TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Jon Faine

ABC, 3LO

Wednesday, 18 June 2003

8.45am

 

SUBJECTS: Property Market, Interest Rates, Stock Market, Economy, Tolerance,

Leadership

FAINE:

Peter Costello good morning.

TREASURER:

Good morning Jon.

FAINE:

Warnings this morning about the overheating property market and the prospect

of a further cut in interest rates leading to a difficult economic environment,

there is not much you can do, is there, to deal with a booming property market?

TREASURER:

One of the points that I have been making over a period of time now is particularly

in the investment market you see a lot of those high rise apartments going up

around Melbourne, a lot of these have been sold off to property investors who

look for a tenant, maybe they negatively gear and they wait for a capital gain.

One of the warnings that I have been making is that people have to realise that

property prices can come down, as well as go up, they should factor that into

their investment plans and they should prepare for a bit of insulation in relation

to their gearing, and I said yesterday there is no such thing as a one-way investment

bet, just as you have seen stock markets correct, you can also see property

markets correct.

FAINE:

But if interest rates are going to come down and every expectation is that

they will by either one quarter or even one half of one per cent in just a few

weeks from now, I don’t think anyone is going to take much notice of that warning

when money is cheap to borrow.

TREASURER:

Well the fact that money is cheap is actually a good thing. It is a good thing

for business and for homebuyers. I am being a bit more specific. I am being

quite specific about unit and investment properties, and you have got to remember

this, if you are buying a property as an investment, and you want to put a tenant

in, there are only so many tenants, and you do get to a stage where the number

of units exceeds the number of tenants and when you get to that stage, prices

on property and investment rentals can fall…

FAINE:

Well why don’t you, why don’t you deal with the problem by for instance, abolishing

negative gearing?

TREASURER:

Well Labor did that, I think it was in about 1986, the economic…

FAINE:

Didn’t last long.

TREASURER:

…well the economic fallout was so bad that they had to reverse their policy

after 12 months. What they certainly proved is that as a policy measure, that

was a failure.

FAINE:

Well why not for instance rein it in by saying you can only claim half of your

negative deductions, instead of 100 per cent?

TREASURER:

Well the problem when you get into these sorts of areas if you try and put

limits on the amount you can deduct for taxable purposes is that the complexity

gets so great that people can always break down, they can use other names, and

the complexity outweighs the policy. It has always been a feature of our tax

law, that if you borrow to try and earn income, you are entitled to deduct your

borrowings and I think that is right as a matter of principle, but the only

point I am making here is that if you have been told by some promoter or some

investment adviser, that a negatively geared rental property is a one-way investment,

just look at it very carefully, because if something sounds too good to be true,

in an investment environment Jon, it generally is too good to be true.

FAINE:

Well now people are jumping on the stock market band wagon and saying it is

too late for property, the big money to be made is with the stock market, picking

up nine consecutive days of rises, the first time that has happened since 1993,

people are now negatively gearing to get into heavy stock exchange, stock market

investments. Is the same thing going to happen there?

TREASURER:

Well the reason why stock markets have been down around the world is that the

stock markets overheated, particularly in the United States. We had a huge build

up of bubble, particularly in those technology stocks and the bubble burst,

and it has come right down again. Now at some point things will pick up, I am

not giving any investment forecasts in relation to that, but people will know

that we have seen one of the biggest stock market falls of the post-war era

over the last year. And again, when stocks, stocks are not one-way bets, and

people have to take that into account.

FAINE:

Are you happy with the current interest rate differential between America and

the rest of the world on the one hand and Australia on the other?

TREASURER:

Well the Australian economy is running stronger than America, and it is running

stronger than Europe, and it is running stronger than Japan, and as a consequence

those countries really dropped their interest rates to try and, bear this in

mind, America has had a recession, Japan has had a recession, Germany is in

recession, these are recession economies, and the Australian economy, by all

historical precedent goes into recession when you have an American recession,

that is what certainly was happening in the nineties and the eighties, and the

fact that we almost alone of the industrial economies continue to grow meant

that our economy is that much stronger. We didn’t need the monetary policy response

that the Americans, the Europeans and the Japanese have been forced into…

FAINE:

But…

TREASURER:

…that is one of the reasons why you get that differential. There are others

of course.

FAINE:

…but that differential is driving the Australian dollar up and your choices

are either to stop the rise of the Australian dollar by dropping interest rates,

or keeping interest rates where they are in order to try and control the domestic

boom.

TREASURER:

Well there is another reason why the Australian dollar is rising. It is rising

against the American dollar because the American dollar is falling Jon, it is

not just an Australian dollar story…

FAINE:

No, the Euro…

TREASURER:

…in fact it is more an American dollar story, and you can remember, say two

years ago when the Australian dollar was falling and everyone said, what is

wrong with Australia, and I think I was making the point, this wasn’t that there

was any problem in Australia, it was that the American dollar was rising and

rising and rising, and it rose to unsustainable levels and the American economy

went into recession. The American consumer confidence was dented and now the

American dollar is falling, and from our perspective it looks like we are rising,

but the much bigger part of the story is the American dollar is falling, it

is correcting, it rose to unsustainable levels and it is now correcting.

FAINE:

Peter Costello when you were delivered your great disappointment, if I can

call it that by John Howard, just on about two weeks ago, you said in response

that you would feel now free to speak outside of your portfolio area, and the

first thing you said is that you thought Australia should become a more tolerant

nation. What did you mean specifically by that?

TREASURER:

I was talking about the kind of Australia that I would like to see, and I said

I would like to see an Australia which was strong, which was secure, which was

prosperous, which had high living standards, and tolerance. And by that I meant

the kind of community harmony that we think is so important to our lives, the

harmony in the community, in the neighbourhoods…

FAINE:

Was that a dig at the Prime Minister?

TREASURER:

No, it is one of the values that I hold very strongly. We can disagree with

people on all manner of things, on politics or we can disagree on football,

we can disagree on religion, and I have lots of views on all of those subjects,

but at the end of the day in a society which is, which is open and tolerant,

we can discuss those differences, we can handle those differences…

FAINE:

How do you go about…

TREASURER:

…we can be richer.

FAINE:

…how do you go about then patching up those differences?

TREASURER:

Well what I am calling for, and I think it is very important, is recognition

of the role of community in our society. I have spent a lot of time thinking

about raising living standards and getting people employment, getting Australia

to be one of the strong economies of the world, and I characterise that as economic

capital. But there is another side too, which is social capital, and this is

the sense of community and relationships and support in families, and I want

to talk a lot more about, what I call now social capital, because I think you

need both economic capital and social capital to have a rich society. We can

be economically rich but not develop our social capital, and I think we will

be a multi-faceted and richer society if you have both economic capital and

social capital.

FAINE:

Can I venture to suggest then what is emerging is a traditional, classical,

small `l’ liberal agenda from Peter Costello compared to the capital `L’, or

capital `C’ conservative agenda of John Howard. You…

TREASURER:

I don’t know…

FAINE:

…that you think the most pressing issue is the growing gap between the rich

and the poor?

TREASURER:

Well look, I don’t know how you describe all these things, but Jon you know

me, I have spent seven years working on Australia’s economy, I think there are

some good results there, and I am not for a moment going to run away from economic

responsibility, but I am just making the point, I have long believed this, and

I think most people do, that you don’t judge the sum of a community just by

the economic indicators. There is another facet as well. You judge it by the

community and the spirit and the sense of friendliness and the family support,

and I have long and always believed this and I just think that it is worth reminding

people that we need to attend to those things as well…

FAINE:

How does that translate into policy, whether it is policy inside or outside

of your portfolio that you would like to see advance that is currently being

neglected? What is your choice…

TREASURER:

Well…

FAINE:

…what is something you would like to do?

TREASURER:

…you know, I am not going to sort of lay down huge markers here and now,

but I have just sort of indicated that I am interested in this area, I think

it is the next big area for consideration, over periods of time I will try and

make my contribution to that debate. I have done it a bit in the past, you might

recall, I think it was last year talking about volunteerism and the importance

of that in a community and how we can encourage that. These are issues that

I think we can think about, I am not laying down any big policy announcements

at the moment, but I am just indicating that it is an area that we have to keep

on working on, keep on developing.

FAINE:

Is there some deal done between you and the Prime Minister on what areas you

are allowed to flex your newfound social conscience?

TREASURER:

Oh no, as somebody who has been the Deputy Leader of the Liberal Party now

for nine years, you have a right to make a wider contribution and…

FAINE:

You went on the reconciliation walk here in Melbourne…

TREASURER:

…sure.

FAINE:

…is that an area where for instance you want to see some changes made?

TREASURER:

Sure, well you have got a right to contribute to the debate in all of these

areas and that is a right I will be taking up, Mr Howard obviously respects

that and he said so. So, I am obviously not going to intrude into other Ministers’

policy areas, that would be wrong to float policies, but when you are talking

about directions and ways in which we can think about issues, I have a right,

I intend to take up the right to make comments on those sorts of issues.

FAINE:

Did you think of walking away, did you think of pursuing a career perhaps at

the top end of town, where there would be any number of opportunities waiting

for you?

TREASURER:

Well look, in life you think about a lot of things and obviously about 13 years

ago I walked away from that, so I have been there and I have done that and now

I want to make a contribution to public service and that is what I intend to

do over the next couple of years.

FAINE:

You have since you were a student politician you have regarded it as being

a, well not quite a destiny, but certainly something you were determined to

succeed at, if you think you are suddenly being cut off at the pass I would

have thought that your alternatives might suddenly start to be evaluated more

actively than they had been otherwise.

TREASURER:

Well, I have always believed that making a contribution to public life is one

of the most important things that you can do…

FAINE:

You could well think that you have already done that and it is time now to

move on.

TREASURER:

Sure, and if I didn’t think that I wouldn’t be doing what I am doing, and I

still believe that, and I still have a very large contribution to make and I

want to make it and I want to make it a broad contribution and some people will

disagree with my contribution, but that is one of the virtues tolerance in a

society, we all get to make our contributions and we tolerate other peoples

views, and we get to discuss them and that is what I intend to do.

FAINE:

Thank you for your time this morning.

TREASURER:

Great pleasure.