I just had a spirited argument with my press secretary about what the right time was. I thought it was 12.15. I’m sorry, I apologise to all of you. I was wrong.

Well today’s National Accounts show strong growth in the Australian economy, with growth in the March quarter of 1.3 per cent and throughout the year of 4.9 per cent. This means that Australia is probably the fastest growing country in the industrialised world and certainly the strong economy of the Asian region.

As evident in the National Accounts, the impact of Asia is occurring at a time when domestic spending is maintaining its strength. Whilst we expect that the pace of economic growth will slow somewhat in 1998-99 to around about 3 per cent average growth, that will remain very solid in world terms.

Looking at the composition of growth, you can see that in relation to the composition of growth there is certainly a strong contribution from stocks. There is a strong contribution from stocks. Some business surveys suggest that one of the reasons for that was a build up in stocks prior to the waterfront dispute, but if you look at the stocks to sales ratios, you will see they are still on the low-side, and certainly there has been no dramatic increase in relation to the overall position. It is also quite clear that in the months of February and March significant export sales were held back, particularly by the Australian Wheat Board in relation to wheat, cereal and sugar.

We think in part that this was as a result of buyers waiting to look at price movements in these industries. Sales have now been affected and it is expected that those crops would be exported in the next, or the current quarter I should say. One of the consequences of that is that the stocks will translate principally into exports, and as a consequence of that you will find no net effect on the bottom line.

Recent indicators indicate that there is still some considerable strength in the domestic economy. Recent indicators in relation to housing approvals, and in relation to motor car sales, even in relation to retail trade where there have been consecutive monthly rises announced recently.

The 4.9 per cent over the year is certainly consistent with the growth we forecast for 1997-98 of 3 -. I don’t think there would be much doubt now that that year average would be reached whatever the outcome for the June quarter of 1998 is. And in relation to 1998-1999 I would say that this puts us in a very strong position to achieve the forecast that we’ve put for that financial year.

Growth in the March quarter was across a broad range of industries including the manufacturing sector which recorded a 2.9 per cent growth in the quarter.

So what’s the picture of the Australian economy that we see at the moment. At the moment we see a strong growth economy by world standards and by Australian standards, certainly by regional standards. We see an economy which is maintaining that growth on a low inflation rate, and we see an economy which is principally fuelled by good domestic fundamentals. As the economy faces up to challenges in the region, challenges which are outside our control, we expect that that will clip growth in 1998-99, but clip it back to rates which still by world standards will be amongst the best and the highest. It means because we face this external challenge that we certainly can’t let up on good economic policy. Anybody who thinks that now is the time to turnaround and start running deficit budgets again, or to back off our debt retirement program, or to give away the game in relation to economic reform is totally wrong. The outcomes that Australians will see in the next year will be dependent upon good strong economic policy strengthening the fundamentals of the Australian economy. We have only got to where we are because we did that two years ago and we will only get to where we forecast if we continue to do it in the year which lies ahead.

Treasurer, some people say a goods and services tax in the middle of the Asia crisis is a bad thing for the economy, and that putting prices up when the economy is going to slow down as is forecast, is going to cause more problems.

Well the only person I’ve heard say that is the Labor Party. The Labor Party of course says when Asia’s booming that’s a bad time for broad-based indirect tax, when Asia’s declining, that’s a bad time for broad-based indirect tax.

So you’re saying that there’s no risk from the GST?

Their political position is complete opportunism. Right so we can put them to one side. In relation to broad-based indirect tax, I would have thought that at a time like this it would be extraordinarily helpful, because one of things that it allows you to do, is it allows you to get exporters rebates on input taxes. That gives exporters better prices on world markets. Now at a time when your exports are turning down, as a result of external events, and you want to take measures to help your export industries, what better things would you do than WTO legal refund in relation to input taxes. In fact, I would say now as much as ever, if not more that ever, is the time for a value-added tax.

Will tax reform would be more helpful for the automotive industry than a freeze on tariff protection in the year 2000?

One of the principle benefactors of a value-added type tax would be the Australian motor vehicle industry. They would be that the car manufacturers and exporters would be prime beneficiaries in two regards. One is in relation to the exports as I’ve, the point I’ve made previously. But the other point I’ve made in relation to the goods tax, the current goods tax that Australia has, the goods tax that the Labor Party wants to go into the bunkers to defend, is that as the base shrinks, the rates increase. Now if your base is goods and goods only, you get high rates like 22 per cent in relation to cars. If you’ve got a broader base you get a lower rate. One their exporters get the benefit, two, domestic production gets the benefit as you broaden the base and lower the rate. I mean, let me make this point again. It is undoubtedly true, it can not be disputed that Australian manufacturing industry would be the prime beneficiaries of changes to the goods tax, because the goods tax is on a narrow base which covers them, they pay high rates. They would be prime beneficiaries in lower rates which arise from a broader base indirect tax.

…that would benefit the exporters?

Well the point I make in relation to exporters, and I’ll make it again, at the moment Australian exports carry input taxes in their price, and the degree to which you reimburse them for those input taxes is the degree to which you encourage and help exporters. Now in relation to Europe, in relation to Asia for that matter, in relation to most of the rest of the world because most of the rest of the world runs a value-added tax, they will help their exporters, we don’t. We give them an opportunity.

The logical conclusion to that, your argument is that, tax reform along the lines that you describe means that manufacturers, TCF and auto’s do not need tariff protection to improve their competitiveness in the year 2000.

Well I’m not going to get right back into the tariff discussion. I think you all know what my views are, but the Government has in place a tariff reduction program to the year 2000 and a tariff reduction program thereafter. Now you can have your argument about the pace of change thereafter and we’ve had our arguments in relation to that, but the point I’m making here, you asked me straight up, would tax reform help those manufacturing industries that currently have tariff protection? The answer is yes, unquestionably yes.

Mr Costello, how do you think the major parties should respond to the threats posed to Australia’s economy and social tolerance by the rise of Pauline Hanson’s One Nation Party?

Doesn’t anyone want to ask about National Accounts today? I’ll answer the question, but I wouldn’t mind sort of, I am sure, can I just say this, and I will answer the question, but I’ll just say this. 1.3, 4.9, you know I’m sure if it were 0.3, 2.9 all my questions today would be on the National Accounts. 1.3, 4.9 before you lose sight of the National Accounts story if I can just plead with you again. Now I’ll come back to Pauline Hanson. Pauline Hanson is wrong on practically every economic issue I’ve heard her talk about. At the end of the day what Pauline Hanson wants to do is to chase, as I understand it, is to chase foreign investment out of this country and reduce the number of jobs. Let me just make the point, she rails against foreign investment. Go and tell that to workers on the Ford assembly line or the Toyota assembly line. I mean go and tell that to the people who are working in some of Australia’s great energy projects with the advantage of foreign investment, go and tell that to all these people who would be put out of work by her policy. This is crazy economics and, as well as that, it’s tied up with wrong morals. Now does she help Australia? No she doesn’t, she damages Australia, she damages Australia and that’s why she’s bad for Australia. But I’d go further, the values behind it are wrong as well, it’s not just the economic effect, it’s the values that are behind it and the values that are behind it you can somehow seal our borders and we won’t have immigrants. Let me make this point, a lot of the immigrants that have come to Australia in recent times have been fantastic for the development of Australian industry. One of the reasons why Australian service providers, banks and insurers, have been able to get great footholds in Asian markets is that they can employ people in Australia who speak Chinese or Vietnamese, that they are sophisticated, skilled people who are working for Australian companies, can go into export markets and can earn dollars which are repatriated back into Australia which go to pay taxes for Australian services and …(inaudible)… our economy. These people are enormously skilled with benefits that they give to Australia. Now if you want to close the borders and stop people like that adding their skills to Australia and earning us income and developing us taxes which pay for old age pensions and hospitals and roads, I think that you’re wrong. I think you are terribly wrong and I think that it is misguided values and it’s wrong economics.

Do you believe that proposition that you’ve just put forward now would make good political sense for the Coalition in the state election in Queensland to argue along those lines?

Well I’m not going to engage in the Queensland state election but I’ve learnt one thing from Premiers Conferences, it is very hard to give Premiers advice on anything, especially from me.

Mr Costello, given that she’s attracting …..

I found in my experience that they very rarely take any advice from me.

Keeping away from Queensland though, given that she’s attracting a significant …(inaudible)… support to the extent that some people say that she even hold the balance of power at a double dissolution in a Federal election. Is there any suggestion that you’ve got as to how the Government and/or the Government and Labor together could tackle this and could convince people that she is not the answer for Australia.

Well I don’t want her to hold the balance of the power but I should go on and say I don’t want the Democrats to hold it either or the Greens to hold it. I’m punting for a Coalition majority in the Senate, let me make that entirely clear. But I think that we do have to campaign against Hansonism, social Hansonism and economic Hansonism. Social Hansonism which I think starts from wrong values. Economic Hansonism which is just a variant which holds to this notion that if you seal Australia’s borders from foreign investment and foreign trade somehow you’ll make us rich, you will make us poor, you will make us poor. Now economic Hansonism is not solely the preserve of Hanson by the way, there are other political parties that have had a nice little flirt with economic Hansonism recently and I don’t think that that’s right either.

Would the best campaign against Hansonism be to inject a little bit more integrity and plain speaking into the dialogue of the main political parties instead of the farce we see in Question Time?

No, I don’t think that the rise of Pauline Hanson is attributable to Australian Question Time in the Parliament in Canberra, Paul. I think that the rise of Hansonism is, oh look it’s many factors, but by and large I think it plays on fears by people as to social change and economic change and unscrupulousness in those that choreographer her. I think that there are some very unscrupulous people that are choreographing the One Nation party….

Who are they, Mr Costello?

And I think that, well some of the advisers and some of the shadowy organisations that lie behind the One Nation party. You could have one of their candidates talk about an ultra right militaristic group in Queensland which had infiltrated the party. I mean the people of Australia have got to understand this, do you want these people who believe in sort of guns for all and arming the population against sort of non-existence subversive incursions running a political party. I’d say to a lot of the people who look at One Nation, One Nation is not Pauline Hanson. One Nation is a lot of shadowy people who choreograph Pauline Hanson for their own ends which are very unsavoury.

Mr Costello, getting back to the National Accounts….

Thank you, yes.

Isn’t it a case of the faster we rise, the harder we fall in terms of GDP growth, aren’t we facing some significant cut backs in growth over the coming year?

Well we had forecast in 1997-98 growth of 3 – per cent, we have forecast in 1998-99 growth of 3 per cent. If it had not been for Asia I think that 1998-99 would have been stronger than 1997-98. I think Australia was being very well positioned: low inflation, low interest rates, a Budget in surplus, a declining debt to GDP ratio which on current projections would come down to 10 per cent and with Telstra sale more. And if Asia had continued growing as it had for the last two decades at 6, 8 10 per cent, we were well placed. Now as it turned out an event occurred in Asia which had not occurred for two or three decades which nobody expected. And I would say that strengthening the Australian economy proved to have been even more invaluable in the light of that. Let me ask you this, where would we be now if we were still running a $10 billion deficit, if Commonwealth debt which was about a $100 billion in 1996 had gone to $120-$130 billion as a result of another couple of $10 billion deficits and we were on a path to $150 billion by 2001-2. You know, where would we have been in that situation, it’s a frightening question even to pose. Now today’s figures of 1.3 per cent, 4.9 per cent, this is extraordinarily strong growth, extraordinarily strong growth. But I still say that over the course of the year in 1997-98 the year average will be somewhere between 3 – and 4, I have always thought it’s about the high threes. So it’s not a question, I think, of saying that we’re heading for a big fall, I think that we’ve had good, strong, well based growth, we will have good solid growth next year, it would have been even stronger absent the downturn but these are good numbers. Let’s just wait for a moment.

Are you saying these numbers are over stating what’s really going on in the economy and that’s partly because of what’s happening on stocks which is obviously not a good sign?

I’m not saying that their overstating it, they state what they state. What they state is a very strong growth in the Australian economy but I’ve always cautioned you about this, these numbers bounce around from quarter to quarter and there are always revisions. I mean the Americans would look at 1.3 and annualise it and say this economy is growing a 5.2 per cent, that’s how they do things. My view has always been, look at it over the course of the year, yeah okay if you look at it over the course of the year, it is 4.9, which is still remarkably strong but I also think that if you look at the June quarter will take into account the extraordinary strength of this quarter that over the course of the year to June, it’s more likely to be in the 3- to 4 range. That’s what I say.

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Does 1.3 increase the probability of getting a negative result in the next quarter and does that suggest you should go to an election before September 2 when the next Accounts come out?

No and No. I don’t think so and I don’t think so.

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In view of this …

Well, I was going to go on and say in the sense that each quarter is a growth on a quarter before, you tend to get this see-sawing result, don’t you? But it is true to say over the year to March of 1998, the Australian economy grew at 4.9 per cent. That is entirely true to say, which is remarkably strong growth. I think over the year to June, it’s going to be in the high 3s, you know, up to 4s. I’ve always believed that and the figures today confirm me in that belief. I think over the year to June of 1999, it’s going to be in the lower 3s.

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Mr Costello, the Premiers are not the only recalcitrants in Australia. Support for the GST seems to be falling. How hard is it to sell GST to the Australian public?

I think it’s always tough to sell change and it’s particularly tough to sell change when you have opportunistic political forces who are prepared to try and play on those fears. What is the real objection of the Australian Labor Party, here? What is their real objection to broadening the base of the indirect tax system?

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It’s regressive.

Well why … Because it’s regressive. Why aren’t they concerned about the current regressivity of the indirect tax base? It doesn’t ever seem to worry them.

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They don’t want the mix to change because that would increase the regressivity.

Let me make this point. The mix changes if you do nothing. The one infallible way of changing the tax mix in Australia is doing nothing, as I said yesterday, because goods as a proportion of the economy are declining. To maintain the current base will be to change the tax mix. The only way that you will get the indirect tax to GDP ratio stabilising at the 7 per cent level would be about a $5 billion increase in indirect taxes. The mix is changing because the economy is changing. If you wanted to change the mix, you would be changing the taxation system. No, I’m sorry. There is no sophistication to their position. It is straight political opportunism.

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What’s the ideal mix, then? Have you got a revenue income to indirect tax split and a possible year for that that you might want to get back to?

I’m not setting out any markers now but it is straight political opportunism. Straight political opportunism. Here is a group of people who say whatever the interests of the nation, we will play on fear for political advantage. There is no objection. Now, the only way that they can maintain the current indirect tax base is with a $6 billion increase by 2001-2002. That’s just to maintain the current indirect goods tax base to GDP. Now, where do you think the income tax base to GDP is going to be by then? Let me tell you. The opposition to a broad based indirect tax works out where it always worked out. Where it worked out in 1993 – with hikes in wholesale sales taxes and increases in income taxes. It’s got to.

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Mr Costello, if you …

Two more questions. Sorry, can we … Just somebody who hasn’t had a go. Sorry.

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Here we are in Canberra, you’re announcing what you say are extraordinarily good growth figures and you’re, compared to other countries, you’re right. But clearly, if you look at Queensland, there are a lot of people who think that they’re not enjoying the benefits of this growth. Isn’t that the core of the problem in Queensland?

I don’t think so. Look, if you’re saying that you’ve got some material that shows that people in Queensland think they’re not enjoying good growth, other than Newspolls on the One Nation Party, I’d look at your evidence. But I think it’s a long bow to say that …

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People think they’re missing out.

… that is the cause of One Nation. I think that there are all sorts of complicated reasons. Now …

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But doesn’t security come into the base of it?

Well I think that there are all sorts … No, I think there are all sorts of complicated reasons. There are some people that like to own guns. There are some people that don’t want immigration. There are some people, I’m sure, that feel economically insecure. I think that there are some people that are worried about urban drift. But urban drift is not a feature of Australia, by the way, or of these GDP numbers. This is a worldwide phenomena.

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But nonetheless, the fact that the Labor Party can run a scare campaign and Pauline can effectively run a scare campaign. Isn’t a large measure of that that people are insecure and don’t these figures underline that in a way that we’ve had 4.9 per cent growth and jobs growth is still trickling along. I mean, it’s picked up but it has essentially been trickling along. It’s probably as good as it’s going to get, isn’t it?

Well, you know, jobs growth has been improving. The unemployment rate is now lower than it’s been for 8 years, lower than it’s been since the 1990 recession. I’ve made this point before. Don’t under-estimate the damage that was done to this country by the 1990 recession. Do not under-estimate that. It’s taken us 8 years to get back to pre-recessionary levels in terms of unemployment. Now, you can see in these numbers good grounds for continuing employment growth and falling unemployment. You can see in these numbers low inflation. Can I make this point. Often people who are threatened by change are older people. Low inflation is great for older people, for retirees, because it means you’re preserving the value of their savings.

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They’re also getting low interest rates on their savings.

Yes, they’re getting low interest rates because inflation is low. Don’t let anybody tell you that, you know, it’s a gift to get a 12 per cent interest rate when inflation’s at 10 because, not only are you only getting a 2 per cent return, but on a 10 per cent inflation rate the value of your capital is declining 10 per cent a year and over 5 years your capital’s value has halved. If you’ve got an inflation rate at 2 per cent, the value of your capital halves over 50 years. And it’s a common misnomer to think that somehow high nominal interest rates in a high inflationary society are good for you. You know, you’ve got this stream up here but your capital is being stolen. Now, all I say is good economic policy helps retirees. But at the end of the day, you know, there are thousands of factors that contribute to these but I wouldn’t say good economic policy is one of them. Can I say to you, I think that you would find a lot more insecurity if your growth rate, instead of being 4.9 per cent, was minus 4.9 per cent. Or your inflation rate, instead of being 2 per cent was 20 per cent. Or your interest rate, instead of being 6 per cent, was 16 per cent. In Asia, you have got minus 4 per cent growth rates in some countries. In Indonesia, you’ve got, I think it’s, you know, it’s significantly more. When you get into that kind of climate, you see riots on the street. Now don’t say, “Oh, good economy – that’s caused people to be unhappy.” You know, people are happy or unhappy for a variety of reasons but I’ll make this point. They’re happier with a good economy than with a bad one. It may not solve their marriage problems, it may not solve their child support problems, it may not solve every other problem they’ve got, but it sure makes a big difference to their economic position. And when it’s gone, when it’s gone, you notice it. Go up to Korea tomorrow and ask them whether they would currently prefer 4.9 per cent growth to minus 3.5. And run your line about how 4.9 is making people unhappy in Australia. See what your average Korean says to you.

Thanks very much. Thank you.