TRANSCRIPT
of
HON PETER COSTELLO MP
Treasurer

3AW with Neil Mitchell
Thursday, 20 September 2001
8.45am

 

SUBJECTS: Australian economy, Pasminco, Ansett

MITCHELL:

In our Canberra studio is the Federal Treasurer, Mr Peter Costello. Good morning.

TREASURER:

Good morning Neil.

MITCHELL:

Is this, the economic warfare starting to bite?

TREASURER:

Well, these terrorist incidents were designed to try and disrupt the financial system and the political system of the United States. The financial system has continued operating and the stock markets are now re-opened. And there are some industries that have been dramatically affected. Airlines is one, insurance is another. But, it will only have second round effects to the degree that it impacts on consumer confidence and on business confidence. And I would say to people that it is important that they go about their normal business, that life returns to normal, as far as is possible, because you wouldn’t want to have those second round effects in a world economy which is already very weak.

MITCHELL:

It is, I know it is only anecdotal, there was the Morgan survey, but it is anecdotal, but I have got a number of people who’s telling me they are putting off decisions to buy houses, to buy even furniture, to both those sort of things. The confidence has taken a battering, hasn’t it?

TREASURER:

Well, I don’t think they should put off decisions in relation to houses, and furniture, and so on. Interest rates are at historical lows in Australia. We haven’t had interest rates as low as this for 30 years. And the Australian economy in the June Quarter grew at 0.9 per cent, which, for that quarter, was one of the strongest in the world, stronger than Europe, and Japan, and America. So, downturns in confidence, Neil, can become self-fulfilling if people talk about putting off decisions for long enough, and do put off decisions for long enough, then that becomes a self-fulfilling downturn in economic growth. But I would say to consumers that there is no reason to think that. Interest rates are good, our economy was strong in the June Quarter.

MITCHELL:

I understand your reluctance to talk about interest rates, but is there room for more movement?

TREASURER:

Well, Neil, our interest rates are at historical lows. The official rate in Australia is at 4- per cent. In response to the New York terrorist attacks, many of the central banks around the world, the United States, the European Central Bank and then subsequently, the Bank of England, reduced rates. We didn’t in Australia, and that is because our economy is growing faster than the American economy, and the Japanese economy, and the European economy. So, there wasn’t an immediate response in Australia. But as the Bank has made clear, and as the Government has made clear, we continue to look at our inflation targets, and we continue to ensure that our monetary policy is directed towards good economic outcomes.

MITCHELL:

These are unprecedented times, these are unprecedented times…

TREASURER:

Absolutely unprecedented. When I have spoken to colleagues in America, and you say to them the kinds of questions you are asking me, what effect do you think this will have on the American economy? What they say is, we don’t know, we have never lived through an incident like this before. We have no experience to guide us. We can’t go back to a historical event like this and say that is the way it worked out. So…

MITCHELL:

What are the scenarios for Australia? What are the implications for Australia?

TREASURER:

Well, this is the way I see the landscape, Neil. The United States economy was weak anyway. It didn’t grow in the June Quarter. This will be a shock, with direct impacts in airline industries and in insurance industries. They will turn down, there have been huge insurance losses. That will have a dampening affect on the United States in the current Quarter, and if it feeds into confidence, subsequently. So, you would have to say that in the United States, things are not looking good.

MITCHELL:

Is a recession inevitable in the US?

TREASURER:

Well, in the June Quarter the economy didn’t grow, and if the September Quarter were weaker then it would be negative.

MITCHELL:

Yep.

TREASURER:

And we won’t get the September Quarter in the United States until it finishes.

The September Quarter would finish at the end of this month and then sometime

in October you would get the flash figures. The bad thing for the world is that

Japan is already in recession. Japan is in, second largest economy in the world,

is, in a pretty deep recession, and Europe is not growing, and countries like

Singapore, in our region, is in a deep recession, and Taiwan and most of the

South-East Asian economies. So, it is a pretty bleak picture out there. The

world economy is weaker than it has been in the last 10 years. That will affect

Australia. Of course we are affected. Our exports have to go out into to world

markets. The good thing from the Australian point of view is we are going into

this down-turn in a stronger position than any of those other countries. But,

we will be affected.

MITCHELL:

In what way?

TREASURER:

Well, it will make it harder for our exports to be sold if the United States economy and the Japanese economies are turning down. It is harder for our exporters to get out on the markets. They have been protected, actually, by the currency, by the tax changes we made. We took taxes off exports and so far they have held up pretty well. But, you then get these confidence effects. If people start looking at the events in New York and saying, as you have already reported, oh well, I will put off buying materials, or furniture, or something, that begins to feed into the real economy. And, so, my message to Australian consumers would be that we had a strong growth in June, our housing cycle is going well, our interest rates are going low, they are at historical lows…

MITCHELL:

Yep.

TREASURER:

…and, so, in relation to all of those matters, it is quite a good time to continue your spending. And I know the events have been terrible, they have shocked the world, they have shocked us all, but that is no reason to change your buying behaviour.

MITCHELL:

Mr Costello, I must say, that you, I know what you are saying is what should be said, but you don’t sound very convinced? I mean, it’s almost as if this is what we should be saying but we are so uncertain we don’t really know?

TREASURER:

Well Neil, this is tragic loss of life. This is five thousand people have, or thousands of people, I don’t know if it is five thousand, thousands of people have been killed. And there is a lot of uncertainty, I think there is a lot of grief in the community. But, the facts are these. Our economy, in the June Quarter, grew faster than America, and Europe, and Japan. Our interest rates are low at 4 – per cent. You have not seen a home mortgage interest rate as low as this since about 1970, in the last 30 years, and our house building cycle is strong.

MITCHELL:

Okay, can I ask about Pasminco, the mining company, another Melbourne based company, into administration, four thousand jobs potentially in several states. Is there anything the Government can do about this? Any role for the Government in this?

TREASURER:

Well, I spoke to the Chairman of Pasminco last night, and from what he told me, he believes that the administrator will continue to trade, and that the business will continue. And I believe that the employment of those people will continue, that was the indication that the administrator was given. So, when you go into administration what it means is that your creditors can’t step in and start claiming their debts. You get a bit of a breather to continue. I think Pasminco is going to continue.

MITCHELL:

It is another belt for the country, though, isn’t it? Potentially?

TREASURER:

Well, I hope not. If, you know, the Pasminco, as I understand it, all of its mines are still operating, it has just got a moratorium in respect of its creditors.

MITCHELL:

If Australia’s position is as you say, why is the dollar down?

TREASURER:

Well, the dollar dived in the aftermath of the terrorist attacks in New York.

What it looks like happened, is that, as you would imagine, with the New York markets closed and the world financial system under a bit of threat, people started retreating their money back into their home currencies. And the…

MITCHELL:

Is it starting to come back?

TREASURER:

…the largest home currency is the US dollar, and you saw a similar movement in relation to the Yen.

MITCHELL:

Is it starting to come back?

TREASURER:

The dollar?

MITCHELL:

Yep.

TREASURER:

Overnight the dollar was still trading below fifty.

MITCHELL:

There will be, presumably, problems for you balancing a Budget, or delivering a surplus, given the increased costs that we will now be facing, both from what happened in New York, and also the refugee situation. The possibility of sending troops, or the Defence Budget being increased, because of what has happened in the United States. Will you still be aiming for a surplus?

TREASURER:

Oh yes. You know, we have driven the Budget into surplus. We have now had four surplus Budgets and we are aiming for a, we are budgeting for a surplus in this financial year. Now…

MITCHELL:

This will put real pressure on though?

TREASURER:

Of course it will. Yeah, the big pressures will be the following. The unauthorised boat arrivals, that is a very big pressure. Picking them up, maintaining them, processing their applications, building facilities on Nauru, that is a big pressure. Second pressure, possible military engagement as part of the US response. Third pressure, Government paying entitlements to Ansett employees.

They are three very large items which we didn’t budget for fully in May. We budgeted for part unauthorised, boat arrivals, but not of the dimension that we have seen…

MITCHELL:

But you still think you’ll get a surplus?

TREASURER:

…and we are still budgeting for a surplus, yes we are. We think that, you know, after the 5 years of Labor debts when they ran up $80 billion it did enormous damage to the country. We paid off $60 billion, we want to keep the Budget in surplus. It is one of the reasons, Neil, why we are proposing the ticket tax of $10 in relation to the Ansett employees. The claims to pay-out the Ansett employees their just entitlements, and they deserve it, they absolutely deserve it, could be around $350 million.

MITCHELL:

So, are we looking at more of these sort of levies on the public in these situations?

TREASURER:

I don’t think so. This is an area where the Ansett employees have a just entitlement. They have been left in the lurch by their employer. The Government has decided to step in and it is able to re-coup some of the costs from the industry itself.

MITCHELL:

But I did read the Prime Minister saying that there could be levies in the future to avoid an unreasonable strain on the Budget. Are we looking at such things?

TREASURER:

Well, I hope we are not, because I hope that we don’t have failures of the dimension that we saw in relation to Ansett. This is a pretty unique industry.

MITCHELL:

Do you think the Kiwi bashing was, the Kiwi relations, Australia’s relations with New Zealand, are they going to suffer permanently from what is going on?

TREASURER:

I hope not. Look, I would make, I would make this point, I think it is very important to get this point to the public. The Australian Government has no complaint against the New Zealand Government. We have no complaint at all against the New Zealand Government. We have a complaint against Air New Zealand. Air New Zealand is a private company. It is not owned by the Government of New Zealand, it is a private company with private shareholders, just like, well, Qantas, I guess. And we have a very big complaint against that company. We believe that that company left its subsidiary and their employees, the Ansett employees, in the lurch, and didn’t pay their responsibilities. And we want to make sure that that private company faces up to the obligations.

But this is not a complaint against the New Zealand Government. The New Zealand Government didn’t own that company, and it is the company that has left its subsidiary, Ansett, and their employees, in the lurch.

MITCHELL:

Okay, how do you feel personally at this time?

TREASURER:

Oh Neil, it has been a tough week. We had the terrorist attacks in New York, we had the subsequent instability, we had the unauthorised boat arrivals, we have had the Ansett matters. It has been a tough week, but I think the Government has been very focused and very decisive in meeting these challenges.

MITCHELL:

Thank you for your time.