Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia






2017-18 Budget

TOM ELLIOT: Our next guest has a bit to do with this. He is the Federal Finance Minister. Mathias Cormann, good afternoon.

MATHIAS CORMANN: Good afternoon and good afternoon to your listeners.

TOM ELLIOT: It is a con isn’t it? You are not really going to get the Budget back to surplus in four years are you?

MATHIAS CORMANN: Based on the best available information and advice right now, that is exactly what we are projecting. The important point is we have projected a return to surplus in 2020-21 since our half yearly Budget update in December 2015. This has consistently been our projection for some time.

TOM ELLIOT: Okay, but the projection basically says that you will be able to keep spending growth to no more than two per cent. This is growth in government expenditure. And yet incomes and GDP and everything else that helps raise taxes will go north of three per cent. What makes you think that that three to three and a half per cent number in terms of economic growth is going to happen in four years’ time?

MATHIAS CORMANN: The economic growth number actually is three per cent from 2018-19 onwards. So it is 2.75 per cent for 2017-18 and then it is three per cent for the remaining four years of the forward estimates. These forecasts are based on advice and the numbers are consistent with consensus views of relevant economists.

TOM ELLIOT: But I mean, I have been covering Budgets for God knows how long, and the views about the future of the economy are always overly optimistic. Why not take a perhaps more measured view and say “Well you know what, we will have a more conservative forecast?”

MATHIAS CORMANN: I don’t agree that we are taking an overly optimistic view. I believe we are taking a very realistic view and if you just look at the assumptions that we have built into our revenue forecast, when it comes to commodity prices, for example, prices were relatively higher towards the end of last year and some people were suggesting that we should let that flow through our revenue numbers and we didn’t. We did take a very prudent, a very cautious approach, assuming that prices would drop off over time, which of course they since have. These are estimates, these are not actuals, and estimates always have an element where you have got to essentially make judgements based on the best available information at the time. As better information becomes available you improve your assessment of what is likely to happen.

TOM ELLIOT: Okay, now you have got a couple of tax increases. You have got an increase in the Medicare levy on high income earners, and then there is the much discussed bank tax. Why aren’t you hacking into expenditure though? Why not take the axe to government spending?

MATHIAS CORMANN: We have been taking the axe to government spending. We have gone very hard in all of our previous Budgets from 2014-15 onwards, it has been much talked about. The problem that we faced, the Government cannot just unilaterally declare savings. Most of these savings have got to be legislated through the Parliament, including through the Senate. There is about $14.7 billion worth of savings from past Budgets, predominantly the 2014-15 Budget, which the Senate clearly was never going to pass. If we wanted to get the Budget back to surplus on the same timetable, and we do, because we don’t want to keep borrowing from our children and grandchildren and forcing them to pay higher taxes or accept deeper cuts to pay for our expenditure today, then revenue measures were the only other alternative. If you can’t cut spending to the extent that you would like to because the Senate doesn’t let you, then the only other way to get back to balance in the same timetable is by increasing your revenue.

TOM ELLIOT: Okay, well I don’t think that the difficult Senate is going away. So any future expenditure cuts are, by your logic, off the agenda. Does that mean that next year’s Budget and the one after that we can expect more tax increases?

MATHIAS CORMANN: We have delivered the 2017-18 Budget yesterday. I am not going to be in a position to deliver the 2018-19 Budget for you. But as a Government in the end it is incumbent on us to work with the Senate that the Australian people have elected. If the Australian people would like us to get 100 per cent of our Budget repair agenda through the Senate, then the way to achieve that is to vote for Liberal National Party Senators in larger numbers.

TOM ELLIOT: Okay, the bank tax, this is one thing that I am sure you will get through the Senate because I think that the Greens think it is a good idea, Labor probably thinks it is a good idea and probably so does Nick Xenophon. So I reckon that you will get it through. But the bank sector is very angry. They say that this will either be borne by depositors, by borrowers or by bank shareholders. How do you react to that?

MATHIAS CORMANN: There is no reason why the banks should be passing this on to customers. The major banks, between them, generate more than $30 billion worth of after-tax profits. Strong and profitable banks is a good thing and that is great. But we believe, in the context of our Budget repair effort that is required, a $1.5 billion levy focused on the major banks only, not all of the banks, just the major banks, is affordable for them and it is a fair and proportionate contribution. It also helps to improve competition in the banking sector, because it helps to level the playing field for smaller banks and non-banking institutions offering financial services.

TOM ELLIOT: Okay, so you are saying that banks will not pass this on to either depositors or borrowers, they will wear it on their bottom line? Doesn’t that mean that shareholders are the ones who suffer?

MATHIAS CORMANN: The way we have designed it, we believe that there is no reason for the banks to pass on the cost of this levy to their customers.

TOM ELLIOT: What about shareholders? Most Australians, via their superfunds, are shareholders in the big banks.

MATHIAS CORMANN: In the end, if you raise money out of the economy, it has got to come from somewhere and in all of the circumstances, given the Senate was not prepared to pass $14.7 billion worth of outstanding savings measures, we had to raise additional money somewhere in order to be able to get the Budget back into balance.

TOM ELLIOT: Will you monitor the banks? Is there some mechanism to make sure they don’t pass it on to customers?

MATHIAS CORMANN: We have given additional resources to the ACCC, the Australian Competition and Consumer Commission, for them to keep an eye on what the relevant pricing arrangements are of the major banks moving forward, precisely for that reason. But remember this, by smaller banks being able to better compete with major banks, it will actually also help keep the major banks honest with their pricing behaviour.

TOM ELLIOT: Now, big spending items like Gonski and NDIS were not fully funded before this Budget. You are going to levy the bank tax, we know that, you have also lifted the Medicare levy. Are those big ticket items now fully funded going forward three, four, five, six, seven, eight, nine years?

MATHIAS CORMANN: Yes they are. They are in fact fully funded over the medium term, that is the Budget year, 2017-18, plus ten years. So all the way to 2027-28. Because what you can see in the Budget papers is that one we are projected to return to surplus to the tune of about $7.4 billion by 2020-21 and we then remain in surplus all the way through to 2027-28. When we looked at all of the numbers in front of us, it was clear that we were facing a funding gap in relation to the NDIS of about $56 billion over the period to 2027-28. It hadn’t been fully funded in the past and we would have preferred to have been able to fully fund it through savings, by making room in other parts of the Budget. But clearly, there was a limit to how much the Senate was prepared to pass on that front and we now have, essentially for that reason, had to make the decision to increase the Medicare levy by half a per cent from 1 July 2019, which is when the ramp up in expenditure around the NDIS starts to happen.

TOM ELLIOT: Okay, so now that the Medicare levy is up, the top rate of personal tax in Australia will be 47.5 per cent correct?

MATHIAS CORMANN: That is right. The 45 per cent top marginal rate plus the 2.5 per cent Medicare levy.

TOM ELLIOT: At the same time, you have cut the small business rate, in fact small business goes to companies with a turnover of $10 million down to just 27.5 per cent. So you have got a top personal rate of 47.5 per cent and a business rate or a company rate of 27.5 per cent. Aren’t you saying to people here turn yourself into companies? Because companies pay a lot lower rate of tax than individuals do?

MATHIAS CORMANN: Firstly, when it comes to business tax, we have actually legislated business tax cuts for businesses with a turnover of up to $50 million down to 25 per cent. There has always been a difference between the individual top marginal tax rate…

TOM ELLIOT: But this is a big difference, this is the biggest it has ever been.

MATHIAS CORMANN: Currently it is 49 to 30 per cent, and there will be a difference, but in the end, there are anti-tax avoidance provisions that come into play and we would not encourage anyone to try to avoid tax because the Tax Office will pursue these sorts of initiatives.

TOM ELLIOT: But it is not avoiding tax, you are saying, if you are structured as a company, that is why you have Company Tax rates, you will pay a much lower rate than if you earn money as a PAYG individual. That is what you are saying, isn’t it?

MATHIAS CORMANN: Well companies pay Company Tax and individuals pay Income Tax on their earnings and that has always been thus and that will be like that into the future.

TOM ELLIOT: But again, you must acknowledge that, and again people with good accountants know how to turn themselves into companies, it can easily, relatively easily, be done. The scope to do that is getting, it is going to happen more and more.

MATHIAS CORMANN: We have not seen any evidence of this. In the end, if you want to spend the money as an individual, you have got to get it out of the company and in those circumstances it gets taxed.

TOM ELLIOT: Finally, housing affordability there is not much there. I mean first homebuyers can sort of stick up to thirty grand in their super fund and then pull it out if they want to buy a house. Can I ask you, if they put the $30,000 in, into their super fund, but they are unsuccessful, they never actually win at auction and buy a house, what happens to that money? Does it stay in super or can they pull it out for some other purpose?

MATHIAS CORMANN: They can’t pull it out for another purpose. The answer to that is no. Ultimately you can make contributions to your superannuation account according to Government rules.

TOM ELLIOT: Finally, drug testing for Dole recipients. Now this is a policy I am in favour of. I know that Alan Tudge, the Social Services Minister, has got carriage of it. But is it the case that people who miss job appointments, that sort of thing, will be tested for drugs and if  they are found, a positive drug test in their system, do they lose their Dole?

MATHIAS CORMANN: It is a bit different to this. What we have said is that we intend to run a trial initially for about 5,000 Australians in locations that are yet to be determined. And Alan Tudge, my friend and colleague Alan Tudge, will be making announcements on the specifics in the not too distant future. But the plan here is, if you have got somebody on unemployment benefits who has got a drug problem, then that is going to make it harder for them to get back into a job. So if there is, if a drug addiction problem is detected in the first instance that would trigger putting that particular person onto an income management type of arrangement. For example the Cashless Debit Card arrangement. And if a second drug test is failed in a relevant period down the track then there would be a referral to a medical practitioner or to an appropriate treatment facility. This is really all about making sure that people who are unemployed, who have got problems such as drug addiction, as part of a plan to get them back in to work and back job ready, we can address all of the problems that prevent them from being successful.

TOM ELLIOT: Mathias Cormann I know it has been a very long and busy twenty four hours for you. Thank you for your time.

MATHIAS CORMANN: Always good to talk to you.