Senator the Hon Mathias Cormann

PETER VAN ONSELEN: As mentioned at the top of the program, our special guest this morning here on Australian Agenda is the Finance Minister Senator Mathias Cormann. Thanks for being here.

MATHIAS CORMANN: Good to be here.

PETER VAN ONSELEN: Can I ask you about this package that Paul was just talking about then that is in the News Limited papers today, in particular the funding of it? You are only going to be able to proceed with this if the Senate passes the reforms to the Family Tax Benefit scheme that they are currently blocking. Does that mean that all of this policy discussion comes to nought if you can’t convince Labor and/or the cross benchers to come on board?

MATHIAS CORMANN: We want to help more families get into work and stay in work. We want to help families get access to a simpler, more affordable, more flexible childcare system. It really is for the Labor party to think about whether or not they support better access to more affordable childcare or whether they want to continue to stand on the sidelines. From our point of view, we are being very clear. We want to make an additional investment in better, simpler, more affordable childcare for families, but to spend more, if we need to spend more in one area, we need to pay for it. The only way we can pay for it, given the state our Budget is in is if we make savings elsewhere. So the additional spending is contingent on the additional savings getting through the Parliament.

PETER VAN ONSELEN: It is clearly fiscally responsible to pay for this as a result of trying to find savings as per the last Budget. But what about the philosophical change? I am interested in this because last year, the sale job around changes to the Family Tax Benefit scheme were that they were necessary for the savings in the Budget to bring it back to surplus eventually to pay down debt. Now it seems that those savings are necessary to spend. Why the change?

MATHIAS CORMANN: We are doing two things of course. We are improving the quality of the spend, investing in policies that help strengthen economic growth which over time will help with fiscal consolidation because stronger growth helps to boost revenue for Government over time. But the other side of the equation is for us to be able to spend more on a higher priority area, on an important higher priority area for families and for our economy. We have to be able to pay for it and the only way we can pay for it is ...interrupted

PETER VAN ONSELEN: It is a shift though, isn’t it? I remember the Budget last year, Joe Hockey and yourself talking quite a bit about how the tightening of spending in that family tax area was necessary because the Budget needed it. Now it turns out it is necessary so that you can then go on another spending spree, or be it as you say, a better targeted one.

MATHIAS CORMANN: Our strategy has been quite consistent all the way through and that is that any additional spending has to be more than fully offset by additional savings, by additional reductions in expenditure in other areas of the Budget. Now in relation to the childcare package, there is now a holistic families package which we will put into the Parliament. The Labor party, the Greens and others who are saying there should be new money, they have just to reflect on the fact that we are in deficit. There is no new money. If we were to fund this package in any other way than through savings from other areas of Government we would be adding to the deficit, which is not something that we want to do, it is not something we should be doing ...interrupted

PETER VAN ONSELEN: Should you be doing it at all Minister? That is where I am sort of getting at with the size of the deficit, it is going to blow out. We know that. Should you be going in this direction at all? As opposed to bringing down the deficit?

MATHIAS CORMANN: I am interested that you know what is going to be in the Budget on Tuesday. You should just wait to see what the numbers show on Tuesday. What you will find is that the Government has been very focused on getting the Budget back to surplus as soon as possible, making sure that we are on a credible pathway back to surplus. Across the whole of the Budget we have continued that effort in recent months. But when it comes to the families package specifically, we are committed to making an additional investment in childcare, to help working families, to help families get into work, stay in work and to help them get more affordable access to a more flexible childcare system. In order to pay for it, we have to be able to make savings elsewhere. You can’t get the spend without the save. That is a very clear proposition that we are putting to the Parliament and specifically that we are putting to the Labor party to think about.

PAUL KELLY: How prescriptive are you being? In terms of seeking savings to finance the new childcare package, are you saying those savings have got to come from the changes from Family Tax Benefits? Are you being that direct?

MATHIAS CORMANN: We have put forward a holistic families package. There are a range of savings already in the Senate right now. There are going to be some more savings in the context of this Budget to help pay for the childcare package. We will do what we always do and that is engage in a conversation with all parties in the Senate that are prepared to engage with us constructively. But the bottom line is this, any new additional spending on what we think is an important area for families has to be offset, fully offset, by savings in other parts of the Budget.

PAUL KELLY: So that principle, that principle you have just enunciated, that is non-negotiable? You won’t accept any increase in the deficit? The extra funds have got to come from savings? 

MATHIAS CORMANN: The principle is non-negotiable. Any extra spending has to be fully offset by savings elsewhere. But as always, once the Budget is delivered, we will have a conversation with all parties represented in the Senate about the proposal that we are putting forward and if we need to make an adjustment here or there in order to get the savings through, then of course, we will engage in these conversations at that point in time.

PAUL KELLY: What is the, in rough terms, the increase in the quantum for childcare overall? We have got detailed reports about the policy in the paper today. But is it an extra billion or is it more than that?

MATHIAS CORMANN: The numbers will be revealed in the Budget on Tuesday. You would not expect me to deliver the Budget here for you today.

PAUL KELLY: Come on, we are getting details about the Budget in terms of childcare and pensions all week. We don’t need to be too precious about it, surely.

MATHIAS CORMANN: It is very important to have that information out there. But of course we have to leave something for the Budget as well.

PAUL KELLY: So what happens to the childcare package if you don’t get the extra savings?

MATHIAS CORMANN: I am not prepared to concede that we won’t get the extra savings. What we are saying to the Parliament is the childcare package is a very important package. It is a very important package for families. It is a very important package for our economy. But it has to be paid for. The only way we can pay for it is by spending less in other areas. We are putting a holistic package to the Parliament. The Parliament as the Parliament always does, will pass judgement. There will be a process in the Senate as there always is for a Government which doesn’t have the numbers in the Senate. I am very confident that at the other end of it, the childcare package will successfully pass the Parliament along with sufficient savings to pay for it. 

PAUL KELLY: Okay now we know this package is going to be geared very much towards work force participation, increasing in work force participation. The Productivity Commission earlier on has been very sceptical about the impact of the existing childcare policy on work force participation. So what is your expectation here about how many more jobs can be created?

MATHIAS CORMANN: There are a couple of important findings. The Productivity Commission also identified that about 165,000 parents across Australia would like to work more but can’t do so because of difficulties with accessing the childcare system. The Social Services Department did some research, which identified that about 26 per cent of parents would work more if only they could get access to better childcare arrangements. It is very difficult to conclusively model these sorts of things but what we have done with this package that is being announced today is strengthen the activity test so that there is a more direct link, there is a better link ...interrupted

PAUL KELLY: What are the numbers, what are the numbers?

MATHIAS CORMANN: The numbers are, as I have just told you, the Productivity Commission has identified ...interrupted

PAUL KELLY: What do you expect will be the employment dividend from the policy?

MATHIAS CORMANN: We expected that there will be a significant employment dividend and the numbers that we can go by are the numbers that have been identified by both Scott Morrison’s Department and also by the Productivity Commission.

PETER VAN ONSELEN: Isn’t the biggest issue though with childcare for a lot of people just being able to actually access it in terms of there not being enough of it or there being waiting lists are too long. These are not things that change as a result of this policy. They are things that have changed as a result of for example the changes that Labor made to childcare qualifications which make it more difficult for you to have a larger scale of childcare because of the qualifications that the childcare workers required to adhere to?

MATHIAS CORMANN: The quality side of the equation with childcare is very much something that is regulated together with the States. What we are doing here is putting significant additional resources into childcare, which by definition will make it easier to access childcare and will make it easier to access childcare in a more affordable way.

PETER VAN ONSELEN: But my issue is the amount of childcare. A lot of parents say that they would put their children into childcare and go back to work if they could find places for them.

MATHIAS CORMANN: Indeed and if you put more resources into a system, the system will become more accessible because you will end up having a larger supply of services. But also something that we have done in this package and that has already been announced as well, is recognising that a range of shift workers, police officers, nurses and others find it difficult to access childcare because of their different hours of work. We have also pursued a trial of providing access to nannies which will essentially try to provide better access at the right time for workers that don’t work traditional working hours.

PETER VAN ONSELEN: I have interviewed a lot of Ministers and back benchers about the first Budget and no doubt will do so now about the second one. Who is right? Were they right when they were telling you before the indexation changes to the pension and others were absolutely necessary and we couldn’t do anything but, if we wanted to fix the Budget. Or are they right now when they tell me that that is no longer the case and it is being dumped. Were they right when they told me that the Medicare co-payment was a must to make health funding sustainable. Peter Dutton when he was Minister said that. Or are they right now when they say that that is not necessary and there are other ways to do it?

MATHIAS CORMANN: Our commitment, what people are right about is that we need to ensure that our pension system is fair and sustainable. The aged pension is a means tested safety net. It is a very important safety net for many Australians and we need to ensure that it remains affordable over the long term and indeed forever. What we are committed to do is to ensure exactly that. In last year’s Budget we did put forward a particular measure, which on reflection we have decided was not the best way forward. We have made some announcements in relation to a better way forward, which is to make the changes that we announced earlier this week. Our focus is on achieving the outcome. Our focus is on making sure that important benefits and important services for the Australian community remain affordable and sustainable over the long term. We are adaptable and we are flexible when it comes to making adjustments to the way we best achieve that. We have reflected on the public discussion over the last 12 months and we have made judgements accordingly.

PETER VAN ONSELEN: You must then be grateful for the cross benchers and the Labor party in the Senate because you would not have had the opportunity to reflect to change those policies without them. You would have gone in and legislated, a bit like WorkChoices if you controlled the Senate but luckily for the Government, given that you have changed your view on this, luckily you have got those cross benchers and the Labor party to hold you up in the Senate.

MATHIAS CORMANN: We are always happy to participate in the democratic process Peter.

PAUL KELLY: How long before we get back to surplus?

MATHIAS CORMANN: As soon as possible.

PAUL KELLY: When is that?

MATHIAS CORMANN: As soon as possible.

PAUL KELLY: There will be further slippage won’t there?

MATHIAS CORMANN: You will have to wait for the numbers on Tuesday. What I can say to you is that we have done everything we can to ensure that the Budget is on a credible path to surplus. Since we came into Government in September 2013, there have been a range of additional, unexpected challenges in the economy. Significantly, the price for iron ore, iron ore representing more than 21 per cent of our national export income, has gone from $120 a tonne when we came into Government, to $92 a tonne in last year’s Budget to about $60 a tonne at MYEFO before Christmas. As you would be aware there has been further drops since then. Just between the Budget last year and the half-yearly Budget update before Christmas we had to write off more than $30 billion worth of revenue. Despite all of that, we are now in a much stronger position than we would have been if we hadn’t made some of the difficult though necessary decisions to get the Budget back on track. What you will see on Tuesday is that we have continued with our effort to get spending under control, to get that spending growth trajectory under control, to bring that spending growth trajectory that we inherited from Labor down to a more affordable level. There is more work to be done of course. This is not something that we are able to sort out in just ...interrupted

PAUL KELLY: When we go into the Budget lock-up, one of the things that we are going to look at, as we always do, how much of the adjustment is on the spending side and how much of it is on the tax side through higher taxes?

MATHIAS CORMANN: And I encourage you to do that.

PAUL KELLY: Okay and what’s the answer?

MATHIAS CORMANN: The answer will be in the Budget. What I can say to you is that in last year’s Budget, about 80 per cent of the effort was on the spending side ...interrupted

PAUL KELLY: And what about this year’s Budget?

MATHIAS CORMANN: ...and about 20 per cent was on the revenue side. This year’s Budget will be released on Tuesday and I encourage you to look at that number very closely. I also encourage you to look at the trajectory, the deficit reduction trajectory and the trajectory of getting us back to surplus in a believable way.

PETER VAN ONSELEN: Minister, you are very good to us here on Australian Agenda. When you joined us on October last year, you said, well what we have said is that we will put the Budget back on a believable path to surplus and get to broad balance in the final year of the current forward estimates. Not anymore though?

MATHIAS CORMANN: We will get back to surplus as soon as possible. Look, as I have just indicated, economic conditions have changed somewhat over the last 12-18 months. We have a plan to strengthen economic growth, to strengthen job creation, but our plan is also adaptable to changing economic conditions. So we can’t just ignore the fact that our largest export has seen significant falls in global commodity prices. No Government, whether it is a Labor Government or a Coalition Government, no Government controls what happens in the global economy. No Government controls what happens to global commodity prices.

PETER VAN ONSELEN: Labor didn’t get a lot of a quarter for the GFC. I mean I guess that is the point, I think most people might agree with you that commodity prices collapsing has a huge impact on the Budget, but Labor would say that they didn’t get any quarter from the Liberal party in Opposition for something not dissimilar.

MATHIAS CORMANN: I am quite happy to re-litigate the past with you if that is where you want to take me. The truth is that the previous Government inherited a very strong economy and a very strong Budget position. Australia went into the Global Financial Crisis in a much stronger position than any of the other economies around the world that usually the previous Government wanted to compare us with. The truth is that when we came into Government, we inherited a weakening economy, rising unemployment and of course a Budget position that was rapidly deteriorating. When the previous Government ...interrupted

PETER VAN ONSELEN: But you haven’t turned it around.

MATHIAS CORMANN: We have turned it around. When the previous Government was confronted with falling terms of trade and revenue coming in below expectations, that was the time when they decided to ramp up expenditure by more in the period beyond the published forward estimates. Structural permanent increases in expenditure across a ranges of areas, when they knew that we were entering into a challenging period economically given global economic conditions. We have been working on turning that situation around. We have been working to strengthen growth and create more jobs. Economic growth over the last 12 months has been stronger than over the last 12 months of Labor, and job creation has been stronger than it was under the last 12 months of Labor.

PAUL KELLY: As Finance Minister, how can you possibly ignore the tax concessions given at the high end of superannuation? What is the justification for not tackling that?

MATHIAS CORMANN: Bill Shorten when he was Assistant Treasurer and Financial Services and Superannuation Minister was running a class war against Australians saving for their retirement then and he is running a class war against Australians saving for their retirement now. The Labor party wants people to believe that there are all these easy targets here. If only rich mining companies paid more tax, everything would be fine. And of course they came up with a tax which didn’t raise any money but they locked in a lot of additional expenditure against it. Now they are saying, if only all these nasty rich multinationals, if only all these rich, nasty retirees were paying more tax, everything would be fine. The truth is ...interrupted

PAUL KELLY: What’s your justification for doing it?

MATHIAS CORMANN: The truth is that the Labor party wants to target hard working Australians, middle of the road Australians, who have been working hard all their lives, saving for their retirement, trying to look after their own needs in retirement, not being a burden on the taxpayer by not having to access the full pension. These are the people that Bill Shorten is targeting. This is just spin trying to suggest that this is about targeting rich people in superannuation. He is targeting aspirational Australians who are working hard to save for their retirement ...interrupted

PETER VAN ONSELEN: So you won’t make any changes in that space?

MATHIAS CORMANN: What I would say to you is that Labor’s instinct whenever they are faced with a fiscal challenge is always to come up with another tax. Our instinct is to get our spending under control and to ensure that our taxes overall are lower, simpler, fairer, more efficient. The conversation that Australia needs to have on tax is not how we can increase the overall tax burden but how we can raise the necessary revenue for Government in the most efficient, least distorting way in the economy. Labor is trying to create an impression that the way to fix the Budget challenges we are facing is by ramping up taxes as a share of GDP ...interrupted

PETER VAN ONSELEN: But tax compared to GDP is higher under your Government than it was under the Labor Government.

MATHIAS CORMANN: That is just wrong.

PETER VAN ONSELEN: It is in the Budget.

MATHIAS CORMANN: Let me just address that. Manifestly, taxes as a share of GDP are on a lower trajectory than they were under Labor. We got rid of the carbon tax, we got rid of the mining tax, we are about to put in place a company tax cut for small business. Unlike Labor, we have put in place in last year’s Budget a tax cap in terms of tax as a share of GDP at 23.9 per cent. None of Labor’s Budget papers were ever costed on the basis of limiting the growth in tax as a share of GDP moving forward.

PAUL KELLY: Clearly you are going to go to the next election with this fundamental difference on superannuation between the Government and Labor. Labor wants to introduce the elimination of these tax concessions at the higher end. The Government is opposing this in principle. Do you think you can win that debate with the public?

MATHIAS CORMANN: Last time that Bill Shorten tried to run a class war against people saving for their retirement, his own people turned on him. Simon Creen turned on him. Kim Carr turned on him. Good luck to Bill Shorten running a class warfare argument in the lead up to the next election. That is what they tried to do in the lead up to the last election and it did not work very well for them.

PAUL KELLY: That is pretty strong rhetoric. So clearly we are going to have a major confrontation over this issue.

MATHIAS CORMANN: Bill Shorten and the Labor party have to make their own judgements, but what I would say is it didn’t work that well for Bill Shorten before. We have a balanced approach to this. We are focusing on strengthening the economy, strengthening job creation opportunities, but also helping Australians that are having a go with getting ahead. That is our focus.

PETER VAN ONSELEN: Peter Costello is reported in the Australian yesterday saying that there would not be in his lifetime the elimination of Commonwealth debt. Your response to that?

MATHIAS CORMANN: Peter Costello was a great Treasurer. He ...interrupted

PAUL KELLY: No, what’s your answer. We all know he was a terrific Treasurer. We don’t need to go through those rituals. What is your response to that?

MATHIAS CORMANN: What I was about to say is that he was a great Treasurer over 12 years. He was obviously very close to the numbers for 12 years. He is not as close to the numbers now...interrupted

PAUL KELLY: He is out of touch now?

MATHIAS CORMANN: He is not as close to the numbers now...interrupted

PAUL KELLY: So he is wrong is he?

MATHIAS CORMANN: Let’s just see what the numbers are in the Budget.

PETER VAN ONSELEN: Peter Costello once said that the Australian economy is like a finely tuned race car, it is very difficult, you have to be in tune. Is he like a race driver who is out of touch?

MATHIAS CORMANN: No, I am not suggesting that at all. We are dealing with the challenges that we are facing today in 2015. We are doing the best we can every day to put Australia on a stronger foundation for the future. We are doing the best we can every day.

PETER VAN ONSELEN: Is he right or is he wrong when he says that? I mean, it is a pretty big call from a Treasurer than is an absolute icon of economic management in the Liberal party.

MATHIAS CORMANN: The truth is the challenges we are facing now are quite different to the challenges back in 1996. Yes we did inherit a very bad starting position from the previous Government, as Peter Costello did. But if you look at global economic conditions today, if you look at the structural transformation in the Australian economy right now, if you look at the challenges that come with the ageing of the population and the pressure that does both put on economic growth and on expenditure. These are all things that we are now grappling with, making sure that we put Australia on the best possible path for the future.

PETER VAN ONSELEN: The Budget is at the printers now. So it can’t be changed. Something that wasn’t in the Budget last year, but had been in every Budget since 2005 is the detailed family outcomes table. Will that be back in the Budget?

MATHIAS CORMANN: You are quite wrong in saying that it had been in every Budget since 2005. That is actually not accurate. What of course we put into last year’s Budget, because that was the relevant information given the decisions we have made, was how much Australian families and different demographics were paying in tax and how much they were receiving in payments ...interrupted

PETER VAN ONSELEN: But will that be back in?  

MATHIAS CORMANN: You have got to just wait for what is in the Budget on Tuesday.

PAUL KELLY: One of the things you’re doing in the Budget is you’re including in the bottom line, a lot of measures from last year’s Budget which have not passed the Senate. I just want you to clarify that that’s what you’re doing. And that this is the case particularly in relation to higher education and the family package.

MATHIAS CORMANN: What we have done in terms of measures from last year’s Budget that haven’t passed yet is make a judgement on whether we remain committed to them or whether we don’t and whether we want to make some changes. So it is not one rule across the board. For example, in relation to pension indexation we have decided not to proceed with that and that will be reflected in the Budget. As such, the replacement measure will also be reflected in the Budget. In relation to the GP co-payment measure, we have made a formal decision not to proceed with it. That will be reflected in the Budget.

PAUL KELLY: What about higher education?

MATHIAS CORMANN: I am not going to announce the Budget for you today. But any measure from last year’s Budget that we remain ...interrupted

PAUL KELLY: Presumably, the Government is standing by higher education.

MATHIAS CORMANN: We absolutely stand by higher education.

PAUL KELLY: So that will be reflected in the estimates?

MATHIAS CORMANN: The point I am making to you is that any measure that we remain committed to will remain in the Budget as it always has been, because the Budget document is a reflection of Government policy judgements that is ...interrupted

PAUL KELLY: I guess the final question on that, if you’re putting them back in the second Budget, presumably that means you’re prepared to fight for them politically including at an election?

MATHIAS CORMANN: Absolutely. The thing to remember in relation to higher education reforms for example is that they are not actually due to come into effect until 1 January 2016 and beyond.

PETER VAN ONSELEN: You’re a West Australian, so am I.

MATHIAS CORMANN: Are you?

PETER VAN ONSELEN: At one point in time. I work at the University of Western Australia. They have walked away from the Bjorn Lomborg centre. The Minister Christopher Pyne is not impressed by it. What are your thoughts? What are your thoughts?

MATHIAS CORMANN: I am not a commentator. I will let universities make their own judgements.

PETER VAN ONSELEN: Alright, we are going to take a break here on Australian Agenda. When we come back, some of the issues we have been talking about we will discuss in a bit more depth with our expert panel. Back in a moment.

[BREAK]

Welcome back, you’re watching Australian Agenda. Paul Kelly and I have been speaking to the Finance Minister Mathias Cormann and to continue that discussion in a bit more detail in a couple of particular policy areas we are joined by The Australian’s Rick Morton and Annabel Hepworth, thanks for being here. Just to kick it off, I just wanted to start with something I mentioned in the previous segment. Away from the partisan politics, does the Government just accept that the check and balance function of the Senate is a good thing, because it forces governments to take time before ultimately being able to legislate and in this instance, the Government having time on its side has been able to decide that a couple of measures were perhaps not as well thought out, or at least as applicable or were concerns to the community. The cross bench and the Labor Party have done the Government a favour?

MATHIAS CORMANN: From the Prime Minister down, the Treasurer, myself, we have all been on the record saying that in relation to a number of these measures, with the benefit of hindsight, we perhaps did go too far and that perhaps in the first Budget, with the best of intentions, we tried to do too much at once. That is why in the lead up to this Budget, we have certainly taken a different approach and been very focused on making sure that with any of the major changes that we’re pursuing, that we take people with us and that we are much better engaged with stakeholders in the lead up to finalising these sorts of judgements.

ANNABEL HEPWORTH: Minister, when Tony Abbott came into office as Peter mentioned earlier, promised to be an infrastructure Prime Minister. Now last year’s Budget was premised on the idea that you could tip some government funding into infrastructure and you could spur private sector investment using asset recycling and these kinds of measures. But Andrew Robb has raised concerns that Victoria’s cancellation of the East-West project has raised sovereign risk concerns. If you have a spooked private sector, how do you expect the private sector to step up and provide infrastructure at a time when you have utterly no fiscal firepower left?

MATHIAS CORMANN: What has happened in Victoria is quite terrible really, because you’ve got a State Government in Victoria, which is spending $1 billion on not building a road. Not only that, they have decided to spend a billion dollars not to build the East-West Link and are now telling us that they want to build the West-East Link. So it is quite a concerning situation out of Victoria. Now having said that, we at a Federal level are focused on boosting investment in economic productivity enhancing, job creating infrastructure across Australia and we have been heartened by the engagement from the States, including with a focus on leveraging private sector investment, from New South Wales to Western Australia and the ACT Labor Government. We believe there will be other governments from around Australia that are going to join with us through our asset recycling initiative to boost infrastructure growth, investment in economic infrastructure in a way that helps leverage private sector investment.

ANNABEL HEPWORTH: Are you confident that what has happened in Victoria won’t impede the federal plans and can you be sure that the private sector won’t simply hike what they expect to receive to factor in that risk? Will this not cost people?

MATHIAS CORMANN: There is no way to walk away from the fact that what happened in Victoria is terrible. It is not good for Australia and it is not good for Victoria. Now having said that, from a Federal Government’s point of view, we will continue to press ahead doing the best we can every day to take Australia forward, to strengthen growth, including by boosting investment in infrastructure. We’d rather if the Government in Victoria hadn’t made the terrible decision they made. We’d rather if they hadn’t decided to waste $1 billion of taxpayer’s money. But we are where we are and we have to do the best we can from the position we’re in to get ourselves in the best position.

ANNABEL HELPWORTH: In the time of record low interest rates, there are calls for you to borrow more so that you can fund productivity enhancing infrastructure. What are your views on that? Is that something that you’re at all open to?

MATHIAS CORMANN: We don’t want to add to the debt burden. We want to strengthen growth, we want to strengthen job creation in a way that is economically and fiscally responsible. That includes making sure that we get our government expenditure under control. Having said that, in last year’s Budget and the same will be the case in this year’s Budget, there is a significant shift from just a focus on recurrent expenditure and on taking recurrent savings and recycling, redirecting them into capital investment, essentially focused on strengthening growth, strengthening ultimately revenue for Government over the medium to long term.

PETER VAN ONSELEN: Just to follow up on Annabel’s question though. It’s an interesting one because Joe Hockey makes the point, he’s obviously trying to stimulate business investment, that businesses should be more comfortable borrowing because of record low interest rates. What’s the difference between the private sector being in a position to do that because of record low interest rates and the public sector, as long as it’s good borrowing for infrastructure projects and so forth.

MATHIAS CORMANN: We want private sector led stronger growth. We don’t want the Federal Government to get in the way of stronger private sector led growth. So what we are doing is making a shift by directing some of our recurrent savings into capital investment and also focusing on leveraging additional private sector investment in infrastructure so that we do get the economic growth benefit, but without actually putting our Budget on an unsustainable foundation for the future.

RICK MORTON: I just want to pin you about the employment stuff for childcare. The figure you were looking at before when you were asked about it was the Department has released about 210,000 families will increase their work hours or get new jobs under the package, but the Productivity Commission said that only about 1.2 per cent of mothers would gain employment on the back of it. So there’s a bit of a discrepancy there?

MATHIAS CORMANN: Our package is not the Productivity Commission package. That’s the first thing I would say. The second thing I would say and what I said to Paul earlier is that the Productivity Commission also said that about 165,000 parents across Australia would like to work more, but can’t because of difficulties with accessing the childcare system. Separate research that was done by Social Services identified that about 26 per cent of parents would work more if they can get access to the sort of package that we’re putting forward. In the end, these are all assessments and models and forecasts and expectations. We will have to monitor how that plays out in practice and we will. We will make judgements along the way if there is a need for further improvement.

RICK MORTON: One of the major problems you had last year with the social services side of the Budget was this kind of sales job and talking to the cross benchers and the Greens and the Labor party. A lot of this stuff has leaked early, have you started those discussions? Who are you talking to what’s the reception you’re getting?

MATHIAS CORMANN: I wouldn’t say it has leaked early. The Government has made a series of announcements in relation to our proposal to improve the pension system and our proposal to improve the childcare system. Scott Morrison has done an outstanding job in relation to this and yes he has been engaging with relevant stakeholders in and outside the Parliament.

JOURNALIST: But you’ve been known to run the halls yourself and have those discussions. Who have you been speaking to?

MATHIAS CORMANN: I have been having a lot of conversations about the Budget in recent months. Through the Expenditure Review Committee we’ve been having a lot of conversations about the best way forward including and in particular in relation to reforms in the social services portfolio.

RICK MORTON: You were talking about employment with women and mothers in work and you’re talking about pensioners and older people trying to get them to stay in the workforce. Last year’s Budget had a pretty bloody big stick for the unemployed on Newstart. Are there going to be incentives this time around to try and get those people into work or is going to be a big stick again?

MATHIAS CORMANN: Our focus in this Budget and instinctively what we want to do is we want to help people having a go to get ahead. We recognise that there are young people who are facing particular challenges and there will be initiatives in the Budget to help young people who are facing particular challenges with getting into the workforce, to get into the workforce. In terms of the specifics, you’ll have to wait for Tuesday night to see those.

PAUL KELLY: It’s vital for the Government for this Budget not to have the repeat of last year to actually get your measures through the Senate. Pension reform is going to be critical, Labor’s already attacked it. How confident are you that you can get the pension reform package through?

MATHIAS CORMANN: We’ve made judgements about the best way forward. We will argue our case. We ask every party represented in the Parliament to work with us to put Australia on a stronger foundation for the future. Ultimately I can’t speak for other parties, I can’t preempt the judgements that other parties ultimately will make. We believe we’ve got the balance right. We believe that the measures in this Budget are fair, they’re responsible and that we have the right way forward …interrupted

PAUL KELLY: Will you stand by the pension reform, if it’s defeated?

MATHIAS CORMANN: The thing to remember about the pension reform is that it is essentially taking us back to the means testing arrangements on the asset side that were in place for pretty well the whole period of the Howard Government. It was only really changed at the tail end of the Howard Government, when we were in a very different economic environment. So what we would say to the Labor party is that this is an important reform to make the pension system fairer and more sustainable. It is a reform that has been widely welcomed by National Seniors, The Council of the Ageing, ACOSS. I would have thought that Bill Shorten would make a very lonely, negative and destructive figure if in those sorts of circumstances he decided to stay on the sidelines and snipe.

PETER VAN ONSELEN: Don’t you think that the forward estimates and this whole policy adjustments that are in the Budget that are predicated on this return to surplus over time. It’s back to front isn’t it? If we don’t yet know what’s going to happen with the White Paper on Tax, we haven’t seen the White Paper on the Federation yet. Presumably if the Government embraces reform there, it completely adjusts everything across the forward estimates. It feels back to front for what is a second Budget.

MATHIAS CORMANN: It is not back to front, because the premise of your question in relation to tax for example is based on a proposition that the Tax White Paper is necessarily going to lead to higher taxes overall. That is not the case at all. The Tax White Paper, the way we look at it, is focused on making sure that the necessary revenue for Government is raised in the most efficient, least distorting way possible ...interrupted

PETER VAN ONSLEN: That changes everything. It changed growth projections, it changes unemployment projections, at the Federation adjustments, it literally changes all the tax projections...

MATHIAS CORMANN: Hopefully on the upside. I don’t think that you will have much to complain about. If the reforms we are putting forward to improve the tax system help strengthen growth and help strengthen job creation and the outcomes and the ultimate outcomes in the Budget are better than what we have currently forecast because we haven’t been able to take these decisions into account just yet, I don’t think that there will be too many people complaining. I don’t think that you would be complaining. 

PETER VAN ONSELEN: No, but will the Government be tough in these policy spaces? Or will we see it at the next election? Will these large reforms be something that the Government you think will incorporate and take to the next election?

MATHIAS CORMANN: The short answer to that last question is yes. We have said that we are going through this Tax White Paper process, this Federation White Paper process, with an open mind about how we can improve our Federation, how we can improve our tax system and that whatever proposals we adopt out of that process we would take to the next election before giving effect to them.  So that is a given.

PAUL KELLY: Now just on the GST, don’t you think as Finance Minister we need to devise a better system for the distribution of GST revenue? I mean a better system. We have just seen the fiscal fix for your State WA but this is not a good way of solving systemic problems. What’s your feeling about a better system?

MATHIAS CORMANN: The GST is a tax that is raised for the States. The GST was designed as a reliable growth revenue for the States. There is a particular challenge that has been faced by Western Australia where the system clearly hasn’t been able to handle the implications of a massive upswing in another revenue source, iron ore royalty revenue , on the back of strong price growth and strong production volume growth, followed by a massive fall on the other side ...interrupted

PAUL KELLY: But what about reforming the system?

MATHIAS CORMANN: The Prime Minister has already indicated, this is actually already on the public record, the Prime Minister has indicated after the recent COAG meeting that eventually this has to be reformed through the Federation White Paper, working with all the States and Territories. What we have done in the meantime in relation to Western Australia, as we said we would do after COAG, is in a bilateral way work with them on how we can help them through their short term challenges.

PETER VAN ONSELEN: But you said...

MATHIAS CORMANN: Where we are right now Western Australia is confronting another 16 per cent cut in their GST revenue at the same time as their other major revenue source, iron ore royalty revenue, is falling at the same time. 

PETER VAN ONSELEN: But Minister you wrote a very strong piece about the need for economic reform in Western Australia to be tied to changes to the GST. Yet you have given them $500 million, I am not going to complain about that, but you haven’t tied it to any reform. There are no guarantees on that front, only platitudes.

MATHIAS CORMANN: I disagree with that and I think you will find that since the Treasurer and I have ...interrupted

JOURNALIST: So it is conditional then?

MATHIAS CORMANN: Let me just answer the question. Since the Treasurer and I have called on Western Australia to be more ambitious and to have more of a sense of urgency in terms of micro-economic reform, including in relation to asset sales, in relation to things like getting rid of the Potato Marketing Board, in relation to things like going further with the deregulation of trading hours and the like, a whole range of announcements have already been made by the State Government along those lines. I am very confident that in their Budget next week there will be some further announcements. So just watch this space.

PETER VAN ONSELEN: All right. Stay with us here on Australian Agenda.  We need to take another break.  But when we come back we will continue talking to the Finance Minister ahead of Tuesday’s Budget.

[BREAK]

Welcome back to Australian Agenda where Annabel Hepworth, Paul Kelly, Rick Morton and I are talking to the Finance Minister Mathias Cormann.

ANNABEL HEPWORTH: Minister social affairs and welfare policy are obviously centrepieces of this Budget. But of course what is in this for business is a pretty crucial question. It has been widely reported that small business will get a 1.5 per cent tax cut but that this won’t be extended to the broader, the big business community. There is going to be a lot of backlash I imagine about that and what impact do you see that having and how are you going to navigate the concerns that will rise about a two tiered tax system which seems inherently...interrupted

MATHIAS CORMANN: The first point that I would make is that I expect that there will be bipartisan support for a policy, which targets the tax relief effort to small business because the Shadow Treasurer of course advocated for that in his recent book “Hearts and Minds”. Not that I want to advertise books for the Shadow Treasurer. But the point here is, the political point is, that the Labor Party is quite confused on this. Bill Shorten seems to be critical of the Government’s efforts to prioritise small business, even though small business represents 95 per cent, more than 95 per cent of all businesses across Australia. His Shadow Treasurer has actually been promoting the idea that we are putting forward. So we will let them sort it out.  But the key here is that we want to do as much as we can, responsibly, given the Budget situation we are in, to boost growth, to boost jobs and obviously small business is the engine room of our economy. One in every two jobs created in the economy right now is created by a small business. That is why we have targeted our tax relief effort towards small business.

ANNABEL HEPWORTH: But where does that leave the other jobs that have been created by big business and of course they’re bigger companies so the actual sheer dollar size of big companies as a proportion of the economy?

MATHIAS CORMANN: The important point here is that big business is not any worse off. Big business is paying 30 per cent company tax now and they will continue to pay 30 per cent company tax after Tuesday. The important point of course, the other important point is that we are doing a whole lot of things to strengthen economic growth including by entering into Free Trade Agreements with key markets like China, Japan and South Korea. We are doing things to cut red tape and we are doing things to boost investment infrastructure, all things that will help all businesses across Australia perform better including bigger businesses.

PETER VAN ONSELEN: Aren’t you concerned though about copying Chris Bowen’s policy?  I mean if Labor is as dysfunctional in government and creates complexity you guys are now looking to introduce a policy that was theirs.

MATHIAS CORMANN: We are not concerned. We are not copying. This is what we can do. This is our policy. We have said for some time that we would prioritise small business when it comes to the company tax cut that we have flagged for some time. But the point I am just making is that this is actually a policy that Chris Bowen the Shadow Treasurer has himself previously advocated and supported. So we are a bit surprised by Bill Shorten’s predictably negative and destructive approach to what is a very well targeted policy measure to strengthen growth.

ANNABEL HEPWORTH: Just on the business community though, one of the concerns that has been raised by the BCA’s President Catherine Livingstone is that the last Budget used, it literally used the Budget process to shoehorn a whole lot of reforms be it higher education, all these areas and you know slapped it into the Budget and it didn’t go through the process you would expect of extensive Cabinet consultation, bringing the community along, so on and so on. She is calling for a de-coupling of the Budget process and reform yet it seems that you are about to bring in a sweeping social affairs reform. What are your thoughts on her views on that and have you heeded any of that?

MATHIAS CORMANN: I have said earlier to Peter that we certainly recognise with the benefit of hindsight that in our first Budget we tried to do too much at once. Certainly our approach in this Budget has been quite different. Yes there are a whole range of reform proposals that we are putting forward. But as has been indicated, some of them are actually already out there before the Budget. The Government has already announced a whole series of reforms given that we were ready to announce them, because we had done our homework, because we had worked with stakeholders and relevant people inside and outside the Parliament to ensure that all of the i’s were dotted and the t’s were crossed. We were ready to proceed. So look yes I don’t disagree with the observation that Catherine Livingstone has made. We have reflected on those sorts of observations as we have approached our preparations for this Budget.

RICK MORTON: Speaking of that welfare reform we had a big review earlier on in the year and it spoke about early investment and some models had some fans and people, and detractors.  Are we going to see any of that first tranche of reform in this Budget?

MATHIAS CORMANN: Tuesday night at 7.30 pm the Treasurer will get up at the Despatch Box and he will start reading out the Budget and it will be all there.

RICK MORTON: Oh you are killing me. People are going to find out. Is it going to be in there?

MATHIAS CORMANN: You know what I am not going to deliver the Budget for you this morning. As much as I would like to, that is not my job today.

RICK MORTON: Are you philosophically speaking then are you a fan of an early investment approach in terms of investing up front in people who cost money in the system?

MATHIAS CORMANN: Absolutely I am and both the Social Service Minister Scott Morrison, the Treasurer and myself, all of us have indicated that. We are on the public record as suggesting that is the way we should go. To what extent we are able to do that in this Budget you will have to wait until Tuesday. 

PAUL KELLY: Now we have got a new Leader of the Greens, you’re a Senator where most of the Greens are located, what is your judgement about what this could mean?

MATHIAS CORMANN: His first test will be whether the Greens under his Leadership will support our proposal to maintain the real value of the excise on fuel. Under Christine Milne the Greens took a very strange position, essentially fighting for regular reductions in the real value of the excise on fuel, which I never quite understood. Under Christine Milne ...interrupted

PETER VAN ONSELEN: You’re going to put the money into roads. They prefer for it to go into public transport.

MATHIAS CORMANN: You know we had conversations with the Greens where we made very clear that we were prepared to uncouple that link. We had various other conversations with the Greens, which are a matter of public record. I am hopeful that under the Di Natale leadership of the Greens that the Greens will take a more constructive approach, focusing on public policy outcomes rather than just on the politics of the situation. I was personally quite disappointed that the Greens under Christine Milne didn’t take a more constructive approach with the Government and essentially just sided with Labor and stayed on the sidelines on many debates where instinctively they should have had a much stronger view.

RICK MORTON: You’ve been getting into arguments with Bill Shorten about targeting the social security system. It seems that you guys have done a pretty good job so far of targeting people who really need it. It seems like every time that happens, Bill Shorten decides to give you a bigger target, you haven’t gone far enough. So where does he stop? Is he being hypocritical at this point because ACOSS support a lot of these pension measures.

MATHIAS CORMANN: I will let Bill Shorten for himself. We have made judgements thinking very carefully, reflecting very carefully about what has been said across the community by our colleagues, by our backbench, by stakeholders about how the proposals we put forward in last year’s Budget could be either adjusted, improved or replaced with better measures in this year’s Budget. We believe that we have the balance right, but ultimately what Bill Shorten and the Labor party does is a matter for them.

RICK MORTON: Just quickly, are you prepared to move because I know the childcare stuff is tied to Family Tax Benefits and there has been some rumour that you might be willing to move, excluding Family Tax Benefit Part B for families with children under six as leverage to get the rest of the measures through. Is that something you are willing to bargain on?

MATHIAS CORMANN: I am not going to conduct negotiations with the Senate cross bench through your program, but let me just give you the principle position. That is that we want to make an additional investment in providing more flexible, more affordable access to high quality childcare for families looking to get into work, or staying in work. But in order to be able to pay for it we have got to get equivalent savings through the Parliament, because we can’t keep adding to the deficit. Even if it is for a meritorious cause like this. We have put forward a holistic families package. Let’s see what comes out the other end. But the non-negotiable is, that any additional spending on this important initiative has to be fully offset by savings elsewhere in the social services portfolio.

PETER VAN ONSELEN: Senator Mathias Cormann, you’ve been very generous with your time on taking up the whole program. That was at our behest. We appreciate you doing so, thanks very much for your time today.

MATHIAS CORMANN: Always good to be here.