Senator the Hon Mathias Cormann

JANINE PERRETT: As promised, a man who used to need an introduction, but very quickly has become a household name, not always in a good way perhaps because of the Budget. But here he is in the studio with me, the Senator from Western Australia, Federal Finance Minister Senator Mathias Cormann. Welcome to the show, nice to have you here in person.

MATHIAS CORMANN: Good to be here.

JANINE PERRETT: Now it is a week since the Budget. Is it going to plan?

MATHIAS CORMANN: It was never going to be easy. We inherited a Budget in a mess and we need to repair the Budget. We understand that making the right decisions is not necessarily going to be popular.

JANINE PERRETT: But you must have known that there was going to be a reaction? Is the reaction what you expected? Worse, better or about the same?

MATHIAS CORMANN: It is pretty well what we expected. We were very conscious as we were working through the numbers, through the information, through the options in front of us to put the Budget back onto a more sustainable track to ensure that Australia has the best possible opportunities into the future, that some of these decisions were going to be very unpopular. That just proves the point of how convinced we are that we are doing what needs to be done. Because we are not focused on our political self-interest, we are not focused on a big shot in the arm in terms of the next poll, we are focused on doing what is right for our country.

JANINE PERRETT: In other words, you can weather the attacks. You get a lot of Liberal MPs saying that they have never had such a backlash from the electorate. You're saying that that was not unexpected and you can weather that?

MATHIAS CORMANN: We will continue to calmly explain the decisions we have made and the reasons for those decisions. We are hopeful that over time, people across Australia will accept that what we are doing is what was needed in order to build a stronger, more resilient economy where everyone can have an opportunity to get ahead.

JANINE PERRETT: We all know the politics. Are they going to accept that politics is as much about the sell. I mean the actual document was only part one really wasn't it? Now it is about convincing people. How do you think that is going?

MATHIAS CORMANN: That is why I am here. That is why the Prime Minister, the Treasurer and I are doing interviews every single day from morning to evening to explain the reasons for our judgements. That is why the whole Government...interrupted

JANINE PERRETT: Do you think you are getting the message out when like on Q&A last night where all the focus in on about the broken promises?

MATHIAS CORMANN: Look, at the end of the day it is very important for us to be confronted with things that are on people's minds so that we can explain ourselves. So from that point of view, it is very important for people like yourself to ask all of the tough questions so we can answer them.

JANINE PERRETT: Well okay. You have heard what I just said in my editorial, you have the Standard and Poor's, you woke up, you see the Fin Review and it sounds very much like this is the backup you need to your message. You know, the S&P says you're on the right track and if not, it threatens the rating. And certainly the Government hung on to that. What do you make of the backtracking by the S&P analyst who is now saying no I didn't actually say that, no, no, it is not under threat.

MATHIAS CORMANN: Well I will let Standard and Poor's explain themselves, but what we know from the Governments point of view is that the spending growth trajectory that we inherited from Labor on top of five successive deficits of $191 billion and the final Budget from Labor projecting another $123 billion in deficits, the spending growth trajectory that we inherited would have taken Australia to spending as a share of GDP to 26.5 per cent compared to 23.1 per cent in the last year of the Howard government. Now the important thing for people to understand is that if we ever wanted to balance the Budget that would have meant that we would have had to increase taxes massively in order to catch up to the spending growth trajectory that Labor has put us on and that would have been bad for the economy, it would have cost jobs, it would have got massive additional numbers of Australians onto the unemployment queues which is the last thing we want. We need to ensure that government lives within its means, that government spending is sustainable and it doesn't ramp up to the sort of level that Labor put in place.

JANINE PERRETT: But just look at today's story, the S&P rating. Given that it was a AA under much of the Howard/Costello...interrupted

MATHIAS CORMANN: It was actually a AAA. What they are seizing on is that all three agencies decided under the previous government to make it a AAA. You have got to remember - why is that? It is because by 2007 the previous government inherited a very strong economy, a strong Budget with no government net debt, a $20 billion surplus, money in the bank, the Government in 2007 was collecting more than $1 billion in interest payments on the back of...interrupted

JANINE PERRETT: But if it was downgraded to a AA, you would have to wear it as the Government in power. I mean, Wayne Swan used to go around saying look under my government it is AAA. Does it really worry you? You are the Finance Minister, would you be worried if the AAA was under threat?

MATHIAS CORMANN: The previous government inherited a very strong position and wasn't able...interrupted

JANINE PERRETT: Are you worried?

MATHIAS CORMANN: It wasn't able to deteriorate it to the same extent as countries in other parts of the world that started from a worse position and then went into...interrupted

JANINE PERRETT: How big a worry is it the threat to go to AA?

MATHIAS CORMANN: Obviously we are focused on repairing the Budget to ensure that we remain in the strongest possible position into the future and it is very important for Australia to keep the AAA credit rating, of course it is.

JANINE PERRETT: Okay. Couple of things I want to ask about. The iron ore price continues to plummet. That has an impact on tax receipts. You obviously have a price at which you have set your estimates or what you think in tax revenue, how concerned are you about the collapse in the iron ore price?

MATHIAS CORMANN: Obviously the iron ore price has stayed quite a bit higher than what was expected for a while, but now it is true we have falling terms of trade, we have had falling terms of trade for some time. That is one of the challenges that we are facing as a Government. We have got the ageing of the population and the falling terms of trade as two of the structural challenges that we are facing, which is why it is so important to get our spending growth trajectory under control, which was just tracking un-sustainably high.

JANINE PERRETT: Alright, I'll try another one. In your estimates in the Budget, you talk about growth, growth actually goes down slightly this year and then you have a bounce back that goes up to three and a half per cent.

MATHIAS CORMANN: It is two and a half per cent in year one...interrupted

JANINE PERRETT: Two and a half per cent then goes to three and a half per cent when the economy recovers. What makes you think it is going to recover to that?

MATHIAS CORMANN: We are implementing our agenda to build a stronger, more prosperous economy. We are getting rid of anti-competitive taxes that are holding the economy back...interrupted

JANINE PERRETT: And you think you will see the effects of that within a couple of years? Because a lot of these measures you are taking are not going to take effect for three years but you are talking about a bounce back before then.

MATHIAS CORMANN: The scrapping of the carbon tax and the mining tax is due to take effect from 1 July 2014. And incidentally, an important point here is that tax as a share of GDP over the forward estimates will be lower under our Government than it what it was expected to be under the previous government. We are also implementing our agenda to reduce red tape costs for business by $1 billion a year. We are investing in productivity enhancing infrastructure and if you look through the Budget papers, what you will see, is that Treasury has assessed that our infrastructure investment agenda will add permanently one per cent to our GDP. Now all of that will ultimately lead to increased revenue for government to fund the important services of government.

JANINE PERRETT: Okay, I am going to go to a couple of key points. The people out there are asking. So for these simple questions, I am assuming a simple answer. Why is the debt levy on higher income earners for three years, yet the politicians pay freeze is only for one year?

MATHIAS CORMANN: Firstly the politicians pay the deficit levy. So anyone who earns more than $180,000...interrupted

JANINE PERRETT: I know but you are saying there is a crisis and you need to and it will take that long, people should do it. Why shouldn't you have a three year freeze as well?

MATHIAS CORMANN: We are having a three year deficit levy. The same as everybody else.

JANINE PERRETT: Then what was the point of a one year?

MATHIAS CORMANN: Pay arrangements are organised year by year. Let's see what happens next year. It is quite usual...interrupted

JANINE PERRETT: So you're leaving open if things don't improve at the same point you could extend the freeze?

MATHIAS CORMANN: Let's cross that bridge when we get there. But the point here is, the question I have been asked, well why aren't you making the deficit levy permanent when you're making some of these savings measures permanent. Well the truth is that people earning more than $180,000 already pay $60,000 a year in tax and upward from there depending on how much they earn. If we want to continue to grow an economy more strongly, if we want to continue to create opportunity and jobs for people, you've got to make sure that you tax arrangements are competitive and don't inhibit growth over the long term, but with spending, obviously, the only way you can put your spending growth trajectory on a more sustainable footing is by reducing payments to people that receive government payments.

JANINE PERRETT: Okay, looking at politicians again as a separate class.

MATHIAS CORMANN: We are not a separate class. We are mums and dads. We are part of the community... interrupted

JANINE PERRETT: Well you are. The problem with lifting the pension age is the preservation age under superannuation. The gaps wider. I notice the Prime Minister today admitted an anomaly you're going to have to address. Clive Palmer's pointed out that the politicians are the only people that are going to be able to access their super in the fifties. Don't you think that's wrong?

MATHIAS CORMANN: Well it's actually not true. I'm on the exact same arrangements as everybody else. People who are on the old scheme, pre-2004, that may be the case. Around the community, whatever changes are made to super arrangements or whatever, there is a level of grandfathering that happens. That's happened in superannuation generally in the community and it has happened in relation to super arrangements for politicians. But me personally, I don't get access to super in my fifties, I get it at exactly the same time as anybody else in the community.

JANINE PERRETT: Do you think it'll be a hard sell lifting that preservation age, even though it's an obvious one you've got to do? You can't have that big gap between when you can access your super and when we can get the pension?

MATHIAS CORMANN: Well we've been clear in the lead-up to the last election. We are not going to make any detrimental unexpected changes to super in this term of Government. We think that it is important to have stability in policy settings when it comes to super because people plan for their retirement with long lead times. But in the lead up to the next election, we will have conversations about these sorts of issues to see what adjustments, if any, might have to be made in a second term.

JANINE PERRETT: Okay. I'm going to take a break there and then we'll come back and talk about a number of other things. Medical funds, Clive Palmer and a few other things as well. We'll take a break, we'll be right back.

[COMMERCIAL BREAK]: Welcome back. I'm here in discussion with Federal Finance Minister Senator Mathias Cormann. Let's look at a couple of other things. We talk about the heavy lifting and there's been talk that business has to do their bit. I have been surprised, having been a business reporter, at how few business people have come out in support of the Budget or come out and given you a bit of back up on this, not to mention they continue to…inaudible. Where's the heavy lifting? What are you expecting them to do, do you think they've come to the party enough or what are you expecting them to do now?

MATHIAS CORMANN: We are in Government. It's our job to make the decisions that we think are right for the country and to…interrupted

JANINE PERRETT: But you've said that you want business to do some heavy lifting too, what do you want them to do?

MATHIAS CORMANN: We want them to employ more people .We want them to develop products that people want, sell them and be successful. We want businesses across Australia to be as successful as they possibly can be so they can offer as much opportunity to people across Australia as possible.

JANINE PERRETT: Okay I talk to business, especially in the small to medium. I'll give you an example of one and they always say that they are Liberal voters. One that runs small nursing homes and he's said that you've cut the payroll tax break and this was going to make a difference. They run on small margins and he's talked to many of them in the industry and this could make the difference, make or break whether they go broke. There's all these little things in the Budget that people don't see…interrupted

MATHIAS CORMANN: If I can just make a general point there though. What we found when we came into Government is all these idiosyncrasies, where the State Government imposes a tax and Federal Government pays the tax for a private business. That just doesn't make sense. State Governments were offering concessions to seniors and others and the Federal Government pays State Governments to offer those concessions. Our view is that if a State Government wants to offer concessions, that's fair enough, they should fund those concessions. If a State Government imposes a tax, then the business that is faced with that tax should pay that tax.

JANINE PERRETT: So it's all about pushing it back to the States? You've seen how badly run New South Wales is now? It does not fill us with hope…interrupted

MATHIAS CORMANN: Well it's about making sure that our system of government is efficient. There's way too…interrupted

JANINE PERRETT: Well States don't make it any more efficient in our experience.

MATHIAS CORMANN: Well exactly. So right now there's way too much waste and duplication, there's way too much overlap. Not only is there overlap in terms of responsibilities where Federal, State, everybody is getting stuck into the same issues, people have to pay more than they should have to pay for it. But then there is this cross-subsidisation backwards and forwards. The truth is, and this is why we are having this White Paper review process into the Federation, every level of Government should be very clear what they are responsible for and they should be responsible for the funding side of that and there should be less confusion around all of this.

JANINE PERRETT: Yeah well there's confusion because they explain that they weren't warned. If you want a debate on the GST or to throw up co-operative federalism to change to the whole system that we've been moving out, surely you could've had the discussion first…interrupted

MATHIAS CORMANN: We had the discussion.

JANINE PERRETT: And somebody said you're a Government that hit the ground reviewing; shouldn't you have looked at this first?

MATHIAS CORMANN: We were very upfront…interrupted

JANINE PERRETT: Well why are they so shocked? Why are we all so shocked? I don't remember this bit?

MATHIAS CORMANN: I wonder why they are so shocked.

JANINE PERRETT: Are they not telling the truth either?

MATHIAS CORMANN: Let me put it this way. We were always very clear that we would only fund Gonski for the first four years. We were always very clear that... interrupted

JANINE PERRETT: The hospitals?

MATHIAS CORMANN: We were always very clear that we would keep the funding envelope for health in place for the forward estimates at the time of the election. But beyond the forward estimates…interrupted

JANINE PERRETT: So are you saying that they are just pretending to be shocked?

MATHIAS CORMANN: Well Labor was throwing money around. They were splashing money around left right and centre. Money they didn't have. They kept borrowing money, more money, to throw at everyone including the States. The States if they talk to you privately were well aware that the spending that Labor locked themselves into was unsustainable. That there would be a day of reckoning. The Federal Government had to make judgements on how we can get our spending growth trajectory back onto a sustainable footing. Everybody is being asked to contribute, including the States, and all levels of Government need to ensure that their spending is as efficient and well-targeted as possible, including State and Territory Governments.

JANINE PERRETT: I'm going to go to a few other things. The $20 billion, the good thing you saved in the Budget, the positive news, is the $20 billion Medical Research Fund which is going to be funded, starts at a billion goes to $20 billion you claimed in four years.

MATHIAS CORMANN: Six years.

JANINE PERRETT: Six years, from the co-payments.

MATHIAS CORMANN: And other savings.

JANINE PERRETT: And other savings, but to go from $1 billion to $20 billion, even the people who were welcoming this find that a really overly optimistic estimate. How did you get from $1 billion to $20 billion in six years?

MATHIAS CORMANN: Because what we've done in this Budget is pursue structural savings and structural reforms and the virtue as well as the challenge with structural savings and structural reforms is that they start low…interrupted

JANINE PERRETT: But if fewer people go to the GP you're going to make fewer savings?

MATHIAS CORMANN: …It starts low and slow and then builds over time. Obviously the co-payment is part of what goes into that fund, but all of the savings that we have made in the health portfolio, in order to be consistent with the pre-election commitment that we keep the same funding envelope in place for health, all of the savings within health to ensure increased efficiencies go into that Medical Research Future Fund.

JANINE PERRETT: Well some say that you're cutting a lot of the preventative healthcare now that people are going to worry about their health today, are going to be suffering now, for a pie in the sky argument that you might cure cancer in twenty years. It's a long shot isn't it?

MATHIAS CORMANN: Well that's actually not true. When it comes to preventative health, the Labor Party set up a preventative health agency, which did exactly the same thing as an area within the Health Department already used to do. So we had another thirty odd public servants to do all over again what people do in a different part of Government. There was way too much double up,
waste, too much waste and duplication, which taxpayers have to pay for and we've cut that right back and... interrupted

JANINE PERRETT: So there's also a criticism that too much emphasis on medical research which is a long shot and you're cutting the CSIRO, you don't have a Science Minister, you don't have an Innovation Minister, it's all part of Industry, you're cutting R&D tax breaks, don't we have to be a clever country? Shouldn't we be or as Ed Husic said on this show 'brains, not bitumen'?

MATHIAS CORMANN: We don't think that medial research is a long shot. We think that in Australia we have got a great track record when it comes to…interrupted

JANINE PERRETT: But what about other science and innovation?

MATHIAS CORMANN: And we are continuing to invest in other science and innovation. But obviously it's a matter of ensuring that any taxpayer support is well targeted. Under Labor, a lot of the research that was happening was into some obscure causes that quite frankly never had any prospect at all of getting commercial…interrupted

JANINE PERRETT: Well the CSIRO has a very good track record, you've just gutted it.

MATHIAS CORMANN: Well we've ensured that funding was better targeted and more sustainable.

JANINE PERRETT: Let's go to another one that didn't get much interest but it is a business show. ASIC's to lose $120 million in funding over four years. I don't know if you watched recent Four Corner's investigation into issues with the Commonwealth Bank, there's a feeling after Storm Financial and all these things, that in fact you need your corporate regulator, the last thing it's needs to do is have its funding cut.

MATHIAS CORMANN: Well ASIC's advice to us is that they can fulfil their responsibilities with adjusted funding because efficiencies are able to be achieved and they can deliver the same level of outcome at a lower cost and we think that that is the responsible thing to do.

JANINE PERRETT: At the same level, some would argue is not very good as it is?

MATHIAS CORMANN: Well maybe there was too much fat in the system and it needed to be adjusted to make sure that they were more targeted and more focused on what needed to be done.

JANINE PERRETT: Well that bring us to the issue. At the time they're having their budget cut, that in fact you have the roll back of the FOFA, the financial advice reforms. There's a suggestion in the Fairfax papers that once the Budget dust clears you will be revisiting it. We've spoken about it before, what is going to happen on FOFA? Are you committed to it in it's current form or in the consultations, are you open to changing it given the backlash?

MATHIAS CORMANN: Well the timetable is exactly as I outlined on 24 March. There is a Senate Inquiry underway, which will have hearings this week. The Senate Inquiry into the legislation will report by the middle of June and after that Committee has reported, the Government will make a final decision. Now this in relation to the specifics, obviously the commitments that we took to the last election to ensure that there is a more appropriate balance between appropriate levels of consumer protection, while making sure that access to high-quality financial advice remains affordable and accessible, we continue to be committed to all of the things that we said we would do before the election.

JANINE PERRETT: What's going to happen to Senator Arthur Sinodinos? He's stood down, it's now delayed, ICAC is delayed, do you expect him to come back and surely that's hampering this whole issue of FOFA?

MATHIAS CORMANN: Senator Arthur Sinodinos is a fine man who was doing a great job, I hope he comes back soon but obviously…interrupted

JANINE PERRETT: But given his evidence, is he a fit person to handle a financial portfolio?

MATHIAS CORMANN: These are not matters for me to…interrupted

JANINE PERRETT: But you expect him to come back?

MATHIAS CORMANN: That is my absolute expectation.

JANINE PERRETT: But it is not hampering you in not having an Assistant Treasurer, you're having to do it?

MATHIAS CORMANN: Well I'm acting in the position while he is away and I am very happy to do that.

JANINE PERRETT: Okay. Final question, on the politics of selling this. I said last night it's almost the horse trading now begins and we know the biggest horse trader you've got, is you've got to deal with Clive Palmer who is making statements left right and centre. Barnaby Joyce yesterday having called the Palmer United Party a cult, today said "Clive is as cunning as a lavatory rat". Did those comments actually help with negotiations?

MATHIAS CORMANN: Well Barnaby brings his own style to politics and he's a very effective politician. I've got a different style but we all come to politics in our own way…interrupted

JANINE PERRETT: But is it helpful?

MATHIAS CORMANN: I'm sure that there are different ways of achieving the outcome that we want to achieve.

JANINE PERRETT: Okay then just tell me this. Final question, do you expect the Budget, it looks to me like ambit claim knowing you've got a horse trade…interrupted

MATHIAS CORMANN: It's not an ambit claim.

JANINE PERRETT: Do you really expect that it's going to go through, not about the boats, but is the Budget we will look at eventually going to be exactly like this, or will there inevitably be some compromises?

MATHIAS CORMANN: I can't predict what comes out of the Parliament…interrupted

JANINE PERRETT: Could you compromise?

MATHIAS CORMANN: The Budget that we are putting to the Parliament is the Budget that in our judgement Australia needs right now, given the Budget mess, the debt and deficit mess that we've inherited from Labor. But obviously we will work constructively through the parliamentary process and let's see what happens.

JANINE PERRETT: So you're not ruling out the fact that there might be compromises. You're not saying my mind is closed?

MATHIAS CORMANN: Well we've always been very clear that we've put forward the Budget that Australia needs. It's good policy, it is policy that will put Australia…interrupted

JANINE PERRETT: But it's no good if you can't get it through, is it?

MATHIAS CORMANN: We will work through the parliamentary process. That's what we always do.

JANINE PERRETT: Okay, Senator Cormann thank you for your time tonight. No doubt we'll be talking to you again.