Senator the Hon Mathias Cormann

PETER VAN ONSELEN: We are joined by the Finance Minister Mathias Cormann, live out of WA. Thanks for being with us at the early hours of the morning over there in Perth.

MATHIAS CORMANN: Good to be here.

PETER VAN ONSELEN: Minister let me ask you straight of the bat over the financial update that yourself and Joe Hockey released during the week. It puts the Government in a bit of a catch 22, the economic climate, because on the one hand to be a good government you do have to tighten the fiscal belt as has been mentioned, but to not fall into political harms way you have to honour a whole bunch of pretty big spending election commitments, how do you do both?

MATHIAS CORMANN: Firstly our overarching objective is to build a stronger economy and create more jobs. Of course if you build a stronger economy not only does it improve the national prosperity but it also increases revenue for government. What we have inherited from the Labor Party is an economy which is growing below trend, unemployment which is rising, cautious consumers and business investment that has plateaued. After 6 years of adding more and more burdens onto the Australian economy with the carbon tax, the mining tax, more than 21,000 new pieces of red-tape, at a time when the global economic environment was already pretty challenging, that was clearly the wrong way to go. This government will change direction so that we can take some of those burdens off and strengthen economic growth. On the flipside of course, there is no doubt that we will have to reassess which areas of government spending are still appropriate and where there are possible improvements in terms of increased efficiencies and savings.

PETER VAN ONSELEN: Can I ask Minister you say that you will have to reassess some areas of spending, you won’t presumably be able to or want to reassess some of those areas of big spending, which were election commitments, so we are talking about multi-billion dollar commitments in terms of paid parental leave, Direct Action a host of other areas as well. None of that is up for grabs is it? You are only able to look at those parts of the budget where those election spending promises weren’t made.

MATHIAS CORMANN: If your question is whether we will stick to our election commitments, yes absolutely. I just remind you that in our pre-election costings document, our policies and our savings measures actually improved the budget bottom line. We not only presented a whole series of policy commitments, but we also presented about $42 billion worth of savings, all but one of which have been reflected in the Mid-Year Economic and Fiscal Outlook, which we released earlier this week.

PETER VAN ONSELEN: Can I ask, it is a fairly simple question. If the economic situation as per the update this week, has changed so dramatically, then it is reasonable, it has changed the economic fundamentals so dramatically, then it is entirely reasonable isn’t it, that a newly minted government is allowed to take a fresh a look at commitments made ahead of the election because circumstances have changed and when the facts change you have to change your reaction surely?

MATHIAS CORMANN: I say to you again the commitments, together with the savings that we took to the last election actually improved the budget bottom line. The economic fundamentals haven’t changed to the same extent as we have made a more realistic assessment of those economic fundamentals in the Mid-Year Economic and Fiscal Outlook. The previous government invariably took an overly optimistic view of where things would go. They always overestimated revenue and they invariably underestimated expenditure and from Budget to Budget Update, the budget position continued to deteriorate. What we have sought to do in the Mid-Year Economic and Fiscal Outlook is present the true position of the budget based on realistic, believable assumptions which will withstand the test of time.

PAUL KELLY: Let’s just talk about the future, Minister. Are 10 years of budget deficits intolerable for you and for the Abbott Government?

MATHIAS CORMANN: Indeed it is. Our commitment is to return the budget to surplus as soon as possible. What we have presented earlier in the week is the position that we have inherited, the debt trajectory without corrective action. We are committed to corrective action, we are committed to bring the budget back on to a believable pathway to surplus as soon as possible.

PAUL KELLY: Can I just ask you then, seeing you are the Finance Minister, you’re the Minister responsible for spending overall, how significant over time will be the spending cuts and spending adjustments required?

MATHIAS CORMANN: Obviously we are working our way now to our first Budget in May.

PAUL KELLY: But what is your message on this? How significant are the spending cuts required?

MATHIAS CORMANN: Our message on this is that we are going through an orderly, methodical and careful process. We have taken $42 billion worth of savings to the last election, which we are implementing. We have found another $1 billion worth of savings that we reflected in MYEFO on top of that. Now we have got the Commission of Audit which is looking right across Government, reviewing the scope, the size and the efficiency of government with a view to making recommendations to us on adjustments that can be made moving forward so that over time and as soon as possible, we can put the budget back into a surplus position that is sustainable into the future. I am not going to give you our May Budget today Paul, but what I can say to you is that we are totally committed to bring the budget back to surplus as soon as possible.

PAUL KELLY: I find that answer puzzling given the magnitude of the challenge outlined in the Mid-Year review. So can I ask it another way? Do you think that Australians at the moment are living beyond their means?

MATHIAS CORMANN: Clearly the government is right now living beyond its means. The government over the six years of Labor, the Government has spent $314 billion more than they raised in revenue. We are spending $123 billion more than we are expected to raise in revenue over the current forward estimates. So clearly the government is living beyond its means. That is not a situation that is sustainable and that is a situation that we are committed to correct, but we are going to do it in a calm, methodical and careful fashion.

PAUL KELLY: Let’s just try and proceed a bit more with this. The review makes this clear that on a no-policy change basis spending is going to be increasing by about 3.7% annually, Labor pledged to restrain that to 2%, what sort of target is realistic for the Abbott Government?

MATHIAS CORMANN: Again, I am not going to lock myself into the parameters that we are going to put forward at Budget time.

PETER VAN ONSELEN: It’s not about locking you into parameters Minister, it’s about what sort of target you would like to set. You are not setting it in stone, but you must have some idea as the Minister responsible, where you would roughly like to head.

MATHIAS CORMANN: Peter, if I were to make an announcement on your show today, believe you me, that would be setting it in stone. What I am doing is the responsible thing. We are going through an orderly, careful, methodical process. We will be making some announcements between now and budget time about some of our fiscal targets and the rules that we intend to operate within. These are obviously the considerations that we are working our way through right as we speak. I just stress again though, everyone who asks me questions about this, always just exclusively focus on the spending side. The spending side is indeed important, but our commitment is to strengthen economic growth, which will have a beneficial impact on the revenue side. So we have got to do both. We have got to grow the economy, which leads to increased revenue, without the need for more taxes as well as focusing on the expenditure side.

PETER VAN ONSELEN: Let’s call a spade a spade here Minister, what you are doing is deliberately reducing expectations to be able to then rise above them. You look at the forward estimates, you have got a situation where you have bumped up spending growth to over 3.5%, you have knocked down economic growth to 2% or thereabouts in these forward estimates and as a result you are painting a dire picture which you can then turn around when the economy actually meets trend or when growth actually meets what it was in the last year of Labor rather than in the previous five, that is well below 3.5%, you are going to have this scenario where you are able to say, just simply because of getting those forward estimates where you want them, you are going to be able to say your economic management has brought it all back under control.

MATHIAS CORMANN: Well Peter I completely reject that. If you look at the document you will actually see the evidence against that assertion that you have just made. Our estimates are based on the consensus view of where the economy is at and where the economy is trending. In fact we have got a graph published in the Mid-Year Economic and Fiscal Outlook which shows that essentially our forecast, our economic forecasts are middle of the road in terms of the consensus view of economic analysts on where the economy is at. If your question is ‘is your assessment more conservative than the previous government’s assessment’, then the answer to that would be yes.

PETER VAN ONSELEN: Minister that is because it is two sides of the same coin. Labor always wanted to act like there was a surplus on the horizon so they would always make it look like their spending was going to be more under control and economic growth was greater than it turned out to be. You are doing the flipside, because you are a new government, but had an amount of Labor debt, they’ve fallen short on where they needed to on the budget, so it suits you to be able to say that economic growth is low and spending will be high unless we pull it under control and then voila six years from now you will say we pulled it under control, we delivered a surplus sooner than Labor would have, it would have been a decade under them. It’s all just smoke and mirrors isn’t it?

MATHIAS CORMANN: Peter you can’t have it both ways. If you agree with me that the previous government was overly optimistic in their estimates, that they overestimated economic growth forecasts, that they overestimated revenue estimates, that they underestimated where the expenditure is going, then you can’t criticise us for having decided to work on the basis of more realistic assumptions.

PETER VAN ONSELEN: My criticism is you have gone too far the other way. They were black, you were white, you could have gone grey.

MATHIAS CORMANN: And we have gone middle of the road. Again, I encourage you to look at the discussion in the Mid-Year Economic and Fiscal Outlook around the consensus estimates about economic growth and various economic trends moving forward. You will find that we are right in the middle of what are the consensus estimates.

PAUL KELLY: Given the difficulty of this situation Minister, do you rule out increases in taxation at all? Any increases in tax rates in order to try and repair the budget?

MATHIAS CORMANN: Look again, our commitment is to lower taxes because we want to grow the economy.

PAUL KELLY: I’m aware of that, which is why I have asked the question.

MATHIAS CORMANN: Our commitment is to scrap the Carbon Tax, to scrap the Mining tax, to reduce company tax rates by 1.5%, but again I am not going to give you a blanket statement in relation to the budget which is going to come out in May. Our election commitments are there for all to see and we have already said that we will stick to our election commitments.

PETER VAN ONSELEN: Paul Kelly asked you earlier in the interview about whether or not you thought that people were living beyond their means and you made the point that the government has certainly living beyond its means. When you look at private debt, to bring you back to the question, private debt has long been higher in this country and more of an issue than public debt. So do you think individuals, like the government, are also living beyond their means?

MATHIAS CORMANN: All of the data would suggest in recent years private savings have actually gone up, which obviously was a trend that was particularly accentuated post the Global Financial Crisis. Our primary concern in the job that I have got, that I am focused on right now is to make sure that Government lives within its means. Obviously the situation that we have inherited was particularly bad on that front.

PETER VAN ONSELEN: We are talking to the Finance Minister, Senator Mathias Cormann, we are going to take a break here on Australian Agenda. When we come back, we will continue to discuss the Budget Update, but also the Disability Support Pension is in the headlines because the government wants to reform it, most of us would say that is long overdue. Back in a moment.

[COMMERCIAL BREAK]

PETER VAN ONSELEN: Welcome back you are watching Australian Agenda where Paul Kelly and I are speaking to the Finance Minister, who is joining us live out of Perth, Mathias Cormann. Senator Cormann, the Disability Support Pension, most of us would say that it is in urgent need of reform, we are coming up on about 1 million people in the years ahead that will be on it. One of the problems of being on it of course compared to unemployment benefits is not just that its rate is substantially higher, but also it doesn’t have a requirement in there that you need to be looking for work. I don’t want our viewers to think that I am anti-reforming DSP because I am not, but one question that really needs to be asked is if you are going to look at reforming this huge black hole of government spending, how do you do it in a way where you ensure that genuine recipients of the DSP don’t get caught up in compliance and the like which affects their genuine right to be on it, when you are in a sense, trying to move people off it who perhaps shouldn’t be on it?

MATHIAS CORMANN: That is obviously the objective. Right now we are looking right across government for opportunities to improve efficiencies, to reduce costs in a sensible fashion. This is one of the fast growing areas of government expenditure. The objective is to ensure that those in genuine need receive the appropriate levels of support, but people who are able to work are encouraged to go back to work. These are the sorts of discussions that we are having at the moment and of course the Commission of Audit is looking at this whole area as well and is expected to make some recommendations to us on how that can best be achieved by the end of January.

PETER VAN ONSELEN: Would you say that, on sort of your look at it to date, and I accept there will be more looking into it going forward early next year, your first look at it, the DSP, reforming DSP would that be one of the key areas where the government can rein in costs and therefor do something about that debt?

MATHIAS CORMANN: It is one of the areas that we think there is an opportunity for reform that is for sure. We think that there is an opportunity for a win-win. Obviously only those people who genuinely need the Disability Support Pension should be getting it. Anyone who can work should work and the Disability Support Pension arrangements should facilitate that.

PAUL KELLY: Minister we have the results from some of the pilot programs for the National Disability Insurance Scheme showing that some of the package costs are running 30% above expectations, how concerned are you about that and how concerned are you about the broader funding for the Insurance Scheme?

MATHIAS CORMANN: The first point I would make is that we are totally committed to deliver the National Disability Insurance Scheme. It always has been a bipartisan commitment and will continue to be a bipartisan commitment I am sure. That is, I am sure the Labor party will continue to support it too. Now when it comes to costs, this is a relatively new scheme as you say. It is only just starting. There are some trials that have been underway and the way these sorts of things normally work is that when you trial something you try and get learnings out of it and you try to make judgements on how you can make things better to make sure that these services and these benefits are delivered in the most efficient, cost effective way.

PETER VAN ONSELEN: Minister if it is running 30% over budget in some areas, that is going to be an enormous strain on the budget when it is rolled out more widely. What sort of things can you do to put the meat on the bones of that, what can you actually do to try and rein in costs as you watch this in a trial sense?

MATHIAS CORMANN: These are the conversations that Mitch Fifield, the Minister with responsibility at a Federal level for this, is having with State and Territory Governments and with a number of other stakeholders. Our commitment is to deliver the scheme. But our commitment also is to deliver it in the most efficient, cost-effective way. I saw some people, in particular from the Labor side, critical of those comments that the Treasurer and I made earlier on in the week, but what is the alternative? To deliver the scheme in an inefficient and wasteful way rather than in an efficient and cost effective way? Look this is very early days. This is a very new scheme. It is going to be important to get this scheme right and it is important to put it on a fiscally sustainable setting, which is what we are committed to do. We are having these conversations obviously within government and the responsible Minister is having these conversations with all of the relevant stakeholders as we speak.

PAUL KELLY: In terms of your approach to spending, is everything on the table? Welfare, health, education spending? Will you be reviewing the lot?

MATHIAS CORMANN: The short answer is yes everything is on the table to the extent that the Commission of Audit has been asked to look right across government with a  view of maximising the efficiencies, ensuring that the operations of government are as efficient as possible. Having said that, obviously we have made some commitments in the lead up to the last election. For example that there won’t be any cuts to health, education and defence spending, which doesn’t mean by the way that you can’t improve the quality of the spend within the funding envelope for health, education and defence. We still expect the Commission of Audit to make recommendations to us on how efficiencies can be achieved within Health, Education and Defence, but obviously the way the government would implement those recommendations would be consistent with the commitments that we took to the last election, that we would not be reducing the funding envelope. Indeed in relation to defence, our commitment is over the decade to take that funding envelope to 2 percent of GDP.

PAUL KELLY: How concerned are you as Finance Minister with these demands coming all the time now from various companies for government subsidies, government bailouts, SPC Ardmona is the most recent one. What is your response to this?

MATHIAS CORMANN: In a way you ought to be assessing these things on a case-by-case basis. A general point I would make is that if an industry or a particular business doesn’t have a future without ongoing subsidies, then it doesn’t have a future. There is a place for government support, taxpayer funded support, for well-targeted, time-limited support through a structural or transitional adjustment. But obviously, if you can’t stand on your own two feet, if you’re not commercially viable at any time into the future without taxpayer support then really there is going to be a serious question asked whether you have any future at all.

PETER VAN ONSELEN: Some of these companies clearly do have difficulties or have had difficulties and we have seen, in the case of Holden they are not going to continue their operations in Australia, but other companies that have started to put their hand out and ask for government subsidies, it feels like a little bit doesn’t it, that they are trying to hold the government to ransom. What is your take on that?

MATHIAS CORMANN: The government is not going to be held to ransom at any point. Our commitment again, I’ll go back to where I started, our commitment is to build a stronger, more prosperous economy, where businesses can be successful because the overall settings and the environment is right. Of course that is why we are committed to scrap the carbon tax, scrap the mining tax, reduce red tape, achieve $1 billion worth of savings per annum for business from lower compliance costs and that is why we are investing in the roads of the 21st Century, productivity enhancing infrastructure. Obviously private sector businesses should be able to survive on the basis of good management and their own initiative and the fact that they have got something to offer that people want to buy.

PETER VAN ONSELEN: You mentioned that in terms of government subsidies decisions obviously need to be made on a case-by-case basis, but there must also be overarching principles. What are they? What are the overarching principles about when a business might be deemed eligible for government support versus when it might not? Does it just fundamentally come down to if it’s not viable without government subsidy then it is not eligible for it because we live in a market system?

MATHIAS CORMANN: Again, the principle in a high-level way that I have just mentioned is that obviously there are going to be occasions where because of circumstances, there might be the need for time-limited, well-targeted transitional support because you can see that there is light at the end of the tunnel and there is just a set of circumstances at a particular point of time, which means a particular company or a particular industry is in difficulty, but you can see that that is not going to be forever. If you are going to be in a circumstance where without taxpayer funded support, you are never going to be able to stand on your own two feet, then really you have got to ask yourself the question whether that is an appropriate way to deploy the limited resources made available to us by taxpayers.

PAUL KELLY: How keen are you to review the Renewable Energy Target?

MATHIAS CORMANN: In the normal course of events, the Renewable Energy Target is due for review in 2014, which I am sure you are aware of. Clearly the cost of energy is one of the cost-drivers which has reduced our international competitiveness in recent years. In particular the carbon tax has been pushing up the cost of electricity, which has pushed up the cost of doing business, which has made us less competitive internationally and there is no doubt that the Renewable Energy Target has also had an impact on our international competitiveness.

PETER VAN ONSELEN: Should it have to change do you believe? Should something change? Your Coalition partners, the Nationals in particular, take a pretty strong view on this.

MATHIAS CORMANN: As I have just said there is a review in the normal course of events, which is due to take place in 2014. That review will take place. I am not going to pre-empt the findings of the review, but obviously if you are having a look at something you are going to have to be reasonably open minded as to how you are going to deal with any recommendations that come out of that review.

PAUL KELLY: What is the justification for seeking the abolition of the Clean Energy Finance Corporation seeing it costs you money?

MATHIAS CORMANN: I think that people are quoting some numbers out of context here. You have got to remember that the previous government decided to borrow $10 billion, in order to give them to the Clean Energy Finance Corporation for the Clean Energy Finance Corporation then to start writing some loans. Firstly I am always suspicious of government being involved in banking. This particular government-ran bank has been in business for less than six months. So anyone who makes judgements on how successful or how unsuccessful that will be over the medium to long term I think are getting ahead of themselves. Secondly, those that have asserted that it makes us money do not take into account the cost of funds. The fact that the government has to pay interest on the debt that we are incurring in order to supply the Clean Energy Finance Corporation with funds, with capital. In a philosophical sense, either the Clean Energy Finance Corporation is investing in projects that are too risky and where funds will be at risk and then you have to ask yourself the question, why should the taxpayer be exposed to that risk. Or, they are investing as they assert in commercially viable and at a commercial rate of return and then you have to ask yourself the question, why should the government be competing with the private sector?

PAUL KELLY: So in other words your real opposition is a philosophical opposition, you have just got a generic hostility to this concept?

MATHIAS CORMANN: It’s not just philosophical. If you look at Australian political history at a State level and at a Federal level, governments are not that good at running banks. I know that people are getting themselves excited about the performance of the Clean Energy Finance Corporation over less than six months, but right now the trajectory that Labor has put us on, at a time when we are already facing a $47 billion deficit, $123 billion worth of deficits over the forward estimates and $667 billion worth of debt, the Labor Party put us on a trajectory where we have to borrow $10 billion so we can put it into the Clean Energy Finance Corporation, which of course increases the level of interest that we have to pay. It increases the cost of government. The Clean Energy Finance Corporation doesn’t take that into account when they assess their financial performance, so the numbers there that you are quoting to me are based on their assessment in isolation of the cost of funds. Obviously we haven’t got that luxury of assessing performance in isolation of the cost of funds.

PETER VAN ONSELEN: In the same week that the Treasurer said that the Government needs to tighten its belt because there is a spending problem, George Brandis, the Attorney-General, appointed a new Human Rights Commissioner at a salary no less of $320,000 per year. The Commission to run it costs in excess of $25 million a year. Why on earth wouldn’t the Coalition abolish the whole thing and save the money?

MATHIAS CORMANN: Well firstly if there is going to be a Human Rights Commission then Tim Wilson’s appointment was an outstanding appointment and he will do a great job.

PETER VAN ONSELEN: But why is there one? I guess that is the main question.

MATHIAS CORMANN: He will help restore some balance to that particular organisation. Over the medium to long term let’s just watch this space and see what happens.

PETER VAN ONSELEN: Do you think it could be on the chopping block sooner rather than later?

MATHIAS CORMANN: I am not going to pre-empt any findings of the Commission of...

PETER VAN ONSELEN: You have already pre-emptied it, you said watch this space. Something must be about to happen…

MATHIAS CORMANN: …No I said in terms of what might or might not happen, is what I said, in terms of what might or might not happen over the medium to long term lets watch this space, but right now there is a Human Rights Commission and Tim Wilson is an inspired and outstanding appointment to that Commission.

PETER VAN ONSELEN: Can I ask you about the Audit Commission, taking a bit of a look at government spending, now I’m asking you to play political commentator a little bit here, but what is the, do what you can for me…

MATHIAS CORMANN: …I'm not going to do that.

PETER VAN ONSELEN: …What is the yard stick for government success in terms of what it does or doesn’t adopt from this commission. Obviously you will take some of it and you won’t take other things, even Peter Costello’s first Budget didn’t take everything that came out of their Audit Commission look at things. Where is the yardstick would you say?

MATHIAS CORMANN: As we have said on record on a number of occasions, we want the Commission of Audit to look at everything, right across government. But the government at the end of the day will have to make judgements as to what recommendations we will and which recommendations we will not accept. The yardstick for that will be the commitments we took to the last election. We will not be implementing recommendations in the way that would be inconsistent with the commitments that we took to the last election.

PAUL KELLY: Given the situation with a debt and deficits, what on earth is the ongoing justification for Tony Abbott’s Paid Parental Leave scheme apart from the fact that he promised it at the election, apart from that, apart from that provision, is there any other justification for this sort of scale?

MATHIAS CORMANN: We are not just doing this as a bit of symbolism. The Paid Parental Leave scheme is an important economic reform. It is a part of our plan to build a stronger economy and create more jobs. The Paid Parental Leave scheme is designed to increase workforce participation, to increase productivity and to encourage increases in population.

PETER VAN ONSELEN: Is the government united in that view? Are the backbench 100% behind the Executive in your opinion?

MATHIAS CORMANN:It is a policy that we took to the last election, it is the policy that the government is committed to and it is the policy that we will put to the Parliament with a view of having it legislated. The deadline for implementation is 1 July 2015 and we are furiously working to implement that very important commitment.

PETER VAN ONSELEN: Is there a risk in the Senate in particular I am thinking, the Liberal Party likes to spruik, that unlike Labor it doesn’t bind it’s backbenchers to a party vote, people can vote on their conscience, they can cross the floor. I for one can’t imagine someone like Senator Cory Bernardi voting for the Paid Parental Leave scheme. Can you envisage any scenario where Liberals cross the floor on this totemic issue?

MATHIAS CORMANN: You are now asking me to well and truly be a commentator and to start engaging in hypotheticals which I won’t do. All I can say to you is that the government remains totally committed to this very important economic reform, that we will put it to the Parliament in the form that we took it to the last election and then obviously we will have to work through the Parliamentary processes with a view of getting the best possible outcome at the other end.

PETER VAN ONSELEN: Senator you have been generous with your time, one more question before we let you go. The unemployment rate. The projections of what you put out during the week is that it will go up. Are you comfortable as a Government fighting the next election as a Government that has presided over higher unemployment than when it took office?

MATHIAS CORMANN: When we last were in Government, when Labor got elected the unemployment rate had a 4 in front of it. The situation that we have inherited is, as I have said earlier, the economy growing below trend and unemployment rising. Now what we have done in the Mid-Year Economic and Fiscal Outlook, going back to the assumptions that we have used is that we have made a more realistic assessment of where things are likely to be over the forward estimates. The previous government, the Labor Party, essentially assumed that in the final two years of the forward estimates, the unemployment rate would go back to the long-term average of 5%. So the practical effect of that is that on 30 June 2015, supposedly, the unemployment was 6.25% and that by 1 July 2015 and the two years following the unemployment rate would miraculously drop down to 5%. That was a technical assumption that they used, which then had flow on implications all throughout the budget in terms of lower expenditure and higher income, which artificially helped them create the impression of a surplus in 2016/17. What we have done is, we have said, that is not realistic. Our objective is to grow the economy more strongly, to create more jobs and as we are successful in implementing our plans to achieve that, we will of course make adjustments along the way. In the meantime we think it is more realistic to assume that the unemployment rate at a time of below trend economic growth is going to remain at that sort of level rather than to drop off sharply outside of any lifts in economic growth.

PETER VAN ONSELEN: Senator Mathias Cormann, the Finance Minister in Tony Abbott’s Government, thanks for making yourself available so close to Christmas which I know has been a particular busy, not just week, but busy 100 days since you have been in office. We appreciate your company.

MATHIAS CORMANN: Merry Christmas to both of you.