Senator the Hon Mathias Cormann

FRAN KELLY: The Turnbull Government has moved to shore up its political support in WA by announcing a major review of the way the GST is distributed among the States. The carve up is a red hot issue in Western Australia, which will receive just 34 cents in the next financial year for every dollar in GST revenue raised in that State. That is a rate of return of just over one third. The current formula was blamed as a significant factor in the Liberal party’s heavy defeat in the March State election. Finance Minister Mathias Cormann has led the behind the scenes lobbying for this review. He joins us in our Parliament House studios. Minister, welcome back to RN Breakfast.

 MATHIAS CORMANN: Good to be back. Good morning.

FRAN KELLY: So the Productivity Commission has been given the job of reviewing the way the $60 billion in GST revenues are handed back to the States. Is this going to lead to any meaningful change, because if it is not, what is the point right?

MATHIAS CORMANN: What we have asked the Productivity Commission to do is to assess what impact the current GST sharing arrangement is having on national productivity and growth. It is plainly in the interest of every Australian, it is plainly in the national interest, for every State to be putting their best foot forward when it comes to growing and developing their economy. We want to ensure that all states have the right incentives to grow and develop their economy and to pursue budget reforms, both on the spending and the revenue side of their budgets.

FRAN KELLY: If it does lead to change though can you guarantee that no State, especially the smaller ones like South Australia and Tasmania won’t be worse off?

MATHIAS CORMANN: You are getting way ahead of yourself. Now … interrupted

FRAN KELLY: Well that is presumably the impact, to make more money go to WA isn’t it?

MATHIAS CORMANN: We have initiated a Productivity Commission review. We obviously can’t pre-empt what the findings and the recommendations of that review will be. As far as WA is concerned, the Federal Government has long recognised and long acknowledged that WA’s share of the GST is unacceptably low. That is why over the last two years we have made unilateral Federal payments to WA to the tune of about half a billion dollars each year of the last two years, to effectively maintain WA’s share of the GST at the 2014-15 level of 37.6 cents in the dollar. That is a top up payment that we will again be making this upcoming financial year.

FRAN KELLY: But presumably you think that that’s not right, the system is not working, that is why you have ordered the review. You think it is not right that WA is at that level.

MATHIAS CORMANN: We have always said these top up payments were short term initiatives. We always were of the view that there was a need for medium to long term reform. The Prime Minister last year indicated a way forward when it comes to the setting of a floor. The Federal Government has effectively set a floor at 37.6 cents in the dollar so far, as a result of the … interrupted

FRAN KELLY: Do you think it should be higher than that? Closer to fifty cents?

MATHIAS CORMANN: …if I may, as a result of the payments that we have made over the last two years and again this year. What the Prime Minister has said is that in the future, as under the current system, WA’s share of the GST increases, which it is expected to do, that as particular thresholds are passed that that is the opportunity to set a floor, below the threshold that has been exceeded.

FRAN KELLY: So you have suggested in the past, I think a floor of fifty per cent, is that where you think it should be?

MATHIAS CORMANN: What we have indicated in the past is that the Council of Australian Governments should consider setting a floor, below which no State’s share of the GST can fall, if and once WA’s share of the GST has increased again, passed certain levels under the current system.

FRAN KELLY: A significant problem for your home State of WA is the three year lag in the carve up that can penalise States, a State like WA that hit a down turn. Why not just get rid of the lag? Would that be part of the reform? That Grants Commission reviews the carve up every year rather than every three years?

MATHIAS CORMANN: The Productivity Commission has been asked to look at this question. It is true that Western Australia has been hit with a perfect storm where it was still effectively penalised in terms of its GST sharing arrangements for very high prices for its iron ore exports in particular some years back, when of course the royalty revenue from iron ore production and iron ore exports had significantly fallen at present. At the same time as receiving less revenue from iron ore royalties, WA is still getting less GST because of higher payments in the past.

FRAN KELLY: And John Daley from the Grattan Institute said earlier on AM that WA should have banked the boom instead of spent it. Now they are short of cash. It is not the Grants Commission’s fault.

MATHIAS CORMANN: These are all matters that the Productivity Commission will assess, because in the end, what is important is that our system underpinning Commonwealth-State financial relations supports growth, supports productivity, is efficient and indeed ensures that the right incentives are in place for all States to put their best foot forward and to develop and grow their economy. 

FRAN KELLY: You are listening to RN Breakfast our guest is the Federal Finance Minister, Mathias Cormann. You are putting the finishes touches on next week’s Budget. The Treasurer has told the Fin Review this morning that Australians are coming to the quote ‘end phase of what has been a pretty long road, all these years of really hard slog, not long to go now’. Minister, not long to go to what? We are still spending more than we are earning. Not much sign of structural change in the big spending elements of the Budget. Where is the light at the end of the tunnel. Not long to go to what?

MATHIAS CORMANN: We have made significant progress …interrupted

FRAN KELLY: Surplus?

MATHIAS CORMANN: We have made significant progress when it comes to putting the Budget on a stronger foundation for the future and indeed compared to what we inherited, the Budget is now on a much better trajectory into the future … interrupted

FRAN KELLY: But debt has doubled.

MATHIAS CORMANN: We inherited locked in legislated spending growth from the previous Government, which was going to take us to in excess of 26.5 per cent spending as a share of GDP. We have been able to first stabilise and then bring that down to about 25.2 per cent as a share of GDP in the most recent Budget update. So the spending growth trajectory and spending as a share of GDP certainly has been improving. We have been able to legislate significant savings, structural savings. Since the election well over $20 billion worth of additional Budget improvement measures have been legislated. In the Budget next week we will be updating our economic forecasts, we will be updating all of the relevant numbers, but the most recent update showed that we were projected to return to surplus by 2020/21.

FRAN KELLY: Well Deloitte Access Economics is forecasting national income will jump by $100 billion this year, mostly due to a rebound in commodity prices and a surge in company profits. But those deficits will blow out in the out years. Chris Richardson also says it will not translate into smaller deficits because as I said he is forecasting they will get bigger from 2018 and he concludes Australia cannot remain a high spending, low taxing nation. Is this not an argument to dump plans to cut corporate taxes for bigger companies?

MATHIAS CORMANN: Firstly, our numbers will be released in the Budget next week. So I refer you to the Treasurer’s speech at 7:30pm next Tuesday…interrupted

FRAN KELLY: I will be there Minister.

MATHIAS CORMANN: I am sure. The second point, no, absolutely none of this should be a reason for us to walk away from our efforts to make our business tax arrangements internationally competitive. In the end, if we want to continue to grow our economy, if we want to continue to see improvements in real wages we have to ensure that we can attract additional investment into Australia to boost productivity, to boost growth. The only way to sustainably increase real wages over time is by improving productivity and a more competitive business tax rate is centrally important for that.

FRAN KELLY: Also central to boosting productivity of any nation is its level of education. If our Budget is indeed in better shape than it has been in the past five years as the Treasurer says, why this need to slug university students with higher fees or get them to pay more and the Government less?

MATHIAS CORMANN: I am not going to pre-empt any announcements that may or may not be in the Budget… interrupted

FRAN KELLY: We are going to know today, the Minister is going to tell us.

MATHIAS CORMANN: What I would say though and this is also an independent review conducted by Deloitte incidentally, which shows that funding for universities, funding for higher education in Australia has grown faster than the cost of operating universities. On the back of significant growth in student numbers, universities have been able to achieve significant economies of scale and there is opportunity as has to happen across the whole of Government and all of the areas of Government expenditure where there are efficiencies that can be realised, taxpayers money needs to be spent wisely and needs to be stretched as far as possible. Higher education the same as any other part of Government funded operations, needs to be as efficient and as effective as possible.

FRAN KELLY: On another issue late last week your colleague the Resources Minister Matt Canavan was advocating a consumer boycott of Westpac following the bank’s decision not to help finance the Adani coal mine or any new thermal coal mine really was the bank’s position. Do you endorse that call?

MATHIAS CORMANN: Westpac is a business. They make their own commercial decisions. It was a strange decision mind you…interrupted

FRAN KELLY: Why? All the four major banks have decided the same thing?

MATHIAS CORMANN: If I may, you have asked me the question so if I can answer it that would be great. Coal is our second biggest export as a country. There are about six odd mines which have had Queensland Government approval as I am advised, Queensland Government approval to be developed. Six mines in the Galilee Basin, about 16,000 jobs and for any major bank to essentially issue a blanket refusal to be involved in any financing is a very disappointing, very, very disappointing development indeed.

FRAN KELLY: But the other major banks have also issued statements over the last months haven’t they? Saying they do not see a giant coal mine like this as a sound investment.

MATHIAS CORMANN: Again, they make their own decisions. Everybody is focusing on the Adani coal mine, but there are actually six mines that are potentially able to be developed in what is a significant additional coal basin. We are talking here about our second biggest export earner as a nation already and for banks to suggest that they are not going to be involved in a blanket sort of statement, not going to be involved in supporting through appropriate financing arrangements, essentially one of our most significant economic activities as a country, is very disappointing indeed.

FRAN KELLY: So you are putting pressure on the banks to rethink this?

MATHIAS CORMANN: I have answered your questions in a very straightforward manner.

FRAN KELLY: Does this mean it is even more likely than that the taxpayers will come to the rescue of the Carmichael mine via the $1 billion concessional loan from the Northern Australia Infrastructure Fund? And the question would then arise if the banks will not fund it why should the Government, why should the people?

MATHIAS CORMANN: Decisions in relation to the Northern Australia Infrastructure Facility are a matter for their Board. What I would say is, the Galilee Basin is a very important opportunity for further economic development for Australia. It is a significant opportunity for Queensland, but it is also a significant opportunity nationally. 16,000 additional jobs are able to be created in that part of Queensland and that is something that the Government is very keen to support.

FRAN KELLY: Minister, thank you very much for joining us on Breakfast.

MATHIAS CORMANN: Always good to talk to you.

FRAN KELLY: See you at the Budget.