Transcript No. 2000/29

TRANSCRIPT OF

TREASURER

This morning the Reserve Bank announced the decision to increase interest rates by 25

basis points, 0.25 per cent, raising official interest rates to 5 -. As the Bank made

clear in its statement, interest rates have been rising around the world, predominately as

a result of a stronger world economy. In Australia interest rates have now risen by a full

1 per cent, as they have in Europe, in the UK, in New Zealand, and in the US, although

Australia’s official rates are still lower than they are in the United Kingdom and in

the United States. As the world recovers from the Asian financial crisis and world growth

is stronger, Central Banks around the world have been tightening monetary policy.

Australia has been no different in that respect. But the strengthening world economy will

bring its advantages for Australia. It means that our exports will find better prices and

better volumes. I expect that that means that growth in Australia will move from

consumption increasingly into exports. I expect strong growth to continue in Australia,

and that to have good news on the jobs and employment front.

Are you concerned Treasurer, about the level of the Australian dollar?

I have never commented on the particular level of the Australian dollar. I note the

statement that the Bank made, and the points that they made in their press statement

today, but from my point of view I don’t target a particular level in the dollar, and

I certainly don’t talk about future movements in relation to it.

The Bank says though, that the level of the Australian dollar is now an important

consideration in setting monetary policy because of the inflationary effect that the

falling dollar could have. Doesn’t that indicate though, that we actually now,

starting to target the dollar with monetary policy?

I don’t think so. I think that the point that the Bank was making was that, and

this has historically been the case, that as your currency moves down, your import prices

move up, and that’s generally fed into inflation in the past. It wasn’t the

experience in Australia in 1997 and 1998, because of the Asian financial crisis. And I

think the point that the Bank’s making is that it’s a different world economy

now. 1997/1998 was a time when, because of the Asian economic collapse, the world economy

was looking weak. The world economy is now looking strong. I think that’s the point

the Bank was trying to make in its statement.

The Bank is also making the point that it was reasonably odd that the dollar should be

so low given the strength of the world economy, given rising commodity prices. Are you a

little perplexed at why the dollar hasn’t risen like it probably has in the past,

given those sort of circumstances?

Look, there are a lot of factors that influence the level of a currency. They can be

prospects in the world economy, they can be commodity prices. There can be a whole host of

reasons which influence it, and I’ve always been very careful to make sure that

it’s not influenced by the comments of Treasurers. And I don’t really propose to

comment on its future direction.

Does the GST have anything to do with the rate rise?

No, the interest rate rise in Australia today, as the Reserve Bank, which made the

decision made clear, was predominately because of stronger world economic growth. And

interest rates have now gone up around the world over the last couple of months by a full

1 per cent or more. It’s been the case in Europe, it’s been the case in the

United Kingdom, it’s been the case in New Zealand, it’s been the case in the

United States, where they actually outstripped Australia. And because the world economy is

strengthening, Central Banks around the world are increasing their interest rates, and the

Australian Central Bank is no different.

Mr Costello, what would you say to a home lender or a bank that was considering passing

on more than of a percent, and you know, will the Government . . .

I don’t think there’s any grounds at all for banks or other home lenders to

pass on more than 0.25 per cent on their mortgage products.

If they do is there scope for the Government . . .

Well, if they do, I’ll be looking at it very carefully. The fact of the matter is,

as interest rates came down, it was the Government’s belief that the cuts in official

interest rates should be passed on in full. And in fact, as you know, were more than

passed on because increased competition in the market-place, shaved margins. As official

rates move up by 0.25 per cent, there are no grounds for any bank or other home lender to

move their rates up by more than 0.25 per cent, and I’ll be watching them very, very

carefully, I can assure you of that. In fact, I think there’s probably good

opportunities for some people to beat the market, in a market like this.

Should the Government reconsider its position on mandatory sentencing if Denis Burke

refuses to budge?

I’ll come to that in a moment, I’ll just make one more point on interest

rates. When this Government came to office, the standard variable mortgage interest rate

was 10 per cent. Now it’s 7.3, and with a 0.25 percentage interest rate rise,

you’d expect it to be 7.5, 7.55, something of that dimension. That represents on the

levels of March 1996, when the Government was elected, a saving on the standard variable

mortgage of $250 a month, $3,000 a year. So compared to where interest rates were when the

Government was elected, a standard variable home mortgage interest rate, your average

borrower is saving $3,000 a year. As I said earlier, the cut in interest rates was caused

by cuts in official rates and shavings of margins. Now, as official rates go back up,

there is no grounds whatsoever for banks or any other financial institution to try and

claw back some of those cut margins.

(inaudible) . . .

Sorry, I did promise to answer this question.

Should the Government reconsider its position on mandatory sentencing if Denis Burke

refuses to budge?

Well, the Government’s position is that we oppose mandatory sentencing for

juveniles. We think for people who are under 18, mandatory sentencing is wrong, the

Magistrates and Judges should have a discretion to consider the facts, and if they

haven’t got that discretion, then it’s not right, it’s not fair. And we are

going to put to Mr Burke the fact that those laws for people under the age of 18 are

wrong, and we are going to try and persuade him to either change the laws or to put in

place other alternatives for young people. We’re not countenancing what’s going

to happen if that isn’t the case, we’re going flat out to make sure that is the

case. That’s what we’re doing . . .

Do his statements so far give you any cause for concern that he may simply refuse to

budge?

Oh look, I view his statements so far as positioning, I don’t regard them as

final. And I’ve dealt with a lot of State Premiers over the years, and I know that

their opening statements generally are positioning statements. But I’ve never

accepted the opening statement as the final word. And I wouldn’t accept the opening

statement as the final word. He’s going to meet Mr Howard, and we are going to put

our case fully and with vigour.

How then can the Budget cope with more spending for diversionary programmes if . . .

Look . . .

. . . that’s what’s required?

. . . look, diversionary programmes for a small number of people are not Budget

breakers. Are not Budget breakers. Now, you’re not talking about large sums of money.

There are not large numbers of people that come within those programmes. And that, by the

way, is not an indication that the Commonwealth regards it as its obligation to pick it

up. I’m sure that the Northern Territory has resources. But this is not a Budget

breaker, and it’s not going to fall over for small sums of money, I can assure you of

that.

Treasurer, do you believe the Commonwealth should override the laws as a last resort?

Look, we’ve got a process. We’re opposed to mandatory sentencing for people

under 18. We think that the circumstances of every case should be taken into account to do

proper justice, and we are going to try and convince the Northern Territory to that

outcome. Now, let’s see if we can do it. We stand ready to help with other

alternatives, such as diversionary programmes, so that young people can be put into

diversionary programmes, can be helped, can be rehabilitated, can be trained, so that

it’s not automatic gaol, and we’ll see how we go.

Mr Costello, public schools have expressed more concern about unfair treatment under

the GST, many of their activities aren’t exempt, whereas private school fees are. Is

there anything that we can do about this?

Well, that’s not the case. In relation to education, delivered by whoever,

it’s GST-free. Which is a better system than the current system, which means you get

back every dollar of embedded tax and you don’t charge any tax on rendering the

service. So for Government schools, and this has been accepted by all of the people that

are involved, the price of education, delivering education actually falls for Government

schools and for private schools. And in relation to fund raising events, any fundraising

event where parents and citizens councils run those fundraising events, and they’re

under $100,000, or if they’re over $100,000 they can even get an exemption, but under

$100,000 they’re not caught up in the system. So, this is an improvement on the

current system. You’ve got to measure the Government’s tax reform against the

current system. And under the Government’s reforms for Government schools and for

private schools, the cost of delivering education falls, actually falls on what it

currently is. Now, this is an enormous benefit for both the Government schools and the

private schools.

Treasurer, do you think there’s any need for greater transparency . . .

Last question.

. . . with the Reserve Bank, such as press conferences after rate rises, that sort of

thing?

Look, when our Government came to office, I entered into an agreement with the Governor

of the Bank, to put the Bank on an independent footing. It’s an actual agreement

between me and the Governor. We came to an agreement on the objectives. We also came to an

agreement on the Governor appearing before Parliamentary committees twice a year. And the

Government, the Reserve Bank putting out its report twice a year. We heightened

transparency to a level which had never occurred before. And these reforms, when I entered

into them in 1996, were then considered so path breaking that the Labor Party was going to

sue me. Paul Keating attacked them, and Gareth Evans said he was going to sue me to undo

that agreement. That was in 1996. In the year 2000, if you ever asked them what their

policy on monetary policy is now, they say, oh, it’s the Treasurers –

independent Central Bank with inflation targeting, with appearances between parliamentary

committees. Again, look, we do the hard work. We put these reforms in place, they oppose

them until such time as they adopt them. It’s like the Budget. They opposed every

single measure to put the Budget into surplus. Every single one of them. Went out and

tried to create fear, uncertainty, and then when the Budget was in surplus, you know what

their policy became? Oh, we’re in favour of surplus Budgets.

So you . . .

It’s like this on GST . . .

So you can . . .

. . . fear, uncertainty, try and do everything they can to undermine tax reform. You

know what they’re going to do on 1 July? They’re going to adopt GST. Well

aren’t we surprised by all of that . . .

(inaudible) . . .

. . . now, the . . .

. . . (inaudible) transparency (inaudible).

. . . the transparency that is in place is more transparency then has ever been put in

place by any other Government, which is transparency which is equal to anything anywhere

else in the world . . .

So it’s world best practice?

Well, I’d say if it’s not the world’s best practice, I’d say

it’s world’s equal best practice. It’s equal to anything there is in the

world.

You’ve seen the Bank of England reforms?

The Bank of England . . .

(inaudible) . . .

The Bank of England wasn’t even . . .

. . . (inaudible) put them on the internet?

Hang on, the Bank of England wasn’t even an independent Central Bank until quite

recently. And . . .

But it is now.

. . . and in relation, well, again, followed Australia. Followed Australia, have a look

at its statute. Have you had a look at the statute . . .

I have.

. . . of the Bank of England?

Yes.

Yes, have a look at its statute. Following Australia in relation to the Board. Now, in

relation to this idea of minutes, let me make the point about this idea of minutes, which

I think you release, how many months after the meeting?

Two weeks.

Yes. Wonderful guide, isn’t it? Two weeks after the event, wonderful guide. You

know what happens, and I’ve discussed this with people in the Bank of England.

Knowing that the minutes are going to be released, everybody makes their comments

according to what they think will protect their position in the minutes. Like anything

else, you think you have a full and free disclosure in a situation where you know the

minutes are going to be discussed. Have you ever seen a minute come out of the Bank of

England where such and such a Board Member said that such and such a Board Member was

completely wrong, had no idea about economic policy and ought to be sacked. No. Because

knowing that the minutes are being released after the event, the only interest could be,

that kind of material, as a consequence there’s a certain kind of reserve entered

into in the discussion. You’re much better to have full and frank discussions, and

not to be constrained by that. It’s like the Australian Cabinet. Do you think

you’d have more frank discussions in the Australian Cabinet if we released the

minutes two weeks after the event? Of course not . . .

(inaudible)

. . . we’d never . . .

It could be interesting.

I don’t think, I don’t think you would actually know more about what was

going on. I think the minutes that you saw after the event would be minutes which would

record what people wanted you to know. I think you’d all agree on that, but . . .

Isn’t the Australian public . . .

No, I’ll try you out on this. I mean, why doesn’t the Fairfax Board release

the minutes of its Board meetings after each Board . . .

Its shareholders aren’t . . .

I’d be very interested to read the minutes of the Fairfax Board . . .

It’s a private sector company.

. . . and I’ll recommend that to them, and the ABC Board for that matter.

I’ll recommend that to them . . .

Good.

. . . after the event. Thank you.