Interview with Laurie Oakes

Sunday, 3 September 2006

SUBJECTS:

Integration, interest rates, States’ financial management, Telstra, Medibank Private sale, Victorian Liberal Party

OAKES:

Mr Costello, Happy Father’s Day and welcome to the programme.

TREASURER:

Thank you very much, Laurie.

OAKES:

Before we talk Treasury, Muslim leaders have reacted angrily to John Howard’s comments that Muslim immigrants should assimilate, learn to speak English and treat women as equals. Do they have a point?

TREASURER:

Well I think the Prime Minister has a point that migrants who come to Australia are expected to speak English and to endorse basic Australian values, and that it is going to be a problem for future generations if they don’t. And we have very, very successfully integrated people from all over the world in this country because we have had the attitude that when you come to Australia, whatever arguments you might have had in the old country, we start again and we start again with a common set of values and a common language.

OAKES:

Are we talking here about just a tiny minority, or is it a serious problem?

TREASURER:

I think there is a minority in the Islamic community that has been radicalised and seeks to prey upon young people in particular with a very radical and dangerous ideology. And I think it is very important that the moderate leaders speak out quite plainly and quite clearly against those radicals. You have seen under cover of a radical form of Islam terrorism being perpetrated. You have seen it with September the 11 th, you have seen it in Bali, you have seen it with the London bombings and it is very, very important that the leadership in Australia are very clear and very precise that this is not real Islam, that terrorism is always wrong and that terrorists are always to be condemned no matter what religion they seek to use as a cover.

OAKES:

Is assimilation connected with the radicalisation of young Muslims, for example, in Britain, the people involved in the train bombings seem to be pretty well assimilated, you know, cricket lovers and typical Poms?

TREASURER:

What they are not assimilated to are the values of a free society. Respect for the rule of law, respect for other people, respect for tolerance and dissent, respect for parliamentary institutions, respect for the rights of women. And you get a radical that comes along and can sometimes try and dis-assimilate even somebody who is born in that particular society. We have seen in this country that would-be terrorists can be born in this country, can have names you know, like Tom, Dick and Harry and can fall under the influence of radicals, be dis-assimilated and turned to terrorist purposes. And this is where we really need the Islamic leadership of this country to stand up and condemn, unequivocally, terrorism, no matter who it is perpetrated by, to make it clear that terrorism is never justified under the cover of religion and to make it clear to would-be converts that when you join this religion you do not join a radical political ideology.

OAKES:

Mr Costello, I will ask you about interest rates, if I may. There is a news story in the paper the other day that said tax cuts, reduced fuel consumption and bumper winter sales at department stores fed a boom in consumer spending likely to result in further interest rate rises. Now most people I think would regard tax cuts, reduced fuel use and healthy retail sales as good things. Do we worry too much about interest rates?

TREASURER:

Look, the retail spending was quite moderate. As you say, tax reductions are very important and quite reasonable. Petrol prices, which are causing enormous problems at the bowser, are largely the result of world factors and if you read the Australian press, you would put all those things together and think the end is nigh. The truth of the matter is that Australia is growing at three per cent, our unemployment is the lowest in 30 years, our budget has been balanced for nine years in a row. The Commonwealth has reduced debt to zero. We are one of the few countries in the world in this position. So, you know, it is a free press in this country, but it is a free and critical press, Laurie. Sometimes they don’t really hold things in perspective.

OAKES:

Well, the Reserve Bank Governor Ian Macfarlane said earlier this year, I think, that the Australian media gives far greater coverage to interest rate movements than the media in comparable countries, and he actually did a survey of US newspapers. Do you agree with him? Does the Australian media overdo the interest rate issue?

TREASURER:

Well, he has raised this with me on a number of occasions. The Reserve Bank does actually do analyses of comparable countries and media mentions. And Australia is well out in front of every other country. And the Governor has recently as last week with a puzzled and painful expression asked me why that was the case in this country. And my answer to him is whatever causes it, you are never going to change it, and I said, it is only going to get more heightened in the years which lie ahead. We have a very robust press and a very robust Parliament, we have a parliamentary system where the Prime Minister and the Treasurer go into Question Time daily. You see, one of the reasons why US President would never get a question about interest rates is he never goes into Question Time. One reason why you would get fewer questions in Britain is the Prime Minister only goes into a Question Time once or twice a week. We have a very robust democracy and a highly critical press. Whatever the causes, Laurie, we are going to live with it and I think it will probably get heightened in the years ahead. So I had no good news for the Reserve Bank Governor on that point.

OAKES:

Well a contributing factor might be the Coalition that runs scare campaigns on interest rates. Ian Macfarlane also said recently that the Coalition’s claims at last election about keeping interest rates at record lows were not plausible. Now did he mention that to you and what did you say to him about that?

TREASURER:

Well, what the Coalition said at the last election was that under a Coalition Government with John Howard and Peter Costello, interest rates would be lower than under a Labor Party Government with Mark Latham and Simon Crean. Now, I think it is a no-brainer. Does anybody in this country think we would be in a better position with Mark Latham as Prime Minister and Simon Crean as Treasurer? With the Labor Party in Government? And the public, quite reasonably, came to the same verdict. Not even the Labor Party these days would argue that Mr Latham and Mr Crean had an economic policy.

OAKES:

But do you think you will get away with the same scare campaign at the next election with the Governor saying it is implausible and with interest rates on the rise?

TREASURER:

Well, let’s wait for the next election and see what the issues are, I won’t be calling them now, Laurie.

OAKES:

Okay, well you have said the States have responsibility for interest rates as well, though. To what extent are they responsible, in your view, and is it only because as you claim infrastructure spending at the state level has blown out their budgets?

TREASURER:

Well I have made this point that I would prefer the States to be running balanced or surplus budgets. Now, what we have had in Australia is we have had the States – and I am talking about them collectively – some are worse than others, but the States collectively have moved their budgets from surplus into deficit. That is, the States are now cumulatively borrowing. Now, the States are borrowing money, all other things being equal, that is exerting an upward pressure on interest rates. Fortunately the Commonwealth is in surplus. We are adding to savings, so, all other things being equal, exerting downward pressure on interest rates. Now my point with the States is this – I am not against infrastructure. I support infrastructure. My point to the States would be this – it is important to get your recurrent expenditures under control so you can invest in infrastructure and keep a balanced budget. That is what the Commonwealth does, that is what States used to do, that is what States ought to do in the future, in my view.

OAKES:

Well the New South Wales economy in particular is sluggish, Victoria has got a similar problem but perhaps not as bad, some economists are warning that New South Wales could be heading into a technical recession this week. Isn’t that the time when they should perhaps be running a deficit budget?

TREASURER:

Well we will get National Accounts this week and we will see what has happened in New South Wales. There is no doubt that New South Wales is lagging, and Victoria to a lesser degree. I think in those states, they bet their economic strategy on rising property prices. I think that was a mistake. I think the mistakes of years of neglect are now catching up with them and as a consequence, you see these budgets in deficit. You see a pretty flat economy, and as a consequence, well those governments will have to answer to their voters at State elections coming up in each of those States.

OAKES:

We have had the Telstra controversy of T3 shares and do you take the Phil Burgess view, or are you advising your family to buy Telstra shares in the float?

TREASURER:

Well, I can’t give public advice because people should only be influenced by the prospectus, but I would say to people read the prospectus. Telstra has got its strengths and if that fits in and you have got some cash and you believe that the prospectus is one that appeals to you, well make your decision accordingly. But I don’t give advice, not even to my mother, nor my father on Father’s Day.

OAKES:

Well there is another privatisation that is generating controversy – the plan to sell Medibank Private. There is a push to sell it to another health fund, isn’t there. Is that the way to go?

TREASURER:

Laurie, I think this could be an area where we could achieve some other policy goals, and I would actually like to see us very carefully examine the possibility of offering Medibank to the public, particularly to policyholders. Policyholders who might like to have an interest in the health fund, who are therefore on both sides of the equations, they are insured and they are getting benefits and they could well be owners and getting any growth. Now, I guess the usual thing would be just to sell Medibank Private to another health fund and you would get a larger health fund. But I would really like to see serious work done on offering it to the public. I think the public would be interested in this and I think if you were to get a health fund listed on the stock exchange, which would be a bit of a first, then you might actually see a lot more reform come through the health insurance industry.

OAKES:

The final issue, why do the Liberals seem incapable of winning State elections?

TREASURER:

I think one of the things that has made it harder at the State level is you have got incumbent Labor governments that are now enjoying huge benefits from GST. Collectively they will have about $2 billion more than they were guaranteed in this financial year. That is $2 billion that they have got for spending. As we said earlier, collectively they are still spending more than they have got, but they have got this $2 billion windfall. The States, of course, take no responsibility for their own revenues, they don’t take any responsibility for the GST except the benefits from being able to spend it. And I think flushed with funds, the GST has worked very much to the advantage of incumbent State Governments.

OAKES:

Does it affect the Federal Government, the federal Liberal Party, that it can not win at State level? Does it matter to you?

TREASURER:

It does, it matters a lot. From a federal Liberal point of view, we would like to see State Liberal governments, very much so. Because they would be better, they would help with economic management, there is no doubt about that. But the other point, of course, is that we now have eight Labor governments that campaign relentlessly against the Federal Government. And to have a few State Liberal governments that would manage better and would not engage in relentless campaigning would be a big political advantage for us.

OAKES:

Last question, have you and Jeff Kennett buried the hatchet, and did your spat do much damage to Ted Baillieu’s chances in Victoria?

TREASURER:

I think that things are looking much better for Ted. I think we had some recent polls which show that this is a now a 50/50 election. I am very, very pleased to see some announcements that he is making on stamp duty. Because I think this is where Labor State governments are again really, really exposed, and I think between now and November that he is going from strength to strength. And I think there is now a real chance of a change of government in Victoria, a change which would lead to the first Liberal government in Victoria for a long time and Ted is really strengthening his position. I wish him very well, I am supporting absolutely to make sure that he gets there.

OAKES:

Mr Costello, we thank you.

TREASURER:

Thank you, Laurie.