Senator the Hon Mathias Cormann

PATRICIA KARVELAS: We’re not there yet, but we’re not going to take short cuts and put the passengers at risk. A holiday road trip was Scott Morrison’s metaphor when unveiling the mid-year Budget update know as MYEFO today. Standing there with the Treasurer in announcing a $37 billion deficit was the Finance Minister, Mathias Cormann and he joins me now. Minister thanks for your time. 

MATHIAS CORMANN: Good to be here. 

PATRICIA KARVELAS: The Abbott/Hockey pledge, a pledge you made as well, the strong surplus of one per cent of GDP by 2023-24 has been dropped. Why?

MATHIAS CORMANN: That is actually not a new development. We’ve always been very careful in the lead up to the last election and since then, that is Tony Abbott, Joe Hockey, Malcolm Turnbull, Scott Morrison, myself,  we have always said that we would get the Budget back to surplus as soon as possible. Based on information available back in 2013, that was achievable within a certain time period. Since then, there has been a range of additional and unexpected global economic headwinds. There has been a significant deterioration in our terms of trade. The price for our most important commodity export, our biggest export earner, iron ore, went from $120 a tonne when we came into Government, to $48 a tonne by the time of the Budget earlier this year and has further deteriorated and now has a three in front of it. These sorts of things do have flow on consequences in the economy and do have flow on consequences on revenue. But all things considered given those additional headwinds since the Budget, given the additional fall in our terms of trade and in commodity prices, it is actually a very good indication of the progress that we’ve made, heading in the right direction now, that the Budget position continues to improve over the forward estimates. That the underlying cash balance continues to improve every year over the forward estimates.

PATRICIA KARVELAS: Sure, but some observers say you’re putting politics ahead of economic necessity. Chris Richardson from Deloitte Access Economics, a really respected economist says these are not big bucks being saved. Others have called the savings in this MYEFO was miniscule and your general strategy is just not cutting it in terms of shifting that Budget trajectory. 

MATHIAS CORMANN: I’ve got to say, I’ve not heard him say that the Government is putting politics ahead of economic policy. In fact, I heard him make a very balanced and much more nuanced assessment of where the Australian economy is at and where the Australian Government’s Budget is at. The truth is that we are an economy in transition. That we are dealing with significant falls in our terms of trade. The biggest falls in our terms of trade in about fifty years. We are transitioning from significant resource investment driven growth to broader drivers of economic activity. Yes, there are some challenges along the way, but we are actually performing rather well as an economy in that context. Our economy … interrupted

PATRICIA KARVELAS: Does that mean though, now you’re going to enter next year, which is really an election year, do you enter that election framework with no intention of any big spending promises going into that campaign?

MATHIAS CORMANN: Our intention is to continue as we have over the past two years and that is to impose a fiscal discipline on ourselves where any decision taken by the Government, which has a negative impact on the Budget bottom line is more than offset by related decisions to improve the Budget bottom line, so that the overall effect of policy decisions by the Government is at worse Budget neutral. That is the discipline that we have imposed on ourselves ever since we came into Government. It is a discipline that we have been able to maintain in this Budget update today. From time to time there is a need for unexpected additional expenditure, for example, we are having to spend nearly $900 million to accommodate 12,000 additional Syrian refugees into Australia and permanently settle them in Australia. We have been able to offset that increase in expenditure by spending reductions in other areas. We have to spend about $621 million more because we have listed additional drugs, in particular for cancer treatment on the Pharmaceutical Benefits Scheme. So we’ve been able to pay for that by finding efficiencies in other parts of the health system. That is the discipline that we have imposed on ourselves so far. It is a discipline that we will continue to impose on ourselves moving forward, until such time as the Budget is back in balance and ultimately in strong surplus.

PATRICIA KARVELAS: You’ve lowered assumptions of the iron ore price from US$48 to US$39 a tonne, that will cost the Budget $7 billion. But are you confident that’s all it will be. Back in May you assumed $48 a tonne and we’ve just seen it hit $37. 

MATHIAS CORMANN: Your description of that is not entirely accurate. When you say we assume, we use a technical assumption. The truth is nobody knows what will happen to the price of iron ore in the weeks and months ahead. Hopefully it will be better than what is underpinning our revenue forecasts. But the truth is that the methodology in terms of the technical assumptions that we use is the same as before. We look at the average price over the previous four week period and that is what is used in the formula to assess the flow on effect on Government revenue. Is that a precise prediction of what is likely to happen? No it isn’t. But it is the best method available in the circumstances. It is openly and transparently disclosed in the Budget papers. People can factor that in to their assessment of where things are likely to head moving forward. 

PATRICIA KARVELAS: On RN Drive, my guest is the Finance Minister, Mathias Cormann. MYEFO has been delivered today. You’ve probably picked this up and a much bigger deficit than expected. 0418226576 is our number. You can also tweet us @RNDrive. The other big drag on revenue is the tax take. Do today’s figures make it harder to sell future tax cuts, or revenue neutral tax reform, which is what you’ve been arguing for?

MATHIAS CORMANN: Not at all… interrupted

PATRICIA KARVELAS: But they do don’t they, it is clear now that we have both a spending problem and a revenue problem. Don’t we? We have problems on both sides?

MATHIAS CORMANN: The mistake that you are making is that you assume that increasing taxes is going to be the resolution to having lower than anticipated revenue on the back of below trend growth. The truth is in order to strengthen revenue flows, what we need to do is strengthen economic growth not to increase overall taxes in the economy. Yes, we do have to have a more growth friendly tax system, which means that we’ve got to change the tax mix to ensure that our tax system is as efficient and the least distorting possible in the economy. But if you increase taxes overall you will actually reduce economic growth moving forward and that will have a negative effect on Government revenue from economic growth. It would be a mistake to conclude that because there is lower than expected revenue on the back of slightly lower than anticipated growth that the solution to that is to increase taxes. No, the solution to that is to continue to implement growth friendly policies as we have done over the last two years. Can you imagine the position we would be in if we had not got rid of the carbon tax and the mining tax? If we had not taken that burden off business. If we had not reduced red tape costs for business by $2 billion a year. If we had not pursued an ambitious free trade agenda. If we had not pursued an ambitious infrastructure investment program. The situation now would be much worse. Now we are also rolling out our science and innovation agenda. We are focusing on how we can make our tax system more growth friendly. That is all part of our effort to strengthen growth, which will lead to increases in revenue in a good way.

PATRICIA KARVELAS: Minister, if I can just turn you to some of the specific cuts in today’s MYEFO. The AMA says the axing of the bulk billing incentives, for pathology and diagnostic imaging services will increase the health cost burden for Australian families. Specifically that the poorest, the sickest will be hit the hardest. They say basically it’s a co-payment by stealth. In a moment I will be speaking to Brian Owler from the AMA about that. Are you prepared for another fight with doctors and is this your way of introducing a co-payment without being honest about it? 

MATHIAS CORMANN: If that is what Brian Owler has said and I haven’t heard him say that …interrupted 

PATRICIA KARVELAS: He has. 

MATHIAS CORMANN: Then that would be quite wrong. What we are doing in relation to diagnostic imaging services for example is to align the bulk billing incentive payment arrangements with those that apply to GP services. 

PATRICIA KARVELAS: Bill Shorten says you’re going after cancer patients and the consumer health forum says the pathology savings could dissuade patients from having important tests. Are they really the best areas to get cuts in health?

MATHIAS CORMANN: Let’s just go back to basics. It was the Howard Government that introduced the bulk billing incentive payment for GP services. The Howard Government provided those to concession card holders, to patients with a concession card and to patients who are children under the age of 16 years. When the Gillard Government expanded bulk billing incentive payments to diagnostic imaging and pathology, they applied it across the board. What we are doing is, in relation to diagnostic imaging making those arrangements consistent with the arrangements that are in place for GP services. Something that I would have thought the AMA would have welcomed.

PATRICIA KARVELAS: Sure. Ultimately some patients will have to pay more. Or will put off some patients for getting those tests won’t it? That’s inevitable. 

MATHIAS CORMANN: Actually, we don’t agree. In relation to pathology, right now bulk billing rates are nearly 90 per cent. There is significant competition in that market. We believe that that this is a payment that is not actually delivering a value to patients across Australia. You also have to look at where that saving has been directed to. We are increasing expenditure on cancer treatment related drugs on the Pharmaceutical Benefits Scheme by $621 million. The $650 million efficiency by aligning for example, the bulk billing payment arrangements for diagnostic imaging with those in place for GP services already, we are able to make that saving to pay for that very important additional expenditure in the health system. 

PATRICIA KARVELAS: Can you guarantee that all patients who need these tests will get them. 

MATHIAS CORMANN: I can absolutely guarantee that every patient in Australia who needs these tests will get them. I can also guarantee that there is no need for any patient to be worse off. This is a bonus payment on top of the Commonwealth paying 100 per cent of the fee as a rebate. So not only is the Commonwealth paying 100 per cent of the fee to those providers, there is an additional bonus payment on top of that. In relation to GP services that is targeted towards patients on concession cards and children under the age of 16. In relation to diagnostic imaging services for reasons that are not entirely clear, this is something that the previous government applied across the board. We don’t think that this is an appropriate targeting of Government expenditure. We think it is more important to invest that money to pay for important cancer treatment related drugs that we have added on to the PBS. 

PATRICIA KARVELAS: And on the welfare crack down, you want to save almost $2 billion over four years. That is an incredible amount of money to be saving just from a crack down. What will that involve exactly?

MATHIAS CORMANN: How can you say that?

PATRICIA KARVELAS: Because I know a little bit about the welfare area as you know and I find that a very high number. What exactly will it involve? Who will you find that you haven’t found yet? 

MATHIAS CORMANN: Patricia, I’ve got to say, I am really intrigued that you say that is a really high number. It is certainly a number that helps to put the Budget on a better foundation for the future. But you have to put it into the context of the overall social security and welfare related payments. Over the forward estimates period, when we believe we can achieve that saving, through what is an integrity measure, the Federal Government will pay more than $662 billion in relevant payments. So this saving is less than 0.3 per cent, less than 0.3 per cent of that. We believe that this can be achieved by better income data matching with data that is provided both to Centrelink and the ATO and other sources. Because in the end, it is important for everyone that is reliant on these sorts of welfare benefits and payments, that people receive these benefits within the rules and consistent with the way the system is meant to work. By improving the integrity of welfare payment arrangements and by achieving an efficiency of 0.3 per cent, we are able to direct that money into other higher priority areas of spending. 

PATRICIA KARVELAS: Minister, many thanks for your time. Good luck with the baby. I know that you are expecting another baby very soon, which is why you are in Perth.

MATHIAS CORMANN: Thank you very much. 

PATRICIA KARVELAS: Good luck. 

MATHIAS CORMANN: Alright, good to talk to you. Thank you.