Senator the Hon Mathias Cormann

SANDY ALIOSI: Well Joe Hockey last night introduced his first Budget and today the battle is on to convince the public and later the Senate of the merits of the Government's economic approach. One of the chief architects of the Budget and now a main salesman for it is the Finance Minister Mathias Cormann. He joins us now and he's speaking to Marius Benson.

MARIUS BENSON: Mathias Cormann, good morning.

MATHIAS CORMANN: Good morning Marius.

MARIUS BENSON: Joe Hockey, the Treasurer, says that there are more cuts to come, this is not the end of the pain?

MATHIAS CORMANN: Well there is certainly more effort to be undertaken in order to put the Budget back in surplus. What we did yesterday was put a stop to Labor's unsustainable spending growth
trajectory and we put the Budget back onto a believable path to surplus. But yes, there is more work to be done and we've always been very clear about that.

MARIUS BENSON: You made the point that there's plenty of pain to go around in this Budget. Pensioners have been hit, drivers hit, mid-income families hit, unemployed hit and in fairness the highest income earners, those earning over $180,000, also hit, but only for three years. Why are the hits on lower and mid-incomes permanent and the hits on the highest incomes only temporary?

MATHIAS CORMANN: Well this Budget is a very fair Budget. It is a Budget which seeks to spread the effort to get us back on track and back into a stronger starting position to repair the Budget as fairly and as equitably across the whole community as possible. Now over the medium to long term, what we need to do is ensure that government lives within its means. We need to ensure that the spending growth trajectory we're on is sustainable...interrupted

MARIUS BENSON: You've made that point. Can I take you back to that narrow point though, why hit everyone permanently except the highest incomes only temporarily for three years?

MATHIAS CORMANN: Well I just don't accept that at all Marius. Higher income earners of course already do most of the heavy lifting when it comes to providing income tax revenue to the Government and we recognise that. What we have said in the context of this immediate transitional short term effort is that we are asking higher income earners to contribute a little bit more in order to help the country get back on track after the waste and mismanagement of six years of Labor.

MARIUS BENSON: You're taking $80 billion off the States for schools and hospitals. If they decide they need to make up that money by seeking an increase in the GST, will they be supported in Canberra?

MATHIAS CORMANN: What we've done is put the Federal Budget back onto a more sustainable funding growth trajectory. Labor, in particular in the period beyond their forward estimates, locked in massive and unaffordable spending increases. It is the States who run the schools and hospitals. It is up to the States to decide how best to run their schools and hospitals...interrupted

MARIUS BENSON: Yes, but they run it with money from Canberra and the GST.

MATHIAS CORMANN: And what we would like to see is the States run their hospitals more efficiently, more cost effectively and for them to take responsibility for the running of their schools and their hospitals and of course they will continue to get very significant revenue flows from the GST as it currently stands.

MARIUS BENSON: If they go to you and say that the GST needs to be increased to run our schools and hospitals, will you stand in the way?

MATHIAS CORMANN: Well we've been very clear in the lead up to the last election that there will be no change to the GST under this Government, full stop, end of story.

MARIUS BENSON: You would block the States if they sought it?

MATHIAS CORMANN: Well let's see what the States will do. We've been very clear. This Government is not going to initiate any changes to the GST full stop, end of story.

MARIUS BENSON: Before the election, the Prime Minister promised no tax increases, no new taxes, no change to the pensions amongst other promises. You've increased some taxes, you've introduced some new taxes and you've changed the rules for pensions and I've seen you say that doesn't amount to a broken promise.

MATHIAS CORMANN: We have worked very hard to deliver an honest Budget, to deliver a fair Budget and to deliver a Budget that keeps faith with the promises we made in the lead up to the last election. When it comes to for example the changes, the proposed changes to the pension arrangements, you will see that they are all in the period from after the next election. So people across Australia will have the opportunity to pass judgement at the next election on whether they think those changes are fair.

MARIUS BENSON: What about say the fuel excise which you are introducing. Increases via the reintroduction of indexation from August. When motorists are sitting there at the pump in August thinking I am paying more per litre and they said there would be no tax increases. Are they not entitled to say 'that's a broken promise'?

MATHIAS CORMANN: Well in our judgement it is a very important structural reform. Over the last 13 years...interrupted

MARIUS BENSON: Yeah but the importance isn't the question. The question is, is it a broken promise?

MATHIAS CORMANN: Well I don't accept it is a broken promise, but you can make that assertion if you want. At the end of the day, it will be up to the Australian people at the next election to pass judgement on whether in their view we have kept faith with our promises and whether in their view we have made judgements that have strengthened our country and that have put us back onto a sustainable track. Now in relation to the specific question on the fuel excise, over the last 13 years effectively, the fuel excise was cut every year because it was not keeping pace with inflation. In effect, every year, the value of the fuel excise went down. What we have decided in this Budget is to essentially ensure that fuel excise keeps pace with inflation. That will help us invest more money into productivity enhancing infrastructure, which will help us strengthen the economy, create more jobs and create more opportunity for our children and grandchildren.

MARIUS BENSON: The Grattan Institute says you are really repairing the Budget through bracket creep, that is by having inflation push people broadly into higher tax brackets that income tax itself is going up from 11 per cent of GDP to 12 per cent of GDP. You're increasing income tax.

MATHIAS CORMANN: Well that is not entirely right. Firstly, over the current forward estimates, nearly 80 per cent of the Budget repair effort comes from spending cuts and just over 20 per cent comes from so called tax measures. Beyond the forward estimates the proportion of the Budget repair that comes from spending cuts continues to increase. Now the other important point is that when we came into government, we inherited government debt heading for $667 billion and that was on the basis of an assumption that bracket creep was allowed to continue. What we have done with the structural changes to the Budget that we have introduced in this Budget, that gross debt figure will come down to $389 billion within the decade with an inbuilt assumption that we will deliver tax cuts to ensure that bracket creep does not continue to just automatically increase the revenue and the tax burden on people.

MARIUS BENSON: Just a quick final question on your own position as a politician that Tony Abbott announced there would be a 12 month pay freeze, unannounced to you, a month ago, the Remuneration Tribunal which determines your pay decided you were not going to get a pay rise this year anyway. So you have given up a pay rise that you were not going to get. Can that be dismissed as a stunt?

MATHIAS CORMANN: Well, great minds think alike. We did not think it was appropriate in the circumstances for Federal politicians to get a pay rise. We have said all the way through that all of us have to contribute, all of us have to share the burden. Clearly the Remuneration Tribunal was of a like mind and that is very good.

MARIUS BENSON: Mathias Cormann, thank you very much for speaking with News Radio this morning.

MATHIAS CORMANN: Always good to talk to you.