TRANSCRIPT

THE HON PETER COSTELLO MP
Treasurer

Doorstop Interview

Parliament House, Canberra

Wednesday, 11 August 2004
11.30 am

SUBJECTS: Interest rates, consumer sentiment, oil prices, election, economic policy, inflation, Iraq, James Hardie

TREASURER:

Well as I foreshadowed yesterday, interest rates were increased in the United States overnight. The Bank of England increased interest rates in Britain last week. Switzerland has increased interest rates as has New Zealand and we are now moving into a cycle of rising interest rates around the world. This means that Australia needs very careful economic management at this time. We can’t afford to have inexperienced management, people blundering with economic policy, at a time of global rising interest rates. It is very important that we keep our eye carefully on the ball in relation to economic policy. It is very important that we continue the economic reforms and the stable management that has got Australia to where it is over recent years.

Now, I welcome the fact that consumer sentiment is at a decade high level, confirmed again today, no doubt supported by a low interest rate regime and also supported by additional family payments which people have been receiving in recent months. This has been undoubtedly, very successful in helping families with the bills and the costs of raising children. Of course, all of those payments are under threat if there is a change of government because the Labor Party will not guarantee the continuation of that $600 payment if it is elected. But we think it is important at a very poised time in relation to the Australian economy that our economic management remains stable, disciplined and that we keep our eye very, very squarely on the continuing economic reforms which have got Australia to where it is today.

JOURNALIST:

Mr Costello, what do you think the more optimistic outlook expressed by the Federal Reserve about the US economy means for Australia and would that outweigh any downward impact from the higher crude oil prices?

TREASURER:

Well, it is clear that the United States interest rates which were increased overnight have some way to go and that means that globally, interest rates will rise. Here in Australia however, we have set our monetary policy quite independently with an inflation target, and whilst we keep inflation low, we enjoy the stability that we have seen in relation to interest rates. It is very important that we keep that inflation low. As to the effect of energy prices, well yes, world record oil prices will have a dampening effect on the United States economy. World record oil prices mean that people in Australia are paying more for their petrol but fortunately we have been able to soften some of the blow with family initiatives which have given more spending power to families that are raising children.

JOURNALIST:

Treasurer are you aware that the Federal Reserve Bank (inaudible) surprised if interest rates didn’t rise?

TREASURER:

I think the phrase was, during the current expansion, at some stage during the current expansion. Now, we would like that expansion to go on for years and years. We have had it going for eight years, and the object of economic policy is for it to go for many more years. This current expansion in Australia by the way, is unmatched by America, by Asia, by Japan, by Europe, so the expansion, I hope, will continue. And that is the economic policy that we have got in mind. If you could get another eight years out of it, you would be going for some kind of all-time record.

JOURNALIST:

Treasurer how does the rise in US rates impact on the Australian dollar?

TREASURER:

Well, you have seen the effect in relation to the dollar already. I think that people who trade in currency markets have not just factored in this rate rise, but they have factored in several more. If you actually look at futures pricing in the United States, the markets are expecting several more rate rises in the United States by the end of the year. So it may well be that that has already been factored into the exchange rate, but you would expect over the longer term if US interest rates go up, that the US dollar would strengthen, you would expect that. But the point I am making is some of that strengthening might have already been factored in.

JOURNALIST:

Would John Howard be a killjoy to call an election during the Olympics?

TREASURER:

Well, you know, when I see the Labor Party out there demanding that no election be called, my suspicion meter rises. Now let me make this point that the Olympics, I think, goes for two weeks and a federal election campaign goes for five weeks, so there is plenty of time to do both Olympics and federal elections. Now, don’t take that as a hint to anything because I don’t know when the election is going to be called. I just make the point that there is plenty of time to do elections and Olympics, just as there is plenty of time to do elections and AFL Grand Finals, and elections and Rugby League Grand Finals, and elections and weddings, there will be much marrying and giving in marriage over the next five weeks or seven weeks or nine weeks. Life goes on you know, it is a funny thing, notwithstanding a federal election, life goes on.

JOURNALIST:

Treasurer, do you think that the strong consumer confidence at the moment would benefit the Government in an election campaign as the incumbent?

TREASURER:

Well look, let me put it this way, would you like to see consumers confident or would you like to see them worried? You would like to see them confident, wouldn’t you? Why? Because it means that they are contributing to economic growth. The object of economic policy, what is the object of economic policy? To keep your economy growing, to keep consumers confident, to find work for people that want jobs and when you bring all of those things together, you know, there are some economists that say, something must be wrong, economic policy is actually working. No, as it turns out, when economic policy works, that is actually a good thing, that is what we aim for.

JOURNALIST:

Treasurer, Martin Parkinson recently said in a speech that given the direction of oil prices and the Australian dollar falling back from its high in February, that the Government’s inflation forecast for 2004-05 will probably need to be lifted ‘somewhat’, was his particular word. Would that likely occur when you release the financial Budget details under the Charter of Budget Honesty?

TREASURER:

Well, when we do an update, yes, the update includes forecasts. But I think I can say to you, and you saw this in the Reserve Bank’s statement yesterday, that nobody to my knowledge is forecasting inflation to go any higher than 2 or 2 per cent. I think to the end of 2005 was the statement. Now, if there is anybody around here that reckons they can forecast with great accuracy what the inflation rate is going to be in 2006, they are a better man than I am, Gunga Din.

JOURNALIST:

Mr Costello, has Malcolm Turnbull embarrassed…

TREASURER:

I am getting very poetic today.

JOURNALIST:

…has Mr Turnbull embarrassed the Government with his comments on Iraq?

TREASURER:

Well, he says that what he said was that people might draw that conclusion, that he wasn’t drawing that conclusion, that others might draw that conclusion and obviously, others may draw that conclusion. You have only got to pick up the paper to see people that are making that point. So his remarks as he actually stated them, don’t embarrass the Government at all, no. It appears that the statement that was made yesterday was misquoting him, but properly quoted, his comments don’t embarrass the Government at all, it is only misquoted that people can make mischief.

JOURNALIST:

Should Peter King run as an independent?

TREASURER:

Well obviously I support the endorsed Liberal candidate in Wentworth and that is Mr Turnbull and I wish him well and I hope that he is successful.

JOURNALIST:

Are you going to tell Mr King not to run? Have you advised him that way?

TREASURER:

Well, if he sought my advice, of course I would advise him that way, but as it turns out he hasn’t sought my advice on this particular issue but if he would like me to broadcast it to him through the Australian media, the answer is yes.

JOURNALIST:

Mr Costello, the James Hardie Chairman resigned this morning, is that, do you welcome that move and will that help stem concerns with this…

TREASURER:

I wasn’t aware of that but I have made the point earlier, and I will say it again. Look, if a company reorganises itself in order to put its assets beyond the reach of people who have legitimate claims against it, I reckon that is reprehensible behaviour. Has a company done that? Well, let’s wait to see what the committee says. There is a committee that is investigating that and it is going to come down with a finding and when we get that finding I will have some more to say then. But if you ask me should a company try and reorganise itself to get its assets offshore so that legitimate claimants can be defeated, so that they can be left barren when they have got a legitimate claim against a company, I reckon that is reprehensible. Thank you.