Senator the Hon Mathias Cormann

FRAN KELLY: The surprise move yesterday to increase fuel excise by circumventing the Senate. The Finance Minister Mathias Cormann is in our Parliament House studios. Minister, good morning.

MATHIAS CORMANN: Good morning.

FRAN KELLY: The Prime Minister last night set a five year time frame for economic reform. Does that mean you want a higher or broader GST by 2020?

MATHIAS CORMANN: What we want to have is a mature conversation about tax reform and how we can ensure that we raise the necessary revenue to fund the important services of Government in the most efficient way possible. As the Henry Tax Review identified, back then 125 different taxes, 10 of which raised 90 per cent of the revenue, 115 of which raised 10 per cent of the revenue. There ought to be scope to ensure that we raise the revenue in a more efficient way so that we detract less from economic growth, so that we boost our capacity to grow our economy more strongly, so that everyone can get ahead.

FRAN KELLY: Okay, that's what you want. How much are you prepared to risk to get it electorally because last night the Prime Minister said to the BCA that the Government will only pursue quote: "as much reform as the community lets us" end quote. As a conservative, I am not inclined to enforce reforms on an unwilling people. Now John Howard risked his electoral mandate on the GST, took a big hit at the election for that. Sometimes reform means taking a political risk, doesn't it?

MATHIAS CORMANN: We are at the start of the process. Our objective is to build community consensus around tax reform. Obviously as we have said, in the lead up to the last election, there are certain things that we committed to do during this term of Government. There are certain things that we have ruled out for this term of Government. But we also indicated that we would start the conversation about medium term to long term tax reform. And we have said very clearly that any proposal that we would adopt out of the Tax White Paper review process we would take to the next election as part of our second term agenda.

FRAN KELLY: So the GST will go to the next election?

MATHIAS CORMANN: What we have said is that we are now embarking on a mature conversation with the Australian people on how we can ensure that the revenue to fund the necessary and important services of Government at a Federal and at a State level is raised in the most efficient way possible, so that we maximise our opportunity to grow our economy as strongly as possible. Because ultimately that is good for people across Australia, it gives people the opportunity to get ahead, but it also boosts revenue for Government without the need to create new or increased taxes.

FRAN KELLY: Now you called for a mature debate, but I note that you have already once again infuriated your Coalition colleague in Victoria particularly who have an election to try and win next month. The Premier Dennis Napthine wants you to "show him the money". That is the quote before he will talk about GST reform. And on your announcement yesterday about lifting the fuel excise, he says any increase in the cost of fuel for Victorian families and Victorian businesses will hurt those families and business. So even your own side thinks this will hurt families. Did you full warn the Government in Victoria as part of this attempt at a mature debate before you announced this?

MATHIAS CORMANN: Well firstly we did not announce an increase in the fuel excise yesterday. What we announced yesterday were revised implementation arrangements for a Budget measure that was announced more than five months ago. So everybody knew...interrupted

FRAN KELLY: Hang on, hang on, hang on, that sounds like semantics to me. Yesterday, didn't you announce that rather than legislating to index fuel excise again, you were going to use regulation to lift the excise on fuel?

MATHIAS CORMANN: Well with all due respect, there is no semantics here at all. In the Budget in May, we announced that the Government would reintroduce regular indexation of the fuel excise. The value of the fuel excise has fallen from 42 per cent of the average fuel price at the pump in 2001 when indexation was removed, to about 25 per cent now. What we have said is that we can't afford to let inflation continue to erode the real value of the fuel excise moving forward. In the Budget we announced that we would reintroduce that regular indexation of the fuel excise to ensure that the value of that excise keeps pace with inflation. What we announced yesterday is that we would use a methodology that is explicitly provided for under the relevant legislation, a methodology that the previous Labor Government used when it came to give effect to their planned increase in the excise on alcopops.

FRAN KELLY: My memory is you weren't too happy about that either. However you describe it, the fact is you are bypassing the Parliament to do this. The Shadow Treasurer Chris Bowen called it an attempt to ambush and blackmail, the Institute of Public Affairs has labelled the changes undemocratic and unnecessary. Why didn't you have the courage of your conviction and take this and argue it on the floor of the Senate?

MATHIAS CORMANN: We're not bypassing the Parliament. The legislation governing excise and customs duty arrangements explicitly provides that the Government can give effect to these sorts of measures by way of tariff proposals, which is what we're doing this week. Those decisions of course have to be validated within 12 months and we are very confident that the Parliament over the next 12 months will validate the decision that we have made.

FRAN KELLY: But again, you didn't try to take this, the legislation as proposed in the Budget initially to the floor of the Senate. Christine Milne says she'll consider it when she sees the legislation, which suggests she's still got an open mind on it. Are you talking with the Greens on this, rather than just imposing this higher excise?

MATHIAS CORMANN: We have had conversations with the Greens and with other crossbenchers since the Budget about various measures in the Budget. From our point of view, we consider this to be a very important structural reform in the Budget. It will have a modest impact on households, a typical household using 50 litres of fuel a week will pay about 40 cents extra a week by the end of the financial year. But it will have a significant impact on our capacity to build a stronger, more prosperous economy on the back of additional investment that it will fund into economic infrastructure. So from that point of view, we were always committed to implementing this Budget measure as we've said all the way through. We've said that we delivered the Budget Australia needs if we are to protect our living standards and build opportunity and prosperity for the future and we are ticking off one Budget measure at a time, implementing those measures as we said we would.

FRAN KELLY: You are indeed doing that and what you announced yesterday will be an increase in the petrol tax excise. Since the election you have also floated a higher or broader GST as we have discussed. You're trying to introduce a GP co-payment, you've introduced a high-income earners tax levy, how does that square with the promise that the Prime Minister made again this week of no new taxes and being a party of lower taxes?

MATHIAS CORMANN: Firstly, the tax burden in Australia over the forward estimates is lower than what it would have been under Labor. Taxes as a share of GDP are lower than they would have been under Labor. In relation to the fuel excise, I've got to correct you there. What we are doing is making sure that the value of the excise doesn't continue to fall. It has fallen.

FRAN KELLY: But whichever way you look at it, you will be increasing the level of tax taken out the bowser by the Government.

MATHIAS CORMANN: We are making sure that the value of the excise on fuel keeps pace with inflation. Most Australians would expect Government…interrupted

FRAN KELLY: Yes, which John Howard stopped in 2001.

MATHIAS CORMANN: Which we said in the Budget openly and transparently we were committed to reintroduce for very good reasons. Most Australians would expect Government to index most payments by Government in order to adjust for inflation. We can't have a circumstance where we've got a revenue source that is important in the Budget, like the revenue from the fuel excise and fuel customs duty, which continues to be eroded by inflation moving forward. So what we're doing is making sure that the real value of the fuel excise remains constant, it doesn't continue to fall, keeps paces with inflation.

FRAN KELLY: Can I just ask you then, you have managed to find a way around the block in the Senate to this measure which you are committed to as you have been telling us by using the customs index excise power. You haven't been able to legislate yet about two thirds of your Budget. Are you planning to bypass the Senate on the other difficult revenue measures like the GP co-payment?

MATHIAS CORMANN: I completely reject what you have just asserted. It is completely wrong to suggest that two thirds of the Budget hasn't been passed. Most of the Budget has been passed. What we haven't passed yet are some of the medium to long term structural reforms, most of which do not come into effect until 2015, 2016 and 2017 and beyond. A Budget is a four year plan. In a four year plan, in an orderly and methodical fashion we set out various priorities to be implemented sequentially at different times over those four years. We are continuing to work sequentially and in a prioritised way to deal with every important structural reform in turn. That is what we will continue to do.

FRAN KELLY: So just on that, to repeat my question, is there are work around of the Senate for something like the GP co-payment in the same way you found the work around on the fuel excise?

MATHIAS CORMANN: Well we are totally committed to all of the measures that we announced in the Budget. Of course the Government continues to talk to crossbench Senators, to leaders of parties represented in the Parliament to progress all of our Budget measures. And we are focused on finding ways to give practical effect to what we said we would do at Budget time, because that is what Australia needs us to do.

FRAN KELLY: So you are looking for a way around it for the GP co-payment?

MATHIAS CORMANN: We are looking at giving effect to the Budget measures that were announced more than five months ago in the Budget as we have consistently said we would over the past five or so months.

FRAN KELLY: Mathias Cormann thank you very much for joining us on Breakfast.

MATHIAS CORMANN: Always good to talk to you.