Cormann explains why Turnbull is no longer Prime Minister

Ross Greenwood speaks to Finance Minister Mathias Cormann who has rejected any suggestions he helped engineer a coup and explains why Mr Turnbull is no longer prime minister.

Introduction: Cormann explains why Turnbull is no longer Prime Minister

Ross Greenwood: Great to have your company, here on Money News right around Australia. Plenty of stuff happening in government today. Now there’s been what some people would suggest is an unlikely victory by the government today. They have managed to get a new GST deal through the Senate, through the Parliament, as it were, in regards to the way in which we carved up between the states. This means that there’ll be guarantees of additional revenue for the states and especially, Western Australia, which as you know, has been very upset about the way in which the GST revenue was handed out.

Also, the government today has announced it will actually give a boost of $2 billion worth of finance for the small business sector. Now, effectively, this is almost the government setting up a small business bank in some ways to provide credit to companies that otherwise might not be able to get it. There’s plenty of stuff going on inside government. Let’s go to the Finance Minister, Mathias Cormann, who is on the line right now. Mathias, as always, many thanks for your time.

Interview with: Mathias Cormann, Senator, Finance Minister

Mathias Cormann: It’s great to be back.

Ross Greenwood: Let’s start with the GST. Just explain. This was something that a lot of people said could not get through the Parliament. You’ve managed to navigate its way through the Parliament. How did you do that?

Mathias Cormann: This an important reform that has been in the too hard basket for too long. When we came into government, the WA share the GST was in free-fall, headed to below ¢30 in a dollar. That was on track to fall even further down from there. It was clearly unfair. It was clearly unsustainable and a federation had to be fixed. Initially, by way of a short-term measure, we made federal top up payments to Western Australia in order to stop the further drop in WA share of the GST to below ¢30 in a dollar. In this year’s budget, we made a further top up payment which lifted it effectively to ¢50 in a dollar. What, of course, we announced in July was planned to fix GST sharing arrangements on an ongoing basis, in a way that’s fairer for WA, which is good for national economic growth, and which is also fair to every other state and that it leaves every other state better off.

Ross Greenwood: Dumb question for you. If I’m living on the East Coast of Australia, why do I actually care about WA and whether it gets a fair share of GST?

Mathias Cormann: Because if you provide a disincentive to a state like Western Australia, which has got significant growth potential, which benefits the whole country, that of course, damages the opportunities for people on the Eastern Seaboard, too. What was happening is that Western Australia pursuing growth opportunities penalize them in terms of the level of revenue that they were able to generate or retain locally. WA was hit with a double whammy. They were in the back of lower prices for key commodity exports. Their royalty revenue was going down, and at the same time they were continued to be penalized for high royalty income into pass, which meant that their GST revenue was going down at the same time.

If we didn’t make the system fairer, and that is what the Productivity Commission found. What the Productivity Commission found was that the GST sharing arrangements, as they operated, essentially provided a perverse incentive against states pursuing growth opportunities in their jurisdiction to the best of their ability. What we’ve done now by making the system fairer is to ensure that all states have the right incentive to ensure that they reach their full potential.

Ross Greenwood: I want to move you on to the announcement today by the Prime Minister, and also by the Minister for Small and Family Business, that is Michaelia Cash, in regards to the government offering small businesses $2 billion worth of credit, effectively becoming a small business bank. Why is it the role of government to become a bank in this way?

Mathias Cormann: I’ve got to very politely correct you there. The government will not lend directly to small- and medium-sized business. What we are proposing to do is to invest up to $2 billion into the securitization market. We are proposing to do that through the Australian Office of the Financial Management, which of course has had prior involvement consistent with this, in the residential mortgage back securities market, which worked very well. The problem we’re trying to fix is that small business is finding it difficult to obtain finance other than on a secured basis, typically against their family home. Even when they are able to access finance funding costs up substantially higher than they should be a need to be.

The government is not lending money to small business directly but putting $2 billion into the securitization market. What we’re doing is we’re providing more liquidity and more depth into that market. We’re making it easier for small banks and non-bank lenders to provide additional finance at competitive prices to small business. We’re making the system more competitive, which will help small business get access to debt finance at a lower cost.

Ross Greenwood: Where does that $2 billion come from? Has the government pluck that out of where?

Mathias Cormann: Obviously, that’s $2 billion that comes from our budget, but it’ll sit on our balance sheet. It’ll be an asset.

Ross Greenwood: Bad debts, fold it in that sector. Will you actually wear that or will it be the lenders of that money that will wear any bad debts that might arise?

Mathias Cormann: Firstly, the Australian Office of Financial Management has got substantial experience in this type of market. They will ensure that the risk profile associated with its investment in the fund is appropriately managed and that the necessary due diligence is done, including the working with the credit agencies. Credit agencies, of course, have a very important role here. The government is in the market for good debt. What this is all about is about making sure there’s more liquidity, more depth, and more competition in the securitization market, and that there are more institutions offering small business loans other than just the big banks.

Ross Greenwood: I can understand the way in which it works. You’re providing the credit to those small lenders. The small lenders will do it, but they can actually do it on a secured basis against the value of a home. It’s got to be against the value of the business. As a result, they’ve got to manage any of the potential bad debts that could come from those businesses into the future, as I said, at least anyway.

Mathias Cormann: This will operate like any other securitization market except it’s the securitization market in the context of small business lending.

Ross Greenwood: I do know, say for example, right now that the Prime Minister having been in Singapore, and one of the things that is very much on the agenda is the free trade agreement with Indonesia. Given what’s taken place, and in particular, just before the Wentworth by-election, there was obviously talk about whether the Australian Embassy should be moved to Jerusalem that caused upset in Indonesia, as you would be well aware. Is that free trade agreement really now off the table as something that can be negotiated?

Mathias Cormann: No. Firstly, the Australian government and the Indonesian government, of course, reached a substantive agreement in relation to the Indonesia-Australia comprehensive economic partnership agreement on the 31st of August. What was agreed then is that both sides would now do the usual work in terms of finalizing the text in both languages, which is the normal process. Both Indonesia and Australia remained committed to reaching a final landing in relation to this agreement.

Ross Greenwood: It is fair to say that, in the words of the Indonesian Trade Minister, that the delay in the Indonesian signing anything is because of Palestine. It’s because of that decision, the suggestion that the Israeli embassy could be moved to Jerusalem. That’s the key here, isn’t it?

Mathias Cormann: I was in Jakarta the week before last for about five days. I had a series of meetings with the very senior ministers. Nobody raised that issue with me and the ministers that I met with acknowledged and recognized that this Indonesia-Australia economic partnership agreement is an important agreement both for Indonesia and for Australia. It is an agreement that is both in the interest of people both in Australia and in Indonesia. That’s why both countries remain committed to reaching a final conclusion.

Ross Greenwood: All right. Just a final one for you. Could you please answer this question for me? I still don’t have a proper answer for this. Indeed, the former Prime Minister Malcolm Turnbull was asked this just a short time ago.

Steven: Why aren’t you still Prime Minister?

Malcolm: Thanks, Steven. That’s the question I can’t answer, of course. The only people that can answer that are the people that engineered the coup. There are people like Peter Dutton and Tony Abbott and Greg Hunt and Mathias Cormann.

Ross Greenwood: You are one of those people named. The Prime Minister, Scott Morrison, he says he can’t answer these questions. Malcolm Turnbull thinks you might be able to answer it. Can you answer it? Why is Malcolm Turnbull no longer the Prime Minister?

Mathias Cormann: I’ve answered this question on many occasions.

Ross Greenwood: Do it once for me. Just humour me on this occasion, if that’s okay.

Mathias Cormann: If I may, it’s very simple. Firstly, as I’ve made clear on many occasions that any proposition that I was involved in engineering any coup is false. There can’t be any such decision on a Tuesday when the first leadership ballot happened, which was initiated by Malcolm Turnbull himself. I supported Malcolm, and all of the people that would listen to me supported Malcolm .

Subsequent events are a matter of public record. I’ve commented on them extensively. The very simple answer on why there has been a change is because a majority of people in the Liberal Party party room made a decision to make a change and to support Scott Morrison and Josh Frydenberg as a leadership team. To be a prime minister, you’ve got to ensure that you retain the confidence of a majority of the members in your party room.

Ross Greenwood: Just one thing for you, Mathias. You and I both know this. The budget’s in pretty good shape. At the moment, it’s improving. Wages growth is going. You’ve got the Reserve Bank saying that the economic growth rate over the next two years will be three and a half percent. Surely had a good economic narrative to tell. Problem is, if you dump a prime minister, puts you right backwards and makes it more difficult for you to govern beyond the next election. Would you concede that maybe consistency might have been a better way to go?

Mathias Cormann: Ross, again, I think you’ll find, and I’m sure that you would agree and accept that I was a hardworking committed senior member of the Turnbull cabinet that-

Ross Greenwood: 100%.

Mathias Cormann: -I did everything I could to help Malcolm and his government be the most successful government we could be.

Ross Greenwood: At that point, you changed your support.

Mathias Cormann: I did not want the events that did occur as a result of the ballot on the Tuesday. In the end, all I can ever do is make judgments based on what I believe to be right in the circumstances, and in the circumstances we were facing after the initial ballot on the Tuesday, I stand by the judgments that I made about any proposition that this involved the level of engineering or organizing coups, I completely and utterly reject.

Ross Greenwood: Our Finance Minister, Mathias Cormann. Always great to have you in the program, Mathias.

Mathias Cormann: Thank you, Ross.

Image source: 2GB