TRANSCRIPT

of

THE HON PETER COSTELLO MP

FEDERAL MEMBER FOR HIGGINS

Interview with Alex Sloan

666 ABC Canberra

9.20am

E & OE

SUBJECTS:      Economy

SLOAN:

Peter Costello is the former Federal Treasurer of course and the Member for Higgins and joins me this morning.  Peter Costello nice to talk to you.

MR COSTELLO:

Nice to talk to you Alex.

SLOAN:

Okay.  So you feel Australia won’t go into recession?

MR COSTELLO:

I don’t think there’s any need to.  I think properly managed we shouldn’t.  We have strong terms of trade, we have near full employment at the moment, we have got a Future Fund which has $60 billion and can advance lines of credit to the banks.  So I don’t think we need to and I would think the responsible thing for a government to be doing in this situation would be talking of the strengths of the Australian economy not talking of recession and not affecting public confidence.

SLOAN:

Well Prime Minister Rudd conceded the possibility of a deficit yesterday, what did you make of that?

MR COSTELLO:

I think he is preparing the ground isn’t he?  He is trying to get the public adjusted to the fact that after 10 surplus Budgets and after clearing debt this Government might take us back into debt and I just saw it as a political positioning statement.  He didn’t actually say by the way that they would be producing a deficit, he was really just preparing the ground so that if the Government does fail and does let the Budget slide into deficit he will have prepared the ground.

SLOAN:

It may have to go into temporary deficit and this was seen as you know at last you admitted it.  The media has been after this for weeks and so has the Opposition.

MR COSTELLO:

Yes I think that’s right, I think he’s preparing the ground.  Up until yesterday it was “no there won’t be a deficit” – there won’t be a deficit and they weren’t even prepared to use the word.  Yesterday he used the word, didn’t use the ‘D’ word, used the ‘TD’ word ‘temporary deficit’ but gradually began preparing the ground, that’s the way I would see it.  In a statement where he got up…

SLOAN:

What is the wisdom of that?

MR COSTELLO:

Oh it is political spin.  It’s trying to prepare the public just in case the Budget goes into deficit.  So they won’t be shocked.

SLOAN:

If you were Treasurer would you have done the same thing?

MR COSTELLO:

Well if I were Treasurer I would be talking about the strengths of the economy.  Rather than trying to preach a message which would undermine confidence I would be preaching a message that would inspire confidence.  The worst thing in the Australian economy at the moment frankly is consumer sentiment which is awful.  The consumer sentiment is a recessionary sentiment it is in fact worse than it was during some of our recessions.  We have had many recessions in the past and if consumer sentiments gets low enough and people stop spending even if you weren’t going to have a recession before you have one as a consequence.

SLOAN:

Last week and towards the end of the week confidence was the word around, all about confidence, do you think he has dashed that?

MR COSTELLO:

Well I think responsible economic managers would be talking up confidence, this is my point.  You would be going out there and you would acknowledge yes of course there are international forces that are buffeting our economy but there are the strengths of our economy.  And then you would talk about the growth in our terms of trade, stronger than they’ve been in 50 years, that unemployment is still lower than it’s been for say 20 years, you would talk about the fact that we have a Future Fund put together by the Coalition Government of $60 billion, you would talk about the fact that the Coalition Government cleared all debt, that ours is one of the few countries in the world that carries no net debt, you would talk about the fact that the IMF is forecasting growth, you would talk about the fact that the OECD is forecasting growth in Australia, you would talk about the fact that the Treasury is forecasting growth.  But rather than give a message like that the message is all doom and gloom, oh it’s terrible, oh gee we are going into deficit.

SLOAN:

Well it wasn’t quite like that.  He was coming back from APEC saying look you know this is the situation around the world and he said there is no point in sugar coating the truth.

MR COSTELLO:

I agree with that.  Of course there is no point in sugar coating the truth.  And many of these countries are already in recession.  But these countries didn’t have debt free Government.  The US and the UK are carrying massive government debt.  Australia has no net government debt we are miles away from those countries.  Those countries don’t have Future Funds.  We are miles away from those countries.  Australia is in a much stronger position than the US and the UK.  The US went into recession in 2000 and our economy continued to grow very strongly.  So okay the US is probably in recession but we have survived US recessions before, we did it back in 2000-01.

SLOAN:

What about the fear of our job losses Mr Costello?

MR COSTELLO:

Well of course…

SLOAN:

The OECD has been predicted this week that unemployment could go to 6 per cent by 2010?

MR COSTELLO:

Well of course nobody wants to see unemployment rise that’s a terrible thing.  And the most important thing is to make sure that we keep as many people in work as possible.  If unemployment were to rise at 6 per cent well to give you a historical perspective – when the Coalition Government was elected in 1996 unemployment was then 8½ per cent so if it went up to 6 it would still be a lot lower than it was when Labor left office in 1996.  Not good but that’s not a recession unemployment rate.  The last recession unemployment rate, well the last time we had a recession in Australia 1990-91 unemployment was 11 per cent. 

SLOAN:

In terms of how the Government has responded to the GFC, the stimulus package, what are your thoughts?

MR COSTELLO:

Well look I think the most important thing frankly in this situation is interest rates and monetary policy, I don’t think compared to monetary policy and dramatic cuts in the interest rates, the fiscal stimulus will have nearly as much effect…

SLOAN:

It’s expected we could see 100 basis points?

MR COSTELLO:

Well for several months I’ve been saying that interest rates should be cut, cut dramatically and I welcome the fact that the Reserve Bank has now gone on that course.  I think it was unfortunate that we were tightening from late last year and the beginning of this year when it is now obvious that we needed to have lower interest rates but the banks are now doing that.

SLOAN:

So the RBA is having you know is controlling the economy more than the Government’s stimulus package?

MR COSTELLO:

Well dramatic interest rate cuts can take effect much quicker and have a much greater effect on the economy.  Now we have had, they have not all been passed of course, if they are not passed on by the banks they don’t have the effect that they should have.  But you have had dramatic cuts 200 basis points, it was coming off a base which was high, there is obvious room for more and I think that’s the appropriate thing to do, something I have been saying for several months now.

SLOAN:

But in a week that has marked the first year anniversary of the Rudd Government do you feel the biggest criticism is the use of the ‘TD” word the ‘temporary deficit’?  How else do you mark them now in terms of management of the economy?

MR COSTELLO:

I would say, as I have, I think in a time like this they should be trying to add to confidence not running it down and that would be the first recommendation that I would make to them.  I think if the economy – and the growth forecast is a 2 per cent growth rate – and it’s going to continue to grow there shouldn’t be any deficit, of course not.  The other point is although some of the things they have done are understandable I don’t think the Bank Deposit Guarantee was well thought out and I think we’re still struggling to get some understanding as to what they are going to do for those frozen funds, those people that are in mortgage or debenture funds.

SLOAN:

(inaudible) WorkChoices (inaudible)?

MR COSTELLO:

Well look you have got to be very careful here because the degree to which you lessen flexibility in industrial relations is the degree to which you make new job creation more difficult and if unemployment is going to rise, and we all seem to agree it will, including the Government, you have got to be very careful about changes to industrial relations lest they run the risk of inhibiting job growth.

SLOAN:

Mr Costello I can hear the bells ringing.  It doesn’t sound like a bad report card though that you’re giving the Government?

MR COSTELLO:

It took us 12 years to get Australia out of debt and it looks like it is going to take us 12 months to get back into it.

SLOAN:

But do you put…

MR COSTELLO:

You make your own assessment.

SLOAN:

But do you put that at the feet of Kevin Rudd and Wayne Swan or you know what’s happening around the world?

MR COSTELLO:

Well 12 years to clear Australia of debt and within 12 months it looks like we are going back into it.  I think the Australian public will be a bit worried about that.

SLOAN:

Peter Costello it was great to talk to you.  Thanks for taking our call.

MR COSTELLO:

Goodbye.