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April 15, 2003
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April 17, 2003

HIH Royal Commission; Dawson Report; Scoresby Freeway; Bank Accounts Debits Tax; Review of TCF Assistance; Peter Reith



Press Conference

Wednesday, 16 April 2003



SUBJECTS: HIH Royal Commission; Dawson Report; Scoresby Freeway; Bank Accounts

Debits Tax; Review of TCF Assistance; Peter Reith


Today I tabled the full HIH Royal Commission Report in the Senate. The Report

is in three volumes, as you can see, and it was a Royal Commission which was

established at the Government’s instigation following the collapse of HIH in

March 2001. The Government wishes to thank the Commissioner, Mr Justice Owen,

for his efforts over the past 18 months.

As you will see from the Report itself, the Commissioner concludes the primary

reason for the collapse of HIH was the mismanagement of the company, in particular

its failure to adequately price its claims. This was due to mismanagement and

inadequate responses to emerging pressures in the insurance market.

Mr Justice Owen has indicated that there are 56 matters which should be referred

to either the Australian Securities & Investments Commission or the New

South Wales DPP. The New South Wales DPP has already had those matters referred

by me to him. They concern possible offences under the New South Wales Crimes

Act. The other matters relate to the Corporations Law and they can give rise

to either civil or criminal penalties. Obviously if you take civil proceedings

it is a lower standard of proof and normally results in a financial penalty.

If you take criminal proceedings it is a higher standard of proof and could

well result in jail terms.

The Commissioner was at great lengths to make clear in his Report that where

an adverse finding is not made, then the person and their reputation emerges

entirely free of any adverse implication. The point about that is that in Counsels’

summing up, submissions were made into numbers of people, the Commissioner has

not gone through and one by one cleared those individuals, but unless there

is a referral, no adverse implication should be drawn in relation to the person


The referrals relate principally to officers of the company, in the main there

are some five referrals in relation to Mr Adler, there are a number in relation

to Mr Cooper, there are eleven referrals in relation to Mr Fodera and there

are in relation to Mr Williams, eight referrals in relation to Mr Williams.

I have referred those matters to the Australian Securities & Investments

Commission today. Additional funding will be made available in the Budget for

a full investigation in relation to all of those matters. If the Australian

Securities & Investments Commission decides that criminal proceedings should

be taken, they would normally be taken by the Director of Public Prosecutions,

however, the Government will give consideration on the advice of ASIC to appointing

a Special Prosecutor, a Special Prosecutor who would be established to deal

with all of the matters arising out of the HIH collapse.

Now could I also make it clear that the terms of reference to the Commissioner

were not restricted. There was a suggestion, a false suggestion, in a newspaper

today that the Royal Commissioner was not asked to look at the role of government.

That is false. The Royal Commissioner was asked to look at whether or not any

person had been involved in the collapse and was asked to look at whether or

not observance of Commonwealth laws had been undertaken. And relevant Ministers,

in particular the Minister for Financial Services and Regulation, the then Minister,

Joe Hockey, were very active in answering all of the Commission’s enquiries.

And I want to place on the record that a reading of this Report will show that

at least on two occasions Mr Hockey sought information from APRA and on both

of those occasions was given assurances as to the solvency of the company. And

the one person who was very active in making enquiries on those two occasions

in September of 2000 and October of 2000 was in fact Mr Hockey.

In relation to the regulator, the Australian Prudential Regulation Authority,

the Royal Commissioner finds that APRA did not contribute or cause the collapse

in HIH. What he finds is that between September/October of 2000 and March 2001,

a period of five or six months, right at the end, that APRA was not performing

to the standard which the reasonable member of the public would have expected.

And he makes recommendations that it should have developed a more enquiring

culture, that it should have perhaps have been more aggressive with the company.

The consequence of that would have been, had they done that, the collapse would

have not been avoided but the collapse would have been brought on quicker. So

that rather than it going into provisional liquidation in March of 2001, it

may well have gone into liquidation either late in 2000 or some time earlier

in 2001.

The Commissioner recommends that the Executive Board of APRA not be continued,

that it be turned into a Commission along the model of ASIC and the Government

accepts that recommendation. And we will be presenting legislation to the Parliament

in order to accomplish that as soon as possible.

The Commissioner also notes that since the events of 2001 the law has been

changed and improved both in relation to the prudential standards required of

general insurers and in the methodology which is applied by APRA and as he finds,

these will have improved the situation quite considerably in relation to the

general insurance industry.

The Commissioner also makes some recommendations in relation to Directors’

duties and disclosures and they are by and large compatible with the proposals

which the Government has out, known as CLERP 9, and as we stated when we released

this paper back in September of 2002, the final legislation to be drawn on the

basis of this proposal will take into account the recommendations of the Royal

Commissioner. So the recommendations of the Royal Commissioner will be worked

in, where they go further, and there aren’t many occasions where they do, to

the proposals that we have put forward in relation to CLERP.

Other than that, the Royal Commissioner makes some recommendations in relation

to the States and in particular recommends that they consider taxation which

applies to insurance products and some other regulatory matters.

As I said at the outset, the Royal Commissioner has worked expeditiously and

diligently. The Government thanks him for his work. It accepts the thrust of

his recommendations and will act expeditiously to implement them where they

concern policy and those matters which require either criminal or civil penalties

will be prosecuted through the agency of ASIC to ensure that they are brought

to the Courts as soon as possible.


Mr Costello, based on the recommendations about the executive board not being

continuing, would you imagine that retired members of the Executive Board would

be appointed for (inaudible).


I don’t think the members of the Executive Board would be appointed to the

Commission, no. The Executive Board, sorry, the Independent Board I should say.

I don’t think the independent directors on the Board will be appointed to the

Commission. The Independent Board was recommended by the Wallis Inquiry. The

idea was to bring people from outside the Government to sit on a Board like

the Board of a company where they could have input. The Royal Commissioner has

recommended against that model. He’s recommended that you have essentially an

executive commission, that is a commission made up of people who are working

for the agency along the model of the Australian Securities and Investments

Commission. So, the Members, the Independent Members, the part time Members

of the Executive Board, no I do not believe would be part of an Executive Commission.


Can I just clarify that wouldn’t include the RBA Governor and the ACT …


He recommends that the arrangement by which the RBA Governor sat on APRA, the

ASIC Chairman, be discontinued. The model that he has in mind is the ASIC model

and the ASIC is three full time executive officers who comprise a commission

but do not bring other regulators and do not bring members of the business community

in to sit on the board. Now, let me make one other point here. The Government

has commissioned John Urich to do a report on corporate governance on statutory

authorities generally. He will be reporting I believe next month. So we will

take into account his recommendations before having the final structure but

we will have a final structure of the Commission.


Treasurer, the Commissioner talks about incompetence, self-serving extravagance

and of course, from the references he’s made, of dishonesty virtually there.

Now, the crash of HIH literally sent thousands of small business people and

other people, the victims, to the wall. What do you say to thousands of Australians,

now that you’ve seen this report, now that you’ve acted upon it, about what

has happened and can anything like it happen again?


Well what I say to those Australians is this, that those people, who have been

referred for possible prosecution, those people who were directors, or executives

of the company will be thoroughly investigated. And if there is admissible evidence

for court proceedings, proceedings will be brought. And the public can be rest

assured of this, that the investigative agencies will be tasked by this Government

to bring anybody who has broken the law to trial. And we will pledge to the

public that where there is admissible evidence and where there has been a breach

of a law, that will be put into a court for the courts to deal with those people.


How do you see the rights of criminals versus civil proceedings coming out?

What is your (inaudible)?


Well as I said earlier, in some parts of the Corporations Law, you can take

under a particular section either civil or criminal. The advantage of taking

civil proceedings is you only have to prove to a balance of probabilities. It’s

generally quicker. The fines can be imposed or you can sometimes get banning

orders. Where you take your criminal proceedings, the proof is beyond reasonable

doubt, so you’ve got a harder standard of proof to discharge. The accused, generally

speaking, has more protections. The admissibility of evidence can sometimes

be stricter, but the penalty which follows will usually involve a gaol term.

So it is up to the regulator to determine within those parameters which of the

proceedings should be taken. Now you’ve got to remember this. A Royal Commission

is not bound by the rules of evidence. The Royal Commissioner can make various

findings, which by the time the prosecutors sift through it, they can’t establish

in a court because of the rules of admissibility of evidence. So what the Commissioner

has basically done is, he says here is 56, you’ve got to work out how many of

these can now be brought. And I’ve passed that across to ASIC immediately and

asked them to work up, and when they’re in a position to determine whether criminal,

whether civil, how many and who, we will then ask them whether or not they should

go to the DPP or a special prosecutor.


How much will this taskforce cost in terms of budget funding?


I’ll be making an announcement in the Budget. There will be additional resources

for this. Just to give you a ballpark figure, I think the Royal Commission was

$40 million. So you would expect it to be less than that because the Royal Commission

has done a lot of the work, not all of the work, but has done a lot of the work.

In fact, I hope we can even bring across maybe some of the people that worked

on the Royal Commission into that taskforce working to the direction of ASIC.


Treasurer, if I could just, the second part of my question earlier, while I

appreciate that you can’t legislate for dishonesty, what sort of assurances

though can you give the public in future, those who take out policies, those

who do look for that sort of protection that HIH in the end didn’t get them?


Well the first point I’d make is this, that when HIH collapsed, the Government

put in place a claims arrangement so that anybody who was relying on HIH for

compensation for personal injury, would under a government scheme receive their

entitlements. Don’t forget that, the Government put in place a claims scheme,

which is now paying people who were reliant and businesses who were reliant

on their HIH policy. So that’s the assurance we gave people that were affected

under HIH. But in relation to corporate governance generally, you have a hierarchy,

you have the officers of the company, then you have the directors who are required

to police the officers, then you have the auditors who are required to supervise

the directors, and then if all of those lines of protection fail, you have regulators

who can bring proceedings. And I think the best message that can go out from

HIH frankly, is a number of proceedings, reminding company directors and auditors

and company officers of their duties, so that in the other companies of Australia

they know what is expected of them.


Who at APRA’s going to be held accountable for the criticisms of its role,

its poor performance in regulating this sector and should Mr Thompson stay on

in his current role?


Well the Board will not be continued. We’ll be moving to a Commission. So the

Board will in due course, once we get legislation through, cease to exist. Mr

Thompson will continue as the Chief Executive, in fact the Royal Commissioner

asks him to do various things. But when we move to a Commission, then we will

open up the three positions of the Commission and we will look for the best

qualified people to fill them.


Does that mean the CEO role is essentially up for grabs?


No it means it will be a Commission like ASIC. ASIC is a three-person Commission,

Chairman, Deputy Chairman and another person, but the Chairman happens to be

an Executive Chairman.


Treasurer, you say that there’s a message here for directors, but isn’t it

also a message for APRA, in the future, will you be expecting a reconstituted

APRA to be more aggressive in its policing around those financial institutions

and more pro-active?


Yes. We will be expecting APRA to be more aggressive and to be more vigilant

in relation to regulation. In fact the Royal Commissioner says that, he says

for example in recommendation 26, `I recommend APRA develop a more sceptical,

questioning and, where necessary, aggressive approach to prudential supervision.

Consultation, inquiry, and constructive dialogue should be balanced by firmness

in its requirements and a preparedness to enforce compliance.’ He recommends

that APRA continue to develop and review processes, guidelines and training

to assist its staff. I thoroughly endorse those recommendations. I make the

point as the Royal Commissioner does, that we now have a new and improved framework

already, which commenced from 2002, with higher standards on insurers and a

different method. But he goes on to say, having improved the framework, we are

still expecting more sceptical, aggressive, tougher activity from the prudential

regulator and that’s certainly the Government’s view. We accept the Royal Commissioner’s

recommendation in its entirety.


Do you regret now that the move to the Executive Board approach, which Wallis

recommended and you accepted?


APRA was a definite improvement on the ISC, there’s no doubt about that. The

ISC was a Canberra-based one person Commission…


(inaudible) the ISC though.


Jim, the Insurance Act of 1973 was introduced as a consequence of 16 insurers

collapsing, 16 general insurers collapsing, and that’s how we got the Insurance

Act, as the Royal Commissioner says, of 1973. So, there have been lots of insurance

difficulties in Australia. The Insurance Superannuation Commissioner was one

Commissioner based in Canberra. I think it was right to move this organisation

to Sydney because it was closer to the insurance industry, closer than you would

be in Sydney, the recommendation was to bring in additional resources from the

Reserve Bank and I think that made APRA better than the ISC, but I think we

can still make APRA better and the recommendation of a three person commission

is along those lines. Let me, this has been a constantly evolving thing, let’s

take the example of ASIC. When I first came into the Commonwealth Parliament,

corporate regulation was done by six State corporate affairs offices, and then

we moved to what was called the NCSC, which was a federal body over the six,

and then we moved to the ASC which tried to centralise most of corporate regulation

in a national body but still required the States to enact the law. Then we moved

to ASIC which is an even better model yet, the three person commissions going

right across the field, and I think you are seeing in this area, again, gradual

evolving, through the ISC, through APRA, and I think we can make APRA better

again. That’s what we intend to do. We will need some cooperation from the States

and Territories in relation to that and we will be asking for that as well.

Two last questions on APRA and then we will go to Trade Practices, if we may.


Mr Costello has this process made the Government less trusting of its corporate



I don’t think, the corporate regulator is ASIC, and I actually think ASIC has

performed very well in relation to HIH. ASIC has already taken proceedings,

one to freeze some assets of some of the players and secondly, some of the players,

as a result of ASIC proceedings, have already faced bans from being company

directors. From memory I think 20 year bans. So I think the corporate regulator

has come out of this as very proactive. The prudential regulator, as the Commissioner

says, between October of 2000 and March of 2001 should have been doing more,

but as he also says, it didn’t contribute to the collapse, by doing more it

would have hastened the collapse earlier. The reason for the collapse was the

company Directors, the Executives, the people that were running the company

and mismanaging it. That’s why HIH collapsed.


(inaudible) the Commissioner made clear isn’t that (inaudible) ultimately your

responsibility as Treasurer to make sure Commonwealth regulators perform adequately?


Well our responsibility is to ensure that we set up the right architecture,

staffed with competent people, and where we have recommendations to improve,

that we do that, that’s what we are going to do.




No, we don’t, no the Minister is not responsible for prudential regulation,

in fact the Royal Commissioner says the Minister should be even stripped of

some of the powers that he has, in fact…


Is it desirable under the Westminster system that a Minister not actually be

responsible for outcomes (inaudible)?


…well the Royal Commissioner, if I can just finish my answer, actually recommends

that Ministers have less powers, approval powers in relation to insurance, because

prudential regulation, the setting of prudential targets and the monitoring

is a matter for prudential regulators. What we have got to do is we’ve got to

make sure that we have good prudential regulators, as I said earlier, we have

dramatically improved the situation, we are probably as good as any other country

in the world, but we want to be the best and we will make this the best with

a three man Commission. Sorry.


Treasurer, has Malcolm Turnbull’s reputation been tarnished by this affair

and will he continue as Federal Treasurer of the Liberal Party?


Well as far as I know he will, yes. The Royal Commissioner said in his report,

very clearly, and I refer you to it again, `where there is no finding in this

report against [a] person or company, the reputation of that person or company

emerges entirely free of any adverse implications.’ So, that applies to anybody

that is in that category. There are a number of persons, with 52 findings, but

outside of those persons, no adverse implications should be drawn against anybody.


Do we have (inaudible) Liberal Party then he did in this instance?


Well I now move to the Dawson Review.

Today I am releasing the Review of the Trade Practices Act, which was conducted

by an Independent Committee of Inquiry Chaired by Sir Daryl Dawson together

with Jillian Segal and Curt Rendall. The Committee consulted over a period of

eight months, it received 213 submissions, 320 representations from consumers,

consulted with interested parties around Australia between July and October

2002 and consulted with international competition regulators.

This was the first substantial review of Australia’s competition laws since

the Hilmer Process, and the report in the main finds that competition law has

served Australia well, that competition law should focus on keeping a competitive

business environment not protecting competitors from each other and that it

is an important arm of economic policy.

Some of the recommendations that have been made in this Report will be particularly

welcomed by small business. The recommendation to allow collective bargaining

by which business that are engaging in transactions less than three million

dollars per annum will, be able to give notice to the ACCC and, if that is not

disputed by the ACCC as a result of that, be able to conduct collective bargaining,

will be warmly welcomed. That is a streamlined process which will allow small

business to collectively bargain against big business and considerably enhance

their bargaining power. The Committee recommended that there be no change to

section 46, the predatory pricing power and in particular was not in favour

of moving as some have argued to an effects test rather than a purpose test.

He’d noted that such a test is not in application in comparable jurisdictions

around the world and its view is that the court should clarify the operation

of section 46. The Committee recommended that the current merger test be continued

although it proposed some streamlining to allow for reasons to be given in relation

to clearances and for people to approach the Tribunal directly. The committee

has recommended that work be done on introducing criminal sanctions for hard

core cartel behaviour. That is where individuals on behalf of corporations get

together to fix prices. Fines and sanctions currently apply but the committee

recommends that where that is hard core there be the option of criminal sanctions.

Unfortunately it doesn’t actually explain what “hard core cartel behaviour”

is, but has recommended that further work be done in relation to that and the

Government accepts that recommendation.

I believe that this is a balanced report. I think that it keeps certainty in

relation to our law whilst improving matters particularly for small businesses,

at the end of the day we have got to remember however the competition law is

for consumers, it is designed to promote competition and drive prices down and

competition law should always be seen as an arm of consumer policy. That is

the way it should be operated and I welcome the findings of the report.


Treasurer is the $3 million threshold for small business collective bargaining

really high enough? Is there a number of small businesses involved?


Well what the report says is $3 million per annum to the value of $3 million

per annum and it goes on to say that you could have a regulation lifting that

for particular industries. So we will obviously consult with particular industries

who may think that that is not sufficient. But $3 million of transactions per

annum is quite significant, from memory it is something like 92 per cent of

Australian companies have a turnover of $1 million or less, so there is a very

large part of the small business community. It would cover all farmers for example.

All farmers apart from the large agriculture companies would have transactions

less than $3 million in a particular year.


In your opening comments also you didn’t mention I guess what is an effective

gag in a way, on the ACCC. But under this Report, they won’t be allowed to confirm

if an investigation is on, they won’t be allowed to comment other than in the

written form at the start of the court case, they now must get a warrant to

search and try and seize documents. But a number of people are characterising

this as really an attack on Allan Fels’ style and also a style that helped make

the GST so effective. What’s your response to that?


Well, I think that there are some sensible recommendations in here, for example

a Media Code of Conduct. I think that’s fair enough. I think that enforcement

action is best taken in the courts rather than through the newspapers, obviously

the newspapers can report freely and fairly anything that is said in a court

they can report the fact that the proceedings have been brought, but until you

have those court processes you don’t know the full facts and sometimes you can

overstate the proceedings. We did have one example of that recently in relation

to the Newcastle episode. But having said that, I like to say that Professor

Fels has been an outstanding Chairman of the ACCC. I think he has taken his

duties very seriously, he has been very active, hasn’t always been liked by

business but it’s not his job to be liked by business, it is his job to promote

competition and to get prices down.


You don’t think that, that job has in any way been diminished by these changes,

because for an example the lead up to the GST, the public shaming by Professor

Fels of particular companies that I mean there is no action going to be taken

against them but you know who sort of suggested they were going to do things

to raise prices.


I think there was some action taken in relation to one or two companies, yes

I think there was. I think in relation to those companies that had engaged in

alleged breaches of the Act, there was action taken. There was a lot of talking,

not just by him incidentally, but by me and Members of the Government as to

what the price effect should be. But at the end of the day there was massive

compliance. One of the things that has always impressed me about the introduction

of the GST is we changed the price. A tax change has affected the price of every

good and service in the Australian economy and there were so few people that

tried to take advantage of that.


Are you going to have a new Chairman in any case to administer these laws?


Yes, because…


What is the process and what is your current thinking?


Because Professor Fels term is expiring, well his term is actually not expiring

until next year, but for personal reasons he has indicated that he wants to

stand down on the 30th June this year. We commenced the process for

a new Chairman as you know. Under the formula which was entered into by the

Keating Government in 1995, every State and Territory gets a vote on who the

new Chairman is but the Commonwealth doesn’t and one of the things that the

Commonwealth is looking at is getting a sensible formula for appointments in

the future. Because patently this is not a sensible formula.


But are you willing to change your candidate? I mean…


No hang on. Victoria has nominated a candidate who has the support of four

States. NSW has nominated a candidate who has the support of one maybe two.

The ACT has nominated a candidate who has one maybe nil. Now under this formula,

which is a silly formula, no candidate has an absolute majority but it is clear

that one is well in front of all the others. And if the Commonwealth had a vote

and it should have a vote, then it’s quite plain who the Chairman to be appointed

would be.


Treasurer do you accept that this report in terms of, this is going back to

Professor Fells, blunts the weapon of shaming which he used quite effectively

against a number of unscrupulous operators?


Look I think that the best way to enforce laws is to investigate and to bring

proceedings. Now when those proceedings are brought, by the way, they are public.


(inaudible) not going to work…


It’s public that they are brought. It’s public what’s said in the court and

it’s public what the decision is. I think it is always very important that regulators

are careful with the evidence. At the end of the day shaming a company doesn’t

achieve a fine or a conviction. A fine or conviction under our law can only

be done in a court.


So will you increase the budget of the ACCC to allow for any court actions

that will apply?


I have increased the budget of the ACCC…


…again for this new regime?


…and from memory its resources are now $80 to $90 million. I have increased

it I think each Budget for the last two or three Budgets. And just while I am

on the question of the States, who each have a vote in the appointment of the

Chairman, the States contribution to the ACCC budget is zero.


But are you, by implication…


All power and no responsibility.


But expressly this report rejects the approach that Allan Fels has adopted

over the past…


I don’t think so. Look I don’t think so.


Are you saying it hasn’t been successful?


No I don’t think it rejects the approach of Allan Fels. I think Allan Fels…




…well I think Allan Fels as I said earlier, Allan Fels is the person that

came to embody competition law in Australia. And I think he took it to the consumer

and I think he made it live. And I think he has been an outstanding Chairman.

Now, in fact he has been the only Chairman of the ACCC. People forget that.

He is the first and only ACCC Chairman. And judging from the formula that has

been put in place for future Chairmen he could be the only one. We have never

had to face this point before. But institutions move on and they evolve and

we thought it was time to look at it and we have got, rather than being a young

regulator, this is going to be a middle-aged regulator shortly and Jim, you

know, we have got to look at how it is going to in its next phase operate. And

I don’t see anything in here that is critical of Allan Fels at all. I don’t

read it in that way at all. And in fact…


(inaudible) but it actually endorses everything that Caltex and Mr Warburton

were saying about the behaviour of the ACCC in their case doesn’t it?


Well, of all the cases that the ACCC has taken and I forget how many, would

you expect it to have 100 per cent strike rate? Is there a criminal prosecutor

in the country that has 100 per cent strike rate? Is there a prudential regulator

that has 100 per cent strike rate? You know, the fact that he was unable to

bring proceedings in relation to Caltex is to be expected. You can’t expect

them to bring 100 per cent successful prosecutions. You know, there are very

few countries where that occurs. Iraq might be one. They always got prosecutions

and convictions in Iraq, but in a free society you have a body which is there

to hear the evidence and their task is to investigate and bring proceedings.

And in relation to Caltex they thought they had a case. As it turned out the

witnesses didn’t materialise.


Does the Government have a power to install a temporary ACCC Chairman while

it sorts out the Graeme Samuel business?


Yes, the Government has a power to appoint an Acting Chairman.


Will you consider doing that?


Well, I think that the States should resolve their impasse. That is what I

think should happen. But of course we have the power to appoint an Acting Chairman.


(inaudible) competition law is about consumers as you said. What is the justification

for relaxation of the prohibitions on third line forcing and exclusionary dealing?


Well, the rationale is that unless it has the effect of lessening competition

then there shouldn’t be a blanket prohibition. That sometimes it can actually

bring benefits to consumers if you shop at Safeway you can get a discount on

your petrol. Now what this report is saying here is that that is not to be regarded

as prohibited conduct unless it is lessening competition. And it is pro-consumer.

I am sorry I will take one last question on this one.


(inaudible) you have accepted that in principle with an independent Chairman,

why would that be necessary and how would it work?


Well, what I have actually said is, I think we should have good consultative

arrangements. We are waiting for John Uhrig to give his report and we will make

a final response to that once John Uhrig gives his report in May. I think the

idea of it is just to promote understanding between business, consumers and

the ACCC to allow feedback one way or the other. We have a lot of consultative

committees. We have a Tax Board which is consultative, I think that does good



But what power would it have over the operations?


It would just be consultative. It wouldn’t have power. The recommendation is

that it be consultative.


Treasurer, apart from…


Last question I am sorry.


Thanks. Apart from collective bargaining, small business didn’t actually win

too many of the arguments in this debate and their concerns have grown since

the Boral decision and the Berbatis decision, does small business just have

to learn or accept that being hurt as a business person is part of legitimate



Well, let me answer that in two parts. I think one of the points that is made

in this report is that competition is designed to try and force producers to

lower prices for the benefit of consumers. That is what it is actually designed

for. Either to force them to lower their prices for the benefit of consumers

or force them to improve their services. And that is what a free market economy

is all about. Competition law is not designed to protect competitors’ prices

in fact it is probably, it is designed to put pressure on competitors’ prices.

So that is a general point I make. In relation to small business I think this

is a very big win for small business on collective bargaining, a very big win

indeed. Depending on how you look at it, criminal penalties for hard core cartel

behaviour could well be of benefit for small business. You mention the Boral

case, after that came down, I referred that case back to the Committee and asked

them whether or not it changed their view and it didn’t. And their view on the

Boral case in fact was that far from the behaviour forcing the new competitor

out, what actually happened in that case was that all of the companies got involved

in a price war which benefited the consumer. I have heard people argue it means

different things but that was the considered legal view.




Now can I move on to the third point. And, well you can open questions in the

third segment.


Yes that is exactly what I wanted to do. On the question of the TCF Report.

Are you as Treasurer, inclined to accept the recommendations for reductions

and removal of tariffs for TCF over the time frame suggested?


Well, what we have got at the moment is we have a position paper from the Productivity

Commission. That goes out for public comment, public comment is made to the

Productivity Commission and it produces its report to the Government and the

Government announces its response. So I am not going to pre-judge the issue.

We have got quite a way to go through that process. I just note that Australia

has been reducing tariffs over the course of a decade, it was certainly bi-partisan

policy when Labor was in Government, and we supported that policy. And I think

it was good for the Australian economy. Unfortunately, Labor in opposition have

taken a more opportunistic stand, but the point is that the reduction from a

high tariff regime back in the early 80’s, to a much more open economy today,

I think, has brought economic benefits for Australia. Now, I am not commenting

on particular levels. I also make the point that I think it is important to

have adjustments, adjustment programs, and we put in place a very successful

program in relation to the motor car industry. But we need to keep reviewing

these things to make sure that we get full economic benefit.


Treasurer, is there any circumstances in which you would let the Victorian

Government keep the BAD tax and scrap something else. And could you be clear,

if Victoria insists on having a toll on the Scoresby Freeway and say that they

are going to have the toll, will they still get $445 million in federal funds

or will you withdraw it?


The Victorian Government, like all State Governments, has agreed that in return

for receiving all of the GST it would abolish certain taxes. Bed taxes, stamp

duties on shares, Financial Institutions Duty, and next, Bank Account Debits

tax. That is a condition of receiving Goods and Services Tax. And as far as

we are concerned the States are obliged to abolish the Bank Account Debits Taxes,

included, Victoria. We have been absolutely clear about that, we negotiated

that agreement as part of GST arrangements. The States were very, very happy

to take the GST. It is a replacement, in part, for a number of their taxes and

those taxes must be abolished.

The second question which you asked me was in relation to Scoresby. Let me

just give you some background here. The Commonwealth is responsible for the

National Highway, and the States are responsible for State roads. We have a

programme called Roads of National Importance – RONI – by which you can do an

economic case, and if there is an economic benefit of a certain level in the

construction of a particular road then it can be declared a Road of National

Importance and be funded 50-50 by the Commonwealth and the States. But the project

must compete against all other projects. It has to meet an economic case. The

Scoresby Freeway has met that case, and as a consequence the Commonwealth has

signed an agreement with the Victorian Government, 50-50, $445 million from

the Commonwealth, $445 million from the State, to build a freeway – not a tollway.

The written agreement says no tolls. We stand ready to observe that agreement

in full and we call on the Victorian Government to do the same.




Well, let me make this point. It is not just our $445 million, it is their

$445 million. Why is the Victorian Government wanting to break the agreement?

Because they want to cut $345 million out of road funding. That is why. That

is, see, let me make this point, why does breaking the Scoresby Agreement help

the Victorian Budget? It can only help the Victorian Budget if it allows them

to cut money they were otherwise obligated to spend. What was the money they

were obligated to spend? $445 million to match it. They now say they don’t have

to spend that because it will be paid for by tolls. So, let’s get this clear.

Not only are they breaking their agreement and withdrawing their money. They

now want the Commonwealth to break its agreement too. We are not breaking our

agreement. We stand ready to deliver.


Is it legally open to you, Treasurer, to withhold the Victorian GST payments

if it doesn’t abolish the BAD tax, and would you consider doing that, and when

would that take effect?


Well, we advance GST to the State of Victoria and with that money it has agreed,

come 2005, I think it is, to abolish the Bank Account Debits tax. It is actually

given the money that the Bank Account Debits Tax raises. So, if it were to keep

it, it would be keeping the money that replaces the Bank Account Debits Tax

and the Bank Account Debits Tax as well, which we would not allow of course.


What is the (inaudible)…


Well, we will hold the Victorian Government to its agreement. You see, you

wonder why we are taking such a strong line with Victoria on the Scoresby freeway.

It is not just the Victorian Government that has entered into an agreement with

the Commonwealth on RONI’s, States around Australia have. And if the Victorian

Government is allowed to walk away from its obligations other States will want

to do the same thing, I am sure. And if they walk away from a road funding agreement,

what about the agreement on the Bank Account Debits Tax?


Did John Brumby in fact ask you if he could do that? (inaudible) reports of



Well whatever he asked me, let me tell you what the answer was. Victoria will

be obliged to abolish the Bank Account Debits Tax.


We’ve heard about Scoresby, we’ve heard about BAD, there aren’t any others

that the Victorians are asking about, and how did things get so bad in Victoria

so quickly that Jeff Kennett is thinking of making a come back?


Well, how did things get so bad in Victoria so quickly? You know, I heard the

Victorian Government saying they have had a drought, well that is true. But

the drought didn’t stop at the Victorian border. The same was the case in New

South Wales, and Queensland, and Western Australia. They said they had, and

incidentally, when the Commonwealth stepped in and gave drought funding to Victoria

you know the Victorian Government took their State drought assistance away on

the grounds they were now receiving Commonwealth assistance. They said they

have had fires. They weren’t the only State to have fires, New South Wales and

Queensland had fires. Mr Brumby says he needs a $100 million surplus. Well,

let me make this point, the Commonwealth offered them $90 million for the MCG

which they refused rather than have Commonwealth law observed at the MCG. That

would have put them $90 million, a long way towards their $100 million surplus.

Now we find the Scoresby freeway, where they are essentially trying to cut their

road funding by $345 million. Now, when that Government came to office they

inherited a surplus, you know. When we came to office we inherited deficits

and we had to produce surpluses. When they came to office they inherited surpluses

and they are now well on their way to producing deficits.


Treasurer, why is Peter Reith given the Government appointed job in London?


Well, it is not a Government job.


It’s a Government appointment.


Let me take you through it. The European Board for Reconstruction and Development

is a bank which lends money for development projects in Eastern Europe. It is

an international organisation. We are nominating Mr Reith to be a director.

If that nomination is successful he will be employed by the Bank. Not paid for

by the Commonwealth, not paid for by the taxpayer, paid for by an international



Why have you nominated him?


So why are we nominating him? Well, we called for applications and we have

received a number of applications. The Treasury short-listed eight as the highest

calibre who would all be suitable. He came through that process, and I think

he will do a good job. He is an experienced Minister who has represented Australia

in a ministerial capacity and I think he will represent Australia well in relation

to that Bank.


Was he the only ex-politician on that short-list?






Well, there were something like forty or fifty applicants. There were eight

short-listed and I saw the short-list and there were some politicians on that

short-list, there could have been more on the larger list as well.


From both political sides or just one?


I am not going into it.


Why not?


Why not? Because I think people who apply for jobs, where they are unsuccessful,

should be entitled to believe that it won’t be advertised. Many people applied

for this job who are still working for other employers and they probably wouldn’t…


(inaudible) names?


I thought you were asking for their names?


(inaudible) ALP and National people on the list of eight?


Not to my knowledge, no.


(inaudible) serving politicians applied for the job?




Treasurer, can I ask a question about Woodside. There is fresh talk that possibly

Shell and BHP might team up in terms of pitching a new bid. Where does the Government

stand in terms of would it consider a fresh tilt at Woodside or is that company



Look, if an application is made for foreign investment in Woodside, or any

other company, it will go to the Foreign Investment Review Board, which will

consider it and will refer it to me. And I have never indicated in advance what

the decision would be, I think that would be wrong.


Mr Costello, you talked about good governance and accountability for the private

sector. How important is good governance and accountability for ATSIC and what

can the Government do about ensuring that that happens?


Well, look we think that there are some legitimate concerns about some of the

things that ATSIC has spent its money on, that has been out in the public arena,

you have seen that. The question of the legal fees, the question of the travel

budget, the question of whether or not some of the projects that have been funded

are too close to some of the commissioners. The ATSIC budget is a big budget.

I think from memory about $1.2 billion, and I think taxpayers want to know that

the $1.2 billion is being used in the places where it can best address aboriginal

disadvantage, improve education, improve health, improve housing. And I think

there are a lot of legitimate concerns that it is not being used in the best

way to address all of those problems. And if improving the accountability can

make a difference then I think we should improve the accountability, I do. And

the Government is looking very carefully at doing that right at this moment.