Interview with Kerry O’Brien

7.30 Report

Wednesday, 6 June 2007

7.40 pm

SUBJECTS: March quarter National Accounts, economic management, climate change, leadership

O’BRIEN:

A good set of figures today, Mr Costello.  Good enough that voters may decide to stick with you after all or good enough to convince people they can afford a change of government that’s been there a long time because the economy is stable?

TREASURER:

Well, the March figures show that the economy grew strongly – 1.6 per cent and 3.8 per cent through the year.  And when you consider that we are in the middle of a shocking drought and rural production is down over 20 per cent, this is very strong, very robust growth.  And it explains to some degree the strong job creation that we have been seeing.  We have been seeing jobs growing, but the figures on the economy haven’t been so strong over recent quarters and now you are seeing the economy picking up.  I think it is because we have had a big investment phase and that investment phase is now starting to work out in more output.

O’BRIEN:

Good enough for people to think they can afford a change of government?

TREASURER:

Well, the economy is one of the stronger economies of the world.  Unemployment is at 4.4 per cent.  Now, I think most people would say that our economy has been well managed over a long period of time.  Some people say, ‘Oh, well, that means we can afford a change because the good times will roll along even under a change of government.’  My message to them would be that the economy is delicately poised.  At 4.4 per cent unemployment and with strong growth continuing, it is a very, very delicate managing task.  And if we were to change industrial relations, if we were to go back to collective agreements and union negotiated wage outcomes you could put all of that at risk with inflation and an inevitable downturn. 

O’BRIEN:

When Paul Keating was about to lose government in ‘96, he warned voters that if they changed government they would change the nation.  Now, you are now warning the voters that if they change the government they will change the economy.  It’s a bit risky isn’t it, borrowing a losing slogan at this time?

TREASURER:

Well I am not borrowing his slogan. 

O’BRIEN:

The message is the same.

TREASURER:

Well, what I am doing is I am pointing to a very real risk which is this: that where you have got 4.4 per cent unemployment – and bear in mind we haven’t been there for 32 years – and where you have strong economic growth as we have seen in today’s figures, if you change an industrial relations policy, if you go back to union collective agreements and pattern bargaining.  If you abolish AWAs, then the risk is that this will lead to a wages outbreak, inflation and eventually recession.  That is what has happened in the past.  And my argument is this: that one of the things that has enabled us to keep this growth going with low unemployment and yet not have a wages breakout is a much better industrial relations system.  If you get rid of that, the risks will come back.

O’BRIEN:

If we follow the logic of what you and Mr Howard are arguing, you would have us believe that only one side of politics is ever fit to govern into the future. That is what you argued in ‘96, ‘98, 2001, 2004, you are now you are arguing it in 2007.  Yours is the only side of politics that is able to govern.

TREASURER:

Kerry, I don’t think I would be able to argue that if Kevin Rudd could stand up and put his hand on his heart and say I voted to balance the budget, I voted to pay off debt, I voted to reform the tax system, I voted to break union power on the waterfront, I voted to improve industrial relations.  Then Kevin Rudd could say he was an economic conservative and he could claim some right to manage this economy.  My point is this: because he has opposed every step that has got us to where we are now, it is very cute to turn around and say ‘but I’m changed, I am now an economic conservative and you can trust me to take all of the right steps in the future.’  I would just say to people, look at his record, look at his deeds.  Don’t listen to these advertising slogans.  This man is not an economic conservative.  He has not participated in any meaningful way in building the economy and you can’t trust him to do the right thing the future.

O’BRIEN:

Tony Abbott said in a speech yesterday that Australian voters make very high demands on their politicians.  They expect you to be celebrities, but at the same time just like them, to be content with a fraction of the earnings of corporate high-flyers while working seven days a week in a hyper-responsible job, that is, as far as voters are concerned nothing but the best is good enough from politicians and the better it gets the more zealously voters reserve their rights to raise their expectations.  Do you agree with your colleagues, because it sounds like a bit of a whinge, doesn’t it?

TREASURER:

I think voters are entitled to be demanding.  I think we want this to be the best country in the world and they are entitled to ask their government to govern it wisely and well.  They put us under pressure.  That’s good.  That gets a better response from us.  And I don’t think there is any point in being critical of the voters.

O’BRIEN:

He also said recently that he thought they had gone to sleep at the wheel.  That’s not very flattering either.

TREASURER:

The thing about Tony, he is a colourful character as you and I know, Kerry.  And he has put that in a colourful way, but I think Australian voters are demanding, I think by and large that has led to better government and I just hope they are as demanding of oppositions as they are of governments.

O’BRIEN:

Well since we are talking about good government, on global warming, commentators and analysts are almost universal in their view that your government has been seriously dragging the chain for most of 11 years on global warming.  When did you personally start to find the science convincing on climate change?

TREASURER:

Well I think as the international consensus developed.  And I am not a scientist.  What I do is I rely on scientific research and I rely on the weight of the evidence in relation to these matters.  And I think…

O’BRIEN:

So when was the turning point for you?

TREASURER:

Well I think as the evidence has mounted through the period of the 1990s, particularly in the late 1990s, this became an issue and I think the international consensus has moved decisively in this decade.  And I accept the scientific evidence.  I don’t think there is any reason to doubt the fact that the climate is changing, that temperatures are increasing, that carbon emissions from human activity is contributing to that.  And I want to preserve a beautiful and pristine environment.  I want to make sure that Australia doesn’t get drier and hotter and I want to make sure that we put in place policies that will address that.

O’BRIEN:

Well there are some who are arguing you should have put those policies in place a long time ago.  You and then Environment Minister, David Kemp took a proposal on carbon trading to Cabinet in July and August of 2003, backed by your department.  That is nearly four years ago.  Why did Cabinet reject it?  Why couldn’t you convince the Prime Minister? Why did he oppose it? 

TREASURER:

A carbon trading system is a pretty complicated thing.  It is easy to say, but it takes a lot of time to get your head around it and it will take quite a lot of work to get it up and running.  And we are talking about getting it up and running by 2010.  There is plenty of time to do it – 2010 – and thereafter, Kerry.  And bear in mind, in the interim…

O’BRIEN:

But the point is, I assume, that your department, your department got its head around the issue in 2003 before it wrote that submission.  I assume your head was around it in 2003, yet Cabinet and the Prime Minister turned its back on carbon trading then and is now forced to accept that in the shadow of an election with the issue (inaudible). 

TREASURER:

I don’t for a moment say forced to.  There has been a lot of work that has been done on this.  And can I make this point, Kerry, it is only in recent years in recent years that business, for one, has got its head around carbon trading.  All through this period Australia has been in line with its Kyoto targets.  So let me make this point: even if you had started carbon trading five years ago, the outcome would still be what it is today.  We would have been trading towards a Kyoto target which we are on track to meet by the way.

O’BRIEN:

Thanks to land clearing and not much else, Mr Costello.  Thanks to land clearing and not much else. Not industry.  

TREASURER:

Whatever the reason.  Well, hang on, Kerry.  Whatever the reason.  You know why Europe is on track to meet its Kyoto target?  Because communism fell.  Nobody looks at Europe and says, ‘Oh well, communism fell. They closed down all of those dirty coal mines in east Europe so you are not really inside your Kyoto target.’ 

O’BRIEN:

But the bottom line Mr Costello, is that you felt strongly about this in 2003 to take the argument to Cabinet, you could not convince Mr Howard then after he had been lobbied by the mining industry, by the aluminium producers, by the power producers.  They won and you lost.  The Government sat on its hands then for another four years before acting on it now and it still won’t come in until 2010.

TREASURER:

And the point I am making Kerry, is if you had been carbon trading in 2003, you would have been carbon trading to a Kyoto cap, which we are going to meet anyway.  The important thing is that when we are carbon trading beyond Kyoto, that we are trading in a way which is reducing beyond Kyoto – because we are going to meet Kyoto…

O’BRIEN:

(inaudible) Kyoto is a very generous agreement for Australia, it was actually allowing you to increase your emissions.  Do you agree?

TREASURER:

Yes, well, let me come back to the point you made earlier that because we stopped land clearing, somehow that shouldn’t be counted.  I mean, actually, stopping land clearing was a good thing.

O’BRIEN:

Yes of course.

TREASURER:

But we are the only carbon…

O’BRIEN:

It was the only thing that allowed that allowed Australia to claim it was meeting its targets.

TREASURER:

Yes well, this was all designed to stop land clearing and we stopped land clearing and it has helped us to meet our Kyoto target.  If I may say so, Australia actually did something practical.  Britain by the way, meets its Kyoto target because Maggie Thatcher closed the British coal mines.  Not because they stopped carbon trading, but because Maggie Thatcher for other economic reasons (inaudible).  Australia is actually one of those countries that is on track and is on track because it actually did something quite positive, that is, stopped land clearing.  Now, I think…

O’BRIEN:

And per capita we are still one of the biggest emitters in the world, if not the biggest.

TREASURER:

Let me stop you there.  Let me stop you there.  Now why is that?   That is because principally we get our electricity from coal-fired power stations.  That is the reason.  Now, if you want to do something about that, you are going to have to do something about coal-fired power stations.  And that either means finding another source of base-load electricity or it means improving your technology.  And the important thing about a carbon trading system is that it will so alter the price that the economics of those alternatives become much more realistic and make a much bigger difference.

O’BRIEN:

Melbourne columnist Andrew Bolt, who could fairly be described I think as a friend to the Government, has argued strongly today that John Howard has six weeks left to turn the polls around and put the Government back in a winning position.  Because if he doesn’t, Mr Howard should hand over to you, to at least minimise the damage to the Government at an election.  Would you have the courage to take on such a challenge if it came your way?  And I don’t mean a challenge for the leadership, I mean the challenge of trying to win the next election as Prime Minister?

TREASURER:

Yes well, look, Kerry, let me say again, as I said last year and as I said today, I am going to this election as Treasurer.  I am going as part of a team with John Howard, the Liberal-National Party team.  That is the way that I will go to this election and I will go to this election working with every ounce of my ability for the Australian people to keep them in work and to keep their businesses safe.  That is my focus and that is what I will be doing.

O’BRIEN:

But if things don’t improve considerably, Mr Howard might decide to go for the good of the Party.  Would you accept the reins in that circumstance?  Mr Howard declaring in his own judgment that he should go for the good of his Party?

TREASURER:

There is not point in speculating on any of those things because I have set my course, my course is clear, the Governments course is clear.  We are in the run-down to an election.  It is six months away and I am totally focused on what I’m doing.

O’BRIEN:

Peter Costello, thanks for talking with us.

TREASURER:

Thanks, Kerry.