ABC Radio National with Michelle Grattan – Economy

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National Accounts: December Quarter 2000
March 7, 2001
First Home Owners Grant, Business Confidence, Leadership
March 9, 2001
National Accounts: December Quarter 2000
March 7, 2001
First Home Owners Grant, Business Confidence, Leadership
March 9, 2001

ABC Radio National with Michelle Grattan – Economy

Transcript No. 2001/019



Hon. Peter Costello MP


ABC Radio National with Michelle Grattan

Thursday, 8 March 2001




Squeezed into our very small Canberra studio, Vivian. Good morning, Peter Costello.


I take it that that was a plea for more funds for the ABC, Michelle?


No, I am a ring in, so it had no other agenda. Are you going to preside over a



Let’s put this in context, 0.6 per cent decline is a disappointment. There is no

doubt about that, it is disappointing for all of us. But it comes off the back of a record

run in the Australian economy. It was particularly focused in one sector, in fact if you

leave out the dwellings area, the housing area, the rest of the economy – 95 per cent

– of the economy continued to grow above 4 per cent. And it was focused in that

sector largely for transitional reasons. That is there had been a huge bring forward in

construction, you remember in the middle of, at the beginning of this year, the new tax

system came in on 1 July, and there was a push back. So, when you are measuring a change

on a change, the fact that it was high in the first part, and you come off a high base you

get a detraction in the second half. Now, having said all of that, it is important that we

put in place measures which will help the construction industry. We have got a $7000 first

home owners scheme and the good news yesterday is another interest rate cut.


So, how do you see the economy panning out in the year ahead. What can Australians



Well, we had a record breaking growth run through 1997, 1998, 1999. We won’t have

a record breaking growth run…


But how bad will it get?


Well, the world economy has turned down. You have seen that there has been a lot of

talk about possible recession in the United States and if that were to occur, that would

be a big problem for us. But, what you will see is, you will see subdued growth, that is

what we have been saying. You will see an increase in exports, because the exports sector

of the Australian economy is now the strong sector, and consequently a switch from

spending, domestic spending, into exports selling on the world markets.


So, what you are saying really is, that it is going to be gloomy but not terrible? Is



Well, it is going to be subdued coming off a very strong base. We were coming off plus

4 per cent and it will be less than that.


Now, you have stressed that some of theses transitional arrangements with the new tax

system have caused much of the situation we have now. Doesn’t this give credence to

Labor’s claim that the GST package has in fact been a big negative for the economy,

at least in the short term?


The one point I make is that it has changed the composition. It brought forward a lot

of construction and made construction much stronger in the early part of 2000, and

consequently coming off that high base it fell sharply in the second part of 2000. That is

a transitional effect, that is the point I have been making for a long time. But, as for

Labor’s claim that the GST has been bad for the economy – Labor spent all last year

saying that the Government was cutting taxes by too much and that as a result interest

rates were rising . We have a situation where interest rates are falling, and now it is

all because the GST took too much tax. They have completely contradicted themselves. So, I

think we can leave them out of this particular debate.


Now, business has been saying for months that things are tough and their expectations

are low, and so on. Shouldn’t more notice have been taken of them and something done

about this, or is this – to paraphrase another Treasurer – the down-turn we had

to have?


Down-turns are never something that you aim for and they are something that you should

take all preventative measures to try and manage the business cycle. I completely disagree

with the comment that you referred to from previous people. But, the good thing about

this, is, that interest rate cuts, you remember interest rates were rising last year,

because the view around – and this was the view being propagated by the Opposition –

was the economy was overheating, interest rates were rising last year. That has been

half-reversed and that will be good for business and it was welcomed by business

yesterday. Let me put this in context. Today, the Australian mortgage borrower, the person

who is buying their first house with a mortgage, of $100,000 pays $3200 less a year in

interest, because of the Government’s low interest rate policy. The thing that could

threaten, that could really threaten the Australian economy, is if you got some people in

government whose policy is to roll-back GST, increase income tax, and whack those interest

rates up again. That would be a real threat to the Australian economy.


Do you think that that could threaten the currency and threaten the confidence of

overseas investors?


Well, I think that if Labor, the current Labor, who have no economic policy –

except to roll-back GST, put up income tax and threaten interest rates, were to follow

through on a policy, anything like that, it would be very bad for the Australian economy.

Needless to say…


And for overseas confidence (inaudible)


Well, needless to say, we don’t intend to let that happen. It would be very bad

for the Australian economy.


Now, you sent out some warnings last week about a tight Budget. Does this mean that any

new initiatives must be off-set by equal savings?


Well, the point I was making last week, is that the situation is tight. These people

that were running around saying that the Government was awash with money, as I think you

can see today, were mis-reading the signs. What that means is, that a Government which has

just cut tax, and we cut the petrol tax last week, remember, will have to be careful with

its spending. That is the point that I made last week. And I think you can see in the

light of today’s figures why I was making those comments.


So, new programmes off-set?


Well, very tight spending. I think that we will have to prioritise. We will have to

decide which is the number one priority and they will be funded. And things of lesser

priority won’t be able to be funded in this Budget.


You said, in the ABC’s Background Briefing the other day that you believed in low

taxes. And the, when you brought in the tax package you had to pare back the income tax

rises for those on higher incomes because of the deal with the Democrats. Do you still

believe that group is paying too much tax?


I believe that we should get income taxes as low as we can in Australia. Now, on 1 July

of last year, for the average wage and salary earner, we cut their marginal income tax

rate from about 43 cents to 30 cents. Bear that in mind. If it had not been for our income

tax cuts in July of last year, people in that range of $40,000, $50,000, would be paying

43 cents, rather than 30 cents. We also cut the, lifted the threshold for the top rate up

to $60,000. I think the people, the middle Australian people in that $30,000, $40, 000,

$50,000 bracket, do deserve to keep more of their earnings. I have always believed that it

is important to keep their income taxes lower and we are happy to do as much as we

possibly can to help them and their families.


Thank you very much, Peter Costello.