Senator the Hon Mathias Cormann

PATRICIA KARVELAS: So it’s happened. Prime Minister Malcolm Turnbull has dumped knights and dames from the honours system. The old style system were reintroduced by former Prime Minister Tony Abbott in 2014 for preeminent Australians but became the subject of ongoing ridicule. It comes as Labor has today rejected a potential increase in the GST, setting up a huge contest on a big area of economic reform at the next election. 

My guest tonight is Finance Minister Mathias Cormann welcome back to Drive Minister. 

MATHIAS CORMANN: Good evening. Good to be back. 

PATRICIA KARVELAS: Knights and Dames have been dumped. Are you relieved? 

MATHIAS CORMANN: Obviously it was a decision that was made by the Cabinet and I fully support the decision. 

PATRICIA KARVELAS: Prominent Australian monarchist David Flint - he’s actually joining me in a moment, has attacked the Prime Minister accusing him of trying to get revenge for the failed 1999 republic referendum by dumping the knights and dames honour system. Is it revenge?

MATHIAS CORMANN: I don’t think that’s right at all. I’m a monarchist and I agree that in 2015 Knights and Dames are a bit anachronistic. I certainly fully support the decision that the government made. It is a Cabinet decision, it’s not just a decision by Malcolm Turnbull and it’s a decision that I fully support and endorse. 

PATRICIA KARVELAS: But Republicans and Monarchists are seeing this as a move by a Prime Minister that is a Republican – a very passionate Republican, a preemptive move along the road to a republic. Is it? 

MATHIAS CORMANN: I don’t believe so. This is obviously a very specific decision. I think that there are both Monarchists and Republicans that recognise that in 2015 in Australia, there is not really an appropriate place for Knights and Dames in today’s age. I think the issues are quite separate. The Prime Minister is a well known Republican, I’m a well known Monarchist and on this issue we are of the same view.  

PATRICIA KARVELAS: On RN Drive my guest is the Finance Minister Mathias Cormann. I want to move to the Prime Minister’s trip. He has just put out a statement about his trip overseas – a really big trip. He’s travelling to Indonesia to meet President Widodo ahead of the G20 and APEC. He says that that meeting with President Widodo will focus on trade and economic ties. What can you tell us about that meeting? 

MATHIAS CORMANN: Obviously it’s a very important meeting. The relationship with Indonesia is a very important relationship. So it is appropriate and important that the Prime Minister meet with President Widodo. Obviously the best person to talk about the substance of the meeting would be the Prime Minister. As Finance Minister that’s obviously not within my direct sphere of responsibility or knowledge. 

PATRICIA KARVELAS: One thing that you do know a bit about is well, finances and part of that is this ongoing big debate we are now having on the tax mix. Now Scott Morrison foreshadowed some significant tax changes earlier today, but he said the New South Wales Nationals MP David Gillespie’s proposal was at the pretty extreme end. He’s pushed for this 15 percent GST rate and including health and education, also food. Let me ask you plainly, do you think we need an increase in the GST? 

MATHIAS CORMANN: We are having a good faith conversation with the states and territories at present and indeed with the Australian public about how we can improve our tax system. The key here is how can we raise the necessary revenue for government to provide and to fund the important services and benefits provided by federal and state governments, in the most efficient least distorting way in the economy. I think it is widely accepted that in Australia we have too high a reliance on personal income and company taxes, that by international standards, our income tax and company tax rates are too high. There is a logical consequence of this. If we want to reduce personal income tax in a material way, if we want to reduce company tax in a material way, to the extent that more efficient government expenditure cannot of course get us all the way there, we need to have a conversation on how that sort of revenue can be raised in a better more efficient way. In that context there are a range of options that are currently being pursued. As the Treasurer says; we are currently in the discovery phase. We are making sure that we have got all of the necessary information and all of the necessary facts and figures in front of us to make an informed decision. We haven’t reached that point yet. At the moment we are just assessing various potential options. 

PATRICIA KARVELAS: Sure, but you’d have to characterise the GST as being at the top of that agenda? 

MATHIAS CORMANN: The GST is part of the mix. It is on the table. Both the Prime Minister, the Treasurer and indeed myself at various times over the past few months, have made that point. But we haven’t reached a landing point. At the moment we are making sure that we have all of the information in front of us to be able to make an informed decision about how our tax system can best be improved. We have always got to keep in mind what it is that we are trying to achieve; we are trying to ensure that our tax system presents the least amount of drag on economic growth possible.

PATRICIA KARVELAS: Is it all just about tax cuts though? If you want to get the states on board, you need to be talking about other things too. I’ve just seen the South Australian Premier Jay Weatherill on Sky and he says – out of all your Labor premiers the most prepared to have this discussion, but he says he won’t have this discussion if it’s not also about funding health and education. Is that part of the mix or is it all about dealing with tax cuts?

MATHIAS CORMANN: The important point here is - and the starting position for all of this is, we’ve got to ensure that through the tax system we raise the necessary revenue for Government in the most efficient least distorting way in the economy. The Government at the federal level, we make payments across a whole range of very important areas. We pay for the social safety net, or a large part of the social safety net, we make payments for medical benefits, pharmaceutical benefits, payments to the states towards their schools and hospitals, we make payments of course in the context of our national security, for defence, border security and the like. The key is to raise the necessary revenue to pay for this - the states have similar challenges of course - the key is to raise the necessary revenue in the way that least distorts economic growth opportunities moving forward, in the way that is as efficient as possible and that is the conversation that we are currently having.  

PATRICIA KARVELAS: But part of that conversation has to include then doesn’t it, funding health and education for the states if you are to increase the GST? 

MATHIAS CORMANN: There are federal-state financial relations implications of the tax reform discussion - of course. That is why the Federal Treasurer and the State and Territory Treasurers have been pursuing these conversations through the Treasurers Meetings. That is why we are assessing all of the various options, but the overarching objective though from the federal government’s point of view is to improve our tax system, to reform the tax system to ensure we have a better tax system, in a way that doesn’t increase the overall tax burden in the economy. Because in the end we want to strengthen growth, we want to strengthen opportunity for people to get ahead, we want to ensure that our tax system encourages people to work harder, to save more and to invest more.  

PATRICIA KARVELAS: So can I just get some clarity from you, you do think that part of that conversation as you’ve said – on the GST, on the tax, inevitably, if you are to get the states on side has to involve potential overhaul of that relationship and the payments going to things like health and education?

MATHIAS CORMANN: Well it’s self evident that when you are having a conversation about reforming the tax system, and when you are having a conversation about how best to raise the necessary revenue for federal, state and territory governments, that there is as part of that conversation a focus on federal-state financial relations, of course. The key limit to this though, is that from our perspective we are focusing on tax reform, we are focusing on improving the tax system in a way that doesn’t increase the overall tax burden in the economy. 

PATRICIA KARVELAS: So does that mean a 15 percent rate would deal with that potentially? Wouldn’t it? Because you could do the tax cuts and also deal with financial compensation to the states for things like health and education. If it rose to 15 percent you could potentially do both. 

MATHIAS CORMANN: I’m not going to go into specifics. All of these issues are currently being properly assessed, properly explored. All of the facts and figures are being brought together, so that the federal government, working cooperatively with state and territory governments, can make informed decisions about the best way forward. You are trying to get me to comment or lock myself into specific options. We are not in a position to do that at this point in time.

PATRICIA KARVELAS: Before I let you go, the Financial Review is reporting that savings measures that are not going to go through now, they have been shelved they have been unsuccessful, will cost the budget an additional $5 billion and that will be revealed in MYEFO. Are you looking for new savings and cuts that make up for that $5 billion?

MATHIAS CORMANN: Well firstly I don’t accept the numbers that are being reported in the Financial Review. That’s just speculation ...interrupted

PATRICIA KARVELAS: Well can you give me the right figure? Happy to have the right figure.

SENATOR CORMANN: Well what I can say to you is what we always do and what is the usual process under this Government and the previous Government is that there will be an update, a half-yearly Budget Update in MYEFO and our focus at the moment is to ensure that wherever policy decisions had to be made, which had an impact on the Budget bottom line, because of higher priority pressures such as the decision to increase the refugee intake by 12,000 additional refugees from Syria, that these sorts of decisions are fully offset by decisions to reduce expenditure or to improve the Budget bottom line in other areas.

PATRICIA KARVELAS: Minister many thanks for your time.

SENATOR CORMANN: Always good to talk to you.

PATRICIA KARVELAS: And that is the Finance Minister Mathias Cormann joining us there on a range of issues. He says, well he is a monarchist but doesn’t support Knights and Dames, thinks that the decision to dump them today after Tony Abbott reinstated them 18 months ago was the right decision. What do you make of all of this?