Economy, industrial relations, health spending, competition, Intergenerational Report, Telstra, Welfare to Work, petrol prices – Press Conference Parliament House, Canberra

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12th APEC Finance Ministers Meeting
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Economy, Trade Practices Act, Competition, Telstra, Scoresby, Latham – Interview with Jon Faine, ABC, Melbourne
September 14, 2005
12th APEC Finance Ministers Meeting
September 9, 2005
Economy, Trade Practices Act, Competition, Telstra, Scoresby, Latham – Interview with Jon Faine, ABC, Melbourne
September 14, 2005

Economy, industrial relations, health spending, competition, Intergenerational Report, Telstra, Welfare to Work, petrol prices – Press Conference Parliament House, Canberra

Press Conference
Parliament House, Canberra

Tuesday, 13 September 2005

12.00 noon

SUBJECTS: Economy, industrial relations, health spending, competition, Intergenerational

Report, Telstra, Welfare to Work, petrol prices


Once a year the International Monetary Fund does a report on member countries

known as the Article IV Report of the 184 members of the IMF.

Over night in Washington the IMF released its Article IV Report on the Australian

Economy. The IMF has referred to Australia as having an “exemplary setting

of economic policies.” It has noted the resilience of the Australian economy;

it has endorsed “prudent and flexible management of monetary and fiscal

policy;” cited low unemployment; increased competition; low inflation

and near elimination of public debt as being benefits of strong reform in this


The IMF Release is a Public Information Notice, essentially a summary of its

report, and the whole staff report which is a much longer document running to

about 50 pages. And that much longer report begins by noting that Australia

has turned around decisively after having falling living standards from the

1950s to the 1990s. Since 1992 Australia has turned around. We have lifted our

per capita incomes to almost 10 per cent above the OECD average.

Now, the point of all of this of course, is not just that Australia, in economic

policy, leads the world in very significant respects and one can compare Article

IV reports of the IMF with other countries like the United States or the United

Kingdom. But the point of all of this is that we must keep the reform process

going if we want to stay near the front of the pack as one of the lead economies

of the developed world.

And the IMF has advice for Australia in relation to that as well. It notes

particularly the work that we are now doing on demographic change which is going

to be a challenge for all developed economies and it also notes the importance

of industrial relations reform. Indeed in its full report the IMF underlines

the importance of industrial relations reform at page 18 of the full report

the IMF says this:

Further reform of industrial relations are needed to expand labour demand

and facilitate productivity gains.

It describes the proposals which the Government has put forward and says this:

“The mission urged the implementation of this package of reforms to widen

employment opportunities and raise productivity by enhancing flexibility in

work arrangements.”

So this is a report that finds an economy which has pulled itself up against

the league ladder of the OECD since the early 90s, which has very robust fiscal

and strong monetary policy settings, which has achieved historically low unemployment

through continuous growth and structural reform, but can take that further if

we continue the reform process.

Welfare to work, industrial relations, proper pricing of infrastructure –

these are all matters which will make Australia a stronger economy and keep

us leading the world. There is no occasion to sit back and to say, well, look

where we’ve come from and look where we are now. If we sit back now we

won’t be where we want to be in five years or ten years time.

So the message here to the Australian economy is we have had a good year but

let’s knuckle down and start studying for next year’s exams.


Mr Costello some of the other things here that you didn’t mention is

desirable to look at for reform in particular health spending. They were quite

strong on health spending and steps to improve price signals for water and transportation,

electricity would enhance the (inaudible) and they also stressed increased R&D.

Are there things you can see coming out of the (inaudible) in these areas health,

price signals for water, land transport and electricity and so on (inaudible)

the Federal Government working towards?


Yes. The OECD in particular in relation to health noted the challenges that

lie ahead from an ageing population and rising health care costs. “They

endorsed the authorities’ strategy to address those challenges through

further reforms to boost medium term growth…complemented by measures to

enhance the sustainability of expenditure.” So this is the point that

we have been talking about now since 2002 that with an ageing population the

biggest challenge actually is not going to be retirement incomes it is going

to be health expenditure. The biggest financial challenge that we are going

to face over the next 20 or 30 years is health expenditure for two reasons –

one is technology is going to deliver more treatment at higher cost for illnesses

that previously we couldn’t defeat; second as people grow older they draw

down on health care to a much greater degree, especially in your last years

of life you really draw down on health expenditure.

You put the two of them together and you have an exponential cost coming down

the tunnel in 20 and 30 and 40 years time. Now, you have got to get your health

system on to a sustainable basis and the area of health that’s going to

increase more than any other is pharmaceuticals because that’s where the

technological improvement is the greatest.

Now we have been making efforts in relation to that with our co-payment policy,

with our generics policy, with out cost-benefit analysis – all of this

work has just got to continue so that we can have a state of the art health

system in 20, 30 and 40 years time.


Are you saying that the Government might need to make further structural changes

to pharmaceuticals in the future and Medicare expenditure to meet that challenge?


In relation to pharmaceuticals what I am saying is that there has to be cost-benefit

analysis before treatment is admitted to the Pharmaceutical Benefits Scheme

as happens at the moment. When drugs come out of patent we have to encourage

the use of generics which have the same therapeutic effect as much as possible.

And I also believe that over the course of the next 20 or 30 years health will

increasingly shift to preventative health rather than treatment of illnesses

and I think the Government is going to have to flag a direction into preventative

programmes over the course of the next 10 or 20 years.


There is not a generic brand that cost-benefit analysis is (inaudible)?


Well look, we had to fight to get them there and they are very welcome. Am

I flagging new things today? No. Am I saying that there will be no further changes

in health or pharmaceutical over the next 30 years? No.


Do you anticipate significant savings from the next Community Pharmacy Agreement

and what sort of magnitude are you looking for?


Look, I think that we should try and get the best deal that we can for the

tax payer, consistent with getting good availability of pharmaceuticals to the

public. This is a balancing act here but we have got to go into this round seeking

to get a good deal for tax payers as well as a good system of treatment and

I can assure you, I know the Minister is working very hard in relation to that.


The IMF recommends that the Commonwealth use some of its fiscal strength to

reintroduce competition type payments to the States, would you consider that,

also would you consider as the IMF urges introducing a Hilmer type review of

the health system to encourage better sharing of responsibilities with the states?


Look, I don’t want to have a process that duplicates the process that

we have had over the last 10 years. That was an all encompassing process where

you reviewed each and every little area and you had competition payments. Because

we have done that number one, number two my experience was every time you imposed

a penalty on the States they complained and they treated those payments as guarantees

rather than incentives, they factored them into their budgets whether they were

observing the programme or not and the third thing is I think they got bogged

down in small issues to be frank. We spent a lot of time on the chicken meat

industry in New South Wales when there are much bigger fish to fry.

So, from now on what we are going to concentrate is on the big things. The

big things are water, gas and electricity. They are the big areas that can unleash

great productivity. We still haven’t in this country got seamless electricity

trade. We still have some States that insist on only allowing generation in

their own State to be sold to their consumers. We don’t have interchangability.

So, the money of the Commonwealth now is going to go on the big issues –

water, gas, electricity.


So do you reject the IMF’s suggestion that land transport be included

in that process, also that health be included in that or a similar process?


Well we are doing land transport and health. You have just asked me where our

competition dollar is going to go and the competition dollar is going to go

on the big issues. The Commonwealth of course is still going to maintain its

reform policies in relation to health and land transport. That is what Auslink

is all about.


You mentioned earlier the emphasis on preventative healthcare, how does that

link in with your demographic plans and does this signal a shift to more preventative

healthcare spending in the future?


I think we have started doing that Dennis, we have started doing it in relation

to diabetes for example, we started doing it in relation to vaccinations. I

think one of the areas that Governments are going to have to get their head

around is childhood obesity, that is an area of preventative health that we

are increasingly going to have to focus on. We are doing it now in relation

to screening for bowel cancer and screening for breast cancer. I am just putting

you the economic case. Once somebody has cancer the treatment of that cancer,

it can be quite effective but at huge cost. Before they develop it, if you can

detect it, taking steps to prevent it from growing can be much more effective

and at much lower cost and so I think we are going to move increasingly to preventative



Treasurer, on these initiatives to improve the long term outlook, how does

that change what was projected in the Intergenerational Report?


Well the Intergenerational Report was the snapshot in 2002. Under the Charter

of Budget Honesty we have to do one of those every five years, so the next one

will be due in 2007. And in 2007 we will look at every one of those assumptions

again, see if any of them have changed. We will be able to see if we have gone

forward or whether we have gone backwards. But every five years under the law

this has to be done and we are going to benchmark our progress. Now, we have

got great demographic challenges in Australia, there is no doubt about that.

The only thing I can say to you is we are probably leading world thinking on

how to respond to them. This was an issue discussed by APEC Finance Ministers

in Korea last weekend and the Australian experience is probably leading world

thinking. Now we have got to stay there.


Could I ask you a question about Telstra, Mr Costello? Now that the money for

the future proofing fund is going (inaudible) in cash, what is the mechanism,

is that going to come off the Budget bottom line or will that wait for some

sale and some proceeds go in and how does that affect timing?


Well, I don’t want to go into timing but what we have said is we will

set aside $2 billion and it is anticipated that that will be part of the proceeds

of the Telstra sale. Set aside $2 billion which will be there for future proofing.

Now, there is another…




…well no, there is another element here, there is the HIBIS scheme, I

forget the technical name but that is another billion or so dollars which is

going to be rolling out and the $2 billion is going to be put aside as a trust

fund for what is euphemistically called future proofing. So the money that is

going to come out of that future proofing fund is in a few years time after

I believe the first review.


How do you think the Nationals have behaved through all this, Treasurer?


Well I think Mark Vaile has given strong leadership in relation to the National

Party on this issue and I think the National Party as a whole has been very

supportive. You know, I know there are certain individuals that have given colour

and movement, but the National Party as a whole has been very supportive.


Is Senator Joyce’s behaviour justifiable or not? Is it reviewing the

legislation in a (inaudible)?


He is perfectly entitled to review the legislation and to his credit he found

a part of the legislation which wasn’t expressed as it should have been

and that has been changed in relation to the $2 billion, to his credit. And

you can’t be critical of somebody for scrutinising legislation. The only

point I am trying to make to you is I am asked a question about the National

Party and I am just trying to make the point to you that the National Party

is not just one person. You see how your questions invariably move from the

National Party to one person. There are a lot of people in the National Party

and I don’t begrudge any of them from scrutinising legislation. Senator

Joyce is quite right, that is what he is there for actually, to scrutinise legislation.

I would just recommend that after the legislation has been scrutinised and it

should be scrutinised, that the arrangements that have been agreed are put into

law. That is my recommendation to him. I think you will find that the arrangements

are reflected in the legislation, if they are not, they should be.


Did the argy-bargy over Telstra last week damage the Government?


Look, last week there was a lot of discussion about duties of disclosure and

there was a lot of discussion about the share price. It is very hard for me

to comment on matters which are under investigation and I don’t want to

particularly comment on share prices because then I will get myself into trouble

so, thank you for that tough delivery but I will let it go through to the keeper.


What about the fall in the Prime Minister’s satisfaction rating in the

latest Newspoll, do you think that could be attributed to Telstra?


They’ve got that under investigation.


Thank you Mr Bongiorno, do you have a question?


Well I do as a matter of fact.


Well perhaps I could ask you a question and you could give the answers. What

is your view on that, Mr Bongiorno?


(inaudible) perhaps you could answer Dennis’ question.


In the Caucus today we were told that the Labor Party blamed John Howard for

the cricket result.


The Labor Party did, did they? Oh well…


The Labor Leader, sorry.


…the Labor Leader blamed John Howard for the cricket result, did he?


He called him a weasel.


Well I am sure he would, I mean I am sure he would blame John Howard for the

state of the weather, the drought, the international oil price, so adding to

that litany of woes the loss of the Ashes would be a very small step for Kim



Treasurer, on industrial relations, are we going to see any more details of

the Government’s plans before the legislation is introduced and also on

the big things you mentioned in competition policy – water, gas and electricity

– we have been talking about them for some time, can you give us any idea

how far you think or what goals or benchmarks or what might be achievable in

this round of competition policy discussions?


Well what I would like to see is I would like to see full national markets

with compete interchangability in relation to gas, electricity and water with

proper pricing so that resources get allocated to the highest uses in terms

of economic production. Where electricity flows across state borders with full

transferability, where power is produced in the state where it can be produced

at the cheapest cost and distributed on a national grid to consumers who get

the benefit of lower prices regardless of the state where it originates. That

is what I want to see. I would like to see and I have said this before in relation

to our critical export infrastructure, where there is a pricing dispute that

we have a national regulator that deals with those matters. And I don’t

believe the Commonwealth should run ports and I have never said it should. But,

you know, where you have got a monopoly user and you have a argument about pricing,

rather than it get caught up as we had at Dalrymple Bay for two years that these

decisions are made quickly, they have time limits on them, they facilitate investment,

you know. We have got a wonderful opportunity here in this country particularly

in relation to mineral exports, but if we don’t build the infrastructure

so that we can supply the demand, someone else will you know. The Indonesians

might, the Brazilians might, the Argentinians might. You do not want to think

that up there in China, amongst those wonderful markets, the only place they

can buy from is us. If we do not get our infrastructure in place, and other

countries beat us to it, they will get the contracts, they will get the income,

they will get the development, and we will miss out.


Treasurer, in terms of transport infrastructure, do you think the Toll takeover

of Patricks could lead to less competition in that sector, therefore less efficiency

in terms of the goals you have just been spelling out.


Well that is a matter for the ACCC.


The IMF recommends that tax reform priorities should be on improving participation,

and encouraging productive investment. Do you agree with both those priorities?


I think that the tax policy should be directed at heightening economic growth,



Treasurer, did Cabinet consider a family impact statement when it was looking

at the Telstra sale bills, and if it did, why wasn’t it released?


Well we can not release Cabinet documents, I think that is the point, but of

course you look at family impact. You look at family impact, and this is the

way I would look at it, competitive telecommunications which keeps costs down

for families. A package which will allow for improved access to broadband, particularly

for rural and regional families. The possibility of keeping debt low, so that

interests rates are low for families. You can look at all of those things.


(inaudible) the Family First were after, in terms a statement, a documents

(inaudible) …


Well, there is no political party that owns families in Australia. We are all

part of families, and we are all interested in families, and this idea that

because you do not have family in your name, you are not interested in families,

I do not think I would agree with that proposition.


(inaudible) Family First statement, is there (inaudible)


Look to be frank, I assume so. Look to be frank I can not give you a definitive

answer on that, I do not want to mislead you on …


Treasurer, on welfare reform and back to work, how much has the easing of the

restrictions for single mothers and those with disabilities cost the Government

in the recent changes?


Well I am not going to release any financials here Dennis, but bear this in

mind, that the welfare to work package begins with net cost. That is, you increase

services to help people get back into the labour market, and eventually if they

do, you make savings on welfare and you increase your tax take. Now the reality

is, the fewer people that you can encourage into the work force, longer term,

the greater the cost will be. But, it is a delayed thing, if you are with me.

You will make certain assumptions as to how many you will encourage back, and

over what time frame.


Are you happy with the welfare to work package that the Prime Minister signed

off on.


Oh, I think it is very important. I think it is absolutely important, and you

know this is the point I would make, unemployment at 5 per cent, an ageing population

– we actually need to encourage as many people as possible to stay in

the work force, that is where you are going to get economic gains, and you have

seen in this IMF report how important that can be.


Treasurer …


Last question please, from the cricket commentator.


Petrol pricing was raised in the Party Room today, we were told, is the Government

just going to have to take a hit over the next few months, or what is your view

on that?


Look, I do not like high petrol prices. They are at punishing levels for consumers,

and mark my word; it does not good for the Australian economy. No good at all.

It does not help business, it does not help the economy, it does not help consumers,

it does not help the consumer price index, it does not help other retailers

who get squeezed because more of the families budget goes on petrol. I do not

like it, I do not like it for one moment, but I also know what causes it. What

causes it is the world oil price, and world refining prices. I raised this matter

at the APEC Finance Ministers’ meeting in Seoul. There was general agreement,

even from oil producing countries, that the prices are too high. That they have

to take steps to stabilise that price. They indicated that they would do so.

You know I discussed it with the Chancellor of the Exchequer not so long ago.

A view has been put to OPEC. But I do want to make this point, that the Commonwealth

excise does not drive that price. Commonwealth excise for about the last four

years has been 38 cents a litre. When the price was 90 cents a litre at the

bowsers, it was 38 cents a litre of Commonwealth excise. When the price is a

$1.40 at the bowsers, it is 38 cents of Commonwealth excise. The excise does

not move, it is not even indexed. In real terms it declines, and as a percentage

of price it declines. Does not move, and the idea that somehow you can counteract

the world oil price with movements in Commonwealth excises is wrong. You are

holding out a false hope to people.


Do you think the community understands that better (inaudible)?


Well you see the trouble in 2001 if I may say so Matt, was what was going on

in 2001 was a new tax system, right, and because that was such an all encompassing

thing, because it had been argued about in Australia for ten years. Because

it had become such a political issue, everything was being blamed on GST. Now

I well remember, well remember, a claim that more men would go bald under the

GST. And it was said, that because the price of hair cuts would go up, men would

not go to their hairdressers as much, they would not get counselling and that

baldness would proliferate. I remember it being claimed by the Australia Institute

that the road toll would rise because of GST. That it would make cars cheaper,

and petrol cheaper, more people would drive, and more people would die. And

you know, these things were just being seriously reported in the newspapers,

you will go bald under GST. You will die on the roads under GST, when at that

time petrol prices started rising, it was an obvious answer, because the GST

was being held responsible for everything, and so was very easy for people to

say, the GST has put up prices. In fact it was not then, just as it is not now,

but you see the difference now is, no-one believes a new GST is being introduced

now. No-one believes that there has been any tax change, but the price has gone

up. So whatever the explanation, it can not be tax, and it is not tax, and I

think that is well understood now, much better understood than it was in 2001.


Should the States use GST…


You know there is one State that uses it is GST revenue to reduce prices at

the bowser, and it is Queensland, which shows that it can be done by a State,

and it is a matter for the States to do. But, I did notice our old colleague

Gary Punch out on the TV last night with certain advice on the taxation of fuel.

So, perhaps he will be advising Mr Iemma in relation to that. Or perhaps not.

Thank you. That is it. Thanks.