Senator the Hon Mathias Cormann

DAVID LIPSON: G’day and welcome to the program, great to have your company this morning. To the Budget in a moment but first to the breaking news that we have been reporting on in the past half an hour that five men have been arrested in anti-terrorism raids in Melbourne. Joining me now, the Finance Minister Senator Mathias Cormann, thanks for your time today. Firstly, is there anything further that you can tell us about these raids in Melbourne? 

MATHIAS CORMANN: It is a concerning development, but it is also an ongoing operational matter. It is a concern that we face this sort of threat in our communities now, but it is good to know that our counter terrorism agencies are working to keep us safe. AFP and Victoria Police will be making relevant announcements if and as required. 

DAVID LIPSON: Yeah and we will bring you those announcements and the new conferences, slated for 10 o’clock this morning when it comes into us at Sky News. Well moving onto the Budget, it is not only voters relieved that there is an election free zone for the next 12 months or more, the Prime Minister sees it as a rare opportunity for the States to come to a new agreement on the funding of hospitals and schools after a year of furious bickering. Now last year’s Budget foreshadowed an $80 billion saving over ten years in health and education. The biggest saving in the Budget and the main reason the Government can claim to half the debt trajectory. Now the Prime Minister has agreed to have another look. Here’s what he said yesterday.

PRIME MINISTER (EXTRACT): What we have agreed to do is to have a very holistic look at this, which certainly involves looking at the funding going forward but also looking at that the structures going forward. I want to stress that, it looks at the structures going forward so that we ensure that we get the best possible value for our dollar. Because we are all under pressure. I mean sure the States and Territories are under pressure for their hospital funding, but we are under pressure for our tax take. No one is volunteering to pay more tax. 

DAVID LIPSON: Finance Minister, is that an admission from the Prime Minister that the path set forward in the Budget last May was not sustainable for the States when it comes to the health and education funding? 

MATHIAS CORMANN: No, not at all. What the Prime Minister has said is that we will continue to provide good Government. That we will continue to engage with the States about the best way forward. That we will continue to engage to ensure we achieve the best bang for our buck. The truth is that the previous Government had made some unfunded, pie in the sky spending promises in health and education. There was a completely unsustainable spending growth trajectory that was not affordable for the taxpayer. We replaced it with a more realistic funding growth trajectory into the future. The important point to make here is David that next year hospital funding will increase by 9 per cent, it will increase the year after by 9 per cent and another 9 per cent a year after that. So the suggestion that somehow there are these massive cuts  ...interrupted  

DAVID LIPSON: But as the Prime Minister pointed out, health inflation is always much greater than the general inflation. I don’t know if nine per cent is much more than CPI. But the Prime Minister yesterday seemed to be amenable to the view that more funds are required to keep pace with the growth in health costs and education costs. 

MATHIAS CORMANN: We are amenable to the view that we will continue to work with the States to ensure that the money that is deployed by taxpayers is deployed to maximum effect. We have an ageing population, we have a growing demand for healthcare services, we have to ensure that the resources made available by the taxpayer are deployed as efficiently as possible so that they can stretch as far as possible so we can meet the growing demand for services. That is what we will continue to do. 

DAVID LIPSON: Is the Government then still committed to the demand driven system of funding that was revealed in the Budget last year. Shifting from that system to one based on CPI, on inflation and on population growth? 

MATHIAS CORMANN: And population growth. So what we have done is, we have replaced the unfunded, pie in the sky spending growth trajectory that was flagged and put in prospect by the previous Government in the period beyond the forward estimates incidentally when they never had to show in black and white what it would mean in terms of the sustainability of our Budget.  We have replaced that with a more realistic, with a more affordable funding growth trajectory, which recognises both the CPI and population growth. As I have indicated to you, over the next three years, every single year hospital funding from the Commonwealth will increase by 9 per cent. That is a very sizeable increase. In education, it will be an 8 per cent increase every single year over the next three years and 6 per cent in the final year of the forward estimates.  
  
DAVID LIPSON: I suppose the key question is, ahead of this summit in July, when the State and Territory leaders are going to meet with the Prime Minister again to try to map out a pathway forward, is the Federal Government willing to accept any impact on the bottom line or on that debt trajectory in order to come up with a new solution for the States, because that’s what the States want?

MATHIAS CORMANN: David, there is no magic pudding right. So if we spend more on one area in our Budget, we’ve got to spend less on another area in the Budget, because otherwise we would be adding to the deficit. Now our commitment is, because it is important when it comes to maintaining and protecting living standards, when it comes to strengthening our foundations for the future, it is important to get the Budget back to surplus as soon as possible. That is a task that we remain fully committed to. So you can’t just keep ramping up expenditure in one area by more than what revenue is growing, without actually hurting your Budget bottom line and that is not something that we are prepared to do. If we just keep increasing spending say on health and education, it means we’ve got to spend less on welfare. Or if we want to spend more on welfare, it means we’ve got to spend less in other areas of the Budget. Ultimately these are the sorts of conversations that we will continue to have to ensure we’ve got that balance between the various competing priorities absolutely right. 
  
DAVID LIPSON: Okay, I want to look at the other tax issue that came out of the COAG meeting yesterday, or perhaps didn’t come out of the COAG meeting yesterday, that’s the GST distribution. First to the short term fix. It seems the Prime Minister is open to some sort of one-off payment or grant for WA, possibly in the form of infrastructure grants that could be brought forward that were planned for the out years. Is that something that as a West Australian you would welcome?

MATHIAS CORMANN: There are two aspects here, very important. When the GST was first put in place, it was designed to be a growth revenue for the States, a reliable growth revenue for the States. As the West Australian Premier pointed out yesterday, Western Australia today is getting less in revenue from the GST than when the GST was first put in place 15 years ago, even though the GST pool as a whole, has more than doubled. There is a question of fairness here. There is a question of what is fair nationally and sustainably in a Federation. What the Premiers and the Prime Minister agreed to yesterday was to consider this issue in a systemic and structural way as part of the Federation White Paper. There was a recognition that a 50 per cent floor, once Western Australia goes back past that 50 per cent share of the GST, was something that ought to be considered. There is an issue in the short term. Western Australia right now is facing a perfect storm. The Commonwealth Grants Commission has recommended another 16 per cent cut in GST revenue for Western Australia next year compared to this year and that is at the same time as its other major revenue, revenue related to iron ore royalties, is in free fall. So the Commonwealth recognises that in a bilateral way, we need to continue to have some conversations with Western Australia about how we can best support Western Australia in the context of that perfect storm that is playing out at the moment. Personally, I will be working with the Prime Minister to engage with Western Australia on how that can best be done. 
  
DAVID LIPSON: Senator Mathias Cormann, great to have your company as always here on Saturday Agenda. We’ll see you in a fortnight. 

MATHIAS CORMANN: Always good to be here.