Economy, Petrol prices and executive pay – Press Conference, Treasury Place, Melbourne

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2005-06 Pre-Budget Submissions
November 8, 2004
Labour Force; industrial relations reform; disability support pension; company tax; US interest rates; skills shortages – Press Conference, Treasury Place, Melbourne
November 11, 2004
2005-06 Pre-Budget Submissions
November 8, 2004
Labour Force; industrial relations reform; disability support pension; company tax; US interest rates; skills shortages – Press Conference, Treasury Place, Melbourne
November 11, 2004

Economy, Petrol prices and executive pay – Press Conference, Treasury Place, Melbourne



Press Conference

Treasury Place, Melbourne

Tuesday, 9 November 2004
11.20 am


SUBJECTS: Economy, Petrol prices and executive pay


The International Monetary Fund has just released in Washington its assessment

of the Australian economy with what is called an Article IV consultation and

a Public Information Notice setting out its assessment of the Australian economy.

The IMF in its assessment says as follows:

“Australia’s strong performance with six years of Budget surpluses,

falling public debt, low inflation, high and rising productivity and a long

period of uninterrupted growth underpinned a dynamic job market.”

The IMF attributes this performance to the exemplary record of macroeconomic

and financial management and implementation of structural reforms carried out

in a transparent economic policy formulation framework.

This is the international assessment of the organisation to which nearly every

country in the world belongs, which is probably the most senior economic policy-making

authority in the world. And the assessment of Australia’s economic performance

over recent years is a very glowing one. And it notes the way in which the economic

performance of Australia has outperformed nearly all of the developed economies

of the world over recent years.

Having said that the IMF notes that it was the economic reforms of recent years

that have got us to where we are now and it is the reforms of today that are

required to meet the challenges of tomorrow. The biggest challenge that we are

going to be facing in Australia in a structural sense is the ageing of the population.

That is, the number of people of workforce age is not going to increase and

the number of people of retirement age is going to increase. And we know over

10, 20, 30 and 40 years we are going to have the same number of people in the

workforce supporting a very much larger number of people in retirement. This

is what we call the ageing of the population. And the response to this has to

be multifaceted. We have to encourage more people to remain in the workforce.

We have to work at those groups who have low workforce participation to encourage

them to come back into the workforce.

And this means that the reform programme has to continue. And the IMF notes

in its report that our reforms to the disability support pension are very important

for increasing labour force participation. Those reforms have been blocked by

the Labor Party in the Senate. I call on the Labor Party now to withdraw its

silly opposition to important economic reform. The IMF notes that our reform

of the Pharmaceutical Benefits Scheme is going to be absolutely important to

base the reliable supply of medicines to our public on a financially sustainable

footing. I call on the Labor Party to support those measures.

The economic reforms over the last years have delivered Australia into a strong

economic position as recognised by the IMF report today. Having seen many of

these reports and having looked at the reports they perform on other countries

including the United States this really is a standout report. But we shouldn’t

rest on our laurels. What we should do, is we should take the reform agenda

of today and we have got to build the opportunities of tomorrow.


Mr Costello are you proposing to introduce the disability legislation in the

near future, i.e. before the middle of next year?


Oh yes I would like to see it reintroduced to the Parliament and enacted as

soon as possible. There is no reason why we should wait until the middle of

next year. These are matters that I announced two Budgets ago. It should have

been enacted by now. It has to be done. Now, the Labor Party lost the last election

because they weren’t economically credible. They now say they are going

to get economically credible. To get economically credible they have to repudiate

their policies and support the Government’s policies. And we want to give

them an opportunity to do that on disability support pension, on unfair dismissals,

on industrial relations, on family benefits. Now, you can’t lose an election

on the grounds that you are economically not credible and then say, but we will

keep all of our same policies.


Treasurer, to keep people in the workforce longer do you think employers will

need some education about the idea of much older workers staying on?


I think there are two important measures that we should work on. The first

is we should have encouragement for mature age workers to stay in the workforce

and that encouragement should include tax assistance. And we have a proposal

for a mature age workers tax offset for people over 55 who stay in the workforce

on lower and middle incomes to get a tax cut to encourage them to stay in the

workforce. The second is employer education is going to be a big part of it.

Employers need to know that mature aged workers are good workers. This idea

that at 55 when you get your superannuation you should retire is an idea that

we have got to try and educate people against. Life expectancy now is up to

about 86, I think, you retire at 55, that is 30 years in retirement. It is going

to be very hard for people to support themselves for 30 years in retirement.

And so we need to educate employers about the benefits of mature aged workers,

those above 55. They are reliable people, they have got good skills and I think

employer education is going to be a very big part of this.


Treasurer there was an interesting report from the Central Bank yesterday suggesting

that home owners could face a higher interest rate bill next year. Is this of



Australia’s Central Bank?


The RBA.


Well I didn’t read it that way I must say.


Well what did you get out of it?


Well I commented on the statement on monetary policy yesterday, and I drew

from it that inflation was contained, that there had been an adjustment in the

housing cycle, that the Australian economy was continuing to grow on a low inflation

basis, and much of that assessment is my own.


What about the IMF’s assessment of the Australian housing market?


Well I think that the IMF notes in its report that one of the things that we

have been worried about has been the housing market – that it would overheat.

But as you saw with the statement from the Reserve Bank yesterday, there is

now evidence that some of the heat is coming off in the housing market. Prices

seem to have stabilised, credit is not growing as fast, approvals are down,

in some markets there have actually been falls in housing prices. Now all of

that tells you that so far there has been an orderly adjustment in the housing

market and I hope that that orderly adjustment will continue.


Are you concerned though that that cooling could lead to household consumption

spending, you know, falling next year as prices come off?


Well the word that I have always used is plateauing. I would like to see prices

plateau. The fact that most Australians own or are buying a home and the value

of the home has gone up I think has been a good thing for most Australians.

I don’t think, I think the last thing that they would want is for the

value of their house to fall. But I am speaking from an economic point of view,

that plateauing, so that it doesn’t continue to rise at the rate that

it has in the past, would be a good thing.


Treasurer if there is any negative in the IMF report it is about the current

account deficit. And they actually advise that they would like to try some monitoring

of the corporate and bank balance sheets. Do you, how much do you share that



Well they note here that the prudential regulator APRA has done stress testing

on the bank, financial institutions. Australian banks are very robust, very

robust, and even with that stress testing I think it was stress testing at 30

per cent falls in house prices, the Australian banks were in a very strong position.

Let me make this point, I think you will all agree with me, Australian banks

are quite profitable institutions. I don’t think that there is any great

risk to Australian banks at the moment.


Mr Costello on the retail sales, figures have been a little weaker than expected

recently. Are you concerned by that and how do you see that going forward?


Well I think that consumption has been a little softer recently and I think

one of the reasons for that has been the high petrol price. Petrol prices are

very high. And I think that is punishing motorists because of the world oil

price. High world oil prices are in no ones interests unless you happen to be

an oil exporter. But what that means is that Australians are paying a lot of

money at the petrol bowser to fill their tanks. And I sympathise with them.

And I think the reality of that is because Australians are spending more of

their pay packet filling the car with petrol you have seen a softening in relation

to retail trade. High petrol prices in a funny kind of a way may well have weakened

the consumption elsewhere in the economy.


But there is also a fair lot of tax on the petrol price?




They also pay a lot of tax on petrol prices.


So what is the question?


So if petrol prices are higher but taxes are also higher (inaudible) affecting

it as well?


Yeah well what is the question?


The question is should the Government start to think about reducing tax?


Well the Commonwealth Government has reduced it. The Commonwealth Government

has an excise of 38 cents which we have reduced from 44 cents which doesn’t

increase as petrol prices increase. Now if you want to go and direct your question

to a State Government which receives GST revenue, do so.


But have petrol prices moved to (inaudible)?


Look I would like lower world oil prices, because that would provide lower

petrol prices, because that would help with Australian family budgets. What

needs to happen to get lower world oil prices, first of all you have got a guaranteed

supply, secondly of course it is also a demand problem that newly industrialising

countries like China and India are taking a lot of the world’s supply.

When you get the supply and the demand back in a better balance you will find

that the world oil price will come down and the petrol price will come down.


Mr Costello are you concerned that the recent appreciation of the dollar is

going to delay any recovery in our net exports?


The fact that the Australian dollar has been appreciating is making it harder

for our exporters, there is no doubt about that. It is much harder for our exporters

today than it was back in 2000-2001. Australian exporters were exporting on

a dollar which was below 50 cents. Today they are exporting on a dollar which

is 76. So that has made things harder for them, yes. Now I don’t target

a particular level of the $A but I make this observation that it is harder for

our exporters on the current exchange rate than it was three or four years ago.

Now three or four years ago probably the $A was at an abnormally low level or

to put it another way, an abnormally competitive level. Things are tougher for

Australia’s exporters today.


Treasurer there has been a lot of jostling for the Speakers position. Some

candidates have even taken their campaign across the country. Do you think it

is appropriate that jostling for a plum position like the Speaker involves the

expenditure of so much taxpayers’ money?


Well the only thing I would say is this, provided it is within entitlement,

provided they are entitled to do it under the rules, you can’t criticise

it. But you know it is a matter for each individual Member. I have only got

one vote in this ballot.


Who will you vote for?






I am not running a candidate. I have got my one vote in relation to this and

I will exercise it very judicially, judiciously I should say.




I am sorry…


Just in relation to executive pay, if you have a (inaudible)…




The AFR has a survey out today which shows the average level of executive pay

rose by 29 per cent last financial year and you know one third of the top one

hundred executives took home bonuses of more than $1 million. Do you think that

is excessive?


I think that executive pay should be linked closely to performance, and if

the performance of an executive is such that they have increased the value of

the company and shareholders have done well, then I think they should be rewarded.

I think what gets shareholders and what gets the public is when you see these

extremely high salaries for people that haven’t performed well. And I

think that is when shareholders get angry. And they are entitled to be angry.

So I would say to Boards of Directors, it is alright to pay your executives

well if they are increasing the value of the share price but you should also

have a provision in there to make those executives share in any losses if the

company doesn’t perform well. That would be my advice. There you go, I

don’t set executive salaries, that is pretty obvious.


Just back on the IMF report Treasurer, it is so glowing, does that make you

irreplaceable as Treasurer?


Nobody is irreplaceable not even journalists with all of the experience and

aplomb that you bring to the job. If the rest of you would cease laughing uproariously

we’ll have a last comment.


Does this make you the worlds greatest Treasurer?


(laughs) I think we will call it there. Thank you very much.