Senator the Hon Mathias Cormann

MICHELLE GRATTAN: Mathias Cormann have economic and political circumstances forced the Government into a second best Budget?

MATHIAS CORMANN: Not at all. The Budget delivered by the Treasurer yesterday builds on the progress that we have made since our first Budget. We came into Government with a long term, responsible, economic plan to strengthen growth, create more jobs and to get the Budget back into surplus as soon as possible. You have got to remember that when we came into Government, we inherited a weakening economy, rising unemployment, a Budget position which was rapidly deteriorating with spending growth that was unsustainable. We have been able to turn that situation around. Economic growth is now strengthening, jobs are growing more strongly than they were and the Budget is now heading in the right direction. Have we made as much progress as we would have liked, no, but we are making progress, heading in the right direction. We obviously had to adapt to changing global economic conditions, to changing domestic economic conditions, but our economic plan is of course flexible enough to do that.

MICHELLE GRATTAN: It is a fairly soft Budget and some commentators see it as an election Budget. Do you think the Government will run full term?

MATHIAS CORMANN: I completely reject that this is an election Budget. Of course we want to serve our full term. This is a Budget that Australia needs right now. It is a Budget that is framed after very careful consideration in the context of our current economic conditions. Since we came into Government, we have faced some unexpected global economic headwinds beyond our control. We are not complaining about it, that is just life, that is what happens. Whoever is the Government of Australia, global commodity prices would have gone the way they have. No Australian Government of either political persuasion controls what happens to global commodity prices. When you have prices for a commodity like iron ore which generates 21 per cent of our national export income, going from $120 a tonne when we came into Government to $60 a tonne before Christmas and into the $40s in recent weeks, with $90 billion worth of tax revenue write downs, that is going to have an impact on the speed in which you can achieve fiscal consolidation. But despite all of that, despite all of the additional headwinds, despite the challenges in the Senate, we have remained on the same timetable back to a Budget surplus as we had in place in last year’s Budget. The reason that we have achieved that is because we have kept spending growth under control.

MICHELLE GRATTAN: So was the fall in the iron ore prices the hardest challenge you would say in putting this Budget together?

MATHIAS CORMANN: Losing $90 billion of expected tax revenue is certainly a pretty significant challenge. The level of debate in the parliament about some of our savings proposals, that obviously added to the challenge, but despite all of that we have made progress, we are heading in the right direction. Government spending as a share of the economy is reducing from 25.9 per cent this year to 25.3 per cent over the forward estimates. The deficit is reducing, $35 billion in 15-16, below market expectations, reducing to under $7 billion in the final year of the forward estimates with a projected surplus in 2019-20, which is the exact same year that we were expected to get back into surplus in last year’s Budget.

MICHELLE GRATTAN: Just a housekeeping sort of question, how did the decision making process differ this year from last year?

MATHIAS CORMANN: We certainly learned from the experiences we had with last year’s Budget. As the Prime Minister, the Treasurer and myself have said on a number of occasions now, with the benefit of hindsight we clearly tried to do too much at once in our first Budget. So we certainly went out of our way to ensure that on all of the major measures where there were major changes contemplated, we consulted appropriately inside and outside of the parliament, to ensure that we got the balance right, to ensure that we dotted all the I’s, crossed all the t’s. We believe that the Budget that we have ended up with is responsible, it is measured and it is fair.

MICHELLE GRATTAN: And of course you announced in full some key measures beforehand. You felt that worked?

MATHIAS CORMANN: Once we were ready to press ahead, we thought that the best thing we could do was take the Australian people into our confidence. Certainly, it seems to me that that has been quite successful.

MICHELLE GRATTAN: How do you rate the reaction to the Budget so far? 

MATHIAS CORMANN: I’m not a commentator. My job as part of the economic team has been to help put the Budget together. A Budget which is the next step in our responsible long term economic plan to strengthen growth, create more jobs and get the Budget back to surplus as soon as possible. I’ll leave it to others to make an assessment on how the sales job is going…interrupted

MICHELLE GRATTAN: I just meant are you happy with the reaction?

MATHIAS CORMANN: I’m happy that we’ve…interrupted

MICHELLE GRATTAN: You’re happy it’s over.

MATHIAS CORMANN: No, no, no. I’m happy that we’ve put together a good Budget. I’m happy that the Budget that we’ve put together is the right Budget for these times and I’m hopeful that we’ll be able to persuade the Australian people that we got the balance right in this Budget.

MICHELLE GRATTAN: Assuming the Government runs full term, you will need an election Budget next year. Doesn’t that put off the opportunity for tough fiscal decisions until a second term?

MATHIAS CORMANN: The way we approach Budgets is based on what is in the national interest. We consider all of the information about where we are at as a country, a whole lot of information about the challenges ahead, and we make judgements about the best way forward. Judgements about how we can put Australia on the strongest possible foundation for the future. That is our focus. We’re not focused on election timetables. Yes, of course, in the ordinary course of events, there is an election due in the second half of next year. In the lead up to that election we will seek to explain to the Australian people what we have achieved. We will put forward to the Australian people our agenda for a second term. If the Australian people think that we’ve done a good job and that we’ve got the right ideas for a second term, hopefully we’ll be successful.

MICHELLE GRATTAN: How confident are you of the forecasts and projections over the medium term, which will be very important of course in terms of your timetable to surplus? The Budget papers do talk a lot about risks.

MATHIAS CORMANN: Budget papers always very openly and transparently identify the risks. We are confident that they are realistic forecasts based on realistic assumptions based on the best available information at this point in time. The truth is the world never stands still. Things change. Global economic conditions change, domestic economic conditions change. We have a plan that is adaptable to changing economic conditions. Can I give you a guarantee that nothing will change in the months and years ahead? No, of course I can’t. But what I can tell you and what I can reassure you of is that we have taken the best possible advice. We have relied on the best available information at this point in time to frame the Budget and to make judgements about what is likely to happen over the next four years.

MICHELLE GRATTAN: Bracket creep hasn’t been addressed for some years and you’re not in a position to do that now in this Budget. Is this going to be a major challenge for a second term?

MATHIAS CORMANN: We would like to address bracket creep. We would like to reduce income taxes. The only way you can reduce income taxes when you’re in a deficit position is by cutting expenditure. We have tried to cut expenditure in a range of areas without getting any support from the Labor party. The Labor party has been opposing $30 billion worth of savings. They are even opposing savings that they themselves initiated and banked in their last Budget. The point is that right now, the Labor party is not telling anyone what savings they would be pursuing. All the Labor party is talking about is additional taxes, which would bring taxes as a share of the economy even further up. We want to bring taxes down, but the only way we can responsibly do this is if we get more of our savings measures through the Parliament.

MICHELLE GRATTAN: And don’t spend too much and one of the big spending areas coming up of course is going to be the NDIS. Surely you’ll have to try to somehow delay the full impact of that, or make some adjustment to that?

MATHIAS CORMANN: We have worked very hard to get spending growth under control. We inherited spending growth from the previous government running at about 3.6 per cent above inflation, in breach of their supposed target of constraining growth in spending to 2 per cent above inflation. We have been able to bring spending growth down to 1 per cent on average per year in our first Budget and it is running at about 1.5 per cent per year in our second Budget. That is much better than the 3.6 under Labor. It is much better even than their target. Now you are right, the NDIS is one of the major drivers of growth in spending. It is expected to grow by about 67 per cent over the current forward estimates above inflation. That is a significant challenge and we do need to ensure that we can find savings in other parts of the Budget to make room for that growth in expenditure. We are committed to the NDIS. It is a bipartisan initiative. It is something that we are committed to ensure is funded on a fiscally sustainable basis. The previous government didn’t fully fund it and there is still more work to be done to get ourselves into the appropriate position.

MICHELLE GRATTAN: You don’t think that both sides swallowed more than they could chew on this?

MATHIAS CORMANN: The previous government initiated this, we supported it and we are now trying to ensure that it runs in the best possible way. Mitch Fifield the Assistant Minister for Social Services is doing an excellent job working with the States and Territories and with relevant stakeholders to ensure that it is managed the best possible way.

MICHELLE GRATTAN: Now you were relying on the small business package to boost confidence and investment. Why do you think business confidence, as measured by the surveys, has been so flagging recently?

MATHIAS CORMANN: There is obviously a range of factors that run into this, global economic conditions being one. When you have the price for a commodity which represents 21 per cent of your national export income fall as dramatically and as quickly as it has, then that flows through the remainder of the economy. What we have sought to do in this Budget is to strengthen growth, in particular in the non-mining parts of the economy and that is why we have given a 1.5 per cent tax cut to small business including unincorporated businesses in practice and that is why we have offered the opportunity to businesses with an annual turnover of less than $2 million to immediately write off against their tax liability up to $20,000 they might invest in growing their business more strongly, being more successful and employing more Australians. We believe that small businesses are the engine room for the economy, generating one out of two new jobs in Australia right now. That is the best way we can boost growth in the years ahead.

MICHELLE GRATTAN: Just finally, you as a senior Minister in the Senate obviously do the heavy lifting, much of the heavy lifting in that chamber. Are you confident that it will be easier this time than what it was last time to get most of the Budget through?

MATHIAS CORMANN: When we delivered our last Budget Labor and the Greens still had control of the Senate. People tend to forget that. The new Senate only came into place on 1 July, which was after our Budget was delivered. Look over the past year we have been successful in relation to a number of very important matters and we are still continuing conversations in relation to other matters. That is business as usual in the Senate. I suspect that that will continue. I am looking forward to working with the new leader of the Greens Senator Di Natale. My impression is that he will take a more pragmatic and a more outcomes focused approach to relations with the Government, but let’s wait and see.

MICHELLE GRATTAN: You’ve got a lot of talking ahead. Mathias Cormann, thank you very much.

MATHIAS CORMANN: Always good to be here.