TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Interview with Mark Colvin

ABC Radio, PM

Tuesday, 4 February 2003

6.17 pm

SUBJECTS: Iraq, US Budget; Trade Deficit; Business Confidence; Growth; Drought

COLVIN:

Well, the Australian Treasurer, Peter Costello is back in the political fray

after his holidays. He plunged into the debate about war with Iraq today, but

it’s not only Iraq that would be on the Treasurer’s mind. There’s been a series

of reports including official statistics and business surveys that are suggesting

that the Australian economy is heading for an unexpected slowdown throughout

the year ahead. And what will George Bush’s latest deficit Budget do to our

prospects? The Treasurer joins me now from our Canberra studio. Mr Costello,

thanks for joining us, and we will come to the economics very shortly, but I

have got to ask, begin by asking you about a report on the Nine Network tonight

which says that they have got hold of a leaked foreign affairs record of a conversation

between your colleague Alexander Downer and the New Zealand High Commissioner

in October, in which Mr Downer apparently said that Australia would prefer UN

backing but was not in a position now to withdraw our presence from the Gulf

and this was not a point that could be made public. Can you comment on that

please?

TREASURER:

Well obviously I wasn’t present at the discussion and I haven’t seen the memo.

But the Government’s position is that we would prefer action to be taken and

authorised by the UN Security Council. There is a fair argument that it has

been already. That is the point that the Prime Minister made in the Parliament

today, he will be making it in Washington. And I think it is really now up to

the UN Security Council if it wants to enforce the non-proliferation of weapons

of mass destruction it will be taking strong action.

COLVIN:

But does this piece of paper actually confirm that Australia is locked-in now

come what may in the UN?

TREASURER:

Well, I haven’t seen the piece of paper but I wouldn’t think that was the case

at all. The Australian Government has made its position clear, which is that

we believe that the UN should act, we have a strong preference for it to act,

we think that the onus is now on the UN but we believe that the international

community must face this and Australia will be part of any action which we believe

is in our national interest to secure Australian citizens and international

peace.

COLVIN:

Tony Blair said in the last twenty-four hours that he was risking everything

politically over Iraq, that he was staking his future. Is John Howard doing

the same?

TREASURER:

I think that John Howard is doing what he believes is responsible in the circumstances

and taking a long-term view. The easy thing here would be to ignore the threat

that these weapons pose and heaven forbid if one day one of them was used, then

the public would want to know why its leaders hadn’t put in place all measures

that were available to them to protect their citizens.

COLVIN:

Do you believe then that Saddam Hussein might let some of these weapons of mass

destruction out to terrorists or is there not a greater danger that the aftermath

of war might be a more fruitful time for terrorists to get hold of them?

TREASURER:

Well, 8,500 litres of anthrax, why would Saddam Hussein need that?

COLVIN:

Indeed, but the question I am asking is…

TREASURER:

When one milligram can kill millions of people, now…

COLVIN:

But the question…

TREASURER:

Now suppose one litre…

COLVIN:

The question I am asking is whether they are more likely to get to terrorists

in the current situation or in the chaos that may follow a war?

TREASURER:

Well, just let me ask you rhetorically why do you need them in the first place?

What is to be done with these litres of anthrax? Well what we say should be

done is that they should be handed over to Hans Blix who should destroy them.

What Saddam is apparently doing is hiding them and certainly not accounting

for them. Whilst they exist they are a danger. And the only way of securing

public safety is to bring the destruction of these weapons of mass destruction

about. That is what the UN Security Council has called for to be done, it hasn’t

been done, and now it is up to the Security Council to announce it’s response

with the co-operation of countries that believe it’s important to disarm these

weapons of mass destruction.

COLVIN:

I know this is the question that always follows you around. But what is all

this doing to your leadership aspirations? Is John Howard, potential war time

leader, effectively now concreted into the Lodge?

TREASURER:

Look, we don’t determine policies and leadership through the prism of particular

interests. What all of us do is we determine what is right and in the long term

interests for the country. And that is what is motivating me and that’s what’s

motivating John Howard in his decisions on this matter.

COLVIN:

Well, let me ask you, as flagged, about the $300 billion plus, I mean that

is just such a mind boggling figure, deficit, put forward by George W. Bush.

You’re not in favour of deficit budgeting, what do you think of this one?

TREASURER:

Well, it’s a very large budget deficit. It’s about 3 per cent of GDP, US GDP.

If our budget were in the same position as the US budget we would be experiencing,

or calling for, in this financial year a budget deficit of $20 billion, rather

than a balanced or surplus budget. So it’s a very large sum. It illustrates

that the Australian fiscal position is much, much stronger than the United States.

COLVIN:

And obviously we are dependant to some degree on the economic health of the

United States. Do you go along with the conventional economic wisdom that big

deficits depress investment and also are likely to raise interest rates?

TREASURER:

Well, the US economy is not growing as well as Australia and as a response

the Government in the United States is budgeting for a large deficit which should

be stimulatory. They have official interest rates at 1 ¼ per cent. Now,

it can’t go much lower than that so that should be stimulatory. From Australia’s

point of view, a US economy which has been in recession and sluggish is a problem,

not just for us, but for the world. And if stimulation will encourage growth

in the US economy, and therefore the world, we would welcome such growth. Now…

COLVIN:

(inaudible)

TREASURER:

…it’s been a difficult period for us. We have come through a US recession.

Australia has been kept out of recession because it has been an economy which

has grown stronger than the United States. But we would certainly like to see

the United States return to growth.

COLVIN:

Speaking of deficits, what explains our $3 billion trade deficit?

TREASURER:

Well, there are really two factors involved. One is that the drought is now

eating into our rural exports. And the second is that business investment is

very strong and you saw in those figures the import of Qantas fleet – four new

aeroplanes in the one month. Qantas must be, I guess, one of the most profitable

airlines in the world. Its got a big capital upgrade. The fact that it is engaging

capital investment is a good thing long term because it will make profits and

return income to the country. But…

COLVIN:

But if the…

TREASURER:

…you will see showing up on the trade figures that capital investment.

COLVIN:

On the export side though, if it is all about the drought, why has our export

growth been essentially flat for the last couple of years before even the drought

started to bite?

TREASURER:

Well, Australian exports at 21 per cent of GDP are higher in the last 2 years

than they have ever been. That is, the export proportion of the Australian economy

is higher than it’s ever been. So, what you are seeing in the December month,

and it won’t just be December – I have said this – it will be in the months

in the new year as well, you are seeing the reflection of the worst drought

at least since 1982, possibly since the 1940’s. So, the Australian economy is

actually holding up, as I said earlier, better than the United States, notwithstanding

a very severe drought. The United States doesn’t have a drought you know, and

that is not the cause of US weakness and it’s the non-rural Australian economy

which is keeping our growth going and strong capital investment. Now, you know,

we can look at the problems of the world, and the US has its problems, and Japan,

and Germany, and France, and Britain, and it is a pretty tough world out there.

But the only thing I can say is, by comparison, the Australian economy still

continues to lead. It will not be immune, it will not be immune from international

developments but we still continue to lead.

COLVIN:

Business confidence doesn’t look too happy at the moment. What have you got

to say to the business community that would increase their confidence then?

TREASURER:

Well, business expenditure has been quite strong this year and what I would

say to the business community is that we have good conditions for investment,

we have good consumer demand, we have interest rates which by historical standards

are low. We have a strong fiscal position, we have a good debt position, our

inflation is still within the band that we are targeting. Our company tax rate

is reduced to 30 per cent, we have full dividend imputation which the United

States is now looking like it will follow us and emulate our tax system in relation

to dividend imputation. So, conditions there for business investment are good

in Australia. I don’t discount the fact that the international environment is,

is difficult, but business conditions in Australia are good for investment and

I encourage businesses to keep on doing it.

COLVIN:

And at the Mid-Year Economic Statement you were forecasting 4 per cent growth.

What are you forecasting now?

TREASURER:

Well, we will update our forecasts in the Budget so what I am forecasting is

precisely what I forecast in the Mid-Year Review.

COLVIN:

And when you update the forecast what will that do, though, to your other projections?

TREASURER:

Well, I think that, as I said earlier, the non-rural economy in Australia has

held up surprisingly well and business investment is good as is consumer demand.

So, sure the drought is a terrible problem, and probably worsening over the

last couple of months, but the non-rural economy is keeping people in jobs.

COLVIN:

And for the rest, like an awful lot of Australians, you’re praying for rain?

TREASURER:

Look, rain, not just for the sake of the farmers, but for the towns that depend

on them and the sake of the economy, we hope this drought breaks. If it doesn’t

break in March or April then it will be into another planting season. All I

can tell you is that the meteorologists still say better chance than not of

the drought breaking. Let’s hope that it does.

COLVIN:

Treasurer, thank you very much for joining us on PM tonight.

TREASURER:

Thank you.