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25 June 1998, A Current Affair with Ray Martin
June 25, 1998
29 June 1998, 5DN with Jeremy Cordeaux
June 29, 1998
25 June 1998, A Current Affair with Ray Martin
June 25, 1998
29 June 1998, 5DN with Jeremy Cordeaux
June 29, 1998

27 May, NY Stock Exchange

Transcript No. 32

Hon Peter Costello MP

Media Conference, New York Stock Exchange

New York City

Wednesday, May 27, 1998

SUBJECTS: Australian dollar, New York Stock Exchange, Australian economy, opened trading


Hello and welcome. This morning, I have had some talks with the New York Stock Exchange

about the Australian economy and opened trading, as you saw, on the New York Stock


I have been emphasising the economic position in Australia during talks here in New

York, with institutions particularly, and the government’s achievements in relation to the

recent budget. Our program of fiscal consolidation which will be producing a surplus

budget in 1998/99 and the reduction in Commonwealth debt to GDP ratios, which is now on

track to be halved – by 2001, on the basis of the fiscal program that we have put

together. The story of the Australian economy is strong fundamentals, good budget

position, low inflation, low interest rates and a decent growth.

The Australian economy has been effected by developments in Asia, which has caused us

to revise down our growth forecasts to 3 per cent but with the strong

fundamentals we have put the economy in a stronger position to withstand external adverse

developments. It is important that we continue to work on good economic policy in

Australia. It is important that we continue to strive after those good macro indicators

and that we work to strengthen our financial and legal systems under the programs which

the government has put to together – for financial reform under the Financial System

Inquiry and corporate governance reform under the Corporate Law Economic Reform Program. I

think that the Australian economy is well placed for the future developments – that we

will come out of the situation in Asia with a strong position, and having enhanced our

credentials as a leading financial market in the Asia Pacific Region.

Are there any questions?


Minister, will you give a similar pledge to that given by Mr Howard yesterday that if a

GST is introduced it won’t be 1ifted above the rate at its introduction?


Well, let me say that whatever pledge the Prime Minister has given, I also give. Let me

make that entirely clear. But other than that, I won’t be getting into the ins and outs of

the tax debate here in New York. I will be back in Australia within a couple of days and I

will return to the theme, when I return to Australia.


But the government said they would never bring back the GST so how can they say that

they will never increase the rate?


Hang on, what the government said before the March 1996 election, was that during the

term of that Parliament, if elected, that it would not be introducing a GST or broad-based

indirect tax. We will deliver on that commitment without qualification. What’s more,

we also said before the March 1996 election, that we would not be increasing other taxes

and we have delivered. The third budget in a row on the 12th of May, no

increase in the income tax, no increase in company tax, no increase in petrol excise, no

increase in wholesale sales tax. A program which was delivered in full and we also

delivered reductions to families under the Family tax Initiative. Now, the debate which is

now occurring in Australia is what should the tax system look like after the next

election. Let’s make that clear – after the next election. This is a discussion

about what policies will be put out, for implementation in the next Parliament, not in

this Parliament. And this Parliament has not finished its course yet.


So how far away is the tax package? Are you 15%, 20% or 80% done?


Well, as I’ve always said, we had a budget to do. We delivered the budget on the 12th of

May. We are now bedding down that budget and we have to enact that budget before the end

of the financial year. We have to secure the appropriation in accordance with that budget.

Now once we have finished the budget and the budget process, that gives us an opportunity

to work again on tax policy, which we intend to do. But bear this in mind – tax policy is

an agenda for the next Parliament, not for this Parliament, for the next Parliament, and

when that has been put together, we’ll release it. The Australian public will have a

chance to decide whether or not they want a better tax system or not. I think they will

want a better tax system.


Has the tax mix switch survived?


Well, it is far too premature to talk about any of the details and all I will say to

you is that the best answers to all of these question’s will come when policy is released.


Minister, do you agree with the Queensland Liberal Party’s decision to place the

One Nation Party on top of the Labor Party on how to vote cards?


Well, I am not going to be commenting on entirely domestic events outside my portfolio

from New York. I have made some comments in Australia on these issues.


What about the Asian crisis, you seem to be talking as though we’re out of the woods

but a lot of analysts would say otherwise. When are we out of the woods?


Look, I’m not giving, any definitive analysis on when things have turned or ruling in

or ruling out future developments. I make really a couple of points.

The first point I make is this, the best chance for all of those countries that have

been effected by currency instability is implement substantial economic reform. I think

the Thai’s are now seeing the benefits of the implementation of that reform. I think Korea

is seeing the benefits of the implementation of that reform, in terms of increased

international confidence. Now, I know in Korea that there have been some movements in

relation to equity prices recently in response to domestic events, but Korea is now out in

the international financial markets raising funds at decent commercial rates. I would make

the same point in relation to Indonesia, that Indonesia’s best chance to recover

international confidence is the implementation of the economic reform program and ensuring

that the political authorities have public support to implement that. That’s the first

point I make.

The second point is from Australia’s perspective. Obviously a downturn amongst our

trading partners, will effect those goods that are subject to consumer demand in those

countries, but from an Australian perspective, the most important thing is to keep good

economic policy flowing. If we had not put our budget back into surplus we would have been

much more exposed than we are, but we did it. If we didn’t have a program to reduce the

debt to GDP ratio by half, we would be more exposed than we are, but we did it. If we had

not locked in low inflation, we would have been more exposed, but we did it.

Now this does not mean that we can now sit back and say that there is now no need for

good economic policy because this challenge has not passed and there will be other

challenges in the future. Good economic policy just keeps rolling on. That is one of the

reasons why we talk about tax reform in our country. That is also a significant economic

policy reform, and I think most people in the world, I know in OECD reports and IMF

reports they always make this point. That the best tax systems are broadly based tax

systems with few distortions which are not overly reliant on income taxes. That is why we

keep putting in place good economic policy.

But the point I do make is this, that as we now look at the Asia Pacific region

Australia has proven strong and stable. We have been contributing to financial packages in

Thailand, in Indonesia and in Korea. We could not have done that if we had not

strengthened our own economy, and I think this has marked us as a stronger economy as a


Now, there are, now even in the last couple of days, financial houses overseas who have

mentioned to me, that they intend increasing their presence in Australia because they see

these stable markets with good opportunities and particularly as a base in which to do

business into the region. A very stable base in the Asian region – with a strong financial

regulatory system, a good court system, good legal system, sophisticated work force – now

being a great base from which to do business in Asia.


[inaudible] …Hong Kong… Chief Executive revised growth estimate..


We have revised down our growth figures, we revised it down in the 12th of

May budget, we revised it down to 3 per cent. If it had not been for the Asian

crisis it would have been significantly higher than that. It would have been higher than

it has been in this year 1997/98 where growth has been around the 3- mark. But we

have revised it down, we have revised it down to 3 per cent and we certainly

will not be revising that figure again. I think that that’s a realistic figure. I think

that the private sector consensus if anything is that or a little higher. I noticed the

other day, consensus figures around about 3.2, and whether it is 3.2 or 3 there is not

much in it. But, I think that is a realistic figure.

The fact that Hong Kong has revised its growth forecast down will not have much effect

on us. Hong Kong is not a major trading partner for Australia. We had already anticipated

events in Hong Kong in any event and taken them into account and the issue that’s probably

got more effect than anything in Hong Kong is the currency peg on their economy and that

is not something that concerns us.


Are you investigating any additional privatisation that may be seeking to raise capital

in the United States?


Yes, our government proposes to float the remaining, 2/3 equity in Telstra, which is

the Australian telecommunications company. The first 1/3 was floated in the last year or

so and listed here on the New York Stock Exchange. Our government has said that if

re-elected and legislation is passed we will be floating the remaining 2/3. That would be

listed on this exchange. Depending on exchange rates Telstra, the Australian

telecommunications company is probably the second highest valued telco in the world. So

that would be a very significant addition in relation to the New York Stock Exchange. We

are also having in our country demutualisation of major life mutual the AMP, and I

would expect that it, and other like institutions would be in due course trading here on

the New York Stock Exchange.


When you get over here and get a greater Perspective of Australia’s place in the world,

does it make you appreciate even more the difficulties of increasing the value of the

Australian dollar – if that is what you want to do?


Well we have a free float of the Australian exchange rate. If there are wide variations

in spreads or extreme volatility there are interventions to smooth the currency, but it is

a freely traded currency. I think that it is important that when people trade the currency

that they take into account the fundamentals, and the fundamentals in Australia have been

very strong. I think that it’s important that they see the currency as a unique Australian

currency obviously effected by international developments but traded on the back of it’s

own fundamentals.

Now, the principal interest in the Australian currency is of course from Australian

exporters and importers and that is the bulk of our market. I think the Australian traders

are aware of that, and I think that it is also true that the further you get away from

Australia, the harder it is to be specific about the events in the particular countries

currency that you are trading. But part of the reason for us coming to markets like this

is to increase the awareness of the economic fundamentals. In world terms, we have got a

good story to tell. The budget coming back into surplus, low debt to GDP about

20 per cent and falling to 10 per cent, low inflation about

1 per cent, good growth not withstanding events in Asia up around at the

moment the high threes and very good financial regulation. An ambitious program to improve

it and an ambitious program to engage in further micro-economic reform.

The only clouded picture, I would say, economically in Australia, which is

raised on many occasions is the tax system. Having done the big reforms in relation

to the budget, in relation to the financial system, progressing them in relation to the

corporate law system, having done the big reforms in transport and they are continuing.

The important thing for Australia now is to seize the opportunity for the big reforms in

tax. And this is a matter that is always raised with you.


What are the investors in New York telling you about the attractiveness of Australia?

If you look at the dollar, for instance, in recent times you might think it’s not such an

attractive place.


Well, in fact, on the contrary. I think that many people would think that, if they

looked at the dollar it makes Australia a very attractive place to invest at the moment.

Certainly, since I have been here, I have become aware of the importance that people are

now attaching to Australia as a financial centre. The big investment houses indicating

that they intend to lift their presence in Australia, both for the domestic economy and

also as a base. As I have spoken to the investment houses, this has been a pretty

recurrent theme actually.

See, what are they looking at? Our stock markets have not missed a beat. They are

probably the only stock market in Asia at the moment which is at levels at or above what

it was 12 months ago. The currency has been trading at a very stable basis. The resource

sector is probably going to benefit considerably from the exchange rate. And you have an

economy which is growing and by world standards, an economy which is growing at three’s is

a high rate of growth. So, I think Australia looks like a very attractive destination.

Now, the one thing that people will say to you, that is always raised, is the taxation

system, which is seen as complicated, with high marginal rates, but we are working

to improve that and in any event, there are other factors which outweigh even that.


Are you signalling you’re open to off shore sectors with tax breaks …


We actually announced at the end of last year, in December of last year, changes to the

taxation regime for off shore banking units and, also changes in relation to withholding

taxes in relation to private sector bonds. One of the reasons to do that was to improve

the attractiveness of Australia as a financial centre. But as somebody said to me

yesterday, these are important issues but of even more importance, if you are looking at a

financial centre, is how stable is the market, how well does it work, what is the legal

system like, how is the corporate governance.

I have just come down from the APEC Finance Ministers meeting in Canada, which spent a

lot of time discussing the Asian currency crisis and increasingly people are beginning to

see that this was as much a crisis of corporate governance as anything else. How

the corporations were being managed. What ends they were being directed towards. One of

the problems in a lot of these economies was how corporations and the financial system

were intertwined and how the financial system was intertwined with the government. How

corporations were being given directed investment by the involvement of the government.

One of the big conclusions coming out of this is that you have got to get your corporate

governance right and separate your financial system, your corporate system, your

government intrusion into the economy. This is something that we’ve done well and are

doing better under our corporate law economic reform program.


John Howard blamed the fall of the dollar partly on economic illiterates on the other

side of the world – talking about dealers. Would you agree? Was that your message to those



Look, we always promote literacy where ever we go. That is the point I would

make. Any last questions?


Have you changed your mind about anything while you’ve been on this trip?


Yes, the fortunes of my football club, which improved dramatically once I left

Australia. Thanks very much.


These investment houses would they be drawing back their Asian operations to Australia

or are they a fresh start …[inaudible]


Well, I am not going to name them but it seems like there is a number of them – big



Is this relocation of their Asian operations?


No, no, they are in some cases actually increasing their Australian

presence because they see Australia as a good market. In other cases, there are

others that are relocating back offices and some regional headquarters staff. And we do

have now a major presence of big investment houses in Australia and I think this will


Thanks very much.