Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 7 October 2020
MICHELLE GRATTAN: Mathias Cormann, I want to start with a clarification, the Government is getting some heat today for making the tax cuts look bigger than they actually are by benchmarking them against 2017-18. On that benchmark, someone on a $120,000 gets $2,745 dollars in a cut. Could you tell us what this Budget does to the tax cut that someone would otherwise get?
MATHIAS CORMANN: What we have done is we have benchmarked it against the situation before we introduced our personal income tax relief legislation. The costing has been done on the basis of, we are bringing forward personal income tax relief that was legislated in 2017-18 and in 2018-19. So 2017-18 is the appropriate benchmark, and the numbers of course have been published. What we have done in relation to low and middle income earners is bring forward that income tax relief by two years as well as at the lower income end, extending the low and middle income tax offset by another year, which means that for those people who already had a tax cut baked in through previous tax cut legislation are essentially getting an additional benefit, doubling up the tax relief for one year.
MICHELLE GRATTAN: Yes, and the benchmark is in the budget, and in the budget papers. But could you just clarify what that taxpayer would get out of this Budget alone, taking away what he’s already got?
MATHIAS CORMANN: The costing has been done on the basis that we have published it. It is clearly up to $2500 plus dollars for an individual, and … interrupted
MICHELLE GRATTAN: Against 2017?
MATHIAS CORMANN: Against 2017-18 which is the relevant benchmark year.
MICHELLE GRATTAN: Yes, but can you make it any clearer for what they get compared to what they would otherwise be paying now?
MATHIAS CORMANN: Well, I have been very clear.
MICHELLE GRATTAN: Alright. Now this is your last Budget, but you’ll still be around for the budget update in December. Will we have an early idea by then if this Budget is working, and will the Government be willing to respond to any need for changes then?
MATHIAS CORMANN: The Government always assesses, monitors, considers all of the economic information, all of the data that comes through. We constantly on an ongoing basis make judgements on what, if any, further decisions need to be made, depending on what happens. When this unexpected crisis event hit us early this year, a one in a one-hundred year pandemic with serious implications for our economy and jobs, we immediately responded by taking measures to protect people’s health, boosting our health system, cushioning the blow on the economy and jobs, and providing increased support to those Australians who lost their jobs. In this Budget we are putting forward our plan to get Australia out of this COVID recession and maximise the strength of the economic and jobs recovery moving forward. But, between any Budget and any Budget update, as a matter of course, of course the Government always will consider how our measures are getting implemented, what the effect is on the ground, how the data continues to evolve, and if and as adjustments to policy settings are required, we will consider them and make them.
MICHELLE GRATTAN: One of the repeated themes of this Government is the need for a more flexible labour market. Doesn’t your job scheme for younger workers fly in the face of that principle?
MATHIAS CORMANN: Not at all. The hiring credit for younger Australians deals with a specific structural challenge connected to a recession. We are in the COVID recession. We want to get out of this recession and the experience from previous recessions has shown that younger Australians, those who were about to get into the labour market, or had only just been in the labour market, are more exposed to ending up as long-term unemployed if they get entrenched in reliance on JobSeeker-type income support payments. Older workers beyond 35 years of age with a track record in the workforce, with much more experience and demonstrated performance, are much more prepared to demonstrate their employability and their job readiness when the economy recovers and when jobs are restored and new jobs are created, compared to the younger cohort which is more vulnerable in the aftermath of a recession. More experienced workers are already a couple of steps ahead. That is why we have structured these hiring credits the way we have.
MICHELLE GRATTAN: Now you say this scheme will support 450,000 people into jobs. What are the assumptions behind this number? It seems a very large number.
MATHIAS CORMANN: It is based on Treasury costings. It is based on an assessment of how many people are on JobSeeker in that age cohort and what the expected recovery is going to be. It is based on an assumption that a business is considering taking on new employees in that sort of age cohort is likely to take advantage of this opportunity to defray some of the costs of hiring those additional employees.
MICHELLE GRATTAN: Are there any assumptions about the retention rate of these workers, because they’re only being subsidised for a year. Will a large proportion of them be, in effect, be just getting a year of supported work experience?
MATHIAS CORMANN: This is a support that is provided to business that is considering hiring new younger workers. It is at a time where we are coming out of the COVID recession. As the economy continues to recover, and those young Australians supported through the hiring credit in employment over a 12 months period for a minimum of 20 hours a week, they clearly have the opportunity to demonstrate their contribution, their performance, their worth. As the economy recovers, continues to recover, businesses continue to grow and actually are looking to hire more people, then clearly those young Australians will be very well positioned for those opportunities
MICHELLE GRATTAN: Now, the Institute of Public Affairs and they are the free market soul mates of many Liberals, say a budget surplus won’t return until 2038-39 at best. When do you think the budget could return to surplus?
MATHIAS CORMANN: I am not sure on what basis they are making that projection. I think it is pretty difficult, particularly from where we sit today, to make projections all the way to 2038, 18 years from now. What we are reflecting in the Budget papers is that we will have a deficit of 11 per cent as a share of GDP in 2020-21. That is projected to reduce to a deficit of 1.6 per cent as a share of GDP over the medium term by the end of the decade. In an Australian context, that is a significant deficit this year. But I hasten to add that fundamentally the reason here is because of a sustained drop in revenue on the back of an economy that, even though it will start growing again, will be on a lower trajectory over the next decade. As such will generate less revenue than had previously been anticipated. On the payment side, all of our fiscal support measures in aggregate will provide a spike, will provide temporary crisis level fiscal support over a limited period. What the budget papers show is that after just a few short years, the payment trajectory is back aligned with the payment trajectory before this crisis hit in our half-yearly budget update then. There is a graph in the budget papers, Budget Paper 1 page 3-30 that demonstrates that very clearly.
MICHELLE GRATTAN: Now the Budget funds 23,000 new age care home packages, at a cost of more than 1.5 billion dollars. But the waiting list is over 100,000 for these packages. Isn't is very small drop in a very large and needy ocean?
MATHIAS CORMANN: We have more than tripled the number of home care places - more than tripled. There are now above 180,000. I think you will find that today, most people who are on a waiting list are getting some services. Of course there is always more that needs to be done. How many people are on the waiting list is probably not as significant as how long those people have to wait before they get some level of support, before they can get increased levels of support. This is another $1.5 billion. All up in this Budget we are providing $2.7 billion additional funding to the aged care sector. We are very conscious that we need to continue to do more. We will as we can.
MICHELLE GRATTAN: What's the justification for holding off until the end of the year to make a decision about what level the base amount of Jobseeker will be set at?
MATHIAS CORMANN: Still today the JobSeeker payment is materially higher than it was before this crisis. It sits at $250 a fortnight above where it was. To be honest that is higher, that is still higher than what various welfare organisations were asking us to increase the JobSeeker payment by when the crisis first hit … interrupted
MICHELLE GRATTAN: We are talking about the base level here though…
MATHIAS CORMANN: I know. I understand the question, I am getting to it. Now that was a crisis response. We always knew that that would cause some distortions. It has caused distortions. We are getting reports from quite a number of businesses who say that they are struggling to convince people on JobSeeker payments to take on work because JobSeeker payments at the level that they have been at without mutual obligations in place for an extended period, when the crisis initially hit it was providing a disincentive to people to actually take on work that was available. Now what we want to do in the next few months is to assess how the economy continues to recover, what is happening in the employment market, this is still a rapidly evolving situation and there has been surprises on the upside too. The unemployment rate is well below where Treasury had feared it would be. Employment, jobs recovery has been stronger than we had feared it might be by now. Depending on what happens over the next few months, we will make judgments informed by the data as it continues to develop. We will make that judgement closer to the end of the year.
MICHELLE GRATTAN: Now you’ve been Finance Minister for seven budgets and for many years you attacked debt and deficit and now you defend extraordinary levels of debt and deficit what does that do to the head of a Finance Minister?
MATHIAS CORMANN: You are comparing apples with oranges. The global financial crisis was a blip compared to what we are dealing with now. The global financial crisis …interrupted
MICHELLE GRATTAN: I’m not saying you don’t do it you must just find it a bit discombobulating…
MATHIAS CORMANN: No, you are suggesting somehow we are doing the same as what was done then. We are not. Firstly and if I might get one answer out in a straight run that would be very, very helpful. The global financial crisis caused a contraction in the global economy of 0.1 per cent. The global pandemic that we are dealing with has caused the contraction of the global economy of 45 times the size. 45 times the size at 4.5 per cent. Furthermore, the government at the time put a lot of money into new programs that were not well thought out. Like the pink batts program and others. There was a lot of waste which, it was not well targeted. There was a lot of increases in expenditure that baked in structural burdens into the budget bottom line. A lot of the expenditure at the time was structural when it was meant to be crisis level expenditure which became the new base from which expenditure grew from there on in. That is not what we are doing. Budget Paper 1 page 3-30 shows you that very clearly. We have made temporary targeted commitments using existing programs and directly designed to support the economy to support businesses, to support working families and keep the people connected to their employer and to support Australians who lost their job through no fault of their own. When we were dealing with a million people losing their job in in in one month, as a result, as a direct result of the covered a pandemic hitting our economy. The proportions are completely different. Our response has been more targeted, it is time limited. It is not baking in structural burdens into the Budget bottom line. So it is a very, very different circumstance. What I would say it is up to Government, in the context of a real crisis to step up and provide support. The first six years that we were in Government we worked very hard to repair the budget to get ourselves back into a more sensible fiscal position. We returned the budget to balance, which stood us in very good state. We were in a stronger position than just about any other country around the world going into this crisis to provide the necessary fiscal support that was required because of the work that we did during our first six years in Government.
MICHELLE GRATTAN: Your usual budget role as Finance Minister has been finding cuts and warding off spending proposals. Did you do any of that this time?
MATHIAS CORMANN: The role of the Finance Minister actually is to ensure that we spend only as much as necessary and as little as possible. To ensure that we have quality efficient and effective allocation of taxpayer resources. That is what we have done in our first six budgets. That is what we have done in this Budget. When you are dealing with the economic impact of a global pandemic of this magnitude, of course governments have to step up and provide the sort of support that we have because otherwise the level of economic and social disruption around the community that would have happened would have delayed the recovery and made it for weaker recovery than what we are working to secure for Australia now.
MICHELLE GRATTAN: And finally, in terms of your role as Finance Minister which was the hardest of these seven budgets?
MATHIAS CORMANN: The first one as we had to set the policies in train to turn that trajectory around, that we inherited. We inherited from our predecessors a weakening economy, rising unemployment and rapidly deteriorating Budget position. We had to make difficult decisions at that time, which led to about $250 billion worth of Budget bottom line improvements over the medium term. This Budget clearly has been a difficult one, not just the Budget moment itself, the whole period from the end of January to this Budget, this whole nine months period has been incredibly intense and incredibly challenging because you do want to make sure you do the right thing by the Australian people. You do want to make sure that you provide that the right level of support in a sensible of fashion. Everyday we very carefully assess and consider how we can best come do that.
MICHELLE GRATTAN: Mathias Cormann, thank you very much for talking with us today on an incredibly busy day for you and we hope to talk to you for a more reflective look back on your career before you leave Parliament.
MATHIAS CORMANN: Very happy to at the right time.
MICHELLE GRATTAN: Thanks a lot.
MATHIAS CORMANN: Thank you.