Transcript No. 2001/020

I think the big question really for most people is, will we have a recession?

Well, look we had a quarter, the December quarter of last year which was negative 0.6

per cent, which was a disappointing result. Wrapped up in that figure you had some

transitional factors, in particular coming off the Sydney Olympics, and also factors in

relation to the building industry. Because a lot of building had been pushed forward into

the first half of the year 2000, you’d had a push back and you’d had a downturn

in the second half. But the good news is that building approvals and finance now have

turned, and also with interest rate cuts, that’s going to make it a very good time to

buy a house, people now saving around about $270 a month on their mortgage from what they

were paying before the Government put its low interest rate policy into place. So

it’s a good time to buy a house and that would be good for the housing and

construction industry.

So are you predicting that we will have positive growth for the next quarter?

Well, we’ve always thought that the record run of growth in the Australian economy

in 1997, 1998, 1999 would be subdued in the current 2000-2001 year. It will be subdued,

but there is good growth in Australia’s exports. Our exports are right up, about 21

per cent over the year to January. That’s going to be good for growth. We’ve now

got interest rates very low, home mortgage interest rates at 7.3 per cent, that’s

going to put more money back into the pockets of Australian mortgage buyers and that will

be positive for the economy.

The Opposition, of course, says that the GST has king-hit the economy. How much is the

GST to blame?

Well, there are one-off transitional factors from the changes of the tax system and

I’ve already referred to them in relation to housing. But the Opposition can’t

have it both ways. All last year they said we were cutting taxes too much, they said it

would overheat the economy and lead to interest rate rises. Today they’re arguing the

very reverse – that the economy is underheated and there are interest rate falls. So,

they’ve argued black and they’ve argued white and they got it wrong on both

occasions. But the important thing is to focus on policy. The important thing now is

policy – what is the Government’s policy? Well, the Government’s policy is

to keep interest rates low and we have further tax cuts coming on stream on 1 July,

we’re abolishing financial institutions duty. Labor policy is to put interest rates

up and to increase income taxes which is the wrong prescription for the economy at a time

like this.

Mr Costello, the fuel excise cut has been costly and has perhaps had dubious political

benefits. How hard is it going to be for you now to keep this next Budget in surplus?

Well, it’s going to be a tough Budget. They’re always tough these Budgets and

we’re working on it now. What we have to do is this – keep taxes low, we’ve

cut fuel excise, as you said, and we’ve abolished indexation remember that, there

won’t be further rises in fuel excise as the consumer price index goes up, we’re

going to abolish financial institutions duty come 1 July, that’s the tax on peoples

bank accounts. That means what we are going to do is we are going to have to target our

spending priorities, make sure only the really important ones are spent and we are careful

with taxpayers’ money in other areas.

The Prime Minister has criticised the Reserve Bank for moving interest rates higher

last year. Do you agree that there were mistakes made?

Look, last year interest rates were rising. I think the last one was as recently as

August of last year, and we are now in March. I think, with the benefit of hindsight the

Reserve Bank has taken the view that it’s important to reverse that increase.

That’s what happened yesterday, and I welcome the fact that the increases are now

running back, they’re being wound back.

We are having mortgage interest rate falls and as a consequence of that – just the cut

yesterday for example, on a $100,000 mortgage will save you another $20 or so a month. So

that’s good to put money back in the pockets of people.

And Treasurer finally, do you have time to turn around the economy and voter sentiment

before the next election?

We continue to work on good economic management. Look, we’ve had record runs in

the economy through the last three years, we’ve got our Budget back in balance,

we’ve repaid $50 billion of Labor’s $80 billion debt, which has been very

positive for the economy. Imagine where we would be today, if we were still carrying that

$50 billion worth of Labor debt, we would be out at the next Budget having to raise taxes

probably to service the debt, but the fact that we’ve paid down the debt, that has

given us the ability to reduce taxes to carefully target our spending. And we’ve just

got to continue to work on good economic management, which I can assure you we will.

Mr Costello, the electorate is not responding. You’ve got the lowest support for

50 years, how do you turn that around?

Well, the important thing is to keep on good economic management. What’s good

economic management? We’ve paid back $50 billion of Labor’s debt, we’ve got

interest rates now as they’ve never been equalled by any Labor Government in the last

30 years or so, and that’s going to be good for homebuyers and it’s going to be

positive, I think, for the construction industry which is the area which needs a bit of

stimulus at the present time.

Mr Costello, thanks so much for your time today.

Thank you.