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May 21, 2001
A Current Affair – Interview with Mike Munro
May 23, 2001
May 21, 2001
A Current Affair – Interview with Mike Munro
May 23, 2001


Transcript No. 2001/062





Reuters TV – Interview with Victoria Thieberger

Tuesday, 22 May 2001





Treasurer Costello thanks for joining us. With an election coming up this

year can you assure financial markets that that surplus of $1.5 billion will

remain intact?


Well its the fifth consecutive surplus by an Australian

Government and Ive been the Treasurer over that period. Weve paid down our

debt, our debt to GDP ratio is now about 6 percent. The European average is

about fifty percent. So weve got the credentials on the board. Five years of

consecutive surpluses, very substantial pay down in debt and quite a strong

position and in this budget weve already factored in about $5 billion worth

of tax cuts.


The economy is still very soft at the moment. Youve got a

forecast of recovery to three and a quarter percent. What are those expectations

based on?


I think well see a rebound in residential construction. As

you know when we moved to the new tax system in 1 July last year it brought

forward a lot of residential construction and conversely there was very little

residential construction in the second half of the calendar year. Thats now

picking up supported by lower interest rates and the government first home

owners scheme so residential construction will come back to very strong levels.

Were getting growth out of net exports. Weve had good export growth and

consumer demand. I think three and a quarter percent growth forecast in

2001-2002 is eminently achievable.


You said that you do want Australia to become more competitive

internationally. Doesnt that require cutting the top marginal tax rates?


We cut income taxes on 1 July last year. You might recall we

had a lot of difficulty with the Labor Party Senate in cutting marginal tax

rates for higher income earners but we still managed to cut them. This budget we

cut the company tax from thirty-four to thirty percent. We abolish Financial

Institutions Duty. We take stamp duties off shares. This will be very good for

Australia as a financial centre. Youll be able to trade shares in Australia

without any stamp duties. You have to pay them at the moment. Theyll be

abolished from 1 July. And weve also got some stimulatory measures in there

for business in relation to motor vehicles. Theyll be able to get back all

tax paid at an accelerated rate as from tonight which will I think be

pro-investment for the business community generally.


So on the currency the budget is in surplus now, youve got

an economic recovery forecast. The current account is down to about three

percent of GDP. What will it take for the Australian dollar to reflect those

good fundamentals.


Well I think that the big story in markets recently has been

the rise of the US dollar. Its probably come off a bit recently but if you

look back over the last six months or year its been rising against most

currencies in the world including the Euro. I think the Australian dollar has

not been reflecting fundamentals, the fundamentals of low inflation, growth

fundamentals, budget balanced, low debt, competitive tax regime and I think when

it does reflect those fundamentals people will take into account the very real

opportunities that there are in Australia at the moment.


Youve got this fiscal stimulus coming through. Youre

already forecasting a recovery. Does that make more work for the Reserve Bank

next year on interest rates?


Well were forecasting inflation at two percent in the next

year. I think thats a realistic forecast. We think the stimulation is going

to be good for the economy. We think it can afford it. We found out in the late

1990s that we could run the economy at four percent on a two percent inflation

rate. Were below that in our forecast so I think we can run it a three and a

quarter on two percent and thats why I think the stimulation will be good for

growth. But I dont see an inflation risk in the next financial year.


Will this budget be enough to win you the next election?


Look this is a budget of good economic management. I think our

government has a reputation as good economic managers. Growth has averaged about

four percent in Australia since we were elected on a two percent inflation rate.

Weve run five consecutive budget surpluses, weve reduced debt to GDP

ratios by about five percent, weve cut capital gains and company taxes. So I

think theyre pro-investment, I think theyre good for business and lets

hope the Australian public feels the same way.


Peter Costello thank you for joining us.


Thank you.