Press Conference
Four Seasons Hotel, Jakarta

Wednesday, 7 September 2005
11.30 am

(Indonesia time)

SUBJECTS: Indonesian visit, National Accounts, tax, Hurricane Katrina, Iraq,

drugs, petrol prices, Telstra

TREASURER:

Well, this morning I have had bilateral meetings with the President of Indonesia,

President Yudhoyono, the Vice-President Kalla, the Coordinating Economic Minister

Aburizal Bakrie, the Finance Minister Jusuf Anwar and the Governor of the Bank

of Indonesia. As you can imagine, the discussions were broad and wide ranging.

The President emphasised the breadth and depth of the relationship and close

relationship between Australia and Indonesia, particularly coming out of the

Australia-Indonesia partnership of reconstruction and development and the $1

billion that was announced as part of that. I believe this was a very strategic

announcement that the Prime Minister made in the wake of the Tsunami disaster.

That is a very, very important addition to the relationship and over the years

will broaden and deepen the relationship to a new degree between Australia and

Indonesia, and I pay credit to the Prime Minister for the diplomatic initiative

that that has become.

Also in our discussions we discussed security issues and cooperation in relation

to security issues and trans-national crime. I raised the concern of families

in Australia about remissions for those convicted of terrorist offences and

the President reiterated that the Government of Indonesia will be reviewing

those laws to fix the problem of automatic remissions in relation to very serious

crimes. The President indicated that he was personally involved in the re-construction

of Aceh and reiterated his interests. He particularly thanked Australia for

the new $88 million worth of announcements that we were able to make yesterday.

I think that the work that is going on in Aceh is very significant. I came

away believing that Australia is making a difference, that the projects that

we have announced will be important projects, that although there is frustration

in the time that is being taken to get those projects (inaudible) it is important

that we choose good projects, that there would be tough scrutiny and high transparency

and I believe that some of the projects that we saw yesterday, particularly

school and hospital projects, will be major contributions to improving the lives

of those who suffered so much in Aceh.

But the suffering in Aceh will bring about, I believe, a new closeness and

a depth and a breadth of the relationship between Australia and Indonesia, which

our partnership in reconstruction and development will bring to fulfilment over

the next five years.

JOURNALIST:

Treasurer, you have been meeting with the President of Indonesia and Mr Howard

in Canberra announced very good National Accounts figures. Is there a bit of

role reversal here?

TREASURER:

Well, I happen to be here in Indonesia and had the opportunity as one of the

Ministers responsible for the partnership to look on the ground as to how things

are going. I don’t get the opportunity to do that that much. Of course

I missed the National Accounts, I think I have done 36 press conferences on

Australian National Accounts and of course I miss doing it if you like. I could

do it here but I am sure that they have been adequately covered back in Australia.

The National Accounts for Australia were good and I think what it shows is the

Australian economy is growing and it is growing strongly being led by business

investment and that augurs well for the future.

JOURNALIST:

But is there any strong, relatively strong (inaudible) in the last quarter,

does that suggest (inaudible)?

TREASURER:

I think we are getting a rebalancing. The best thing about these National Accounts

is business investment and that is investment for the future and we are getting

a rebalancing. Now what we will now look for is for the detraction of net exports

to decline. That is what we will now look for. Now, the good thing about business

investment is you would expect over time business investment will work its way

out into increased exports. This is something I have been talking about for

some time in relation to the mining industry. Mining is very profitable at the

moment, in fact we have had supply problems but as that investment comes online

whether it be up in the Pilbara, whether it be up at my favourite, at Dalrymple

Bay, that will increase net exports.

JOURNALIST:

(inaudible)?

TREASURER:

We have just cut taxes in Australia from 1 July, we have a second round of

tax cuts due on 1 July of next year. That is $22 billion of Australian dollars

in tax cuts over four years, so we have that programme in place.

JOURNALIST:

Treasurer, (inaudible) regional (inaudible) following oil production. I wondering

if you have discussed (inaudible)?

TREASURER:

Well, the question of the Rupiah exchange rate of course is a matter for Indonesia.

Of course we discussed the effect of oil prices on the Indonesian economy and

of course we discussed the recent movement in relation to the Rupiah but that

is a matter for Indonesia, it is not a matter for Australia. Indonesia is a

sovereign country. It manages its own exchange rate policy.

JOURNALIST:

Mr Costello, just back on tax, is it your view that the American tax system

may have pushed (inaudible) problems in New Orleans and reconstruction there

and do you fear that there may be the creation of an underclass in Australia

as it was in the United States because of the tax system?

TREASURER:

I don’t think it is right to blame the hurricane and the fallout from

the hurricane on a tax system. What caused the suffering in New Orleans was

a hurricane and the flooding that came in its wake. That was a natural disaster.

So, I think we ought to be absolutely clear in relation to that. In Australia

we would not want to see an underclass develop. I think one of the things that

Australians pride themselves on is a measure of egalitarianism where those that

need a helping hand can get it through the health system, through the education

system, through family assistance. That is the Australian way and we pride ourselves

on it. Now, that doesn’t mean to say that we shouldn’t recognise

and reward incentives – we should, we do, we must – but we never want

to see in Australia substantial numbers of people left behind.

JOURNALIST:

And do you think that (inaudible) part of the problem in the afterlife of the

hurricane?

TREASURER:

Well look you know Mark, I think it is silly to blame a hurricane on tax or

economic or welfare policy, let me make that absolutely clear. This is a question

of great suffering in New Orleans which is an act of nature, a ferocious act

of nature. But if you are asking me about Australia, I would want to see the

egalitarian nature of Australian society continued. We have to do that in an

economy which gives incentive but we wouldn’t want to see large numbers

of Australians left behind, no.

JOURNALIST:

Treasurer, do you fear in the United States there is a backlash that is emerging

through the wake of the hurricane that it could flow through and make it difficult

for George Bush to maintain presence in Iraq?

TREASURER:

I think the important thing in relation to Iraq is that the job is completed.

The important thing is that those countries – and Australia is one of them and

obviously the United States is the principle one that are there at the moment

securing the situation and training the Iraqi forces – that they continue until

such time as the Iraqi forces are able to maintain security. But the worst thing,

the absolutely worst thing that could happen in Iraq would be if it becomes

a haven for terrorism because at that point the terrorists will have achieved

a great victory. So I think it is important that the US stays the course, that

countries like Australia – and we have troops on (inaudible) you know – also

stay the course and nothing deviates those countries from that particular outcome.

JOURNALIST:

Did you discuss with the President the plight of the many young Australians

facing drugs charges in Indonesia, particularly the prospect that they could

face the death penalty?

TREASURER:

No I didn’t discuss drugs with the President today, but let me say this,

that I think this is an important point. Young Australians ought to know that

if you try and run drugs into Indonesia the penalties are severe, don’t

try it. By the way, don’t try it in Australia either. This idea that Indonesia

is harsh on running drugs shouldn’t camouflage a suspicion that Australia

has gone soft. I would say to young Australians don’t try it in either

country and the most you can expect if you do try running drugs is a fair trial,

that much you can expect, but don’t expect anything more than a fair trial.

You are on notice, you know that the penalties are severe, do not try it. Do

not try it in Indonesia and by the way don’t try it in Australia either.

JOURNALIST:

There are (inaudible)?

TREASURER:

Look, this is a very important relationship for Australia. We are neighbours,

a country of over 200 million people, we are important for Indonesia and Indonesia

is important for us. It is important for us in a security sense, it is important

for us in a defence sense. It is an important economic relationship. We want

to have a strong and a good relationship with Indonesia and I think it is as

good as it has been for a long time and I want to keep it that way.

JOURNALIST:

On the question of you being the next Prime Minister, do you think you could

beat Kim Beazley at the next election?

TREASURER:

Look, I am not going to go into those issues today, thank you.

JOURNALIST:

(inaudible)?

TREASURER:

We are forecasting solid growth in the economy over the course of the next

year, our unemployment rate is at 30 year lows, it is around five per cent.

We believe that although employment growth is probably going to moderate, unemployment

will remain low. Inflation is well within our band at 2 to 3 per cent. Our Budget

is in surplus. We have, I think, eight surpluses out of the last 10 Budgets.

Our Government debt to GDP ratio is below 2 per cent. So, Australia is in a

strong position. Now, what are we worried about? Oil prices are very high. They

are pushing up petrol prices in Australia. That is not good for our economy;

it is not good for our consumers. But countries around the world are dealing

with that. You have seen how Indonesia is having to deal with that problem here.

I wish that they were lower; I wish that the OPEC nations would increase production,

that prices would come back and Australia does raise its voice in international

forums to call for increased production of oil. But we are in a strong fiscal

position, we will keep it that way and we will maintain a steady growth for

the economy.

JOURNALIST:

On the question of Telstra, do you believe that the Government adequately fulfilled

all its obligations in relation to the information that was presented publicly

and to other shareholders?

TREASURER:

Yes. Can I make this point, the duty of disclosure is a duty on a company.

The company has to keep the market informed. Now I am not saying that wasn’t

done by the way, but if people say it wasn’t done, then the proper thing

to occur is for an investigation to take place by the Australian Securities

and Investment Commission and the Australian Stock Exchange. That is what will

be done and they will conclude one way or the other but you ought to be clear

about this point. The law put the obligation on the company. It is the company

that is in possession of information that has a duty of disclosure.

JOURNALIST:

Can I, I just wanted, back to the National Accounts (inaudible) the (inaudible)

recorded a bit of a (inaudible) budget forecast, (inaudible) forecast growth

you have ever seen?

TREASURER:

It is a stronger outcome for the current year, marginally stronger than we

expected back at budget time, consistent with our Budget forecasts – we won’t

be updating our Budget forecasts until the mid-year review which normally is

in November or December.

JOURNALIST:

Mr Costello, is there any chance (inaudible) suggestions that Telstra may be

(inaudible) borrowing to pay dividends?

TREASURER:

Well, I don’t want to go into what may or may not have been (inaudible).

I am not the shareholding Minister for Telstra, I am not the Minister for Communications,

I don’t run a ruler over the finances of Telstra. You hear people make

suggestions as to what was or was not known but I am not commenting on that

one way or the other.

JOURNALIST:

Does the public have the right to know that (inaudible) Telstra out of analysis

of (inaudible) communications (inaudible) with Telstra?

TREASURER:

You meant Telstra (inaudible)?

JOURNALIST:

(inaudible).

TREASURER:

Couldn’t comment, I am sorry.

JOURNALIST:

Treasurer, you were informally, if not formally aware that there was talk that

Telstra was sitting on (inaudible) or borrowing to pay dividends?

TREASURER:

Well I am not even sure to this day whether it was.

JOURNALIST:

(inaudible).

TREASURER:

No, no, no, I can’t tell you, I cannot tell you whether it was. I cannot

tell you whether it wasn’t. I have no particular knowledge in relation

to these things. You know, it has been put that they were, I don’t know

whether that is the case or not. I am not the shareholding Minister, I am not

the Minister for Communications, I do not have responsibility for the financial

management of Telstra, I am not an authority. What I do know is, you know I

know a little bit about the Australian Budget but I don’t know a great

deal about the profit and loss (inaudible).

JOURNALIST:

What do you think about (inaudible) into the Budget?

TREASURER:

Well hang on, let’s go through the process. Telstra is run by Directors

who appoint the executives. The Directors at Telstra like the directors of any

public company at the end of the year declare a dividend. The dividend is paid

to the shareholders. The principle duty of the shareholders is to receive and

bank their dividends. The Commonwealth Government, as a shareholder, gratefully

received and banked the dividend. The shareholders don’t declare the dividend,

that is a matter for the Directors, you know, any more than you and I if we

were shareholders of BHP, would declare the dividend of BHP. The Directors sign

off on the annual accounts, the Directors declare the dividends and the principle

obligation of the shareholder is to receive and bank it. So, certainly the Commonwealth

Government would receive dividends and we would bank them, most certainly. Would

we declare the dividend, would be responsible for determining how much of the

profit would go into dividend, how much would go into re-investment, how much

would go into capital? No way, not our responsibility.

JOURNALIST:

But you were responsible for calling up legislation for the sale of Telstra

which is now going to Parliament. Do you feel you knew enough about Telstra

to be drawing up that (inaudible) for sale?

TREASURER:

Absolutely, because the question of sale is who should own shares in Telstra.

Now, I think you have seen a classic example of why the Government, when it

is a major shareholder in a corporation which it happens to regulate, has a

massive conflict of interest. Now, here is the Government on one hand writing

rules for competition in the telecommunications industry and on the other hand

just happens to have majority stakes in the largest competitor. If the Government

looked to its financial interest it would try and (inaudible) out the competitors.

If the Government looked to the public interests it would try and promote the

competitors. A massive conflict of interest. Now when you say a Bill to sell

the shares that was to resolve that conflict of interest. When it comes to actually

selling the shares, then a prospectus is prepared which informs the market.

But the legislation going through the Parliament is not a prospectus. It doesn’t

tell you what the liabilities are, it doesn’t tell you what the profits

are, it doesn’t tell you what the dividend policy is. All it does it authorises

the sale, but the sale is done on the back of a prospectus and these things

go into a prospectus so that the market is informed.

JOURNALIST:

Were you shocked at (inaudible) a lot of detail there?

TREASURER:

Well, I am not going to go into my reaction. Telstra, this is way I look at

it, Telstra puts things to the Government from time to time. The Government

would hear Telstra’s case from time to time but at the end of the day

the Government has a responsibility to write the rules for regulation. And my

view always was that the rules ought to be pro-competitive. Now, Telstra may

not have the same view but you hear all of the parties, it doesn’t swing

me.

JOURNALIST:

How long would you expect to (inaudible)?

TREASURER:

I can’t tell you, just to say this. This is not abnormal that ASIC does

this all the time and normally what it does is it calls in the directors or

the executives and asks them questions. It is not done by the Government, it

is not done by a Minister, it is done by a corporate regulator at arms length

and when the corporate regulator has finished its investigation it announces

the outcome. This is quite a common thing, quite a common thing for the Australian

Stock Exchange to issue a question or notice to a company or its directors and

that is why you have these regulators. They are not directed by Ministers, I

will tell you that and you wouldn’t want them directed by Ministers in

relation to these investigations.

JOURNALIST:

(inaudible) on Telstra at the last couple of weeks (inaudible)?

TREASURER:

No. What do these events show you? These events in my view show you the massive

conflict that a Government has when on the one hand it has got a majority shareholding

in a corporation; on the other hand it is writing the rules for competitors

to that corporation. On the one hand it has got a duty to the public to receive

information which goes into the making of policy. If you wanted a classic example

as to why the ownership of Telstra ought to be resolved, this is it. Otherwise

you are going to have this massive conflict of interest continuing over the

years. It is very difficult for a Government to be a majority shareholder in

a private company which is competing in the market. It might have been different

when it is a monopoly and it was nationalised. I keep on saying you can have

a private Telstra or you can have a nationalised Telstra but a half nationalised

Telstra is a problem. If somebody wants to come up with a proposal to re-nationalise

Telstra, that might be one way out. I don’t think anyone will. That being

the case, I think its ownership has to be resolved by putting it in the private

sector.

JOURNALIST:

Treasurer, Mark Vaile said…

TREASURER:

Last question.

JOURNALIST:

…on the (inaudible) did that (inaudible) you to do more (inaudible)?

TREASURER:

Well look, I am going to the APEC Finance Ministers Meeting in Korea. It was

an opportunity on the way to look at what is happening in Aceh, at what is being

done through the Australia-Indonesia partnership in reconstruction and development.

I had a very good round of meetings here with the senior Ministers of the Indonesian

Government; I thank them for their hospitality. I thank Ambassador Ritchie and

his team for the fabulous job that they are doing here and the AusAID people

as part of the AIPRD and I want to say to the Australian public that you opened

your hearts and your wallets, the work is going ahead, the projects are making

a difference, we will ensure that there is full transparency and accountability

and coming out of this terrible natural disaster will be a friendship that I

hope will last between our two peoples. Thank you very much.