I am interested to hear Greg say that my political future rides on whether or not I can sell tax. It’s funny Greg, I thought my political future rode on whether or not you wrote nice editorials about me. That’s what you were saying last night anyway. Greg also said that we should break government’s addiction to spending money, and I thoroughly agree with him. I wish we could also break the public’s addiction to having money spent on them, Greg because that would certainly cope with our addictions much easier.

But can I say to you that the way in which I see this budget is very much part of a continuum. Last night in my budget speech I was describing it as a three year journey. The old way in which budgets were done in Australia, particularly brought to a height during the period of Keating, was to try and put out to the market or out to the public a false belief as to what you would accomplish, come in on budget night, pull a rabbit out of the hat and have everybody say wasn’t that an impressive performance. What that meant is that Australian budgetary policy became increasingly short-term focussed. It was all about how the Treasurer had managed expectations and whether or not he’d met them. It wasn’t about where the country was and how we were going to move it on. And when our Government became elected in March of 1996, when we faced a budget which was then $10.3 billion, ten thousand three hundred million dollars in deficit, we said that this wasn’t a problem that could be solved overnight. In fact, in my first budget speech I said this, I said although we didn’t create this problem, we will solve it, and we will solve it by laying down some objectives. The first objective was to turn the Australian budget around into surplus in our first term. The second objective was by 2000-2001 to reduce the debt to GDP ratio by half. And in a way we then said where we expected to be in three years, where we expected to be in five years. And budgets changed. Budgets then became an opportunity to measure government progress and to make sure that we were staying on track. And when we measured the progress in relation to the first goal last night, we’d done what we set out to do and we’d delivered in full. We’d said that in our first term we could put the budget back into surplus. We thought by about $1.6 billion. We came in on time, ahead of budget. But it would be a mistake to think that was the end of the journey.

All we’ve done in that first term is get the Commonwealth Government living within its means. We are back in the black. But the $80 billion of accumulated deficits run up by Labor before we were elected haven’t disappeared. The $80 billion of accumulated deficits run up over five years still have to be serviced. They still have to be repaid. And as I’ve been out on the airwaves today people have been ringing in and saying, well if you’ve got a surplus Mr Treasurer, why don’t you send it back to us? And the point that I’ve been trying to make is that $80 billion of debt doesn’t disappear. By going into the black we got ourselves into a position where we weren’t running debt further, but the second leg of the journey is to start to reduce that liability. As I said last night in the budget speech we are on track for the second leg of the journey, on track to halve the debt to GDP ratio by the year 2001, and if you add Telstra into the equation we can map out an even more ambitious target. If you added Telstra into the equation and you used that for debt reduction which good accounting would say you should, a capital sale for a one-off debt reduction, we could be at a position by 2001 to have the debt to GDP ratio at 1 per cent, 1 per cent. Pre-Whitlam levels. I measure a lot of Australia’s economic progress by whether or not we’re getting back to pre-Whitlam levels, because basically that’s when it all started to go wrong, and it’s taken us quite a bit of time to get back to those levels.

And so we mapped out the journey. People say, well what’s going to be the advantage of all of this. The advantage of all of this is the following. If the Government is living within its means and if the Government has its gearing ratios low, to put it into company textbook term, then the revenues that it’s raising either by better services or we make a return to the shareholder. We reduce taxes. Once you have your debt position under control and once you’ve got your budget balanced, you then have opportunities. And people were saying to me last night, well what do you think you’ll do in 2001-2002? Will you be spending it on these kinds of services? Will you be reducing those kinds of taxes? And 2001-2002 is I think three, four years away from 1998-99, and the answer to that question is along the following lines. Isn’t it wonderful to have to make the choice, because we haven’t been making any choices in the last two, three, four, six or seven years. We never had to make the choice about whether or not we’d have better services or lower taxes. We were running so fast we were going backwards. The only imperative that we had in national fiscal policy was to try and stop the downward spiral as best we could. I’d like to be in a position in 2001-2002 to have choices. That would be good for our country. That would be good for economic policy. And Greg and others want us to start staking out some choices now, but my message to Greg and the Financial Review and all of the other learned journals that write great editorials is could we not just savour it for a day or a week or a month, good budget policy before we move onto the next acquisition. Could we not after eight years just take a bit of stock and say, well it was good. We laid out the map. We met it. We marked the time and let’s embark on the next leg before we think too much how much we’re going luxuriate once we get to that destination.

The point I want to make about the overall macro-outcomes is this; when Australia goes into the black in 1998-99 it will have been done because we got spending under control. This was the third budget in a row in which there was no increase in the income tax, no increase in the company tax, no increase in the wholesale sales tax, no increase in the petrol excise. This may be the first Parliament where a Treasurer could say in three budgets that they’d been able to do that, and if you look at the historical table of Commonwealth revenues and outlays, what it will tell you is that between 1995-96 and 1998-99 we took down outlays to GDP by 2.2 per cent. There’s your $10 billion plus. That’s how it was done – it was not done on the revenue side. The biggest fiscal consolidation on the outlays side because we got Commonwealth spending under control.

Why? In strategy terms, I’ve given you one reason, to give us opportunities. But secondly, it is very important at a time when we have an external challenge that we strengthen the Australian economy. I’ve got a four year old daughter and I was reading the story of the three little pigs recently about a house made of straw and a house made of sticks and a house made of bricks and the wolf comes and he blows down the house made of straw and the pigs run into the house made of sticks and the wolf blows down the house made of sticks and they run into the house of made of bricks and he huffed and puffed but he can’t blow that house down.

Now when you’ve got instability whistling through the region, you don’t want a house of straw. And you don’t want a house of sticks. You want a house of bricks. You want to strengthen your economy. And when we started strengthening the Australian economy two years ago, we didn’t know that there was going to be this kind of turbulence in the region, but I’m glad we set out and I’d hate to think where we would be now if we hadn’t. It’s a frightening question, if Labor had prevailed and we’d run $10 billion deficits in the last two years and taken our debt gearing ratios higher rather than stabilising and reducing them, it’s a pretty interesting question, where we would have been. We need to strengthen the Australian economy.

The one given in Australian economic policy in the last two and a half decades was that whatever was happening in the domestic economy you would get growth out of Asia. So that even when we were in recession in 1990-91, we were always getting an external stimulus. That has all changed. The biggest economic downturn in Asia since the first oil shock. Now what Asia now means for us, is a brake rather than an engine on growth. We spent a lot time convincing the world we were part of Asia and they started believing us just when it was not convenient for them to do so. But what then became necessary was to strengthen the Australian economy. And it was strengthening it not just in the budget sense, but in so many other senses. One of the lessons that’s coming out of, as the IMF now does it’s post-mortems on Thailand and Korea and Indonesia, is that this was a financial crisis which as much as anything else occurred because of the weakness of the institutions. The weakness of the prudential institutions. The separation between the lenders and the companies. The arms-length arrangements between governments and companies that weren’t there. An independent legal system that wasn’t operating properly. And the message that we have for the region, and we ought to remember for ourselves, is the importance of institutions. If you’ve got good institutions, you don’t appreciate them, but if you haven’t, you know when they’re gone. An independent bank with an agreed inflation objective; one of the first that our Government entered into in March of 1996. A well supervised financial system. We are going to take the Australian financial system to the cutting edge. We’re going to take it up one step in relation to the Wallis Inquiry reforms. A good deal of which are now through the House of Representatives and sitting in the Senate. A good corporate law system. Look, our courts work well, but you know our corporate law is unnecessarily complicated and complex and the transactional costs are high. We can take that a step higher, which we intend to do with our corporate law economic reform program. Making sure that we strengthen the institutions. And when things turn in Asia, and they will turn in Asia, to have had in Australia which survived the turbulence, strengthened its institutions, came through as the strong economy in the region will be to have given Australia a leading edge in this region which it may not have had otherwise. I actually think that now as the turbulence is on, if we strengthen our institutions we emerge with great opportunity. Great opportunity, as we look through this and see what’s going to come out the otherside. And I would put all of those things in the bag of important, good economic policy. Financial sector, corporate law institutional arrangements, charter of budget honesty which is now regarded as the world standards setter for fiscal transparency, a strong budget position and good economic fundamentals.

In relation to our economic fundamentals, Asia will mark our growth down in the coming year. It could have been higher. But if, as we forecast, the Australian economy grows in 1998-99 at 3 per cent, barring China, that will be the strongest growth rate in the region. I’ve said this before, I didn’t know whether an Australian Treasurer would ever be able to say Australia would have the strongest growth rate in the Asian region. I didn’t think we’d be saying it in 1998. It will be one of the strongest growth rates in the developed world. Although again the turbulence in the Asian area will affect our current account; one of the advantages is that we will have low inflation in relation to that current account increase over the forthcoming year, an inflation rate of 1 per cent.

In relation to a current account problem, if you were getting advice from the OECD or the IMF, the first thing that they would say is that you should be strengthening your fiscal position, and we have a budget which is swinging back into surplus, and a potential to reduce our debt down to 1 per cent of GDP.

The lowest inflation rate since 1962. Since the Beatles came out of Liverpool singing ‘Twist and Shout’. The lowest mortgage interest rates since Neil Armstrong walked on the moon and said ‘One small step for mankind’ and the lowest unemployment since a man called Keating said ‘This is the recession we had to have’ in 1990. Strong fundamentals. Strong fundamentals. And the important thing is to lock them in and to strengthen the Australian economy.

Now apart from that economic story, which I think is an important economic story to tell, the budget has allowed us to also direct some additional spending to areas where I think we have done justice. I actually think it’s a matter of justice to give World War II veterans a gold card for their health care. I think it’s important if you want to people to start saving for their retirement that you give the self-funded retiree access to a health care card so they can access pharmaceuticals. And the best reaction that I’ve had to the budget was after announcing that the self-funded retiree would have access to subsidised pharmaceuticals when they retiree at age 65, a lady came up to me in the street and she said, ‘Mr Costello, that’s great, you’re giving the health care card to seniors, I can’t wait to turn 65.’ So we’ve got a lot of people out there that are going to age gladly as a result of, some of you are going to have to wait a few years, as a result of last night’s budget.

But whatever it does for older Australians, I think one of the things that I’d like to say is the importance it will make for younger Australians. Don’t think that deficit budgeting is kind or compassionate. It is the most selfish form of government imaginable. What it basically says is that we will enjoy a standard of service which we are not prepared to pay for and ask future generations to cover the tab. That’s all it’s about. That’s all it’s about. And the reason it’s so popular is that the unborn and the yet to be born, don’t vote. Whereas the people who enjoy the standard today do. That’s why it became normative practice in the ‘60s and the ‘70s and the ‘80s. Well we can break all that with a pro-young people approach. To give them opportunities which they wouldn’t otherwise get in a country which will have opportunities which it wouldn’t otherwise have. In a region turbulent at the moment, but bright with promise. In an environment where we can take hold of much better possibilities in the future. And that’s in my view what good economic policy is all about.

Thanks.

Your inflation, your wage and price forecasts in 1998-99 in the Budget are significantly higher than those of most other forecasters, is there a reason why you’re relatively pessimistic about inflation. And let me say that it has been suggested to me, and I think unfairly, that higher inflation has a favourable bottom line affect in the first year and the person that suggested it to me wanted me to ask you, could this be the reason. So I guess the nub of the question is your outlook for inflation seems to most people to be a little on the pessimistic side, is there a reason? Thank you.

No reason other than that we think that that’s realistic and we particularly minded to put that number there in the light of the exchange rate, that’s the main pressure that we see in relation to the inflation forecasts. Now someone suggested to you that this had a favourable effect on the bottom line, who was it who actually suggested it? Pardon Chris. Well, I’ll see them afterwards, yes.

Treasurer, will the upcoming tax package be a vehicle used to dissipate some of the underlying surpluses projected in last nights Budget and I know in an interview last night you said it won’t affect the 1998-99 Budget but I’m wondering about the others years?

Sure, well the reason that I said that is that when you’re thinking about the timetable for tax reform, the kind of timetable that I’m thinking of is that there is an election, the election has to be held sometime between now and March of 1999. And of course we have to be elected, there is no tax reform without us being elected, I will point out of all of you here, thank you, yes, good, just remember that.

You then have to summon the Parliament, you have to draw the bills, you have to put the legislation through not just through one but two Houses of Parliament and the assumption would be that we don’t control the Senate. So the Senate has the capacity to delay, the Senate has the capacity to take off corners in relation to that and we’ve found that there are quite extensive delays in relation to tax bills in the past because they try and eke out the votes. So regardless of what you think now I’d be very surprised if they tried to do it after an election.

You then have to give business time to set up its systems and the tax office to set up its systems as well, so, I think that the earliest that you could actually have a new tax system up and running would be in, probably, the later part of 1999 or earlier in the year 2000 and that’s why I say the first full year effect would not be until the year 2001-2002, you could have a part year effect during 1999-2000.

In relation to the forecasts for 1998-99, that’s what we’re projecting, that’s what we’re intending to deliver, in relation to futures years they will vary in accordance with parameters but it is certainly our determination to stay right on those goals of halving debt to GDP, absent of Telstra and with Telstra taking it further. And we will need to be delivering surpluses of that order to actually deliver in relation to those goals.

The final point I make, is the point I made earlier if we deliver on those goals and if we have the Budget in surplus, there’s nothing wrong with returning lower taxes, in fact, that’s the whole objective, that’s the whole objective. When you’ve got your debt position picked up and your Budget picked up to give people the benefit of lower taxes. It’s not like a company that wants to hoard undistributed profits, our shareholders are our tax payers and they deserve, in my view, a return for good economic policy.

Thank you Treasurer, you party fully supported the introduction of imputation in the 1980s, would you like to take this opportunity to assure us that your tax reform package will leave imputation untouched for individuals but particularly for superannuation funds.

Well, I’m aware that certain people were running around in the last week before the Budget suggesting that imputation credits were going to change in this Budget, I’m aware that that was a rumour and when I was asked about it, the comment I made was that I believe the imputation system was working well. And you saw the evidence of my belief on Tuesday night. The reason I phrased it like is that I am always very wary about getting into the business of ruling things in and ruling this out because the moment I ruled out any change in relation to imputation credits, something that would be quite consistent with my beliefs, but the moment I ruled it out you would then ask me to rule out the next item. And I would find myself in a situation of dominos, so let me put you all at rest after giving somewhat circuitous answer and say that I believe the imputation system works very, very well.

Mr Treasurer, is the Budget still relevant? Yesterday’s Financial Review pointed out that 11 of the 12 of the last years Budgets major tax initiatives are yet to be passed, why not move to say that a quarterly fiscal statement and announce significant policy changes as circumstances require?

Well we of course now have a Budget and a Mid-Year Review, so we are now doing a twice a year update of the Budget position, we’re doing a twice a year forecast, we are putting out revised parameters. It’s something that we introduced and it is now legislated for under the Charter of Budget Honesty. Would things be improved if you did if four times a year rather than twice a year, I’m not sure that they would to be frank. Your parameters might move around but in my experience in one quarter they move up, in another quarter they come back. Sometimes you can overload the information, sometimes people can jump at small changes which, in the wash, proved to have been very inconsequential.

We put out a monthly Commonwealth financial transactions statement, we do a full update twice a year, I think that’s pretty good disclosure and I think in world terms probably one of the best, to be frank.

In relation to the tax measures, you’re quite right, that there’s a lot of tax legislation stalled in the Australian Senate and that’s really the point I was making in relation to tax reform. The hardest bills to get through the Parliament are tax bills, why, because a Senate has no interest in Government. The Senate which is established under the Constitution to protect the states as you know, doesn’t have the responsibility of raising the revenues, and in the hands of minor parties, the capacity to tell a Government where to spend money whilst taking no responsibility for raising it is a very great temptation.

We have probably the most powerful upper house anywhere in the world, and it has the power to reject money bills and the power the request amendments to tax bills. And in the hands of people who are not in Government and never expect to be in a Government of any complexion ever, opposing tax measures can be quite good politics.

Let me make the point which may have occurred to you, raising taxes is unpopular, and it has been for centuries and if you have the luxury of being in a position where you’ll never be part of a Government and never expect to be, and never be responsible for raising money and quite prepared to lecture people about how to spend it, you can hold up the tax bills. But moving to quarterly reporting or half year reporting is not going to improve that, the only thing you can do with the Senate is just lock it up there in Canberra and tell it to get on with its business.

Treasurer, you’d be aware of the view in some quarters that the States need to be part of the national tax reform agenda. I suppose what are you prepared to offer the states to encourage the participation in that process and are you prepared to consider the sharing of the income tax base?

When I talked about the Senate as the states house before, of course, I was acknowledging the importance of having a states house in the.… Look, we do think that the States should be part of tax reform and as you know we had a meeting with all of the Premiers late last year to discuss it and I thought it was a very productive meeting. And we actually asked the States to nominate those areas of state taxes that they thought should be reformed and interestingly enough number one on their list was financial taxes, number two on their list was stamp duties particularly in relation to commercial transactions. And really with that steer we started feeding that into the process.

We were due as you know to have another discussion with the state Premiers at the Premiers Conference this year, but the meeting ended rather shorter than was expected, so that we didn’t actually get round the renewing the discussion. But, I think that the states have a very properly a role to play in this and we do want them to play a role in relation to this. You are aware that there are different views.

Now, let me make this point, because you happen to be from the New South Wales Treasury, I would’ve thought that the New South Wales Government’s view in relation to reforming the income tax system should be given a lot of weight and would be prepared to discuss it. What I can’t understand is why the New South Wales Government won’t support broad based indirect tax. The New South Wales Government can’t have it both ways, it can’t say we want to stand out of the big reform of the indirect tax system and walk in when it suits us to the discussion about the income tax system.

The point that we’ve made at the political level and obviously you, I’m not addressing my remarks to you sir because you are obviously you’re not responsible for the Government itself. But the point we would make to the political people that run the New South Wales Government is you can’t stand out and say, probably on orders from Canberra, we are opposed to broadening the indirect tax base, so we will stay out of that half of the discussion and then we’ll walk back into the discussion that suits us.

If we are going to reform the tax system, and the States and the Commonwealth both have legitimate interest in doing so, we have all got to walk up to the table on the less popular, including the more popular issues. And that’s the way in which the New South Wales Government, I think, could productively participate. Now, it’s a point that I, of course, tried to make the New South Wales ministers but so far unpersuasively but if you could sort of report it back to them tomorrow, then….

Mr Treasurer, you spoke earlier of a leading edge financial system, my question to you is that when will you consider abolishing the taxes, eg. FID and withhold tax, that inhibit our status as a major financial centre, particularly a lot of the rhetoric that we’ve heard about the problems in Asia and Australia’s opportunity to capitalise? There’s a number of people here this evening who are involved in the financial industry who would be interested in this I’m sure.

Sure. Well it’s really the point that I was making earlier, the states have nominated financial transaction taxes as one of the taxes on the top of their agenda and that is principally the reason why. It inhibits a lot of other business and, it in particular, inhibits the developments of the finance industry and I agree, and in the context of the overall reform of taxation, that will be an issue very high on our list.

But you say well when are you going to do it, why not do it tomorrow. Well, you can’t do this in isolation. Number one, you can’t do it tomorrow because these taxes are imposed by six States and a couple of Territories, not by the Commonwealth Parliament. So that if you were to get the States to do it and you would hope to have six States and two Territories to do it, obviously it would have to be part of some broader and wider program and it’s the broader and wider program that can’t be done tomorrow, it has to be worked on and it has to be developed and it has to have political support and ultimately it has to have Government legislation.

It’s just a point worth remembering, and you know I just say it, I know you all know it but I say it, there’s no tax reform without legislation. There is no legislation without a majority in the House of Representatives and the Senate. And in the Senate you have one of the main political parties determined to oppose tax reform. Now this makes tax reform a big political challenge. It’s one of the reasons why it makes a big political challenge. We all know that people can be scared on tax and Labor’s position, for cynical reasons, but well based, they know you can scare people on tax but for naked and cynical reasons they won’t to oppose it. Now that means you’ve got to get elected, to get it through a House of Representatives and to get it through a Senate against naked and cynical opposition trying to peg you back each step of the way.

Let me put it this way, if tax reform was easy it would have been done by now. Why hasn’t it been done after the 70s, the 80s and the attempts of the 90s, because we face all of those institutional problems and we will have to steer our way through them. But I’ll say this, it is very important I think, for the business community to be heard on these issues, there’s no put in sitting around saying Oh when are they all going to reform the tax system without being part of it. The tax system in Australia will not be reformed unless a whole series of difficult mine fields are negotiated and overcome and those people who legitimately believe in tax reform in my view have to be part of the effort.

Treasurer, I think it’s fair to say that it’s a measure of how solid this Budget has been that there’s has been few quibbles with the underlying assumptions of the Budget and people have started looking to the future, how the surpluses might be spent in terms of tax cuts and so on. It strikes me that one area of fiscal reform that is yet to be tackled is the Commonwealth Superannuation Scheme and so far that’s unfunded. I’m just wondering whether there’s any consideration been given to using some of the surpluses to fund that scheme and whether you’ve got any estimates of how much that might cost, either partially or fully?

Well, we had an Auditor-Generals report on super, in I think about 1994, sometime around then, and the Auditor-General estimated at that point that the unfunded liabilities could be in the order of $70 billion. Now to which I was then an Opposition spokesman and I pointed out the horror of these figures and to which there is a reply that a Government which has a taxing power can always meet its obligations and that was the reply then. But I don’t think it is right to continue indefinitely in relation to unfunded super and we are certainly looking at drawing a line and moving the future into funded arrangements, obviously you are not going to be able to fund immediately the past and they will draw down on general revenue as was the intention when the scheme was set up. But I think what we can and we should do is that we should draw a line across in relation to the future and we are certainly taking some preliminary decisions in relation to that already.

Treasurer, at present the Australian Bond Market accounts for just under 1 per cent of the Salomon Smith Barney world Government bond index. If as the Budget states, net debt is reduced by over $70 billion in the next four years, it’s in danger that Australia will fall out of the Salomons index. This would have significant implications for the Australian bond market, my question is therefore, how do you propose to maintain a liquid bond market in Australia at the same time reducing net debt?

Sure. Look it’s a fair point and it has actually occurred to us that if we immediately withdrew all of the Commonwealth bonds you could get to a situation where we didn’t have them on issue. We don’t think that’s a good point, we don’t think that’s a good outcome. We think it is important to have Commonwealth bonds out on issue. One, to preserve the bond market, two, to give the opportunity to for benchmarking against it, also to give the opportunity to, for those who look at these things, have some kind of yield curve. So, what we are talking about is retiring net debt but continuing, that is net debt, but continuing to have Australian Treasuries and Australian bonds out on the market so that it can accomplish those other objectives. In other words the management of the debt will be done in such a way as to reduce net liabilities whilst preserving some instruments out there for those other purposes, and also so Salomons can keep its index going.

Treasurer your Government’s trump card leading up to the next election is probably economic management. If you weren’t the Treasurer and say by quirk of fate we got Amanda Vanstone or John Fahey or someone else, what would a Liberal Government, what would the fiscal stance be if someone else was in your chair, how important is Peter Costello to the mix and do you and the PM see eye to eye on these things?

And I guess where I’m coming is your predecessors, the previous leaders of the Opposition probably struggled to present a unified front, your Government I think has done a good job presenting a coherent message, like everyone toes the line, give us a bit of insight into the back room workings if you can.

Well that is a fantastic question. If I gave you an insight into the back workings you’d be so horrified as to how Governments actually run. Look, this is a Government position and the fiscal stance is Government policy and it wouldn’t be delivered frankly unless you had Government support from the Prime Minister down in delivering it and I’ve put on record and I put record again the support that I’ve been given by the Prime Minister, and the support that I’ve been given the John Fahey as Finance Minister in relation to that. And these are Government objectives and these are objectives that the Government, regardless of the personalities, I believe is committed to delivering and would continue to deliver. But having said all of that, I do intend to be around so quite some time and I personally as an individual will ensure that we keep on delivering towards that policy. And as for the remainder of the back room dealings, well you had better buy someone’s memoirs I think, not mine.

Thanks Mr Treasurer for being so honest. You referred to the hay day of the early 1960s with the Beatles and I was quite excited about that and you reminded us of the low interest rates that prevailed then and you also referred to the terror of the Whitlam years and the drudgery of Paul Keating. During each of those periods real interest rates, that is rates adjusted for inflation, were in fact somewhat lower than they are at the moment, which I think, on the 90 day bill rate the real rate would be around 5 per cent today, how do you see the Budget correcting that situation and why do you think real rates are so high?

Well I don’t really think that they are so high, we’ve got some material in the Budget which is looking at real rates. We certainly think that there’s been a step down in real rates since March of 1996. We’ve done some work in two areas, one is the home mortgage area. I think indisputedly, rates have lowered in the home mortgage area because although over the last two years officials rates have been cut down by two per cent, variable mortgage have come down by four, there’s been a shaving of the margins of about two per cent in the home mortgage rate.

In relation to the small business overdraft index you’ve seen the same kind of thing with the banks all recently announcing leading indexes down in the 7 s range and according to Reserve Bank research we can’t find any better. And it depends I guess on how you measure inflation, but you’ve got 10 year rates down in the fives and if you say inflations at 1 or a bit more I think you’ll say that real rates are, by that measure are as good as they’ve been by and large.

Now look there were times, I know, during the 1980s when inflation was getting up at 10, 11, 12 and they were periods where rates weren’t moved. But I think that if you actually averaged them out and we’ve done some research on this, you’ll find that real rates are in fact pretty good. And that is predominantly a function of competition in the market. What is going to drive, in my view, real rates down is a heightened competitive financial market. What drove the home mortgage variable interest rate down was when new entrants like Aussie Home Loans and RAMS came into the market and they started squeezing margins and the major banks were in a position where they had to respond. And I’d say the same right across the financial services area that competition is going to drive lower rates and it’s going to shave margins. And our plan is just to keep on heightening the competition.

This is a big part of the thinking behind the Australian Prudential Regulatory Authority to have a prudential regulator that goes across the whole financial industry. So you no longer get a premium coming in under a premium regulator and you no longer pay a margin because you are under a marginal regulator, everybody’s under the same regulator. There will be different standards, but there’s no premium arising from the regulator and it’s also going to allow new entrants to come into the market.

Look we’ve got a situation now, we gave a license to AMP, a banking license for AMP, well that’s not been done before. You’ve got retailers talking about setting up bank-like services, you are getting to a situation where the superannuation industry can just about operate in every financial institution with huge reserves and with a prudential regulator that goes across the lot of them and treats them equally I think you could heighten competition.

Now I don’t know if that’s a popular message or not to people that are in the finance industry because competition is going to make everyone work harder. But at the end of the day that’s good for the consumer and it’s the consumer that we’ve got to have upper most in our minds.

And unless Greg Hywood says otherwise, can I thank you all very much for you time, I’ve enjoyed it very much. Thank you.