Transcript

Of

THE HON PETER COSTELLO MP

FEDERAL MEMBER FOR HIGGINS

Doorstop

National Library

Canberra

12.00 noon

E & OE

SUBJECTS:  Government borrowing       

JOURNALIST:

Mr Costello are you against any attempt at stimulus packages at all?

MR COSTELLO:

My view is that the stimulus package which the Government put in place before Christmas and after Christmas was very low quality.  The one before Christmas was a cheque which was mailed out to families and pensioners with the urging of the Prime Minister that they spend it.  That money has been and gone.  That’s gone through the economy to the extent that it is going to go through the economy and there’s nothing to show for it.  The package after Christmas of course also had a very large component of cheques which are going out now.  They may or they may not be spent.  My view is that again a large proportion of them won’t be spent.  But what will we have to show for it?  You will by that stage have had around $20 billion in cheques put out this year which will not have built a single dam, road, rail, power station.  It will have nothing to show for $20 billion.  This is a very large sum of money.  An extremely large sum of money.

JOURNALIST:

What quantity would have been, quality aside, if you were implementing it yourself what quantity of spending would have been a sensible amount?

MR COSTELLO:

If you are going to engage in stimulation normally what you would do is you would look for high quality projects which will add to capacity.

JOURNALIST:

Bear in mind the deficit…

MR COSTELLO:

And if you look back to the 1930s to the degree that there was stimulation in the 1930s some of the projects are still here.  Some of those road projects for example that were built in the 1930s.  When they look back on what was done in Australia in 2008, in 20 or 30 years, $10 billion before Christmas, $10 billion after Christmas, nothing.  And of course I believe that the money was put out before Christmas in an attempt to stimulate the December National Accounts.  The Government wanted to avoid a negative quarter and was prepared to spend $10 billion in order to stop it.  As it turned out they got a negative quarter anyway.  And of course the cheques that are going out at the moment are designed to try and stop a negative March quarter and a negative June quarter.  It is a very, very high price to pay to massage quarterly National Accounts figures.

JOURNALIST:

What would you do to make up for $120 billion shortfall in Commonwealth revenues?

MR COSTELLO:

My answer is that you shouldn’t have let it get that bad in the first place.  This is my point.

JOURNALIST:

But this has been wiped off by the global financial crisis.

MR COSTELLO:

Oh well, I think we need to be very, very careful.  You are there talking about four year forward estimates.  The revenue estimates don’t show large sums being wiped off in this financial year.  And the spending that has occurred – the $10 billion before Christmas and the $10 billion going out now – is in this financial year.  And so don’t let them sort of say to you the problems of this financial year are all to do with revenues.  In this financial year it is all to do with new expenditures.

JOURNALIST:

(inaudible) funding for bridges and roads that sort of thing do you think you would be able to support that what do you think the Opposition should do?

MR COSTELLO:

Well of course bridges and roads should always be funded.  You don’t have to wait for a global financial crisis to fund bridges and roads.  That is ongoing business of Government.  But what you might do at a time of downturn is you might pull forward some of the construction on projects which have been identified, which have been costed, on projects which we know will add to the capacity.  You might do that, pull it forward.  And why didn’t the Government pull forward those projects?  It needed to get the money out in the December quarter because it was trying to massage the December quarter National Accounts.  An infrastructure program wouldn’t have done it.  Why is it putting out $10 billion now?  It is attempting to massage the March and the June quarter.  The March quarter is over.  The massage in the December quarter didn’t work and the money has now been spend for no effect.  That is the reality.

JOURNALIST:

Mr Costello you are pretty fired up about the level of debt that Labor is ratcheting up, you mentioned it in your speech and yet every opinion poll has the Labor Party and Mr Rudd streets ahead of the Opposition and the Opposition Leader.  Doesn’t that suggest that the punters like what the Government is doing and do you think the current Coalition leadership are doing enough to prosecute the arguments that you have just prosecuted?

MR COSTELLO:

Well the arguments that I am putting are the arguments that the Coalition is putting.  We are absolutely at one on that.  And I am backing up their argument.  I am backing up their argument.

JOURNALIST:

Why are they not cutting through?

MR COSTELLO:

Well look, the only message that I have for the Australian people is this – when you are sent a cheque nobody is going to send it back.  But you have got to remember there is no such thing as a free cheque.  You will pay for it.  That is borrowed money that has been sent to you and the Government has now got an interest bill.  And when the Government pays that interest bill it will get the money out of your taxes, bear that in mind.  You no more get a free cheque than you get a free television set.  There will be a payment and this is a policy of bringing forward the consumption now and put the bill off to the instalments but there will be instalments.  You have got to remember that.  Now people might be a lot less happy when the instalments come in.  At the moment they have got the consumption.  But there will be instalments.

JOURNALIST:

How long do you think it will take to pay off the debt Mr Costello?

MR COSTELLO:

Well look in 1996 Commonwealth debt peaked at $100 billion and it took us until 2006 to repay it.  Now it looks as if by the next year this Government will have reborrowed $200 billion.  It took 10 years to pay off $100 billion.  How long will it take to pay off $200 billion?  It could take 20 years – if it’s ever done.  It could take a very long period of time.  It might be longer than our life times. 

JOURNALIST:

(inaudible) would you consider acceptable in the current circumstances?

MR COSTELLO:

Well look I would say in the current circumstances what the Government ought to be thinking of is not massaging quarterly National Accounts.  That’s not going to work.

JOURNALIST:

What level of debt do you think is…

MR COSTELLO:

It’s not going to work.  What the Government ought to be doing is the Government ought to be making sure that Australia is best poised to come of this downturn.  We will come out of it.  The world will come out of it.  But you don’t want to come out of it in an exposed position.  If you come out in an exposed position you will have interest and inflation problems.

JOURNALIST:

Given your experience with Treasury do you think that the current stimulus packages would have the full backing of Ken Henry down and secondly given your experience with Mr Howard do you think you could offer any advice to Mr Swan and Mr Tanner in reining back what you see as a spendthrift PM?

MR COSTELLO:

Well what I would say to Mr Swan and Mr Tanner is it is all very well to run around and say we’ll try and find some savings.  The best way of saving money is to stop the spending before it begins.  That is the point.  You might get…(interjection)… I will come to that in a moment.  The best way of keeping your Budget in water is by stopping the spending or reducing it before it gets away from you.  If you put $100 billion out and try and save $10 million here or $50 million there or $100 million there you are dealing in trifling amounts.  You are much better to try and stop the first $100 billion going out.  And that would be my advice to Mr Swan and Mr Tanner that they will learn after a while that the best thing to do is to reduce it before it goes out rather than try and get it back once  it has happened.

JOURNALIST:

And Treasury they put out this finely targeted and another T-word temporary, would this current stimulus packages would it have the full imprimatur of the Treasury boffins?

MR COSTELLO:

I would be extremely surprised if the Treasury has for example endorsed this $42 billion on fibre to the home.  I would be extremely surprised.  But there you go, I don’t know, I don’t know what they, I know in my days they didn’t seem to think $40 billion on fibre was in the realm of possibilities.

JOURNALIST:

(inaudible) of the Government in the light of that do you think Malcolm Turnbull will be Prime Minister by the end of next year?

MR COSTELLO:

I wish him well.  I hope that he can win an election.  I think Australia needs a change of Government.  That is my position.

JOURNALIST:

(inaudible)

MR COSTELLO:

I think that he has every opportunity to go to the next election and to win it.  I think that this Government is vulnerable on its economic record and he certainly has my support to do so.

JOURNALIST:

At the height of the boom Mr Costello were you satisfied with the advice you were getting from the Treasury about how long it would last or do you think that they got it wrong?

MR COSTELLO:

In the Budget papers I put in an assumption that we would return to more normal terms of trade after two years.  That is what I put in there.  After we had run for more than two years we kept updating it but we always built that assumption in that it would reverse.  That was an assumption that I brought in.  Because we had that assumption in whilst the terms of trade were still rising we were beating the out years.  But you know I have seen the article that you are referring to today – I would make this point to you – you know the terms of trade today are still very strong.  Much stronger than they were in 96, 97, 98, 99, 2000.  The terms of trade today are stronger than they were for I think nearly the whole of the period with the possible exception of one or two years when I was Treasurer.  So it is right to say that the terms of trade have turned down.  They have turned down from the all time peaks of say 2008 but they are still massively in front of where they were in the late 1990s and the early 2000s.  And I would invite you to think about that.  You have a look at the time series on the terms of trade.  By historical standards you would actually call the terms of trade of today boom terms. 

JOURNALIST:

So their advice was on the money back then?

MR COSTELLO:

Well I always thought it was prudent to factor in a downturn.  That was my view.  That was the decision I took.  But look I haven’t re-read all of the advice so I can’t go back and give you a commentary I can just tell you what I think.

JOURNALIST:

Have you made a decision about whether you are going to run again?

MR COSTELLO:

Well they haven’t even opened nominations yet and I will think about that when they do.

JOURNALIST:

As Peter Hartcher reminds us in his book Mr Howard once told a couple of greyhounds that he had plenty of energy and plenty of ideas that he wanted to contribute towards the future.  Do you still have plenty of energy and plenty of ideas that you wish to contribute towards your political life?

MR COSTELLO:

Well look Steve you don’t lose your interest in the future of the country and what is going to make it a better place.  I don’t think I will lose my interest in that.  I haven’t lost my interest in that.  And I try and put my views as a member of your profession by writing a column, I try and put my views as a member of Peter Hartcher’s profession by being an author and whether people agree with them or not is a matter for them to decide.  If we could make this the last two questions please.

JOURNALIST:

Mr Costello should Malcolm Turnbull lead the Coalition to the next election?

MR COSTELLO:

I think he has got every chance to win the next election.  He has my support to do so and I think this is a Government really which is starting to make severe mistakes and I hope the Australian people can see that.

JOURNALIST:

Is the increased flow of asylum seeker boats a result of Labor’s softer policy in your view?

MR COSTELLO:

Well I don’t think it is a coincidence that you change your border protection laws and the number of boats increase.  I have heard some people argue that this is because there has been a sudden upsurge of refugees in the world.  Look as long as I have been around there has been something like 20 million refugees in the world.  There have always been an enormous number of refugees.  And so I don’t think you can explain the sudden increase in boats because suddenly there has been an upsurge in refugees around the world.  To me it is not a coincidence.  I think there is a connection.  I think most Australians when they think about it would think well we changed the laws and the number of boat arrivals started increasing.  To me there is a connection.  Thank you.