Senator the Hon. Mathias Cormann
Minister for Finance
Leader of the Government in the Senate
Senator for Western Australia
Date: Wednesday, 7 October 2020
PETA CREDLIN: He is the man responsible for crafting every Federal Budget since the Coalition won office under Tony Abbott in 2013. By any measure, the biggest hole in next year’s Budget will be the absence of Finance Minister, Senator Mathias Cormann. I am pleased to say he joins me now from Canberra.
MATHIAS CORMANN: Good to be here.
PETA CREDLIN: We will get to your departure in a moment’s time. Great to have you on the show. There is no doubt Australia needs this Budget to work, but there has been a lot of focus I think in all the talk today about the spending side of the ledger. I want to you to talk to us about the revenue challenges the Government has faced putting this Budget together because I do not think that has been focused on enough in the last 24 hours.
MATHIAS CORMANN: A very important point you are making there Peta. On the spending side we have actually maintained a very strong discipline. It is quite a contrast to what happened under the previous Government in the wake of the GFC. Yes, we have provided temporary fiscal support on the spending side but it is very much on a time limited basis. The spending trajectory within just a few short years is going back to what it was before this crisis as reflected in the Mid-Year Economic and Fiscal Outlook for 2019-20. There is a graph and apologies for being this specific, I am encouraging every Australian to go Budget Paper 1, which you can download online and look at page 3-30. There is a graph there, which shows the payment trajectory over the forward estimates and over the medium term. What it shows is that there is a spike in payments before the payments fall back down to the trajectory that we had before. Why is that important, because the decisions that we have made on the spending side have not baked in structural burdens on the Budget bottom line. Whereas in the wake of the GFC, which was incidentally a much smaller crisis in economic terms, a 0.1 per cent contraction in the global economy, compared to a 4.5 per cent contraction in the global economy in the context of COVID, 45 times the size of the contraction in the context of COVID. But the challenge that we are facing, you are quite right, is very much on the revenue side. We have had a seven per cent contraction in the June quarter this year. Even though the outlook is positive and the outlook is for growth to return, the economic growth trajectory is going to be lower for the next decade or so and the economy is consistently going to be smaller than what it was expected to be, which means that revenue will be less than what it was expected to be. Over the forward estimates, that is a whopping $227 billion worth of lower tax receipts, not because of any decisions, just because of the parameter variations, just because of the economic impact of the COVID recession on our revenue base.
PETA CREDLIN: Right let me just jump in there because first of all I will put that information up on my Facebook page. So I will go to Budget Paper book one, and I will put it up there so people can find that easily because I think that is incredibly important. Two, you are busting the myth because there is a big difference by a factor of about forty, by my maths, just listening to you there between what happened in terms of the contraction under the GFC to the economic contraction far worse under this COVID crisis. But also Labor, they like to pretend that somehow tax cuts and spending increase are all the same…
MATHIAS CORMANN: They are not, no.
PETA CREDLIN: … cuts are just you not sending enough money, or more money to Canberra and instead Government letting you keep that money in your pocket. Now Labor, Labor don’t like giving people back their money, of course, that is a big deal. But this is Australians keeping their money when they need it to work hard for them at the moment.
MATHIAS CORMANN: Precisely right. Income tax relief is not a spending measure by Government. It is an income tax cut. It leaves people with more of their own hard earned money in their pocket, which is good for them through this period. But it is also good for the economy, because it does help boost aggregate demand. We are bringing forward income tax relief very much focused on the low and middle income earners level. We do expect that most of that money will ultimately find its way into consumption and will help boost economic growth domestically that way. But in the end, every individual Australian makes their own decisions as to what they want to do with their money. If individual Australians want to save some of that money, there is nothing wrong with that. That improves their financial position, it no doubt improves their feeling of confidence in the context of whatever headwinds might come their personal way. So this proposition by some commentators that somehow an income tax cut is no good from an economic point of view because people might save some of that money, I just do not agree with. I think yes …interrupted
PETA CREDLIN: No I don’t agree with that either.
MATHIAS CORMANN: … there will be a lot of consumption, but there is nothing wrong with people actually building up a little fiscal buffer of their own for a rainy day.
PETA CREDLIN: Just on that point too, when I went through all the numbers again this morning, so much of the spending in the Budget on the expenditure side, not the revenue side, is all temporary. It is designed to get people back into their jobs, incentivise business to spend themselves on capital and plant or to hire people they would not be ready necessarily to pick up now until the business is up and going better. So it is temporary spending as opposed to what you inherited back in 2013, which is recurrent spending. That is spending, this for people’s benefit at home, baked in to the Budget for years and years in advance, really hard stuff to unwind. Now, I remember sitting in meetings with you where you went through line by line by line looking for $50 million or $100 million all to add up to getting the Budget back into the black. Is the Government up for that when you go. And two, is Australia up for the conversation that we tried to have back in 2014 that we didn’t sort of get, I think done comprehensively enough Mathias, that we are prepared to stop some of the things we do, that we will stop some of the recurrent spending, that we are living beyond our means?
MATHIAS CORMANN: Looking back we got more done in these first six years then perhaps people realise at the moment. The Budget bottom line improved by about $250 billion over a decade as a result of the spending controls and the significant focus on Budget repair that we initiated in the 2014-15 Budget. We did not get everything up, but we got a lot locked in. A lot of our savings measures at the time were structural. They started low and slow and built over time. After a seven year period, some of these early decisions actually are paying very significant dividends. In this Budget, most of the fiscal support into the economy is actually on the tax side and not on the spending side of the equation in the form of lower taxes or tax incentives. I will give you just one example, the opportunity for businesses with a turnover of up to $5 billion to be able to fully expense any investments in their future growth and success, in terms of any investment into assets into their future growth and success. That is something that will lower the tax revenue as a result of a decision by about $26.7 billion over the forward estimates. But the cost of the medium term is actually just $3 billion. So the cost from now to 2030-31 is $3 billion because a lot of that revenue gets recouped once the business is no longer able to claim those deductions down the track. They are going to be more profitable compared to the situation they otherwise would have been in. So the taxable income is going to be higher down the track. We are bringing forward the deduction, we are bringing forward the cash flow support to business. Yes we are taking the fiscal hit now, but in terms of the structural impact on the bottom line, over time, we will actually be able to recoup that money back at the time when the economy recovers, businesses recover and those businesses are in a stronger, healthier position.
PETA CREDLIN: And those profits are coming in. I have to leave it there, but I am going to ask you on camera so you can’t refuse me if we can have a chat before you depart Canberra. An extraordinary life, for you to come to Australia, within ten years end up in the Federal Parliament. But your legacy too Mathias Cormann as Finance Minister, so can I have you back at another time.
MATHIAS CORMANN: I’ll be back I promise.
PETA CREDLIN: Terrific. Mathias Cormann thanks as always.
MATHIAS CORMANN: Make sure you watch Mad as Hell tonight, I will make a guest appearance.
PETA CREDLIN: All of that, we will, thanks Mathias.
MATHIAS CORMANN: Thanks, talk soon.