Transcript No. 99/04

Hon Peter Costello MP

3AW with Neil Mitchell

Tuesday, 2 February 1999

8.35am

E&EO

SUBJECTS: Economy, Tax Reform, Donations, Republic, Gerry Adams, Football

MITCHELL:

Mr Costello, Good Morning.

Good Morning Neil.

Federal Cabinet meets for the first time today. Whats on the agenda?

Well, we dont generally talk about the items that, thatd be the kind of items that youd imagine, the important sort of economic and social policy.

(inaudible)

No, its, the Governments put its policy down and as you know went to the election and weve now enacted our policy in full, as we said we would and were waiting for the Senate to pass it.

The market is up just on 19 percent since September.

Mmm.

(inaudible)

Well the thing to remember about stock markets is that they can move up and down in the short term, (. . . inaudible . . .) but theyll relate to fundamentals over the long term and as you said, the fundamentals in the Australian economy are very strong at the moment. Although we are living in a region which is in recession and some of the countries in our region are in depression, economic growth in Australia has been 5 percent in the last year; interest rates are at 30 year lows; inflation is at 30 year lows; the Budget is in surplus; we are repaying Labors debt; and the Australian economy has performed remarkably well. Now, . . .

Is it a boom?

Well, you know I dont like using the word boom because what comes after boom, people say well there will have to be a bust, but the stock market closed above 2,900 which its never done before and I think thats partly because there are some good companies, but also Australia is seen as a very good place to invest. Now look, suppose youre looking around at the world at the moment and in the Asia Pacific region: Japan, depression; Korea, in an IMF programme; Malaysia, recession; New Zealand, recession; Hong Kong, recession; Singapore, recession. Which is the country thats growing in the region? Australia. And so people see this as a great place to invest and thats affected the stock market.

I look around the world and see recession, I look at the United States and I think well yeah were going along very well now, later this year there has to be readjustment. Do you agree?

Well, the US authorities have warned from time to time that the Dow couldve been, risen too fast, too far and I think the phrase that was used was irrational exuberance. So, theyre obviously keeping an eye on that and US authorities reduced interest rates a couple of months back and . . .

What about in this country? Is this irrational exuberance to be setting new levels when all around us there is recession or depression?

Well, if you actually look at the all ordinaries over the long term it hasnt been a steep increase. What weve had is, weve had some pretty measured growth over the last two years. We havent had the jump in values that the New York Stock Exchange had and I think that means that its more sustainable in Australia. But, it will depend, Neil, on a number of factors. Can we keep growth going? Can we get profits, keep going? Can we keep inflation low? Can we keep interests low? Can we get a better tax system? If we can accomplish these goals of economic policy, we can make the growth phase last longer.

Well, how do you, how do you accomplish them? I mean, your tax policys in place, what about the rest: growth; profits; inflation; interest rates?

Well, the key to interest rates, and Ive always said this, is keeping low inflation. And the reason why weve got such low interest rates now – you could, you could, actually borrow for a first home below five percent. Now, if you want to go back and find out when you could last do that, it would be when Robert Menzies or Harold Holt were Prime Minister . . .

And it could go down a bit more yet, couldnt it?

. . . and back in those days, Neil, you couldnt borrow full valuation because credit was rationed. You couldnt borrow ninety percent of your home value. We have never seen a time like this for home buyers. And thats put money back into the hands of families who arent paying as much in the mortgage, and thats put money back into the shops, and thats kept retail spending up. And as long as we can keep inflation low, and we had some very good figures last week, inflation down at 1.6 percent, you can keep interest rates low.

Is there still pressure on interest rates to go down further?

Well, I dont talk about where they might go in the future, I just, sort of, observe where theyve been in the past. And the key is low inflation. If we keep inflation down, and people, people dont have to go out chasing wage rises now to chase prices because prices arent moving in the way they used to. We all grew up in a world, Neil, where inflation meant the prices went up six, seven, eight percent a year. We are now in an environment in Australia where its one percent. And what that means is that people can save money because you dont have to go and spend it before it loses its value, you dont have to have wages chasing inflation and you can get interest rates low as well.

Well, are we fireproof now? Is the Australian, isnt it what youve, youve outlined the countries in recession and depression and were going along very nicely at the moment, is Australia fireproof?

Well, the way I put it is this, were, sixteen months, the Asian financial crisis has been going now for sixteen months. We can say in the first sixteen months, we weathered the storm and we survived better than any other economy in the region, and perhaps better than any in the world. But youd be foolish to say its over. You are now seeing problems emerging in Latin America and in European markets and what that means is weve just got to keep the good policy rolling.

Is there a realistic chance that the way its going that we can get through the year at this sort of level though, or do we have to accept that, theres a readjustment of some sort?

Well, see, see five percent growth is, in Australia is way, way beyond the long term growth average of the Australian economy. So we are in an exceptionally buoyant time. Even if we could get throughout the long term average or a little below, we would be considered a fantastic success. And Ive said to people I wouldnt expect five percent to keep up through the year, but if you can get through it at three or even, you know, around that mark, that would be an exceptional performance given the state of the international economy.

When will we see it in jobs?

Well, you saw the unemployment rate step down markedly in the last figures and in the last three years there have been 400,000 new jobs created in Australia, 400,000, thats a lot of jobs. But, as I said yesterday, the degree to which we get more jobs in Australia is the degree to which we are successful in implementing policy.

Well, you did say yesterday you think four or five percents achievable, is that right?

What I said yesterday was that, that the United States is considered to be the best performer in the world on jobs and theyre the sorts of rates youve got in the United States. And I said, the degree to which we could address four things is the degree towards which we could get a much better jobs performance: youve got to keep economic growth strong; youve got to make sure that you improve flexibility in wage fixing and industrial relations; youve got to make sure that you have the right interaction between tax and welfare systems, so that people arent penalised for work; and the fourth thing is youve got to have a good welfare system, which doesnt discourage job seeking. Now the degree . . .

How do you do that, how do you change that welfare system to get, get rid of that disincentive from work?

Well, one of the, one of the proposals thats part of our tax plan at the moment is – at the moment when you go into work not only do you start paying tax at high rates, but you start losing benefits. If theres a family, a single income family with two kids and they move into the workforce, not only do they pay tax on their income, they might be paying tax at thirty percent or more, but they start losing family allowances at fifty cents in the dollar for every dollar they work so . . .

But I think in the broader sense, I mean the mutual obligation of the Prime Ministers . . .

. . . Yeah, can I just finish, let me just finish this point and Ill go onto that. So those sorts of families, by the time they start working can be losing eighty, ninety percent of what they earn. And, it just doesnt pay them to go out and to seek promotion or to go out and do an overtime or anything like that. And, so thats part of the tax plan that weve got in front of the Senate now which is going to address that problem as soon as its passed, I hope.

The bottom line is, surely must be, getting fewer people on welfare, thats the aim?

Well, well its removing the disincentives to move into work.

Surely, the country is aiming in the bottom line to get fewer people living on welfare?

Yeah, and getting them back into the workforce and to do that youve got to increase the incentives. Now, you asked me about the Prime Ministers . . .

. . . mutual obligations . . .

. . . yeah, announcement the other day. I mean weve looked very carefully at this youth unemployment problem. And one of the main reasons for youth unemployment amongst those young people who dont have jobs, is illiteracy. And, what the Prime Minister announced the other day was a programme to encourage young people to get the skills to read and write, which is a way of encouraging them to get work skills, which will make them more employable and give them a better opportunity.

Ive talked to the Prime Minister about that, but where do you go from here, whats next?

Well, well I . . .

. . . on welfare . . .

. . . well, I think youve got to start looking at all of these, these disincentives, and thats what were looking at in relation to the tax plan. See the . . .

. . . (inaudible) extending that area?

Yeah and, but also reducing income tax rates. Theres a lot of people running around – Ive heard people running around and saying, well you know, you shouldnt be cutting income tax rates. Of course we should be cutting income tax rates. Were getting to a situation in this country where average earners are paying nearly fifty cents in the dollar for every dollar they earn. We should have lower income tax rates in this country. I mean, I make no apology for saying that. Weve, our, you know, let me say absolutely clearly, the Government wants to cut income tax rates.

How low?

Well, weve got our plan in the Senate at the moment. We want to take it down so that people are paying no more than thirty percent on average incomes.

Would you like to go lower?

Well, well, let me get that in place for starters.

Youve been talking about the fireproofing of the economy earlier, do you think that, you seemed to be suggesting that Australias economy has performed as well as any in the world, is it the best in the world?

Well, look people, people look at these sorts of things and . . .

Do you think its the worlds best economy?

Well, I would say that Australia is in the top of the class, it would be, in the last year, amongst the very top performing economies in the world.

Youve had the worlds best Treasurer before you.

But if you look around the world, people say that the US is performing well, and it is. Its got growth, its growth has not been quite as high as Australias over the last year. Its doing better than us in employment, its got low inflation. But outside of that there wouldnt be many other countries. Australias got high growth, low inflation, low interest rates, improving employment outcomes, a Budget which is in surplus and we are now retiring Labors debt. So, you know, and putting all that together, that is in the midst of an Asian recession, in some parts of Asia a depression, but . . .

But doing so well do we really need to risk it all with a GST?

No, but this is the point Id make, is that, the reason the economy has performed well in the Asian crisis is because we took the hard decisions three years ago. If we had gone into the Asian crisis with our Budget deficit at $10 billion and Labors debt levels, wed have been extremely fragile. Now the decisions we take now will govern the outcomes we get in five and ten years time. If we stop now, in five or ten years time then Australians wont have the opportunities, the job opportunities that they deserve. Now is the time to be building for the future and thats what tax is about.

OK, well take a quick break and come back with more for the Treasurer, specifically on the GST.

Mr Costello, the, is what youre talking about, all this achievement, is it still a threat if you dont get the GST through, because surely youd accept that the GST, the deal isnt done yet, its not there is it?

No, its not there. Its, you know, the Governments now passed the legislation to implement its election policy through the House of Representatives, but as you know it has got to go through the Senate and the . . .

What happens if it doesnt? What happens if youre frustrated?

Well, look, Im going to make every post a winner and I think the Senate has agreed that it will vote by the 30^th June at the latest, at the very latest, and I hope by the 30^th June at the very latest it goes through. I might say there is no reason why it should take until the 30^th June, by the way. I think, I think the debate is due to start in April and, you see the point I make is this, Neil, how often are we going to go through this tax argument? Weve been doing it now for twenty years, weve fought elections on it, weve been backwards, forwards, front ways, upside down, side, youve looked at it from every angle. Every analyst in Australia has looked at it, and now is really the time to get on and do it. I mean we could talk about it for another two decades and, you know, wed all be here and, you know, you could, you could have a good, good argument about it. But now is the time to get on with it. And when we get on with this and we can move through and we can start doing other things as well.

And there is still, there is no significant change will be made to the GST, do you stand by that?

Oh yes. The Government is seeking to enact the policy it put to the election, and we said, if we were elected we would implement our policy in full which is what we intend to do.

Is food non-negotiable?

Well, the impact of GST on food is $6 billion. Now you cant just tear a $6 billion hole in a budget.

I understand that, but is it negotiable?

Well no, you cannot, the package is unsustainable if you rip $6 billion out of it. It cant be done.

Are you aware of the ACOSS report today? There seems to be some to-ing and fro-ing about whether its accurate, but at least theyre including some figures that say low income earners are in fact better off under a GST.

Yes, low income earners are better off. And I saw the report and you know, I welcome it because what that research is showing is basically what our research showed. When we went into this, we said that wed make sure that low income earners were not worse off and that they were fully protected and ACOSS has come to the same conclusion. Just about everybody that has looked at it has come to this conclusion, and that is that if you repeal all those indirect taxes and you have one indirect tax, you do get a price movement, but if you push up pensions four percent, as we are doing, and, and we are also introducing extra bonuses for the aged, theyre better off.

What about jobs? Im astounded Treasury didnt do any modelling on employment, why not?

Well, no, let me be very precise about this point. When they modelled the effect, they didnt put into the assumptions an increase in employment, because that wouldve produced even better results out of their model. They modelled on the most conservative basis so that nobody could accuse them of rigging the parameters that went in.

So is it going to create extra jobs or not?

When, they stood back and they said, and what will be the effect of this, they came to the conclusion, as most of the analysts have, that it will increase employment because its going to increase economic growth. Youve got a more productive tax system, youre taking all these transaction taxes off financial matters, you will increase the growth rate of the economy and that means increased jobs. And thats the conclusion they came to, we came to, which the economic analysts have come to.

Mr Costello if I could on some other things, banks donating over half a million dollars to the Libs in electoral funding in donations. Is that, are you comfortable with that?

Well I think that as long as you comply with disclosure, as the Liberal Party has, of course . . .

. . . (inaudible) the oil and gas mine are the same. $300,000 to the Coalition.

Its all out there on the record. Its public knowledge and people can look at that and they can, sort of, see whether or not it was open and transparent and above the board, and it was.

Does it influence decisions?

No, because weve always made it clear that well make the decisions that are right for the community as a whole and I think that some of the companies that donate, donate because they also think its right for the economy as a whole. See, a lot of these companies would take the view that if the Government is doing a good job with the economy and the economy is growing, thats good for their business. They dont donate because they want anything for themselves, but they do want a good economic environment.

Look, I agree on the transparency argument, thats the key to it. So whats the Greenfields Foundation?

I dont actually do any of those matters myself, so youd have to . . .

You must know.

Well, actually . . .

Youve got a $4.6 million loan to the Liberal Party.

Well, its a foundation, obviously, that gives money to the Liberal Party but other than that I cant add Im afraid.

Whos behind it, do you know?

I dont run that Neil.

I know you dont run it, do you know whos behind it?

I dont have any information on it.

Do you know whos behind it?

No.

Ron Walker?

Wouldnt know.

Really? You got $4.6 million loan to the Federal Liberal Party, you dont know whos behind it?

Well, Im a Treasurer in the Liberal Government, I run the economy, I dont manage fundraising activities.

Do you think in the interests of transparency that whoever that is should be declared?

Well it has been declared.

The Greenfields Foundation, who is it?

Its been declared as the Greenfield Foundation.

Who is it?

Its been done in accordance with the law, and there it is.

And you dont think in the interests of transparency we should know who it is?

Well you do, its the Greenfields Foundation. Its like saying, its like saying, you know, who is Santos? I mean, there would be people in Santos . . .

We know who runs and owns Santos.

Well, I dont . . .

. . . who owns and runs the Greenfields Foundation?

. . . well I dont, I dont know who runs and owns it (Santos). I presume . . .

. . . and you dont know who runs and owns the Greenfields Foundation?

. . . I presume super funds own it (Santos), but I couldnt tell you who.

And you dont know who owns or runs the Greenfields Foundation.

I dont know, no I dont, no I dont.

The Tax Department is having a very close look, theres a report in today, at fifty of the biggest companies in the country, why?

Well, again all I know is what has been reported. Apparently the Tax Department thinks that theres a doubt about how theyve accounted for losses and so it will do its investigation and if tax is payable it will be paid, and if its not payable it wont be paid.

Ok, just very quickly, the Republic, do we need a debate between now and the referendum?

I think there should be a debate, yes. The point Ive made is that I think the economic and the tax debate is much more important and thats got to be finished by the 30^th June, and I intend to devote all of my waking energies to that. And then I would expect that the Republic issue will come up in the second half of the year.

And would you expect Liberal Party Parliamentarians to be able to debate it openly?

Yes, the Liberal Party has said that there will be different people with different views and they can openly state their views.

I thought there had been some restriction placed on Parliamentarians, is that not right?

Well as far as I know all Liberal MPs are entitled to state their view. I dont think there, I dont believe theres any restriction.

Ok. Gerry Adams, have you been asked to meet him?

I think that there has been an approach to my office?

Will you?

No, I dont think I will be.

Why?

Well its not my area in the first place. Its a foreign affairs area and I believe that the Foreign Minister is going to meet him.

Jeff Kennett and our Lord Mayor have gone to Davos, Switzerland for the economic meeting there. Why didnt the Treasurer go? Why didnt you go?

Well I, you know, I was invited to go and Im sure it will be a worthwhile conference but I had other things that I have to do here, including tax reform.

Mr Costello, thank you for your time. When does Melbourne play Essendon?

I dont know, but I know the first game is Essendon versus Carlton, I think, on a Thursday night. Is that right?

I dont know. Im not interested in that.

Arent you? I thought everyone was. Good heavens. I think it will be later in the year. I must say congratulations to Melbourne. I think Neil Daniher has done a very good job.

The regular bet stands. Thank you for your time.

Thank you.

The Federal Treasurer, Peter Costello.