TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Interview with
Kerry O’Brien
7.30 Report
Tuesday, 14 May 2002
8.10 pm

SUBJECTS: Budget

O’BRIEN:

Peter Costello you went through the last election campaign assuring us that the Budget was in surplus and I think even since the election you’ve been telling us that the Budget was in surplus. Now it’s in deficit. What went wrong? What happened?

TREASURER:

After the election Kerry, we made no secret, we asked further appropriations for the war against terror and for border protection. That is when the Parliament resumed we had Additional Estimates in relation to those matters. And we make no apology for that. We weren’t going to allow Australian troops to be in the field without being properly funded. That takes additional money and as a consequence of that there was further expenditures.

O’BRIEN:

But during the election campaign you said that you were confident that you would be able to make those fundings within the framework of the existing Budget.

TREASURER:

During the campaign we said that all the commitments that we had up to that point that we would fund and we put out our Mid Year Review and we showed that. After the election we appropriated additional money. We actually went back into the Parliament and appropriated additional money because the commitment grew in size…

O’BRIEN:

But did you know then that you’d be going into deficit?

TREASURER:

Well in relation to that obviously if you were at a $0.5 billion cash surplus at that point and you appropriate $0.5 billion, obviously at that point unless you have some dramatic change in some other parameter…

O’BRIEN”

But weren’t you saying, saying only a month or so ago that we were that you were confident we would…

TREASURER:

No, in fact I was saying quite the reverse. I was saying that we were in a situation, we were in a global downturn. The United States is in recession, in deep deficit compared to us. Britain turned down and was in deep deficit. The whole of Europe is in deep deficit. And what we were saying is in relation to a weak economy it was important that we made sure, a weak global economy environment, it was important that we made sure that we had stabilised it. Which we did.

O’BRIEN:

(inaudible)

TREASURER:

If I may say so Kerry, what’s the outcome? Whereas the United States went into recession, and Germany went into recession, where you had countries like Japan in recession, Singapore in recession, the economy that grew was Australia. Australia was leading the world through a period of global weakness.

O’BRIEN:

But I guess you’ve made no such a thing about being “Mr Surplus” that it comes as a slight shock to see you, momentarily at least as “Mr Deficit”.

TREASURER:

Oh well, if you’re in a situation of a US recession and you’re making defence commitments I think it’s a perfectly responsible policy. Let me put this point to you. We’ve never survived a US recession without going into recession ourselves. And if we’d let our economy go into recession I can assure the deficits would have been much greater than this. I think it was a very good policy if I may say so during a global slowdown with increased defence and expenditures.

O’BRIEN:

I was struck tonight listening to your speech, it just hit me that from the time that the Tampa arrived on the scene, a Norwegian tanker looms over the horizon, picks up some boat people whose boat is sinking and from then to now we’ve committed $2.8 billion in extra funding for border protection. Doesn’t that, stated that baldly, doesn’t that suggest that there might be some overreaction in there somewhere?

TREASURER:

What I’d say Kerry, it’s not since the Tampa arrived…

O’BRIEN:

Well that’s what started it.

TREASURER:

…no, no it didn’t. What started it was the fact that I think in the month of August we had what 2,000 arrivals in three weeks. Now if you had have had 2,000 arrivals every three weeks, if you’d have been looking at either 10,000 arrivals during the year you’d have been spending much more than $1.2 billion.

O’BRIEN:

But you’re not now are you? You’re looking, Philip Ruddock is telling us, that it has slowed to a trickle. That the people smugglers, Treasurer hang on one second, that the people smugglers seem to be for the moment at least going out of business and yet the money that you’re talking about spending, not just Christmas Island but hundreds of millions being projected over the next four years for the Pacific Solution to keep going, that is Nauru. And help me…

TREASURER:

Manus Island.

O’BRIEN:

So, why is that necessary?

TREASURER:

Kerry if 2,000 in a month, or in three weeks, was any likelihood of the stream that you would have over the course of a year then the amount of money you would have been spending would make $1.2 billion pale into insignificance. $1.2 billion which has arrested apparently, for at least five months…

O’BRIEN:

Now it’s $2.8 billion.

TREASURER:

…and the additional $1.2 billion which has arrested arrivals for five months, it’s been five months since there’s been an unauthorised boat arrival, if that policy were to continue throughout the course of this year, if that successful rate were to continue the savings would be enormous. $1.2 billion if I may say so is a lot less than if the arrivals had continued at the rate of August 2001.

O’BRIEN:

You’ve produced your Intergenerational Report, you talk about this extraordinary difficult situation we face in the next forty years if we don’t start to do something about it now. And tied in with that you’re making a big point about the blowout in the cost of pharmaceuticals, the Pharmaceutical Benefits Scheme and the disability pensions. And so you’re making cuts there, substantial cuts. But surely that is also a short term consideration is it not of having to find some money from somewhere to fund your other spending including the huge blowout in Government spending as a result of your election promises last year and your need to get out of electoral trouble.

TREASURER:

Kerry the changes to the disability pension don’t even start until July 2003 and don’t produce any savings until 2004-05. And I heard someone say oh well they must be changing this to pay for border protection which occurred in 2001-02.

O’BRIEN:

But what about the Pharmaceutical Benefits Scheme?

TREASURER:

It’s not going to produce a saving until 2004-5. It’s not, it doesn’t produce anything last year, this year, next year, 2004-05. Why are we doing these changes? We’re doing these changes because we want to ensure that people who go on the disability pension don’t lose connection with the workforce, aren’t consigned for the rest of their life onto a pension with the…

O’BRIEN:

You’re making these spending savings to help people on disabilities?

TREASURER:

We’re actually…

O’BRIEN:

You’re actually helping them?

TREASURER:

We’re actually spending more next year which will be giving training and rehabilitation with the object of helping the people into work and producing savings down the track. We’re actually spending more. This is not to produce some kind of quick money.

O’BRIEN:

In three years, $258 million, I think you’re saving $336 million over three or four years.

TREASURER:

So to try and draw the connection as I saw some of the newspapers oh this has got something to do with border protection, this has nothing to do with border protection.

O’BRIEN:

Pharmaceutical Benefits Scheme?

TREASURER:

Well let me come to Pharmaceutical Benefits Kerry. We bring a new drug on to the market like Zyban, I think was a recent one. $226.00 per prescription from memory, now we’re saying for a pensioner that $226.00 prescription, it’s there for a pensioner to pay $4.60. That is that the Government’s subsidy in that case instead of being what $223.00 is $224.00. You’ve got to, if you want to keep bringing these new pharmaceuticals onto the Pharmaceuticals Benefit Scheme and the contribution for consumers and it’s $1.00 in the case of pensioners additional, you’ve got to have co-operation from the pharmaceutical drug companies, you’ve got to have co-operation from the doctors and the Government has got to make sure that it operates a very strong system against fraud. We’ve got a whole plan in there to try and get these costs under control. Now I’m not telling to you that this plan will fix things in 2042, but if when you look down to 2042 the cost of these things are really, really large.

O’BRIEN:

Our political culture has trouble looking beyond the next year which you well know.

TREASURER:

Well the good thing about this Intergenerational Report is it tells you we’re okay for ten years. But if you want to be okay in the ten years after that we had better start doing something now. That’s my message.

O’BRIEN:

But what do you do? Do you build surpluses? Where do you put the money?

TREASURER:

(inaudible) we’ve now paid off $62 billion of the debt we inherited. So we’ve put Australia into a strong position. But I think we’ve got to have this discussion with the Australian public.

O’BRIEN:

I mean I would like to understand this a little bit. Let’s say you have a $2 billion surplus next year, the following year $4 billion, $5 billion, $8 billion, $12 billion what are you doing with those surpluses?

TREASURER:

Well, we paid down debt. We’re trying to get rid of all Commonwealth debt. And so the Commonwealth Government would be in a very strong position.

O’BRIEN:

(inaudible)

TREASURER:

Well that’s the big part of the strategy now. I mean imagine if we were running around now with a $96 billion debt which we had in 1996. Now we’ve repaid, we will repay $62 billion of that, that’s part of the strategy. But I also think that as you look out to 2020 and 2030 we’ve got to think to ourselves whether we are really doing everything we can to make it sustainable. It’s not a discussion for this week. It’s not a discussion for a decision in a year’s time but it’s something that we ought to be thinking about in ten, twenty and thirty years time.

O’BRIEN:

Very quickly Peter Costello it looks like you would like to sell at least another section of Telstra within the next three years. Are you confident of being able to do that?

TREASURER:

Well if we can get rural and regional services up to scratch yes. But we said we want to get rural and regional services up to scratch before we do it and we want to get them up to scratch as quickly as possible. Not so we can sell Telstra, but so that people in the bush have better services. That’s the whole point.

O’BRIEN:

Thanks for joining us.

TREASURER:

Thanks Kerry.