Japan/Australia, interest rates, trade liberalisation, agricultural subsidies, Free Trade Agreement, aid funding, Budget, tax cuts

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Japan, Asian Economies
April 28, 2001
Shane Stone
May 1, 2001
Japan, Asian Economies
April 28, 2001
Shane Stone
May 1, 2001

Japan/Australia, interest rates, trade liberalisation, agricultural subsidies, Free Trade Agreement, aid funding, Budget, tax cuts

Transcript No. 2001/048



The Hon Peter Costello MP


Press Conference

Monday, 30 April 2001

12.30 pm

Washington DC

SUBJECTS: Japan/Australia, interest rates, trade liberalisation, agricultural

subsidies, Free Trade Agreement, aid funding, Budget, tax cuts


Well, the meetings of the IMF and World Bank have just concluded here in Washington. In

particular, the focus of discussion has been on world economic prospects, the slowing

world economy led by a slowing US economy, and a Japanese economy which is still

considerably weaker than most of the world would hope for. It looks as if measures are now

being taken which are pro-growth measures in relation to the US economy, which will help

the world generally, particularly the aggressive cutting of interest rates. There is a

great deal of work to be done in Japan under the new administration. We wish the

Government well. I took the opportunity whilst here in Washington to meet with the new

Finance Minister for Japan, Mr Shiokawa, and to discuss some of the plans the new

Government has to restructure the Japanese economy. And the focus of the World Bank

meetings were on poverty reduction, in particular the work that can be done in middle

income countries, many of which are in our region, to help economic growth to bring living

standard increases. The point I have made previously is that economic growth is still the

best poverty buster that has been invented, that most countries that can open their

markets, open trade and increase economic growth, are going to make the best inroads into

poverty. We have seen that in countries like India and China, and there was a very

fruitful discussion about measures that can be taken along those lines.


When you met the Japanese Minister, did you talk about the relationship between

Australia and Japan? There’s been a suggestion that the relationship [inaudible]?


We did talk about the relationship. I emphasised the fact that Japan is

Australia’s most important trading destination. He emphasised the closeness of the

relationship. He indicated that he saw it as a very close and very productive one. He

spent a considerable amount of time detailing the plans that their Government has to

kick-start the Japanese economy, which would be good for Japan. But the point he made

also, good for Australia. And we encouraged his efforts in that. It is a big task. The

Japanese economy has been in the doldrums now for at least five years. Their budget

situation has been put into very high debt. They have a very high debt to GDP ratio as a

consequence of fiscal stimulation packages. Their financial system needs very substantial

restructuring and it is going to be a big job. It has defeated some previous

administrations. We hope it won’t defeat this one.


Mr Treasurer, I’m interested to hear from you what sense you got from your US

counterparts about the [inaudible]?


Obviously I cannot comment on US monetary policy. I don’t even foreshadow

movements in Australian monetary policy. So I can’t go that way. But I think what

you’ve seen in the published media is really reflective of the US situation. There

has been a substantial slowing. Part of the slowing was because growth had been so strong

through the course of last year. You would have expected a slowing anyway. It appears as

if rising energy prices, gasoline and oil prices, has had an effect. The changes in

relation to the equity markets have had an effect. And all expectations are that the US

economic growth is slowing very considerably, and slowed quickly. Now, there have already

been aggressive steps taken in relation to monetary policy which, of course we welcome,

the world welcomes. And we hope that this will be a soft landing for the US economy. The

world hopes that this will be a soft landing for the US economy. A soft landing for the US

economy would be much better for Australia and for all of the countries of our region.


Treasurer, you hailed the interest rate cuts that we’ve seen in the US economy. Is

there room for lower interest rates in a broad sense in Australia as well?


Well, we have already had a number of reductions in interest rates in Australia. Our

price measures still indicate that price increases are subdued, that core inflation, the

kind of measure you have in the United States of core inflation, is still within the band

of 2-3 per cent probably – not showing outside one-off factors, any price rises, and the

most significant one-off factor was fruit and vegetable prices arising from floods in New

South Wales and Queensland. One-off events. So we have got restraint in relation to prices

and that has given us the opportunity to reduce interest rates as we have over the course

of this year. And that will be good for the economy.


How important is it for the President [inaudible] trade [inaudible] given some of the

things you’ve said about the importance [inaudible]?


We’ve made the point consistently and persistently here in the United States that

trade liberalisation is not just in Australia’s interests, but would be in the

interests of the United States as well. It would be in our interests. We don’t shy

away from that. It is one of the reasons why we push it. But we also argue that it would

be in the interests of the United States. I have had some discussion while I have been

here about the Free Trade Agreement proposal between the United States and Australia.

I think there have been encouraging responses from the Administration. Obviously it is

going to take time. And if the President has a freer hand on trade matters, I think that

will be good for us, and I think it would be good for the United States as well.


Can I just follow up on that? You have said that one of the priorities that Australia

brought to these meetings was the [inaudible] the US clearly setting its first priority on

the free trade area of the Americas, the EU preoccupied with expansion to central eastern

Europe on the other hand. What sense of political will do you get from the US and Europe

towards not only launching, but successfully concluding, [inaudible]?


Well, the interesting thing about both the IMF and the World Bank meetings is the

persistent call in those meetings for world trade liberalisation, and a persistent call

reflected in the communiqus for the launching of a new trade round. And, in the World

Bank, underlining the fact that reducing agricultural subsidies would help the

world’s poor. Now let me give you one figure, which was raised in our discussions

last night. The amount of money that is spent on agricultural subsidies in the world is

five times the amount of aid assistance by the developed world to the developing

countries. We spend five times as much on agricultural subsidies, the world spends five

times as much on agricultural subsidies, as they do on aid. And those agricultural

subsidies, to a large degree are working against the developing countries. These are

subsidies to keep them out of developed countries’ markets. So we are spending more

money penalising the developing countries on trade than we are spending on aid to help

them develop. This is one of the points that was starkly illustrated in our discussion and

one of the points that I raised in discussion with Ministers last night. And I think there

is a general understanding that not only would you be helping the developing countries by

reducing the cost of all of these subsidies, but you would be helping the developed

countries as well by opening and liberalising trade.


How confident are you that a formal FTA, Free Trade Agreement, with Australia could be

launched when the Prime Minister comes?


I am sure that the Prime Minister will take that issue up in discussions when he

visits. And obviously it is something that is going to take time. I am not saying these

things are easy. But the fact is, that there have been positive responses and it would be,

I believe, in the interests of both of our countries. And the Prime Minister will be able

to take that up in his discussions when he comes to Washington to meet the new



In terms of the world’s poor, is Australia prepared to commit money to this new

health fund that’s being proposed and, if so, how much?


I think Australia has had a pretty good record in relation to aid generally. And there

have been some comments that I would like to respond to. Australia’s contribution as

a percentage of GDP in 2000 is above the OECD average. It is greater than other major G7

economies. And, in particular, it has been lifted by contributions in East Timor, which

have been very, very substantial. Australia has also contributed full burden sharing in

relation to the HIPC initiative, Heavily Indebted Poor Countries initiative. It has

announced its own position to forgive bilateral debt for the countries that qualify under

that. And we will take part in our full burden sharing in relation to those initiatives, I

can assure you of that. And we have taken a pretty positive attitude to all of the recent



Treasurer, just in light of the economic slowdown in both the world and in the

Australian economy, is the Government able to continue to post the Budget surpluses it has

in the past in light of that economic environment?


Well, when this Government came to office, as you know the Budget was about $10 billion

in deficit and had been haemorrhaging for five wasted, profligate Labor years. And we took

that Budget, we put it into surplus over a two year period, and we’ve now delivered

four surplus Budgets. And we want to continue to keep the Budget in the black and to fund

all of the important expenditures out of our existing revenue base and to keep reducing

Labor debts. That is our strategy in the coming Budget. But you’ll have to wait until

the Budget to see more details.


Is there room in the Budget for pensioners and self-funded retirees who have been hurt

by GST?


Well, we understand the position of self-funded retirees and we have had a number of

measures to help them. We have announced tax rebates to put them on the same footing as

pensioners. We have extended the eligibility of the Commonwealth seniors health card. We

have introduced a 30 per cent rebate for private health insurance. Shortly they are

going to get the benefit of refunds on excess imputation credits. And we always continue

to work hard for the benefit of self funded retirees. They are an important group that we

have always focussed on helping. We have made a lot of progress to date but we always keep

an eye on helping those people who are living off their own savings. They are one group of

people that do not profit from low interest rates. The one group of people that do not

necessarily welcome low interest rates – business does, home owners do – is

the self funded retirees. So, we are always working on measures to assist them.


Are across the board tax cuts out of the question?


Let me make this point about tax cuts. On 1 July of last year, we introduced income tax

cuts which were about 2 per cent of GDP. The US is arguing about a tax cut over 10 years,

which I think, is something like 0.2 per cent of GDP. That will put in context how

significant the Australian income tax cuts were. They were very significant income tax

cuts. Now less than one year old, of 2 per cent of GDP. Now, I have said on the

record a thousand times, I think lower income taxes are always better. But bear this in

mind – we are still digesting the largest income tax cuts in Australian history, which are

very significant by world standards. Very significant by world standards and that has

delivered a lot of benefit to middle income families in Australia.