Transcript No. 2000/112

SUBJECTS: Housing figures, interest rates, US economy, RACV car survey, petrol

prices, Cabinet

Mr Costello, how concerned are you by the slump in third quarter new housing starts?

TREASURER:

Well, the housing starts were taken into account in the National Accounts, which were

released on Wednesday, and I made comments on those. Obviously had a big bring forward in

relation to housing construction prior to 1 July because of the GST, and you are now

seeing that unwind in the September quarter. Those figures have been taken into account

already in the National Accounts, they were one of the factors that brought the National

Accounts down, outweighed by the boost in exports. But it’s a transitional one-off

factor which we expected and which we’ve seen come to pass as a result of the changes

with the new taxation system.

JOURNALIST:

Are you expecting a recovery then?

TREASURER:

Well, the housing market is coming off a very, was coming off, a very steep increase

prior to 1 July as people rushed to get contracts in. We’re expecting an unwinding.

But this is an unwinding of an abnormally high figure. As both of those factors work out,

one the increase, two the unwinding, you’d expect the housing market and housing

starts to return to more stable levels. I might say to buyers that there are a lot of

people that thought that getting in before 1 July would mean a cheaper contract, I think,

actually now is very good time to get into a contract because getting in before 1 July

when demand was high meant that prices weren’t, in some cases, as low as they are

today. It’s a good time to actually get into a housing start.

JOURNALIST:

The industry is calling or continuing to call for a fall in interest rates. What is the

chance of that?

TREASURER:

Well, interest rates, home mortgage interest rates now with the exception of the last

year are the lowest that they have been since 1973. The fact that you can get a standard

variable mortgage interest rate still in the 7 per cent range, means that absent the last

year, it is much lower than we’ve seen since financial deregulation, in fact, for the

last thirty years. Now, perhaps we are getting used to low interest rates, but the point I

make is, if we keep inflation low and wages responsible, we can continue a low interest

rate policy. The good news is, the National Accounts which were released on Wednesday of

last week, showed that inflation was low and wages were restrained and that’s

consistent with a low interest rate regime.

JOURNALIST:

Now that we’ve got a Republican in the White House who is committed to tax cuts

for Americans, there is the suggestion that Alan Greenspan’s going to hold off on any

interest rate reduction because that would fuel the American economy again. What impact,

do you think, having Mr Bush will have on the Australian economy?

TREASURER:

Well, the US economy is slowing from the very high levels that it has achieved in the

last couple of years. And as a result observers are saying that they’re not expecting

interest rates to continue to rise in the United States. And, I think, the authorities

there will have their eye really on growth and inflation when they are setting interest

rate policy in the future. The election of President Bush, which the Government welcomes,

the Prime Minister has welcomed, signals, I hope, that the period of division in the

United States and legal challenges has come to an end, that the country can get on with

firm leadership. We welcome the fact that President Bush has committed himself to an open

trading regime, which is going to be good for Australian exporters. It’s very

important for Australian exporters that are wanting to get access to the US markets, and

we intend to continue to press the US to open its markets to Australia. We’ve just

taken a lamb decision to the World Trade Organisation on behalf of Australian farmers to

make sure that they get the right to trade into the United States, and if we find any

other areas where the United States is lagging, I can assure you we will be taking very,

very strong measures to look after Australian exporters.

JOURNALIST:

Treasurer, there is a survey out today from the RACV that the cost of running a car for

ordinary mums and dads has gone up quite significantly since the GST was introduced. Do

you think it is a fair indication of the cost?

TREASURER:

Since the tax changes on 1 July and the introduction of GST, tax on cars has fallen,

and the price of cars fell accordingly. That is, the tax changes made the price of cars

cheaper, and all of the findings were to that effect. Since then, you’ve had other

factors, such as, the increase in world oil prices which has pushed up the price of

petrol. There is no doubt about that. But I don’t think you can blame a rise in the

world oil price on GST. It’s not the Australian GST that’s pushing up West Texas

in intermediate crude or Saudi prices. But when you take into account those rises in world

oil prices, yes, petrol has become more expensive. Petrol prices are still too high in

Australia and the best avenue for relief is world oil prices coming down and you have seen

some movement on that in the last couple of days. If we get through the northern winter,

when demand from the northern hemisphere is at its peak and if you see a slowing of the US

economy, which you are seeing at the moment, then they are the best conditions, along with

increased supply from OPEC, for the price of oil to fall. And that will be good for

Australian consumers.

JOURNALIST:

So you don’t feel pressured to do something about petrol prices immediately?

TREASURER:

The only thing you can do about petrol prices is attack the reason why they’ve

gone up, which is the world price of oil. And if you want to attack the increase in the

world price of oil you’ve got to keep supply up, it’s a matter for OPEC. But as

I say, as demand comes off, slowing in the US economy, we get through the northern winter

when people are demanding more oil for heating in the northern hemisphere, then they are

much better conditions for prices to come off a bit.

JOURNALIST:

That’s pretty cold comfort though for people who are finding it more expensive to

run their cars.

TREASURER:

Sure is. Petrol prices are too high. And they’re high because demand is strong and

production is low. And if you want to address petrol prices then it’s important to

address the causes which is the world price of oil….

JOURNALIST:

….is that too passive?

TREASURER:

….and not just in US dollar terms, by the way, but also in Australian dollar terms

where the price has more than tripled in the last eighteen months.

JOURNALIST:

What’s the likelihood of a Federal Cabinet reshuffle some time soon?

TREASURER:

Well, I don’t know anything about it so I would say the likelihood is small to

negligible.

JOURNALIST:

So no words from the Prime Minister’s office then?

TREASURER:

I’m not sure that anybody’s resigned. As far as I know nobody’s

resigned. I’ve been out of touch of the media for the last three-quarters of a hour,

but three quarters of an hour ago nobody had resigned. Thank you all for your time.