TRANSCRIPT
THE HON PETER COSTELLO MP

Treasurer
Doorstop Interview

1343 Malvern Road

Malvern Victoria

Wednesday, 2 July 2003
10.15 am

 

SUBJECTS: Economy, Australian Dollar, US Dollar, Mark Latham, RBA

Governor

TREASURER:

As we look at the forecast for the Australian economy, we see an economy

which continues to grow faster than other economies around the world,

and in particular, the global situation is affected by the weakness in

the US economy. Now it appears as if in the United States there is reason

for some cautious optimism, that perhaps the United States economy is

beginning to pick up. We saw a recent announcement from the US Federal

Reserve where it did cut interest rates by 25 basis points, but it remarked

on the fact that there were some cautious signs in the United States.

So here in Australia we are watching the global situation very, very

carefully indeed. Our biggest risk to the Australian economy continues

to be the global economy, and if that picks up, that will be positive

for Australia. We still have the difficulty in relation to drought, here

in Australia which has not completely broken and that is affecting domestic

growth as well, but taking those matters into consideration the Australian

economy continues to grow and to grow faster than the other economies

of the world, and that is very much the economic outlook that authorities

would have been looking at today.

JOURNALIST:

What’s the biggest concern in the domestic economy? Is that the fact

that the Aussie dollar has recorded its fastest quarterly gain in 20

years, or is it the housing boom?

TREASURER:

Well let me say, the fact that the exchange rate is rising is making

it tougher for Australian exporters. And for rural exporters in particular

it is not just the fact that the exchange rate has risen quite considerably,

but of course the drought means that conditions have been quite difficult

for them. But you have got to bear this in mind, that the US dollar was

over-valued and that the period through 1999 and 2000 when the Australian

dollar was weak against it, I kept saying that the US dollar was over-valued,

the US dollar is now correcting. But it does mean that Australia has

lost a little bit of the competitive advantage that it had through 1999

and 2000.

JOURNALIST:

What do you think this decision will do, how will it affect our trading

position overseas?

TREASURER:

Well, the Australian economy continues to run stronger than the other

economies of the developed world, and that creates this problem: that

whilst we are producing goods for export, because the other economies

of the developed world are weak, they are not having the same demand

for our exports that they would have if the global economy was strong.

It means that our markets are weak, so that the demand for our product

is weaker than it otherwise would be. And so, the most important thing

that could happen for Australia, is to see other economies like the United

States and Japan pick up their growth, start to grow like we have been

growing, because their weakness is a brake on economic growth here in

Australia.

JOURNALIST:

Farmers I suppose are really the one industry group that is probably

going to be hit hardest by the decisions to leave interest rates as they

are. Can you understand their disappointment?

TREASURER:

I think the trouble for Australia’s farmers, is, firstly of course, the

drought that has not yet broken which means they don’t actually have

the normal product that they would have to actually export. And secondly

of course, the exchange rate does mean that they are less competitive

than they were say in 1999 or 2000. But that was a very unusual period,

the US dollar strength meant that our exchange rate was exceptionally

low, I think I said at the time super-competitive, I said at the time

it would correct, and it has.

JOURNALIST:

But are we in a worsening situation, you have got the rising dollar,

our exchange rate has held steady while others are falling, I mean aren’t

we seeing an actual deterioration in our exports (inaudible) at the moment?

TREASURER:

Well when you say, are we in a worse position, the fact is that the Australian

economy is growing stronger than the United States and Europe and Japan,

and practically every other developed economy of the world. So that actually

puts us in a better position than those other economies. But the fact

that they are weak, means that we are not getting the kind of stimulus

that we were getting say in 1999 or 2000. The fact that they are weak

means that their demand for our exports is weaker. The fact that they

are weak means that we don’t have the super-competitive exchange rate

that we had in 1999 and 2000. And so things are more difficult for us

on the export front then they were in 1999 and 2000, but what’s creating

the problem is the weakness of other economies, and until we get a full,

fully-fledged recovery from the US, until we see global growth go back

to something like trend, this is going to be a difficulty not just for

Australia, but for the world.

JOURNALIST:

Treasurer what key economic indicators are you going to be watching at

(inaudible)?

TREASURER:

Well, of course, a pick-up in business investment and a pick-up in growth

is what the world is waiting for in relation to the United States. The

United States has been through a big crash. Now, there has been in relation

to business investment and a crash in relation to equities, and it has

been through a recession. People in Australia forget this. The United

States has been in recession. Normally we would be in recession as a

consequence, but the resilience of the Australian economy kept us growing,

but growing in a more difficult international environment.

JOURNALIST:

Mr Costello on another matter, Simon Crean is expected to announce Mark

Latham as Shadow Treasurer, how do you think you will go up against him?

TREASURER:

Well, the Labor Party first had Gareth Evans as their Treasury spokesman,

then they had Simon Crean who was not up to economic responsibility,

and then they had Bob McMullan. Now they look as if they are going for

their fourth Treasury spokesman. But their real problem is not who they

put into the job, the real problem is their policy. Now whilst you have

an opposition that won’t stand up for economic responsibility, it doesn’t

matter who their spokesman is. So if Mr Latham wants to change Labor’s

policy, if he wants to support the Government budget measures on pharmaceutical

benefits, on disability pension, if he wants to support the Government’s

budget policy, then he could step out of the failures of all of his predecessors.

But if he is going to continue their failures, if he can’t change the

policy on pharmaceutical benefits, on disability, if he can’t support

the Coalition Government’s record of economic responsibility, he won’t

make any difference at all.

JOURNALIST:

Mr Latham is known as being a bit of a head kicker, do you think life

could become a bit colourful for you as well?

TREASURER:

Well he is not just a head-kicker, as the taxi drivers of Sydney can

attest. But the test here of course is not how good he is with his fists,

the test here is whether or not he can change Labor Party policy. Can

he support the Government Budget? Can he support our position on pharmaceutical

benefits? Will he change Labor Party policy on the disability pension?

Because if he is just going to continue the Gareth Evans, Simon Crean,

Bob McMullan legacy, then he will make no difference at all.

JOURNALIST:

Are you confident that the RBA Governor Ian McFarlane will be re-appointed

come September?

TREASURER:

I will be making an announcement on that when the time comes. Thanks

very much.