TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Catherine McGrath

ABC AM

Treasury Place, Melbourne

Thursday, 2 December 2004
8.00 am

SUBJECTS: Economy, Telstra

MCGRATH:

Treasurer good morning. Has the Australian economy turned this week?

TREASURER:

No, the Australian economy is growing at around 3 per cent which a great deal

of the world would give its right arm to grow at. But that is a little slower

than what we were growing at earlier in the year and that is not altogether

unwelcome. I have been saying for some time that some sectors of the economy

– particularly the housing market – we had growth which was very

strong for a long period of time and it wasn’t in anybody’s interest

for it to continue at that rate. So, in yesterdays National Accounts, and also

in Building Approvals, we are seeing a cooling coming through in the housing

market and that is something that I have been warning of or indicating should

happen for about 18 months or two years now.

MCGRATH:

The growth in the last quarter was 0.3 of a per cent. Now if it hadn’t

been for consumer spending and government spending we would have actually gone

backwards. Now, isn’t that the sort of growth that you warned would happen

if Mark Latham won the election?

TREASURER:

Well Catherine that is like saying if the sun didn’t come up it would

be night. The growth in the economy measures consumer spending and consumer

spending is strong. Why is it strong? It is strong because there are more people

in work than ever before and it is strong because interest rates are low and

it is strong because consumer confidence is at an all time high. Now when you

put all of the factors together in an economy, you have an economy which is

growing at a clip of around 3 per cent. That is a little slower than the

economy was growing earlier in the year and as I said, that is not unwelcome.

In fact, for 12 or 18 months I have been saying that we would like to see a

slowing in the building area.

MCGRATH:

Are you going to have to revise down the current growth forecasts of 3 per

cent?

TREASURER:

Every year we put out a mid-year review and we put our forecasts out in our

mid-year review and our Budget so we will update our forecasts in that mid-year

review.

MCGRATH:

But it can’t be maintained at 3 though can it?

TREASURER:

Well when we put out our mid-year review we will put down our forecasts for

the mid-year.

MCGRATH:

What about upcoming spending for the Government Treasurer? Currently there

is $66 billion over five years. In the next Budget are we going to see a new

style of, perhaps more restrictive, spending. Do you think it is time to be

more prudent?

TREASURER:

Well I know you bandied these figure around, the figures include tax cuts in

the Budget. What this Government did was cut taxes in the Budget. Now, you refer

to that as spending…

MCGRATH:

Is there a…

TREASURER:

…no, I just want to take you up on that, it is not accurate to say that

cutting taxes is actually spending, so your figure of course is not accurate.

And we cut income tax in the Budget because we said that we would be fair to

Australians, to give them more incentive. As it turns out, I think a lot of

people said that this could overheat the economy. I think you have seen in the

light of the September quarter’s figures that there is no great risk of

that.

MCGRATH:

So should you be more prudent though next year?

TREASURER:

Well Catherine, you know the funny thing is, if people really thought the economy

was slowing they would be arguing would they not for looser fiscal policy? This

is what I can’t get over with the Opposition. The Opposition one, wants

to attack the Government for a slowing economy and then says it should be tightening

policy.

MCGRATH:

What about infrastructure around Australia? You know, roads, rail, there have

been a lot of complaints particularly within you know big mining companies,

some of the big businesses around Australia which hasn’t got enough infrastructure.

Is now the time, given the slowing of the economy, to look at that? If we don’t

move on that now are we going to be in greater trouble, five, ten, fifteen years

down the track?

TREASURER:

Well I think particularly you raised the mining area, I think that there is

room for greater investment in mining. Let me give you one figure. In the last

three years, investment in mining has increased 65 per cent. That is unbelievable

investment. Now, I think what happened probably through the early 90s and the

mid-90s with squabbles over native title, difficulty of getting mining projects

up, low world growth, there was probably an underinvestment. But mining investment

increasing 65 per cent over the last three years tells you that capacity is

really increasing and production in years to come will take advantage of very

high prices. Some of that investment has been completed. The fourth train on

the north west shelf for example, others as yet to be completed and to take

place but I think there is a capacity for great investment in the mining industry

at the moment.

MCGRATH:

Treasurer, the US dollar, the falling US dollar. Is that really the kind of

thing that could pose the greatest threat to us?

TREASURER:

Well, the US dollar is falling against the major currencies of the world and

not just against the Australian dollar but against the Euro and the Yen. What

that means is that the Australian dollar is very high. Our post float average

has been around 70 cents US and we are much higher than that now and it makes

it harder for Australia’s exporters.

MCGRATH:

Treasurer, Ziggy Switkowski, the reaction from the market is actually quite

positive. You must welcome that?

TREASURER:

Well, of course I welcome positive movements in the Telstra share price on

behalf of the millions of Australians who own shares in Telstra. But now it

is of course up to the Board to find somebody to replace Dr Switkowski and the

obligation I think is to find someone who can do a really good job on behalf

of the millions of Australian share holders.

MCGRATH:

Talking about those shareholders, what do you think is a fair price? It is

now at $4.91 for those that paid $7.40 for T2 shares. It is pretty depressing

really.

TREASURER:

Well when you invest in shares, they can go up and they can go down. One of

the things that happened in relation to telecommunications of course is that

you had this huge boom, the dot com boom in the late 1990s, 2000s and then you

had what was called the tech wreck where it all came off again and telcos around

the world went down. I think Telstra has been caught up in a lot of that –

it probably made some unwise investments too. I think it probably made some

unwise investments up in Asia.

MCGRATH:

And Ziggy Switkowski is paying for that now.

TREASURER:

And as a consequence of that, the Board has got to make sure that it runs the

company well.

MCGRATH:

Alright, are we more likely to see legislation in the New Year on Telstra?

TREASURER:

I can’t tell you when legislation will be prepared, but I can tell you

this. You have got a situation at the moment, you have got millions of mums

and dads in Australia who have shares in Telstra. You also have a government

which has shares in Telstra. This corporation is trying to serve two different

masters and it is a very, very difficult situation. Is Telstra a private company

which is providing services to consumers, or is it a government department?

Because at the moment it is halfway between both and I don’t think it

is serving its purposes with that ownership structure to make sure that that

continues.

MCGRATH:

Treasurer Costello thank you for joining AM this morning.

TREASURER:

Thank you very much Catherine.