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Budget 2014: Transcript of interview with Justin Smith: 2UE, Drive:14 May 2014: Budget 2014-15

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DATE: 14/05/14

TITLE: 2UE - Drive with Justin Smith

TOPIC: Budget 2014-15

JUSTIN SMITH: It is the day after the Budget and he has had a long day but we certainly appreciate him giving us some time, Mathias Cormann is on the line, the Finance Minister. Minister, thank you very much.

MATHIAS CORMANN: Good evening.

JUSTIN SMITH: You have heard a lot of reaction today. You have heard from a lot of people, you have heard from a lot of commentators and read a lot of columns I would imagine. Do we all get it? Does Australia get this Budget?

MATHIAS CORMANN: We are obviously expecting that over the next few days and weeks and months we will have to explain, continue to explain the decisions that we have made and the reasons for those decisions. We are very conscious of the fact that we have had a lot of time over the last seven to eight months to assess all of the information about where we are, all of the information about where we would be heading as a country if we didn't take corrective action and the various options that were in front of us. So we appreciate that we have a responsibility now to properly explain why it is what we proposed in the Budget last night.

JUSTIN SMITH: We understand the tough decisions and we also appreciate the responsibility that you have taken on here, but do you imagine that people are feeling a little duped and a little ripped off that these things had not been spelled out to them before the last election?

MATHIAS CORMANN: What we did last night was deliver a very honest, a very fair Budget and we believe a Budget that kept faith with the commitments that we took to the last election. Now we understand, we are asking everyone across Australia to contribute and to help us rebuild and build a stronger economy and get the Budget back on track. So we are now engaging in that conversation.

JUSTIN SMITH: So what you said you have been told that you delivered a fair and honest Budget last night?

MATHIAS CORMANN: Well that is our proposition...interrupted

JUSTIN SMITH: I was going to say, who told you that and can I speak to them, because not one person that I have talked to today suggests even remotely that last night you delivered a fair and probably more importantly honest Budget.

MATHIAS CORMANN: Well if I can just talk about the honesty. What we have done very clearly is laid out what we think is required in order to put our Budget back on track, in order to strengthen our economy and strengthen our country moving forward. A number of those initiatives, a number of those structural savings and structural reforms will take place only after the next election, which means that people across Australia will have the opportunity to pass judgment on what we are putting forward before any of these measures take effect. We do think that is a very honest way to go about

things and it just shows how much we have bent over backwards to be consistent with our election commitments.

JUSTIN SMITH: That's not true, what you just said is not correct, about bending over backwards for election commitments, but let's move on.

MATHIAS CORMANN: Well that is my proposition and you are quite entitled to disagree with it.

JUSTIN SMITH: Okay. Let's stick to that proposition then. You wanted to win Government, you wanted to get into power so that you then could then get the ball rolling to win elections into the future. Did you deliberately keep certain plans that you were going to keep in place from the Australian people before, until after the election?

MATHIAS CORMANN: No we did not. What we did in the lead up to the last election was explain very clearly that in our judgment Australia was on a bad trajectory. We pointed out very clearly that the Budget, the spending in the Budget, the spending growth trajectory in the Budget was unsustainable. We took about $42 billion worth of savings to the last election and we also said that we would have a Commission of Audit to look at spending right across Government, to come up with recommendations on how spending can be made to be more efficient and how it can be better targeted. And that is what we did after the election and in this Budget we are now implementing a number of the recommendations that the Commission of Audit made to Government earlier this year.

JUSTIN SMITH: Is there any new piece of information that you received after the election that made you implement these? The decisions that you have made last night. Was there any new pieces of information, any surprises that came your way?

MATHIAS CORMANN: There were a number of new pieces of information.

JUSTIN SMITH: What were they?

MATHIAS CORMANN: The Budget, the last Labor Budget in May last year predicted an $18 billion deficit in this financial year and that became $30 billion at the time of the election and by the time of the Mid-Year Economic and Fiscal Outlook, that was a $47 billion deficit. The position that we inherited was continuously deteriorating because the previous Government didn't put honest information in their Budget. They overestimated revenue, underestimated expenditure, but more importantly the spending growth trajectory and that is also something we found out after the last election, if we had not taken corrective action, the spending growth trajectory that Labor had put in place beyond the last Budget would have taken us to Government spending of 26.5 per cent as a share of GDP. To put that into context that compares to 23.1 per cent of spending as a share of GDP in the last year of the Howard Government. Now these are the sorts of issues that we were only properly confronted with once we came into Government.

JUSTIN SMITH: Okay if that is the case, then it would have been the same case with the Labor Party had they came into Government.

MATHIAS CORMANN: Well that is exactly right. It would have been the same case and sadly we will never know what they would have done after the election because if you look at previous elections, I hate to tell you, but they invariably said one thing before the election and did the exact opposite after the election. What we are doing is doing exactly what we said before the election…interrupted

JUSTIN SMITH: That's not true. It's not true. I don't know how you can say that Minister. I don't know how you can say on the phone to me right now, the day after the Budget that you're only putting in place things that you talked about before the last election. It is just simply not true.

MATHIAS CORMANN: What I am putting to you, is that before the last election…interrupted

JUSTIN SMITH: No new taxes, won't touch Medicare…interrupted

MATHIAS CORMANN: …we said we promised to fix the Budget and we are fixing it. Now in relation to health…interrupted

JUSTIN SMITH: No. No. No. No. No. No. No. Minister No. Sorry I am going to pick you up on that. That is simply not true. You can't say a sweeping statement like, we promised to fix the Budget, you also said there would be no new taxes and you said you wouldn't touch Medicare and that is just not true. I'll tell you what, how about we just admit it, why don't we just put it down on the table, admit that these things are not true and just move on. If you have got the right plan for the future it will sort itself out. But why don't we admit that it's not true.

MATHIAS CORMANN: Well we obviously have a difference of opinion here. What I can tell you is that in relation to health, you mention Medicare, we said, we would keep the same funding envelope in place for health as was in place at the time of the election and we are. What we are doing is identifying areas where spending can be more efficient and where we can implement reforms that can set price signals so that health funding can be made to be sustainable and affordable into the future. What we have said though, is that all of the savings from that, we reinvest into the health system, in order to keep complete faith with the commitments that we made before the last election. Now in relation to taxation, taxes over the current forward estimates as a share of GDP will be lower than they would have been if Labor had stayed in Government. Now what we have done and we take full responsibility for this, in assessing the information in front of us, in assessing what would be required to put our Budget back on to a stronger, healthier trajectory and help strengthen our country, we made a decision that we needed both structural savings and structural reforms which start low and slow and build over time and we needed an immediate effort from everyone to help put the Budget back on track. So what we are doing is, we are asking people to make a contribution. We are asking people to help and in order to do that fairly and equitably, in order to spread the effort fairly and equitably, we have made a decision to also ask higher income earners to contribute and the only way that you can do that is through the tax system…interrupted

JUSTIN SMITH: So it is a tax.

MATHIAS CORMANN: We are asking higher income earners to contribute through the Budget Repair Levy, which is a 2 per cent effective increase in the top marginal tax rate…interrupted

JUSTIN SMITH: Minister I'm not trying to pin you down on words here because it is more important than that, but it's nice to finally hear you say that it is through taxation and it is a tax and not a levy.

MATHIAS CORMANN: I have said this all day. I have been having interviews all day where I have made very clear, that yes we made a decision to introduce a temporary increase in the top marginal tax rate for people earning more than $180,000, not because we like it, we like lower taxes, we don't like higher taxes, but because we think that we need to ask everyone across Australia to make a special contribution to help us put our country back on track.

JUSTIN SMITH: Sure. I'm not necessarily saying it is wrong, what I am putting to you is this, it is not what you said before the last election. In fact you said it is the opposite and in some situations people would say that is a straight out lie. When you do the opposite to what you said you were going to do, it is actually just a lie. No hang on, one second. Why did you not trust the Australian people enough to say: 'hey look if we win this thing, we are in bad shape, we are not going to rule out bringing in new taxes, because we may have to bring in new taxes to get us out of the poo that we have found ourselves now in'. Now why did you not trust the Australian people enough to do that?

MATHIAS CORMANN: Well, Justin, we can go around and around in circles, but all I can say to you is that we did the absolute best we could in the lead up to the election…interrupted

JUSTIN SMITH: No you didn't, because you didn't tell us what was on your mind. How can you say that you were doing the best by the Australian people when you told us one thing and did another? Do you not see the simplicity in this argument?

MATHIAS CORMANN: I don't and we clearly have to agree to disagree.

JUSTIN SMITH: Ok, fair enough. Well look I suppose we shouldn't feel out in the cold because you didn't even tell the State Government about it let alone the voters. If that is the case, if you did not know the situation that we were in before you won the last election, the whole system is in doubt, because the Charter of Budget Honesty should have given you the same figure as the Labor Government. Now if by any chance that is, those figures were wrong, then we need to overhaul the Charter of Budget Honesty, would you agree with that?

MATHIAS CORMANN: We absolutely need to have a look at the Charter of Budget Honesty, what I would just say again, is that in 11 weeks, in 11 weeks, from the Budget in May last year, to the Economic Statement which Labor had to release before the last election, because otherwise they were going to be found out at the time of the election, the Budget position deteriorated by $33 billion, $3 billion a week just at that time. And let me tell you, that deterioration on the day after the election, it continued. And not only that, there were a whole range of issues that we found out about after the election, like for example the fact that Labor had imposed efficiency dividends that would cause 14,500 job losses in the public service but they did not provide a single dollar to fund redundancies…interrupted

JUSTIN SMITH: Well in that case should people…interrupted

MATHIAS CORMANN: They scrapped, they pulled $1.2 billion out of schools in Queensland, Western Australia and the Northern Territory and never told anyone about it. There were issues wherever we looked that we had to fix and we are still dealing with some of the legacy that Labor left behind. Now we are giving it our best.

JUSTIN SMITH: Ok. Well maybe there, people have a reason there to question your judgment. Next time the election rolls around because if you could not see that, if you could not predict that, or your predictions could not work that out, if the information that you had got from the Charter of Budget Honesty was not good enough to be able to steer you through a course to see that you may not be able to rule out an increase in taxes, maybe people have good reason to question your judgement.

MATHIAS CORMANN: Well you know what Justin, you are absolutely right. Ultimately, in two and a half years time at the time of the next election, people across Australia will be able to pass judgment on our performance. They will be able to pass judgment on whether they think we made the right decisions for the right reasons. Whether we acted in the national interest. Whether what we did was fair or whether they take a different view. That is exactly what people will be able to do. In the meantime, we will continue to do our best, we will continue to try and build a stronger more prosperous, more resilient economy and we will continue to…interrupted

JUSTIN SMITH: While you do that can you trust us a little more? Can you talk to us about what is on your mind a little more? Be a bit more upfront, would that be ok?

MATHIAS CORMANN: The reason that we are having this conversation the way we are having it incidentally, is because of the Budget that we put out yesterday. I say it again, the reason why we are having this sort of conversation, is because of how honest we were in the Budget last night. I would say again, we believe that what we put out yesterday was an honest Budget, which will help build a stronger economy which will help repair the Budget and that is what we promised.

JUSTIN SMITH: You're honest after the election. Look, don't get me wrong, Labor left it in a mess, I'm not sticking up for the Labor Party, this is not about the Labor, this is about my Government who is currently in place not telling me before the last election what was on their mind. That's what I'm ticked off about. But let's have a talk about the next election. Let me put something to you if you don't mind Senator. You projected that the budget deficit would be around $2.8 billion by 17-18, is that correct?

MATHIAS CORMANN: That's exactly...interrupted

JUSTIN SMITH: Okay, let me try this one for size if you don't mind. By that year, you also projected that unemployment would be running 5.75 per cent after four years in the six's, which you would think

is a little bit higher than what had been projected. You also stated that the real GDP growth would drop as low as 2.5 per cent in 2014-15.

MATHIAS CORMANN: That's entirely right...interrupted

JUSTIN SMITH: And will rise to 3.5 per cent by 2017-18, okay?


JUSTIN SMITH: Now try this one for size. The unemployment and growth numbers are you would consider very conservative. I know you're probably not going to be able to answer this but are you planning to reveal a budget surplus for the 2017-18 Budget instead of the deficit? Is that the plan for the next election?

MATHIAS CORMANN: Justin let me be very direct. We are committed to deliver a surplus as soon as possible. But if you're suggesting that the numbers in the Budget are conservative I disagree with you. The numbers in the Budget are realistic. The previous Government inevitably overestimated revenue, underestimated expenditure and their Budgets within days, literally, were out of date and their Budget position was worse than what was predicted at Budget time within days and weeks. Now what we have set out to do is to provide an honest set of numbers and incidentally the predictions that we made in the Mid-Year Economic and Fiscal Outlook updating the Budget forecasts that Labor made, have turned out to be very close to the mark. You're never going to get 100 per cent accuracy...interrupted


MATHIAS CORMANN: We believe that the estimates that we've put forward are credible, will stand the test of time and that it is very important to plan on the basis of realistic figures, rather than on wishful thinking.

JUSTIN SMITH: Well my scenario that I'm putting to you here is that you are actually planning it for the next election so in the 2016 campaign, you'll stand up and you'll say: 'you know what, we did a little better than we thought, come the next Budget, we are going to be in surplus'. That is your plan for 2016?

MATHIAS CORMANN: Well Justin our plan is to build a stronger economy. Our plan is to do better. Our plan is to be realistic in our plans and to outperform, for sure. But I would have thought that that is a sensible thing to do. Be realistic in your expectations, be realistic in your assumptions and then try your hardest to outperform your realistic expectations. That is absolutely what we're trying to do and that is what we will try to do with the support of the Australian people.

JUSTIN SMITH: It's been a long day for you, I appreciate your time. One last thing, if you don't mind - when do you expect to cure cancer?

MATHIAS CORMANN: With all due respect, obviously we all would like to find a cure to cancer sooner rather than later, but I'm not going to be able to put a timeline on this on your show tonight, I'm really sorry.

JUSTIN SMITH: Well it seemed to be talked up quite a bit in the speech last night by Joe Hockey. Was that added in as a particular sweetener because if you don't mind me suggesting, I think it's unbelievably cruel that you'd dangle something like cure for cancer when you have other bad news to deliver? I think it was used as a political tool last night.

MATHIAS CORMANN: Well Justin, I completely reject that. I'm very disappointed about the cynicism here. What we are doing here in all seriousness and very genuinely is try to make a very significant investment in significantly increased medical research. We do have an incredibly good record here in Australia when it comes to high quality medical research achieving significant improvements in the

healthcare and medical services which have made a difference around the world. What we are saying is by putting all of the savings out of the health portfolio into a medical research future fund, up to $20 billion, by investing the earnings from that fund into medical research, we would be able to double the current funding for medical research in Australia and with the ingenuity and the absolute outstanding efforts of scientists around Australia, we might be able to make significant breakthroughs when it comes to treatments and cures for some of those diseases. That is not trying to be political...interrupted

JUSTIN SMITH: The more money you can put into those things the better, I totally agree with you, but I just felt that it was outrageous to suggest things like cures for heart disease, dementia and cancer and dangle that in front of people last night.

MATHIAS CORMANN: Well I mean, what do you want us to do? Do you want us to make that investment and not explain what it is for?

JUSTIN SMITH: I think people are able to work out what it's for. Thank you very much for the talk, I know it's been a long day.

MATHIAS CORMANN: Thank you Justin.