Doorstop Interview: Budget, East Timor, Interest Rates, Tax Reform, Republic

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Address to CEDA: Economic and Political Overview
September 29, 1999
Treasurer to Chair 2000 OECD Council
October 11, 1999

Doorstop Interview: Budget, East Timor, Interest Rates, Tax Reform, Republic

Transcript No. 99/74





Doorstop Interview

2.15 pm

London Time

Tuesday, 5 October 1999

SUBJECTS: Budget, East Timor, Interest Rates, Tax Reform, Republic


What are your budget forecasts, in November, in the light of your commitments in East




Well, we’ve been doing a mid-year review of the Budget which we’ll announce

in November. There will obviously be some additional expenditure in relation to East

Timor. We’re getting a handle on that at the moment. Too early to say what the

commitment will be, but we want to do two things. One is, we want to properly and

adequately fund our commitment to East Timor and the second is, we want to meet our fiscal

objectives and I intend to do both.



Treasurer, you talked about the rosy economic picture in Australia at the moment. One

of the things you mentioned was low interest rates. You’ve had five years without an

interest rate rise. Do you think that particular period of sunshine might be about to come

to an end?



Look, we’ve said that what we’re going to target our interest rate policy to,

is inflation. We’ve got an objective on inflation 2-3 per cent over the course of the

cycle. We’ve been meeting that objective. We’ll always set our interest rate

policy with that in mind. Now, we’ve enjoyed the benefit of low interest rates –

it’s been good for our economy and we’ll continue to do what’s good for our




Do you think the Reserve Bank’s concerned at all about any inflationary aspects of

the GST coming in next year?



Well, as a result of the tax changes, there will be an increase in prices –

we’ve always said that – and we have been making it clear that you’ll get a

price impact in the September quarter of 2000. Does that mean that inflation has taken

off? No. The key indicator will be the quarter after that to look at inflation. Expect a

one-off price impact, but look through that for inflation. That’s the view that the

Government takes, that’s the view that the Reserve Bank takes and it’s going to

be looking through the one-off structural change to look at inflation just as it does now.



Treasurer, are you concerned that the Government’s tax reforms and fiscal policies

will put upward pressure on interest rates?



Well, the Government will keep running a fiscal policy to meet its fiscal objective

which is balance over the course of the cycle. We’re forecasting budget surpluses,

we’re going to keep budget surpluses. We are retiring debt, we are going to continue

to retire debt. And, in relation to monetary policy, we are forecasting – we are

tying monetary policy to inflation, we want to keep inflation in that 2-3 per cent band

and that’s the way the decision will be made.



Will higher interest rates harm Australia’s economic recovery?



Australia’s – when you say “Australia’s economic recovery” –

in the last two years we’ve grown at 4.8 and 4.5, so there’s not that much to

recover from, but we want to continue growth and you have to continue growth in a

sustainable way. And what that means is that you’ve got to have the right fiscal

policy, you’ve got to have the right monetary policy.



How does the Government intend to pay for the extra costs of the East Timor mission and

subsequent peacekeeping process.



Well, we intend to pay for it consistent with our Budget objectives and that means we

will have to be tight on other spending areas and we will have to make sure that we

prioritise spending so that we can continue to run Budget surpluses.



Which areas are going to be most hit in spending on East Timor, if you’re not

going to….



Well, I’m not going into details except to make the point that because of this

commitment – and this will be a large commitment in addition to what we forecast at

the time of the last Budget – we weren’t forecasting a Force in East Timor in

May, the time of that Budget, but this will be a commitment that will require careful

spending in other areas. That’s the important point.



Treasurer, you’re obviously the leading conservative figure in favour of a

Republic. Obviously, that’s a topic of some interest to Ministers here in Britain who

you’ll be meeting and talking to. What are you telling them about the chances of an

Australian Republic when the vote goes ahead?



Well, I think the view in Britain is as it should be – that this is a matter for the

Australian people. What counts for Australia’s constitutional arrangements is what

Australians think and the way they see their future. I think that’s perfectly

understood here in Britain. They wouldn’t want it any other way and nor would we, and

that’s why we’re having a vote to try and decide which will be the best

Constitutional arrangements for the future. You know, as I’ve stated in the past,

that I think that the best future for Australia is to modernise our Constitutional

arrangements and I think that’s perfectly well understood all around the world.



Are you telling them that you’re confident though that there will be a positive

response as far as you’re concerned?



Ah, look! Never bet on horse races and never bet on political outcomes. Sure way to

lose money.

Okay, thanks.