Finance Minister Mathias Cormann talks about the budget with Ross Greenwood
Ross: Let’s now go to a man who has been consistent through the budget process of this coalition government. Through the period of time, for Joe Hockey as Treasurer, Tony Abbott as Prime Minister. Now, you’ve got a situation where you’ve got Malcolm Turnbull as the Prime Minister, Scott Morrison as the Treasurer, that man is the Finance Minister, Mathias Cormann who joins me now. Many thanks for your time, Mathias.
Mathias Cormann: Good evening.
Ross: You are the constant factor through all of these. I made an observation to the Prime Minister when I spoke with him today, that this is a change of direction for the coalition’s budget process. You’d been and lived through all of these, would you and do you feel that change of direction of the budget process?
Mathias: Well, I wouldn’t see it like that. Obviously, when we came into government in 2013, we faced a rapidly deteriorating budget position because the previous labor government had made unfunded, unsustainable and unaffordable spending promises across a whole range of areas. Since that time, we worked very hard to get spending growth under control. We are in better shape now than what we were.
Spending on the show of GDP was heading for 26.5% within the decade when we came in. We’ve been able to arrest the increase and now over the count for less of this coming down to 25% on the show of GDP. We would have liked to get all of the spending reduction measures in our past budget legislated through the senate, but there’s about $14.7 billion worth of spending reduction which the senate clearly wasn’t going to pass.
Given our commitment to get the budget back into surplus because we want to stop borrowing from our children and grandchildren to pay for our living expenses today, if you can’t get all of the spending reductions through the power that you need to get there, then the only other option available to you is to look at the measures on the revenue side of the budget and that’s precisely what we had to do.
Change of Strategy?
Ross: Okay, so that’s what I’m saying, there’s a change of strategy. In other words, you couldn’t get the spending measures through because it was stuck in the senate. As a result, the change in strategy is to say, “All right, we are going to try and grow the pie faster.” Isn’t there more risk because if you make a cut to your budget, if I make a cut to a business budget or to a household budget, I know that that money’s come out. If I’m sitting there and saying, “I hope that the economy will grow faster. I hope my business, I hope my income will grow faster,” really, you can put measures in place to try and make that happen, but it’s less of a certainty as compared with making the cuts. Would you agree with that?
Mathias: It wasn’t. It’s not just about us hoping that the economy will grow faster and we get a bigger revenue dividend. We made policy decisions to impose additional revenue measures. One of them is obviously the half a percent increase to the medicare levy from 1 July 2019 onwards. The other is the bank levy, the major bank levy that you’ve mentioned.
Now, we would have rather if we could have fully funded the National Disability Insurance Scheme by spending reductions in other parts of the budget. The senate made it very clear that they were not going to support the savings required in order to fully fund the National Disability Insurance Scheme. There was a $56 billion funding gap over the next 10 years. We had to find a way to close that gap if we wanted to be able to deliver on that service that Australians clearly expect us to deliver.
Ross: That is absolutely true. That is something that will be popular because so many people with family members who are disabled, they want the certainty of the funding because right now, many of them tell me that they don’t get the certainty of that funding. There’s no doubt that that is vital.
Mathias: This is the thing, by part of the support for the National Disability Insurance Scheme but labor left it unfunded. We wanted to fund it by spending reductions in other parts of the budget. The senate was not prepared, the labor party was not prepared to support all of the spending reductions that were required to fully fund it on an ongoing basis.
Ross: Take me through the actual budget forecast, in particular for wages. As finance minister, you’re acutely aware that half of the revenue that the government receives comes from people’s wide taxes on their wages, pay taxpayers. Take me through the fact that you believe that the economy is going to be relatively flat over the next four years, but eventually, wages growth starts to jump up to eventually three and a half percent which is where the long-term trend is right now, it’s just below 2%. Where do we start to get this wage growth from?
Mathias: Well, you’re not right. It’s not quite right to say that we expect the economy to be relatively flat. We’re expecting 2.75% growth in 2018 and then 3% growth from 2019 onwards.
Ross: True but the smallest growth as compared with say, the wages growth.
Mathias: 3% growth is, that is pretty attractive growth, in the current context. It’s certainly a stronger growth than you’d experience anywhere in the major developed economies around the world right now. We’ve had a period of low ranging inflation for some time, that’s right.
Obviously, we don’t pick this forecast out of thin air. We rely on expert advice, we rely on advice in the best of our information from the experts in treasury. Considering the improving global economic outlook, considering domestically the impact of continuously low interest rates, lower exchange rate, flexible labor market, the pro-growth agenda that the government is pursuing, all of these things taken together, the judgments that have been made by people who are expert in making those judgments, are that these are the appropriate forecasts.
We believe that they’re credible, they’re prudent and we believe that they are the appropriate term forecast for this budget.
Ross: Just before I let you go, just one issue. I’ll start up with that grab from our recent audio talking about the banks and what happened yesterday with leak that caused the share prices of those banks to fall. Would you welcome an inquiry into trying to find out how information got out that allowed share prices in banks to drop by between three and a half and 3.7% yesterday?
Mathias: The treasurer has actually directly addressed it in his press club speech today. There’s rumor and speculation in the lead-up to any budget. The media speculates just about on everything and anything lead-up to any budget. We don’t have any evidence that there was any leak on the budget lock up. Treasury has indicated to us that it has no knowledge of any budget leaks during the budget lock-up. Obviously, treasury monitors the use of devices capable of transmitting information, things like laptops, tablets and cellular phones.
They make attendees of these lock-ups sign forms around confidentiality and the like. Obviously, you’d have to have some evidence that there was actually something untoward that was done by somebody.
Ross: Mathias Cormann here, Finance Minister, always appreciate your time here on the program. Now, I can tell anybody out there who wants to give me any sort of speculation like that, bit of information going on, please feel free to call us on 131-873 because that mile are going to tell you was very, very good. Mathias Cormann always great to have a chat.
Mathias: Always good to talk to you.