Transcript No. 2000/04

TRANSCRIPT OF

TREASURER

The December quarter has come in at a very low 0.6 per cent with inflation through the

year measured at 1.8 per cent, which makes Australia one of the low inflation economies of

the world on a very strong growth rate. You have an economy growing at 4 per cent on an

inflation rate of 1.8 per cent – shows a very strong growth, low inflation economy. And in

world terms certainly at the front of the row. As I said yesterday, it does not show

evidence of overheating in the Australian economy. In fact, if we can continue to grow the

Australian economy at 4 per cent with low inflation you’ll continue to get the kind

of jobs growth which has produced over the last nearly four years since the Government was

elected, nearly 624,000 new jobs. The CPI showed that food prices increased marginally,

clothing prices fell, housing prices increased somewhat. There were increases in tobacco

as a result of some changes in tax. The benefits of the Government’s rebate, private

health insurance rebate, were shown in lower prices. And there were also good results in

relation to motor vehicles. But this is the kind of outcome that economic policy should be

directed at producing – strong growth, low inflation, jobs growth, the opportunity for

people who are out of work to find work. And in international terms this is a very strong

result for Australia and makes the Australian economy in the year to December of 1999,

again, one of the lead economies of the world.

Why is there all this talk about putting up interest rates?

Well, I don’t see any sign of the Australian economy overheating. I think most of

the discussion in relation to interest rates has been focusing on the world economy. And

you’ve got to remember this. We came through the biggest financial downturn in our

era – the Asian financial crisis. We came through with a strongly growing economy.

But as the economies of Asia begin to pick up and the international economy starts looking

stronger, and you see that most of the countries around the world have rising interest

rates, in fact the US and the UK have higher interest rates than Australia, official

interest rates than Australia, people started talking about strong global economy and the

focus shifts to interest rates. And I think that’s the reason for much of the

discussion.

Do you share the Prime Minister’s view that speculation from the major banks about

interest rate rises are self-serving?

I made the point last night, I’ll make it again. The media seems to be able to

find an economist who’ll give a forecast almost on a daily basis . . .

What, so it’s the media’s fault now?

No. And I said, as I said last night, giving forecasts on a daily basis, which means

you can give out 365 of them, means sooner or later you’ll get one of them right. But

if you’re giving out 365 forecasts, and it’s the demands of getting your head up

on television, I’m not saying it’s the media’s fault, I think some of these

economists love getting their heads up on television, you can also get an awful lot of

them wrong. We do forecasts twice a year. We do a Budget, and we do a Mid-Year Review. We

don’t have the luxury of some of these bank economists who are able to give forecasts

on a weekly or a daily basis. So we’ve got to be much more cautious about ours. And

because they’re giving so many, sometimes they’re right and sometimes

they’re wrong. But you’ve got to judge them all on their own merits.

Mr Costello, it is . . .

Let me make this point. I’m going to make one other point. Most of the bank

economists as I recall in 1998 were forecasting severe downturn in the Australian economy

as a result of the Asian financial crisis. And I can recall saying that I thought

Australia would weather the Asian financial crisis. There were some people who have said

that I was wrong. If I was wrong, I was wrong because I under-forecast the growth in the

Australian economy. Not because I was holding out against the recession forecasters. It

would be an interesting analysis now, and you might like to do it, go back and have a look

at the forecasts some of the banks were putting out let’s say, late ’97, early

1998 as to what they thought would happen to the Australian economy.

But the banks aren’t just forecasting interest rate rises, they are all calling

for interest rate rises, suggesting that that’s what should happen. And on the other

side every business economist, business group and so on are against it. So, there does

seem to be a divide and it is unanimous amongst the banks. Why do you think that is?

Well look, somebody from one of the banks said today, and I think perfectly properly

said today, what we’re trying to do is we are trying to forecast what we think will

happen. Now, I said last night, I’ll say it again, anybody’s entitled to say

what they think will happen. I don’t begrudge them for a moment, they are perfectly

entitled to say it. They might be right. They might be wrong. You can judge them for

yourselves. But I have to be a little more careful in my forecasts. I don’t do it on

a weekly or a monthly basis. If I make these forecasts it can actually influence the

markets and so I’m quite circumspect in what I do. And what they do is their

business, it’s up to them.

Do you have to be more careful than the Prime Minister?

Well, he’s careful too. We’re always careful. But I have to be very careful

in what I say. And as I always say in my press conferences, I studiously refrain from

saying anything about future directions in interest rates because that can influence

markets. I can talk about past events, and one of the points I’ll make is, that as

you can see from past events because we ran a low inflation economy, we had lower interest

rates than other countries. Now this is a pretty new experience for Australia. The

official rate in the US at the moment is 5.5 per cent, Australia is 5 per cent. We’ve

been below the US now for some considerable period of time. The official rate for the UK

is 5 – per cent, we’re at 5 per cent. We’ve managed to run a, in the

past, a low interest rate policy on the back of low inflation and high growth and this is

a very good combination for the Australian economy. But I’m very careful about not

prognosticating future events because, as you know, that can affect markets.

Treasurer, when will you tell local councils which of their services will be GST-free?

Well, I’ve sent the list out to State governments. I believe they’ve probably

got it this morning. Some of the State Governments have said, they’ve asked me,

whether or not we can hold back its public release while they look at it. And I’ve

said to them, if they want to keep it confidential and they do keep it confidential, then

I’ll give them the time to consider it. But as of now, it’s with the six State

and two Territory Governments that are considering the list. Can I make this point. The

list has largely been drawn up by the States. This is a very important point for people to

grasp. All of the revenue from GST goes to State and Territory Governments. We are putting

in place a new taxation system to give revenues to State and Territory Governments. In

relation to the application of the base, it requires the agreement of six State and two

Territory Governments and the Commonwealth. They came to us with the list of what they

wanted in the base, we have drawn that in on the consensual basis. It’s now back with

them, they wanted a final look at it. And at their request, we are not releasing that

until they have time to reconsider it. Now if the States can get back to me and sign off

on the lists, let’s say, by Monday, we can release it on Monday.

Treasurer, can you guarantee that rates won’t rise as a result of the list that

you’ve drawn up (inaudible) . . .

Rates? Well, there is no GST on municipal rates. So there is no reason at all for

municipal rates to rise. Now, you’ve seen how prices move. Prices move all the time

in an economy, and mostly they move because of competition in a particular industry. This

idea that prices only move because of taxes, prices predominately move because of

competition in a particular industry. The idea that, you know, you can say, every price

rise is somehow tax-related is quite silly. And I saw one of the newspapers in Melbourne

today, tried to make the quite silly point, that because football clubs were putting up

their membership fees this must somehow relate to GST. I know a number of the Presidents

have come out today and said, no, football clubs have been putting up their membership

fees for all sorts of reasons. They might be paying more salaries to their players. They

might be trying to put in place better facilities for their members. And that just

illustrates the point that in a competitive economy what guarantees prices mostly is

competition. Now, with rates, council rates, they’re not even taxed. There can’t

be any basis for any movement on a rate because of a GST. But councils might move their

rates for all sorts of reasons. I don’t know, they might move them because they want

to give better services. Some of the councils might actually reduce their rates because

they’re getting more efficient. But, movements in rates and movements in prices

predominantly are a result of competition. And whilst we’re on football clubs, I also

noticed that there were some football clubs that contained their price increases very well

and I’ll commend those clubs, some of them are very well run. And I noticed one in

particular was right down the bottom of the list. A very well run football club which has

managed to contain its costs. And just as I say with banks, you know, if your bank is

giving you a bad deal go to a bank that gives a good one. If your football club is giving

you a bad deal, go to a football club that’s containing its price rises. I happened

to notice that there was one starting with “E” which was very well managed and

doing well on price rises.

Mr Costello, is Mr Hockey’s meeting with business leaders in Melbourne today an

indication that the Government is worried about how business is now reacting to the GST?

I don’t think so. I think we have meetings with business on a pretty regular

business and we ensure a fair flow of information. That’s what business likes and

that’s what the Government likes and that’s part of the normal process of doing

that.

How long do you think the economy can sustain a low inflationary environment?

Well, I think the prospects for growth in the current financial year are good. The

first quarter of 1999/2000 show growth continuing at 4 per cent, in the first quarter. I

think the prospects to the extent that you can forecast them for 2000/2001, are pretty

good. I wouldn’t go further than that because I think it’s too far into the

distance. But I have made this point before, that our aim, our aim in Australia ought to

be to continue to grow a strong economy with low inflation. And if you can grow an economy

at 4 per cent and grow employment at 2 per cent, then you can absorb new job seekers and

give job opportunities for the unemployed. That’s what we’ve done in the last

four years and we’ve grown jobs by a net 625,000. If you did it in the next four

years, if you did it in the next four years and you grew employment by 600,000, 700,000 or

800,000, then you could seriously bite into the unemployment in this country . . .

How realistic is that though?

Well, I’m making an arithmetic point.

(inaudible) pie in the sky.

Well, what, it’s pie in the sky to grow an economy at 4 per cent?

That the current conditions will prevail over the next four years.

Well look, it’ll be tough. It’ll be tough. But I make this point. That’s

the kind of benefits that, if you’re able to accomplish it, the kind of benefits that

you would get would be great employment opportunities. Can we do it? Well, it would be

very tough. And you won’t do it without policy changes. You won’t do it without

a new taxation system. You won’t do it without improved industrial relations. But if

you did it, that would be the kind of benefits that you could get. Now the fact is that we

did do it in the last four years. If you could do it again for another four years, and

it’s a big “if”, and I underline that “if”, you would get the

same kind of benefits. You could get 600,000, 700,000 new jobs which would be a wonderful

thing for this country. But, you won’t do it unless you have policy changes, new tax,

good industrial relations. You won’t do it if you let wages get out of control and if

the unions are successful in pushing for wage breakouts because that will push up

inflation. And you won’t get it unless you have good, strong economic policy. But if

you could get it, it would bring great benefits to Australia.

Treasurer, do you see any signs of wage breakouts at this point?

Well, I see in the building industry that, particularly here in Victoria, that building

unions are pushing for reduced working week and are pushing for wage increases. And I make

this point, that you’re not going to get strong growth on low inflation if people

have wage breakouts. At the end of the day a wage breakout would affect the long term

sustainable growth of the Australian economy and in the long term it will affect jobs. It

will affect jobs. And that’s why I keep on making these points. We’ve got to

keep inflation low. We’ve got to make sure that our wages are consistent with low

inflation. People do not have to get wage rises to chase prices. I mean, there’s how

prices have moved in the last 12 months. Prices have moved in the last 12 months by 1.8

per cent, right? By 1.8 per cent. The game in Australia has changed. We no longer need

wage rises to chase prices. And on 1 July of this year, everybody is going to receive a

tax cut. So on the same wage you’ll be taking home more money. So we don’t need

wage rises to chase prices. What we ought to ensure we do is, we keep our wages in line

with that low inflation goal. We keep our low inflation goal in line with our growth goal.

And if we can do that we can see the kind of job benefits that we’ve seen in the last

four years.

Mr Costello, the New South Wales Government has suggested a bail-out package for the

national textiles workers on a dollar for dollar basis with the Commonwealth. Is that

something you’re willing to consider?

Well, the Government’s position is that there ought to be a safety net arrangement

where employers obligations are not met because the employer has become insolvent for one

reason or another. And my sympathies, as I said last night, are always with the employees

in this particular situation. The Government will be looking at a safety net. We’ve

put some proposals to the States and we’ll be discussing them in our own Cabinet

meeting the week after next. So I look forward to some progress in that area. Thanks very

much.