Transcript No. 2000/104

SUBJECTS: Mid Year Review, Debt, Fuel, Unemployment.

WILLACY:

Mr Costello, you must be pretty pleased with a bulging surplus and people on your side

of the political fence must be pretty happy with their Treasurer at the moment.

Well, the good news is that the Australian economy has been strong. It’s been

strong because we’ve had a low interest rate regime in place since we were elected.

We are paying our own way. We are repaying Labor debt. And at the end of this year we will

have paid back $50 billion of Labor’s $80 billion debt. So, you know, we are 5/8 of

the way of reversing the damage that Keating and Labor did to the Commonwealth accounts.

And what that means is that we have got more people in work than ever before. More

Australians than ever before are in work. Unemployment is at a decade low and if we can

continue a strong economy it can fall further.

Well it is critical for interest rates as well to retire debt. How critical is it after

this Mid Year Review for you to retire debt?

It is very important that we keep a strong economic policy. You can get a home mortgage

interest rate in Australia round about 7 per cent. I can remember the days Mark, when it

was 17 . That’s what it was when the Labor Party was at its height. Now there are a

lot of factors in the world that are making life pretty difficult for us at the moment.

There’s a lot of volatility but if we run a strong economic policy and we can keep

those interest rates low, the economy can keep ticking over and more jobs can be created.

We don’t want to give up the game now.

Well you’ve just been over to New York, you’re in touch with local market

economists, how much are they telling you that you need to retire in terms of that

remaining debt?

Well, one of the strengths of the Australian economy, people think, is you’ve got

a Government which is directing itself to strong economic management. If, if the view got

around that we’d given up on strong economic management or that the “old

team” was going to come back in, that could be very damaging. It’s just,

it’s just important that we make every post a winner. I’ve made this point

before, in world terms, Australia is a pretty small country. 20 million people and we just

have to run faster to keep up. We have to be the best at everything we do. We have to have

the best industrial relations, the best tax policy, the best Budget policy in order to

keep our interest rates low.

But you must have a figure in your mind in terms of this debt retirement that will come

out of this Mid Year Economic Review figure.

Oh, well, my plan is basically to pay off Labor’s $80 billion of debt.

Labor’s last five Budgets…

So that’s your priority?

…hocked us $80 billion into debt. We’ve now paid off $50 billion. Over the

next couple of years we could pay off the full $80 billion. We’d be back where, where

we were prior to the recession and that is a very worthwhile goal. What benefit does it

deliver? It delivers this benefit – when I became the Treasurer, I had to raise

$9,000 millions to pay the interest bill. If we retire the debt that’s $9,000

millions every year that we don’t require.

Well given you want to do that within a couple of years, should your backbenchers now

put their spending proposals back in their backpockets?

Well, the Government’s got a delicate balancing act. We want a strong fiscal

position, we want low taxes and we cut taxes on 1 July and we want useful decent

investment. One of the decent investments that we are going to do, we have already

announced, is in rural roads. Another that we’re going to give some more detail on

next month is we are going to upgrade Australia’s defence. We’re going to have a

very significant upgrade in Australia’s defence. We think that the events of East

Timor showed the need for that. So we’ve got high priority investments –

defence, roads, we want to have low taxes, that’s why we’ve been cutting income

tax and company tax, but we’ve still got to maintain that proper financial position.

And the Prime Minister, a former Treasurer, obviously a fiscal hard man if you like,

are you and him of absolutely the same mind on this, in this creative balance of debt and

spending?

Yes, because one of the great achievements of the Government was, don’t forget

when, before we came to office there was never a talk of a surplus. The question was

always how big the deficit was and when we came to office it was $10,000 million in the

red. We’ve put the Budget back into balance. We’re now delivering surpluses,

we’re paying off all of the Labor debt and that is consistent with keeping your

economy growing on low interest rates and providing more jobs.

But can you keep the markets happy and your backbench happy? You’ve admitted

it’s a creative balance, it’s fairly tight for you, it’s a juggling act.

Oh look, these are not easy decisions. Anybody that thinks it’s easy to manage an

economy of this dimension with these sorts of pressures doesn’t fully understand the

situation. But I’ll tell you this, I’d rather be managing an economy which is

growing on a 6 per cent unemployment rate which it now is, than what it was when we were

elected which was an 8 per cent unemployment rate.

Well, we’ll get to unemployment in a minute. But just finally on this issue of the

surplus. The Farmers Federation has once again renewed it’s call for a freeze on

excise. Some people are saying the farmers are complaining too much here. Would you agree?

Well, the farmers have probably had the best deal out of fuel taxation reform of any

group in Australia. Let me say very briefly what it is. There is no excise on diesel they

use off-road. They don’t pay any tax at all on their diesel for their tractors and

their headers. Secondly the diesel on-road which transports their goods to and from the

farm or to and from the supermarket or the corner store where they buy stuff, the tax was

cut 24 cents a litre.

So they should stop whingeing essentially do you think?

Where they use petrol in their business, tax was cut 10 per cent. They get one, all of

the GST back. All of the GST back. So the only place that a farmer will actually face the

consumer rate is when they are using a car for private purposes, non business purposes,

and farmers like everybody else there have to pay world oil prices. But in relation to

those three other areas, they have had significant wins, wins which are as good if not

better than any other part of the community.

So, are you disappointed then that they’re continuing on with this campaign? Are

they complaining too much?

Well, I think from what I heard the farmers say that they, they like fuel tax cuts,

they’ve had fuel tax cuts. And they like more money on roads and they’re getting

more money on roads. So I think the farmers are facing a reasonably good deal at the

moment.

Now, you’ve already been accused of playing politics by not including the first

quarter GST returns in this Mid Year Review. Last night the Tax Commissioner, Michael

Carmody, said a clear picture of this first quarter returns would be known next month, so

why the rush with the Mid Year Review?

Well we put out the Mid Year Review six months after we do our Budget, if we can. The

first quarterly returns are not yet received and even…

They’re not far away though according to the Tax Commissioner.

Well, most of them should be in by the end of this month. And then you’d go to

work trying to analyse what they mean. And the second returns will be in at the end of

January when we think we’ll have a better fix. But we do include the GST revenues in

this Budget. The amounts that we include are the amounts that we’ve forecast off the

state of the economy. How you, basically how you forecast the GST revenue, is it’s 10

per cent of consumption, and that’s what we’ve got in this Budget. What we

don’t know and what we only pick up from returns is timing differences or some other

factor that we haven’t allowed for. We’ve picked up a big timing difference

already from the monthlies, we’ve allowed for that, but the best estimates are still

in there which is the 10 per cent off, off consumption.

Well as you alluded to before on the upside is employment. Now you’ve tipped

unemployment to dip below 6 per cent for the first time in a quarter of a century. How low

can it go in your opinion?

This is an interesting question. The OECD was saying a few years ago that the

structural rate of unemployment, that is the lowest it could go in Australia would be in

the 7s. Now we know it can go lower than that because it is now at 6.3.

Have you got a figure in your mind? You know what level would you be happy with

realistically? What would you, how would you define your success as a Treasurer in this,

this area?

Well I think it can go below 6. Yes I do. We haven’t been in that territory for 25

years. But I think we can. We’re not that far off it. I don’t see emerging

inflationary pressures in the economy and if we can have moderate wage outcomes, that is,

full employment doesn’t lead to wage pressures, I believe it can go below 6. In fact

you know I think you could see that if we grow the economy strongly for another year.

Peter Costello, thanks for joining us.

Thank you.