Senator the Hon Mathias Cormann

FRAN KELLY: Tomorrow night’s Budget will prioritise tax cuts for low and middle-income earners, which the Turnbull Government will then use to set itself up for the next election. A contentious plan to limit the tax take to 23.9 per cent of GDP will reportedly be locked into the Budget papers, which will mean tax cuts for higher income earners coming down the track in later years. There will also be another $24 billion to ease road congestion and a big spend on care packages to help older people stay in their homes as they get older. Finance Minister Mathias Cormann is in our Parliament House studios. Mathias Cormann welcome back to Breakfast.

MATHIAS CORMANN: Good Morning Fran. Good to be back.

FRAN KELLY: The Government will be giving tax cuts to people earning less than $87,000 a year in tomorrow night’s Budget, no doubt welcome, especially with wages growth so flat. But the Budget is still in deficit, isn’t it a bit premature?

MATHIAS CORMANN: The Government has been working very hard to put the Australian economy on the strongest possible foundation and trajectory for the future, so that more jobs can be created and we have been focused on putting the Budget back into surplus as soon as possible. We have been forecasting and projecting a return to surplus by 2020-21 since the half-yearly Budget update in December 2015. We are always focused on a whole range of very important priorities. One is to ensure the economy can be as strong as possible and as many jobs as possible can be created in the economy, so that there is competition for workers and wages can start growing more strongly again and also of course making sure that funding for all of the essential services can be guaranteed within the Budget and that Government lives within its means. We are focused on all of those objectives.

FRAN KELLY: Even the Treasurer says the tax cut for low to middle-income earners will not be mammoth. Some reports say it could be as little as five dollars a week, enough for half a milkshake and half a sandwich according to economist Christ Richardson. You want to give, but you do not want to give too much. What are you going to be, Santa or Scrooge?

MATHIAS CORMANN: We make decisions based on what is right. What is right for the economy and what is right for the Budget and most importantly what is right for Australians today and into the future wanting to get ahead. We are focused on balancing a whole range of different competing priorities, making sure that we make the right decision for Australia’s future.

FRAN KELLY: Okay, but five dollars a week income tax cut, you might get a few billion dollars there. Wouldn’t that be better spent on something else like wiping out the deficit or increasing Newstart to above poverty levels?

MATHIAS CORMANN: We think it is very important to ensure that our tax burden in the economy does not go past our 23.9 per cent tax as a share of GDP speed limit…interrupted 

FRAN KELLY: But why, that is an arbitrary limit isn’t it?

MATHIAS CORMANN: It is the long-term average. This is something that Labor used to subscribe to. If you look at the first speech that the Shadow Treasurer made to the Press Club on becoming the Shadow Treasurer back in December 2013, he was telling everyone how important it was for the new Government, our Government, to be measured against whether or not we would respect the tax as a share of GDP speed limit. But of course ever since Labor has been announcing one tax hike after the other, taking tax as a share of GDP close to 26 per cent. The truth is, if that was ever to be legislated, it would harm the economy, it would put jobs at risk…interrupted

FRAN KELLY: Well they are not in Government, so we do not know what their level will be, but your level will be 23.9 per cent. Why lock yourself in?

MATHIAS CORMANN: We think it is very important to have the tax burden set at a level that keeps the economy strong and keeps employment growth strong…interrupted

FRAN KELLY: Yeah but also what keeps the economy strong is getting into surplus and paying down debt. If you impose a hard cap, a lot of people say it will limit your choices in the future. Why not collect say, 24.3 per cent in tax revenue, which is what it was during the mining boom and use that money to pay down debt, deliver higher surpluses or spend on better infrastructure, better universities? 

MATHIAS CORMANN: It is very important that we keep disciplined both in terms of what the spending growth trajectory is into the future as well as what the tax trajectory is into the future. That is because we want to ensure that the economy can continue to grow more strongly. We want to ensure that more jobs can continue to be created and we want to make sure that the Budget returns back to surplus as soon as possible. We have projected for some time now…interrupted

FRAN KELLY: Well it would get to surplus more quickly if you did not give out a five dollar a week tax cut wouldn’t it?

MATHIAS CORMANN: And the economy would perform less well and that would be very much against the interest in particular of low and middle income earners who would be most exposed if there was lower jobs growth into the future.

FRAN KELLY: In preparation, I announced earlier in the morning that you were coming on. I have had a lot of people write in with questions, but a number of people saying “please ask Mathias Cormann what happened to the debt and deficit disaster”. Only last year Minister, Scott Morrison said any extra tax revenue would be banked to pay down debt and deficit. What has changed your mind, a looming election?

MATHIAS CORMANN: We inherited in 2013 a weakening economy, rising unemployment and a Budget position that was rapidly deteriorating. When Chris Bowen retired as Treasurer, he left behind a situation where the Budget bottom line was deteriorating by $3 billion a week. We have been working very hard to turn that situation around. The economic growth outlook is stronger, employment growth is much stronger…interrupted

FRAN KELLY: And net debt is much higher, it is approaching $365 billion, it is much higher.

MATHIAS CORMANN: You are making assumptions Fran…interrupted

FRAN KELLY: Not, that is true.

MATHIAS CORMANN: You are making assumptions. The Budget will be delivered in less than 36 hours from now…interrupted

FRAN KELLY: It is $360 billion now or close to, it is higher than when you come to office, significantly.

MATHIAS CORMANN: It is significantly lower than it would have been if we had not changed the policy settings that we inherited from the Labor Party. Under Labor, we were on a spending growth trajectory of four per cent above inflation on average ear on year. We have more than halved that based on what we have already provided by way of public information in past Budgets and Budget updates. Our spending growth according to our last Budget and our last half-yearly Budget update is less than two per cent, 1.9 per cent. Under Labor, it was four percent above inflation. Self-evidently, spending growth being less, significantly less, the debt situation is better than it would have been under Labor, there is no question. 

FRAN KELLY: But again it raises the prospect of locking in, because the rivers of gold are flowing now, you are giving back to people with income tax cuts, those are permanent income tax cuts, the rivers of gold will not be permanent. We have seen this movie before. 

MATHIAS CORMANN: I do not think you should get carried away with talking about rivers of gold. We are managing the economy and we are managing the Budget carefully, prudently…interrupted

FRAN KELLY: Yeah but we know there is a lot of tax revenue flowing because the Treasurer has already told us that.

MATHIAS CORMANN: We provide monthly financial statements, which provide an update on Budget performance. What you can see there is that both on the spending side and on the revenue side of the Budget, we are performing better than forecast. So expenditure is lower and revenue is higher and that is a result of the good fiscal and economic management of the Government. Our spending growth, as I have indicated is significantly less than what it was when we came into Government. If you look at spending as a share of GDP, when we came into Government it was headed for 26.5 per cent within the decade and rising. We have now brought that to below 25 per cent according to the last Budget…interrupted

FRAN KELLY: But aren’t what we seeing, the fact that the tax forecasts are significantly stronger than this year than was anticipated a year ago, so the company tax receipts are very strong, income tax receipts are up. You do not want to call it rives of gold or raining revenue, but there is plenty more money around, that is why you have not had to go through with that half a per cent increase in the Medicare levy. So there is plenty of money going around. Isn’t that just proof that it was never going to be massive spending cuts that was going to get the Government back into surplus, it was always going to be revenue increases, that is what we have got.

MATHIAS CORMANN: Fran, I do not think you are listening to a single word I am saying. We have more than halved the spending growth trajectory that we inherited from Labor. Our plan for the economy and our plan for the Budget is working, that is what these numbers demonstrate. We have made the right decisions in terms of economic growth, in terms of employment growth and in terms of getting the Budget back into surplus as soon as possible, but also in a fashion that is responsible. Tomorrow night at 7:30pm, the Treasurer will provide a further update on the progress that we have made so far. But the country and the Budget and the economy are now heading in the right direction and this is not the time to go back to the discredited bad ways of the Labor Party. When Bill Shorten and Chris Bowen were last in Government, they left behind a weakening economy, rising unemployment and a rapidly deteriorating Budget position. We have been able to turn that situation around and tomorrow night’s Budget will be a further demonstration of the amount of progress that we have been able to make over the last four and half years. 

FRAN KELLY: So just before we leave this, Labor says it is not just about how much tax you raise, it is about how you raise it. Is this what is going to be the argument after post-Budget and towards the next election? It is about choices within the Budget. Labor lifting some tax take by winding back negative gearing, capital gains tax, some of those things that benefit some of the wealthier.

MATHIAS CORMANN: What we have always said is it about both. It is about how much you raise and it is about how you raise it. We have always focused on making sure that the revenue is raised in the best possible way, in the most efficient, least distorting way in the economy. In a way that is as growth friendly as possible and in a way that is fair and equitable. We have been pursing reforms over  the last few Budgets across a whole range of areas including superannuation tax arrangements and business tax arrangements. The focus has been on making sure that our revenue is raised in an efficient way, in a way that is the least distorting in the economy possible and in a way that is fair and equitable. But also with a commitment on our side of politics to keep taxes as low as possible, not to increase the overall tax burden in the economy. Because we know that when you do that, as Labor has done in the past, when you come up with taxes like the mining tax and the carbon tax and all these tax attacks on business, what you end up doing is weakening the economic growth outlook into the future. That is why Labor left behind a weakening economy, rising unemployment and a Budget position that was rapidly deteriorating, because they had already spent all the money they thought the mining tax would raise…interrupted 

FRAN KELLY: And I go back to the fact that debt under you has risen astronomically.

MATHIAS CORMANN: We inherited a forward trajectory. We inherited a forward trajectory that was terrible and we have significantly improved the trajectory that we inherited. Again, as I have said to you several times now, we have more than halved the spending growth that we inherited from Labor…interrupted

FRAN KELLY: And more than doubled the debt.

MATHIAS CORMANN: Obviously you are going to start paying down debt as soon as you get back into surplus. Given that we have improved the forward trajectory, you would be able to see how that plays out in tomorrow night’s Budget. 

FRAN KELLY: You are listening to RN Breakfast, it is 12 minutes to eight. Our guest is the Finance Minister Mathias Cormann. On another matter, the High Court will hand down its decision in the Katy Gallagher citizenship case on Wednesday. She is a Labor Senator. If it finds that Katy Gallagher was a dual citizen at the time of the last election, what is the Government’s plan? Will it insist that three other Labor MPs, who are relying on much the same legal defence, plus Rebekha Sharkie from the Nick Xenophon Team should all face by-elections or would that be the last thing you would want to do?

MATHIAS CORMANN: I am not going to comment on what the High Court may or may not decide. Let me just say as far as Susan Lamb is concerned in particular, by her own admission, she is a British citizen as well as an Australian citizen, which is in clear breach of the Constitution. So she should long have resigned her seat to face a by-election.

FRAN KELLY: But is the Government expecting that Labor will then refer all these other MPs to the High Court or will the Federal Government just move to by-elections, what will you do?

MATHIAS CORMANN: The question is going to be a question for Bill Shorten. Is he finally going to show some strength of character here. I do not know why any other Labor MPs with serious questions over their status as eligible Members of Parliament should be referred to the High Court again if the legal position is very clear. 

FRAN KELLY: Just finally, there will be a by-election in Perth, in your home state of WA because Labor’s Tim Hammond has said he is going to quit the Parliament. The Coalition has not said yet whether it will contest this by-election. Will you, is it worth the expense?

MATHIAS CORMANN: Well that is not my decision. That is a decision for the local Liberal Party organisation…interrupted

FRAN KELLY: You are the senior Liberal in WA Minister.

MATHIAS CORMANN: That may well be the case, but it is not a decision for me to make…interrupted

FRAN KELLY: Well one of them.

MATHIAS CORMANN: … It is a decision for the Liberal party organisation in Western Australia to make and I will leave it to them.

FRAN KELLY: Mathias Cormann thank you very much for joining us.

MATHIAS CORMANN: Always good to talk to you.