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Foreign Investment Approval of BHP Limited-Billiton Plc Merger
June 4, 2001
The Facts On Saving
June 7, 2001
Foreign Investment Approval of BHP Limited-Billiton Plc Merger
June 4, 2001
The Facts On Saving
June 7, 2001

Economy, One.Tel

Transcript No. 2001/083





Press Conference
National Accounts
Wednesday, 6 June 2001
12.00 pm

SUBJECTS: Economy, One.Tel


The Australian economy grew by 1.1 per cent in the March quarter of this year.

That growth rate is faster than any of the major industrialised economies of

the world. And the National Accounts which were released today show that in

nearly every respect indicators were strong, consumption was strong, investment

was good, profits were good, incomes grew and exports made a major contribution

to growth. Perhaps the only area which detracted significantly from growth

was the detraction in inventories, and what that means is that for many businesses

they didnt have the production to meet their sales, they will have to rebuild

inventories in this and successive quarters, which means that that will contribute

to growth in the quarters which are yet to come.

After a disappointing December quarter the Australian economy roared back in

the March quarter with a 1.1 per cent growth rate. Household consumption which

grew 2.2 per cent was the strongest quarterly growth since September of 1994.

And there was exceptionally strong growth in consumption of services, the strongest

in 25 years. It may well be that some of that consumption is reflecting income

tax cuts which are flowing through to the household sector and now finding

its way into consumption. Dwelling investment looks like it has stabilised.

As I said in relation to the December quarter, the biggest contribution to

the December quarter was the fall in housing construction, a transitional affect

of the new tax system. Housing construction was incredibly strong prior to

June of 2000, the fall was very steep in the September and the December quarters.

As I said when we were commenting on the December quarters, if you abstracted

housing from the December quarter the economy was still growing at 4 per cent.

Whats happened in this March quarter is that consumption has bottomed, ah,

housing construction has bottomed. It didnt really add very much to growth

but it certainly bottomed and it wasnt subtracting from growth as it was in

the December quarter. Now, I think in this quarter, the June quarter, but more

especially in the September quarter, construction is going to come back and

is going to start contributing to growth again.

Investment in new plant and machinery rose in the March quarter. Net exports

rose very strongly and made a contribution of 0.8 per cent to growth. As I

said when commenting on the balance of payments, our current account deficit

is now 2.8 per cent of GDP, which is the best that weve been at for 20 years.

Inflationary pressures remain low, with the National Accounts measure of inflation

below 1 per cent in the March quarter and that of course was pushed up by some

of the factors that I noted in relation to the Consumer Price Index – food,

fruit and vegetables very, very strong price rises as a result of floods in

New South Wales and Queensland, and meat prices very high, no doubt in part

reflecting foot and mouth disease, and the increase in cattle and meat prices.

Wages were strong, corporate profits rose 7.8 per cent in the quarter and profits

are around historical highs of about 25 per cent of GDP.

So, it was a strong March quarter. I think the prospects in relation to future

quarters should be supported by construction which should return to contributing

to growth in future quarters. We are going to have to obviously have a rebuilding

in relation to inventory. Consumption has been quite good, if you look at the

retail sales in April. Interest rates are low and First Home Owners Scheme

I think is going to support activity. So, all in all the economy showed considerable

strength in the March quarter and it means that the Government is very well

on track to achieving its Budget forecasts for growth, both in this year and

in following years.


The biggest quarterly change Treasurer was in the general Government consumption

spending. You didnt mention that in your opening remarks or in the press release.

But I was just wondering where do you think that consumption spending might

have been, and how important its been in getting the economy back on track?


Well, the Government consumption spending is notoriously lumpy. We dont actually

think its as lumpy as it appears in the National Accounts. And certainly we

dont have any evidence from our point of view as to how the ebbs flows go.

What I regard that general government consumption rise as being is partly a

reflection of the fact that there was a fall in the previous quarter, and I

think you should actually moderate it out both ways. I dont think it was as

low as was recorded in the National Accounts in December, but having recorded

such a low result in the December quarter you are getting a correction and

a pick-up in relation to the March quarter.


Treasurer, is it time to revise up future quarters of growth from what you

had in the Budget?


Well, I think I say in the press release here that todays release indicates

the Budget forecast of 2 per cent growth will be readily achieved. You wouldnt

have to get much in the June quarter to achieve that and if you achieve that

that provides you for a higher base in relation to 2001-2002. But, look, this

is a very strong result. And it augurs well for the economy and it augurs well

for future growth prospects.

As I say, as you look through these National Accounts, it is strong in all

areas, it is strong in consumption, it is strong in exports, youve got investment

coming back. The only area of weakness in these Accounts is in relation to

stocks and inventories. And thats, as I said on radio yesterday, it is almost

like putting growth in the bank, you run down your inventory then you know

that in successive quarters its got to be run back up again to cope with sales.

So, these figures bounce around a bit, you know, the truth of the matter is

that we probably have a false precision in relation to all of these figures,

you know, to say it is 1.1 rather than 1 or 1 is probably a false precision,

and you could probably say the same in relation to the December quarter, we

probably have false precision. And the truth may lie a little between the both

of the quarters. But the truth of the matter is that these are very good National

Accounts, and all Australians I think will welcome these. It shows that our

economy roared back in the March quarter, growing faster than any of the economies

of the industrialised world, the major economies of the industrialised world

in March, and with very good prospects for the future.


Treasurer, do these figures show that the worse days of the GST are now behind

you and the Government?


Look, when we reformed the tax system on 1 July of 2000 it was the biggest

change to Australias tax system ever. In fact probably the biggest legislative

change in Australias history. There is no doubt about that. In terms of the

reform, in terms of the way we changed income tax, company tax, capital gains

tax, wholesale sales tax, Financial Institutions Duty, stamp duties, in relation

to all of those things. And you couldnt do that without having adjustments.

You just couldnt do that without having adjustments. It has taken, particularly

small business, and I want to say to the small business of Australia, the overwhelming

proportion of whom have coped very well with those changes, we know they were

big changes. And I want to say to particularly the small business of Australia

that they deserve credit for the way in which they have coped with those changes.

And in relation to each of those quarterly returns the experience is people

getting more familiar with them. The first one was huge, the second one was

a little bit less, the third one which we had in April was a little bit less,

people are now adjusting to the system. And the worst possible thing you could

do now would be to change it all on them. Just as they are adjusting to the

system tell them well throw that out and well have a new one thats the

rollback policy. Anybody who thinks about it for a moment will realise what

a silly idea that is.

But in relation to its effect on the economy, you dont change a tax system

without affecting peoples behaviour. The first thing that we noticed in relation

to changing of the tax system was it brought a whole lot of construction forward.

Go back into April and May of last year, you couldnt get a builder because

there was so much work going. And then when the tax system changed you came

off this incredibly high base into an incredibly big slowdown. Now the slowdowns

bottomed and now it will come back up. The transitional factor works through,

the transitional factor influenced the December quarter, I said that at the

time. A lot of you had a lot of fun in relation to the outcome in that December

quarter, and no doubt now youll, sort of, have as much fun in relation to

outcome for the March quarter.


Treasurer, (inaudible) what explanation do you have (inaudible) in the December

quarter was that the world economy was slowing. Do you still stand by that

explanation given that you have got strong net export growth this time and

the world economy is going no faster or slower that it was projected then or

are you saying that that explanation (inaudible) you would have to change that



No, the world economy is slowing. I think the US growth in the March quarter

is something like 0.2 or 0.3, ours is 1.1. We would have stronger growth if

the US economy were stronger and if the world were stronger. But two factors

have given us some insulation against a slowing world economy. The first is

we took taxes off our exports. That gave Australian exporters the opportunity

to export tax free, something they had never been able to do before. The second

is you had an exchange rate adjustment and what that allowed our exporters

to do, in relation to a weaker world economy, was to keep their exports up.

Now, if the world was stronger youd have had that much more growth again,

youd have had that much more growth again. But those two factors, one of which

we quite deliberately planned, and one of which is a function of a floating

exchange rate, gave Australia a lot of insulation, a lot of insulation, in

relation to that.


But Treasurer, if world growth hadnt slowed, our exchange rate wouldnt have

fallen by so much?


Yes. Thats one of the reasons why you have a floating exchange rate, so that

it can adjust to those sort of international developments. It gives you insulation.

Now if you had been operating a peg with the US dollar throughout that period

as the world economy slowed your exchange rate would have been going up and

you would have been getting a double banger effect on your exports. What we

had was we had a floating exchange rate, the world slowed, the exchange rate

adjusted, exporters were able to cope much better. Its one of the reasons

why you run a floating exchange rate. Now we took a lot of criticism, not the

least from the people here, about the floating exchange rate during that period

and you blasted it all through the newspapers, but, I think as I said at the

time a floating exchange rate is not always rational, not on a day to day basis.

But I believe its the best policy, and thats an illustration of why.


Treasurer, in political terms is this the break the Government has been looking



Look, this is a strong quarter and, you know, the press has been very negative

over the last three months. I think you would all agree with that. The, youve

had negative headlines, day in day out, and if you have enough negative headlines

you can affect sentiment. Now, the good news is it didnt affect sentiment

enough to stop the economy growing at 1.1 per cent, but imagine when you give

the positive coverage to this quarter, that you no doubt will, the boom that

that will have on sentiment and, you know, because, you have plastered negative

headlines all across the newspapers after the December quarter so I am expecting

that youll be plastering very positive ones all across the front pages after

this quarter, imagine the effect that that will have on sentiment and that

will be good for the economy. And, you know, leave aside the Government isnt

that good for all Australians, you know, with the possibility of the Labor

Party, I think all Australians will welcome these figures today…


On the issue…


…and theyre good figures.


On the issue of sentiment, Treasurer, is this an argument for going earlier

to the polls, or what would your advice be on that?


I dont give advice on that issue, I take advice.


Treasurer, given these figures, have we reached the bottom of the easing cycle

in terms of rates?


Look, our official rates are 5 per cent today. Theyre higher than the United

States, but these growth figures are stronger than the United States. Theyre

higher than Europe but our growth is higher than Europe, theyre higher than

Japan but our growth is higher than Japan. I dont make any predictions in

relation to the future course of interest rates. But I do make this point,

that our interest rates by Australian standards are very low, in nominal terms

and in real terms. And aside from a period back during the Asian financial

crisis, when I think they were at four and three quarter, our interest rates

today and our home mortgage interest rates are lower than at any period since

the 1960s. You have got a 6.8 per cent home mortgage interest rate. When the

Government was elected it was ten and a half, and I can remember the days of

seventeen, these are very low interest rates.


Treasurer, on Mal Brough, quickly if I may, are you satisfied by his explanation

that the fact that he didnt say he was a minister on this document promoting

this training scheme which gave money to the Liberal Party, is, means he is

innocent of any wrong doing?


What ever his explanation was, and I have been looking at the National Accounts

this morning, I agree with it. I totally agree with it.


Treasurer, what does it mean for jobs? I mean will you be able to now make

your unemployment prediction that was in the Budget a bit more optimistic,

it was pretty pessimistic?


Well, look employment, wages are actually showing quite strong growth in these

National Accounts and in net terms in April the number of jobs increased 40,000.

Now, I know you say it is very weak but the employment rate today is below

7.0, when the Government was elected I think it was 8.6. There have 820,000

new jobs created. I just think that over the last sort of quarter, whats actually

been happening and sentiment as reflected in news organisations have grown

apart. Unemployment today, while still too high and fractionally above what

it was earlier this year, is still at decade lows in Australia. The current

account is at 20 year lows, the Budget is in its fifth consecutive surplus,

interest rates today are at levels, which aside from 1998, are as low as they

were back in the 1960s. Now, and the Australian economy in the March quarter

grew faster than the United States, or Japan, or France, or Britain, or Germany.

So, you know I know, I know sentiment has, has been very negative but I think

when you actually look at the underlying facts theres a lot of good things

have been happening in the economy.


Treasurer is that why (inaudible)…there is still a lot of fiscal stimulus

in the pipeline, are you concerned about how you manage that and whether that

could create problems going ahead or even lead to further, lead to interest

rate rises because of the, because of that stimulus coming into the system?


We have some fiscal stimulus in the Budget. Weve got a $300 bonus to pensioners

which is going out this month, we brought forward the claiming of input tax

credits for business from Budget night, on 1 July we cut company tax, we cut

Financial Institutions Duty, we cut stamp duties on shares, these are the benefits

of ongoing tax reform. And so there is an amount of fiscal stimulus coming

through by way of tax cuts over the course of this year. But I think that will

be consistent with the kind of growth that were forecasting. We are forecasting

growth to step up to three and a quarter, its still below full capacity for

the economy. If you take the view as I do that full capacity for the economy

is probably nearer to four than nearer to three, I dont see any risk that

will be pushing the economy above its capacity. More importantly, I dont see

any risk that inflation is starting to break out, you know, leaving aside the

food issues, youve still got inflation which is down towards the bottom of

the band. And our official rates are higher than they are in Europe, Japan

and America.


Mr Costello you said some strong things last week about the One.Tel executives

and the Prime Minister has flagged an amendment to get back bonuses from people

in this sort of situation. Are you confident that legislation can be drafted

within the corporations law, that the limits can be set, and so on, and when

would you expect that to be introduced? And secondly, you mentioned a couple

of One.Tel players, but what do you think the responsibilities of Mr Packer

and Mr Murdoch were, and are, in this company? Do they, should they take some

more action?


As I understand the law, if a payment is made to a related party at a time

when the company is insolvent or if it becomes insolvent as a consequence of

that payment you can go back four years. Thats the law as I understand it.

The only thing you have to prove is that the company was insolvent at the time

the payment was made, or became insolvent because of it, the payment being

made. So well, look, ask the draftsman to have a look at that issue…




…should, should you, you know, what is the test of insolvency, you know,

should you tighten that particular test. There is a relation back, there is

a four year relation back from the threshold is insolvent. Well ask the draftsman

to have a look at that. As I said on the radio yesterday, and I dont know,

it may well be that One.Tel was insolvent when the payment was made and if

that was the case, I dont know, but if that was the case then the existing

law would allow those bonuses to be clawed back.




So thats what well be looking at. How long will it take, well I imagine it

will take a couple of weeks or something. The draftsman will look at it, brief

the authorities, make some recommendations, the Cabinet will discuss it. I

said, in relation to the second question, I said on radio yesterday that if

the employees were at risk of not being paid, I thought that the directors

should first of all make good, and I also said if they were at risk of not

being paid some of the shareholders might actually consider making the situation

good as well. Now, all I know about the situation is what I read about in the

newspapers. I read in the newspapers today that the employees entitlements

will be made good, that there wont be a short-fall.


Should Mr Packer and Mr Murdoch have kept a better eye on what was going on

though, given that they have enormous resources to do so, to monitor whats

happening in businesses with which theyre associated?


They, they, what I would say is this. Like any company director they have the

duties of company directors and that obligation is put in place by the law

and we would expect them to observe directors duties like anybody else. You,

I know your next question Michelle, because it nearly slipped out as I was

answering that last one, did they observe their directors duties? The answer

is how would I know? These are matters of law, it depends on what they were

informed, what inquiries they made, and I cant stand up at press conferences

and give legal opinions on, and it would be wrong of me to do so, on directors

duties. All I can tell you is the corporations law puts certain duties onto

directors and from my point of view, and from the Governments point of view,

they apply to all directors. How so ever appointed and whichever company they

may be part of.


Treasurer, petrol prices in Sydney are over a dollar. How soon will we see

the Governments petrol inquiry?


Well, I think the Government is considering terms of reference at the moment,

Im not sure when it will be done.

Sorry, Mr Cleary, I cant go without, Mr Cleary, last question.


Treasurer, as someone from a newspaper which didnt actually run any recession



I know, can I say I want to clear, I want to clear the Fairfax tabloid. I honestly

want to clear the Fairfax tabloid. It was the Fairfax broadsheets that had

a lot of fun. Actually, mostly led by the broadsheets south of here, I want

to say, but no doubt theyll be considering their position.


Anyway, having said that, can I, you said that…


I did actually go back and have a look, and I, you know, I want to say rumours

of the irresponsibility of the Fairfax tabloids have been greatly overstated

on this occasion.


In the last six months. Can I ask, you have said that exports were strong,

I think you are really referring to net exports…


Yes, I am.


…(inaudible) the impact of weaker imports, but, I mean the exports in these

Accounts was quite weak. There is only 1.1 per cent contribution. Doesnt that

really indicate that the export boom is coming to an end and that that is really

the impact of the slower US, world economy that is really starting to make

things a lot tougher for exporters.


What contributes to growth, and I think it contributes 0.8 per cent to growth,

is net exports. That is, unlike the treadmill we have been on a long time,

we havent been importing more than weve been selling. In fact in the March

quarter, no, we sold more than we imported. Our exports were strong and I have

talked about some of the reasons for that, our imports were weaker. One of

the reasons why theyre weaker could well be the exchange rate effect and that

is good for import replacement industries. Now you might say, oh, one of the

reasons why imports are weak is people werent buying as much, but consumption

is actually quite strong. Overall consumption was quite strong, it actually

grew. So it may well be that some of that consumption was going into import

replacements, and if so that is a good thing. The good thing about that is

it made it more competitive for Australian, for Australian suppliers and I

wouldnt, I wouldnt consider that a bad thing.


Exports as well were 0.5 growth, it was one of the weakest quarters we have

had in some time?


Well export volumes were up, and I made this point, it is not exactly the best

time for Australian exporters in terms of world growth. With the world turning

down as it is, particularly the US economy turning down, yes that has been

a difficulty for exporters but isnt that a good story for Australian exporters

that in the midst of a world down-turn led by a significant US down-turn, when

everybody elses exports are falling ours were going up. Now I have talked

about some of the reasons why that, that is the case, but I think you have

got to hand it to the Australian exporters. I think they have done a pretty

good job over the course of the March quarter, I hope it continues. I think,

in particular, the fact that they are now getting full input tax credits on

everything they sell overseas. Rural Australia is now starting to feel a bit

better in relation to exports and meat prices is back up, thats putting a

lot more money back into rural Australia than has been the case. The wool price

has been okay, seasons have been bad but hopefully grains will be good and,

you know, the great thing about exports is not only how it helps everybody,

but it really helps rural Australia. And a competitive environment on exports

for rural Australia I think is a wonderful thing.

So have a good day. Thank you very much.