What we're saying is through this income tax relief, bringing forward that income tax relief, we are putting more money into workers’ pockets. We are leaving more of peoples own hard earned money in their pocket I should say, and we would expect given those tax cuts are targeted at low and middle income earners, that most of that money will be spent in the economy and boost aggregate demand and, as such, help facilitate the strongest possible economic and jobs recovery. But I should say though, if people choose, based on their individual circumstances, that they would like to save some or all of that money and put it away for a rainy day, that is not a bad thing either. That in itself helps to strengthen their personal financial position and will boost their personal confidence about the future, which in aggregate across the economy also delivers a positive outcome. So in the end it's about choices. Individual Australians make their own choices, but we do believe this will be an important contribution towards the economic recovery moving forward.
GARETH PARKER: There is a range of policies that are aimed at getting businesses investing and creating jobs. I think that the under 35's policy in particular is terrific. I think the best thing that you can do is give a young person an opportunity at getting a job. But I just wonder is there a danger that this might entrench long term unemployment against older workers?
MATHIAS CORMANN: Well no. The experience from previous recessions has been that if you do not take steps to ensure that younger people in particular are reconnected to the workforce as quickly as possible, the segment of the population that is most exposed to the risk of long term unemployment in the wake of a crisis like this one are younger workers. Those that were about to enter the labour market or only just have entered the labour market. Those Australians who are older than that are those in the workforce that have had a longer track record of contribution in the workplace and a longer track record to point to of performance. They will find it comparatively easier to get back into a job as the economy recovers. Now there are measures in this Budget specifically tailored to people, I guess older Australians, people who might need to change jobs, will be able to draw on support that is provided in terms of retraining and the like. There are also, at the over 50’s end, there are existing programs in place that provide support to employers that might want to take on an employee in that age bracket. But in the context of this crisis, given younger Australians were particularly heavily hit when the crisis first hit in terms of job losses or in terms of not being able to get into work, it really was important for us to ensure that this didn't become an entrenched structural problem that was going to become increasingly hard to reverse.
GARETH PARKER: There’s two $250 payments for pensioners, one in December, one in March. Are self-funded retirees being forgotten here 'cause it's, they’re sort of relying on dwindling dividends given [inaudible] profitability and record low interest rates? Is there anything that could have been done for them?
MATHIAS CORMANN: We have previously, of course, in previous Budgets, made judgments and adjustments for example to the deeming rate and so on which has helped them and reduced compulsory drawdown rates I should say, which helps them in particular in the context of this COVID crisis. These are decisions that we made early on in the COVID crisis. Self-funded retirees, the best thing that we can do for them right now is to get Australia out of this COVID recession as quickly as possible. To get the recovery going as quickly as possible, as strongly as possible Because they are invested in the economy through their savings and through their self-managed superannuation and the like and as we, as the economy recovers, as businesses have returned to profitability and the dividends being paid and the value of their shares and investments goes up, that is, that is ultimately what will help them get ahead in this context.
GARETH PARKER: Can you just explain for people how the investment allowance is going to work for businesses, big and small, also the instant asset write off programmes? Because it seems that that's a big part of trying to unleash investment that then creates jobs.
MATHIAS CORMANN: That was essentially saying to businesses here, and this is now businesses with a turnover of up to $5 billion dollars, so a very, very substantial measure here. What we are saying to them, if you invest in your future growth and success instead of having to depreciate the cost of that investment over several years, you are able to do that immediately on the spot. And what that of course does is it frees up cash flow in the short term and makes it more affordable for businesses to invest, to make these investments now. We're providing that on a time limited basis for a period up to 30 June 2022 to really make sure that businesses make these decisions sooner rather than later. And over time that will increase their taxable income compared to what it would have been if the deductions had been spread over an extended period. It means that over time the Government will actually recoup some of that investment through higher taxes down the track. But in this short term, as businesses need the stimulus and need the encouragement, this is a $26.7 billion dollar investment through this measure. The other one that we're doing, there's a whole range of businesses that were profitable prior to this crisis, but that are loss making in the wake of this crisis, and we've put in place a loss carry-back measure which enables businesses to go back to previous tax paid and to go back to previous years when they were profitable, and to claim their losses in 2019-20, 2020-21 and 2021-22 against the tax that was paid back in 2018-19. So they would be able to get a retrospective tax deduction if you like, which also will help them with the cash flow through this period.
GARETH PARKER: Can you explain the superannuation reforms? The Treasurer made, I thought, a quite startling point last night in his speech that for most people the fees that they pay on their superannuation each year, which they don't see and know about for the most part, are actually worth more than their annual electricity and gas bills combined.
MATHIAS CORMANN: The problem that the Treasurer is talking about and which we have been addressing through successive Budgets now, too many Australians do not make any active choices when it comes to choosing their superannuation fund based on performance and based on what suits their personal circumstances. Too many Australians end up in so-called default superannuation arrangements. What makes it worse is that too many Australians, as they change jobs, instead of continuing on in the fund that they were in, end up with unintended multiple accounts. Every new workplace puts them into a new super fund. So what we are saying here now and I mean all of these funds charge fees, all of these funds generally put them into default insurance for which they pay premiums, it erodes the value of their investment, their retirement savings beyond what makes sense in terms of their objective circumstances. So what we're saying is any Australian, when they first get into the workforce and first enter a superannuation fund, if they don't make active choices, if they are in a default arrangement, we will staple that super account to them for every and any workplace that they go into from there on in until such time as they make active choices. So that avoids this situation of unintended multiple accounts with unintended multiple unnecessary fees and insurance premiums. And it helps to reduce the negative impact on their retirement savings.
GARETH PARKER: Okay. There's an assumption inherent in the Budget that a vaccine will arrive next year. Medical experts are very much divided on this. Some say that that timeline is too optimistic. Why is that assumption included in the Budget?
MATHIAS CORMANN: The honest truth is that when you put a Budget together, you do not have total certainty in relation to what will happen in the future. There is no such thing as perfect information. You have to make judgments in the Budget based on the best available information and advice at a specific point in time. That is why they’re called Budget estimates and not Budget actuals. What we have done based on the advice in front of us is made an assumption, which is openly and transparently declared in the Budget papers, that that it is by the end of 2021 when we expect that a vaccine is likely to be available for mass distribution across the Australian community. Now it is possible that that doesn't happen. We do not know. But you have to make an assumption, you have to draw a line in the sand for the purposes of your plan. It could well be that it'll be sooner and then we will have a positive variation at our next update. If it is later there will be a negative variation in the update. The point is, you base your estimates on the best available information. When you get better information you update your estimates and you end up with more accurate estimates. But this is not a perfect world. We are in an environment of greater uncertainty even than usual, and we're making the best possible judgements based on the best possible advice.
GARETH PARKER: There is another assumption about the West Australian border and when that will come down. And the assumption is April. Is there any special insight that that hangs on?
MATHIAS CORMANN: No. It is soon after the State Election and I guess it is a fair assumption that perhaps after this State Election that some of the judgements in relation to these things might return to a more rational basis.
GARETH PARKER: But that’s your political assessment of why the premier has got it up at the moment is it?
MATHIAS CORMANN: Well you tell me why a business in Kununurra is not allowed to visit its customers across the border in the Northern Territory. When in the Northern Territory we have had zero active cases for months on end, we have had zero community transmission locally acquired for months on end. The Northern Territory has demonstrably been in a better stronger COVID safer position than Western Australia just about all the way through. So you tell me one reason why a business person in Kununurra is not able to go across the border. Or why somebody out of Kununurra is not allowed to go into Darwin and back without going into quarantine. If you can explain that to me then you are smarter person than me. I mean, I would have thought that people in Western Australia deserve some objective, predictable criteria on the pathway out, on the exit strategy. And if zero active cases and zero locally acquired transmission for months on end is not enough then, you know, what is enough?
GARETH PARKER: Well yeah the latest advice from the Chief Health Officer is 28 days of no community cases in every State. But I mean today…interrupted
MATHIAS CORMANN: How does a case in Victoria have any relevance on what is happening in Darwin?
GARETH PARKER: Well and today in New South Wales they had gone 11 days without a community case and today there is three and so presumably the clock would reset.
MATHIAS CORMANN: I totally understand that there is. We are all in favour of protecting people’s health. We are all in favour of protecting West Australians from the risk of COVID infections starting again in Western Australia. So that is of course entirely understood. But I cannot see any objective, rational reason why people from Western Australia should be prevented from travelling into the Northern Territory, into South Australia and back given that both those jurisdictions are in a better, stronger, COVID safer position than Western Australian. And indeed, South Australia is quite happy to receive people from Western Australia on that same basis.
GARETH PARKER: Yep, well, I think that you and I see this one similarly though not everyone does. Just two quick last questions from me. It's not the only Budget this week, Josh Frydenberg’s document yesterday, there's also a State Budget handed down by Ben Wyatt tomorrow. What do you want to see in that Budget?
MATHIAS CORMANN: I'm focused on selling the Federal Budget. I have not seen obviously the State Budget in Western Australia just yet. I look forward to seeing it. Obviously we would like to see all levels of government, including the State Government in Western Australia, do their bit to support the economy, to support business, to support jobs, to support the strongest possible economic and jobs recovery moving forward and hopefully we will see some indications of that in the Budget tomorrow.
GARETH PARKER: And just lastly, the great driver of a lot of economic growth over the last decade or two is population growth. The Budget yesterday clearly makes it plain that that is not going to happen for a while. In fact Australia might be a million people smaller than we thought it was going to be. Peter Costello once said ‘One for mum one for dad one for the country’. Do you reckon that needs to be updated, that advice Senator?
MATHIAS CORMANN: We are dealing with a certain economic reality. There are severe restrictions on the movement of people internationally, there are severe restrictions on the movement of people even domestically and indeed, given the economic context we find ourselves in, there is significantly lower demand for skilled workers for example than there might have been otherwise. So all of this will continue to play out. Once we are on the other side of this crisis, and once we are back in the situation where our international borders are able to open, I am sure that Australia will again be a very attractive destination for talented people from all around the world to come and join us and make our great nation an even better place. But right now we just have to face the reality that there's some practical issues there that mean that that won't be the case for a while.
GARETH PARKER: This is your final Budget, you're going to miss not doing them?
MATHIAS CORMANN: Well I have done seven. I have done more Budgets than any Finance Minister before me. I have very much enjoyed it. I have put my heart and soul into it, but I think I have given it everything I’ve got and I think I am ready to hand it over to somebody else and for somebody else to have a go.
GARETH PARKER: Mathias Cormann, thank you very much for your time.