Interview with Kerry O’Brien

7.30 Report

Tuesday, 24 October 2006

SUBJECTS: Mitsubishi, CPI figures, monetary policy, productivity, superannuation

O’BRIEN:

Peter Costello, has Mitsubishi intimated to you in any way that they have a plan to close their Australian car plant?

TREASURER:

No, in fact to the contrary.  The Government has been in touch with Mitsubishi and it has told the Government it has no plans to cease production.

O’BRIEN:

So you would be upset, I would imagine, if the contrary were true?

TREASURER:

Well, I don’t believe the contrary is true because Mitsubishi has given that information to the Government, that has come from Mitsubishi itself and I am just recounting what has been relayed to the Government.

O’BRIEN:

Their plan, and this is a plan that has come into the ABC’s hands from inside Mitsubishi, it is called Project Phoenix, it has got “draft” and “strictly confidential” stamped on it, it is dated September 6 this year, it names three dates for closure.  Case A is to close in February next year; case B is to announce closure in June next year and to actually close the plant four months later; case C to announce in November next year and close in March 08.  But the report states in very blunt terms “It is inevitable to exit from the local production and concentrate on import business.”  If this is true, I assume it would concern you?

TREASURER:

Very much so, Kerry.  I haven’t seen the document, I don’t know who’s prepared it.  You have got to be very careful with these things, it could be a false lead, it could be someone who is not in a position to make a decision.  So what the Government has done is, it has gone to Mitsubishi, to the management here in Australia, and the Mitsubishi management says that is not true.  And I think the responsible thing to do would be to put this to the Mitsubishi management and get their version of it.

O’BRIEN:

We are doing that this afternoon and hopefully we will report their response tonight, but the project leader named in Project Phoenix is Mitsubishi CEO, Mr McInery or Mr (inaudible).

TREASURER:

Well, it a matter for him to explain that memorandum.  I can’t shed any light on it.  I can only tell you what the Government has been informed.

O’BRIEN:

I will give you another couple of quotes for your own information.  Under the heading “government coordination,” Project Phoenix says “Government is informally asking Mitsubishi for three to four months advance notice in case of plant closure, however, since Government may leak the words to media, it is not recommended to start specific negotiation with Government in too early stage.”  Does that sentiment concern you?

TREASURER:

Well, a very funny thing to write, isn’t it?

O’BRIEN:

Suggests a bit of manipulation there.

TREASURER:

Very funny thing to write, particularly if this is a leak from the company itself.  But as I say to you, Kerry, I have seen many documents floated in my time of dubious parentage and until the parentage has been proven I don’t comment on them.

O’BRIEN:

Well, my last one for you is, you may want to take this away anyway, it observes the sensitivity of election timing next year and says that the production withdrawal should not be announced just before the campaign period and that the official Government, with an official Government announcement one month before the public announcement.

TREASURER:

Well, Kerry, we have got in plan a competitiveness package which is giving financial returns to Mitsubishi, it has been laid out till 2015, it is a multi-billion dollar package.  Mitsubishi is taking part in that and, to my knowledge, that is because Mitsubishi sees itself as having a long term future in relation to that production.

O’BRIEN:

In terms of the sentiments expressed here, and I understand your caveat, but if this turns out to be a true report, you would be concerned for the implications for Australian industry and for the 1,600 workers, I would assume?

TREASURER:

Well, I would be concerned, A, about the industry, B, about the workers and, C, that we have been assured to the contrary, that is what I’d be concerned about.

O’BRIEN:

I assume that you will make another inquiry with Mitsubishi as a result of this?

TREASURER:

Well, the Industry Minister, Ian MacFarlane, has made those inquiries and I have no doubt, once he sees your programme, he will make further inquiries.

O’BRIEN:

On inflation, Mr Costello, with its obvious implications for another possible interest rate rise, the CPI figures come out formally tomorrow but you must be concerned about the implications in the figures for domestic wholesale prices.  They have  risen faster over the past six months than the previous six years.

TREASURER:

It is important that we keep inflation to our targets, which is 2 to 3 per cent over the course of the cycle.  Now, that doesn’t mean there won’t be occasions when it is above 3 per cent, it doesn’t mean there haven’t been occasions when it is below 2 per cent.  But over the course of the cycle that is where we want to average it.  And when you are looking at monetary policy, Kerry, you are not looking at today or tomorrow, you are looking at where you think inflation is going to be in a year’s time.  Now we have had some factors that have been putting pressure on inflation.  One, obviously, is oil.  Oil is coming back, that is good news.  We had pressure last quarter in relation to fruit and vegetables.  They will come back.  There will obviously be pressure coming out of the grain industry, with a poor harvest that might put pressure on other commodities, but we will sit back, we will have a look at all of the price pressures that are coming and we will be shooting for our target, which is 2 to 3 per cent over the course of the cycle.

O’BRIEN:

Westpac senior economist has made the point that when the big one-off factors are excluded, like oil, wholesale prices are rising at an annual rate of 3.6 per cent, which he says reveals an alarming acceleration and broadening in price pressures, and he has taken out oil and food, for instance.

TREASURER:

Well, see, these are wholesale prices.  We look at consumer prices, the end prices, because sometimes what businesses are forced to do by competition is to cut margins.  So we will get a fix on that tomorrow.

O’BRIEN:

Well, given the comments and the expressions of concern that have already come from the Reserve Bank on the heels of their last rate rise, would you agree that if the CPI reflects those figures tomorrow that another rate rise is inevitable?

TREASURER:

No, because the monetary policy which we have put in place is 2 to 3 per cent over the course of the cycle and that is what the bank will be looking at, that is the agreement the bank has with me and it will be looking at it in a forward perspective – where it expects prices to go over the next year.  Now, I am not for a moment trying to give an indication in relation to monetary policy.  I never comment on future movements, I am just explaining the way in which the bank, under an agreement with me, will be approaching this issue.

O’BRIEN:

You would have noted the comments from the new Reserve Governor, Glenn Stevens, on October 11 about productivity, that he said since 2003 has been flat, around zero, in fact.  What are you doing to improve productivity and to get us back into positive productivity growth?

TREASURER:

In fairness to Glenn Stevens, what he said was the data didn’t add up, and one of the reasons it didn’t add up is that he didn’t agree with that conclusion.  But having said that, let me tell you what it is necessary to do to get productivity up in this country.  The first is a better industrial relations system, which we are in the course of putting in place as we speak.  The second is our Welfare-to-Work measures to get more people into the work force and to discourage those that are particularly low in participation to come back in, such as single parents.  The third, of course, is our major superannuation changes, which we think will extend the working lives of Australians and again lead to a much greater participation in the work force.

O’BRIEN:

But what about in the last three years, Mr Costello, I mean, are you saying those figures are not an accurate reflection of productivity in Australia, zero in three years?

TREASURER:

No, that is what the Reserve Bank Governor was saying.  He was saying that if all the data as was presented was taken on face value, it would lead you to that conclusion, but he doesn’t believe that is the conclusion.  What it tells you is, there are some holes in the data.

O’BRIEN:

Do you know what the productivity has been in the last three years?

TREASURER:

It shows you there has been some holes in the data.  I said this in fact when the National Accounts came out, that this didn’t feel like an economy which was at an annualised growth rate of 1 per cent or a bit over 1 per cent.  This feels like an economy which is growing faster than that.

O’BRIEN:

Briefly on superannuation, the research figures released by the National Centre for Social and Economic Modelling must also concern you, that half of all women in the 45 to 60 bracket have almost nothing saved for super, that the average male in that same bracket has less than $100,000 saved for super, obviously inadequate for retirement?

TREASURER:

That would be inadequate for retirement without the age pension, but of course people who don’t have superannuation will qualify for the age pension.  Having said that, we want to encourage people to save more themselves, that is why I announced in this year’s budget the biggest reform of superannuation ever.

O’BRIEN:

And you believe that that is going to see superannuation lift substantially to help people towards a reasonable lifestyle in retirement?

TREASURER:

Well, if we get these reforms through, this is what you know, no tax on your end benefit, no tax on a pension, no tax on a lump sum.  And this is why I appeal to the Opposition to cease playing political games, get behind these reforms, give them bipartisan support.  People need to know that the changes we are putting in place are going to be there 5, 10, 15, 25 and 30 years from now and if they are assured of that, they will know that this is the best way to invest your money, it is the best and most effective savings vehicle and they will feel a lot more confident to put money into superannuation.

O’BRIEN:

Peter Costello, thanks for talking with us.

TREASURER:

Thanks, Kerry.