TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Press Conference

Treasury Place, Melbourne

Wednesday, 27 October 2004
12.25 pm

 

SUBJECTS: September Quarter 2004 Consumer Price Index; Oil Prices;

TREASURER:

Today’s Consumer Price Index for the September quarter showed that CPI

increased by 0.4 per cent for the quarter and 2.3 per cent for the year, lower

than most people expected the rise to be and showing that Australia has low

inflation in a growth economy.

The 2.3 per cent outcome for the year is well within the band which the Government

has set by agreement with the Reserve Bank of 2-3 per cent over the course of

the cycle.

A large part of the increase in September was petrol prices, which rose by

3.3 per cent and added 0.1 per cent to the quarterly CPI. If you extract the

effect of petrol prices the CPI increased by 0.3 per cent in the September quarter

and only 1.9 per cent over the year.

Those areas where there were price increases included housing, overseas holiday

travel and accommodation. Those areas where there were declines in prices in

the September quarter included food, fruit, motor vehicles and pharmaceuticals.

I make the interesting point that as the figures show there was even a decline

in the non-tradeables area which has been running higher than the tradeables

area over the last year.

So the good news is in the September quarter the Consumer Price Index increased

by a low 0.4 per cent. It means that the CPI through the year has been 2.3 per

cent. It shows that notwithstanding difficulties in the international economy,

in particular, rises in oil prices, inflation remains under control in Australia

and it remains within the limits that we have set. If we can get through this

difficult period with low inflation and a growing economy then Australia will

be well served for the years which lie ahead. And it is our determination to

keep strong economic policy going so that we can meet those objectives.

JOURNALIST:

Do you expect to see, are we yet to see the full inflationary impact of a rising

cost of oil?

TREASURER:

Well I think that is right, that this is the result for the September quarter.

And you will have noticed obviously in the, we are now in the December quarter,

in the month of October petrol prices have increased quite significantly. So

you would have to say on the basis of the current world oil prices, that you

would expect to see a flow-through in respect of petrol prices into the Consumer

Price Index in December. What we are looking at here is the historical snapshot,

the September quarter. Now there were rises in oil prices and in petrol prices

in the September quarter. But notwithstanding that, inflation still comes in

at a low 0.4 per cent and 2.3 per cent through the year.

JOURNALIST:

Do you expect that the high petrol price (inaudible) is going to have an influence

on growth?

TREASURER:

Well I think the fact that people have to pay more for petrol means that they

probably reduce, have to reduce, consumption in other areas. We have noticed

in the past the family that unfortunately has to pay a higher price for oil

at the bowser, the petrol bowser, generally has to make some cutbacks in consumption

in other areas. So whilst overall consumption might be the same, the composition

of that consumption actually changes. And high petrol prices are in nobody’s

interests. I would like to see them lower. High world oil prices is in nobody’s

interest except perhaps the producers. I would like to see them lower. But these

are the things that we have to struggle with in the international economy. These

are what make economic management a complex and a difficult task.

JOURNALIST:

Is it true that you have delayed the mid-year economic forecast as a result

of concerns about this impact on growth?

TREASURER:

No. We do our mid-year economic and fiscal review at a period before the end

of January. I haven’t decided when it will be done this year. But obviously

it will be later than previous years because we have had already an update which

was done by Finance and Treasury in September. So the fact that we have had

one already in September means that the markets have no real urgency for another

one so soon, having had one in September. So it means it may be a little later,

it may be December, it may be January, I haven’t decided that yet.

JOURNALIST:

So that’s the main reason rather than any changes or concerns about what

the (inaudible) might hold and so on?

TREASURER:

Oh that is the reason. The reason is we have already, we just had one last

month. In a normal Budget year you would have your Budget in May and then you

would have your mid-year review. We have already had an update post Budget,

the pre-election one. So there is no great urgency to update. If we can do it

in December we will try to do it. If we can’t I am sure we will all enjoy

our Christmas holidays and come back and do it in January.

JOURNALIST:

Oil prices have risen quite a bit since your post-election comments on growth

forecasts. Does the rising oil price make you even more pessimistic about the

projections?

TREASURER:

Well look, oil prices now in US dollar terms, and we are talking US dollar

not Australian dollar, US dollar terms, are heading up to mid 50s. We have not

been in this territory before. Now if the world oil price were high for three

months or six months it wouldn’t have a big impact. But if it is that

high or higher for 12 months or 18 months it will have a bigger impact, not

just on Australia but on the global economy, including in particular the US

economy. Now who can tell what the oil price is going to be in 12 months time?

I hope it is lower. I hope that we get some stability back in to world production

and it comes back to a more normative level. That will be in the interests of

the global economy and it will be in the interests of the Australian economy.

But the high prices have been sustained already longer than we had hoped. It

is a question of how long they will continue at those levels.

JOURNALIST:

Do you maintain that 3 per cent projections are optimistic?

TREASURER:

We have not changed our growth forecasts in Australia. But projections are

outside the forecast period in the outlying years. And they are just based on

historical precedent. That is not a forecast in those outlying years. That is

not a forecast. That is a projection which is a different thing.

JOURNALIST:

Treasurer the Productivity Commission Report which was released yesterday suggested

dividing Telstra up into wholesale and retail (inaudible) is that something

that you would consider? (inaudible)

TREASURER:

Look the Productivity Commission Report is a draft report, it is put out for

public discussion. It is designed to stimulate responses and after those responses

have been received and the final report is made to the Government then the Government

considers it. Now I am not ruling things in and out at this stage because that

would be to short circuit the whole procedure. But can I tell you, we have looked

at these things over the years and in the past we have put in place some measures

which were designed to improve competition. Ring fencing was one. But we were

never moved to structural separation.

JOURNALIST:

So it might not stimulate a response from you though this (inaudible)?

TREASURER:

I am just pointing to you that we have looked at these things in the past and

we were not persuaded in the past.

JOURNALIST:

Righto.

TREASURER:

Sorry? Yes.

JOURNALIST:

Can I just ask you one more question please? The BCA is suggesting that cutting

back (inaudible) take competition policy more, taking more account of the real

world rather than the economic text book. Are you looking to change the way

the Government approaches competition policy in the fourth term?

TREASURER:

I think that competition policy has been a big positive for the economy. As

this discussion paper shows the economic benefits have been large. That does

not mean that there haven’t been areas that have had difficult adjustment,

I acknowledge that. There have been areas where there have been difficult adjustments.

But the adjustment has by and large been incurred and the benefit hopefully

will be ongoing. Now you have to be very careful with these arguments. Sometimes

when people say they would like more real world analysis, what they are really

saying is they wouldn’t like change. If that is the argument I don’t

agree with it. But if the argument is that on the way through you should take

account of those that are subject to economic adjustment, I do agree with that.

And I do believe that there is a strong argument that in those areas where there

are small groups that are adversely affected you do have to have restructuring

for them, and we have done that in many places.

JOURNALIST:

Do you endorse Robert Doyle’s proposal to renegotiate the Mitcham-Frankston

tollway contact? And in percentage terms, because price will vary of course,

what percentage of the (inaudible) would your Government put in?

TREASURER:

I fully support Mr Doyle’s effort to deliver a freeway to the people

of the Eastern Suburbs of Melbourne, absolutely. And the Commonwealth stands

ready to observe the written agreement it has with the State of Victoria, with

$560 million to build the freeway.

JOURNALIST:

So that’s it, $560 million whenever he’s in a position to renegotiate?

TREASURER:

No, no, no, the Victorian Government has to observe its written agreement.

I keep hearing a lot from the Victorian Government about how you can’t

break agreements. The first agreement it had was not with Connect-East but with

the Commonwealth and that is an agreement for a freeway, with the Commonwealth

making $560 million available under it.

JOURNALIST:

And that indexed presumably, say if it wins government in two years, will be

your share of any renegotiated agreement?

TREASURER:

Well, I am telling you that if a freeway is built, the Commonwealth will observe

its written agreement to fund that freeway with $560 million…

JOURNALIST:

But…

TREASURER:

…that is the written agreement we have and we keep to our agreements

unlike Mr Bracks and Mr Brumby.

JOURNALIST:

(inaudible) renegotiate the (inaudible)?

TREASURER:

Well I am not focusing on that, I am focusing on getting a freeway.

JOURNALIST:

Do you think that’s affordable and achievable the renegotiation of the

contract (inaudible)?

TREASURER:

Look I am not going into the mechanics by which the freeway should be delivered

except to say that the freeway should be delivered. I can’t understand

by the way why the Victorian Government doesn’t build the freeway. I thought

their argument was that they didn’t have the financial resources to do

so. They have it. It is as plain as the nose on your face. Over the next four

years they are going to get a $2 billion windfall out of GST alone. This argument

that somehow Victoria doesn’t have the financial accommodation to build

a freeway is rubbish. And may I suggest that searching journalists will hold

the Victorian Government accountable for their promise.

JOURNALIST:

Andrew McIntosh, the Shadow State Attorney-General says that the Commonwealth

has got deep pockets and he wants to make it a tripartate negotiation with Connect-East,

do you agree with that?

TREASURER:

Well the Commonwealth has made its offer, the Commonwealth will stick by its

offer, and the Commonwealth calls on the Victorian Government to stand by its

agreement.

JOURNALIST:

Is that the Commonwealth’s final offer?

TREASURER:

The Commonwealth has agreed 50 per cent of the construction of a freeway. We

have a written agreement, we stand by it.

JOURNALIST:

So if the freeway is now $2.5 billion, do you still…

TREASURER:

Well, let me make this point; the Scoresby Freeway is a $1 billion project

with a written agreement to be 50 per cent shared. The Victorian Government

is adding on areas which were always its responsibility. Like the Eastern Freeway

and the extension of the Eastern Freeway and the public transport component.

The agreement that we have with the Victorian Government is for the building

of a road of national importance of which $560 million is 50 per cent cost.

The $445 million was the cost if they had kept their word and done it at the

time.

JOURNALIST:

Do you think Connect-East will have a moral obligation to renegotiate the contract

if (inaudible)?

TREASURER:

Well, they are on notice, aren’t they, of Mr Doyle’s policy.

JOURNALIST:

(inaudible)?

TREASURER:

Well my view is that a freeway should be built. And you know, I keep hearing

this argument that the Victorian Government has to keep its agreement. What

agreement? Its first agreement was with the Commonwealth. It didn’t seem

to have any impunity at all in breaking that agreement.

JOURNALIST:

Mr Costello can I ask you about your warnings on future economic growth, does

the Government stand by all of its election commitments in that context?

TREASURER:

Yes.

JOURNALIST:

Treasurer, your response to Wayne Swan’s appointment as Shadow Treasurer?

TREASURER:

Well, you have got to do more than say you want to be economically credible.

You have got to demonstrate it. Simon Crean used to say he wanted to be economically

credible. Mark Latham used to say they he wanted to be economically credible,

but they weren’t. Why? Because they couldn’t demonstrate it. And

so the critical thing for Labor now is to demonstrate they’ve changed.

If they can’t demonstrate they’ve changed, then they can’t

demonstrate that they intend to become economically credible. We all agree that

they were not economically credible in the last election including them. So

what do they have to do now? They have to show they have changed. Now how can

they show they have changed? Well the first thing they should do is junk Medicare

Gold because as we all know that was an unfunded policy which had the capacity

to haemorrhage the public accounts in the years that lie ahead. And secondly

of course they have to acknowledge that when people receive a $600 family supplement

it actually exists and when you take it away it actually costs people. The third

thing they have to do is they have to junk their misguided tax policies, policies

for example to introduce a new national payroll tax, policies for example to

increase diesel excise on the mining industry, policies to increase the superannuation

surcharge, policies to hold the level of tariffs higher. Now, I read in the

newspaper today that Mr Swan had said that you can only bring tariff barriers

down once. Can I point out to him that the Government has actually proposals

to bring down tariff barriers which he is opposing, which Labor went to the

last election opposing. Now if he wants to demonstrate some economic credibility

he’d better junk that policy and the sooner the better.

JOURNALIST:

Do you see him as a worthy opponent?

TREASURER:

Well we take all of our opponents as we find them. The most important thing

is their policy. That is the critical thing here, their policy. If you want

to demonstrate you have changed you have got to change your policy. This idea

that “now I will demonstrate economic credibility by re-endorsing everything

that undermined our credibility is a nonsense”. If Mr Swan wants to demonstrate

credibility he has to get Labor to change and they have to junk those policies

which undermine their credibility. Okay, thanks.