Senator the Hon Mathias Cormann

MICHELLE GRATTAN: Mathias Cormann what are the main reasons for the downgrades in the Budget update which include, incidentally, the revenue outlook as well?

MATHIAS CORMANN: The downgrade in revenue is the only reason why there is a downgrade in the Budget bottom line outlook. We have to keep this in perspective though. Our Budget is still on track to return to surplus this financial year and to remain in surplus all the way over the forward estimates, indeed, for surpluses to build to more than one per cent of the share of GDP over the medium term. This is in the context of the Australian economy continuing to grow, employment growth remaining strong, wages continuing to grow faster than inflation. In fact real growth in wages is stronger than it was when Labor lost government back in 2013. Growth in disposable income is the highest it has been in more than 10 years. On the revenue front, more than $30 billion worth of revenue downgrades, which are only partly offset by a reduction in payments of about $11.5 billion since the pre-election economic and fiscal outlook.

MICHELLE GRATTAN: We’re talking about the forward estimates here in those figures of course. You mentioned wages. Expected wages growth is back for the current financial year to an estimated 2.5 per cent, lower than the Budget forecast. How long can workers expect to have to wait with flat wages before they can get some real uplift?

MATHIAS CORMANN: Wages are not flat. Wages are growing faster than inflation. Real growth in wages is running at about 0.6 per cent.

MICHELLE GRATTAN: Only a little faster.

MATHIAS CORMANN: Which is actually in line with the long-term average and which is higher than the real wages growth was in Labor’s last year in Government. This is one big dishonest furphy from the Labor Party, which they continue to spread when the truth is that wages continue to grow faster than inflation, real growth in wages is stronger than it was when Labor lost government and growth in disposable income is the strongest it has been in more than a decade. Yes economic conditions have softened on the back of, in particular, global economic headwinds. Everybody knows about the impact of global trade tensions between the US and China in particular. People know about the impact on the Australian economy of a continuing drought. These are all things that we have had to deal with that are beyond our direct control. But all things considered, Australia continues to perform comparatively well. Where other economies around the world are shrinking, our economy continues to grow. Employment growth in Australia is more than twice the OECD average. It is nearly three times as high as it was when Labor lost government and the unemployment rate is lower than what it would have been if we hadn’t pursued the reforms that we have been pursuing.

MICHELLE GRATTAN: However we define it, is this level of wages growth the new reality, what people will have to get used to?

MATHIAS CORMANN: No. We obviously would like to see wages grow more strongly, which is why we are implementing our plan to build a stronger economy into the future. We have delivered more than $300 billion worth of income tax relief. We are pursuing an ambitious infrastructure investment program. The cuts in the official cash rate also help to drive stronger growth into the future. We continue to pursue an ambitious free trade agenda with the most recent free trade agreement with Indonesia legislated through the Parliament a few weeks ago. Looking forward, with Brexit now resolved as a result of the UK election we are very confident that we will be able to finalise a trade agreement with the United Kingdom in record time. We continue to pursue a trade agreement with the European Union. All of these trade agreements are designed to help give our exporting businesses better access to those markets to help them sell more Australian products and services into those markets.

MICHELLE GRATTAN: The projected surplus is now back to $5 billion for this financial year.

MATHIAS CORMANN: Instead of $7.1 billion.

MICHELLE GRATTAN: Is there any possibility that this could disappear even before it materialises?

MATHIAS CORMANN: The forecasts and projections are based on the best available information today. It is based on our assessment of the economic data and the impact of policy decisions that we have made since the election. So this is our best possible estimate at this point in time. If you look at our performance against Budget for the last three financial years, every Final Budget Outcome was materially better than either the Budget forecast at Budget time or the revised forecast at MYEFO time. We will continue to work to outperform on the upside because we do base our forecasts on prudent, conservative assumptions.

MICHELLE GRATTAN: And you’re confident that you will deliver a surplus come May?

MATHIAS CORMANN: Based on all of the information in front of us today we are confident that we will deliver a surplus in 2019-20 and that the Budget will remain in surplus moving forward. But obviously we will continue to monitor the global economic trends. If you look at what has been happening in recent times, there have been some encouraging developments in terms of the US-China relationship on the trade front. We would like to think that that will continue. Brexit, as I have indicated, there is now a level of certainty around how that will proceed moving forward. Some of the things that have weighed on global growth over the past year or throughout 2019 will ease and the global environment, we would like to think, will become somewhat more benign in 2020. That should also help.

MICHELLE GRATTAN: But given your downgrades across the forward estimates for surpluses, you don’t have much margin of error here do you?

MATHIAS CORMANN: Again all I can do is say that these are estimates. The only time we will be able to have a conclusive conversation about this is when we deliver our final Budget outcome for 2019-20. Up until that time they are just predictions. What I would say, again, if you look at our track record, the Final Budget Outcome for the last three financial years, we have materially outperformed the forecasts both at Budget time and at MYEFO time in our final Budget outcomes.

MICHELLE GRATTAN: Can people be confident that if things got worse, the Government would react appropriately with some stimulus measures? In other words, it wouldn’t be obsessed about keeping a surplus.

MATHIAS CORMANN: I completely reject the premise of the question. Firstly, there seems to be this view across our political opponents and some commentators that the best thing that our economy needs is for the Government to press the panic button. We will not do that. We will not go for Rudd-style cash splashes. What we will do is what we have done for the last six years and that is to carefully consider the information, the data in front of us and make carefully considered judgements about the best way forward… interrupted

MICHELLE GRATTAN: But if necessary if would be willing to act, if necessary?

MATHIAS CORMANN: We are not in that situation at all. It is quite unbelievable that in Australia where growth in the first three quarters of 2019 is stronger than it has been in the second half of 2018 that we would be having this sort of conversation. The proposition seems to be that having won the election on an agenda of lower taxes and carefully considered economic and fiscal management and with Labor having lost the election, somehow now we should go for Labor-style cash splashes and ill-considered stimulus payments that actually wouldn’t help the economy.

MICHELLE GRATTAN: I think people are just saying we live in an uncertain world.

MATHIAS CORMANN: The Australian economy continues to perform comparatively well. Our economy continues to grow. Employment growth is more than twice the rate as it is across the OECD and indeed it is nearly three times as high as it was when Labor lost government. We have economies like the UK, Germany, South Korea and Singapore which have had negative quarters of growth, which are shrinking. Our economy continues to grow, but for some reason we have this hyperventilating Opposition which seems to think having advocated for higher taxes in the lead up to the last election and some other crazy policies, they now believe we should be adopting their agenda even though the Australian people comprehensively rejected it at the election.

MICHELLE GRATTAN: Even the Reserve Bank though at times seems rather uncertain.

MATHIAS CORMANN: I think that is journalists and politicians on the other side of politics verballing the Reserve Bank.

MICHELLE GRATTAN: Just to finish up, what’s your message to people at Christmas? Should they have the confidence to spend or should they be cautious with their money?

MATHIAS CORMANN: We trust that individual Australians are best placed to make judgements that suit their personal needs and aspirations. We will never as a Government tell people what they should do with their money. We trust that they are in the best position to make these judgements. Whether people decide to save or spend, people saving their additional disposable income or using it to pay off their mortgage actually does help them improve their own financial position and their future opportunities as well. We will trust people to make their own judgements in relation to this.

MICHELLE GRATTAN: Mathias Cormann, thank you for talking with us today. Have a happy Christmas, a bit of a break over the New Year and no doubt we we’ll be talking again next year.

MATHIAS CORMANN: Merry Christmas to you and yes, looking forward to it.