Transcript No. 2000/16

TRANSCRIPT OF

TREASURER

SUBJECT: IMF, Budget

Well, the International Monetary Fund has today released its assessment of the

Australian economy, and it confirms the Government’s own forecasts and indicates that

Australia is one of the high-growth, low-inflation economies of the world. And the

International Monetary Fund remarks on how well the Australian economy performed through

the Asian financial crisis, how the authorities in Australia were able to keep confidence,

and how this has paid off in lower inflation and lower interest rates for Australia. The

IMF Report also congratulates the Government on its landmark tax reform, which it says

will improve the integrity and fairness of the taxation system. And it indicates that in

international terms, the importance of tax reform to keep the Australian economy strong is

very much recognised and is very important to our future economic prospects. I welcome the

report from the IMF today. It is objective international confirmation of the work

that’s been done here in Australia to keep our economy strong, particularly through

the Asian financial crisis. And it indicates the importance of keeping the reform

prospects going if we want to provide more jobs for people who are currently out of work

and have a strong economy to raise our living standards.

Treasurer, the Report says that the Current Account Deficit is manageable provided we

maintain strong macro policy. Does that indicate that you really need to deliver a fairly

decent size surplus next year?

No, the report says that one of the big changes in Australia, and it makes this point,

is, that in the early part of the 1990’s we were running deficits of the order of 3

to 4 per cent per annum. And it says one of the benefits that came from the Government,

putting the Budget into surplus was, and paying off debt, was that we were able to bring

interest rates down in Australia to international levels. That’s what it says in its

report. It says, that it’s important that we continue to maintain the Budget in

surplus. It notes that there’ll be pressure on the Budget as a result of peacekeeping

operations in East Timor. But it says that we should aim to keep the Budget in surplus,

not just in the forthcoming year, but in the years thereafter, and that is the Government

policy. Now, there are a lot of pressures on our Budget at the moment, particularly things

that weren’t envisaged in relation to East Timor. But it is important that we keep

our Budget in surplus, that we keep a firm line on spending, because if we don’t do

that, as you’ve noted, and confidence were to be affected, then that would take its

toll in other areas on the economy.

Does that mean then that the only way people are going to see any big spending out of

this Government is through selling assets like Telstra?

Well, if we have a Budget in surplus and we sell assets, then the proceeds of that can

go to retire debt. This report makes the point, that since this Government was elected

we’ve brought Commonwealth debt down from 19 per cent to 12 per cent, in fact, in the

next financial year will go below 10 per cent. If you were to sell off the remaining 50

per cent of Telstra you would have zero Commonwealth debt, zero Commonwealth debt.

We’d be one of the few countries in the world not carrying central government debt,

and what that would then mean is that taxes, instead of going to pay interest on past

bills, can build assets for future generations. That’s the big point. At the moment

we collect taxes to pay the interest on the Labor bills. If we get rid of the Labor bills

then the taxes that are collected could go into building future assets. That would be the

great change for the Australian economy.

(inaudible) argue against future top-ups for companies that go under . . .

Sorry?

Does it mean that you would argue against further top-ups to worker’s entitlements

in other cases beyond National Textiles?

I’m not sure what the connection between Commonwealth debt and that is, but . . .

No, the Budget, the Budget spending.

Well look, all measures that involve Government expenditure have to be, in my view,

rigorously examined, all measures. I’m not singling that one out in particular, I

apply the rule to all measures, and that is for two reasons. One is, we have to keep our

Budget in surplus. The benefits of getting that Budget in surplus in the mid-1990’s

was to get interest rates down, to survive the Asian financial crisis and to produce

600,000 more jobs in Australia. If we hadn’t of done that, we wouldn’t have done

that. So, that’s the first reason why we’ve got to rigorously examine all

spending proposals. The second is this. That Governments only have money from taxes, and

if you want to keep taxes low, which I do, you’ve got to rigorously examine spending

proposals. It’s important that we keep spending restrained, that we, you know,

we’ve got to ensure a decent standard of living and social safety nets and all of

those things in Australia. But, if we want to keep taxes low, and we do want to keep taxes

low, we’ve got to be disciplined on our spending.

When you talk about taking a firm, you’re talking about taking a firm line with

spending proposals and the Budget, does that mean that you as Treasurer will resist

proposals to spend on special projects in the bush, say?

Oh no, I’m not getting into special projects or particular Budget items. We are

now starting to . . .

Or increase deficits on spending in the bush . . .

Well . . .

. . . will you resist that?

. . . we are now starting to do our Budget and, you know, for the next 3 months,

I’ll be locked up in Budget deliberations. And I never talk about what we’re

going to do in the Budget at the beginning, it’s only at the end. And the same rule

will apply to this Budget as has applied to all Budgets, that we’re just not going to

speculate on measures in advance of the Budget. All will be revealed on Budget night. But

what will, what framework will the Budget be handed down in? It’ll be handed down in

this framework – that it’s important that we keep our Budget in surplus. And

that the reason why it’s important to keep our Budget in surplus is to keep

confidence, to keep interest rates low, to keep the economy growing and provide more jobs.

And it’s the big settings that give you those kinds of benefits.

Mr Costello, on the question of the entitlements scheme, are you as Treasurer worried

about a top-up entitlement scheme that at this stage appears to be open-ended with no

clearly defined guidelines?

Well, I’m not getting into the entitlements scheme except to say, that I obviously

support the measures that have been announced. I obviously support them, and I support

them for all of the reasons that I think I said in my speech during the censure yesterday.

Mr Costello, the report also says that the Current Account Deficit is manageable

provided that authorities remain vigilant in monitoring developments in the banking

sector. What’s the IMF concerned about there?

I think it’s making the point that you’ve got to ensure that your banks and

your financial institutions are properly and well run. There were a lot of banks in the

crisis-affected countries of Asia that had large liabilities and large exposures. If you

want to go to see the full extent of that, go to a country like Japan where they’re

basically trying to restructure their whole financial system. Now, what the IMF is making

the point about there is, that you’ve got to have well-run, prudently regulated banks

with full disclosure and transparency. And it’s something again that we worked on.

One of the first things that we did when we came to office in 1996 is, I set up an inquiry

into the financial system, chaired by Stan Wallis. That report came down, we have

implemented all of its recommendations nearly in full. We set up a new prudential

regulator which is called the Australian Prudential Regulation Authority. We separated

monetary policy out from that and gave that to the Reserve Bank. We went into inflation

targeting which is also endorsed in this particular report. And we now have financial

regulation in this country which is considered the state-of-the-art in the world.

Delegations come from all around the world to examine the Australian model of financial

regulation. Now, that doesn’t mean we sit back and we say, well, there can never be

financial problems in this country. All of these institutions have to sit down and ensure

that they’re working adequately and scrupulously, and I think that’s the point

the IMF is making . . .

But there must be some concern for it to make that comment. I mean, is credit growth

running too fast, do you think?

No, I don’t think there’s any concern. I don’t think there’s any

concern about the financial positions of any of the major Australian financial

institutions. It’s just making the point that you’ve got to have good

regulation. Thanks.