Press Conference
Treasury Place, Melbourne

Wednesday, 26 October 2005

12.00 noon

SUBJECTS: September quarter Consumer Price Index, petrol prices, industrial

relations legislation, terrorism

TREASURER:

Inflation for the September quarter of this year came in on the low side of

expectations, rising 0.9 per cent for the quarter and 3.0 per cent through the

year.

As expected the largest contributor to Consumer Price Inflation in the September

quarter was petrol prices. Petrol prices rose by 11.6 per cent and made the

largest contribution to the increase in inflation. If you exclude the impact

of petrol prices the CPI increased 2.1 per cent through the year or 0.5 per

cent through the September quarter.

So what you are seeing actually is you are seeing quite moderate inflation

excluding the volatility of the petrol pricing, but you are seeing a very significant

contribution from petrol prices.

Interestingly enough the measured price of petrol, average price of petrol

in the eight capital cities through the September quarter was about 119 cents

a litre. Now as we know, petrol prices are higher than that at the moment, so

there could still be some petrol effect coming through in the December quarter.

But this of course depends very much on the future of world oil prices where

oil prices go over the course of the December quarter. They increased again

overnight in anticipation of demand, particularly in North America, but they

have been quite volatile, depending on the hurricanes and supply factors coming

really out of the middle east.

Hopefully the worst of the petrol price increases are over. But we can’t

be sure of that, particularly with the northern winter coming on and the demand

that we will get out of North America.

Some areas of consumer prices actually declined through the September quarter

including pharmaceuticals because the Pharmaceutical Benefit Safety Net was

actually reducing prices, hospital and medical services as a result of the Medicare

Plus Safety Net and some areas of computing equipment actually came down.

So, overall a Consumer Price Index heavily influenced by petrol prices which

went up by 11 per cent in the quarter, but notwithstanding that inflation remains

contained, and in particular once you exclude those volatile items, inflation

– underlying inflation – is really quite low in the Australian economy.

JOURNALIST:

How concerned are you at the prospect of second round effects with some companies

trying to pass on that 11.6 per cent rise in petrol prices?

TREASURER:

Well I have noticed that some companies have said that they are going to try

and get price increases off the back of high petrol prices. Let me strongly

counsel them against it. Any company that tries to camouflage a price increase

off the back of petrol prices should be very careful and the reason they ought

to be very careful is that if companies do do that and they set off second round

effects that will be bad for the economy and bad for their business. Now I know

that there are businesses that are always trying to get price increases, let

me counsel them very strongly against trying to use petrol prices as a way of

getting it. It is a very competitive market out there and it is difficult to

make unjustified price increases and it will not be good for the economy and,

in the long-term, good for their businesses to try and do it.

JOURNALIST:

With, sorry, implications for interest rates as well?

TREASURER:

Well, if you have got second round inflation taking off in Australia because

people tried to get price rises, or in fact, tried to link wages to price rises

you would have bad implications for the Australian economy including implications

on the monetary policy front. So, I would counsel very strongly against them.

JOURNALIST:

Would that be a matter for the ACCC?

TREASURER:

No, this is a matter for competitive markets and price pressure and consumer

watch and businesses thinking carefully about what their medium-term interests

are rather than thinking about short-term interests.

JOURNALIST:

But some of these companies are obviously having an extra 10 to 11 cent costs

as a result of the oil increase. Are you saying that they will just have to

wear it?

TREASURER:

Australian companies are more profitable than at any other time in Australian

history. The profit share to GDP is higher than it has ever been recorded. So

businesses are not in desperate straits at the moment, believe me.

JOURNALIST:

So the response to those businesses is that they should absorb this cost in

the interest of the economy?

TREASURER:

Well look, you have got low inflation, let’s even include the petrol

price, 3.0 per cent. This is not like things used to be under previous Labor

Governments where it was 8.0 per cent per annum. It is not where it was in the

1970’s where inflation was 17.0 per cent. This is 3.0 per cent and businesses

that say, oh 3.0 per cent inflation I had better get a price rise, I would counsel

very strongly against it. In many areas of the economy prices are actually falling.

They are falling in relation to computers and technology. Now businesses will

be taking advantage of those price falls all the time. Wage outcomes are moderate,

interest rates are moderate, to ignore all of the areas where prices are falling

and to say there is one area where they are increasing therefore I deserve a

price increase, I would counsel against it.

JOURNALIST:

What about consumers then, if they are told we are putting up prices for transport

dependent commodities, so do you think that consumers should boycott those products?

TREASURER:

I would say, don’t be hoodwinked! It is a very competitive economy, transport

is a narrow area of the economy, prices are falling for businesses in other

areas, you know, any business will try and get a price increase if it can but

don’t be hoodwinked.

JOURNALIST:

Treasurer, on another issue, people are claiming that they have been tricked

into participating in the Government’s IR advertising campaign. Do you

have a comment on that?

TREASURER:

People claim they have been tricked into participating?

JOURNALIST:

Yes.

TREASURER:

How?

JOURNALIST:

Oh, that they were led to believe that it was a work and safety training video?

TREASURER:

What? People watching TV?

JOURNALIST:

No the people actually in the ads.

TREASURER:

People, look I don’t know. But you know I assume that if they are actors

I assume they are very happy to participate for a fee.

JOURNALIST:

Just on the terror laws Mr Costello, why is the Government rushing through

those laws? What is the hurry? Is the Prime Minister trying to rush them through

before perhaps a leadership change next year?

TREASURER:

I don’t think there is any undue rush. They will be introduced into the

Parliament when it convenes. They will be debated through the Parliament and

I would expect in the normal processes of the Parliament, passed through both

Houses this year. I don’t think that is any great rush.

JOURNALIST:

Isn’t there normally a delay between when they are introduced and when

they are debated and is that being fast-forwarded in this occasion?

TREASURER:

Well, no, I don’t think there is, it doesn’t seem to me to be particularly

rushed, they have been announced. Bear in mind as I recall it, these are laws

that have the support of six State Labor Premiers and a meeting was convened

between the Government and six State Labor Premiers to discuss the shape of

the law and as I recall they all did a joint press conference and loudly asserted

their support and in fact it is very rare for a law to actually be discussed

with State Premiers in advance. So you know, I would have thought far from there

being any rush there seems to be more consultation before they were actually

drawn than you would have in relation to normal laws.

JOURNALIST:

Those Premiers are now saying that some elements of the laws might be anti-constitutional

though. Do you have any concerns that might be the case?

TREASURER:

Well look, everybody should get their legal opinions and get the lawyers to

discuss it. You can get various opinions from lawyers and you never really know

of course until such time as the courts decide on these things but every due

discussion should take place between the lawyers and they should try and come

to a consensus of opinion. I think that is a good idea, I think the State and

Commonwealth lawyers should try and come to a consensus of opinion and I would

welcome them doing that. As I say, unfortunately nobody ever finally knows these

things until such time as the court rules.

JOURNALIST:

Just on the CPI again, do you see any wages implications including for the

minimum wage?

TREASURER:

Well, this is quite a moderate Consumer Price Index, including fuel which is

a volatile issue, which as we know has gone up worldwide, it is 3.0 per cent

over the year. If you exclude that, then the effect is closer to 2 per cent.

So, this is a moderate inflation number and I wouldn’t see any wages implications

in relation to this, no.

JOURNALIST:

Your Victorian colleague Petro Georgiou has pointed to a number of areas where

he believes the safeguards do not match the British legislation. Do you have

sympathy for that view?

TREASURER:

Look, can I say, in any area where you are trying to prevent people being killed

– which is what we are trying to do here – you have to balance the rights of

those who could be innocent victims of terrorists against the rights of people

who may for some reason or another be affected by the laws, even unanticipatedly,

in an unanticipated way, okay. This is not new, this has been going on for a

very long period of time in Western societies. What is new is the ruthlessness

of the killers. We now have ruthless killers that are prepared to go for volume

of innocent people. So, that requires some new responses.

Now, you know it is perfectly legitimate to discuss that balance, perfectly

legitimate, and you try and frame these laws so that no third party or innocent

person ever gets caught up in it. But you also frame them so that, let us suppose,

somebody is picked up on their way to a bombing site, what are we going to do

with that person? Say continue on?

Let us suppose you get some intelligence that ‘a’ says to ‘b’,

meet me on the Melbourne underground with the backpack. We all go down and wait

to see what is in the backpack, or do we try and do something about it beforehand?

Now, preventive detention might say well let us go and find Mr X and find what

is in his backpack before he gets to the Melbourne underground. Maybe that it

is just a backpack, and so that is a bad infringement. Maybe that in that backpack

was a bomb that could have killed forty or fifty people. What are you going

to do?

You know, these are careful balances that you have to enter into. Now these

are areas of legitimate debate, and I think we ought to go through scenarios,

but there are two classes of people to bear in mind here. One, the people who

could get killed. And two, people who could have been deprived of their liberty,

even though they were innocent, and it is getting that balance right. Now I

do not think there is any obvious lines of demarcation, but I do legitimately

believe that the ruthlessness of the killers is of a new dimension which requires

a new response.

JOURNALIST:

What about the view of George Brandis that, yes, that your response is justified

but if you are going to have a tougher response you need to also have greater

safeguards. And in the example you raise how quickly you have judicial oversight

of that decision to detain this person?

TREASURER:

Look, I think they are all legitimate issues. I am not saying for a moment

that they should not be discussed, they should be, but what has made this different

in my view is we now know there are people who are prepared to arm themselves

and kill themselves in order to extract maximum murder on our transport systems

or in public places. It is all very well to say well we will get down there

after the bombing and we will put them on trial and convict them of murder.

You know there is some justice in that, but it would be much better, wouldn’t

it, if we could stop the incident from occurring, and it is that question of

preventive action I think that we now as a society having to deal with, and

I think there should be reviews. It is possible that over time, it is possible

that the laws could be used too frequently, so there should be reviews, there

should be judicial reviews, there should be a sunset clause. I agree with all

of that, but I do think you have got to arm yourself with additional powers.

Suicide bombers are a new thing for our society. I do not think we have ever

had to deal with suicide bombers before. This is a new thing for our society,

and it is struggling to cope with a new form of killing that makes these laws

necessary.

JOURNALIST:

You said that these laws, these concerns are legitimate and should be discussed.

Why then has the Government decided to push the legislation through on Melbourne

Cup day when peoples’ eyes are turned elsewhere?

TREASURER:

Look, Parliament sits on Melbourne Cup day. Would I like a holiday on Melbourne

Cup day, yes actually, I would love a holiday on Melbourne Cup day. Unfortunately

I do not get one. We have to work on Melbourne Cup day and seeing as we are

working we will be in Parliament, working. But there will always be a day when

there is something on.

JOURNALIST:

But why choose Melbourne Cup day, the most ….

TREASURER:

Because that is when we are sitting, that is when we are sitting. If the calendar

had been different, if we had all been given holidays we would not have been

sitting. Unfortunately, you know, unfortunately the fact is Parliament sits

in November. Melbourne Cup day is not a national holiday I regret to inform

you. I wish it were because then I would get a day off. But it is not. It is

a work day. It always has been. Melbourne Cup day is unfortunately only a holiday

in Melbourne, and much and all as I would like to nationalise Melbourne’s

holidays to every other State, it is not the case.

JOURNALIST:

Do you concede that it may look as if the Government is trying to avoid scrutiny?

TREASURER:

No.

JOURNALIST:

Can I ask on the IR, the politics of the IR that the polls are saying that

the community has concerns, if the critics are right there will be some problems

for those that are low paid, how do you see the politics? Do you think it will

be an issue in twelve months time, how do you see the politics of it?

TREASURER:

I think that in relation to industrial relations it is always good for a scare

campaign, and I pay tribute to the ACTU. I think they have got off to a good

start. My view is that when the legislation takes effect, and when people see,

that it will not diminish wages and conditions. And when they see that in fact

more job opportunities will be offered, then they will say, “well, what

was that all about”? And really it is only when a fear campaign meets

actuality that it diminishes, and that is why the important thing is to get

on to implement the changes and to see how they work. Now as you know I lived

through the mother of all scare campaigns with the GST, a much bigger scare

campaign than this, much bigger. I remember it was confidently said that the

GST would increase the road toll. I remember somebody saying that the GST would

lead to more male baldness as men would go to hairdressers less, could not afford

hair cuts. It was confidently predicted that the GST would lead to more homelessness

amongst kids because housing prices would go up. Somebody I think said, I think

the figure was forty more people would die on the roads because petrol would

become cheaper and, you know they produced all these models, and yet we lived

through it and we are still all here. Now that was the mother of all scare campaigns,

and I think industrial relations will not be, it is not as big a change, and

it will not be as big a scare campaign, but you know until actuality meets the

scare campaign, you do not actually have the mechanism to disprove the scare.

One last question here.

JOURNALIST:

(inaudible) core inflation excluding petrol are price falls in the underlying

economy offsetting price rises?

TREASURER:

Yes there are some areas where there are price falls in the underlying economy;

computing equipment, technology and this is the point I was making in relation

to business. Businesses can not say, well here is an area where prices have

gone up, we want a price rise, without conceding here is an area where prices

have fallen, which is offsetting it, and you know, in those areas where prices

are falling, I do not think said oh, prices are falling on our imports, we had

better put our prices down. So it is a bit rich to say in those areas where

they are increasing that we had better put them up.

JOURNALIST:

Can I just ask you about Ron Walker? Phil Honeywood described him as ‘yesterday’s

man’, how do you see him?

TREASURER:

I think Ron Walker is somebody who had done an enormous amount for the State

of Victoria. He is the Chairman of the company that is organising the Commonwealth

Games. He has been enormously active and energetic. I believe they are going

to be great Commonwealth Games. He has been relentless in his lobbying of me

for more money for those Games, so I know just how energetic, and how active

he is, and he makes a great contribution, I think to the people of Victoria

and to the State.

JOURNALIST:

Do you think Mr Honeywood is out of line with those comments?

TREASURER:

Well you would have to ask him about his comments, but if you want my view

on Ron Walker, Ron Walker makes a great contribution to this State. He is a

man of enormous energy, and I welcome his continuing role, particularly in relation

to the Commonwealth Games, and you know, I only wish he would ease his lobbying

activities on me every now and then for more money.

Thanks.