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CPI Figures, Shell/Woodside, Fuel Sales Grant Scheme, Beer, Peter Nugent, Budget

Transcript No. 2001/045



Hon Peter Costello MP


Press Conference

Parliament House, Canberra

Tuesday, 24 April 2001

12 noon


SUBJECTS: CPI Figures, Shell/Woodside, Fuel Sales Grant Scheme, Beer, Peter

Nugent, Budget


Todays Consumer Price Index indicates that inflationary trends are in check

in Australia. For the March quarter there was a 1.1 per cent increase, mostly

influenced by special factors, in particular in relation to food and vegetable

prices. Abstracting from these special factors, the CPI increased by a moderate

0.6 per cent in the March quarter following on from 0.3 in the December quarter.

The special one off factors particularly in relation to fruit and vegetables,

which increased by 13.5 per cent in the quarter, and in fact the increase in

vegetables was even more significant than that with the increase in the price

of vegetables 20 per cent in the quarter. This is largely the result of the

floods in northern New South Wales and Queensland which restricted supply.

As production returns to a more normal level, we would expect that to unwind

in future quarters.

In addition there was a 4.1 per cent increase in meat products. This is largely

the result of increasing meat products worldwide arising from foot and mouth

disease in Europe and some other areas and that has pushed meat prices higher

in Australia.

There were seasonal increases with the return to school and in relation to


Areas which fell included petrol, because in the March quarter, and remember

were talking about the March quarter here, petrol price has probably gone

back up again in April, in the June quarter, but in the March quarter there

were falling oil prices and also the Governments reduction in the excise rate.

Looking ahead to the next quarter we see a number of factors which should work

to moderate the Consumer Price Index. In the next quarter youll get reductions

in excise on draught beer, youll get reductions in housing as a result of

the increase in the First Home Owners Scheme and reducing interest rates. And

looking ahead even further youll get reduces in consumer prices when the Government

abolishes Financial Institutions Duty on 1 July of this year.

The yearly inflation rate remains at around 6 per cent which has been the annual

rate now since the September quarter. That includes around 3 per cent, the

one-off effect of the New Tax System. When you take the one-off factor of the

New Tax System out of the figures and you look through the seasonal factors,

you are seeing an inflation rate which is around about 2.25, 2.5 per cent.

Around about the middle of the target which has been set by the Government

and Reserve Bank at 2 to 3 per cent over the inflation cycle.

These figures are consistent with inflationary pressures being held in check

in Australia. The annual figure largely shows the effect of the one-off tax

changes in the September quarter. We have now had two quarters since then,

and the tax changes will from now on be reducing the overall CPI effect.

I point out for the record that those areas which have driven the CPI in this

quarter, in particular fruit, vegetables and meat are areas where there is

no GST. There is no GST on fresh food. So anybody who might be misled into

thinking that price rises in fresh fruit or vegetables or meat could be related

to tax, would be making an error. There is no GST on fresh food. Not on vegetables,

not on fruit, and not on meat. So the changes in relation to those prices which

have been quite significant are not related to tax.


Do you have any, do you have concerns, or do you think the 0.6 figure looking

through (inaudible) suggests that some businesses were trying to make up margins

during the March quarter after being squeezed in the December quarter?


I think youve got to break down the figures to actually see where all of this

comes. Lets exclude food because there are seasonal and international factors

and as I just said there was no GST. Nobody had to make up any margin on a

food price. If you look through them, there were changes in alcohol and tobacco,

mainly health related. Some changes in relation to hospital and medical services,

hard to think anybody was making up margins there. Clothing and footwear actually

fell, might have been one of the areas where you would have expected margins

to have been made up, but it doesnt appear that there was anything going on

there. And the other significant contributor was in relation to education,

which as the ABS noted was associated with the commencement of the new school

year in March. So I think if you actually break it down, its hard to find

any evidence in these figures that people were trying to make up margins in

the March quarter.




Well, Im not going to speculate on what the bank might be thinking. But Ill

make this observation. You see one-off seasonal factors coming into play in

this quarter. In particular floods which have affected fruit and vegetable

prices and some international developments which have affected meat prices.

When you look through those factors, because they will unwind, you see a Consumer

Price Index which is moving by about 0.6 which is about the middle of the range.

You dont see any undue inflationary pressures but by the same token, you dont

see any great deflationary pressures. Thats quite a healthy tick-over, 0.6

of a per cent. And quite consistent with our target of 2 to 3 per cent. So

this is a middle of the range result and frankly wed be quite happy to, with

a middle of the range result.


Treasurer, can I ask you a question about foreign investment? Is there any

merit in suggestions that the national interest test that the Treasurers required

to apply in relation to foreign investment proposals should be made more specific

so that its easier to be better understood and precise (inaudible)…


No, I dont. Because I think if you made it more specific, you are more likely

to complicate it. If you were to give a sub-definition of national interest,

you could either go down to a sub-definition of 5 elements, or 50 elements

or 5,000 elements. Youve got to remember this, that these things are litigated.

And what would then happen is you would have the courts going through those

factors one by one and quite possibly substituting their own judgement for

that of the policy makers. One of the things thats changed in this country

is the doctrines of administrative law. These things are now all litigated.

And the more detail you put in, the more grounds of litigation you have, and

the more likely you are in my view, to have judges making the decisions. Now

that definition of national interest has been in that Act since I think 1975.

Well that Act was enacted in 1975, so I would say its 25 years old, and I

think it is a broad statement which allows a broad view to be taken.

Now the only suggestion about this that I saw yesterday came from the Opposition.

What did the Opposition do yesterday? They attacked the decision and then they

were asked whether theyd make the same decision, they didnt know, and then

they were ringing newspaper journalists later in the day saying oh actually

they did support the decision. What they wanted to do was attack the decision,

hope that it went badly and then say it was the wrong one. They attacked the

decision, and because it went well, they were forced to come out say it was

the right one. Thats what happened yesterday. And then they said oh well maybe,

thinking of no other ground, oh maybe we should specify national interest further.

Well they were only in office for 13 years. This is their test. This is their

test. They were only in office for 13 years, they never once touched it, and

now theyve suddenly got interested in it. What happened yesterday was they

completely missed it. They completely missed the issue and they try and hop

back into the issue by going on with this phony thing which they were never

interested in for 13 years. And again is ill thought out. Now if Beazley wants

to announce a policy and say thats his policy, let him say it. But this is

what happens with them all the time. Off the record, you know, underneath theyve

always got an out of the side of the mouth sort of proposition which is basically

designed to hide the fact that they cant make decisions and they dont have

a policy.


Mr Costello, can I ask you about (inaudible)


I think that, thats been, terms of reference are being worked on, as I understand

it, by the Industry Minister and the Transport Minister. And there is also

a requirement that was negotiated with the Australian Democrats at the time

the legislation for the New Tax System went through the Parliament to have

an overall look at taxation in relation to energy generally and they have had

discussions with the Australian Democrats too, on whether we can bring those

two inquiries together and do it as part of one. And I understand that those

discussions are still continuing. And thats…


(inaudible) about who would actually conduct the inquiry and what sort of time



Well, there is a time limit, I cant just tell you what it is off the top of

my head, but in the correspondence with the Australian Democrats at the time

the legislation was passed, there was a time frame on looking at an overall

energy tax policy. I cant remember if that was 2002 or some period like that.


Do you think that youre going to be (inaudible) petrol prices with perhaps

(inaudible) for the first 6 months of last year. Do you think (inaudible)…


I dont concede for a moment theres a lack of success. The fact of the matter

is that the Government is now spending up to a billion dollars to equalise

the price of petrol between remote areas and the cities. If you were not to

spend that, the differential would widen. It was never said that this scheme

would remove the differential, what was said was that putting in place this

scheme would ensure that the tax changes didnt widen it, and it has.


Are you confident that its actually going to be noticed? I mean even the ACCC

has been saying that theyre not confident, sorry, that they cant say for

sure that its not going to …


Well, the ACCC is tasked with monitoring this and where there are complaints,

it goes and has a look at it. I am not aware of any case that its yet identified

where it was not being passed on and if it were, I am sure that Professor Fels

would ensure that it is post haste.


Do you have any comment to make about the behaviour of the Australian dollar

overnight, given that the falls were all immediately after the decision but

in overseas markets there hasnt been as much movement. Do you have any comment?


Well I think thats a pretty acute observation.


In relation to beer prices, you have said that you would expect them to come

down as a result of the excise rate in the next quarter. Are you disappointed

that the price over the counter of draught beer appears to be not as low as

predicted by the brewing industry?


Absolutely. The brewers ran a multi-million dollar campaign on television featuring

footage of beers coming over the bar. And said that if their policy were accepted,

they would fall. And in my view the brewers have an obligation to ensure that

every single hotel in this country has reduced its prices. Thats what they

promised. That was their, that was the basis of their whole campaign. Its

not enough for the brewers to say, Oh well, its not our business. The brewers

made it their business. The brewers advertised on television saying it would

be their business. And they cant hide behind the hotels. The brewers have

an obligation to make sure that they deliver on what they claimed would be

the benefit. Its the first thing I say. It shouldnt have been necessary for

people to lodge complaints and the Australian Competition Commission to investigate.

The brewers should have ensured it. They advertised it. They claimed it. It

was their campaign. But having failed in ensuring that that was delivered,

the appropriate thing to do is to notify the Australian Competition Commission

and it is investigating those complaints and where that price reduction is

not being passed on, I think companies can be liable for up to $10 million



What about the price differential with low alcohol beer? The price differential

appears now to be less than it was before the excise. On health grounds and

on State Government finance grounds, what steps should be taken?


It looks as if some of the States may have taken the opportunity in all of

this to reduce their subsidies. I say to them that there is no grounds to do

so. We are going to look at that very carefully and we will be writing to the

States concerned to make that plain to them.


Mr Costello, do you think that the latest CPI figures are consistent with the

slowing of …inaudible… economy. Do you think you draw any links between what

youre saying is a fairly moderate rate of inflation and slowing demand?


No. No I dont.


Mr Costello, would you care to say anything about your colleague Peter Nugents

very sudden death ….inaudible…


Peter Nugent, the Member for Aston, died early this morning. It was without

warning. It was a massive heart attack. He was still a young man, in his early

sixties, and it was a shock to all of us. Ive spoken to Carol, his wife, this

morning. The Prime Minister has also spoken to Carol and conveyed our deep

sense of personal loss. Peter was a fine man. He was someone I knew pretty

well because he came from my home State. We entered the federal parliament

on the same day. He was somebody who was always committed to social issues.

He chaired the Amnesty International Group. He was intensely concerned about

human rights in China and East Timor and worked on the Foreign Affairs Committee

on Human Rights Issues. He has a long and abiding interest in reconciliation

issues. He was the Government representative for a long period on the reconciliation

process. He walked in the Reconciliation March in Sydney and I had the opportunity

to walk with him in the Reconciliation March in Melbourne. He was somebody

that was passionately devoted to reconciliation issues and from the moment

he set foot in this Parliament until he left it, he had a sense of commitment

to human rights and social justice and I pay tribute to him. To his wife Carol

and to his family we send our deepest condolences. We will sorely miss him.




Its too early to start speculating on the by-election. He died just hours

ago. It was a shock to all of us and at this time I think our thoughts should

be with his wife and his family.


Treasurer, the higher CPI result…inaudible… budget surpluses?


Look, the important thing about the budget is that we carefully manage expenditures,

that theyre targetted consistent with strong fiscal policy. We didnt drive

the budget into surplus and start paying off Labors debts to give the game

away at a time like now. People should understand weve now repaid nearly $50

billion of the Labor debt that they ran up in the last five years, but we still

havent got back to where we were before those last wanton mismanaged five

years, and consistent with the economic needs, I want to continue to finish

the job. Thats all we want to do.


Will there be a healthy surplus or a respectable balance as the Prime Minister



Look on the measurement scales, Michelle, I dont know where on the index respectable

balance comes compared to healthy surplus. You know, its like when the weather

forecasters give out sunny or very sunny, Im not quite sure, you know, where

you pass from sunny to very sunny, and Im not quite sure where you pass from

respectable balance to healthy surplus. You know, the truth of the matter is

we are aiming to keep our budget in balance. Thats what were aiming to do.

And that allows us to fund necessary expenditures out of our revenues without

borrowing and it allows us to pay back more Labor debt…




…and thats what well be doing. Thank you very much.