Senator the Hon Mathias Cormann
Minister for Finance
Deputy Leader of the Government in the Senate
Senator for Western Australia
KIERAN GILBERT: The Finance Minister Mathias Cormann joins us, Minister thanks so much for your time. The Treasurer is playing down the prospect that the banks would or should pass the cost of the levy on to customers, but why wouldn’t they? Whenever their wholesale borrowing costs go up, they always pass it on, don’t they?
MATHIAS CORMANN: There is no reason for them to pass it on. The banks make about $30 billion in after-tax profits a year, this is a $1.5 billion levy as a fair and responsible contribution towards budget repair. The levy is designed in a way that it excludes day to day bank accounts, mortgage accounts, it is very much focused on those products that are outside the Financial Claims Scheme. There is no reason for the banks to pass this on and we will also have the Australian Competition and Consumer Commission do some work to put some scrutiny over their relevant pricing arrangements.
KIERAN GILBERT: But in terms of that argument, the wholesale borrowing, as you know, often comes from offshore or it is outside of daily deposits and so on as well, they pass those costs on.
MATHIAS CORMANN: The banks are making their pricing decisions, as you say, now. One of the effects of what we announced yesterday though is that we are improving the level playing field for the smaller banks and for the non-bank financial institutions, which will help them compete with the banks. If the banks are doing things that are not sensible on the pricing front, the increased competition from the smaller banks, because they will not be facing this additional cost, will help to keep the banks honest when it comes to pricing arrangements.
KIERAN GILBERT: Is this about providing funding for the Government guarantee, the bank guarantee, that has been in place since the GFC?
MATHIAS CORMANN: No. This is money that goes to our Budget bottom line. This is money that helps us get the Budget back into surplus. It is a contribution towards Budget repair. We have spread the effort for some time now, right across the board, and this is what we believe is a fair and proportionate contribution by the banks.
KIERAN GILBERT: So it is basically a Super Profits Tax?
MATHIAS CORMANN: It is a $1.5 billion levy a year, which comes out of about $30 billion a year in after-tax profits.
KIERAN GILBERT: Sounds like a Super Profits Tax.
MATHIAS CORMANN: We do not call it that. It is a major bank levy.
KIERAN GILBERT: The Howard/Costello era of debt reduction is apparently over, according to Peta Credlin, the former Abbott Chief of Staff.
MATHIAS CORMANN: That is wrong. We inherited a very steep spending growth and debt growth trajectory under Labor. We have arrested the growth in debt. Government net debt will peak next financial year at 19.8 per cent. It will reduce over the medium term down to 8.5 per cent. Spending as a share of GDP was on track to hit 26.5 per cent. It was just under 26 per cent two years ago. That is now going to go down to 25 per cent over the forward estimates period, which is just slightly above the long-term average of 24.8 per cent. We have made significant in-roads in getting spending growth under control. It is below two per cent a year on average. It was 3.7 per cent under Labor. Spending as a share of GDP is back down towards the long-term average, so – (interrupted)
KIERAN GILBERT: Tax as a percentage of GDP is up.
MATHIAS CORMANN: Tax as a share of GDP continues to be subject to our 23.9 per cent cap. We have imposed a cap on ourselves, a tax as a share of GDP cap of 23.9 per cent. That is the same cap today as what it was in the period of the Abbott Government.
KIERAN GILBERT: You are saying that the banks are making their contribution, the Bankers Association has said that this could threaten the whole system, the stability of the whole system, that is what Anna Bligh said.
MATHIAS CORMANN: I saw that comment, that was a crazy comment. That is just ridiculous.
KIERAN GILBERT: Why is that?
MATHIAS CORMANN: It is a very small – interrupted
KIERAN GILBERT: $14 billion wiped off the value of the banks yesterday on the market.
MATHIAS CORMANN: The market goes up and down. This is a $1.5 billion contribution out of $30 billion in after-tax profits a year. It is a small, it is a proportionate, it is a fair contribution for the banks to make, and you have to remember that we continue to pursue our ten year Enterprise Tax Plan. We continue to pursue our efforts to reduce Company Tax for all businesses from 30 per cent down to 25 per cent.
KIERAN GILBERT: But that is not going to be affecting the banks because you will not get it through the Parliament. In relation to the levy, we know that you will get that through, Labor has given it the tick straight away.
MATHIAS CORMANN: Well you are making assumptions here. People like you have made assumptions for some time about what we may or may not get through the Parliament. We have got a lot through the Parliament since the last election, including the first three years of our ten year Enterprise Tax Plan, including our reforms to make superannuation tax arrangements fairer and more sustainable, including a whole range of savings measures that people thought we would not be able to get through.
KIERAN GILBERT: The Medicare levy, if you were paying the deficit levy, high income earners, you are going to have that removed. If you were not paying the deficit levy, you are going to be worse off than those earning $400,000 or $500,000 a year, aren’t you, with the imposition of the increase in the Medicare levy as of 2019?
MATHIAS CORMANN: Firstly, we are not removing it. It is coming off in the ordinary course of events. The Budget Repair Levy was legislated as a three year temporary levy and it is coming off as intended when it was first introduced. What we are doing on the Medicare levy is increasing it by a half a per cent on 1 July 2019 and that is because we are committed to delivering the National Disability Insurance Scheme. It is a scheme that is not fully funded. There is a significant funding gap and this will help us pay for – interrupted
KIERAN GILBERT: Wouldn’t it be fairer, the Greens have argued that they have got concerns about it because of that discrepancy, as I say, if you are a high income earner, deficit levy goes, middle to low income earner, you get hit with a Medicare levy. Why not just keep the deficit levy, the debt levy?
MATHIAS CORMANN: Firstly, the Budget repair levy does not raise anywhere near as much and secondly, low income earners are excluded from the application of the Medicare levy and that will continue – interrupted.
KIERAN GILBERT: Up to $40,000. That is pretty low, isn’t it. $50,000 to $60,000 is low.
MATHIAS CORMANN: It will continue in the same arrangement as has been in place and that gets indexed year on year and there is an allowance for the more kids you have, the higher the threshold that is excluded before you have to be subjected to the Medicare levy. The point is, this is something that is necessary for us to be able to fully fund the NDIS, which was not fully funded under Labor.
KIERAN GILBERT: Is the Medicare guarantee legislation a stunt?
MATHIAS CORMANN: Absolutely not. This is sending a very clear message and it is providing a very firm guarantee to the Australian people that under the Coalition and as a result of legislation in this Parliament, funding for Medicare benefits and also the Pharmaceutical Benefits Scheme is completely guaranteed in legislation.
KIERAN GILBERT: And why is that important? Is it a political response because of the Mediscare?
MATHIAS CORMANN: It is being very clear. Here is the funding and the Parliament has enshrined in legislation that this funding has to be guaranteed in order to fund the services that are funded under the MBS and that are funded under the PBS.
KIERAN GILBERT: On the housing affordability measures, why will they work and how will they not inflate already fired up prices?
MATHIAS CORMANN: Overwhelmingly the initiatives are on the supply side of the equation. If you have an affordability issue, that is because demand exceeds supply and a lot of the measures in our package are very much focused on bringing additional supply on the market, including of course the Federal Government releasing some of its land in order to deliver more houses on to the housing market.
KIERAN GILBERT: The Shadow Treasurer says it is very light on, almost mocking your housing affordability approach, that it is not going to have any impact at all.
MATHIAS CORMANN: His only idea is to whack on another tax, to take out the sledgehammer, which would have very bad consequences on our economy and very bad consequences for home owners. We have put forward a very comprehensive package which will make a real difference.
KIERAN GILBERT: What, finally your response to the suggestion that this could have been a Labor Budget, in terms of all the revenue measures and taxes?
MATHIAS CORMANN: I am not interested in the politics, I am interested in making the right decisions today for a better, stronger future, to put Australia on the strongest possible foundation for the future. If you look at the totality of what we have done since we came into Government, we got spending growth under control, spending as a share of GDP is back down to the lowest level it has been for many years. It is close to our long-term average of 24.8 per cent. There is $14.7 billion worth of spending reductions that we would have liked to have legislated through the Parliament, that the Senate is not going to support.
KIERAN GILBERT: So, this is Plan B basically?
MATHIAS CORMANN: This is making the pragmatic decision that if we want to get back into surplus, we need to get the Budget back into surplus because we got to stop borrowing from our children and grandchildren to pay for our lifestyle today. So if we cannot get spending reductions through, the only other way that we can get back into surplus is by increasing revenue through revenue measures.
KIERAN GILBERT: Minister, appreciate your time.
MATHIAS CORMANN: Always good to talk to you.