Transcript No. 2000/89

Treasurer a lot of people are amazed at todays results. Are you surprised?

Well the economy has been growing at a very strong pace throughout the course of the

last year. We’ll get the June quarter results shortly, but it looks as if it has been

growing at above 4 per cent and in fact we have had the equal longest run of growth above

4 per cent in Australian history. We have had twelve consecutive quarters where growth has

been above 4 per cent. And what you’re seeing is that in a strongly growing economy

you get good jobs growth. The good jobs growth has meant that we now have the lowest

unemployment rate that we’ve had in Australia since 1990. Seventy six thousand jobs

over the month of July and unemployment at new lows of 6.3 per cent. So now that’s

good news for job seekers. It’s good news for the economy. And I think all

Australians would be pleased to see such strong jobs growth and new opportunities being

developed in the economy.

That is the good news. But is there a down side risk of an interest rate rise? Further

rises because of it?

I don’t think that you could say that there are signs of overheating in the

Australian economy. What we’ve seen today is we’ve seen unemployment fall to 6.3

per cent, it is the lowest since April of 1990. But we actually forecast in our most

recent Budget that we thought over the course of this year unemployment would fall to 6

per cent. So we actually think unemployment is going to fall further than this. That was

the Budget forecast that we put. And if you see the Australian economy continue to grow at

about 4 per cent, then you should take about half a per cent off the unemployment rate per

annum, that has been the experience. Four years of good strong growth. When the Government

came to office, unemployment was about 8.6 per cent. Now it is 6.3 per cent. Another year

of growth and you would be taking it down towards 6 per cent.

Now the magic 5 per cent. Is that possible? Can you actually see that in your sights

now?

Well first thing we have got to do is we have got to make sure the Australian economy

continues to grow. As I said this has been the equal longest period of growth above 4 per

cent in Australian history and when we get the June figures it could well be the longest.

But we have got to make sure that we continue growth through the course of the next year

and that will keep employment growing and unemployment falling down further towards the 6

per cent mark. And if you kept your economy growing, if you attended to some of the

structural problems, as we are, with the New Tax System, better industrial relations, you

could actually see unemployment fall further. But that’s a year or so out.

Further to 5 per cent?

As I said you would be down in the low sixes and in a years time if you continued all

of those things growing, if you continued the economy growing at 4 per cent, if you

continued with structural reforms, the benefits of the New Taxation System, you would be

knocking up against that 6 per cent level.

You bagged the Labor Party when it nominated 5 per cent at the last election as a

target figure. It is not looking so unrealistic now is it?

Oh yes it would never have been done of course under Labor. And we were quite right to

point out the policies the Labor Party had of course of opposing Tax Reform, opposing

industrial relations reform, opposing the balancing of the Budget and opposing low

inflation. You’d probably have unemployment substantially higher than this. It just

wouldn’t, you wouldn’t be in the game with unemployment. Don’t forget this,

that Mr Beazley claimed that a New Tax System would destroy jobs. Alright, well we are one

month into the New Tax System and what was the outcome today. Seventy six thousand new

jobs for the month of July. So obviously to sit around and say you are opposed to all

reform but you want to get unemployment down is just a complete contradiction of terms.

But these are the kind of benefits that you can get if you run good economic policy. And

it was getting inflation down, reforming the tax system, reforming industrial relations,

keeping a strong economy, these are the kind of benefits that you can get. But I make this

point, you wont get the benefits without the work. Nobody ever got benefits without doing

economic restructuring. And all of those people, the Labor Party included, that said they

were opposed to balancing the Budget, opposed to surplus Budgets, opposed to tax reform

would never have been able to produce results.

Are you concerned now about pressure on wages because of all this heat in the economy,

4 per cent we are running at, that’s one estimate today that there could be a

wages breakout.

I think it’s important that we do keep an eye on wages. Yes I do. Because one of

the things that has the potential to threaten the outlook, which low inflation, strong

growth, falling unemployment and more jobs would be if people went for uncompetitive wage

outcomes and we’re seeing some of those claims that are getting around. The wage

guidelines should be 4 per cent. That’s what we think we can sustain as wage outcomes

but when I see some of these claims of 15 per cent over two years, they are not justified

and people ought to remember that with income tax cuts and gee it was only 5 weeks ago, 6

weeks ago we had the largest income tax cut in Australian history. People don’t need

to have wage claims because they’re taking home more money.

Was the Reserve Bank right to raise interest rates last Sunday? They were roundly

criticised in many quarters for doing so but it certainly looks like quite a wise move in

retrospect, doesn’t it?

Oh a thing to bear in mind with monetary policy is its always looking forward. You are

looking forward a very long period of time. When you are looking at monetary policy you

are not so much responding to last week’s statistics or anything like that, you are

trying to look out to the economy over a long period of time. And the Reserve’s

assessment and it’s also my assessment, is that the world economy is strengthening.

We expect it will strengthen over the course of the year and you’ve got to try and

think of how you want to position the Australian economy over the course of the next year.

I want to position it as a strong growth, low inflation, growing employment, falling

joblessness, reformed taxation and improved industrial relations climate. And I think that

will be good for all Australians.

Do you think we could add low interest rates or at least falling interest rates onto

that list? Is that realistic?

Oh well, we’ve got to keep our interest rates low and in historical terms at the

moment home variable interest rates are around 8 per cent. These are some of the lowest

rates since 1973. And they are quite low by historical standards at the moment. It’s

one of the things that has given benefits to people.

Peter Costello, thanks very much for your time.

Thank you very much for your time.