What do these income tax cuts mean for you?

Ross Greenwood speaks to Finance Minister Mathias Cormann after the Coalition was successful in passing their $144 billion, seven-year income tax cuts and if they can achieve the same result for company tax cuts.

Introduction: What do these income tax cuts mean for you?

Ross Greenwood: Well, one of the things that’s happened today is that government has succeeded in getting through the Parliament, both the House of Representatives and the Senate, its well, three stage tax cuts. The government was always insistent it would only take this policy through the Parliament as a complete bill. It would not split it up as Labor wanted to to try and get the first stage, but not the second two stages.

But that said, effectively, to get to the final stage, you’ve got to vote for the government twice because Labor has always already put on record that it will vote down particularly the third stage which would benefit high income earners by effectively taking out one of the tax brackets, the 37 cents in a dollar tax bracket and that would then flow money to those people.

Bill Shorten today, put out a tweet saying, “Turnbull and the Liberals just voted to give themselves a $7,000 pay cut. What are they cutting to pay for? Your local schools and hospitals.” Do bear in mind however that Bill Shorten does, as the opposition leader, earn $376,000 a year. He, along with every other federal politician received a 2% pay rise as we reported to you last week. That was independently awarded to them. That was the Independent Remuneration Tribunal.

For Bill Shorten, that was a seven and a half thousand dollar pay rise. I didn’t know him giving it to St. Vincent de Paul or the CEO Sleepout this evening. In fact, he said nothing about that. Let’s go to a man who has helped orchestrate this not only through the Senate, but through our Parliament, and that is our Finance Minister Mathias Cormann. Many thanks for your time, Mathias.

Interview with: Mathias Cormann, Finance Minister

Mathias Cormann: Good evening, Ross.

Ross Greenwood:  Can I just ask a couple of bits and pieces? Do you still believe that every aspect of your policy will be around in 2024, the 1st of July when the final stage kicks in? Do you still believe that ultimately those will survive our Parliament and survive two elections?

Mathias Cormann:  Well, we believe that should be. I mean, we’ve legislated the full long term plan to provide income tax relief to all working families around Australia because we believe it’s the right thing to do. It’s the right thing to do to provide cost of living pressure relief to lower and middle income earners. It’s also the right thing to do to address bracket creep, because bracket creep is a drag on economic growth and would keep Australia back.

Ultimately, I mean, that is going to be a model for the Australian people in the lead up to the next election and perhaps the election after that. It seems that Labor, they want to go to the Australian people saying they want to increase taxes, impose more than $200 billion in higher taxes, which we would say it would hurt the economy, it would hurt families, it would hurt jobs. We will go to the Australian people at the next election saying, we have legislated in full, income tax relief for all working Australians who pay tax over the next seven years. We believe that that is the right thing to do by families and it’s the right thing to do by our economy.

Ross Greenwood:  Okay. The ordinary person looking at this and certainly, even the opposition caught on to this as well, says it’s a seven-year package. It’s $144 billion. Right now, Australia has got net debt of close on $380 billion. Now, certainly, you have a plan to get the budget back into surplus one year earlier in two years time. The truth is, that there could be downturns, there could be a range of things happen over the next four years, why not pocket that $144 billion and basically pay down the debts?

Mathias Cormann:  Well, the tax burden in the economy would increase beyond 23.9%, which would impact on economic growth, which would lead to less investment, and lower growth and fewer jobs, that would be bad for the Australian people. What we’ve said is that, we would limit the tax burden in the economy to 23.9%. In order to be able to do that over the medium term, we’ve got to provide income tax relief to working families around Australia.

Ross Greenwood:  Okay. Please go on.

Mathias Cormann:  Let me just finish. Let me just finish. I would also say that over the next four years, we’re paying off $30 billion worth of government net debt. Over the next decade, the same period that these tax cuts come, the same period that those tax cuts cost $144 billion, we’re paying off $232 billion worth of government net debt. We inherited a weakening economy, rising unemployment and a rapidly deteriorating budget position.

We’ve been able to turn the economy around, the growth is stronger, and private growth is much stronger. We’ve got spending growth under control. We got debt under control. We’re now on track to pay off debt and we believe in the circumstances, it was appropriate to provide income tax relief to provide cost of living pressure relief and to address bracket creep.

Ross Greenwood:  Okay, Mathias. You’re telling our audience tonight that so long as the economy keeps thriving and keeps going, you believe in a decade’s time, that not only will have you handed out $144 billion worth of tax cuts, that you will have actually remodeled the tax scales, but you will have in that time, paid back the best part of two thirds of the current government net debt?

Mathias Cormann:  Well, if you look at our government, if you look at our budget projections in our 2018/19 budget, it will show that we, as of this year, we’re no longer borrowing to fund our day-to-day living expenses as a government. That government net debt is peaking as a share of the economy at 18.6% this financial year. Over the next decade, over the period that these tax cuts cost $144 billion, the government net debt is projected to reduce from 18.6% this year to 3.8% in 2028/29, so over that decade.

We’ve got a plan that sees us both pay off government net debt quite substantially over that period, as well as providing income tax relief to hardworking Australians. The economy will be in better shape as a result of putting $144 billion worth of money that otherwise would have gone into government coffers back into the pockets of hardworking Australians. We believe that hardworking Australians are better at spending that money in our economy, generating stronger growth than what the government is.

Ross Greenwood:  Okay. Then you go to not just the personal income tax cuts, because of course, a lot of people might confuse those sometimes with the company tax cuts that you have a plan for. Pauline Hanson and One Nation have given you the support which allowed this to pass through the Senate today. The company tax cuts seemed to be more problematic for you. Do you believe you can get them through?

Mathias Cormann:  Well, I’m not a commentator or I don’t speculate.

Ross Greenwood:  You’re a man who leads the Senate. You have got a better observation of the numbers than any of us. You’ve got a seat, Mathias.

Mathias Cormann:  Well, Ross, what I was about to say, I’m not a commentator, I don’t speculate. What I do is I put the government’s case as to why that reform is so important to working families around Australia. Nine out of 10 working Australians work for a private sector business. If we continue to keep business taxes in Australia high when countries around the world are significantly lowering theirs, then we put businesses in Australia at a competitive disadvantage with businesses in other parts of the world. Which means that we’re putting the workers that those businesses in Australia employ at a competitive disadvantage with workers in other parts of the world.

If we did not succeed in lowering our business tax rate here in Australia to a globally more competitive business tax rate, we would be helping business in other parts of the world take investment and jobs away from Australia. That would be a very bad decision for working families around Australia indeed, which is why we’re so committed to giving it our absolute best to get that reform passed through the Parliament as well.

Ross Greenwood:  Okay. I understand that philosophy. I understand that entirely.

Mathias Cormann:  It’s not a philosophy, that’s a fact.

Ross Greenwood:  Okay. It’s a fact, it’s a philosophy, whatever. The question is, how are you going with Pauline Hanson right now? Clearly, there were cooperative conversations to get the personal income tax cuts through that it would appear to me, however, that the conversations are less cooperative when it comes to getting the company tax cuts through. Is that a reasonable assumption?

Mathias Cormann:  Well, I’ve had very good conversations with Pauline Hanson and her team. I’ve had very good conversations with all senators on the crossbench in relation to our proposal to lower business tax rates for businesses in Australia, so that they can be globally competitive. I’m not going to go into the ins and outs of those conversations. We put our case. Ultimately, it’s a matter for every individual senator to make a judgment on what they believe is in our national interest, what they believe is in the best interest of families around Australia.

We hope that ultimately, when it’s all said and done, and when this comes to a vote in the Senate, that they will be persuaded by the merits of our argument. This is critically important. We have a relatively small population. We have a comparatively small domestic capital market by international standards. We rely on foreign capital. We compete for foreign capital in order to continue to grow our economy, to continue to develop our economy. If we have one of the highest business tax rates in the world as we now do or will have as other countries continue to lower their business tax rates, we will find it harder to attract investment into Australia.

We’ve got a country like France which has already legislated to lower their tax rate from 33% to 25% by 2022. The US is at 21%. The UK is going to 17%. When businesses in those countries will be able to get investment directed away from Australia into their countries to grow their businesses at our expense and anyone in the Parliament that decides to stand in the way of lower business tax rates is essentially standing to help businesses overseas take business and jobs and investment away from Australia.

Ross Greenwood:  I hear all of that and I agree with you entirely except for there’s one small issue, and that is observation is that despite our very high company tax rates, our stock market tonight sits at 10-year highs. Clearly, the taxes that the companies are paying is not preventing them from making the profits that see investors propel our stock market to a 10-year high. What sort of observation or conclusions should I draw from that?

Mathias Cormann:  Well, the worst thing that we could do is to look at our past performance or right where we are at right now and assume that all of that is going to continue no matter what into the future. We are engaged in global competition. Our businesses compete with businesses in other parts of the world. We need to look ahead. We need to look ahead and make judgments on what is required for our economy to continue to be strong. The truth is that we compete with businesses all around the world in terms of capital, in terms of access to markets overseas.

We even compete with businesses from other parts of the world in terms of import competition. Domestic businesses in Australia supplying the domestic market compete with businesses in other parts of the world in terms of supplying the domestic market. If we put businesses in Australia at a competitive disadvantage, if we put more lead into the saddle bag of businesses in Australia deliberately and on an ongoing basis than that what is in the saddle bag of businesses in other parts of the world, we make it deliberately harder for our businesses to succeed against businesses in other parts of the world.

Why would we do that? Why would we want to accept the situation where because of a deliberate policy decision in Australia, we help businesses in other parts of the world take business away from us? That is completely counterproductive. Surely, it is completely contrary to what we should be doing if we want to continue to be prosperous and successful into the future.

Ross Greenwood:  Okay. The Prime Minister said today that these tax cuts were aspirational and he also talked about realizing people’s dreams. Now Aaron who’s in Lake Macquarie says, “Thanks, Prime Minister. The 10 bucks were exactly what I need to change my life.” He said, “I’d have preferred rather than the $10 that they didn’t waste time pushing this through when they could have actually sorted out the electricity farce that’s costing us a fortune. I wonder what my wage growth would be like if electricity wasn’t costing businesses a fortune.”

In other words, what some people are saying is about priorities here. Whether in fact the priority was the tax cut or whether the priority was fixing the electricity system. Whether the priority was paying off debt. In other words, people are looking at priorities, I guess.

Mathias Cormann:  Well, we’ve got an overall plan for a stronger economy and more jobs and it includes both making sure that our tax system is as growth-friendly as possible. It also focuses on a very ambitious free trade agenda to make sure our exporting businesses get the best possible access to markets around the world. It also of course, focuses on making sure that we can have cheaper, more reliable energy into the future.

I mean we can’t just focus on one at the expense of the other. We’ve got to do all of the above and of course making sure that we can have access to cheaper, more reliable energy supplies into the future is a very important part of making sure that we are competitive as an economy and that families around Australia have the best possible opportunity to get ahead.

Ross Greenwood:  I’ll tell you what, great to have you on the program as always, Mathias. It’s a really good debating point because the issue is many people said you would not get these tax cuts through under any circumstances and certainly not as the complete bill. Well, they are through, they are law or will become law very shortly and a hundred and–

Mathias Cormann:  They are law. I went this afternoon with Senator Mitch Fifield to the Governor-General and the Governor-General signed it in front of us. It is now the law of the land.

Ross Greenwood:  There you go. The law is there, $144 billion worth of income tax cuts out until 2024. As I said, many people said it could not be done, but through politics, you’d have to say, Mathias Cormann in the Senate has done a terrific job in getting that bill through. Of course, he’s got to survive the elections as well, but we appreciate your time as always.

Mathias Cormann:  Thank you, Ross.

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