TRANSCRIPT of
THE HON PETER COSTELLO MP
Treasurer

Press Conference
Melbourne

Thursday, 28 August 2003
12 noon

SUBJECTS: Balance of Payments, AMP, Four Pillars Policy, Telstra,

One Nation

TREASURER:

Today’s current account deficit for the June quarter was $12.6, $12.7

billion, giving a current account deficit for the year ended in June

2003 of 5¾ per cent of GDP. The peak of the current account deficit

was led particularly by the decline in exports with rural exports falling

around 27 per cent through the year to June, reflecting the worst drought

in Australia’s history. In addition to that in the June quarter, exports

were affected by the SARS epidemic and the war in Iraq, with travel services

being down by 17 per cent. Now as the climatic conditions return to more

normal patterns we are expecting that in the forthcoming year we will

be having average serial crops, and rural exports will be picking up

significantly. In addition, depending on international security concerns

the export of travel services, that is tourism could also pick up. There

are signs that the international economy is recovering, and if the international

economy recovers then that will give stronger markets for Australia’s

exports.

This has been a very difficult quarter, putting together the global downturn,

SARS, the war in Iraq, and the worst drought in Australia’s history.

All of those things have come together in this particular quarter. The

Australian economy continues to grow strongly whilst the rest of the

world is weak. That means that we are still making imports, whilst demand

around the world for our exports has come off. The global pick-up, hopefully

the improved security outlook, and certainly better weather patterns

will all contribute to a pick-up in Australia’s exports in the quarters

which lie ahead.

Today in addition to the current account deficit, foreign debt figures

were released showing that foreign debt declined in the June quarter

and that general government accounts for only 3.1 per cent of net foreign

debt, which is historically very low, the debt servicing ratio falling

to the lowest level in 20 years of 8.3 per cent of export income. Australia’s

economic fundamentals remain sound, we have low interest rates, low inflation,

a balanced budget, our credit ratings have recently been upgraded to

AAA by both Moody’s and Standard and Poors, and hopefully the global

pick up will continue to strengthen appetite for our exports in the year

ahead.

JOURNALIST:

While over the years it’s 5.3, 5.4 or 5¾ per cent, I mean over the

quarter it has got to be the worst percentage of GDP ever recorded in

the nation, that quarter has to be the worst ever.

TREASURER:

Well we look at these things on the annual basis, and on an annual basis

as I said it was 5¾ per cent…

JOURNALIST:

…but on a quarterly basis (inaudible).

TREASURER:

Well we don’t know because we don’t have the GDP for the quarter yet.

You can’t actually do that, but this is 5¾ per cent. That is a high

current account, and nobody should be under any misapprehension about

that, and as I said, probably the worst quarter in terms of exports that

we have ever had. Not just a global downturn, but a war- Australia was

engaged in a war during the quarter-a SARS epidemic and our worst drought

in a hundred years. So let me underline again, in trading terms, probably

one of the worst quarters that Australia has ever experienced. You have

seen that reflected in today’s figures. I think that over coming quarters

there will be an improvement. I know there will be an improvement in

rural exports, because weather patterns are better. There should be an

improvement in tourism because the SARS epidemic seems to be under control,

the war in Iraq has ended, but the most important thing, on the larger

stage, of course, is that the global economy recovers.

JOURNALIST:

At what stage does it become unsustainable?

TREASURER:

Well I think that when you are looking at the current account deficit,

and we have had experience in the past, of current account deficits at

6 per cent of the GDP on an annualised basis, the important thing is

to have strong macroeconomic settings. What do you need? Low interest

rate, low inflation, balanced budgets. We could get some more support

out of the Senate if they would pass some of our reforms, and I call

on the Senate again to do that. Pharmaceutical benefits changes which

are producing savings of $1.3 billion are now blocked, not in this year’s

Budget but last year’s Budget and I call on the Senate to pass the Government’s

program. But I can indicate to you we will continue to work on strong,

stable, sound macroeconomic fundamentals.

JOURNALIST:

Given that it was such a tough quarter, is there a risk that with the

next set of economic figures see a negative economic growth?

TREASURER:

I said in relation to the National Accounts that I would expect, as the

markets are, the National Accounts to show a very low figure. I said

that last National Accounts, because you will have this export issue

feeding into these National Accounts, and I said that three months ago.

And as predicted, that is what you are going to see is the contribution

from net exports. But the factors that are particularly Australian, are

turning now, ie drought. And the factors that are global, I also believe

are turning, that is the US recession, which has marked down global growth.

There is not much we can do about a US recession, but the signs are positive

that the US economy is now recovering. That will be good for Australia.

JOURNALIST:

While there was a marginal improvement on the net debt, I mean overall

since you have been elected it has more than doubled, and before you

were elected you had the debt truck running around talking about cutting

foreign debt. That has clearly failed.

TREASURER:

Well, I think that when the Government was elected debt as a percentage

of GDP was 40 per cent, now it is 48 per cent. It is not right to say

that it has doubled. The point that we…

JOURNALIST:

(inaudible)…in nominal terms.

TREASURER:

…yes, well you know, I think the fair comparison is in percentage terms…

JOURNALIST:

But it has gone up…

TREASURER:

It has gone up, yes, it has gone up from 40 per cent to 48 per cent,

and prior to our election it had trebled from 13 per cent to 40 per cent.

So let’s just get some perspective on that. It has gone up, yes it has

gone up, and I don’t hide that for the moment. The good news, however,

is that the servicing of net foreign debt is the lowest it has been in

20 years at 8.3 per cent of exports, so it has gone up, 40 to 48 per

cent, but the cost of servicing has gone down, which is actually a positive.

Having said all of that, I think it is important that we do what we can

to boost our exports, and I am not for a moment going to suggest that

we shouldn’t be focusing on boosting exports and making our exports competitive

around the world. The biggest problem for our exports at the moment is

drought and a weak world.

JOURNALIST:

Is the Federal Government opposed to the take-over of AMP?

TREASURER:

The Treasurer has power to approve or not approve the shareholding in

the AMP once it reaches 15 per cent. And if it were to reach 15 per cent

an application would be made to the Treasurer, it would be considered

in accordance with the national interest.

JOURNALIST:

Have you been approached?

TREASURER:

I don’t think anybody has got to 15 per cent. Not to my knowledge anyway.

JOURNALIST:

Have you been approached about a possible takeover of AMP?

TREASURER:

Well, I obviously am privy to various information. People keep me informed

as to what is happening, but if an application is made, I will deal with

it in accordance with the national interest.

JOURNALIST:

Do you sort of view AMP as an unofficial fifth pillar to the four pillar

banks policy.?

TREASURER:

Well I announced the four pillar policy. Before that there was a six

pillar policy, so I announced the four pillar policy. And what the four

pillar policy said was this: that we would not approve mergers between

the four big commercial banks. Interest by the four big commercial banks

in mutuals, or by the mutuals in the banks, would not be automatically

ruled out, they would be considered on their merits. Up until that point,

they were automatically ruled out. Nobody should interpret that as an

automatic approval, what we said, is, that there would be no automatic

bar. And the automatic bar would be removed and they would be considered

on their merits.

JOURNALIST:

If one of the local major banks took over AMP would that cause a Federal

Government to reconsider the four pillars policy.

TREASURER:

They couldn’t take it over without approval from the Treasurer.

JOURNALIST:

If they took AMP over would that trigger a reassessment of the four pillar

policy?

TREASURER:

Well no, if they took it over, that would only be done with the approval

of the Federal Government. It would only have got to that stage because

the Federal Government has approved it.

JOURNALIST:

Yes, but are you saying that it is outside the four pillar policy, so

if you did approve it and they did takeover AMP, would that cause you

to reconsider the four pillars banking policy?

TREASURER:

Well let’s not race ahead of ourselves. You are asking me something that

hasn’t even occurred yet, and you are asking me after it has occurred

what the next step would be. So let’s not run ahead of ourselves on this.

JOURNALIST:

OK, today Telstra has announced that it will (inaudible) a buy-back,

will the Federal Government, was the Federal Government informed about

that idea?

TREASURER:

Well I am not sure, I am not sure what turns on these issues. I am sure

that Telstra would have done whatever was in accordance with the law,

and I am not standing here and answering commercial in confidence questions.

JOURNALIST:

Do you expect to take part in the buy-back? The Federal Government?

TREASURER:

Well I notice that Telstra has announced a proposal for a buy-back, I

think $800 million to $1 billion. I assume that would be offered to all

shareholders, the Commonwealth Government obviously is a shareholder.

A majority shareholder. It would be therefore invited to participate.

That would be considered by the Commonwealth Government, we would obviously

take financial advice and will and announce our position accordingly.

JOURNALIST:

But would you have preferred a, increase in dividend rather a buy-back?

TREASURER:

I am not going into commercial, as a share, in my capacity as Treasurer

in the Commonwealth Government which is a shareholder, I am not going

into commercial issues in relation to the shares that we hold or methods

of payment. These are matters for the board of Telstra. Any other questions?

JOURNALIST:

What is your reaction to the States who might be willing to cave in to

the Federal Government on health funding?

TREASURER:

I don’t see it as a question of caving in, I see it as a question of

getting a sensible outcome.

The people of Australia want to see the Commonwealth and the States work

together to produce a good health system. The Commonwealth has offered

to increase health funding by 17 per cent – an additional $10 billion.

Now, there is no point the States making symbolic stands on the eve of

flying to Canberra. The important thing would be for the States to say,

yes we want to accept this deal and get on with running better hospitals.

And I will say another thing, that yes, we the States, we will also increase

our funding by 17 per cent and match the Commonwealth offer. The time

for State Health Ministers to try and make political points has passed.

It is now the time to accept the offer, a 17 per cent increase and get

on with matching it and improving the health system.

JOURNALIST:

Mr Costello, did you speak with your father-in-law about his involvement

in the trust fund to destabilise Pauline Hanson’s One Nation?

TREASURER:

No. Like most Australians, I read about it in the newspaper. There was

nothing hidden about this, I read about it in the newspaper, it was in

the newspaper five years ago. And so it has come as no surprise to me

that this happened. A group of people decided that the One Nation registration

most probably had not been done in accordance with law and they decided

that they would support efforts to have it tested and when it was tested,

they were right. It wasn’t done in accordance with law.

JOURNALIST:

Would you describe as the way Mr Abbott went about it as honorable politics.?

TREASURER:

Well, Mr Abbott went about raising some money to test the proposition

as to whether One Nation had honestly registered in accordance with the

law. And when that went to court, it was found that it hadn’t. I don’t

think there was anything hidden about this at all. I read about it in

the newspaper. I can remember Tony Abbott standing in the Parliament,

he wasn’t trying to hide things, he was trying to actually get the point

out that he believed that this hadn’t been validly registered in accordance

with the law. And as it turned out he was right. Perhaps we should have

been listening to him harder. Thanks very much for your time.