TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Jon Faine
3LO
Melbourne
Thursday, 7 February 2002
8.30 am

 

SUBJECTS: Ansett; Telstra; Insurance; Auditors; Media Laws; Boat People;

Jeff Kennett and 3AK

FAINE:

Peter Costello, good morning to you.

TREASURER:

Good morning to you Jon. Great to be here.

FAINE:

Ansett, looking a little wobbly this morning. First of all the ACTU are unimpressed

with the announcement from the administrators that only 3,000 jobs will be retained

not 4,000 and of course the deal with the ACTU is critical to the success of

the rescue bid. And the Sydney Airports Corporation saying, well, no deal, over

the leases at Sydney Airport. So far, you’re not telling us what we need to

know. What’s the Government doing to keep Ansett flying as this looks like it

could fall over?

TREASURER:

Well, the Government’s involvement was critical to the whole episode. The Government

in the first place indemnified Ansett in respect of public liability in its

aeroplanes – up to $10 billion of cover. Secondly we guaranteed people who bought

tickets that those tickets would be honoured. Thirdly we guaranteed the employees’

entitlements, up to the full entitlements for pay and the safety net for redundancy.

So the Government has been integrally involved in all of the efforts to keep

Ansett in the air.

FAINE:

But it’s looking wobbly again now. Do you need to do more?

TREASURER:

It has now moved on a stage, where the administrators have now got a buyer.

And they are, I think they have probably executed agreements to sell to this

Tesna Consortium, Mr Lew and Mr Fox. The argument that is now arising is the

shape of the airline under the Tesna Consortium. The Government is not involved

in it. At this stage it is the administrator selling to a private consortium.

Now, if the ACTU this morning was saying, well, we want that private consortium

to take 4,000 jobs rather than 3,000 this is a matter between the ACTU and Tesna

and the administrators. It is not something that involves the Government.

FAINE:

You can get involved with the Sydney Airports Corporation. Effectively you

own the Sydney Airports Corporation and you can tell them that they can put

aside whatever legal or other objections they have, or do you think they are

doing the right thing?

TREASURER:

Well, if you read the correspondence in the paper today and that is what I

am going on, I haven’t been speaking to the Corporation directly but I will

go on what is in the correspondence, the Airports Corporation has asked for

details of the Consortium and the legal structure that wants to take over the

property. I think that is entirely reasonable. The Airports Corporation owns

on behalf of the public, this is a public asset, they have responsibilities

to the public to make sure they know what the arrangements are. And as I read

the transcript or the report of what happened in the court yesterday, they have

written a number of letters to the administrators asking for that. And if that

is what the argument is about, I think they are being perfectly reasonable.

FAINE:

So there’s nothing the Government will do to try and influence the conduct

of the Sydney Airports Corporation at this stage? The Tesna Consortium just

have to come to the party as far as you’re concerned?

TREASURER:

Well, I think the administrator has to get together with the Airport Corporation

and work it out. I don’t think it is a, it didn’t seem to me to be a big policy

objection. The Corporation has got its responsibility.

FAINE:

Yes.

TREASURER:

We manage the terminal. And we actually manage it on behalf of the public.

FAINE:

Yep.

TREASURER:

We’ve got to know, who is operating it? Who is leasing it? You know, what the

terms and conditions are. The private sector consortium, the Tesna Consortium

obviously wants to lease it or to use it on certain terms. They have got to

get together. As I see it, it is a question of sitting down and working out

the nuts and bolts.

FAINE:

What if it all does fall over?

TREASURER:

I hope it doesn’t. I think that it would be best for the employees, best for

competition, best for everybody concerned, probably best for the creditors,

if the deal goes ahead. And I very much hope that it does. And I hope that the

private sector consortium can put some more money in and operate a good airline.

I wish them every success.

FAINE:

23 minutes to 9. The Bulletin, their cover story for this week’s edition is

that the agenda of the Howard Government for this term is to sell, a secret

agenda, is to sell the rest of Telstra to give you a huge war chest, $50 billion

is the figure mentioned, a huge war chest to offer tax cuts in the run up to

the next election for a fourth term which would be a Costello Government of

course, is it true?

TREASURER:

Well it is no secret that the Government policy after fixing up services in

the bush is to proceed with private equity in relation to Telstra. It will only

be done after we have met various standards. But the rest of it, about tax cuts,

is obviously false. Because we have always said that if you had the proceeds

of asset sales you should either use them for retiring debt or building up other

assets. You wouldn’t spend them. So, I can’t see that we would be interested

in that for a moment.

FAINE:

On the one hand then, you want to try to boost the value of the Telstra shares

that you want to sell, you can’t boost the value of those shares while you are

subsidising a whole lot of services in the bush but you’ve got to protect services

in the bush because that’s part of the charter…

TREASURER:

Charter…

FAINE:

…and part of the promise you’ve made before you’ll sell off the rest of Telstra.

How do you do that?

TREASURER:

Well, you can put on these organisations what are called community sector obligations.

We do it all the time. That you have an obligation to deliver a certain standard

at a certain price even if you are a private sector operator. I am not sure

it is a good example, but I am sure there are such requirements on the private

sector train operators in Victoria. What you do in relation to these organisations,

notwithstanding it is a private sector organisation, you say one of the conditions

of you continuing to operate is you deliver services up to such and such a standard,

you deliver them within so many days, you deliver them at such and such a cost.

And that is what we do in relation to Telstra.

FAINE:

But Telstra, as we heard on AM this morning and in our news, Telstra are saying

to Easymail customers, those are people who get free email out of Telstra, we’re

ending this service, we’re not going to give anyone free email anymore, you’ve

got to go onto a service instead that costs money. So they’re doing the exact

opposite of what you’ve just confirmed you’d like them to be doing.

TREASURER:

Well Jon I don’t know if there is a community service obligation in relation

to email. I know there is in relation to the telephone lines and that is what

I am talking about, the telephone connection service and the providing of the

telephone service. We do have community service obligations in relation to that.

Telstra is in this position where it is now half private and half public. And

it runs into all of these sorts of difficulties all of the time because on the

one hand it is operating like a private sector company, it is competing against

Optus…

FAINE:

Yep.

TREASURER:

…it is competing against other email services. On the other hand it is a

Government owned instrumentality which has obligations to the public. Now we

say in relation to the obligations to provide services, in relation to providing

lines within so much time, and with so much cost, and particularly increasing

the availability of services to the bush that we are going to put community

service obligations on it, but in relation to many of these other areas, Telstra

operates just like a private sector company.

FAINE:

But it’s not a hard argument to run that email is the equivalent now of what

telephones used to be 20, 30, 40 years ago. A lot of people use the email far

more than they use the telephone now and you know, there’s a whole lot, there’s

Hotmail, there’s Yahoo, there’s America On Line, they all offer free email services.

Why can’t Telstra?

TREASURER:

Well Jon, as I said, I don’t know the details of Telstra’s email offers. And

I am not responsible for them. But you have made the point that there are a

lot of private sector providers who offer free emails. And what I would say

to people is if Telstra wants to charge you and there is a private sector operator

offering free email I would take the private sector operator.

FAINE:

Well you certainly would. And Telstra would lose customers.

TREASURER:

And Telstra would lose customers and if Telstra comes, believes that it wants

to retain those customers it may change its position.

FAINE:

So you’d be encouraging Telstra as you’ve given a shot and a serve to the banks

from time to time to be more customer focused, what do you say to Telstra?

TREASURER:

Well, I would say to people, exercise your power of competition. Telstra is

giving you a bad service in an area where there is free competition go to the

competition. And Telstra will soon wake up to itself if it wants to keep customers.

FAINE:

And you’re saying that as the Federal Treasurer, effectively in charge of 50.1

per cent of the business. You’re telling people that they should think twice

about using?

TREASURER:

Well, I am not technically speaking in control of the 50.1 per cent, I think

either the Communications Minister or the Finance Minister is.

FAINE:

You’re not without some influence?

TREASURER:

I, look, in an area where there is hot competition, if somebody is offering

you free email, go to the free operator. And if Telstra values your custom and

wants to bring that custom back, you will see that it will soon meet the offer

and if it doesn’t, well you will be getting free email with the competitor in

any event.

FAINE:

Well, we’ve seen Bernie Fraser doing ads for superannuation and other financial

institutions, is Peter Costello doing ads for other email providers? Mr Costello,

Medicare asking for permission for a 13 per cent price hike, I know this is

not your portfolio, that’s the responsibility of the Health Minister, but in

the last Budget you poured billions of dollars into health insurance subsidies

in order to make the system more efficient, more affordable, to make more people

have health insurance. It’s just not working.

TREASURER:

Well Medibank either has or will apply for a rise. And if it is 13 per cent

I can’t imagine that the full 13 per cent will be approved.

FAINE:

Just an ambit claim?

TREASURER:

Well, a pretty unimpressive claim. I can’t see why you would need a 13 per

cent rise in a situation where the numbers who are taking out insurance is increasing,

not decreasing, is actually increasing, where your consumer price index is nowhere

near 13 per cent, why you would need a 13 per cent increase. And I will be looking

with great interest to see why they say it. And if it is not a good reason and

I can’t see that it will be, it won’t be approved.

FAINE:

The argument last year was that with the increased number of people taking

up health insurance then the cost structures would change and price increases

wouldn’t have to be necessary.

TREASURER:

That’s right. And that has in fact been happening. So I can’t imagine what

its reason would be. And unless it has got a real left-field reason that nobody

else in the industry has thought of, I can’t imagine it will be approved.

FAINE:

Any increase at all?

TREASURER:

Well, there might be a case for CPI type increases. You would have to have

a look at it.

FAINE:

But nothing much more than CPI?

TREASURER:

I couldn’t imagine 13 per cent.

FAINE:

Could you imagine anything more than CPI?

TREASURER:

Well, you can imagine an argument based on CPI. So let’s see what their argument

is.

FAINE:

16 minutes to 9 on 774 ABC Melbourne, Peter Costello the Federal Treasurer

my guest this morning. The indemnity crisis, since the collapse of HIH, World

Trade Centre and all those other difficulties, we have learned since last October

particularly tourism, community organisations, all sorts of voluntary groups

finding it impossible to get insurance cover or if they are offered it, it’s

at massively increased premiums, we’re seeing races and sporting events being

cancelled, street parties all sorts of things not happening that used to happen

because people can’t get insurance. A couple of days ago we spoke to your Assistant

Treasurer Helen Coonan on the program, she’s organising a national summit. What

will be on the table for people to use as a starting point for some sort of

resuscitation of insurance in this country or are you just going to all come

together to talk about it?

TREASURER:

I think the first point that they want to establish is what’s causing the increase.

Some people say it is large verdicts. I have heard other people say it’s not

large verdicts at all, it the small verdicts, it is just that they are multiplying.

And I have heard other people say that the industry itself is not being properly

operated and passing on benefits to consumers. So I think at this meeting they

want to get a grip on what is causing it. Having got a grip on it then they

can start talking about the answers. The answers will predominantly require

State legislation, you realise that?

FAINE:

And uniform state legislation.

TREASURER:

Well, it is possible that the states could go to different areas, but then

you would have insurers who would have different premiums in different states.

FAINE:

It would be a nightmare.

TREASURER:

Well, it probably happens, for example, in relation to workers comp and motor

car. There are different laws in different states with different premiums as

a consequence. But, if you ask me I would agree with you, I think you should

have uniform laws. But it seems to me that at the end of the day if you want

to keep the premiums down, let’s assume that there is no funny business going

on in the insurers themselves, then you have got to either restrict the number

of claims or reduce the size of the payouts.

FAINE:

(Inaudible)

TREASURER:

Which would require state legislation, by the way.

FAINE:

National Party leader here in Victoria, Peter Ryan, has come up with a proposal.

He says you have an exemption for volunteers unless they are grossly negligent.

You have minimum claim of $36,000 and a cap of $4.5 million, and that gives

us a framework to start with. What do you think of that?

TREASURER:

Well, I would want to know more about volunteers. Let’s suppose you are a volunteer

CFA fireman and you went off to a fire and your fire truck burst, would you

say to that person they could not get any compensation?

FAINE:

No, they’d be covered but if they caused somebody else an injury, would that

other person be able to claim against the volunteer is the issue there or would

they claim against the CFA? They would claim against the CFA not the individual

fireman.

TREASURER:

Well, you know, I am not sure Jon, I would want to look at it. Let’s suppose

somebody goes away with the scouting organisation and has a terrible accident…

FAINE:

Yep.

TREASURER:

…some child, and is maimed for life. Would you say to that child, no compensation?

FAINE:

No, you would say you can sue against the Scouting Association but not the

individual scout leader who was supposed to be responsible.

TREASURER:

Well then the Scouting Association would still have to have insurance, wouldn’t

it?

FAINE:

Yeah, yeah.

TREASURER:

Would still have to pay a premium and that is the thing they are complaining

about.

FAINE:

And that is the level of complexity we… (inaudible)

TREASURER:

I don’t know the answer.

FAINE:

No.

TREASURER:

I really don’t know the answer. If I knew the answer I would fix it.

FAINE:

Yep.

TREASURER:

But at the end of the day, I say this is going to take State legislation, as

you know, it is under the common law which the States control, and I think we

have all got to face up to this point. It is not just, by the way, volunteer

organisations. We have got it with doctors facing huge premiums at the moment.

We have got it with commercial buildings…

FAINE:

Yep.

TREASURER:

…it is almost impossible to get terrorism insurance for commercial buildings,

I don’t think you can get it at the moment. We have got it with airlines, I

don’t think airlines can get insurance against terrorism at the moment and that

is why the Commonwealth government is indemnifying these airlines. I raised

this when we were at the recent IMF meeting in Ottawa and there are no underwriters

worldwide now taking terrorism covers on airlines.

FAINE:

Yep.

TREASURER:

And so what you have got to try an feel a solution on an international level

to problems like that.

FAINE:

11 and a half minutes to 9, couple of other issues. You’re today announcing

some new business tax reforms, according to the front page of the Financial

Review. Some very technical things, asset value calculations, thin capitalisation

rules, clean slate rules, none of which I understand. But I do see that there

is a crack down on targeting tax losses and shifting them between related entities.

In the wash up of Enron, or what might be the early days of the Enron scandal,

it’s now being called Enrongate in some of the American correspondence, is there

a crisis in confidence, in particularly the community’s perception of what auditors

jobs really are? Do we have a, do we have some fundamental problems?

TREASURER:

Yes, I think this is a big problem. The big problem is what the public believes

an auditor does and what an auditor believes he does, are different things.

That is the first point. Most of the public believes auditors are sort of there

to stop fraud. That is what the public believes. I am not sure that is what

the actual legal position as understood by auditors, is. There is a question,

and you are hearing this at the moment, is, what was the duty of auditors. You

have got the second issue of, with these big international accounting firms

that are both consultants and auditors, do they have conflict of interest appearing

in different guises for the same company? And the SEC in the United States is

now looking at that very (inaudible) and taking a tough view. The third issue,

to come back to your public liability issue, if auditors are going to be liable,

their insurance premiums are going to be great, there is now a problem with

auditors getting insurance…

FAINE:

Yep.

TREASURER:

…commercial rates. We talked about doctors, airlines, buildings, volunteer

organisations, you speak to auditors, they will tell you about horrific premiums

and the inability sometimes to get professional indemnity insurance. So, you

get the question of, will people want to do audits, will it make money, will

they be able to afford their premiums? And this is an area I think, again not

just in Australia, worldwide, which we are going to have to grapple our way

through in the next year. And we will have to clarify, I think, what we expect

of auditors. We will have to clarify when we believe that these big accounting

firms can not have the same clients with different facets of the firm, and we

will have to clarify what the liability of auditors and their indemnity arrangements

are going to be. It is a huge area. Big problem.

FAINE:

So are you going to be doing that as a priority?

TREASURER:

Oh yes, this is a big, we had a report done on this, a Ramsay report, which

has just come out. We will now, I think Jon, wait for the finding of the Royal

Commission into HIH because this comes up very squarely in HIH. They will be

looking very carefully at the auditors in HIH along with the management and

everybody else. So, we will wait to see what the Royal Commission says in relation

to HIH and then we have got to turn our attention to the conflicts of interest

and legal liability questions for audits. It is a huge issue.

FAINE:

Huge issue indeed. Very briefly, reviewing foreign ownership of media and cross-media

ownership rules, had meetings, according to various newspaper reports, with

media proprietors over the summer break and your recent return to work. When

are announcements going to be made or the public going to be let in on what

the Government’s proposals might be on that very delicate front?

TREASURER:

The Government’s view is that there should be liberalisation in the media area

in relation to foreign investment and in relation to cross-media ownership.

The Government has said that it believes there should be some liberalisation.

That would require legislation and the Government is going to put together a

proposal, and has really more or less announced what its proposal is, and see

what the Senate does with it.

FAINE:

Sit back, wait and see if you can get your own ambit claim up, do some argy-bargy

with the Democrats if necessary?

TREASURER:

Well, improve the media regulation market. But, I make this point, if it takes

legislation it will only be passed if you get two Houses of Parliament. I am

confident it will go through the House of Representatives, so, the question

then becomes will the Labor Party and the Democrats agree to it. I think we

could have a better media regulation arrangement in Australia.

FAINE:

Better than the current one?

TREASURER:

Yes.

FAINE:

I don’t think many people are going to argue with you about that. It is a question

of what it is going to be.

TREASURER:

There will always be an ABC, Jon, you will be pleased to know.

FAINE:

Very re-assuring given the question I am going to ask you in a moment. Refugees,

the Pacific solution, turning out to be very costly indeed. Do you have a figure

on how much that has cost today?

TREASURER:

The Mid Year Review, we put down an extra $100 million for this financial year,

and there will probably be a little bit more, but not much. And that is because

the number of boats has diminished quite considerably in the last two months.

FAINE:

Because of the weather?

TREASURER:

No. The cyclone season is starting now, but there have been boat arrivals in

December and January previously. No, I think it is because of the tough measures

we are taking to enforce the border. There has been a drop. Now, I am not going

to proclaim victory because another boat could arrive tomorrow, but the cost

will depend very much on how many of the smugglers get through, and at the moment

the smugglers, the success rate of smuggling has declined.

FAINE:

It pains me to give a plug to a rival media outlet but there has got to be

a gag line for you in this somewhere, Jeff Kennett announcing that he is going

to take up a, still unannounced, but prime time slot on 3AK commercial radio

in Melbourne, struggling at 2 per cent audience take at the moment. Would Peter

Costello, with his long history of less than cordial relations with Mr Kennett,

would you agree to go on his programme if he invited you?

TREASURER:

Well, if I can survive you I could probably survive him, Jon, so if he invited

me I probably would. But, I think, you know, if I were Jeffrey, I think my first

day on radio I would invite as my guests Neil Mitchell and Jon Faine. I think

that would be a real media stunt.

FAINE:

Don’t hold your breath for that one. But what would you expect if you turned

up there?

TREASURER:

Oh, a grilling.

FAINE:

A fair one? A balanced one?

TREASURER:

Look, I think all radio interviewers, yourself included, believe it is their

responsibility to give a grilling and they believe it is their responsibility

to give a grilling to everyone, and I assume that he would be the same as any

other radio interviewer. And the general view, as you know, in defence of radio

interviewers, and you will very rarely hear me say this, the view is that if

you give the interviewee a grilling you get a better interview, better for the

listeners. I don’t think you always grill us because, you know, that indicates

your own private view, the view is you just get a better interview and I am

sure that any new interviewer on the block at 3AK or anywhere else would take

the same view.

FAINE:

If the audience rating is 2 per cent, would you bother going on?

TREASURER:

Well, after I had done you and others. I went on, not much, but I went on a

couple of times when Derryn, Derryn Hinch was on 3AK wasn’t he?

FAINE:

Yeah.

TREASURER:

So I went on a couple of times, mainly to sort of keep them off your back.

Your producer knows if you do not go on a radio interview the producers hound

us. They tie up our telephones after a while so the only way you can use your

telephones is by going and doing the interview every now and then.

FAINE:

Thank you for that insight into the other side of the process. Thank you indeed

for your time this morning. It has been most interesting to kick off what is

going to be a very busy year, as always.

Peter Costello, the Federal Treasurer in the Howard Government.