TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Press Conference
Wednesday, 24 July 2002
12.20pm
Melbourne

 

SUBJECTS: Consumer Price Index; economy; interest rates; stock market volatility;

superannuation; drought; Telstra; Australian Democrats; banks

TREASURER:

Today’s Consumer Price Index for the June quarter shows a rise of 0.7 per cent,

bringing the annual rate of inflation to 2.8 per cent. These figures confirm

that inflation in Australia remains in check, and with low inflation and a strongly

growing economy, Australia remains one of the best performing economies of the

world.

Contributing to the rise in the Consumer Price Index in the June quarter was

an increase in transportation costs, which was particularly a rise in petrol

prices in the early part of the quarter – and they have come off somewhat since

then – a rise in hospital and medical services, and some rises in building construction.

Offsetting that were solid declines in the price of fruit and vegetables with

a decline of around 5.8 per cent, a decline in prices for motor vehicles and

domestic holiday travel and accomodation. So, what had been contributing in

previous quarters to rises, particularly in the area of fruit and vegetables,

has now come off. As I said, since the quarter ended, petrol prices have also

come off, and indeed, were doing so towards the end of the June quarter itself.

What this indicates is that looking out, inflationary pressures remain subdued,

that inflation, as the Government has forecast, in the current financial year

should be within the 2 to 3 per cent band over the course of the year, and in

a strongly growing economy that puts Australia well-placed compared to the rest

of the world.

Also released this morning, I’ll just say very briefly, was the Westpac Bank

leading index in growth rates, which showed the leading index coming off a little,

but still above long term trends which is supportive of growth, but indicative

of the fact that obviously, uncertainty on world stock markets is beginning

to be factored into business thinking.

Also released today was the Skilled Vacancies Index from the Department of

Employment and Workplace Relations, which showed that vacancies increased 2.2

per cent in July and 13.1 per cent higher than a year ago which is supportive

of good employment growth continuing in the Australian economy.

JOURNALIST:

Do you expect to see the inflation rate continue to fall in subsequent quarters?

TREASURER:

Well, this is a little below what was expected for this quarter. The expectation

was 0.8, it came in at 0.7 per cent. That is an annualised rate of 2.8 per cent.

We forecast in our Budget in 2002-03, the current financial year, an inflation

rate of 2 ¾, so we are about now, what we are forecasting for the forthcoming

year. Inflation within the target that we have of 2 to 3 per cent, but I would

say in the forthcoming quarters a few things which are actually going to be

supportive of lower outcomes – you will not have the petrol increases that we

saw in the June quarter, and of course you might have an exchange rate effect

coming through, so, we see inflation as being very much within the target that

we have set at 2 to 3 per cent, and that is consistent with strong growth.

JOURNALIST:

Would you be asking the Reserve Bank, in lieu of the 2.7 inflationary rise,

to hold off on an interest rate rise?

TREASURER:

Well, there are a few assumptions in there as to what the Bank may or may not

be doing. But, I will, I obviously, will just make the observation, in relation

to the Consumer Price Index, this is 2.8 per cent, that is consistent with the

target that we have set. And I don’t think you would glean from these figures

any undue inflationary pressures in relation to the Australian economy. No doubt

the bank will take these figures into account, as it will take into account

a number of other matters as to the general state of the Australian economy.

JOURNALIST:

Do you see any indications from the continuing fall of the stock markets on

the economy?

TREASURER:

The fall on world stock markets has been very severe. The Dow Jones Index in

the United States has fallen about 25 per cent this year and the NASDAQ has

fallen about 40 per cent this year. Now that means that if you were valuing

yourself according to the stock market, about 25 per cent of the value is left

off in the course of this year alone. If you want to go back over a longer period

the falls on the NASDAQ have been even greater. But what the falls, particularly

in the United States, mean for the real economy, is something that will have

to be worked out.

If people feel that they have lost a substantial part of their savings, if

they stop spending, then that will affect the real economy in the United States.

If businesses who have seen their company stock fall, reduce their hiring intentions,

that will affect the real economy in the United States. And the fall-out for

Australia will be to the extent that the United States is weaker, that will

affect our trading opportunities. Our markets have been considerably stronger

than those of the United States. Over the course of this year the Australian

stock market has fallen about 10 per cent and the Dow Jones has fallen 25. So

the Australian stock market has been markedly more stable, markedly more stable

than the European indexes as well. So, it is not our stock market that is going

to affect things, it is the stock market as it affects the American economy,

and as that affects global growth, and as that affects Australian trade, where

we may feel the impact.

JOURNALIST:

But then investors in Australia would also feel 10 per cent poorer if the stock

market has gone down 10 per cent. Is that going to affect their ability to consume,

their willingness to consume?

TREASURER:

Australian retail trade has been strong, consumer sentiment has been strong.

That has been supported by the income tax cuts that we had coming on stream

over the last year or two, and also good conditions in relation to house mortgage

interest rates. So, there does not seem to be any evidence that Australian consumer

sentiment is weak. The main impact, I think, of the incredible American volatility,

is going to be confidence in corporate America, confidence in its stock markets,

and if the fall of those stock markets, which is about 25 per cent this year,

affects the real economy in the United States, the way that comes back to affect

us is through our trading opportunities.

JOURNALIST:

On the Westpac Survey, are you concerned that it shows growth could be starting

to tail off at the end of this year and going into next?

TREASURER:

Well, it is, it has come off a little bit. The leading index is 4.3 per cent

which is lower than the 6 ½ earlier in the year. But that is still above

the long-term trend, ie. the leading index is showing you that there is good

business conditions, better than long-term trends, but not as high as they were

earlier in the year. But that is still quite a good indicator and Australian

growth prospects are still quite strong. Australia would still expect to be

the strongest growing economy in the developed world this year. And most people

forecast it to continue as the strongest growing economy next year. And what

you have got today is a low inflation number.

But having said all of that, world markets are very volatile and we can’t discount

the fact that international developments will have an effect on our country,

as they will on others.

JOURNALIST:

Treasurer, Simon Crean has told a Union Conference in Sydney today that there’s

inadequate corporate regulation in Australia. And he is saying it is putting

superannuation savings at risk. Do you have any response to that?

TREASURER:

I have. I have a very direct response for Mr Crean. If Mr Crean is worried

about superannuation savings, one of the first things he could do would be to

pass legislation to allow employees to have a choice of superannuation funds.

Do you realise at the moment in Australia that many people who have had their

money compulsorily put into a superannuation fund which performs badly, can’t

get it out? And they can’t get it out because the Labor Party, which is beholden

to the trade union movement, will not allow them choice. Now, how would you

feel for example if you put some money into a bank and the bank lost some of

it, and you went to get it out and they said, you can’t move it? That is the

situation many people are in, in relation to superannuation funds. They have

their money in superannuation funds, the fund performs badly, they would like

to go off to a fund to get a better return on their own money, and the Labor

Party says you can’t. The Labor Party says you can’t because the union movement

says you can’t. And because the union movement says you can’t, we can’t get

legislation to give freedom of choice to Australian employees. And I say to

Mr Crean, who’s at the behest and beck and call of the unions on this issue,

if he was generally interested about people and their superannuation savings,

perhaps he could pass some legislation to give people freedom of choice. It

is their money.

JOURNALIST:

Are you satisfied Treasurer though with the level of regulation of Australian…

TREASURER:

No I am not, because there is no choice. That is the whole point. You know,

you don’t even have a competitive market going on here. What the union movement

and the Labor Party says, if you don’t like your investments, you can’t do anything

about it. And so, if you happen to be a fund manager, you know that even if

the return is negative, nobody is going to move their money. Because the Labor

Party and the unions deny them choice. The biggest thing you could do to improve

peoples’ opportunity to get a competitive market going in relation to superannuation

is to give them choice. You know, I have not heard the Labor Party give a clear

explanation as to why you are not even allowed to choose where your money is

going to. See, you can be in a fund which can have a negative return, but you

can’t move it. And what sort of a discipline does that put on the managers of

those superannuation funds? And we know that Mr Crean insists upon that because

he is beholden to the unions. If he wants to show he can break free from union

domination, why doesn’t he support freedom of choice in superannuation?

JOURNALIST:

Mr Costello do you think GDP will be affected by the worsening drought?

TREASURER:

Look, agricultural production obviously has an effect in relation to GDP and

we would like to see strong rural production. And obviously we would like to

see the climatic conditions break. And I feel for all those farmers that are

affected by it. But agricultural production is not a large part of Australia’s

GDP. So, the effect that it will have will affect that proportion of GDP that

is made up by agricultural production.

JOURNALIST:

(inaudible)

TREASURER:

Drought is a concern in the sense that it affects farmers. And you know, from

the point of view of the farmers, obviously we would hope that conditions turn.

JOURNALIST:

It’s not yet a threat to your own Government forecasts?

TREASURER:

As I said, agriculture is a small part of Australia’s GDP.

JOURNALIST:

It makes up to 20 per cent of our exports, so will there be a problem?

TREASURER:

Well I don’t think the problem in relation to exports of agricultural commodities

is volume so much as prices. And Australian farmers have got a few things going

for them, on the world markets in terms of prices. If they had freer trade that

would be of great assistance, but it is the prices I think that is the key thing

in relation to those exports.

JOURNALIST:

Is the volatility of the share market likely to have an impact on Government’s

timetable for the sale of Telstra?

TREASURER:

The, no, the, what the Government will do is, after bringing standards up to

the bush it will put its legislation into the Senate. What is going to determine

the timetable of offering equity in Telstra is the Senate. Not the Government.

It is the Senate. And we welcome those people in the Senate who I think are

taking a progressive and positive attitude to this. And let us hope there is

a few more of them.

JOURNALIST:

Is that a reference to the Democrats, Treasurer? The differences of opinion

obviously between different Democrats on the sale, is that what you are referring

to?

TREASURER:

Yeah, well, you know, I think, obviously there is considerable division in

the Australian Democrats at the moment, and as a Party they are trying to decide

which direction they want to go. The point I would make is that the Democrats

were at their best when they were operating as a balance of power Party. That

is, scrutinising legislation, improving legislation but essentially letting

the Government, which is after all elected by the people, govern.

And that is where the Democrats carved out a role. There seems to be another

strand of Democrats thinking, which is oppositional thinking. That they will

join the Opposition and try and vote down a Government’s program. I don’t think

that is good for Australia. And I don’t think it will be good for the Democrats.

And I would say to the Democrats, just for example in relation to the most

recent Budget, the Government should be allowed to put in place the economic

program which is important to Australia’s long-term future. That is what Governments

are elected for. And the Democrats I think, if they were prepared to scrutinise

legislation but essentially allow the Government to govern, would be able to

say to the public, we were there, we improved legislation. What they seem to

have been saying on the most recent Budget, we are there and we will block what

the Government is trying to do. We will try and, we will become oppositional.

We will join the Labor Party. And I don’t think they have carved out a clear

role for themselves, and those Democrats that are now urging that the Party

return to its heyday as a balance of power Party in the Senate I think are not

only going to do something for Australia, but they are more likely to give the

Democrats that unique position in the political landscape.

JOURNALIST:

Mr Treasurer, are you concerned that exposure of our major banks to corporate

problems offshore like ANZ and (inaudible)?

TREASURER:

I think the Australian banking sector is pretty profitable and it is pretty

well regulated.

Okay, thank you.