TRANSCRIPT

THE HON PETER COSTELLO MP
Treasurer

Doorstop Interview

Treasury Place, Melbourne

Wednesday, 28 January 2004
12.00 noon

SUBJECTS: CPI; Australian Dollar; Economy; NAB; Education; Asian Bird Virus.

TREASURER:

Today’s Consumer Price Index for the December quarter shows that inflation remains subdued in a strongly growing Australian economy. The Consumer Price Index increased 0.5 per cent in the December quarter and 2.4 per cent through the year. And that is right bang in the target range that we have been targeting between 2 to 3 per cent over the course of the economic cycle.

So we have seen some things go up and some things go down. Cars are cheaper and, in fact, cars have fallen by about 14 per cent since we introduced the New Tax System. Clothing and footwear has become cheaper in the quarter. In the quarter food became more expensive and holidays became more expensive, as you would expect, at Christmas time when a lot of the holiday resorts put up their rentals.

But, overall, to have an increase in the Consumer Price Index of 0.5 per cent and 2.4 per cent through the year shows inflation as subdued in a strongly growing economy and that is good news for the Australian economy.

JOURNALIST:

If we aren’t seeing any real signs of inflation yet is there a need to increase interest rates?

TREASURER:

Well, I don’t think that inflation has been a concern really for the last couple of years and, if anything, inflation is now trending downwards. We are now trending down to the bottom of our target range. So, we don’t see an outbreak of inflationary factors there and we certainly don’t see inflation moving outside the band of 2 to 3 per cent, which is what we set.

JOURNALIST:

Those car prices, do they include imports and is that brought about by the strength of the dollar?

TREASURER:

There are two reasons why cars have become much cheaper, they have become about 14 per cent cheaper since 2000, the biggest reason is we took 22 per cent wholesale sales tax and abolished it and introduced a 10 per cent GST. So the taxes made them cheaper. At the same time we were reducing tariffs and that had an effect on imported cars. You haven’t seen the effect of the exchange rate work through that much already but it would have been also positive in reducing car prices. But the biggest reason for cars becoming cheaper is GST made cars much cheaper and in 2003, the year gone, we had the all time record for car sales in Australia passing 900,000 for the first time. Now, with I think, eleven million drivers in Australia, nearly one million new cars, that is about nearly one in ten during the course of the year. And the motor vehicle industry itself has been exporting in a way which it has never exported. So that has been great news as well.

JOURNALIST:

What impact is the strong Australian dollar going to have on inflation into the future?

TREASURER:

Well, the fact that the dollar has appreciated will mean that imported prices will not be rising. Imported prices will be subdued. It means that imported prices will to the extent that the exchange rate has moved up will be that much less. So, the exchange rate will have an influence in keeping the inflation rate low in the course of this year and the course of the past year.

JOURNALIST:

Treasurer, on the National Australia Bank, do you think that the Bank should, when it is completed, release all of its own inquiry into those unauthorised currency trades? Do you think that’s important for shareholders and for the share market?

TREASURER:

Well, National Australia Bank has contracted PricewaterhouseCoopers to do an audit and when that audit is completed it should be made available to the prudential regulator, the Australian Prudential Regulatory Authority, so that it can satisfy itself that the prudential matters have been properly identified and attended to. That is the most important thing. I would think that after that the Bank would probably want to inform the market as to what the findings were and what it has done about it. That is a matter for the Bank.

JOURNALIST:

But does that, informing the market mean releasing the whole inquiry or just letting them know a bit of what’s in it?

TREASURER:

Oh well, it means informing the market what the outcome was and what the weaknesses were and what response has been put in place. Now, whether that involves the whole audit or not is a matter for the Bank. But let me make this plain, the full audit report has to go to the Australian Prudential Regulatory Authority and it has to be fully briefed on all of the issues within the NAB’s management structure.

JOURNALIST:

And to ASIC as well and the AFP do you think?

TREASURER:

Well, ASIC is looking at another issue. It is looking at the issue – did the National Australia Bank keep the market informed…

JOURNALIST:

But surely they would need that full report…

TREASURER:

…well, hang on, hang on, let me finish my answer. It is looking at the question as what the National Australian Bank itself knew and whether or not its knowledge was shared with the market. So it is a little bit of a different issue. But, the Prudential Regulator certainly has to know the full extent of what is in that PricewaterhouseCoopers audit.

JOURNALIST:

Would you expect heads to roll at National Bank over this?

TREASURER:

Well, I would expect that, you have seen the dealers stood down, I would expect that once the NAB comes to a conclusion as to whether they were acting in an authorised or an unauthorised way, if it was unauthorised I would expect somebody to bear the brunt and if somebody authorised it I would expect others to bear the brunt. But that is a matter for the National Australia Bank.

JOURNALIST:

Is there an argument that the regulatory authorities should have known about this problem given that that’s essentially their job?

TREASURER:

Well, the prudential regulator looks at the question as to whether a bank is properly prudentially regulated and whether it is capitalised and whether it can meet its obligations. There is no doubt at all that the National Australia Bank can meet its obligations. I don’t think anybody is suggesting to the contrary. But, it will want to know that it’s got systems in place which won’t put that capital at risk. And that’s what it will be looking at with the assistance of the PricewaterhouseCoopers audit.

JOURNALIST:

But if things like this can happen obviously the systems in place probably aren’t working you could argue?

TREASURER:

Well hang on. The National Australia Bank, I think, believes that its systems didn’t work. And who is responsible for that? The management and the board. Now, they have put in place an inquiry and that inquiry has got to fix up the errors and the prudential regulator will want to know that that has been done. But let’s not forget that corporations and organisations are run by their management and their boards.

JOURNALIST:

Treasurer as a Victorian parent are you disappointed that Brendan Nelson could only find 10 per cent of new university places for Victoria with 25 per cent of the students?

TREASURER:

I believe that the formula has been operated in a full and a fair way. I don’t believe anybody has shown that to…

JOURNALIST:

(inaudible)

TREASURER:

…no, I don’t believe anybody has shown that to the contrary at all. It is done on the basis of the universities, the number of students, the per capita population and I believe it is done on a fair basis.

JOURNALIST:

Well our Government argues that we had, the State Government argues that the largest number of unfilled, the greatest demand for unfilled places, 25 per cent of the student population, 10 per cent doesn’t seem even close?

TREASURER:

I think you will find that every State Government argues it has been given an unfair go.

JOURNALIST:

But some may have a case?

TREASURER:

And of course the reason why they do it is that, you know, they want to appeal, obviously to their own constituents. But having dealt with State Governments including the Victorian Government over a long period of time, particularly in the distribution of taxes and incomes, I know that every claim they make is not necessarily the fact.

JOURNALIST:

So you don’t…

TREASURER:

Long experience has told me that claims made by State Governments are not necessarily the fact.

JOURNALIST:

(inaudible)

TREASURER:

And I would put Mr Bracks most certainly in that category.

JOURNALIST:

So, you are not worried about it as an issue for your Government…?

TREASURER:

Oh look no look, let me make the point, the money is distributed on an even handed basis according to per capitas, according to the way in which the institutions are meeting courses and it is done in a way which is fair to all Australians.

JOURNALIST:

Treasurer, what effect do you think the bird flu may have on the Australian economy?

TREASURER:

Well, this is a very serious outbreak in Asia, our most close neighbours, and it will have some effect on their economies. But where it will have a larger effect on the Australian economy is the extent to which it interrupts travel plans. We saw with the SARS virus that it interrupted the tourist trade, not because there was an outbreak of SARS in Australia, but there was in some of our near neighbours and in the region and some of the staging points by which tourists come to Australia. If there is an outbreak of this and it contaminates humans then it will affect the tourist trade in the region and that would have an effect on Australia. We hope that it is contained. We call on all of the authorities in the region to do what they can and to take the steps which are necessary to contain it. And it is in the interests of South East Asia and in the interests of Australia that that be done.

JOURNALIST:

Have Indonesia and Thailand acted quickly enough to stop any potential economic loss from lack of confidence?

TREASURER:

Well, I am not going into the steps that they have taken and the timing but I would just urge all the authorities to take the steps, the utmost steps, as quickly as possible to get a grip on this. We learnt with the SARS outbreak that you can’t cover up these things. You have got to expose them. You have got to be full and frank with the public and the earlier you do that, the earlier you get a grip on an outbreak and we would urge all of the authorities in the region to do that. Thanks.