Senator the Hon Mathias Cormann

GREG JENNETT: …Finance Minster Mathias Cormann joining us in the studio. I’ll lead off with the first one before handing over to Probs.

This buffer that is your surpluses, they are shrinking by $21.6 billion as we have just recapped. You have to rely on your estimates being conservative. You tell us they are, but the margin for error is less now than it has been in any point in your quest for this surplus, isn’t it?

MATHIAS CORMANN: Look at our track record. If you look at the final budget outcomes for the last three financial years, you will find that they have invariably been better than what was anticipated at the half-yearly budget update time and, indeed, we have very carefully assessed all of the economic data, all of the information and made decisions in the context of a more challenging global economic environment and, indeed, a more challenging domestic environment with droughts and bush fires. If you look at more than $30 billion worth of revenue write downs, significant additional investment in infrastructure, in aged care, to support drought affected communities and continued high investment in a whole range of services Australians rely on, we remain in surplus. We remain on track to get the surplus this year and to remain in surplus and for surpluses to build to more than one per cent as a share of GDP over the medium term.

ANDREW PROBYN: You say look at your record, but it seems that you are suggesting all these figures are wobbly and that the mid-game report, which is effectively what MYEFO is, is wobbly because what, iron ore?

MATHIAS CORMANN: No, estimates are estimates. What we are comparing the half-yearly budget update against is the pre-election economic and fiscal outlook, which of course was independently released by the secretaries of Treasury and Finance. There is a range of things that have happened in the economy and that have happened in our country since the Budget. The drought continues to impact large parts of Australia and our response to that has necessarily continued to evolve. We have made a series of other decisions since Budget and that is all reflected in our Budget update today. When you have successive downgrades in the global economic growth outlook, by the IMF and others, that has flow on consequences for Australia as well.

ANDREW PROBYN: There seems to be two key cohorts of losers. One is wage earners again, your wage forecasts aren’t great. The second are the States with a downgrade of GST. Let’s look at the wage earners first.

MATHIAS CORMANN: I completely reject the proposition that they are losers. Wages continue to grow faster than inflation. Real wages continue to grow more strongly than they did when Labor lost government and disposable income, which is people’s money in their pocket, has grown at the fastest rate in more than a decade in this most recent quarter – 2.5 per cent in the September quarter and more than five percent over the last calendar year, over the last 12 months. Of course we would like to see wages grow more strongly into the future and the only way to achieve that is by continuing to build a stronger, more productive economy.

ANDREW PROBYN: Let’s look at the States then. The States are going to have to cope, according to MYEFO, they are going to have to cope with $10 billion less. This is a major hit to some of these State economies, do you believe?

MATHIAS CORMANN: This is $10 billion over the forward estimates, so over four years, and this doesn’t come as a surprise to the States. This is already reflected in the State’s own forecasting, so we have had access to relevant data for some time and this has been shared with the States. Compared to what the States were expecting, this is only a very a minor variation.

ANDREW PROBYN: On the receipts, take us through why you are something like $33 billion down?

MATHIAS CORMANN: It is across a range of factors. GST is a big chunk, that is about $9.9 billion, and you have also got lower revenue across superannuation and also company tax receipts are expected to be down. When you have volatility in your terms of trade, that has an impact on the profitability of companies and personal income taxes are actually slightly up this financial year, but we expect them to lower over the forward estimates period on the back of our revised forecasting assumptions.

ANDREW PROBYN: Let’s go to this pointy question about this NAIRU, we were discussing it before. NAIRU, the point at which you expect inflation to be, to be…

MATHIAS CORMANN: The non-accelerating inflation rate of unemployment.

ANDREW PROBYN: Thank you. Good on you. Just explain to us why is it that the Reserve Bank should say that 4.5 per cent unemployment is the key figure and yet Treasury should stick with 5 per cent?

MATHIAS CORMANN: We are making forecasts and projections and our forecasts and our projections are as published in the Budget update. What I should say here is that when we came into Government the unemployment rate was at 5.7 per cent and headed for 6.25 per cent and beyond. The Shadow Treasurer at the time said that our success would be measured on whether we would be able to keep the unemployment rate below 6.25 per cent. It is down to 5.3 per cent and our projection is 5 per cent in the two out-years. If you look at our track record over the last three final Budget outcomes, our employment growth outcome has been substantially above the employment growth forecast in each one of those three Budgets and will be working to try and better our forecasting assumptions.

ANDREW PROBYN: You are still three quarters of a percentage point, according to your forecast, away from what the Reserve Bank says you’ll need to spur inflation and thus, wage growth.

MATHIAS CORMANN: We are working as hard as we can to build the strongest possible economy and to ensure that Australians today and into the future have the best possible opportunity to get ahead and employment growth is a very important part of that. Employment growth is well above our long term trend. It is well above the OECD average and in fact at two per cent of the most recent 12 month period it is significantly higher than the 0.7 per cent that we inherited from the Labor Party. The key to bringing down the unemployment rate is to have employment growth running stronger than population growth and that is what we are achieving.

ANDREW PROBYN: When you next come back together with Josh Frydenberg in the New Year, you will start to frame a May Budget and as we have heard speculated already it is quite possible that the Reserve Bank of Australia may have by February and then arguably one more time before the Budget have cut interest rates to what would be virtually emergency lows at that point. That makes the May Budget an entirely different proposition, doesn’t it, as a Budget management tool than this today because operating in almost crisis circumstances, unprecedented circumstances anyway?

MATHIAS CORMANN: Firstly, when you talk about crisis circumstances let me remind you that the Australian economy continues to grow. We are in our 29^th year of continuous growth and our economy is growing more strongly than many developed economies around the world and, indeed, our employment growth is stronger than the OECD average. Obviously… interrupted

ANDREW PROBYN: It sounds like an argument against…

MATHIAS CORMANN: Monetary policy is entirely a matter for the Reserve Bank. We are not going to interfere with that in any way, shape or form. But what we will do as we are putting the Budget together is what we do every year. We carefully consider all of the economic data, all of the information and we will make judgements on what is desirable and what is possible in the fiscal circumstances we are in to continue to provide the best possible opportunities for Australians to get ahead.

ANDREW PROBYN: Looking towards that next Budget, the ‘big one’, tax cuts. There has been a lot of talk and suggestions and enthusiasm for the notion of bringing forward some of the tax cuts that you have already legislated. Are you actively looking at that?

MATHIAS CORMANN: We have legislated more than $300 billion worth of personal income tax relief over the last two financial years. In the last two Budgets we had more than $300 billion worth of income tax relief. We have delivered the half-yearly Budget update today. We are not going to be delivering next year’s Budget today… interrupted

ANDREW PROBYN: So you are not ruling it out?

MATHIAS CORMANN: We are delivering the half-yearly Budget today. I am not going to deliver the Budget next year. We haven’t assessed all of the relevant economic data, all of the relevant information. I am not going to rule anything in or out before we… interrupted

ANDREW PROBYN: Including the need for stimulation?

MATHIAS CORMANN: We will we continue to do what we always do… interrupted

ANDREW PROBYN: So that is active consideration?

MATHIAS CORMANN: I am not going to be verballed by you. It is obviously not going to be your job to make these judgements, but you will be able to ask questions about it after we have made those judgements.

GREG JENNETT: What is the data, to use the old cliche, that keeps you awake at night. What is the one that you would most look at before embarking on a fundamental reset of the strategy here?

MATHIAS CORMANN: In terms of the global context, there is no question, and everyone knows this, global trade tensions and uncertainties around things such as Brexit and the like have weighed on global economic growth, which has had a flow on impact on domestic growth here in Australia. Obviously now some of the developments between the US and China are very encouraging. The election result in Britain with Brexit now being able to be resolved with some certainty. All of these things are encouraging developments and we will be keen to see how all of that settles down in terms of a revised global economic growth outlook early in the year and hopefully the environment for Australia becomes somewhat more benign. But either way, we will continue to make all of the decisions to put Australia and Australians into the best possible position to take advantage of opportunities, but to be resilient in the face of head winds.

GREG JENNETT: Is there great opportunity in Brexit for Australia?

MATHIAS CORMANN: Yes. We are very keen to finalise a trade agreement with the United Kingdom as quickly as possible. The Prime Minister spoke to Boris Johnson on Saturday night and they both made it very clear that they expect a trade agreement between Australia and the United Kingdom to be finalised in record time. There is great opportunity for Australians in this. More importantly, in terms of the impact on the global economy, it is just one other serious factor that has created uncertainty in the past that will be removed and that is a good thing.

GREG JENNETT: Just finally, on the surplus. To transpose a corporate world value onto politics, we have seen that in the banking sector some accountability scandals recently that have resulted in chief executives walking the plank. Are you or Josh Frydenberg so determined to deliver the surplus that you’d stake your position on it?

MATHIAS CORMANN: The surplus is not an objective in its own end. Obviously… interrupted

ANDREW PROBYN: It appears so politically.

MATHIAS CORMANN: That is because of the hyperventilating commentary from journalists… interrupted

ANDREW PROBYN: The “Back in Black” analogy.

MATHIAS CORMANN: The reason we want to get the Budget back into surplus and keep it in surplus is to ensure that the funding for essential services Australians rely on is on a fiscally sustainable base and trajectory for the future without the need to increase taxes. If we had to increase the tax burden on the economy in order to pay for those essential services it would weaken the economy, it would increase unemployment and it would lead to lower wages over time. We are talking about how much wages are growing. If we did what Labor proposed to do at the last election we would be talking about how much wages are going down. Under Labor, the lowest wage earners, those on the minimum wage, were on the receiving end of real cuts in wages. Under our Government they are actually getting real increases in wages. We will continue to focus on making the judgements, including the judgements to ensure we live within our means, so that we can keep the economy strong, so that we can keep the opportunities for Australians strong.

GREG JENNETT: $5 billion is your buffer and we’re going to let you go at this point. Mathias Cormann, thank you. It might be the last time either of us speak to you before this year is out, so enjoy your summer break and Merry Christmas.

MATHIAS CORMANN: And happy New Year.