Ministerial Council meeting, International trade in Goods

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Labor’s Banking policy
March 27, 2001
Dollar,  Interest Rates,  Backbenchers
March 31, 2001
Labor’s Banking policy
March 27, 2001
Dollar,  Interest Rates,  Backbenchers
March 31, 2001

Ministerial Council meeting, International trade in Goods

Transcript No. 2001/029



Hon Peter Costello MP



Friday, 30 March 2001

2.15 pm


SUBJECTS: Ministerial Council meeting, International trade in Goods

and Services, Building approvals, beer excise, Shell/Woodside, APRA/HIH


Today we had the second Ministerial Council meeting on Commonwealth State Financial

Relations. As you know the Commonwealth collects Goods and Services Tax and

it pays it to the States. Every last dollar of Goods and Services Tax is paid

to State Governments, and today the States came to Canberra to negotiate the

share of Goods and Services Tax that each State would get. The outcome of the

meeting today is that the Commonwealth will follow the recommendations of the

Grants Commission, which provides for some of the stronger States to give subsidies

to some of the less strong States to receive them, so that they can continue

to have services on a basis which is equal to that of other States.

The Goods and Services Tax, which is now being paid to States Governments since

1 July, funds State services. Today, Goods and Services tax pays the salary

of every teacher in every classroom, in every school, in every State. And there

is still Goods and Services Tax left after that to pay for policemen, who are

responsible for law and order. The Goods and Services Tax delivers State services.

Now, although we had five Labor States at the meeting today, not one of them

asked for a rollback of Goods and Services Tax. None of them supports a rollback

of Goods and Services tax. If you want to rollback Goods and Services Tax,

you either take teachers out of classrooms, or you take policemen out of law

and order activities, or you put up some other tax. Income tax. That is why

Mr Beazley wont announce what his policy is. But five Labor States, all in

Government, who know what it is like to deliver government – no supporters

of rollback. The only people that are left clinging to rollback are Crean and

Beazley, who are totally out of step with the Labor Premiers.

Now, I want to make some comments too, about the international trade in goods

and services. The international trade in goods and services figures were released

for February, today. They show that Australia has a surplus of export income

over imports. That is, we get more in the month of February for our exports

than we paid in imports. We are running a trade surplus. A trade surplus of

a little under $400 million for the month, and the good news is that for the

first time in quite a long time, in trend terms, we are now running a surplus

on our trade accounts. One of the benefits of having taken taxes off exports,

having a super competitive export industry, as a result of the current exchange

rate. But, we are seeing increasing growth in the Australian economy coming

out of the export area, and our current account deficit is now getting to levels

as low as we have seen in the last two decades. In the last two decades.

So, that is good news on the export front, good news on the trade front, declining

current account, growth in the Australian economy now coming from exports,

which is adding to growth, for the first time since the Asian financial crisis.


What about building approvals, Treasurer?


Building approvals today showed that in relation to housing, housing building

approvals rose 5.1 per cent for the month of February, whereas in relation

to medium density approvals, they fell by a very large figure of 39 per cent.

The medium density figures have been volatile, and actually, were coming off

a rise in previous months. But, the good news on the housing industry, actually

is, that in relation to housing construction it appears the down-turn, which

came as a result of transitions in the New Tax System, appears to have bottomed,

and is now ticking up.


(inaudible) lowest figures since records were kept?


It is the, in relation to medium density, is a fall of 39 per cent, as I said,

coming off unexpected rises in previous months,. But, in relation to houses,

there is actually a 5.1 per cent increase and actually shows that the housing

market might have bottomed and is now turning up, and that will be supported

by the Governments First Home Owner Scheme and low interest rates.


With the trade surplus, isnt it, hasnt it been artificially inflated by the

low dollar?


It is not artificially inflated. The fact that an exchange rate makes your

exports more competitive means you can sell more of them. That is one of the

benefits that comes from a floating exchange rate. It is one of the reasons

why you have a floating exchange rate, because it is a tool of adjustment.

The consequence of it is, it makes your exports cheaper and you imports more

expensive. That improves your trade position. It is one of the benefits that

comes from the exchange rate. But, the good news is, that it has turned our

trade accounts into a surplus, and not just in seasonally adjusted terms, but

in trend terms, which is more importantly, in trend terms where you average

what has happened in the last 3 or 4 months, we are now running a surplus with

the rest of the world. That is, we are selling more to them than we are buying

from them. And you have not seen a trend surplus on trade for quite a significant

time in Australia.


So, for the trade position to continue improving, is it important that the

dollar remains low?


I think the trade position will continue to improve because Australian exports

are now super competitive. They are super competitive for two reasons. One

is the exchange rate. The other reason why they are super competitive is, we

dont tax our exports any more. The rest of the world took taxes off their

exports when they moved to value added tax systems in the 1980s. We handicapped

our exporters on world markets, and it was not until 1 July of last year, that

Australian exporters got the same deal that everybody elses exporters got.

That is, no taxes on their exports. That was one of the developments of the

New Tax System. So, our exporters are being supported by a super competitive

exchange rate, they are being supported now by the taxation system, our exports

are growing, our trade position has gone into surplus in trend terms, and now

exports, instead of detracting from growth, are adding to growth.


Treasurer, how does this square with your comments that we could be a victim

of declining global growth, if exports are growing?


Well, if the global growth turns down that means that our exporters would be

affected, and that is one of the risks to our export situation. But, notwithstanding

the global downturn, and obviously the United States economy is slowing, slowing

very considerably, and the Japanese economy is very, very low – notwithstanding

a slowing of world growth, Australias exports tick up. Why do they tick up?

One, we have a super competitive exchange rate. Two, for the first time in

Australian history we dont tax our exporters anymore, which is a great thing.


When are we going to get an outcome on the beer (inaudible)?


Well, the Government went to the last election with a policy to have a 1.9

per cent… let me go back a step because I think it is very important that

this be understood. We abolished a 37 per cent wholesale sales tax on beer.

Now, in place of a 37 per cent wholesale sales tax you had to set a new excise

rate. We said, the excise rate would be set so that package beer moved 1.9

per cent, and we did it. The brewers said they would like the introduction,

for the first time in Australian history, of differential excises. A different

rate for packaged and draught. It had never been done before in Australian

history and was not out policy. It was not put to the electorate. I pay tribute

to the brewers. They are very profitable companies who spent a lot of money

on advertising campaigns and lobbying, and they have managed to get the support

of the Labor Party to vote against the policy which the Government put to the

electorate, to vote against it. Now, the interest of the Labor Party is, of

course, they want to do everything they can to frustrate the Governments Budget

position. And they are doing a pretty good job of it on beer. I will hand that

to them. And I want to make this other point too. This is not a question –

I have seen some of the press say – this is a question of whether beer excise

has increased. It is not. If that bill goes through, the beer excise is the

same today as it has been since 1 July. This is a case where the Labor Party

is trying to cut a beer excise. I dont think a Senate, ever before in Australian

history, has sought to cut an excise. Once upon a time it used to be considered

Governments perogative to set those things. Now, the Labor Party wants to

play opportunistic politics, then the issue will only be resolved by an agreement

between the Government and the Democrats and that is something that is being

negotiated and discussed at the moment. It has not been resolved, but that

is where things stand.


What will that end up costing the Budget?


If the Bill is defeated, the current Bill is defeated, I think, and nothing

else is put in its place it would end up costing the Budget $800 million,

something like $800 million per annum…


But it wont be defeated only amended.


Hang on, let me finish it. If the Brewers position – and youve got a situation

now where an industry, a brewing industry has got a political party acting

on its behalf to set tax rates for its own industry – if the Brewers are allowed

to set the tax rate for themselves, it could end up costing depending on how

you look at it, $180-200 million. Now let me make this point, if the Brewers

get the right to set the excise for their own industry, then they are entitled

to the refund. Not the drinkers. The drinkers have already paid it. The Brewers

are entitled to the refund. Theyre now talking about what theyll do with

the money, whether theyll put it into alcohol rehabilitation programs or what

I dont know if that were to occur. But remember this, the Brewers get the

cut every single year. The Brewers want to say that theyll give the money

back – the $180 million back for alcohol treatment and rehabilitation. The

Brewers should guarantee to give it back, I would have thought each year, not

just one year. Now thatd be a fabulous outcome.


Treasurer what do you think the term “ordinary beer” means to the

average man or woman on the street?


When the phonecaller is calling in from the Kempsey bottleshop, and asks about

you know bottleshop, asks about what the movement in ordinary beer will be,

I think it means the ordinary beer sold in the bottleshop. And you cant actually

buy a draught beer in a bottleshop. This all goes back to…


Do you think that was clearly enunciated?


Well hang on our written policy clearly enunciates, packaged beer 1.9 per cent.

Right. A bloke rings in from a bottleshop and says how much will my beer move

and the Prime Minister says 1.9 per cent, in one radio interview on the day

the tax policy was announced. Right. The Brewers argument is this. The fact

that we actually wrote it in our policy, the fact that it was clearly understood

is not to the point. If they can find one ambiguous word from the Prime Minister

in one radio transcript on the day the policy was announced, they are entitled

to $185 million per annum. Thats what the Brewers say. The Brewers say, that

if they can find an ambiguous word on one day they get $185 million per annum.

Now I have got to say, its a good industry this, make a lot of money.


But Treasurer are you saying that the Prime Minister didnt use that word on

other occasions when theres no connection with the bottleshop?


Ive had extensive discussion with the Brewers who have repeatedly made the

point that they can overlook the written policy, they can overlook what they

were told by me and others, in repeated face to face conversations, and they

can bring forward any evidence which they say was different. They have only

ever brought forward one transcript and it was on the Alan Jones, or it was

one on a 2UE program, I cant remember which one it was…


Treasurer, Ive recorded several…


It was on the 14 August…


There was no bottleshop…


And it was a phone call from the Kempsey bottleshop. But can I say to you,

the best evidence is in the written policy.


Well people believe what the Prime Minister tells them on the radio.


The written policy…


Are you saying they shouldnt?


…and if you say ordinary beer means a beer at a bar then the only way you

could move a beer at a bar and a packaged beer by 1.9 per cent was by introducing

a differential excise which had never been done in Australian history and was

never our policy. Look, the Brewers knew the Government never had a policy

of differential excises. That is one excise on a packaged beer, and one excise

on a beer on a tap. They knew that. They understood, the industry. Now, good

luck to them. These are multi billion dollar industries, they went on a direct

advertising campaign, they have managed to get a political party on their side,

they are seeking to get a tax cut for their product and I suppose its an example

of a well funded industry which was able to use the political process to its

advantage. But the truth of the matter is, that was not the policy of the Government

and the Brewers knew that all along.




They knew it.


Treasurer you said last week that you didnt have all the paperwork on the

Shell-Woodside decision. Have you got all the paperwork yet and when can we

expect a decision?


Oh well make a decision when were ready to announce it.


Treasurer Egan says that youve given him an undertaking and also Queensland

to review APRA in the light of the HIH collapse, and evidence that APRA was

warned that there were problems in the insurance company. What can you tell

us about that?


Oh, what Ive said in relation to HIH is, obviously, our first concern is with

those people that are affected. APRA is the responsible agency which is putting

in place measures to protect policyholders. Some of the policyholders will

be protected by State Government guarantees, as I understand it, and what Ive

said is that APRA like any other agency is expected to do its best possible

job. Now we are not going to review the structure of that, though. Ive never

said that. What Ive said is, that APRA like any other prudential agency, is

trusted with these things. These are difficult situations but the best thing

is to ensure that APRA puts in place those measures that can be done, to work

it through.


Isnt the evidence Mr Costello that APRA didnt move fast enough to protect

the existing policyholders?


Im not prepared to say what the evidence is until its been fully examined.

You heard the Minister for Financial Services say yesterday in the Parliament

that the New South Wales Government could have appointed an inspector and chose

not to…


Are you saying that APRA would be the appropriate body (inaudible)


Well they had a power to appoint an inspector, and they chose not to. APRA

had a power to appoint an inspector, and it was monitoring the situation. I

dont have the full evidence as to what the situation is and I think itd be,

I dont think it would be wise, in an area like this, where people are still

being affected, to jump to any conclusions. I think the important thing before

blame is allocated, is to put in place measures which can make the best of

the situation. Thats what Im determined to do. Last question.


Treasurer this is the second instance though in the last 18 months – 2 years

where APRAs been in discussions with a failing company, Commercial (inaudible)

is the other one and…


Which was the other one?


Commercial Nominees, they in fact had an insurance policy with HIH, but they

also were in discussions with APRA early on and theyve collapsed and people

have lost masses of money in their superannuation savings. Its exactly the

same circumstances. APRA knew and acted too late. Shouldnt APRAs role be



APRA operates under a statute for prudential supervision and you have a prudential

supervisor which weve never had in Australia before until we set it up. We

didnt have a prudential supervisor before. Now, what youve got to make sure

is, that these prudential supervisors act to the best of their ability. I dont

think you will ever rid the world in a free enterprise society of companies

that get into difficulties. Now we have just got to make sure that we do everything

we can to make sure that where a company gets into a financial difficulty you

put in place measures which can help those people that are relying on it.


Does APRA operate…?


Those measures are being discussed and looked at by APRA. As I said earlier

some of the State Governments have an obligation to stand behind some of the

policies. There is a provisional liquidator who is now in the company, and

he has an obligation to the shareholders and I think the best thing that can

be done at the moment, is, everything that can be done to protect the policyholders,

be accomplished and then once the picture has become entirely clear then we

can start sitting around and allocating blame. And I think itd be far too

premature for anybody to jump to any conclusions at this stage. Thank you.