Mr Defterios: Asia’s economic crisis may prompt Australia to revise down its forecast of 3.6 per cent growth this year, despite the possible revision, inflation is less than 1 and a half per cent, and Australia is headed for a balanced budget. But with two-thirds of its trade department on Asian nations, will Canberra be able to stave off effects of the Asian crisis? Let’s find out from Peter Costello. He of course is the Australian Treasurer attending the IMF – World Bank meetings in Washington. Mr Costello, it’s good to have you on Business Asia. Welcome to you.

Treasurer Costello: Thank you very much.

Mr Defterios: First off, this response to Japan’s stimulus package. It was not overwhelming by any stretch of the imagination, Peter, and the currency market responded with fairly harsh words, in the sense that it did not support the yen in the communique by the G-7.

Treasurer Costello: Well, I think everybody’s looking to a bit of stimulus in Japan. There’s a lot of difficulty in actually getting to grips with the way in which these packages work. And I think, as well as stimulus, what people will be looking at are the Japanese moves in relation to their financial system. This will be a big test. We hope that the Japanese can move in relation to getting non-performing loans under control in the financial system. And if they can, I think that things can turn around in Japan.

Mr Defterios: We talk about tax cuts, but some are sceptical that tax will do the trick because the Japanese consumer’s been burned, as you well know, over the last two years by the Government, with flip-flopping on taxes. Do you think that tax cuts will be enough, or greater public spending is also necessary?

Treasurer Costello: Well, in relation to the tax cuts of course the question is the amount and the duration. That’s what people will be looking for, to see whether they’ll give ongoing stimulus. But I think that the stimulus has probably got to be across-the-board and we would certainly welcome moves towards that. But outside the stimulus of course, there’s still the financial system and I think that that’s one of the things that people are looking to very much to make sure that the financial system – that steps are taken to clean it up and get it on a structurally sound basis. I think that’s the thing that would give a great deal more optimism in relation to Japan.

Mr Defterios: It looks like because of Japan’s problems and the crisis in Southeast Asia that your growth could suffer by one full percentage point, down to 2.4 per cent. Do you think in fact we’ll have a strong second half, where that won’t have to happen?

Treasurer Costello: Well, in Australia the growth at the moment is up around four, it’s a little under probably 3 and a half to 4, somewhere around there. In the next financial year we think it’ll be probably closer down towards, 3, than 4. But these are still quite strong growth rates. It’s on a low inflation base. We’ve got a very strong fiscal position. We’ll be coming back into a surplus in the next financial year. And although trade with Asia will take a little bit off Australian growth, the fact of the matter is that these are strong prospects. They would have been better still, had it not been for the Asian downturn. But by world terms, very strong prospects in Australia with a lot of opportunities, I think, coming out of the Asian situation. Australia is now looking very much like a good place to do business as a regional headquarters. The financial system has stood up remarkably well. It’s strongly regulated, hasn’t skipped a beat on any of the financial or stock markets. And although we, of course, would prefer a stronger position in Asia, the outcome of all of this will have some positive as well as some downward effects on the Australian economy.

Mr Defterios: Peter, we don’t have a lot of time, but I’d like to ask you about this labour dispute at the waterfront we’re seeing right now. Why is it important for the Government to take a stand against this strike that’s now taking place by the labour unions on the waterfront?

Treasurer Costello: Well, Australia is a trading country. We’re an island country. All of our exports and imports come in through the docks, and we want the best docks in the world. And we’re determined to make sure that the productivity on the Australian waterfront improves. We have a historic opportunity here – to break down one of the areas which had low productivity in the Australian economy, and make it world best practice. And our Government will do that – we’ll do it – because it will facilitate our trade, and we’ll do it because trade is such an important part of our economic agenda.

Mr Defterios: Okay, we’ll have to leave it there.

Treasurer Costello: Thank you very much.

Mr Defterios: Thanks for joining us on Business Asia. It’s great to have you. Peter Costello, once again, the Australian Treasurer joining us from our Washington bureau.