Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 7 October 2020
WILL KOULOURIS: I am very pleased to be able to welcome the Finance Minister of Australia, Mathias Cormann to discuss all of these matters, he is joining us live via the phone from Canberra. Minister just firstly, this obviously wasn’t the Budget that you had to deliver, but you did deliver it in the face of some incredible pressure when it did come to the COVID-19 pandemic, not just here in Australia, but around the world. But, in terms of the spend that we are seeing today, or should I say yesterday, is this the upper extent of what you are looking to provide?
MATHIAS CORMANN: Well, yes. Australia and the world was hit by a one in a one hundred year global pandemic event which has hit our economy hard, which has hit business and working Australians hard. Having provided the initial crisis support to cushion the blow on the economy, on jobs and on working families, what we are doing now is investing in the strength of our economy recovery moving forward. Yes, it is a sizable deficit in an Australian context, but we went into this crisis in a comparatively stronger fiscal position. Even after all of this additional expenditure and all of these additional fiscal support measures we put in place, we continue to be in a substantially stronger fiscal position and in a lower debt position as a share of GDP than just about any other advanced economy around the world, with substantially lower Government net debt than the US or the UK or Europe or Japan or any comparable country.
WILL KOULOURIS: Minister, I wanted to touch on the incredibly consequential business investment strategies that you have implemented in the Budget. You have the asset write offs, you have the ability to offset some of their losses into June 2022. But I wanted to touch upon, with all the uncertainty we are seeing in business, with the utilisation rates still remaining relatively low, you are basically asking businesses to take a leap of faith with you when it does come to reinvesting in the Australian economy? Do you think they are going to make the jump?
MATHIAS CORMANN: Well, I believe so, Australia’s economic fundamentals were strong before this crisis hit. We know why we are where we are. We know what has caused it. Everybody knows what has caused it. Australia continues to be in the part of the world, the Asia Pacific, where most of the global economic growth will be generated for decades to come. We are an internationally competitive, open trading economy. We are providing incentives through the tax system in a way that is time limited in order to really trigger those decisions by business to bring any investment decisions forward to invest in their future growth and success. Because in the end we all want more jobs, but jobs don’t grow on trees, they are created by profitable growing businesses and that is why we want businesses to invest in their future growth and success right now. The fiscal advantage of doing the full expensing of the instant asset write off is that yes, it costs the budget a lot of money now, and it provides a cash flow boost to business now, but it is money that we recoup over the medium term, because the deductions are no longer available down the track, the profits and the taxable incomes will be higher than what they would otherwise have been. So over the medium term it is actually quite a low cost, but we are bringing some of that fiscal effect forward.
MARTIN SOONG: Minister, this is Martin let me quickly jump into the questions. The good news is that Australia is throwing an unprecedented amount of stimulus at its economy to support it and to support working Australians and jobs as well as companies. The bad news is, as we have been reporting all morning long, the President of the United States has decided to end talks on further stimulus for his own economy. I know, I realise you would loath to comment on the policies of an ally and partner such as the United States, but this is the world’s number one and economy and it matters including to Australia. What do you think?
MATHIAS CORMANN: We have great confidence in the United States and the political and democratic process in the United States to resolve decisions in such a way that will continue economic opportunity for people across the US moving forward. I am certain that the democratic processes in the US will ensure that the US will continue to be a significant economic power, making a significant contribution to the world economy, for many years and decades to come.
MARTIN SOONG: Let me ask you a very pointed question, should there be a Democratic victory come November the third Joe Biden, if there is a blue sweep, if the Democrats take back Congress as well, are you expecting not just stimulus, but even bigger make-up stimulus because it is going to be coming late, even later?
MATHIAS CORMANN: I am not going to speculate on the outcome and I am not going to commentate on potential scenarios. The decision on who the President of the United States is going to be moving forward, is entirely a matter for the people of the United States. Australia, as a strong, reliable friend and ally, under governments of both political persuasions, will work with whomever the American people choose as their President. We will, as we have always done and we are confident the US will do, as the US has always done, we will work with each other closely to promote peace, stability and prosperity across the world.
SRI JEGARAJAH: Minister, if I may circle back to Australia and ask you a very direct question. Would you be open to an inheritance tax, which would not only go some way arguably in plugging the deficit but would also help bridge wealth inequality?
MATHIAS CORMANN: No we are not. We are not in favour of so-called death taxes. We are not in favour of increasing the tax burden on the economy. We think it is precisely the wrong way to go. What you are essentially saying is that we should put a double tax in place in relation to income that has previously been taxed. We believe that as we want to maximise the strength of the economic recovery moving forward, increasing the tax burden on the economy in any way shape or form, including through the measure you have just suggested, would actually harm the tentative economic recovery we are currently experiencing.
SRI JEGARAJAH: Right understood, on the other side of the ledger then income tax cuts as I understand it Minister they were due to take effect in 2022 but they are now being brought forward. How deep do they go then and what can working Australians expect?
MATHIAS CORMANN: We have backdated these income tax cuts back to 1 July 2020, so we are effectively bringing those tax cuts forward retrospectively. It will mean several thousand dollars in additional money in workers’ pockets in the 2020-21 Financial Year and moving forward. That will help support aggregate demand in the economy, so it will also help stimulate the economy at a time when that is very much needed.
WILL KOULOURIS: Minister, in terms of those tax cuts what if the behavioural attitudes or trends I suppose when it does come to spending are ingrained and not necessarily able to be stimulated in the aggregate demand fashion because I know you don’t want to tell the Australian public how to spend their money, you’ve made that very clear. But you’re pretty much with these tax cuts making a polite request am I right?
MATHIAS CORMANN: Well no, look we are making judgments, this income tax relief that is being brought forward is very much being geared towards the low and middle income end and our expectations based on past experience is that this is part of the segment of the population most likely to make a choice to spend that money in the economy. So we do expect that most of that money will contribute to a boost in aggregate demand across the economy, but having said that every individual Australian is of course free to make their own choices in relation to how they allocate their money. We are making a decision to leave people with more of their own hard-earned money and to take less out of their pockets through the tax system. If people choose to put some of it away by way of increased savings for a rainy day, that in itself also helps to strengthen their personal financial position and helps to boost their confidence about the future.
WILL KOULOURIS: Now the AAA credit rating has long been a lodestone for your government, we have already heard S&P and Moody’s that they’ve got you kept at that AAA negative outlook. But the CBA this morning basically suggesting that that AAA credit rating is under severe threat. Is that worrying in terms of going down a notch, because borrowing costs as they are right now shouldn’t seem that much of a difference?
MATHIAS CORMANN: Well look, we have made the decisions that we had to make. Because we repaired the budget so strongly in the first six years that we were in government, because of the efforts we made in our first six years of government to repair our budget we did go into this crisis in a comparatively strong position, in a strong fiscal position, and a comparatively strong economic position. All of the rating agencies know why we are in the fiscal position we are in. They understand what it is that we are doing to get Australia back out of this COVID recession and into the strongest possible recovery moving forward. And look these judgements are of course a matter for them, we’ll continue to make what we believe are the right decisions for this time in the current circumstances to ensure that the Australian economy is on the strongest possible foundation and trajectory for the future. That the Australian people have the best possible opportunity to get ahead in the future.
SRI JEGARAJAH: Minister, Qantas and Virgin Australia, do they need more support and have they approached the Federal Government for additional funding and if so are you open to extending the existing package of support measures to them?
MATHIAS CORMANN: We have provided sector wide support to the aviation sector. There is no question that aviation, airports and the tourism sector more generally have been on the frontline in terms of the impact of the coronavirus pandemic, including and in particular due to the severe restrictions that had to be imposed on the movement of people across international borders and across even state borders within our own country. We will continue to review the situation as it continues to evolve and if further decisions are required, they will be made at the appropriate time. But obviously we are hoping that the economy can continue to recover and continue to return to a situation as close as possible to normal as soon as possible, including by facilitating increased levels of domestic aviation.
MARTIN SOONG: Minister, very quickly before we let you go, the Australian Dollar 71 even as we speak, this is after the RBA held fire yesterday just ahead of the Budget. Are you comfortable with the Aussie at 71 right now? I know the RBA would prefer it to be a bit softer.
MATHIAS CORMANN: The value of the Australian Dollar is set by the market. We have a floating exchange rate, which is a very important feature of our system, which is one of the automatic stabilisers and one of the features of our economic architecture that helps maintain our international competitiveness. It is what it is, is my answer. I am not going to provide any commentary beyond that, it is entirely a matter for the market to determine what the value should be at any given time.
MARTIN SOONG: Okay, fair enough Minister, great to talk to you, thank you so much for your time. Please keep safe and hope to talk to you very soon. Mathias Cormann there Australia’s Finance Minister joining us.