Senator the Hon Mathias Cormann

LEON BYNER: Let's talk to the Federal Finance Minister, Mathias Cormann. Mathias thank you for joining us today.

MATHIAS CORMANN: Good morning Leon.

LEON BYNER: I want to put to you a concept that has been raised by a couple of highly respected commentators just before the break, and that was this; that because of the way you have done your health funding in the Budget, what this does is put firmly on the table the position that the States will inevitably have to want an increase in the GST because there is no other funding model that they can get it from. What do you say to that?

MATHIAS CORMANN: I don't agree that it is inevitable. I mean the States are responsible for running schools and hospitals and we want to see the States run their schools and hospitals sustainably and as efficiently as possible. What we have done in this Budget, just to correct something that has been said, we are not imposing cuts on health and education, what we are doing is growing the funding for health and education on a more sustainable basis.

LEON BYNER: Can I just explain this? Here is a reality. In health for example, you are going to use the CPI and population growth, that is going to be your model. Now the problem for South Australia is, our growth rate isn't as good in numbers of people we're birthing, and that in itself is going to mean that we have an ageing population so that is going to hit us pretty hard isn't it?

MATHIAS CORMANN: Not necessarily. And that is the whole point. What the previous Government did is they put Federal government spending on a completely unsustainable growth trajectory. We had to address that. We are addressing it. The whole purpose of that is to make sure that our Budget overall is on a sustainable basis. We can't as a Government continue to spend money that we haven't got. We can't continue to spend more money than we raise in revenue. If we had stayed on the trajectory that we were on, we would have ended up with spending of 26.5 per cent as a share of GDP within the decade, which would be more than 3 per cent higher than in the last year of the Howard Government. That would have required massive additional tax increases in order to sustain that sort of spending and that wasn't appropriate.

LEON BYNER: So where are the States going to get the money to match the shortfall in the new calculations of funding? Where are they going to get the money?

MATHIAS CORMANN: We are continuing to increase the Federal contribution toward State schools and State hospitals.

LEON BYNER: Ok. But that still doesn't answer the question. Most of the States have been fairly bitter in their criticism today, saying we will have to find the money somewhere else, it will either be cuts or an increase in the GST.

MATHIAS CORMANN: Guess what, the spending growth locked into the Budget, incidentally beyond the forward estimates so it wasn't obvious to the public, it was hidden from public view before the last election, the spending growth locked in to the Budget by the previous Government was unsustainable, was unaffordable. We have had to make the hard decisions. The State and Territory Governments across Australia equally have to make the hard decisions to make sure that Governments across Australia live within their means and only commit spending to the extent that they can raise that money through revenue.

LEON BYNER: The RAA made a point today that we don't actually specifically know the rate at which you will increase the fuel excise. Can you tell us that?

MATHIAS CORMANN: What we have said we would do is that we would adjust the fuel excise through indexation by CPI. This is essentially the system that was in place prior to 2001. What has been happening since 2001, is that we have had effective cuts in fuel excise because as the cost of living went up the value of the fuel excise went down and you just mentioned spending on health and education…

LEON BYNER: Sure.

MATHIAS CORMANN: The expectation from the community across Government is that we would increase the spending at least by inflation. But if we don't then also increase our revenue by at least inflation, then clearly we have a structural problem moving forward. So what we have said in this Budget is that we bring back the automatic indexation of the fuel excise, which means the value of the fuel excise keeps pace with inflation and we will channel all of that additional revenue into our investment in productivity enhancing infrastructure, which will help us build stronger economic growth, which in turn will increase the revenue that the Government can collect so that we can then direct it into health and education and all these other services.

LEON BYNER: So this fuel levy increase, isn't going to go to roads, part of it might, but a lot of it will go the general Budget, is that right?

MATHIAS CORMANN: No. All of the increase in revenue from the fuel excise will go into roads but that investment in productivity enhancing road infrastructure will help us grow a stronger economy. In fact the modelling suggests that once we have implemented that infrastructure investment programme, we will add permanently 1 per cent to our GDP, which of course then will have flow on implications in terms of other government revenue, which we can then direct in terms of additional investment in health and education and other services.

LEON BYNER: This $7 co-payment starts when?

MATHIAS CORMANN: On 1 January 2015.

LEON BYNER: Now can you tell us, is all that money going to go to this future fund for research or is some of it going to go somewhere else?

MATHIAS CORMANN: What will happen, sorry I'll just correct it, it's from 1 July 2015, that patients…interrupted

LEON BYNER: Not January.

MATHIAS CORMANN: Not January, 1 July 2015, that patients will contribute $7 to the cost of each visit to the GP and also out of hospital pathology and other diagnostic imaging services. That contribution will be capped at 10 visits a year for Commonwealth Concession Card holders such as pensioners, veterans and children under 16 years of age. Out of that $7, $5 will go to the Government and we will put that into the Medical Research Future Fund to invest in increased medical research to find cures.

LEON BYNER: Where does the $2 go?

MATHIAS CORMANN: And the $2 goes to the doctor. We are reducing the Medicare fee by $5 and we are allowing the doctor to essentially collect $2.

LEON BYNER: So you're saying to the doctors that you will have to get less?

MATHIAS CORMANN: Well we are reducing the Medicare Benefits Schedule fee by $5 and what we are saying...interrupted

LEON BYNER: Giving back $2, so they are losing $3?

MATHIAS CORMANN: Well they are not actually. Because they are charging $7 out of pocket to the patient.

LEON BYNER: Well again, what other co-payments that exist will actually stay? Because there would be some today who are already paying a copayment depending on their circumstances.

MATHIAS CORMANN: So what we have had in place for some time was a bulk billing inventive payment to doctors which encouraged them to bulk bill patients in various demographics. What we are doing now is changing that to a low gap incentive to ensure, to incentivise doctors to charge the $7 co-payment, but no more to patients that are currently bulk billed.

LEON BYNER: Alright. Now Mathias, is it a little disingenuous for the Prime Minister a few days ago to say we MPs are going to take the pain as well, so we won't take any wage or salary increase when it was clear that the Remuneration Tribunal had decided that there wasn't going to be one anyway. So really you have in effect promised to give up that which you didn't have in the first place.

MATHIAS CORMANN: That wasn't clear to us at the time. The previous Labor government passed legislation through the parliament which gave complete independence to the Remuneration Tribunal when it came to setting remuneration for Members of Parliament. We made a decision that in all of the circumstances it was not appropriate for Members of Parliament to get a pay rise and we wrote to the Remuneration Tribunal to that effect, asking them to not to give us a pay rise. As it turns out, great minds think alike and the Remuneration Tribunal was already of that view anyway. That wasn't something that we were aware of when we were making that decision.

LEON BYNER: I just want to talk about the pressure on families because for example, and there will be others, but here is one, if you've got single mums at home or indeed married ones who want to stay at home, who were relying on that Family Tax Benefit, they're going to necessarily, probably have to go out and find a job. Now, there is a lot of optimism I suspect in this policy on your part to suggest that that will be easy.

MATHIAS CORMANN: What we have said is that we need to target family payments that are funded by other tax payers to those families most in need. Now when it comes to the Family Tax Benefit B which is what you are talking about, what we have said is that it will remain in place if you are otherwise eligible until your youngest child is six years of age. If you want to stay at home beyond that, that's fine, but we don't think it is appropriate in those circumstances to expect the taxpayer to continue to fund that. What we do want to achieve, unashamedly, is a lift in work force participation. We do have a structural challenge in our economy where with the ageing of the population, our workforce participation rates are going down, so there are fewer people in work to carry the burdens of all of the public services and welfare services that we are providing. So we do need to lift workforce participation and what we are saying to women and families in those circumstances is the taxpayer will continue to support you until your youngest child is six years of age and then the expectation will be that they go to school and that there will be some opportunity for you to earn a living by going back into the work force.

LEON BYNER: Now another amount of $200 million has come out of the car industry and the component industry is saying that this is going to make it awfully hard, if not impossible, to transition before these companies leave our shores. Did you take this into consideration when you decided this?

MATHIAS CORMANN: We have very carefully weighed up all of the issues, all of the information and all of the implications of course from the announcements by Holden and Toyota and others to stop manufacturing in Australia. There clearly have been some consequential decisions when it comes to the various subsidies that have been in place for some time. But we have very carefully weighed up all of the issues to ensure that the transition is as smooth as possible and the Government and the taxpayer provides appropriate levels of support through that transition.

LEON BYNER: This Budget is very provocative politically. Because you know already, even before it was officially announced, most of what's been suggested has happened, except a couple of announcements that were not in there. So you would be hoping I suspect, that what you are doing is going to be so profound for the economy that the people who have said to you guys 'hey, you've broken promises' etcetera are going to think 'oh, everything's ok!' Are you hoping this? And when do you think people will notice a difference for the positive?

MATHIAS CORMANN: Leon, what we did last night was deliver a very honest Budget, a fair Budget. We delivered a Budget that we believe keeps faith with the election commitments and our most fundamental commitment was to put our economy back onto a stronger trajectory...interrupted

LEON BYNER: And to not increase taxes?

MATHIAS CORMANN: Well, you know what, taxes as a share of GDP over the forward estimates will be lower than they would have been under Labor. We have made some decisions in terms of the short term effort required to put our Budget back onto a more sustainable trajectory, that we would ask all Australians to contribute, all Australians to help us put our country back on track and higher income earners sadly, the only way we can do that is through the tax system.

LEON BYNER: Alright, Mathias Cormann, thank you. That's the Finance Minister justifying many of the comments that were made today by a number of parties with regards to the Budget.