TRANSCRIPT OF
THE HON PETER COSTELLO MP

Treasurer
Press Conference

Wednesday, 4 June 2003

12.00 pm

 

SUBJECTS: National Accounts; Drought; Water Rights; Interest Rates; Leadership; AMC.

TREASURER:

Australia’s GDP grew by a solid 0.7 per cent in the March quarter and 2.9 per

cent over the year. Against the background of a very weak global economy and

the most extensive drought recorded in Australia’s history, this is a very solid

result.

In fact, the non-farm economy grew by 0.8 per cent in the March quarter and

4.1 per cent over the year. It is estimated that the drought subtracted about

0.1 per cent from GDP in the March quarter and the ABS estimates that it will

reduce agricultural production over 2002-03 by 28.6 per cent, by 28.6 per cent,

which will give you an idea of the severity of the drought and the way in which

it is now impacting on the economy and on GDP.

Household consumption was strong in the March quarter. Private business investment

fell but that was coming off a very strong preceding quarter in December, particularly

with the Qantas aircraft which were imported. Exports subtracted from growth,

net exports subtracted from growth, again that is the effect of the weak international

economy and of course the drought which is affecting rural exports.

Profits have been strong. The National Accounts measure of profits recorded

2.2 per cent growth in the quarter to be 9.5 per cent higher over the year.

And inflation remains contained.

I have indicated previously, and it is worth noting them again, that there

are downside risks in relation to growth in Australia, those downside risks

are the weak international economy, the drought is not yet ended, it has ended

in some areas but there are other areas where conditions are still not conducive

for the planting of winter crops. In the next quarter we would expect the impact

of SARS to come through, which is going to affect tourism, again recorded as

a service export, so that will affect exports in the next quarter. And in the

next quarter you will be seeing corrections in other areas as well.

So, the international climate is frankly gloomy, we have a domestic event,

which is frankly difficult. The fact that the Australian economy continues to

grow and grow faster than comparable advanced economies is a testament to its

resilience. The result today is in line with our forecast of 3 per cent growth

in 2002-03. For the reasons I have expressed, we would expect a somewhat weaker

June quarter but practically any growth at all in the June quarter will bring

growth in at about 3 per cent which is what we forecast in the Budget.

All in all, a difficult international environment, a dreadful drought but the

non-farm Australian economy continues to perform strongly.

JOURNALIST:

Do you believe parts of rural Australia are in depression?

TREASURER:

Well, this is just terminology isn’t it. But the drought will reduce agricultural

production by 28.6 per cent in 2002-03. Now admittedly we did have a couple

of good years in 2000-2001, but when your production falls by 30 per cent that

is a very, very significant result.

JOURNALIST:

John Anderson describes recording a depression in some areas of Western New

South Wales.

TREASURER:

Well, I wouldn’t quibble with his description. A fall in production of 30 per

cent is dramatic, very, very dramatic. Now, this is a story of great human heartache.

The Government as you know made assistance, drought assistance, available to

every farmer in New South Wales, every single one, subject to the assets and

the income test. So, that will give you some idea of the extent and the reach.

JOURNALIST:

So are there structural reforms you would like to continue to make that sector

more (inaudible)?

TREASURER:

Well, if I could think of a structural reform which would guarantee rain, I

would pursue it Sid, but none has come to mind so far.

JOURNALIST:

What about national water rights, would that assist in (inaudible) drought

(inaudible)?

TREASURER:

I think national water rights, regardless of the effect they have in relation

of drought, are absolutely essential for this country.

JOURNALIST:

Should they be allowed to traded outside the catchment areas?

TREASURER:

They should be allowed to be traded, certainly. The idea of water rights is

to give security of title to the people that have them so that they can be traded.

And that will allow those people that do have the water rights to utilise the

economic value either in their own production or in somebody else’s and it will

certainly allow the allocation of water rights to the highest productive uses.

JOURNALIST:

It says here you expect the June quarter growth to be slower, you said (inaudible).

You are not expecting the economy to stall completely are you?

TREASURER:

No, I am just giving notice that I would expect that the June quarter will

be a weak quarter. Why? The drought has not ended. We know that exports, net

exports, will detract again. The global recovery is still a way off, the SARS

effect in relation to tourism has not come through in these figures, but the

point I am making to you is, notwithstanding that, we have put a large degree

of growth in the bag over the first three quarters and that should enable us

to meet our forecast which is 3 per cent growth in 2002-03.

JOURNALIST:

Is the outlook more positive after that June quarter or is it…?

TREASURER:

I expect, yes, I expect that the largest impact in relation to, well the remaining

impact of drought, the largest impact in relation to SARS, will take place in

the June quarter, yes I do.

JOURNALIST:

Mr Costello, property and business (inaudible). Is that warranted?

TREASURER:

Well, we have predicted that in relation to building, that because it has been

strong for quite some time it would slow and I will just give you the figure

in relation to building.

Dwelling investment fell 0.7 per cent in the March quarter but it was 18.4

per cent higher over the year. We have had a very, very strong building sector.

We have been saying for quite some time that we would expect it to come off

and it is. In some regards that is a good thing, to be frank with you. Because

if that were to continue to run on an unsustainable basis, the ultimate correction

would be even larger.

JOURNALIST:

Treasurer, given the (inaudible) on productivity growth and the large household

debt (inaudible), is keeping interest rates low now the key policy objective

for economic policy in Australia?

TREASURER:

I think low interest rates has been a very big part of the secret of keeping

the Australian economy growing through a difficult period. When we had a lesser

drought than this in 1982, we went into recession and unemployment ballooned.

In 1990, when we had a lesser international downturn, we went into recession

and unemployment went above 11 per cent. In 2002, we had a worse drought and

a worse international downturn, and our economy continues to grow, and has supported

unemployment remaining at about 6 per cent. A big part of the reason is that

interest rates are now so much lower than they were in `82, and in 1990. And

that has been a big part of the reason for the resilience of the Australian

economy. So, I think that is good for the Australian economy. Fran.

JOURNALIST:

(inaudible).

TREASURER:

Well, I don’t set interest rates as you know. Interest rates are set according

to our inflation target which is the agreement which we entered into with the

Reserve Bank Governor and that will be the way in which interest rates continue

to be targeted. Sorry, Fran.

JOURNALIST:

Are the lower interest rates and a strong economy, are they the key, the main

keys to the Coalition’s success, or is it the sort of security issues, the war

and security issues that have come around and the Government’s handling of that.

How would you rate those two issues in terms of (inaudible)?

TREASURER:

I think over, look, over the last, what is it now, seven years, the Australian

economy has outperformed comparable economies around the world. Interest rates

have been low, unemployment has fallen, net debt has been reduced by $63 billion,

over 1 ¼ million new jobs have been created in the face of the Asian financial

crisis and the US downturn, and the worst drought in 100 years. And that has

been important, and it has also been important that the Government has responded

very strongly in relation to security issues, in relation to border protection,

East Timor, Afghanistan and Iraq. These have been key issues for the Government.

JOURNALIST:

Treasurer, the Prime Minister said today that he had discussed with you the

leadership issue within the last 4 weeks, within the last month. Did he give

you an indication of his state of mind at (inaudible)?

TREASURER:

Well, we discussed it on Monday…

JOURNALIST:

No, he said, he indicated another time in the last month.

TREASURER:

Well, I don’t recall off the top of my head any memorable discussion. I certainly

recall one on Monday, but other than that I don’t recall any memorable discussion.

I am not saying that it did not happen, I just can’t recall such a memorable

discussion in the last 4 weeks. Sorry.

JOURNALIST:

Treasurer, did you ask for a commitment from Mr Howard as to the timing of

your succession?

TREASURER:

I, look, the trouble with going into all of these discussions is where do you

stop? Look, we had a discussion, I put my views, he put his views. I have told

you what my views were, he has told you what his views were. I don’t think it

is worth taking it any further than that.

JOURNALIST:

Treasurer, when the time comes, whenever it is, would you expect the Prime

Minister to support you, to succeed him?

TREASURER:

No, I think he has indicated that he doesn’t intend to nominate successors.

And he has made it clear, and it is my view that this is a matter for the Party

Room. I don’t think it is something that he expects to do, nor is it something

that is normally done in the Liberal Party.

JOURNALIST:

Do you expect then that people like Tony Abbott, will have legitimate ambitions

at the time of the transition, and would you expect that there might well be

a contest?

TREASURER:

Look, if a vacancy arises for the Leadership of the Liberal Party, any member

of the Liberal Party is entitled to run. They are the rules. And the Party determines

who the Leader is. I accept that. I have been through a few of these Leadership

ballots, when I, and I have seen all sorts of people run. I saw Bruce Reid run

for the leadership once, and it was stuck in my mind because after the ballot,

he got up and thanked all of his supporters. Since he only got one vote, we

were all rather amused as to who all of those supporters were. But, at the end

of the day anybody is entitled to run for the leadership of the Liberal Party.

Anybody at all.

JOURNALIST:

Treasurer, do you think it is strange that Tony Abbot endorsed you as future

leader, but not Mr Howard?

TREASURER:

Well, Tony and I are great friends, and anything nice that Tony says about

me I warmly accept, and I reciprocate. So, you know in this business if people

say nice things about you, you don’t usually complain, Louise, there are enough

people that say nasty things about you which entitle you to complain.

JOURNALIST:

Is it now your view that Mr Howard will stand through to the next election

and fight the next election?

TREASURER:

Look he made a statement yesterday which laid down two issues, in my recollection,

I don’t have it in front of me. What that means is a matter really, you should

direct to him. I don’t think it is my business to try and put constructions

on those words. He is the person that can best give you that construction.

JOURNALIST:

Treasurer, 24 hours on, are you feeling any more philosophical about your situation

or does your mood of yesterday still stand as strongly.

TREASURER:

Michelle, you know, I take everyday as a new challenge and I wake up early

in the morning and I say, how are we going to make our contribution today? And,

you know, these are all gifts from heaven, so you take each one of them and

you use them as best you can. Today, the contribution that I am going to make

is in relation to the National Accounts, which are quite good.

JOURNALIST:

Treasurer, yesterday when you were asked whether you would rule out a future

challenge, the form of words you chose to use were almost identical to a form

of words that John Howard used in 1984. Why did you do that?

TREASURER:

I thought that was a very good answer. And…

JOURNALIST:

Well he ended up as Leader, didn’t he?

TREASURER:

…I thought it was a very good answer and he said to me yesterday, `Gee, that

was a very good answer,’ he said, `that was a very good answer,’ I said, `of

course it was, those words were authored by somebody who was very good,’ so,

nobody can complain. Yes.

JOURNALIST:

Treasurer you mentioned yesterday of an alternative policy agenda, you used

the word tolerance, I was wondering whether you would like to elaborate on that?

TREASURER:

Well look, obviously if you are in public life, you want to make a contribution,

you want to do that as broadly as possible. And I want to make a broad contribution

and I will do that, I won’t do it today because I am doing the National Accounts,

but over the months ahead of course, I will continue to talk about the issues

that really concern me. The issues I think, that will take Australia forward.

One of the values that I think is very important to Australia is that we be

a tolerant society and that that is reflected in all of our dealings in our

communities, in our neighbourhoods. And there are ways in which we can enhance

that and that is a value which I hold very dearly, and perhaps I will say something

a bit more about it by the time of the next National Accounts.

JOURNALIST:

Treasurer, there are talks in Sydney today…

TREASURER:

Last question, please Dennis. I only do it because I value tolerance too.

JOURNALIST:

…in Sydney today, about the future of the Australian Magnesium Corporation,

and that the Federal Government is part of those talks. Is the Government reassessing

its support for the project?

TREASURER:

Well, the Government has actually given support through a loan guarantee. That

is already there. So, it won’t be taken away because it has been given, but

we will see what comes out of those talks. But I can say to you because the

guarantee has already been given, it won’t be taken away. It is already there

and it is binding according to its terms. Thank you all very much. Thanks.