Senator the Hon Mathias Cormann

WARREN MOORE: Well there are calls today for reform on negative gearing. And the NSW Planning Minister Rob Stokes is leading the charge, arguing that the tax breaks make homes less affordable. But the Federal Government is shutting down his calls. That goes against their stance on the issue. They made an election promise to keep negative gearing. The push from Rob Stokes also comes ahead of a meeting next Friday of State Treasurers on the issue of housing affordability. So is there any chance of the Federal Government softening on this. We have got the Finance Minister, Mathias Cormann on the line right now. Thanks for your time, Minister. 

MATHIAS CORMANN: Good afternoon.

WARREN MOORE: Well these calls from the NSW Planning Minister, do you think there is anything in what he is saying about the fact that negative gearing is making houses less affordable in New South Wales? 

MATHIAS CORMANN: No we don’t. The way to improve housing affordability is to increase supply. The most important impact there is focussing on improving planning regulations, focussing on improving zoning regulations, focussing on housing density, higher density developments and also more diversified housing development options. There is a lot that can be done on the supply side of the equation. We know that the State Government in New South Wales has been focussing on this. But to the extent that there is still affordability issues, clearly what we need to do is to increase supply.  

WARREN MOORE: Do you think there is something though in what he says that State and Federal Governments need to work together on this issue. 

MATHIAS CORMANN: Of course State and Federal Governments need to work together on this issue. But increasing taxes on investment going into housing supply is not the way to improve housing affordability. We know that increasing taxes on investment will reduce the level of rental stock and that will drive up the cost of rental accommodation for a significant proportion of the population. We debated this extensively in the lead up to the last election. 

WARREN MOORE: Yeah I know. 

MATHIAS CORMANN: The Australian people settled this issue in the lead up to the last election. We made a very clear commitment that we would not be increasing taxes on investment into the housing sector. 

WARREN MOORE: Even if it is on existing housing? Because that was the Labor policy wasn’t it? They said... 

MATHIAS CORMANN: Exactly. That would have created significant distortions in the market. If we were to take that approach, we would be driving down the value of existing property. We would be driving up the cost of new properties, because there would be a concentrated investor inflow through negative gearing just for new housing stock, into that segment of the market. Then we would have a negative impact on rental accommodation prices as I have indicated. 

WARREN MOORE: Well that has been another story that has had a few incarnations in the last week. That is the renting affordability, because that is also a major problem in our big cities. 

MATHIAS CORMANN: Again, if we want to keep rental accommodation as affordable as possible, we need to have more of it. In order to have more of it, we need more investment. Increasing taxes on private investment into rental housing stock would be precisely the wrong way to go. 

WARREN MOORE: Okay, the other issue of course, affecting your portfolio, affecting the Government in general is the backpacker tax. Are we likely to see Government move from its 19 per cent on this? We have got Jacqui Lambie, her 10.5 that went through the Senate. Then obviously quashed in the Lower House. One Nation saying 15 per cent. 

MATHIAS CORMANN: Right now the tax rate for foreign workers sits at 32.5 per cent. That is where Wayne Swan put it in the 2012-13 financial year. So any foreign worker right now, from the first dollar earned, is liable to pay 32.5 per cent tax. The Government has agreed to bring that down to 19 per cent in order to ensure that our tax arrangements for foreign workers are internationally competitive, which they are at that level. We are not prepared to take it down to 10.5 per cent. The Budget bottom line just can’t afford it. What Labor is suggesting is that we should cut taxes for foreign workers by more and increase taxes on Australians either on their retirement savings or on small businesses by more to pay for it. We just do not think that that is appropriate. We do not think that we should be pushing up taxes for Australians by more in order to deliver a bigger tax cut for foreign workers in Australia.

WARREN MOORE: There is an urgency to this though isn’t there? I cited an example earlier in the program of one Queensland fruit producer who has gone from having 300 backpackers, literally turning them away to struggling to find a couple of hundred. I know this is not your Government’s fault but there is an urgency for this reform. What I am getting at is, are you going to be able to get something through sooner rather than later?

MATHIAS CORMANN: There has been a downward trend in the number of backpackers coming here quite unrelated to the tax arrangements. As I mentioned, if the Senate were to legislate the tax rate for foreign workers at 19 per cent it would mean that we would be internationally competitive. It would mean that people coming from other countries to Australia and working fruit picking and the like would have more money in their pocket after tax than they would in New Zealand, Canada or in the United Kingdom. Our Budget is in deficit. There is a limit to how big a tax cut we can afford for foreign workers. In the end if we deliver a bigger tax cut for foreign workers, what it means is that we have to recoup that money somewhere else. We have to recoup that money in Australia. We think that we have the balance right. We rejected the amendment that was passed in the Senate in the House of Representatives yesterday. We are asking the Senate not to insist on reducing that tax for foreign workers. 

WARREN MOORE: Time is of the essence though isn’t it? Not just for this issue but a raft of legislation because Parliament is finishing at the end of next week, I know there is some talk of a little bit of an extension. Do you think that this issue will be able to be resolved before the end of the year? 

MATHIAS CORMANN: This issue will be resolved one way or the other. If the Senate decides not to accept the reduction in the tax rate to 19 per cent then it will remain at 32.5 per cent... interrupted

WARREN MOORE: So there is not going to be a compromise? It is 19 or nothing?

MATHIAS CORMANN: It is not 19 or nothing.

WARREN MOORE: It is 19 or what it is now. Let’s put it that way.

MATHIAS CORMANN: The 32.5 per cent, which is the Wayne Swan tax rate would remain in place. If the Senate decides to keep the 32.5 per cent Wayne Swan Labor tax rate on foreign workers in place then that would be the effect of not supporting the reduction to 19 per cent that we are proposing. 

WARREN MOORE: Okay to cut to the chase on this. The Government is not going to talk to One Nation or Jacquie Lambie about any other figure apart from 19 per cent as it is now?

MATHIAS CORMANN: We are talking to people in the Senate all the time. What we are saying is that we compromised as far as we think that our Budget can afford. We have taken it down from Wayne Swan’s 32.5 per cent to 19 per cent. We do not believe the Budget can afford more. We believe that at 19 per cent it is internationally competitive. 

WARREN MOORE: Just talking about the Budget generally. I know there is talk over the last few days about our AAA credit rating and how that is going to be maintained unless Budget reforms are passed through. Are you confident of being able to get enough through the Senate to avert any changes to our ranking?

MATHIAS CORMANN: We have passed more than $20 billion worth of Budget improvements since the election. We had the Omnibus Savings Bill, we had the increase in the excise of tobacco, we have had the superannuation reforms which passed the Senate this week. The AAA credit rating is very important. We do need to ensure that the Budget is in the strongest possible position, which is another reason why we cannot afford to cut taxes for foreign workers even more then what we are already proposing. Labor is proposing a 22 per cent cut in the tax rate that currently applies to foreign workers in Australia. We think that that is just excessive. We think given where the Budget is at it is absolutely unreasonable.

WARREN MOORE: Okay, thanks for your time, much appreciated.

MATHIAS CORMANN: Always good to talk to you.