Senator the Hon Mathias Cormann

STUART BOCKING: Last night in Sydney, the Finance Minister Mathias Cormann gave a speech to the Sydney Institute, trying to effectively reset the Budget strategy, calling for a fiscal reality check. I am pleased to say the Finance Minister Senator Cormann is on the line. Senator good morning.

MATHIAS CORMANN: Good morning and good morning to your listeners.

STUART BOCKING: Thank you for your time. I noticed front page story in The Australian newspaper today highlights the fact that 98.9 per cent of expense measures already legislated. $1.8 trillion worth of expense items for the next four years, $25 billion worth of savings already locked in. Given all of that, why does it then appear as if the Government is losing grip of its Budget program?

MATHIAS CORMANN: Because most of the contentious debate in recent weeks has been focused on those structural reforms and structural savings with an impact over the medium to long term that haven't been passed yet. What has been lost in the debate in recent weeks is that most of those measures don't come into effect until sometime down the track. Like our proposal to introduce a price signal for access to medical services to ensure that access to those services remains sustainable over the medium to long term. That does not come into effect until 1 July 2015. So we have time to deal with any issues and continue conversations with the crossbench for example...interrupted

STUART BOCKING: But is it right to suggest though that basically what we are talking about, some of these other contentious issues, only account for about 1.1 per cent of the overall Budget picture?

MATHIAS CORMANN: What we have got to remember, there are two things, one we have got the forward estimates. We have got the forward estimates now for the next four years and then we have got the medium to long term Budget trajectory and the problem structurally that we inherited from the previous Government. Not only had they delivered $314 billion in cumulative and projected deficits, they have also put us on a spending growth trajectory that was unsustainable over the medium to long term. If we didn't take corrective action, debt would increase to about $667 billion within the decade. And obviously, looking ahead, we need to ensure that we put our expenditure on a more sustainable footing. Right now there are about $40 billion worth of savings measures in the Parliament, which the Labor party and the Greens in particular are opposing, including $5 billion in savings measures that Labor themselves initiated under Julia Gillard and Kevin Rudd as Prime Ministers and which Bill Shorten now, out of political reasons, is opposing.

STUART BOCKING: Yep.

MATHIAS CORMANN: But it is very important that looking forward, that we get our spending growth trajectory back on a more sustainable footing. But there certainly isn't an immediate crisis in terms of passing the Budget. I mean, nearly all of the Budget expense measures have actually gone through the Parliament already.

STUART BOCKING: When you talk about the need for a fiscal reality check, do you think too many of us have been living in some sort of voter fantasy land? That the money should just keep rolling in whether it is Family Tax Benefits, various other measures coming our without necessarily thinking about the longer term proposition?

MATHIAS CORMANN: The reality is that we can't in perpetuity spend money that we haven't got. The longer we continue borrowing from our children and grandchildren in order to fund our recurrent expenditure, our consumption today, the more we are putting their future living standards at risk, the more we are reducing their opportunity down the track. Because eventually that money will have to be paid back with interest. The only way you can do that down the track is to impose either higher taxes or deeper spending cuts on future generations. We don't think that is fair. We don't think it is fair for us to live it up today, borrowing from tomorrow, expecting people down the track to pay for our living standards today.

STUART BOCKING: When you look at this argument around the fairness of the Budget, how much of that do you think stems from the fact that many people will feel that they were blindsided by a number of the measures announced by Joe Hockey in May earlier of this year? A number of measures which certainly would go against key election commitments made in the lead up to last year's poll.

MATHIAS CORMANN: We don't believe they do. We were very clear in the lead up...interrupted

STUART BOCKING: Well, well, well Senator, they obviously do because we know the Prime Minister said there would be no new taxes, there would be no tax increases, there would be no cuts to education, no cuts to health, no cuts to the ABC. Now you would know and I don't want to get into an argument over what's tax, what's a tax increase, what's a new tax. But you would know that the average person, and you get around the place, you're a smart bloke, you would know that that clearly goes against a number of those commitments made time and time again by Tony Abbott.

MATHIAS CORMANN: Well look, I don't want to get into a debate about semantics but...interrupted

STUART BOCKING: No, either do I, no.

MATHIAS CORMANN: Certainly the Budget Repair Levy, it is effectively a two per cent increase of an existing tax over a three year period. Now the one thing that we were very clear on in the lead up to the last election was one, that there was a Budget emergency and that we were living beyond our means. And two, that we in Government would do everything we could to repair the Budget...interrupted

STUART BOCKING: That's right and that's right. But it was the minutia of the detail that wasn't outlined and many voters would have thought well somehow they can do this without imposing new taxes, without increasing taxes, without cutting certain areas. Now I knew that was impossible. You must have known that was impossible but I just wonder, have you found yourself now caught in this argument over fairness? Because there would be some voters who feel blindsided or duped by what's unfolded.

MATHIAS CORMANN: The thing that became very obvious when we came into Government is that the previous Government locked in a lot of increases of expenditure in the period beyond the forward estimates. That is, it was never reflected in the Budget, it was not expenditure locked in over the initial four years. But in particular in relation to health, education, disability support and so on, a lot of the expenditure that Labor locked in, kicked in years five, six and beyond...interrupted

STUART BOCKING: That's right. But you guys locked yourself into some of that, I mean there was bipartisan support for the NDIS, you offered to match them on the Gonski funding at least for the first four or five years. There was some bipartisan support.

MATHIAS CORMANN: Not over the first four or five years. In relation to Gonski what we said we would match it for the first four years. That is a very important distinction. We left ourselves room to make adjustments, to put the spending growth trajectory on a more sustainable basis when it comes to funding for education in the period beyond the forward estimates. That is exactly what we are now doing. Now, whatever way you look at this, our spending growth trajectory when we came into Government was taking us to 26.5 per cent of spending as a share of GDP. That compares to 23.1 per cent in the last year of the Howard Government. It compares to tax revenue of about 22 per cent as a share of GDP. So there is a big fiscal gap and if we allow that to continue to run, it means mounting debt. Mounting debt means mounting debt interest payments. I mean right now, we have to pay $1 billion every month just to pay the interest on the debt that has been accumulated by the previous Government.

STUART BOCKING: No one disputes any of this. I am just more concerned about some of the circumstances we now find ourselves in based on comments made previously. On the GP co-payment, I have no problems with people like myself, you and others being subject to some sort of price signal. Is there scope to say well pensioners will be exempted across the board? Is that something you could consider?

MATHIAS CORMANN: There is a safe guard under our proposal for pensioners, under our proposal...interrupted

STUART BOCKING: But only after they have paid $70 a year. That's the problem. And for those people who are on limited fixed incomes, having to effectively pay potentially more for medicines plus $70 before they get a free trip to the GP, that's an impost for those people.

MATHIAS CORMANN: Under our proposal, no pensioner would pay more than $70 a year...interrupted

STUART BOCKING: But that's $70 more than they are paying now, isn't it?

MATHIAS CORMANN: If I could finish.

STUART BOCKING: Yep.

MATHIAS CORMANN: No pensioner would pay more than $70 a year for unlimited access to medical services. Now the truth of the matter is, the reality is that we do have an ageing population, we do have a growing demand for access to medical services, we do want to ensure that all Australians can continue to have timely and affordable access to high quality health care and that that health care is also affordable and sustainable for tax payers over the medium to long term. Now, when you have got limited resources from tax payers and a growing demand, you do need to ensure that those limited resources are deployed as efficiently as possible and a price signal is a very good way to ensure the efficient allocation of limited resources in the context of growing demand. We understand that there is a need for safeguards for pensioners and concession card holders and young people and so on and that is why you have that $70 limit in place where no pensioner would have to pay more than $70 a year for unlimited access to medical services.

STUART BOCKING: But it is still $70 more than they have been paying. Joe Hockey keeps telling us it is about safeguarding Medicare. But not a single cent of that extra $7 will find its way back into the Medicare system. Instead $5 from that $7 goes into the Medical Research Fund. Would that not have been something we would have been better off setting down the track when we are back into surplus, we have paid off some of the debt? Would we not be better off using that $5 allotment to pay down that debt now?

MATHIAS CORMANN: This is a very important question. If you bear with me; because it is something that does not appear to be very well understood. So what we are doing is we are pursuing structural reforms in introducing a price signal which will essentially ensure that the allocation of limited resources in health services is more efficient over the medium to long term. Now it will take us about six years to accumulate $20 billion in capital in our Medical Research Fund. Now that $20 billion in capital will actually reduce Government net debt because it is an asset on our balance sheet.

STUART BOCKING: Yes, Yep.

MATHIAS CORMANN: We will not be spending that capital. That $20 billion in capital will be preserved. We will only be investing the net investment returns from that capital in additional medical research. And that will enable us over time to double our investment in medical research, which in turn will help us improve the quality of health care services in Australia and around the world. The efficiency improvements in terms of the level of recurrent expenditure in health in the context of growing demand for health care services will remain in place in perpetuity. Whereas the $20 billion in capital will be accumulated, if our proposals go through, within a six year period, remain on our balance sheet and continue to deliver sustainable cash flow for additional investments into medical research. So it is a way to do both, help us repair our Budget as well as improve quality health care and put health care financing on a more sustainable basis.

STUART BOCKING: All be it though that it is off in the future when that $20 billion seed funding is generated. Just a couple of other points in closing. Tony Abbott has talked a lot about team Australia. A number of Muslim leaders are apparently taking objection to the use of that term. You are somebody who has come here from another country; you now proudly regard yourself as an Australian, a member of the Government. What would you say to other people when Tony Abbott talks about being a part of team Australia?

MATHIAS CORMANN: I am proudly a part of Team Australia. I have got to say, Australia is such an amazing and fantastic country for migrants that come here from all corners of the world. In Australia, if you do become part of Team Australia, if you put your shoulder to the wheel and do the best you can to help make our great country an even better country, there is no limit to what you can achieve. I think it is a fantastic way of capturing what Australia is actually about. As people who come from all around the world we are all expected to join Team Australia, of course. That is the best way to really reach your full potential as an individual and I would encourage everyone, everyone of my fellow migrants that comes to Australia to positively and enthusiastically join Team Australia.

STUART BOCKING: Terrific, appreciate your time this morning Senator, thank you.

MATHIAS CORMANN: Good to talk to you.