June quarter Balance of Payments, exports, tax, Malcolm Fraser, Groom FEC

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Appointment to the Australian Prudential Regulation Authority
August 30, 2001

June quarter Balance of Payments, exports, tax, Malcolm Fraser, Groom FEC



Wednesday, 29 August 2001


SUBJECTS: June quarter Balance of Payments, exports, tax, Malcolm Fraser,

Groom FEC


Today’s Balance of Payments for the June quarter, are the best result that

Australia has had for 21 years. They show that the Balance of Payments was 2.1

per cent, and you have to go back to 1979 or 1980 for a result like that. For

only the third time in the last 21 years, we have had a surplus on trade in

goods and services, which obviously led the improvement in the Balance of Payments.

But even allowing for the net income deficit, the current account at 2.1 per

cent is the best for 21 years. This has been led principally by the strength

in Australia’s exports. Exports in the quarter were up 1.1 per cent and imports

were down 0.2 of a per cent. This means that exports will contribute to growth

in the June quarter, a little more than we expected at Budget time and it augurs

well for a good result in relation to June quarter GDP. I don’t want to overstate

the effect of that but it is a little bit better than we expected at Budget

time, and that will help the outcome for the June quarter.

I want to pay tribute particularly to Australia’s farmers. Rural exports in

particular were strong in the quarter, but the export growth was not just in

relation to rural commodities. Over the year, elaborately transformed manufactures

had increased, and non-rural exports had also increased. But you are seeing

the benefit in the export performance of, no doubt, a competitive exchange rate,

but also we have taken taxes off exports. For the first time, Australia’s exporters

can compete on even terms with international exporters and our exporters have

led the way. They have, in the face of a global downturn in growth, increased

their volumes. They have contributed to Australia’s growth. We have now run

a trade surplus, and our Balance of Payments position is in the best shape it

has been for 21 years.


Will a stronger dollar, Mr Costello, make it harder to maintain?


One of the factors that has allowed our exporters to increase their earnings

is the competitive, super-competitive, exchange rate and I have made that point

over, and over again. But you have to keep that in perspective. The exchange

rate against the United States dollar has moved a lot. But the Australian dollar

against the Euro, or the Yen, has not moved so much. It looks now, as if the

United States dollar is coming off, and that means that as against the United

States dollar, the A dollar has gone higher. And that is what you would expect

with growth weakening in the United States. But undoubtedly, in answer to your

question, yes the exchange rate has helped Australia’s exporters. They have

been able to take advantage of it, particularly in relation to rural exports.

I think beef exports are higher than they have ever been in Australia, and at

the competitive exchange rate, the still-competitive exchange rate, Australia’s

exporters will continue to do well.


(inaudible). . .Speaking of better outcomes, Mr Costello, the Reserve Bank’s

annual report is due out today and there is some suggestion that there will

be a better than expected profit result. What will the Government use those

funds for?


I think the Bank’s report is out today, and I think, has it been tabled. Is

it public yet? I think what it showed was that the dividend was $34 – some figure

like – million better than was forecast at Budget time, so the $34 million will

be paid across to the Government by way of dividend and it will just go on the

bottom line.


What was the contribution of growth that you were saying from today’s figures?


I said that because the export performance was so strong, exports, net exports,

will make a contribution to growth a little bit stronger than we thought at

Budget time. And that means that, and I don’t want to overstate this, that the

June quarter could be a little stronger than was expected at Budget time.


Treasurer, but given that the global economy is slowing, it appears to be slowing

sharply, we couldn’t expect as good a result next quarter, could we, or in the

current quarter?


Well, this is the outcome for the June quarter. This goes back to what happened

in April, May and June. We are now almost two thirds of the way through the

next quarter, July and August. In July and August my belief is, from looking

at the monthly trade figures, that exports have been as strong.

They have even been growing stronger in July and August. So the export story

is still, is still holding up. The exchange rate has helped that and I have

always said it, but the fact that we have taken taxes off exports has made a

major contribution. And in Australian terms a current account deficit, which

is about 2.1 per cent – and by the time we get the June quarter could even be

a little bit lower – this is very, very low by Australian standards. We haven’t

been in this territory for 21 years. And the perennial problem of the Australian

economy, as you recall throughout the 1980s was current account deficits of

double this at 4 per cent, from the days of Banana Republic on. So this is a

good result for Australia and the best thing about it, is that it has been led

by an increased export performance, not by, as you saw during recessions, dramatic

declines in imports.


Treasurer, last year the Balance of Payments showed an outflow of capital from

Australia at about $7 billion, mainly by portfolio investors. Does the Government

need to do more to encourage super funds and the like and retail investors to

keep their money, invest their money in Australia, and also to get, other than

pension funds overseas, to invest here, say by reducing withholding tax?


By reducing Australia’s withholding tax?


That’s right, yes. For overseas investors.


Well, as I understand the situation, I am going to try and get this technically

right for you, but don’t hang me if I get it wrong. In relation to franked dividends

there isn’t a withholding tax. It would be different in relation to unfranked

dividends. That is my point. But in answer to your general question, the Government

wants to encourage investment in Australia, yes it does. One of the reasons

why, for example, we have abolished stamp duties on shares is to encourage that,

the abolition of Financial Institutions Duty will encourage that, the reduction

in company taxes, I believe, will encourage that. And if your question is, should

we continue to monitor the situation to do the things that are affordable to

encourage it? Yes, we continue to monitor the situation.


What do you think of the institutions, Treasurer, that have been advertising

in major newspapers telling investors, retail investors, Australia is a small

place, only 2 per cent of the world market, and you should be putting your money



Well, we can’t change the facts. We are only, I think it might even be one

per cent, something like one or two per cent. We can’t change the facts. But

what we can do, is, we can make this the best possible place to invest, by having

the most competitive business environment. That is what we are trying to do.


Treasurer, on a separate matter. Former Prime Minister Malcolm Fraser is upset

about a new history of his own Government. How would you rate the Fraser Government

in the history of Coalition Governments in Australia?


Well, I would say Malcolm Fraser has this accolade in the Liberal Party. He

is the second longest serving Liberal Prime Minister. He won three elections,

including the momentous 1975 election. That puts him in a class just below Sir

Robert Menzies. The second thing I would say, is, you have got to remember the

destruction that the Whitlam Government had left in its wake in 1975. And in

economic terms the Fraser Government faced a huge task in pulling back from

that, which they acquitted themselves to, with dedication. If you look back

in an economic sense, with some of the achievements of more recent years, obviously

in terms of inflation or budgets, or growth, some of the achievements in more

recent years stand out as being much stronger. But you have got to remember

that the Fraser Government was coming off a tale of sorry destruction between

1972 and 1975.


Mr Costello, in retrospect do you regret not referring Mrs Watts’ letter to

the Taxation Office?


Mrs Watts’ letter said that the State Director, after being acquainted with

independent advice, had apologised for what he had done. And as is clear, by

the time Mrs Watts wrote to me, the matter had been disclosed to the Federal

Director and rectified. And Mrs Watts said, in the circumstances, she wished

no reply from me . . .


So why did you pass it on to Mr Macfarlane?


Well, I was entitled as the letter said to rely on the fact that the State

Director had admitted the error. Independent advice had been received, the error

had been admitted, and from recollection he even apologised. And then Mrs Watts

said she wanted no reply. So in those circumstances, I reasonably inferred and

correctly inferred, as it turned out, that the Federal Director and the State

Director had acknowledged their error and were fixing it, and then went into

discussions, went into discussions with the Australian Taxation Office, in relation

to the matter and made a full disclosure. And, I’ll finish on this point, regardless

of what the Labor Party says – and this is all out there on the record – when

they made full disclosure to the Australian Taxation Office, the Australian

Taxation Office, after correctly looking at that particular example said the

underpayment was $75.12. Now, forget the smear that is put aside in the Parliament,

because I have heard so many false claims now, made in particular by Mr Crean,

as has been put on the record by Mr Crosby, after they made full disclosure,

the proper treatment meant that there was an underpayment of $75.12. Now, I

pay tribute to the Labor Party for one thing. For three full parliamentary days

they have talked about nothing but an underpayment which was disclosed and assessed

at $75.12.

And no doubt, they will hope that they can do it for another two more days,

because they last thing they want to do in the next two days is talk about ‘noodle

nation’ or rollback or immigration policy. They would rather take the Parliament

off on a five-day excursion on $75.12.


Treasurer, there was confusion though about how much GST should have been paid

on, amount that should have been paid. What do say the amount of GST should

have been? And on what amount should it have been paid?


Well, Lynton Crosby has said what the Tax Office said it was. There is no confusion.

It was $75.12.


But that was based on the cost of the function, not the gross proceeds of the



Well, hang on. That is what the Tax Office said. When the Tax Office went through

this – the Tax Office has been right through the December BAS. It is all there

on Lynton Crosby’s statements. With a full disclosure on the December BAS, and

this would have been on the December BAS, bear that in mind, it was an event

that took place in the three months leading up to December – when it went through

the proper treatment would have resulted in a payment of $75.12 higher. Now,

that is what the Tax Office said. Now, the Tax Office will be doing a full report.

I pay tribute to the Labor Party. I really do pay tribute to them. They have

managed to distract the attention of the Parliament for three days, and, you

know, I would just say to you, you hear the Labor Party from time to time talk

about differing statements from Ministers you want to have a look at the differing

statements and false claims that have now been made by the Labor Party, because

their story has changed a lot more than four or five times, I’ll tell you.

Thank you.