Transcript 

of

 

THE HON PETER COSTELLO MP

 

FEDERAL MEMBER FOR HIGGINS

 

Interview with Madonna King

612 ABC Brisbane

Thursday, 5 February 2009

8.30 am (Qld time)

E & OE

SUBJECTS:  Economic stimulus package

MADONNA KING:

Peter Costello good to talk to you again.

MR COSTELLO:

Thanks very much Madonna.  Good to be with you.

MADONNA KING:

Is this political suicide?  So many people are expecting this payment they now might not get it because of your Party.

MR COSTELLO:

Let’s go back to the rationale for all of this.  The rationale for all of this is that the economy is heading down. Mr Rudd says that by passing the Bill which will enable him to borrow $100 billion, that he will be able to save the economy from recession.  Borrowing $100 billion and putting the Federal Government back into debt means that we will be paying for this for a long period of time.  The money is not going to just materialise out of thin air.

MADONNA KING:

But could it save us from a recession?

MR COSTELLO:

Well that is the critical point.  Borrowing $100 billion and spending the money we don’t have – and that’s what’s going to happen here – in my view won’t be the difference between a recession or a non recession. 

MADONNA KING:

What would be the difference in your view?  If you were Wayne Swan (inaudible) what would you have announced?

MR COSTELLO:

And by the way it is not Wayne Swan’s view either.  Because the Treasury papers show this $42 billion will support – not create – “will support” 90,000 jobs.  $42 billion for 90,000 jobs.  The package will support one job for $400,000.  Each job is about $400,000 in this package.  So there is nobody who can say and the Treasury doesn’t say, the papers if you read them don’t say, that this package is the difference between Australia going into recession or not. 

MADONNA KING:

So what would you have done if you were Wayne Swan, if you could do something what would it be?

MR COSTELLO:

Well I think there are two things, the first thing is Wayne Swan and Kevin Rudd got the economy all wrong last year.  Because last year you will recall last year they were cutting spending and urging higher interest rates.  That was a completely wasted year.  It should never have been done.  Last year we should have been cutting interest rates to make sure the Australian economy was poised for growth.  You don’t hear any of the talk anymore from Rudd or Swan about cutting expenditures, that was last year’s effort.  Secondly in relation to spending, the spending should be directed towards jobs and the best way of actually doing that would be to give financial incentives for employers who take on labour or preferably to cut the costs for employers to take on new workers.

MADONNA KING:

Would you have been prepared to go into deficit to do that?

MR COSTELLO:

Well that would have been targetted spending.  Now what Rudd and Swan have done is they’ve said well we will insulate houses for example.  Well let me tell you Madonna the idea of insulating houses, it is good if you are going to have your house insulated but it is not going to save Australia from a recession.

MADONNA KING:

No but you’re not answering that question I asked.  Would you be prepared to go into deficit to spend that much on incentives for employers as an alternative move?

 

MR COSTELLO:

Well no.  I actually believe in balancing budgets and I left a $20 billion surplus so we would have had $20 billion for incentives.

MADONNA KING:

But isn’t this the time you go into deficit when you are trying to save the economy from a recession?  What’s the use of the money just sitting there in the bank?

MR COSTELLO:

Well you are correct in this sense that one of the reasons why when the economy is growing you try and pay off your debt and get your Budget in surplus is to strengthen your economy for a downturn which of course is what I did, paid off all the Commonwealth debt and got the Budget into surplus.  Now if your economy goes into recession – if it goes into recession – of course it will go into deficit.  But Rudd and Swan by the way aren’t saying the economy will go into recession they’re actually forecasting growth.

MADONNA KING:

Are you saying it’s going to go into recession?

MR COSTELLO:

Well let me come back to their package because you asked me what I think of their package and what I think of it is it is a low quality spend.  Now take the money to be spent on insulation, right. People want their houses insulated and the Government will borrow some money and pay for it to be done and of course people will say that’s a great idea.  But will it save Australia from a recession insulating houses?  This is not even a new idea.  I want to explain this point.  The idea of insulating houses was put to me as Treasurer a couple of years ago.  And I didn’t think it was a good use of taxpayers money.  We didn’t get the Government paying for the insulation of houses when the economy was strong.  Rudd and Swan say that the Government should pay for it now that the economy is weak.  I didn’t pay for it when we had the money.  They now say we should pay for it when we don’t have the money.

MADONNA KING:

All right.  Now you say the economy is weak.  Can I come back to that question?  How bad is it going to get?  Do you think we can avoid a recession?

MR COSTELLO:

Can I make this point that the Government says we will.  It is forecasting growth although it is forecasting unemployment to rise to 700,000. 

MADONNA KING:

We know what the Government is doing but what do you think?  Given your experience as Treasurer people want to know what’s in fact your view.  What would you be doing?

MR COSTELLO:

Well I think if the Australian economy were properly managed yes it could avoid recession. 

MADONNA KING:

That would be by providing financial incentives to employers rather than directly to people?

MR COSTELLO:

Well it would be a combination of things.  It would be a combination of making sure that the financial system is strong, I think the deposit guarantee was a big mistake.

MADONNA KING:

But what else apart from the financial incentives to employers?  What else would you do?

MR COSTELLO:

Oh let me go through the measures.  The most important thing is to make sure the financial system is strong, the deposit guarantee has been a mistake.  That should be revisited.  The next thing is to make sure that monetary policy is working in favour of the economy and it was a mistake to be raising interest rates last year.  They are now falling.  The Reserve Bank has got back on track.  Thirdly we have got to make sure that all of our policy measures are directed towards creating jobs.  It will be a mistake to change industrial relations laws which will put people out of work.  The Government shouldn’t do that.  It shouldn’t have job destroying industrial relations laws.

MADONNA KING:

All right do you…

MR COSTELLO:

And lastly in relation to labour the costs of employing labour should be lessened.  That is some of the tax burden particularly in relation to employers should be taken off.  Fifthly if I was giving out transfer payments to people – and I can’t understand this in the package – I would be doing something for the unemployed.  Now there was a lot in that statement that was about people who have paid tax in the last year and families who are on benefits and of course they will enjoy them but there is nothing actually for the unemployed.  Now I thought this was the most surprising thing about the statement…

MADONNA KING:

But do you think the unemployed would spend they money they were given?

MR COSTELLO:

Well if what you are trying to do is trying to boost the economy presumably you would assist the unemployed and particularly assist the unemployed in being able to get into work.

MADONNA KING:

All right.  Can I come back to a point you said the Reserve Bank got back on track.  Did the Reserve Bank get this wrong last year?

 

 

MR COSTELLO:

Well plainly by raising interest rates at the end of 2007 and raising them throughout the course of 2008 they were moving in the wrong direction.  Yes.  At a time when interest rates should have been held and as we now know reduced they were raising them.  And they were being urged on by Rudd and Swan.  You have only got to go back 12 months to the raising of interest rates.  Now we have had 400 basis points of cuts.  How could it possibly have been right last year now that we know that interest rates had to be cut.  I was calling for them to be cut when they have been raising them in 2008.

MADONNA KING:

All right.  From your experience let’s just forget politics for a moment.  You have spoken to the leaders around the world for years, you have been the Treasurer back in the Treasury for 10 years or more, how bad do you think this is going to get for people out there listening?

MR COSTELLO:

Well I think what’s going to happen in Australia is that many people are going to lose their jobs and that is really bad news – catastrophic for them.

MADONNA KING:

What do you think unemployment will rise by?

MR COSTELLO:

In this year unemployment is going to rise, there is no doubt about that.

MADONNA KING:

Yeah but how high, 7 per cent by next year, 9 by the year after?  Do you think it will be higher than that?

MR COSTELLO:

I think it is going to rise dramatically.  I don’t think there is any doubt about that.  But I will say this, that of the countries around the world, the major economic countries around the world Australia will do the best because we were in the strongest position.  It was balancing our Budget and paying off our debt that put us in that position.  And we go into this a stronger country compared to the United States or Japan or Britain which are all much weaker.  But we go into this there will be fallout, people will lose their jobs which will be catastrophic for families.

MADONNA KING:

How long?

MR COSTELLO:

Businesses will fail, have failed, which will be catastrophic for them and the most important thing in my view is to make sure that the Government packages are well directed, are directed at those who really need them, particularly those who have lost their jobs.

 

MADONNA KING:

Can you imagine a recovery in 2009 or will it take longer than that?

MR COSTELLO:

Well growth is going to be below what we were experiencing through the late 1990s and the early 2000s there is no doubt about that.  But if we continue to grow, if we minimise the position, if we avoid possibly political mistakes, that is a big if, if we can avoid costly and political economic mistakes Australia can do comparatively better…

MADONNA KING:

But how long?

MR COSTELLO:

…than the United States.

MADONNA KING:

How long before we could get back into surplus?

MR COSTELLO:

I don’t think the Rudd Government will ever be in surplus.  I think now that it has taken Australia into deficit Australia will be in deficit for the period of this Government.  It took me 10 years to pay back $100 billion that Keating had racked up.  Rudd has decided to rack up another $100 billion.  On past experience it can take you 10 years to pay that back.

MADONNA KING:

You talked about around the world and that we were in a, we were in a better position.  Around the world governments are talking about taking over banks, they are talking about more protection, less free trade, more regulation and we have had a period of less regulation.  How much of the world toughening globally actually changed the makeup of the economy, how the whole market operates?

MR COSTELLO:

Well different countries have responded in different ways.  The worst situation is in the United States.  The United States has a bad regulatory system and you have seen banks and investment banks fail in the United States.  I think anybody who objectively looked at it would say this is a bad system that needs reform.  It has needed reform for a long period of time.  The UK has also had a number of substantial financial failures – the Royal Bank of Scotland, Northern Rock – so the UK obviously needs to look at its regulatory system.  But if you look around the world which is the country that hasn’t had bank failures?  Australia!  And I think we have got a lot to teach the world in relation to this.  What we did in Australia is we set up a body which was looking at all of these financial institutions, it is called the Australian Prudential Regulatory Authority – APRA – APRA, we set it up in 1997.  Throughout all of this period APRA has been insisting on prudential controls for our financial institutions which is why they have done comparatively well.  I think the United States and I think Britain and I think other countries would do well to look to Australia which is the success story here in financial regulation and I think they could learn a lot of lessons from Australia.  This is an area where we are a world leader.

MADONNA KING:

Can I ask you did Malcolm Turnbull ask your advice before giving his response to the package yesterday?

MR COSTELLO:

Well look I am a member of the Liberal Party and I offered my views to the Party Room and…

MADONNA KING:

Did you get a call?

MR COSTELLO:

…they are taken into account just like everybody else’s.

MADONNA KING:

Were your views taken into account 100 per cent?  Is the response that the Opposition has given exactly what you said?  Do you differ with Malcolm Turnbull in any of the detail?

MR COSTELLO:

I agree with his proposition that Kevin Rudd is going to put Australia into $100 billion of debt which he will probably never be around to have to get Australia out of.  And it is a huge liability for what he says will be support for 90,000 jobs and half a per cent of GDP.  This is not value for money.

MADONNA KING:

All right last question.  Are you feeling fairly comfortable on that backbench or do you think you might make another run for leadership?

MR COSTELLO:

Oh no.  I am obviously having been Treasurer of Australia longer than anybody else in our history I take a great interest in economic policy.  And obviously Madonna I want to add my views whether it is taken notice of or not it is up to the Government.  And I am very happy to do that as I am.

MADONNA KING:

Good to talk to you again Peter Costello.  Thank you.

MR COSTELLO:

Thanks Madonna.