Senator the Hon Mathias Cormann

BARRIE CASSIDY: Now to our program guest. It's the early hours of the morning in Perth, where we find the Minister for Finance, Mathias Cormann. Good morning, welcome.

MATHIAS CORMANN: Good morning.

BARRIE CASSIDY: Did senior Ministers in the Turnbull Government seriously believe that you could persuade the Premiers to levy their own income taxes?

MATHIAS CORMANN: It was important for the proposition to be put, because in Australia, we do face a structural challenge. That is that our spending across a range of areas is growing faster than the revenue that we are able to raise out of the economy. The States have been coming to the Commonwealth asking us to help them with their spending, asking us to increase our taxes in order to help them with their spending on their schools and their hospitals. What we've said to the States is, we are prepared to give you the opportunity to raise more revenue, to have access to a growth revenue source, to give you a direct stake in your future economic success and get a revenue growth dividend from growing your economy more successfully, by vacating a proportion of income tax and giving you the opportunity to raise income tax in order to better fund the various services that you provide.

BARRIE CASSIDY: Alright, you're saying it was important to put that proposition to the Premiers but with little chance of success. Surely you must have seen the Prime Minister would have to take some political damage for that?

MATHIAS CORMANN: I don't agree at all. At least now we know where we stand. We know that all of us, State and Federal governments, have to live within our means. The State governments, and I heard Premier Baird in your opening clips say that the New South Wales Government is not in the business of increasing taxes, well neither is the Federal Government. So what it means is that the envelope from within which we have to fund the services provided to the Australian community is the envelope in front of us. We all have to live within our means. We have to make judgements on how we prioritise expenditure within that envelope. So I ... interrupted

BARRIE CASSIDY: Living within your means and providing adequate funding for adequate services is a different thing altogether and that's what the Federal Government has to do. You have to provide enough money to the States so that they can provide an adequate service?

MATHIAS CORMANN: Actually, the States have to make their own judgements about how they raise their revenue in order to provide funding for State schools and State hospitals. What the States have said to the Commonwealth is that we have a problem because our expenditure on hospitals increases more quickly than our revenue and we want you, the Commonwealth, to help us fill up the gap. They're saying to us that we need you, the Commonwealth, to increase expenditure on our hospitals faster than your revenue is growing. That doesn't work. So what we're saying is: OK, either we work together on how we can ensure the system works better, or you have to find a better way to spend your money more wisely.

BARRIE CASSIDY: You obviously still then believe in the concept of the States levying their own income taxes. Will you bring the idea back?

MATHIAS CORMANN: No. The proposition was put. This was meant to be the beginning of a process at COAG last week. The response from the States was overwhelming, except for the Premier from Western Australia, no State actually was prepared to entertain this idea any further. So that idea is now off the table. What we have agreed, though, is that we will now engage in a process with the States to look at some of the tied grants that are provided by the Commonwealth to the States. To see whether there is a more efficient way to provide that money, to untie some of those grants, to ensure that we spend less money on the administration of money flows between the Commonwealth and the States and more money on actually delivering services.

BARRIE CASSIDY: And that would be linked with a sharing of a certain percentage of income taxes as opposed to levying their own?

MATHIAS CORMANN: That is the proposal to be explored more. There is more work to be done. The Treasurer Scott Morrison will be exploring that with State and Territory Treasurers in the coming weeks and months.

BARRIE CASSIDY: Now, more broadly on the economy, expenditure as a percentage of GDP is running at 26 per cent. That's where it was at the height of the global financial crisis. You've been in government for two years. Is that good enough?

MATHIAS CORMANN: We inherited a spending growth trajectory from the previous government which was legislated and which was locked in. You might remember in particular in relation to schools and hospitals, the Gillard Government made unfunded, unaffordable, pie in the sky spending promises, which started to ramp up in particular in years five and six after their period in government. So we have been working to turn that situation around. If you look at expenditure as a share of GDP, it is forecast to be 25.9 per cent this year and ... interrupted

BARRIE CASSIDY: Well that is a forecast. 

MATHIAS CORMANN: ...  to reduce over the forward estimates to 25.3 per cent, so we are now on an improving trajectory. When we came into Government, we were on a trajectory of spending as a share of GDP to 26.5 per cent. The Intergenerational Report actually showed that if we hadn't changed Labor's policy settings, we would have tracked towards in excess of 30 per cent government spending as a share of GDP. So we have turned that trajectory around. We are now heading in the right direction. But you are right, we did inherit from the previous government a spending growth trajectory that was unfunded and unaffordable.

BARRIE CASSIDY: But that's your trajectory. The reality is it's at 26 per cent. It's still at GFC levels. For how long can you keep using as an excuse, it's at 26 per cent because you inherited this two years ago?

MATHIAS CORMANN: We did inherit a forward trajectory, of course we did. If we had not made any adjustments to policy settings, the situation we would be in now would be worse. We are now heading in the right direction. We are heading in a direction where spending as a share of GDP is projected to reduce. Whereas when we came into Government, spending as a share of GDP was projected to increase to 26.5 per cent by 2023-24 and even higher than that in the period beyond that. We are now on a reducing trajectory. Our ambition is to bring that down further. That is why it is important that we properly address some of the issues that we inherited from the previous government, including the unaffordable, pie in the sky spending promises which were made to the States in relation to State schools and State hospitals.

BARRIE CASSIDY: If you're debating bringing the deficit down of course there is this never ending argument about whether the country has both a spending and a revenue problem. Mike Baird, a Liberal Premier and Jay Wetherill a Labor Premier said after COAG they say the country has both. Is the Federal Government ready to concede that?

MATHIAS CORMANN: Again, I heard Mike Baird say in your opening clip how the New South Wales Government is not in the business of increasing taxes. Neither is the Federal Government. We have a revenue problem, to the extent that our economic growth is not as strong as we would like it to be. All of us, the Federal Government and State and Territory governments, have a responsibility to ensure we put the policy settings in place to maximise growth. The stronger our growth, the stronger our job creation, the more well-paying jobs are created in the economy, the better our capacity to increase revenue moving forward. But if we want to strengthen revenue growth by strengthening economic growth, the worst thing that we could do would be to increase the overall tax burden. The conversation we need to have is how we can ensure that the revenue for government, State and federal, is raised in the most efficient, least distorting way in the economy. That is the conversation the Commonwealth has been seeking to have with the States. That will be an ongoing conversation.

BARRIE CASSIDY: Can't you raise revenue without necessarily raising taxes, for example, taking away some of the concessions now available.

MATHIAS CORMANN: In any Budget you look at the revenue and the expenditure side of the Budget, to see whether you can spend more efficiently and more effectively, to better target your expenditure and make sensible adjustments to the spending growth trajectory. And you look at the revenue side of your Budget, to see whether there are ways that you can improve the quality of your revenue raising. In the end, we can put fancy words around it, but if you make changes to tax laws that lead to increases in revenue, that is an increase in taxation. In the end what you have to look at is your overall tax burden. What I'm saying is, the Commonwealth, the same as Mike Baird has said about the State government, is not in the business of increasing taxes overall. We are open to the conversation on improving the way the revenue for the Commonwealth is raised, the way taxes are raised. In that context, there is always a live conversation about whether you can make adjustments to certain parts of the tax system in order to ensure your tax system is as efficient and as fair as possible.

BARRIE CASSIDY: But you still seem to have this ideological opposition to raising taxes per se, and are you listening to independent advice? Because CEDA, for example, that's an organisation that is a credible think-tank, it has the support of business, of governments and they say by a factor of 6 to 1, the answer to bringing down the deficit is to raise revenue, ahead of spending cuts?

MATHIAS CORMANN: This is not an ideological obsession. This is driven by our total commitment to strengthening growth, strengthening job creation, so that people across Australia have the best possible opportunity to get ahead. If we want to increase economic growth and we do, then the last thing you'd want to do is to increase the overall tax burden in the economy. The conversation when it comes to the tax system is all about how we can raise our tax revenue better, how we can raise it more efficiently, in the least distorting way in the economy so that we least detract from economic growth opportunities in the future. It is not about increasing the overall tax burden in the economy.

BARRIE CASSIDY: Minister, thanks for your time this morning. Appreciate it.

MATHIAS CORMANN: Always good to talk to you.