Senator the Hon Mathias Cormann

EMMA ALBERICI: Mathias Cormann welcome.

MATHIAS CORMANN: Good to be here.

EMMA ALBERICI: The Budget numbers show the Treasurer saying we are seeing surplus of $2.2 billion in 2019-20. That is correct?

MATHIAS CORMANN: Yes.

EMMA ALBERICI: Yes. You could not have achieved that surplus without the one-off three and half billion dollars of cigarette taxes?

MATHIAS CORMANN: Well, we are working to a plan. We are working to a plan for stronger growth, more jobs, to ensure the essential services Australians rely on can be guaranteed within the Budget. We are working the ensure Government lives within its means. Over the four year forward estimates period, you see that the deficit this year is the lowest deficit since the Howard Government. It is the best Budget bottom line since the Howard Government was defeated in 2007…interrupted

EMMA ALBERICI: Let me just draw you back to the question. We will get there. I want you to answer my question. Economist Richard Holden writing in The Conversation tonight says the whole surplus is contingent on that one-off $3.2 billion that you collect just in that year from taxing cigarettes differently.

MATHIAS CORMANN: It is not true, that the whole surplus is contingent on that. There are a whole range of things…interrupted

EMMA ALBERICI:But it only comes in that one year though right?

MATHIAS CORMANN: There are a whole range of different components that make up the revenue…interrupted

EMMA ALBERICI: It is a one-off?

MATHIAS CORMANN: If you look at what has happened, we have been able to control expenditure growth, down to 1.6 per cent year on year on average, the lowest in the last 50 years. The lowest in the whole period that records are presented in the Budget…interrupted

EMMA ALBERICI: But your spending as a proportion of GDP is still fairly high by recent standards?

MATHIAS CORMANN: You are entirely wrong. Spending…interrupted

EMMA ALBERICI: 25.4.

MATHIAS CORMANN: Let me tell you what is happening to spending as share of GDP. Spending as a share of GDP is expected to go down to 24.7 per cent below the historical average in Australia, below the 30 year average in Australia. Our spending growth, our spending growth is the lowest in more than 50 years, lower than the Howard Government, lower certainly than the Labor Governments. We inherited spending growth of about four per cent above inflation year on year…interrupted

EMMA ALBERICI: Spending growth in the last year of the Labor Government was 25.1 per cent of GDP…interrupted

MATHIAS CORMANN: No, you are talking about spending as a share of GDP…interrupted

EMMA ALBERICI: That is right.

MATHIAS CORMANN: …You are mixing up your concepts. What I have just…interrupted

EMMA ALBERICI: You are talking about growth, I am saying as a proportion of GDP it was 25.1 per cent. Yours is 25.4 per cent. We are straying from the central point which is that that…interrupted

MATHIAS CORMANN: No, we have had this argument before. You make the big mistake that you believe the big lie in Labor's last Budget, which is that they imposed an assumption on their spending growth over the medium term…interrupted

EMMA ALBERICI: It is in the Budget papers.

MATHIAS CORMANN: In the pre-election outlook, the Secretaries of Treasury and Finance seriously criticised the then outgoing Labor Government…interrupted

EMMA ALBERICI: No, it is in your Budget papers today.

MATHIAS CORMANN: Let us go back, let us go back to what we have just talked about. Labor left behind four per cent spending growth per year on average over their forward estimates and locked it in over the long term in legislation…interrupted

EMMA ALBERICI: You are locking in $140 billion of tax cuts over ten years. You are locking in 140 billion worth of tax cuts over ten years. Let us talk about the here and now.

MATHIAS CORMANN: $140 billion worth of tax cuts that is leaving hardworking Australians more of their own money. That is providing incentives…interrupted

EMMA ALBERICI: It is taking it out of the Budget…interrupted

MATHIAS CORMANN: It is not the government's money…interrupted

EMMA ALBERICI: I want to go back to the central point of your surplus…interrupted

MATHIAS CORMANN: It is not the government's money. It is not money that we are spending

Are you suggesting that a tax cut is expenditure?

EMMA ALBERICI: I am saying that it is a structural matter for the Budget.

MATHIAS CORMANN: It is not expenditure. We are leaving Australians with more of their own money…interrupted

EMMA ALBERICI: In 2019-20, just answer me this question. In 2019-20, you, in this Budget, get a one-off benefit of $3.5 billion from a different type of cigarette taxing.

MATHIAS CORMANN: It is not a different type of cigarette taxing…interrupted

EMMA ALBERICI: It brings it forward 12 weeks.

MATHIAS CORMANN: It is not a different type of cigarette taxing. We are pursuing integrity measures in the tax system across a whole range of areas…interrupted

EMMA ALBERICI: And it is a coincidence that it comes in the very year that you record a surplus.

MATHIAS CORMANN: Hang on, our Budget bottom line is on an improving trajectory, whatever way you look at it. We have been projecting a surplus by 2020-21 for six Budget updates now. We are now getting into balance in 2019-20, the numbers are there for all to see…interrupted

EMMA ALBERICI: Thanks to this cigarette taxing…interrupted

MATHIAS CORMANN: Thanks to stronger growth, thanks to spending constraints, thanks to fiscal discipline and a whole range of other measures in the Budget, that is right. The totality of decisions the Government has made has contributed to us getting back into surplus by 2019-20.

EMMA ALBERICI: Over the four year estimates, you are cutting just $404 million from spending but you are actually collecting $40 billion more in revenues thanks to improvements in the economy and so on.

MATHIAS CORMANN: Again, you are mixing up concepts. This year, in 2017-18, we are spending seven billion dollars less, seven billion dollars less just this financial year than was projected in the 2014-15 Budget. What you are referring to, the $404 million number is the effect of policy decisions. Where we have made decisions to invest more money in higher priority areas, we have more than paid for that by spending reductions in other parts of the Budget. What that number shows is that our policy decisions on the spending side of the Budget have not worsened the Budget bottom line, it has slightly improved it.

EMMA ALBERICI: By 404 million over four years?

MATHIAS CORMANN: That is as a result of policy decisions, that is right. The Budget is projected to get back to surplus by 2019-20 and to remain in surplus over the whole medium term and to return to a surplus of one per cent as a share of GDP by 2026-27.

EMMA ALBERICI: How do you get wages improving to three and half per cent in 2020-21 when you do not reach full employment until the year after that?

MATHIAS CORMANN: By implementing our plan for a stronger economy and more jobs. Last year, the economy created 415,000 new jobs, three and half per cent employment growth. It was a significant achievement in the Australian economy. The more jobs are created, the more wages growth will be driven moving forward. As competition for workers increases in the economy, wages will go up by more. Wages growth has already started to pick up, we want it to pick up by more, which is why we want to see our business tax cuts implemented in full.

EMMA ALBERICI: Of course because 58 per cent of GDP is down to consumption by consumers, you want to drive that more than anything else presumably and of course wages growth is integral to that. But the Reserve Bank…interrupted

MATHIAS CORMANN: Personal income tax cuts will certainly help support domestic consumption. Business tax cuts will help drive additional investment, help drive business growth, which means that business will hire more Australians and as there is more competition for more workers, they will have to pay them better wages.

EMMA ALBERICI: The Reserve Bank does not see wages rising significantly as you do until we reach five per cent unemployment. Yet you see this happening the year before we reach five per cent unemployment?

MATHIAS CORMANN: Our economic growth forecast and our economic forecasts generally are broadly in line with those of the RBA and those of the IMF for that matter. In some instances they are slightly more conservative. Our forecasts that is. 

EMMA ALBERICI: In the US they have had now two years of unemployment with a four in front of the figure and yet they are still only just now seeing an improvement in wages growth.

MATHIAS CORMANN: You are right. We need to create more jobs to help drive stronger wages growth. When we came into Government and when Chris Bowen and Bill Shorten lost Government, the economy was weakening, unemployment was rising and the Budget position was rapidly deteriorating. Today we have stronger growth, stronger employment growth and a Budget that is returning to surplus and projected to remain in surplus over the whole medium-term period. Whatever way you look at it, we are now in a stronger economic position and we are in a stronger Budget position.

EMMA ALBERICI: The Government is lowering its spend on research and development by two billion dollars, you also in the midyear economic statement took $2.2 billion from the higher education sector. How are those two things consistent with an innovation agenda?

MATHIAS CORMANN: We are also investing significantly in an innovation agenda. So you are focusing on the areas where we have identified opportunities to reprioritise the level of Government support by making sure it is better targeted and fiscally sustainable. But there are a whole range of areas, in particular in the science and innovation space, where we have made additional investments.

EMMA ALBERICI: You talked in the Budget today of $2.4 billion for public technology infrastructure. How much of that is additional money and how much was already known?

MATHIAS CORMANN: Well, that is a very significant investment and it is funded, you cannot tell me on one side that we should be saving more than $404 million out of the expenditure decisions and then say we cannot reprioritise…interrupted

EMMA ALBERICI: I am talking specifically about your innovation agenda because you recently received a report from your own policy adviser Bill Ferris, he is your chief innovation adviser through the National Science and Innovation Agency. He said that we need a higher spend in this country on research and development through business and through Government. Instead, you have taken two billion dollars out.

MATHIAS CORMANN: We have made decisions on what is affordable and when you say we have taken money out, we have reinvested substantially in the science and innovation agenda. We have also made decisions to better target the research and development tax incentives. We have made decisions to ensure that there are appropriate integrity measures to avoid abuse of the system and we have made sure that we actually secure additional research investment through our tax incentives. If we just provide tax incentives just for business to continue to do the research that they would do anyway, well then there is no benefit for the taxpayer or the economy out of that.

EMMA ALBERICI: Bill Ferris agrees with you, in fact he says the export market development grant is another key driver of innovation spending, but the Export Council of Australia tonight says the export market development grant is underfunded?

MATHIAS CORMANN: We are providing as much funding as the Budget can afford. We have always got to make choices. We have always got to make decisions. We are committed to make decisions to ensure the economy can be stronger, that more jobs can be created, but that we also as a Government can live within our means and in the end we have got to make decisions on what is affordable.

EMMA ALBERICI: Mathias Cormann, thank you very much.

MATHIAS CORMANN: Always good to talk to you.