Senator the Hon Mathias Cormann

DAVID SPEERS: Let’s chat to Finance Minister, Mathias Cormann now. This of course, the start of a Parliamentary year. They sit from tomorrow. And it is going to be this tax debate that dominates much of the political agenda. Mike Baird getting in ahead of the resumption of Federal Parliament. The New South Wales Premier leading this debate in many ways by putting on the table his plans, concrete plans for a 15 per cent GST, cut all income tax rates by 7 per cent and cut the company tax rate by 5 per cent. $8 billion more for compensation as well and then down the track negotiation on a better deal with the States to spend more on schools and hospitals. How does that go down with the Federal Government? How does it sit with their thinking at this stage of the tax reform process? They haven’t made any final decisions. I spoke to Mathias Cormann a short while ago. Mathias Cormann, thanks for joining us this afternoon.

MATHIAS CORMANN: Good to be back.

DAVID SPEERS: The Newspoll that was out today indicates that if you do go down the path of putting up the GST and cutting income tax, you have got a bit of work ahead of you to convince the Australian people. I just want to ask you about the process from here. Are you still going to put out a green paper and a white paper or will just put out your final tax plan?

MATHIAS CORMANN: The Government’s focus is on how we can strengthen growth and create more jobs. In that context we want to pursue reforms that deliver a more growth friendly tax system. What we have said is that before the next election, we will be making very clear how we propose to improve the tax mix. After the... interrupted

DAVID SPEERS: And that’s what I’m trying to get to. I’m after the thinking here on how you have that conversation with the people and bring them with you. Do you still go through what was the original plan, a green paper, a white paper or do you just cut to the chase?

MATHIAS CORMANN: The specific process is up to the Treasurer. But just in terms of the high level, we have been engaged in a conversation now for some time. We have been involved in a good faith conversation with State and Territory Governments. It is great to see that Premiers Mike Baird in New South Wales and Jay Weatherill in South Australia continue to constructively engage in that process. At some point we will have to make some judgements on the best way forward. Again, our focus is on reforms that will help us drive stronger growth and stronger job creation. That is the test. How can we encourage people to work, save and invest and how can we ensure people across Australia have the best possible opportunity to get ahead.

DAVID SPEERS: On that, Mike Baird this afternoon says raising the GST would give you, the Federal Government, the capacity to lower income taxes, company taxes to drive more growth. Is he right?

MATHIAS CORMANN: We certainly want to very much focus on reducing personal income tax and company tax to the extent that that is possible. That is why we are having a conversation about how we can improve the tax mix without increasing the overall tax burden in the economy. How exactly that is to take place, these are decisions that are yet to be made. But we have welcomed the fact that Mike Baird and Jay Weatherill have engaged constructively in the conversation.

DAVID SPEERS: But here is where it seems you part ways. Mike Baird and Jay Weatherill also very strongly argue that part of the dividend of tax reform needs to be extra spending on schools and hospitals. Mike Baird says they really want to roll out the full Gonski reforms and the challenges in health he said were very, very significant. Do you agree with him?

MATHIAS CORMANN: As a country we are still digesting the last spending binge that Labor in Government at a Federal level engaged in before the last election. Our focus is on policies to strengthen growth and create more jobs, on getting the Budget back into balance as soon as possible. Now having a more growth friendly tax system, having stronger growth, one of the dividends from that is stronger revenue flows for Government both at a federal and at a state level. That will then help us get the Budget into balance and will help us make the necessary investments in the sorts of services that Government needs to provide.

DAVID SPEERS: What I’m getting at is you won’t use any of the direct proceeds from tax reform on schools and hospital funding?

MATHIAS CORMANN: Again, right now we are engaged in a conversation. Sometime between now and the election we will be making some decisions. These decisions will be put to the Australian people, so that the Australian people can pass judgement about our proposals, our proposed way forward, well before the next election.

DAVID SPEERS: Are you prepared to increase spending levels at all?

MATHIAS CORMANN: At this stage we are working to control expenditure growth left behind by the previous government. That is our focus at a Federal level. We continue to be in deficit. The budget deficit is projected to reduce year on year over the forward estimates and ultimately we get into balance. That is our focus as we speak. If we want to give ourselves scope to make additional investments down the track, rather than to go back to what Labor did before the last election then the first thing we need is we need to deliver stronger growth. Among other things, stronger growth comes with reforming the tax system to make it more growth friendly and stronger growth over time will deliver better revenue flows to Government.

DAVID SPEERS: My questions are on the spending side, we have heard the Treasurer talk about getting spending down as a proportion of the economy from 25.9 to 25.3. Are you going to put it back up at all?

MATHIAS CORMANN: Our objective is to get the Budget back into balance. The only way you get the Budget back into balance if you’re not going to jack-up taxes in the economy overall is by reducing it over time from its current levels. The Budget as it was updated in the lead up to Christmas in the Mid-Year Economic and Fiscal Outlook shows a reducing trajectory of spending as a share of GDP. The important point here is... interrupted

DAVID SPEERS: You’re not going to turn that around?

MATHIAS CORMANN: The important point here is there are two factors in this. When you look at spending as a share of GDP, if you increase the size of the economy by more, that will help you automatically in the ordinary course of events, to bring down spending as a share of GDP. The important point here is that stronger growth will give you more flexibility as a Government to make the sort of investments in services and infrastructure that you might want to make down the track. But right now, there is a job to be done to ensure that as a country, we digest Labor’s spending binge from before the last election.

DAVID SPEERS: Which would make Mike Baird’s latest plan pretty attractive to that line of argument, that you use the bulk of the money, the overwhelming majority of the extra money from the GST to bring down taxes and drive growth. Only after 2020 would you then negotiate spending with the States.

MATHIAS CORMANN: Again as we’ve said, we’re very pleased that Mike Baird and Jay Weatherill are engaging constructively in the conversation in the way they are. Our focus overwhelmingly is on reforming the tax system to make it more growth friendly, to drive stronger growth and stronger job creation. Beyond that, not only does that deliver benefits to people across Australia in terms of increased opportunity and increased living standards, it also delivers increased revenue flows for Government.

DAVID SPEERS: You said no final decisions have been taken, but are you narrowing things down a bit? I saw in the Treasury figures that came out on Friday on tax expenditure, you can see where you can raise revenue, but presumably not everything’s on the table still, is it?

MATHIAS CORMANN: There will be an announcement or a series of announcements depending on how the decisions are made. There will be an announcement certainly in good time before the next election about how we propose to proceed when it comes to further tax reform.

DAVID SPEERS: Have you narrowed things down?

MATHIAS CORMANN: We haven’t made any decisions on the tax reform policy that we would take to the next election.

DAVID SPEERS: So the GST on fresh food for example, I think the figure there is $6.8 billion that you could raise. John Howard and Peter Costello wanted the GST on fresh food, it was part of the Senate deal with the Democrats. What’s the argument now?

MATHIAS CORMANN: There is a diversity of views. Our focus as a Government is solely on tax reforms that make the tax system more growth friendly, reforms that help us strengthen growth and create more jobs, because that is good for opportunity across Australia and over time it also delivers increased revenue streams for Government.

DAVID SPEERS: Finance Minister Mathias Cormann, look forward to talking more about this process over the course of the year. Thanks for joining us.

MATHIAS CORMANN: Looking forward to it.