Transcript No. 99/12

Hon Peter Costello MP

Doorstop Interview

Adelaide

Tuesday, 2 March 1999

1.00 pm

E&EO

SUBJECTS: Retail Trade Figures, Balance of Payments, Building Approvals.

TREASURER:

Let me say that todays retail trade figures for January show exceptionally strong growth in the month of January – about 5.2 per cent – which shows a continuing strong domestic economy and I think well welcome the fact that consumer confidence seems to be so high and thats being buoyed of course by low interest rates. One of the consequences of the Asian downturn, of course, is that prices for exports are historically low. That means that whilst our exporters have been fantastically successful in diverting exports out of Asia, prices have been lower than would have been the case under normal trading conditions and thats led to an increase in the current account deficit, now at about 5.5 per cent of GDP which is in line with forecasts. Its important, however, to recognise that this means theres no room for complacency in economic management. The Governments steps to keep the Budget in surplus have to continue. We cant afford to loosen on our Budget policy and it makes tax reform even more important. At a time when your export prices are low we are taxing all of Australias exports under the wholesale sales tax system, and with the new tax system we can take $3.5 billion off the cost of exports and give our exporters a go.

Were you surprised at the, the figures?

The current account figure? No, the current account figure is in line with the forecasts the Government has been making. We said that the current account would be about 5 per cent of GDP in this year and thats what it looks like it is. In fact, Ive got to pay tribute to Australias exporters, to be in the midst of an Asian recession and for our exporters to have so successfully diverted exports, to mean that the current account in an Asian recession has held to the levels it is, is a great tribute to Australias exporters. But again I say you cant afford to get complacent about this. If we were in this situation with a Labor Party $10 billion deficit or a Labor Party 10 per cent interest rate, Australia would be in deep trouble now. Its the Governments efforts to put the budget back in surplus and to bring down interest rates thats kept the domestic economy strong, kept people in jobs.

Are you still confident about the growth figures?

Well, the retail trade figures today were again very strong and what, what that is telling you is a strong domestic economy, right at the time you would want it, in the middle of the biggest external downturn weve experienced in our lifetimes. Dont underestimate this. The downturn in Asia is the worst downturn weve seen in our lifetime. Its the worst economic climate since the second World War and in that climate where the external events have turned against you, you would want to keep your domestic economy strong and we are keeping our domestic economy strong.

With the retail trade figures, if spending remains strong, does that decrease the possibility of an interest rate cut?

Well, I never comment on the future movements in interest rates but I make this point that, why is retail spending strong? Retail spending is strong because people have got money in their pockets as a result of low interest rates. Governments – interest rates – the reductions in interest rates which have occurred under this Government have put $4000 of after tax income back into the pocket of your average Australian mortgage holder . . .

Are you worried about . . .

Now thats, thats benefits that youre now starting to see in strong retail trade.

Are you worried about the housing figures?

I think that the housing figures are consistent with the building cycle actually and coming on a day when retail trade is so strong, it shows that theres strong domestic demand there. But the housing cycle is working its way through as we wouldve expected.

Thank you.