March Quarter 2004 Consumer Price Index (CPI), Australian Economy, Interest Rates, Mitsubishi, National Australia Bank, Australian Broadcasting Authority, Singapore Trade, World Economy – Doorstop interview, Treasury Place, Melbourne

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Australia Encourages IMF/World Bank to Increase Efforts in Supporting Trade Liberalisation
April 26, 2004
Government Reaffirms the Existing Corporate Taxation Treatment of Options Granted to Employees
April 30, 2004

March Quarter 2004 Consumer Price Index (CPI), Australian Economy, Interest Rates, Mitsubishi, National Australia Bank, Australian Broadcasting Authority, Singapore Trade, World Economy – Doorstop interview, Treasury Place, Melbourne



Doorstop Interview

Treasury Place, Melbourne

Wednesday, 28 April 2004

12.15 pm

SUBJECTS: March Quarter 2004 Consumer Price Index (CPI); Australian

Economy; Interest Rates; Mitsubishi; National Australia Bank; Australian Broadcasting

Authority; Singapore Trade; World Economy


Today’s Consumer Price Index figures of 0.9 per cent for the March quarter

and 2 per cent for the year show that inflation in Australia is at the lowest

level for four years. And a low level of inflation is consistent with a growing

economy, and it puts Australia well placed amongst the countries of the world

to deal with the forthcoming international pressures. We have a target in Australia

to keep inflation between 2 and 3 per cent, we are right on the lower end of

that, at about 2 per cent, and our forecasts are that we can stay down towards

the lower part of that target, maybe even a little below over the forthcoming


Now, in the quarter we saw some things come down such as motor cars, we saw

some other things come down such as audio visual and travel. There were price

rises in some other areas, in the Higher Education area for example where State

Governments have increase TAFE fees, but when you put all of those together,

you get a very subdued inflation, low prices and a strongly growing economy.

And I think it is important that we keep Australia on track in the year which

is ahead. It looks as if global interest rates will rise over the course of

the next year, particularly as the United States comes out of recession and

its economy starts growing. So we can’t afford to be complacent here.

It is going to take strong management to keep the Australian economy growing

on a low inflation rate and to make sure that we can meet those international

challenges in the course of the year.


Is this the lowest inflation will get?


Well we have a target of inflation being between 2 and 3 per cent, and it is

at 2 per cent. And that is the lowest it has been for 4 years, so that is a

pretty good outcome actually, it is where we like to keep inflation. And if

you can tame the inflation dragon whilst your economy is growing, that is what

economic policy is all about and the pay off from good economic policy is jobs,

and that is why jobs have been performing well over the past year. But we can’t

be complacent, we have got to keep it there.


Are you concerned it might rise quite dramatically once the impact of the higher

Australian dollar starts to wear off?


Well, you can see some effects here of exchange rates. Obviously they affect

prices in the economy for those goods which are imported. But even extrapolating

from that, it looks as if domestically sourced prices may have come off a bit.

And the good news is that if we can manage our economy properly, there are some

areas which could ease in price pressure in the future. For example the drought

has been effecting food prices, if we get some easing in relation to the drought

that could actually help us with domestically sourced prices.


Is there a concern there that two of the areas where the highest annualised

rates are being recorded, in health and education, are often regarded as fairly

politically sensitive areas in the economy?


Well there was an increase in pharmaceuticals because this is an annual thing.

What happens is after you get to the end of a year, many pensioners who are

at that stage enjoying free pharmaceuticals have to make a co-contribution and

come back in, the safety net provides that you have to make a co-contribution

for so many pharmaceuticals, after that they are free. So, by the end of the

year, people are getting, who are on concession cards, free pharmaceuticals

in the first part of the year, they have to start paying their co-contribution

again, so that is an annual effect. There is a rise in relation to education,

principally driven by the fact that State Governments have put up the TAFE fees.

And if you put up TAFE fees, as the State Governments have done, the cost of

education rises, yes it does.


You said international interest rates would rise over the next year, are you

expecting Australia’s interest rates to be increased as well?


Well, it is plain, I think, that as the United States comes out of recession,

authorities in the United States will be raising interest rates and that will

put pressure on interest rates around the world. That is why we can’t

afford to be complacent in Australia. That is why we have to concentrate on

good economic policy, sound reform, keeping inflation low, and that is what

we intend to do.


If the US raises rates, is it inevitable that Australian rates will also go





How concerned are you of the prospect of Mitsubishi closing down their Australian



Very concerned. It would be a terrible thing for the people who are employed

in Mitsubishi if they were to lose their jobs. And as far as the Government

is concerned, we believe what can be done in Australia should be done. But you

must understand this point, the problem for Mitsubishi is a problem for the

international company. Its owner has decided not to pump more capital in, nothing

to do with Australia, that is Mitsubishi worldwide. The owner of Mitsubishi

worldwide, Daimler Chrysler has decided that it doesn’t want to pump more

capital in, so worldwide Mitsubishi is facing significant challenges and the

Australian leg is just caught up in that international issue.


Would the Australian Government increase the assistance package it promised

in 2002 to Mitsubishi Australia?


This is an international point, it has got nothing to do with Mitsubishi Australia…


More federal funding would help it…


…no, no, no, let me repeat, it is not Mitsubishi Australia. This is the

Japanese company in trouble, it is not Mitsubishi Australia.


Would you like to see the National Australia Bank solve its boardroom problems

before its annual general meeting?


Well, yes I would, of course I would. The National Australia Bank is one of

Australia’s most significant banks. It has been over the years a profitable

bank, and a strong employer, and I would like to see it solve its corporate

difficulties. Ultimately however, that is a matter for the Directors and the

shareholders, but I hope it can work its way out of this problem quickly.


There are reports today that the National Australia Bank considered merging

with ANZ back in 1999. Were you ever approached about this?


Well, I don’t go into approaches that are made to us, but the Government

has a clear policy which is that we will not allow amalgamations between the

four large commercial banks.


So you can’t comment if Don Argus actually tested his theory with you?


I don’t comment on commercial speculation, but I repeat again, the Government

policy is that we would not allow mergers between the four large Australian



On another issue, John Laws today suggested that he was at a dinner in the

lead up to the last election that you were at, that Mr Howard was at, in which

Alan Jones said to Mr Howard, David Flint should stay on as ABA Chairman or

he would cause problems for the Government in the lead up to the election, are

you aware of that?


I don’t know what dinner he is talking about, sorry. I certainly didn’t

hear any such conversation.


He said that Alan Jones instructed the Prime Minister to reinstate Flint (inaudible).

What sort of influence does Alan Jones have on your government?


Well, I heard no such conversations so obviously I can’t make a comment.


Has Professor Flint, in your view, been wise in writing that letter of praise

to Alan Jones on ABA letterhead?


Look, Professor Flint has the duty to discharge as the ABA Chairman, and I

believe that he has been discharging it as required by the statute, and by law.


Are there any competition concerns with SingPower now owning assets in all

tiers of the electricity industry in Australia?


Well, if there are, no doubt the competition regulator will identify them,

and alert us to them.


Just looking at the investment, Singapore is now a very big investor in Australia,

could you see Australian utilities such as AGL, and say Telstra being invited

in to take large chunks of the Singaporean economy, or is it such a closed economy

that Australian businesses, corporations would struggle there?


I think Australian corporations could do quite well in Singapore. But you have

got to remember this, that Singapore is a pretty small market, it is not nearly

as great a market as Australia, so whether that would be of interest to Australian

companies would be a matter for them.


It just seems that while we have the Singapore-Australia Free Trade Agreement,

I mean the Australian economy seems far more open that say the Singaporean economy.


Well the Australian economy has been growing much stronger than the Singaporean

economy too, you have got to remember that. Singapore was affected by the Asian

financial crisis and had a serious recession subsequent to that, and the Australian

economy grew through the Asian financial crisis, it grew through 2000 and 2001.

We see Singapore as a good friend and a good collaborator, but I think it would

be a mistake to suggest that Singapore’s economy is of the dimension of



They have managed to invest say $40 billion here, we have put $11 billion back

there, I mean it seems an uneven flow.


Well, Australia invests more in the United States than the United States invests

in Australia. Why do we do that? Because we like getting access to an economy

which is much bigger than ours. Why would Singapore be investing in Australia?

It wants to get access to an economy which is bigger than its. This is not an

uncommon thing.


Treasurer, you have just returned from a meeting with some of the world’s

economic Ministers. Has your outlook on the global economy changed in particular,

or are you heartened by some of the comments that you are hearing about the

world economy?


Well look, I have just returned from a meeting of the International Monetary

Fund and the World Bank in Washington. There seems to be a general view that

the world economy is recovering, led by the US which went through a recession.

It appears tentatively as if Japan might be growing again, and I think we would

all welcome that because Japan has been through three recessions in recent years.

There are not many countries in the world that have grown in the way that Australia

has, and as the US economy comes back, I expect that interest rates will rise

in the United States and globally. And that is why we will need very careful

economic management in this country, because there are going to be global pressures

coming forward in the next 12 months. Now, the good news from an Australian

point of view is that our trading partners are starting to grow again, and that

should mean that demand for our exporters will increase. That is the good news.

But the flip side of that will be a very delicate interest rate environment.


What you say is the biggest threat or what are the biggest threats to your forecasts

for next year?


The biggest economic threat in Australia would be a Labor Government. Thank