Interview with Jon Faine

774 ABC

Friday, 20 April 2007
8.35am

SUBJECTS: Climate change, drought, Murray Darling Basin, Managed Investment Schemes, emissions trading schemes, Australian economy, refugee exchanges

FAINE:

Peter Costello is the Member for Higgins in the Federal Parliament and the Federal Treasurer in John Howard’s Government, he is just back from overseas visits to the people who decide about the global economy.  But it is Peter Costello who looks after the Australian economy as Federal Treasurer.  Peter Costello, welcome back to the studio.

TREASURER:

Thanks very much Jon.

FAINE:

Do you believe in global warming and climate change?

TREASURER:

Yes, I think there is evidence that climate change is occurring and I think there is evidence that human activity is contributing to it.

FAINE:

That puts you at odds with the Prime Minister then.

TREASURER:

Well, it’s a very long range thing….

FAINE:

But just in principle the Prime Minister said, he said he is still a sceptic, he still doesn’t think the science is there and the evidence isn’t in.

TREASURER:

I am not sure about that Jon.

FAINE:

I read in the paper today after yesterday’s press conference he was asked the question.

TREASURER:

I think the question might have been does he think this drought is related to climate change and nobody can really answer that question, but I think what you can say is that over a long period of time, let’s say 50 years or 100 years there is evidence that the climate is changing and there is evidence, scientific evidence, that over the next 100 it will probably change by a degree or two as well.

FAINE:

And is that caused by human activity, or do you think that is part of the (inaudible) million year cycle?

TREASURER:

The general consensus of scientific opinion is that it is caused by human activity and I accept that general consensus, yes.

FAINE:

There are those in your party and certainly in the Coalition who would staunchly disagree with you.

TREASURER:

There are some that say there isn’t enough evidence – you are talking about 100 years, you are talking about a degree or two but the international scientific opinion is near unanimous, not quite unanimous, and I agree with the international scientific opinion.

FAINE:

Then how does that belief then, now build in to policies and planning in particular as you’re preparing a budget, this year’s budget, as we reach what now is acknowledged to be a crisis?

TREASURER:

Well, you have got two issues here, you have got the immediate drought which is a crisis and is upon us.  You then have the long term changes of global warming which is a 50 year and 100 year change.  I mean you have got to separate the two out.  We have to have an immediate response to the drought now – which we are doing with the farmers, which are doing with our Murray Darling Basin initiative, a $10 billion initiative.  That has to be done now.  In relation to emissions you are talking about capping emissions, preventing the growth in emissions, over the next 20, 30, 40, 50 years and we have to put in place mechanisms that will deliver that.  But that is a much longer-term matter.

FAINE:

We’ll come to carbon trading which is another issue where opinion is sharply divided but let’s go back to the $10 billion water plan, it is only a billion a year, it is not $10 billion straight away, in the light of yesterday’s announcement are you looking to revise it?

TREASURER:

No.

FAINE:

Bring any of it forward?

TREASURER:

No.

FAINE:

Elevate any of the measures?

TREASURER:

Well, what we will do, what we are doing is giving assistance to farms. That is happening immediately, our assistance is up…

FAINE:

It’s a band-aid over a gaping hole.

TREASURER:

Well, hang on, our assistance is up around $2 billion to farmers.

FAINE:

But how long can you prop them up if this is long term change, then what is the point?

TREASURER:

Well, with farmers what we do is we give them income support.  We pay a farmer unemployment benefits essentially as if they were unemployed to give them income support. It is known as  Exceptional Circumstances.  Our second area of assistance to farmers is interest rate subsidies, so that if they do not have an income coming in, they cannot service their debt, to make sure we give them a subsidy. That is to make sure that farmers have food on their table, that they can hold their properties.  That is immediate.  As I said about $2 billion is already going out under that. 

Now, separately to that is the Murray Darling Basin initiative, which is an initiative designed to make sure you use the water more wisely, and we prevent over-allocation, that is the $10 billion initiative with the Commonwealth Government taking responsibility for Murray Darling Basin.

FAINE:

But at the same time you have got structural change taking place.  All the measures you are talking about are short-term relief efforts, aren’t they, they are not addressing the fundamental shifts that climate change indicates?

TREASURER:

Well, the assistance to farmers, yes is short-term because farmers need to eat, their children need to go to school, that is short-term and immediate.  Longer-term is the question of making sure we get back over-allocation, that we use water more wisely that we don’t have the evaporation and seepage in the system that you are currently doing and that is the 10 year plan.

FAINE:

That was all talked about years ago, nothing has happened since for instance even Richard Pratt first suggested more than two years ago.  He personally offered to spend money that was never matched by the Commonwealth or the States to deal with what now you are saying needs to be urgently done.

TREASURER:

I couldn’t agree more, it has been talked about for a long time.

FAINE:

So have you and others made a mistake in not dealing with it over the last few years?

TREASURER:

Well, the Commonwealth didn’t have the power to deal with it and as of today still don’t…

FAINE:

But you have the power to knock heads together.

TREASURER:

Well, here is the power we have to make an offer to take over responsibility and to fix it.  That is the offer we have made. As of today, the Victorian Government alone, because New South Wales has agreed and Queensland has agreed.  The Victorian – and South Australia has agreed – the Victorian Government alone has still not accepted that offer.

FAINE:

And is being supported in that refusal by Victorian farmers…

TREASURER:

I am not sure about that, I think there has been a bit of change…

FAINE:

Well, not in the last 24 hours (inaudible).

TREASURER:

I think, the way I hear it things are moving Jon.

FAINE:

The National Party has changed but not the Farmers Federation.

TREASURER:

I think there is a bit of change, I think they now realise it is such a serious matter that you cannot turn this into a States’ rights argument.  This is too important to be a States’ rights argument, national control of a national waterway.  You saw an announcement yesterday from the Prime Minister about the whole basin.  You know what has been the problem with the Murray Darling Basin? Let me tell you, the Queensland Government loses interest in water in the Murray Darling Basin once the water is in New South Wales, which loses interest once it is in Victoria, which loses interest once it is South Australia.  So you have had governments allocating to their own constituents water entitlements without proper reference to the whole national need.  We had over-allocation in the system, you have got that over-allocation in the system.  Now, the States are not going to say well our people should be prejudiced to the extent of another State’s people or if we do our improvements we do not want the benefit to go to downstream users. This has been the problem with the Murray Darling Basin.  That is why we need national control.

FAINE:

Do you agree we should just pray?  It didn’t sound too good for either the Prime Minister or Malcolm Turnbull as a strategy or a set of policies did it?

TREASURER:

Well, I think genuine concern and prayer will be a positive response…

FAINE:

It is not going to make it rain though…

TREASURER:

…but I also believe we have to go on and we have to make sure that we properly invest and we properly save and we properly ensure best usage.

FAINE:

It didn’t exactly encourage farmers to hear the Prime Minister say well we are just going to pray.

TREASURER:

A lot of farmers would be praying Jon, I know in a lot of those rural communities they are already praying, I am not going to belittle the prayer effort but I would say we ought to pray and we ought to work. 

FAINE:

Well you are not going to put it in your budget are you that if your household budget is not working or if the nation’s accounts don’t work let’s pray to fix it.

TREASURER:

That won’t be in this year’s Budget speech.

FAINE:

And it doesn’t work any better when you are talking about the Murray Darling, does it?  We need serious addressing of infrastructure needs, programmes for long term…

TREASURER:

I agree…

FAINE:

…Look at what we have done to help the manufacturing sector

TREASURER:

I agree with that.

FAINE:

(inaudible) with relocation and reallocation of infrastructure and jobs and training and all the rest of adjustment there, isn’t what we need with farmers?

TREASURER:

I agree with all of that, I just do not want to belittle the effort of people genuinely praying, that is the only thing I’d say.

FAINE:

But where is that long term readjustment plan or strategy that could have and should have been in the pipeline already?

TREASURER:

Of course it should have been, that is the $10 billion Murray Darling plan.  Now your criticism may be we should have put it forward a year ago, or two years ago.  Fair cop, but we put it forward now and we still cannot get agreement.  This could go, well how long is this going to go on, this argument, it should have been fixed on Australia Day this year. We should be getting on with it, we are not yet there but I believe it is the most positive plan, the most positive breakthrough. And I again say to the Premier of Victoria and his Deputy Premier this has been agreed now with Queensland, New South Wales, South Australia and there is only one State to fall into line and it is Victoria.  The situation is serious let’s get on with it.

 FAINE:

18 minutes to 9 on 774 ABC Melbourne and online at ABC.net.au/Melbourne.  State Independent MP Craig Ingram told us on Tuesday that he knew of plans for a High Court constitutional challenge to the Murray Darling Basin $10 billion plan.

TREASURER:

Could be possible.

FAINE:

Have you had advice, has the Government had advice about its constitutional validity.

TREASURER:

Yes.

FAINE:

Are you going to tell us what is was?

TREASURER:

Well, I hope it does not come to that. What would be the point? Here’s the Commonwealth with $10 billion with our most urgent national problem with the agreement of three States wanting to get on with action. What would be the point of going off to court to try and decide whether or not we can get on with this. What would be the point?

FAINE:

Are you suggesting that it is vulnerable then to a constitutional challenge by asking them not to proceed rather than saying it won’t, they won’t agree?

TREASURER:

I am suggesting completely unnecessary.  What, we are going to spend our time in the court with lots of lawyers making lots of money while the rivers run dry.  Well, what a hollow victory that would be. 

FAINE:

Not if you think it is your livelihood that is being sacrificed for somebody else’s.

TREASURER:

Well, well Jon, the system is running out of order, if we don’t get rain in the next six to eight weeks, nobody is going to have water.  Nobody.  It is not a question of whether he gets it or I get it or somebody else gets it, nobody gets it.  So, how will we spend the next six to eight weeks?  Will we spend it trying to map out a plan to save water, to build the infrastructure to get some proper principals or let’s go off and have a court action?  Which to you, which to the ordinary listener who is listening to this today, sounds like the most positive response?  I know which one I have.  Now, if you want to waste a year or two with the lawyers, good luck to the lawyers but it won’t help the farmers. 

FAINE:

Is it implicit in your response that your advice, which you haven’t told us anything about, is that it could be vulnerable to a High Court challenge, a constitutional challenge?

TREASURER:

It could be.  We are appealing for a handover.  It could be. I am not saying what the outcome would be, but if you want to waste a couple of years in the courts we will settle the question.  To my way of thinking for a farmer to watch his money, the taxpayer’s money, being used in a court when he is running out of water won’t be much consolation. 

FAINE:

A quarter to nine on 774 ABC Melbourne, Peter Costello, Federal Treasurer with me.  Managed Investment Schemes we have learned are creating not just a tax problem for the Budget but are distorting the rural economy.  Isn’t it time to address and revisit the effect that is having on rural communities and water usage as well?

TREASURER:

Yes I think that is a fair point.  And we now have a ruling from the Tax Commissioner which says that these schemes will not be allowed after the 30th of June 2007, no, the current year, 2008, not the current year, so there is another year and a bit to go, that is right.

FAINE:

Why not bring it forward?

TREASURER:

Because the way the Commissioner looked at it, there is certain schemes that are already in train, where land has been allocated, where seedlings have been ordered…

FAINE:

(inaudible) every primary producer and farmer in the country…

TREASURER:

…so he has given a year…

FAINE:

Why should the tax driven investment farmers get a better deal than the people who have just had their water allocation pulled with no warning yesterday?

TREASURER:

Well, by the way, just because you are putting in a managed investment doesn’t give you water.

FAINE:

A lot of them can afford to buy water on the open market when other farmers can’t.  That is the whole point…

TREASURER:

(inaudible) if there is water.

FAINE:

…if they are Collins Street farmers and stockbrokers with deep pockets.

TREASURER:

If there is water. 

FAINE:

They can afford it, they are bidding up the price of water allocations, that is the whole problem. 

TREASURER:

If there is water.  But let me make this point, that yes, I have been concerned about Managed Investment Schemes…

FAINE:

But why should they have a year to adjust when no one else has?

TREASURER:

Well because, normally in relation to tax matters Jon, you know this, that you don’t change the law in a way which affects activity which is already in progress.  They have been given fair warning, it is going to end in a year and a bit. 

FAINE:

Why should they have a year when the Murray-Darling farmers yesterday were told with no warning that they run out of allocation in a few weeks?

TREASURER:

Because in some cases the land has been bought, the seedlings have been grown, the seedlings are ready to go into the ground, the employees have been…

FAINE:

(inaudible) irrigators, they have got citrus tress growing now.

TREASURER:

Employees have been employed and so what they have been given is they have been given fair notice that the activity which is in train will not be extinguished but no new activity can be entered into. 

FAINE:

This makes your traditional farmer ever angrier, the top end of town and the merchant bank driven tax farmers get a year, while they get nothing. 

TREASURER:

Well Jon, actually I have discussed this with a lot of farmers.  There are some farmers that are against this and there are some farmers that are very violently in favour of it because they say it brings new investment into their local towns and gives them new opportunities.  There is no uniform deal on this amongst farmers. 

FAINE:

Do you now support a carbon trading scheme?

TREASURER:

We are looking at a national emissions scheme.  We expect to have a report soon, I think there is a lot to be said for a national emissions scheme.  But I for one would want to know that there is going to be movement around the world in relation to this.

FAINE:

There has been.

TREASURER:

Well, where?

FAINE:

In Europe, in the UK.  There is a (inaudible)…

TREASURER:

In Europe there has.  But the globe’s biggest emitters are China and the US. 

FAINE:

So we will wait for the slowest (inaudible) before we do something?

TREASURER:

Let me make this point.  If Australia were to close all of its power today, every power station, if we were to close down this radio, turn off these lights…

FAINE:

The air conditioning.

TREASURER:

…The air conditioning.  Turn off every traffic light in Australia, then in nine months’ time China would have added all of the electricity that Australia has on an annual basis in nine months’ time.

FAINE:

Is that a reason for not doing it?

TREASURER:

Well it means that if Australia closes every school, every hospital, every home, in nine months’ time the globe will be in exactly the same position.  So what that tells you is if you want to do actually do something meaningful you have to have emitters like China and the United States otherwise it is a futile activity.  So, the point I am making is we have to work to bring China, the United States, India – those countries that really do matter in relation to global warming – into the system.  But having said all of that, if there are global moves towards emissions trading – this is what we are looking at – then Australia can and should be part of the activity.  We should be in there influencing the agenda. 

FAINE:

Eleven minutes to nine.  Politics is about perceptions, Peter Costello, we are in the run-up to a federal election.  On all of these issues, carbon trading changing the way farming is done, water allocation, climate change, global warming, all of these are issues where the Howard Government and you have been saying, not an issue, not an issue, not an issue and now, late in the piece you are coming to the party.  The perception is that you are not on top of these issues as we head towards a federal election. 

TREASURER:

Well Jon, I would totally disagree with that.  Can I make the point, for the last several years I have been pushing what is called the National Water Initiative which has been designed to properly price and properly manage water resources.  Can I say that the Government has the largest investment ever in the Natural Heritage Trust.  Can I say that environmental spending is now at record levels, that we are working now on the broader issue with the Asia-Pacific 6, including China and the United States to get meaningful progress in relation to global change and we have got the biggest offer Australia has ever seen on the Murray-Darling Basin.  Now, we haven’t got all of the States, if I may say so, including the State of Victoria to agree to that yet, but we are doing the best we can. 

FAINE:

But when the people who for years have been mocked for being wrong, who now it turns out perhaps were right, when they for years have been saying we ought to be investing in a carbon trading scheme, an emissions scheme and solar power and structural change, aren’t they the ones who now turn out to have been a bit prophetic or didn’t deserve to be mocked and we are late to the party?

TREASURER:

Well, I don’t know who you say has been mocked, certainly I haven’t mocked anybody.

FAINE:

Well Tim Flannery still gets mocked, anybody who has been talking this stuff for years has been called a nutbag. 

TREASURER:

Look, there may be people who disagree with Tim Flannery and they are entitled to their views.  I can’t answer for them.  I can answer your question on what I believe should be done on these issues.  Let me come to solar power – people don’t know this – I announced an investment in a solar power plant here in Victoria, in Mildura, which aims to become the biggest solar generator in the world.  It has got new technology and if it can demonstrate this new technology, it puts solar on the map.  You know what the problem with solar is?  The problem with solar is we can make electricity out of solar, it just happens to be four or five or six times more expensive than the power you are getting at the moment, right.

FAINE:

Because we have got so much cheap coal but it is filthy. 

TREASURER:

Yes right.  So you could fire Australia on solar power if everybody was ready to put up their electricity bill by five or six times.  Think of the pensioner.  Hear the pensioner that is listening to us this morning looking at their power bill and say to that pensioner, hey, how would you like to pay five times that bill or six times that bill?  The pensioner might say, well no thanks, you know, I am on a very limited budget already.  But if we can get a demonstration plant and improve the technology and reduce the price of solar power, let’s say to double what you are currently paying.  A lot of people still couldn’t pay double but it is better than paying five or six times.  This is all about technological breakthrough.  We have got a thing called the Low Emissions Technology Demonstration Fund out of which I announced a grant which is hopefully going to trial this technology in Mildura, Victoria, which could make a really big breakthrough.  That is where I stand (inaudible).  

FAINE:

Well people are eager for it.  Seven minutes to nine, we have really talked about one issue and there are many others we have to address.  But still in the context of yesterday’s climate and water announcements, Peter Costello, I opened the programme by saying that increased costs of water and less other things that food prices are going to go right through the roof which is going to affect household budgets, we are already according to today’s paper, have record levels of household debt including credit card debt and that is going to force up interest rates and what is that going to do to your Budget and what is it going to do to the dollar?

TREASURER:

Well the point you make is right.  If it doesn’t rain, if there is no allocation of rights to irrigators in the Murray-Darling Basin, you will see the crops that have grown in the Murray-Darling Basin either not materialise or materialise at a much lower volume.  Now, if there is no irrigation the Murray-Darling Basin, the price of horticulture will go up.  The price of all of the crops that normally come out of the Murray-Darling Basin will go up and that will affect prices.  There is no doubt about that.  You saw that with the cyclone in North Queensland.  When we had Cyclone Larry, the price of bananas went up four or five times.  Now, that is what you could be seeing in relation to stone fruit, horticulture, all of the things…

FAINE:

Household budgets…

TREASURER:

…that the Murray-Darling Basin…

FAINE:

…household debt, interest rates – they all follow, don’t they?

TREASURER:

Well you see, when we come to looking at the overall inflation we always try and look through what are one-off effects.  It is like bananas.  When the bananas went up, you know, we said look, this CPI is abnormally high because of a one-off event, a cyclone which has affected the banana price.  When we are adjusting to our inflation targets we are looking for underlying inflation in the economy.  So you would adjust for that but it is not good news.  It is not good news. 

FAINE:

This will lead to increases in interest rates, I put to you. 

TREASURER:

No, because as I said to you before, when we look at our inflation targets we adjust for one-off events as we did in relation to bananas.  We are looking at general inflation when it comes to monetary policy. 

FAINE:

But there is already a problem in the economy with the dollar at the point where it is at.  Record highs from the last nearly, what, 15 years or more, that is creating problems that you would have to factor in too. 

TREASURER:

Sure.  The Australian dollar is at highs that we haven’t seen for nearly 20 years.  And it is well above its long-term average.  We haven’t been in this territory for decades and this will make this harder for our exporters.  I acknowledge that.  It is harder for Australian exporters with a dollar at 83 and a half cents than it was when the dollar was at 47 and a half.  This is the highest value of the Australian dollar that has been there during the period I have been Treasurer.  And that does make things harder for exporters.  It is just another factor in the whole equation. 

FAINE:

There go the tax cuts in the Budget?

TREASURER:

There is a whole lot of assumptions in your questions Jon, which you very cleverly put in there which I will just let pass through to the keeper. 

FAINE:

Well the general expectation is that in a pre-election Budget with a $15 billion running surplus – that is what you were aiming for – that the economic climate now could (inaudible). 

TREASURER:

The economic climate is getting very difficult.  We have got a drought, the like of which we haven’t seen before.  It will have an effect on prices.  We have got a very high currency which is having an effect on exporters.  We have got a lot of challenges on the climate area that you talked about.  Economic management is very difficult.  It takes a lot of experience to manage these things when you are putting them all together and you are running an economy that is a trillion dollar economy.  A federal budget which is over $200 billion just for the year.  It does take a little bit of work and a little bit of management.  It doesn’t run itself, it has to actually take a bit of management.  As you know, the ABC budget doesn’t run itself, you need people that can manage it and it is not $200 billion. 

FAINE:

I sort that out in the afternoons after I have finished doing the show.  Australia has entered into…

TREASURER:

(inaudible) the Federal Budget.

FAINE:

Australia has entered into an agreement with the United States about swapping asylum seekers – Cubans for Afghanis and Sri Lankans – it is costing hundreds of millions of dollars, the Pacific Solution, is it time to drop it?

TREASURER:

No, the agreement is that where somebody has been found to be a refugee, when somebody is found to be a refugee they have to be settled in a third country, generally speaking and this agreement says that if somebody has been found to be a refugee the United States will look at taking some of them.  New Zealand takes some, where somebody has been found to be a refugee in the United States and they have to be settled in third countries, we have said we will look at taking some…

FAINE:

Why spend hundreds of millions of dollars when you could better spend it on Australian farmers, moving asylum seekers around the globe?  It makes no sense, does it?

TREASURER:

It is not a big cost to run the off-shore processing.  It is not a big cost to be frank.  And the bigger cost would be this.  Let me tell you what the bigger cost would be.  It would be to open Australia’s naval waters to unlimited unauthorised arrivals.  That would be a much bigger cost.  And if you don’t have in place a system which discourages people coming by boat as unauthorised arrivals, then you will get thousands, tens of thousands.

FAINE:

Coming up to the ABC news, just finally, with the polls where they are, are you still ruling out any change in the leadership of the Federal Liberal Party or a challenge to the Prime Minister before we go to the polls?

TREASURER:

Yes.  As far as I am concerned, yes. 

FAINE:

No one is talking to you?

TREASURER:

No.

FAINE:

Not even Michael Kroger?

TREASURER:

No.

FAINE:

Doing the numbers?

TREASURER:

Nobody other than you. 

FAINE:

That probably counts against you, Peter Costello.  Thank you for your time again this morning. 

TREASURER:

Thanks very much.