Senator the Hon Mathias Cormann

PATRICIA KARVELAS: Have you had a chance to work out if you are a winner or a loser in this year’s Budget? Pretty much all of us will pay more tax thanks to an increase to the Medicare Levy to fund the NDIS. But the banks will pay a lot more tax, the Government is raising more than $6 billion from them which seems to be safe political ground and has Labor’s support already. The government says the Budget will return to the all-important and very elusive surplus in four years. Mathias Cormann is the Minister for Finance and he is my guest on RN Drive, he joined me a short time ago. 

Senator, welcome back to the program.

MATHIAS CORMANN: Good to be back.

PATRICIA KARVELAS: The debt ceiling is now $600 billion, up from $500 billion set by Joe Hockey three years ago. Can you guarantee this will be the last time we need an increase?

MATHIAS CORMANN: The Government is making responsible administrative decisions to make sure that Government operations can continue to operate in a sensible fashion. This provides certainty to financial markets. It provides certainty to the market generally around the financing arrangements of the Government. It is projected in the Budget what the funding requirements of the Government are moving forward. We will continue to make responsible decisions consistently.

PATRICIA KARVELAS: So if you need to review it and increase it again, you are willing to?

MATHIAS CORMANN: We will always make responsible decisions as you would expect us to.

PATRICIA KARVELAS: Is it responsible to continually increase the debt ceiling?

MATHIAS CORMANN: What is responsible is to ensure that we get the Budget back into balance and surplus as soon as possible and we are. We first projected a return to surplus from 2020-21 onwards in December 2015. That return to surplus timetable remains. In fact at $7.4 billion the projected surplus is now larger than what it was in the half-yearly Budget update before Christmas. We are projected to remain in surplus all the way through. Net debt is expected to peak as a share of GDP in 2018-19 of 19.8 per cent and then projected to fall over the medium term to 8.5 per cent. We are in a better position than when we would have been if we had not changed the policy settings that we inherited from Labor. We inherited an unsustainable, unaffordable, unfunded spending and debt growth trajectory. But yes we are still dealing with some challenges. We are still working.

PATRICIA KARVELAS: Let me take you to debt. Do you personally believe in this concept of good and bad debt?

MATHIAS CORMANN: I personally believe that it is very bad to borrow to fund the recurrent expenditure. I do personally believe that it is appropriate in the right circumstances to borrow for capital investment which delivers a benefit over an extended period.

PATRICIA KARVELAS: So is that good debt? Would you use that language? Would you call it good debt?

MATHIAS CORMANN: It is bad to borrow on an ongoing basis to fund the day-to-day living expenses. It can be appropriate in the right circumstances to borrow to fund capital investment. So in that context ... interrupted

PATRICIA KARVELAS: Would you call it good debt?

MATHIAS CORMANN: In that context, it can be good debt to invest in infrastructure. It is bad debt on an ongoing basis to borrow for recurrent expenditure, absolutely.

PATRICIA KARVELAS: When Nick Xenophon raised the idea of the Medicare Levy rising you slammed the idea earlier this year, does it pain you to now increase it given you were arguing against this?

MATHIAS CORMANN: It was clearly not our first preference. Our first preference was to see all of our spending reduction measures that were contained in previous budgets legislated through the Parliament, in particular the Senate. We did successfully legislate a lot of budget repair measures. But there is about $14.7 billion worth of spending reductions, which clearly the Senate was not going to pass. The judgement that we made is a pragmatic judgement, that if the Senate is not going to allow us to pass all of the spending reductions that are required to get us back into surplus, then the only other way, reluctantly, is to look at the revenue side of the Budget. There is a bipartisan commitment to the National Disability Insurance Scheme. It is a very important scheme, providing very important support to Australians with a disability, important support through that to their families. We were committed to ensure that it was fully funded. We were facing a $56 billion funding gap over the medium term, over the 11 year period to 2027-28 and the decisions that we have made, to lift the Medicare Levy by half a per cent from 1 July 2019 onwards, combined with savings from previous Budgets, will now fully cover, fully fund the National Disability Insurance Scheme on an ongoing basis.

PATRICIA KARVELAS: So let’s get to that Medicare Levy, we are talking about. Will you potentially change the way the 2.5 per cent levy hits the poorest workers if that helps you get it through the Senate.

MATHIAS CORMANN: It doesn’t hit the poorest workers because as you know, low-income earners, very low-income workers are exempted from the application of the Medicare Levy.

PATRICIA KARVELAS: Okay, so from the lowest income that you can pay the Levy is what I am referring to, are you willing to look at that if it helps you get it through the Senate?

MATHIAS CORMANN: The point is, the lower your income, the lower the dollar amount that you will have to contribute. That is the way that percentages operate. 0.5 per cent of a larger income is a higher number than 0.5 per cent of a lower-income number. That is why the Gillard-Labor Government made a similar decision in the past incidentally. They applied it uniformly across the board for that same reason.

PATRICIA KARVELAS: But given, there are concerns around the impact on people on lower wages, are you willing to change that potentially to get it through the Senate? 

MATHIAS CORMANN: The impact on people with lower wages is less than the impact on people on higher wages.

PATRICIA KARVELAS: It is, but if it is the only way to get it through the Senate, that is my question, would you be willing to look at it?

MATHIAS CORMANN: We have delivered the Budget last night. We have delivered the Budget that we believe is required. We believe it is a fair and responsible Budget. We believe this measure is appropriate and proportionate. It helps us fully fund the National Disability Insurance Scheme on an ongoing basis. We are asking the Senate to support the measure as it is in the Budget.

PATRICIA KARVELAS: But you have shown that you are willing to negotiate on other measures. So are you willing to negotiate on this as well?

MATHIAS CORMANN: We put the measure forward last night. We have not even started this conversation in the Parliament. We are committed to the measure that we have put forward. That is the measure that we will ask the Senate to vote on.

PATRICIA KARVELAS: Compromise, is that the byword of the Parliament, of the Senate? Is that still the word you would be using?

MATHIAS CORMANN: We are a very outcomes focused Government. We believe this is a measure that deserves the support. Let’s hear what the Labor Party has got to say in their Budget reply speech tomorrow night. You are asking me to jump at shadows before we even know…interrupted

PATRICIA KARVELAS: I’m not asking you to make any announcement, I’m trying to see how flexible you are about negotiating.

MATHIAS CORMANN: You are. You are making assumptions for example that Labor is going to be opposed. We don’t know that. We don’t know what the position of other parties in the Senate is going to be. Our position is very clear. Our position is reflected in the Budget. Our proposal is to increase the Medicare Levy by half a percent, to 2.5 per cent from 1 July 2019 onwards. That will help us fully fund the National Disability Insurance Scheme on an ongoing basis. It helps us fill the $56 billion funding gap that we are currently confronted with as a nation.

PATRICIA KARVELAS: If you are just tuning in, the Finance Minister Mathias Cormann is my guest. The surplus of $7.4 billion in 2020-21, relies on some pretty optimistic wage growth figures from roughly 2 per cent today to 2.5 per cent next financial year and 3.75 per cent over the forward estimates. Where is that going to come from because wage growth has been stubbornly low, in fact it has been very difficult for people who have not seen their wages grow. Why such optimistic figures. Where does that come from?

MATHIAS CORMANN: I completely disagree that they are optimistic figures. They are figures that are based on the best available advice and information, including and in particular from the experts in Treasury. What they are looking at is the improved global economic outlook. What they are looking at is the continuing low interest rates and lower exchange rate environment, combined with a flexible labour market and the pro-growth agenda being pursued by the Government. Taken all together, the assumptions and the forecast assumptions in the Budget are based on the best available advice and information from Treasury. We believe that they are prudent, responsible and credible assumptions. 

PATRICIA KARVELAS: On the banks levy, former Prime Minister John Howard, told a PwC Budget briefing in Melbourne, it isn’t a levy on banks, it is a tax on banks. Is it a tax?

MATHIAS CORMANN: It is a major bank levy. It is a $1.5 billion major bank levy that is there for all to see how it will operate. It is designed in a way to ensure that the banks do not have to pass it on to their customers. It specifically excludes from its base, day-to-day bank accounts and day-to-day mortgage accounts …interrupted

PATRICIA KARVELAS: John Howard says it is a tax, do you disagree with John Howard?

MATHIAS CORMANN: I am not going to get into a debate about semantics. The Howard Government had a whole range of levies. We are proposing a major bank levy. That is the proposal that will be in front of the Parliament. I note that the Labor Party has already confirmed that they will be supporting our major bank levy.

PATRICIA KARVELAS: The National Australia Bank CEO, says that the major bank tax will impact millions of everyday Australians who are employees, customers or shareholders of banks. A tax cannot be absorbed, the tax is born by these people, it is not possible to impose a tax without an impact on people and therefore the wider community. So your levy, your tax, you know if you want to call it that, will hurt ordinary Australians won’t it?

MATHIAS CORMANN: I disagree. Look major banks make decisions every day about what their pricing arrangements are. In the end major banks like any other business has to be accountable to their customers. If customers are unhappy with the service and the pricing that is offered to them then they have the option of taking their business elsewhere. Now one of the feature of …interrupted

PATRICIA KARVELAS: It’s not easy just to take your business somewhere else is it?

MATHIAS CORMANN: If I may, one of the features of the way we have designed this particular measure, it does only apply to the major banks, it does not apply to the smaller banks and non-banking financial institutions who compete with the banks. So this will help improve, help level the playing field. It will help them compete more effectively with the banks, which will obviously help to control any pricing behaviour that the major banks may want to engage in. Furthermore, you have got to remember, those major banks between them generate about $30 billion in after tax profit. $30 billion of after tax profits per year. We are talking about a $1.5 billion levy out of that to help support Australia’s budget repair.

PATRICIA KARVELAS: The banks will clearly not be quiet on this. The Commonwealth Bank CEO, Ian Narev has said today that every extra cost needs to be borne by customers or shareholders or a combination of both. Ultimately it is either customers or shareholders that will have to pay this, isn’t it, Mathias Cormann?

MATHIAS CORMANN: We are not asking anyone to be quiet. The banks are absolutely entitled to participate in the democratic conversation. But this is clearly a measure that has got bipartisan support. It is a measure that is supported by the Labor party. It will get through the Parliament. In all of the circumstances, we believe it is actually consistent with measures taken in other parts of the world in different ways. In the United Kingdom, there has been a measure like this. There have been other places around the world where this has been done. You know, banks …interrupted

PATRICIA KARVELAS: So what’s your message to banks because the Treasurer said today in his official address after the Budget, you know message to them, people don’t like you very much. Is that your message to them too?

MATHIAS CORMANN: Banks provide a very, very important service in the economy. They are key facilitators in the economy. Strong and profitable banks are a very good thing. But, in the context of the challenges that we are facing as a nation, given the sacrifices we have asked all Australians to make in order to put Australia on the strongest possible economic and fiscal trajectory for the future, we do not believe it is inappropriate for the very profitable banks to be asked to make their contribution towards Budget repair.

PATRICIA KARVELAS: Just quick questions, would you be randomly drug tested? Do you think politicians should be randomly drug tested just like unemployed people are under your trial?

MATHIAS CORMANN: I would be very happy to be randomly drug tested. In many occupations around Australia, employees are subject to random drug tests. If you have got somebody who is on an unemployment benefit who as a result of a random drug test it is identified, after a number of tests incidentally, it has been identified that they have a drug addiction problem, then clearly that is going to hold them bank from successfully finding a job.

PATRICIA KARVELAS: So if you want to set the precedent, why don’t you make it a rule that politicians face random drug tests and then maybe the sting of this particular measure in the Budget of random drug tests for unemployed people would be perceived differently?

MATHIAS CORMANN: Let me assure you, I would be completely relaxed about being randomly drug tested on a regular basis. 

PATRICIA KARVELAS: But how about making it the rule?

MATHIAS CORMANN: Let me take that on notice.

PATRICIA KARVELAS: Alright, take that on notice. Are you going to consider it?

MATHIAS CORMANN: As I say, I am completely relaxed about being subject to a regular drug test.

PATRICIA KARVELAS: Just finally, Alan Joyce says he’s going to press charges against the man that threw the pie in his face. The man that was motivated by this issue of gay rights, about gay marriage and opposition to Alan Joyce and what he’s been saying. Alan Joyce says he’s not going to stop speaking out. Do you think he should keep speaking out?

MATHIAS CORMANN: Every Australian is absolutely entitled to participate in the debates on public policy according to their personal views. We live in a democracy. It is a free world. Again, I am entirely relaxed about every single Australian making their contribution towards public policy debates as they see fit.

PATRICIA KARVELAS: And should every Australian feel safe because obviously Alan Joyce has been attacked on stage because of his views.

MATHIAS CORMANN: What happened to him was clearly inappropriate. There is now a process underway if he is going to press charges. That will work its way through the appropriate system.

PATRICIA KARVELAS: Mathias Cormann, thank you so much for your time.

MATHIAS CORMANN:Always good to talk to you.