TRANSCRIPT

of

THE HON PETER COSTELLO MP

FEDERAL MEMBER FOR HIGGINS

Interview with Tony Jones
Lateline

Tuesday, 3 February 2009

Pre-record

Click here to see the video of this interview

TONY JONES:

Peter Costello thanks for joining us again.

MR COSTELLO:

Thanks Tony.

TONY JONES:

Now you’ve seen the Government’s latest stimulus package.  Had you been in Government now facing the worst financial crisis since the great depression what would you have done differently?

MR COSTELLO:

Well this is poor quality spend.  We had a $10 billion spend before Christmas you will recall, that was poor quality, I am not saying that pensioners and families didn’t recognise it and weren’t glad to have it but it was poor quality – it’s been and gone.  And essentially what the Government is trying to do is it is trying to massage the figures quarter by quarter.  So it tried to massage the December retail figures with $10 billion, it is now trying to massage the March quarter figures – it is poor quality spend.  A lot of this will just come and go.  The $10 billion come and gone.  Did you notice a shift in the economy?  No of course not.  You can insulate houses…

TONY JONES:

Well according to Westfield they noticed a jump in their retail figures at a time when you certainly wouldn’t expect it.  So they’re suggesting evidently that there was some sort of boost, stimulus boost to spending.

MR COSTELLO:

Yes but the purpose of people paying taxes is not to boost Westfield profits.  These are peoples taxes and they may well have given a two per cent lift in Westfield’s sales but that’s not why people pay taxes Tony.  People pay taxes to get…

TONY JONES:

But that’s why the Government puts a stimulus package together to get people spending in retail stores – Westfield one of the biggest. 

MR COSTELLO:

Well a much better quality spend is where you actually lift production, where new jobs are created, I am sure if I was Westfield I would be very grateful for the fact that my profits or my sales have gone up two per cent.  But are they long term permanent jobs?  Long term investment that’s going to last for 10 years?  This is $10 billion Tony.  If the purpose is to boost Westfield’s sales you might as well have taken a couple of billion and paid it across direct.  No the purpose was actually to get long term investment.

TONY JONES:

Well what you have done had you been in Government to stimulate jobs growth and all of those kind of things that you have just mentioned?

MR COSTELLO:

Well you know what I think one of the biggest failures of this government has been its, far from adding to confidence I think this Government has probably undermined confidence in the economy.  What I would have been talking up which the Government apparently is afraid to do is how strong the Australian position was, we had a $20 billion surplus, we had no net debt, we had a good regulatory symptom, we had the lowest unemployment in 30 years – I would have been saying by the way last year that we should be “Going for Growth” when the Government was saying we should be restricting spending and raising interest rates.  Tony let’s just go back, go back 12 months ago, you know what Kevin Rudd was saying?  He was saying the inflation genie was out of the bottle, we needed interest rate rises and we needed larger surpluses.  That was 12 months ago.  He was wrong.  Wrong throughout 2008.  He was actually urging on a restrictive monetary and fiscal policy when what we should have been doing last year is we should have been ensuring that we had pro growth policies.  Okay he has turned around.  He has done a u-turn.  He has done the biggest u-turn in Australian economic history.  My criticism of it is…

TONY JONES:

Malcolm Turnbull is calling this u-turn as you referred to it, he indeed today called today’s fiscal stimulus package Whitlamesque in its dimensions.  Do you agree with that?

MR COSTELLO:

Oh yes.  Look get this in your mind Tony I think the commentators should be very cruel about this tomorrow.  The Budget will go from a $20 billion surplus to a deficit not because revenues have fallen, this deficit is driven by policy decisions – $28 billion of policy decisions.  Let’s be clear about this, what the Government is saying is in this financial year our revenues are going to drop about $9 billion.  So he is not going to go from a surplus into deficit because of dropping revenues he is going to go from a surplus into a deficit because Kevin Rudd decided to put out $10 billion before Christmas, he was going to insulate homes, he is going to do all sorts of things and it is a low quality spend.

TONY JONES:

Okay but would you have spent money, would you have gone deliberately into deficit to try and buy the Government out of recession, or buy the country out of a recession?

MR COSTELLO:

I would not go deliberately into deficit, in fact even Kevin Rudd said he didn’t go deliberately into deficit as I just pointed out to you it’s his policy decisions that did it.  He is claiming that he was forced into it because revenues have dropped.  It is false.  It wasn’t the revenues it was the policy decisions.  And I will make this point, in this year 2008-09 we will back to the business of borrowing.  The Government is now saying that our debt to GDP will be about 5 per cent in 2010 probably about $60 billion of debt.  Let me tell you Tony, Keating was talking about temporary deficits in 1991-92, they lasted through 1992-93, 1993-94, 1994-95, 1995-96 and it was only when we were elected as the Coalition that we got out of the deficit.  Now let me tell you deficits are very easy to get into.  You can call them temporary if you like but it takes a lot of action to get out of it.  And I will be very, very interested to see whether this Government ever delivers – ever delivers on the promise now which is easy to make that one day we will get out of it.  Bear in mind it was making promises that we would never go into it.  I will be very interested to see whether they ever…

TONY JONES:

Just a minute.  I will just pick you up on one thing because you are not and you weren’t in Government philosophically opposed to cash payments to low income people were you?

MR COSTELLO:

No, no, no we did pensioner bonuses for example.  We did them.

TONY JONES:

Well you did not only that in advance of the 2004 Election at some risk of being accused of trying to buy votes I might add your Government spent $2.2 billion making cash payments of $1,200 to two million households so cash payments are something you have used in Government yourself.

MR COSTELLO:

No, no, no as I said to you, we were the first Government to make cash bonuses to carers and pensioners and in fact the first time we did it was as part of the offset for the GST right.  It was to compensate people for the introduction of the GST.  What we bought with it was a long term economic reform – the GST, which is going to last what 50, 60, 100 years – I don’t know how long it will last in Australia.

TONY JONES:

Well that wasn’t in 2004 and some might argue what you bought in 2004 was a whole lot of voters.

MR COSTELLO:

Oh yes in 2004 people were critical of the Coalition for making payments when the Budget was what in surplus by what 2 per cent of GDP.  As I recall the economic commentators saying in 2004 – only 2 per cent surpluses?  Tony get this in your mind.  This Government is now 2 per cent deficit not 2 per cent surplus – 2 per cent deficit.  That is a turn around…

TONY JONES:

So this is, we can see the ideological ground that is now appearing of course on the other side of the ideological equation you have got this “Monthly Essay” by Kevin Rudd on the Global Financial Crisis.  Mr Turnbull is calling this essay “Orwellian”.  Mr Rudd blames the crisis on extreme capitalism – what he calls the “economic fundamentalism of neo-liberalism” the thrust of this ideological argument is to put the Liberal Party firmly in the camp of the economic extremist.  So let’s start with that.  Do you accept any of the blame, philosophical blame for the financial crisis?

MR COSTELLO:

Well let’s ask what has happened in Australia.  Has there been a bank collapse in Australia?  Has there been a run on a bank in Australia?  Tony you know the funny thing about Kevin Rudd as he is out writing this speech about how it is all the fault of, he puts the word “neo” in but he really wants to emphasise that word “liberal”.  It’s all the fault of liberals.  And Julia Gillard off at Davos giving a speech simultaneously, here’s what she said: “Australia has a AAA foreign currency rating”.  By the way it didn’t have a AAA foreign currency rating before I became Treasurer, it had been downgraded twice, we got it regraded up twice.  She then goes on to say “In an open competitive markets backed up by world class financial prudential regulatory system given the flaws exposed by the Global Financial Crisis I would say our system is even better than world class.”  On the weekend Julia Gillard is off in Davos saying our system is the best in the world, our banks are among the 11 highest credit rated banks in the world, our Government has a AAA credit rating – now this is the regulatory system which I put in place APRA, that regulatory system, Julia Gillard is extolling it to the world as the best in the world.  Back here in Australia this miserable little essay from Kevin Rudd saying the whole financial crisis is somehow the fault of the Liberal Party.  I have got to say to you every now and then someone makes a claim in politics that takes your breath away.  And boy this was one of them.

TONY JONES:

So, what about the very notion that extreme capitalism was to blame for the Global Financial Crisis?  Do you reject that?

MR COSTELLO:

I don’t know what he means by all of this epochal?  I think he said it was an epochal changing event.  You tell me what that means.  I will say this.  I think the US regulatory system was deficient.  The US regulatory system had the Federal Reserve regulating banks, essentially nobody regulating mortgage originators.  They didn’t have proper insurance regulators.  In the US they have 50 insurance regulators, one for each state and they had nobody looking at the overall prudential control of the system.  Now we recognised that was an error in 1997.  And in 1997 I established a body called the Australian Prudential Regulatory Authority – APRA – APRA.  And we took prudential regulation away from the Reserve Bank.  By the way the Reserve Bank strongly resisted that.  I think today they would say it was the right decision.  We put it in APRA.  We said we don’t care what you call your institution, you can call it a bank, you can call it a building society, you can call it a credit union.  We are going to have a regulator which will have prudential controls across the board on all of those financial institutions.  When the US started going into sub-prime mortgage in a big way and it is all on the record, I called in the Australian banks, the Chief Executives.  I said we don’t want to go down this road, we don’t want to have huge exposure to sub-prime lending.  In Australia it used to be called low-doc lending you might recall.  And so we kept our financial institutions out of all of that kind of lending.  Now the Australian banks which prior to that would have been considered minnows in world terms are now because of all of the failures in the US are now amongst the 20 top banks in the world and they are all AA rated – AA rated.  In fact Julia Gillard boasting about the situation.  And so yes the United States by comparison to Australia had a poor regulatory system and that’s been proven.  But in Australia we had a system that was totally different, by the way one that we were continually recommending to the Americans.  I recommended it to the Federal Reserve, the US Treasury, you know we were holding it up at APEC Meetings and I hope that there are countries around the world that adopt it.  But you know let’s not say there has been a failure here in Australia.  This essay by the way, the, you know I know it’s good for The Monthly I know it is going to boost their sales, but you know this has got to be one of the weakest essays that you have seen in a very long time and it ought to be condemned.

TONY JONES:

Well Mr Rudd is essentially arguing that with extreme capitalism and neo-liberalism getting the world into this terrible position social democracy is now, it now falls to social democracy as he has said to prevent neo-liberalism, neo-capitalism from cannibalising itself.  So I know that some people have regarded this essay as a call for return to big government.  Is that how you see it?

MR COSTELLO:

Well that is the only way you can see it.  By the way when Rudd says this has failed for 30 years he is not only condemning me and the Coalition Government he is condemning Hawke-Keating because they were part of the last 30 years, he is presumably condemning Fraser, if you want to go back 30 years.  He said the last 30 years had been a failure so who do you end up with?  Go back 30 years, surprise, surprise oh it is Gough Whitlam.  It is Gough Whitlam.  Now Mr Rudd says social democracy is, he has got to rescue capitalism from itself and I suppose we are lucky that the world has Kevin Rudd to rescue the world capitalist system and maybe after he has rescued the world capitalist system he could move on to solving the Middle East and other things which undoubtedly he will.  But let me ask a serious question: if social democracy is required to rescue the world which social democratic country does he hold up as his model because Britain has been under a Labour Government for over a decade.  Britain has a huge Budget deficit.  The British would see themselves as a social democratic government.  I don’t think the British record is that good.  By the way I don’t think the American record is that good.

TONY JONES:

Well it appears he may well be pinning his hopes on Barack Obama perhaps advised by the Australian Government?

MR COSTELLO:

Well I think that the Australian model has something that could be held up and recommended around the world.  The model that we have with APRA, I agree with that.  But this idea that social democracy is the answer, I mean let’s forget about what might happen in the future – we did have a social democratic government in Britain through all this period.  Is Britain a great success – Northern Rock, Royal Bank of Scotland, budget deficit at 8 per cent?  Is Britain the answer?  Actually we ought to be much more assertive here.  We are Australian.  I think the Australian model is what can be held up around the world.  So why doesn’t Kevin Rudd want to say that?  Because there’s a certain ideological fervour to him.  He can’t say the Australian model is the answer because he wasn’t part of putting it in place.  That would be to give too much credit to the Coalition Government.  Now I think at a time like this he ought to drop his pride, he ought to say as Julia Gillard, in all fairness Julia Gillard had the honesty to say yes the Australian model was the best and he shouldn’t be ashamed of actually giving credit to the Liberal Party rather than writing these appalling essays for the Independent Monthly.

TONY JONES:

Peter Costello we’re out of time.  We thank you very much once again for coming in to talk to us tonight on Lateline.  I am sure those words will resonate in your side of politics and perhaps on the other side.  Thank you very much.

MR COSTELLO:

Thanks very much Tony.