TRANSCRIPT

of

THE HON PETER COSTELLO MP

FEDERAL MEMBER FOR HIGGINS

Click here to see the video of this interview

Interview with Karen Tso – Squawk Australia, CNBC

Wednesday, 13 May 2009, 8.40 am

E & OE

SUBJECTS:  Budget

KAREN TSO:

Mr Costello you have had your Budgets dissected, praised and attacked in the past and in fact more recently.  Give us your report card on the Government’s Budget.

MR COSTELLO:

I think it is a very confused document actually.  On the one hand the Government is trying to say we are in the midst of this enormous financial and economic downturn but they predict a very moderate recession and a very strong recovery.  On the one hand they wanted to tell us that they were going to be cutting back on expenditures to try and get the Budget back into balance and yet the theme of the Budget was more fiscal stimulation.  This is a bipolar Budget – different messages at the same time.  And because of that I think it doesn’t hit the mark.  The one thing I think we can say about this Budget is whatever the forecasts are, the reality is not going to be as predicted, and the important thing I think is to look at what’s being done in the early years because there’s no promise at all that any of these projections over four, five or six years will be remotely like what happens.

KAREN TSO:

If we talk about one of the key forecasts a contraction in growth of ½ per cent over the next year.  Why can’t we achieve that target?

MR COSTELLO:

Well I think Australia is better placed than nearly any other economy around the world going into this international downturn, after all we had no net federal debt, we had a Budget which was strongly in surplus, we had historically low unemployment.  So we were better placed than practically any other country around the world.  Where this Budget falls down of course is if it is only going to be a mild contraction ½ per cent why have we got the greatest Budget deficit in Australian history?  Why have we got such a rapid accumulation of federal debt?  Now it’s either going to be a mild contraction and our fiscal position should be much, much stronger or the fiscal position is telling you that the contraction is going to be much, much greater.  But it’s I think a Budget of spin.  What they have tried to do is they have tried to spin the forecast to try and fit the story rather than fit actuality.

KAREN TSO:

If we break down some of those numbers a deficit forecast for the next year of $58 billion.  What numbers should the Government have produced?

MR COSTELLO:

A lot less than that.  In May of last year, here is an indication of how to assess this Budget, in May of last year the Government said in this financial year there would be a $20 billion surplus which it turned to a $30 billion deficit.  In May of this year it is saying for the forthcoming year there will be a $58 billion deficit.  What will the outcome be?  Because judged on the experience of the last 12 months it could be a lot different to a $58 billion deficit.

KAREN TSO:

Let’s address some of the attacks by the Treasurer contained in the Budget papers and the Budget speech that you embarked on reckless spending on the back of the mining boom.  Now you are revered by financial markets for your economic management, but in hindsight should you have saved more of a surplus?

MR COSTELLO:

Well this of course is the Labor Party’s – sometimes it’s its line – it varies from day to day.  One of the lines at the moment is I should have run up bigger surpluses for them to spend.  Okay I ran up a $20 billion surplus and I retired all federal debt.  On Monday they said it wasn’t enough I should have left them more to spend.  I don’t think that actually.  Having paid off all federal debt, having left a $20 billion surplus, having established a Future Fund, a sovereign wealth fund with $61 billion, having put Australia stronger than any other country in the world it’s hard to say I should have done more.  And in fact if I had run up bigger surpluses they would have wasted them anyway.  I think the point here as I look back on it is perhaps as I have said earlier we should have cut taxes more aggressively.  But Australians can forget about tax cuts probably for 20 years now I would say.  We will be paying off this Federal debt for 20 years.

KAREN TSO:

Net debt will run up to 13.8 per cent of GDP in 2013-2014.  You have gone through the process of repaying $100 billion.  What are the challenges the Government will face?

MR COSTELLO:

Well what the Government is saying now is that they will build up $188 billion of net debt.  But if you actually look at the debt statement, the gross debt will be greater than that because there are certain off balance sheet transactions and financial markets ought to know that the Government will exceed its borrowing limits.  This is a big point if you look at this Budget.  It will have to get Parliamentary approval to exceed the borrowing limits.

KAREN TSO:

By how much and why?

MR COSTELLO:

Why? Because in addition to the money that is required to fund all of these deficits the Government is also raising money for all sorts of other projects such as fibre, such as the so-called business bank, so there is more borrowing in here than just the $188 billion of net debt.  Now let’s come to that point – it took us 10 years of surpluses to pay off $100 billion of debt.  How many years of surpluses will it take to pay off $188 billion of debt.  If you look through these papers the furthest projection I could find was 2020 and they are still saying the debt will be around in 2020.  And if you actually take into account that the growth forecasts are extraordinarily optimistic six years of 4.5 per cent growth and that still leaves debt in 2020, I think we can safely say that debt will still be there in 2030 or beyond.

KAREN TSO:

The Treasurer does raise the point that net borrowings will still be a lot lower than other advanced countries.  Does he raise a valid argument?

MR COSTELLO:

Well of course we had a much stronger position than other countries.  When the United States had a debt to GDP ratio of about 50 per cent we were zero.  We had no debt.  In fact we actually had an asset position.  So we were miles stronger than the United States, the United Kingdom, Japan, Britain.  What made Australia different is that we had no debt.  Now we are no longer different, we are following other countries into debt.  The Government is lucky it started from such a strong position because it has been on a big downward slope.  But the fact that the position is still better than the United States or Britain or Europe has got nothing to do with this Government’s management.  It is all to do with the starting point.

KAREN TSO:

The former Treasurer Peter Costello there in his only post Budget television interview.  And just to sum up he is talking about the Budget saying it is a confused document, it is a bipolar document and he saying that in raising the key question if there is only a mild contraction of ½ per cent why is the Government running the biggest deficit in Australian history.  Mandy back to you.