TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Interview with Kerry O’Brien

7.30 Report
Wednesday, 27 November 2002
7.35 pm

SUBJECTS: MYEFO, drought, economy, Telstra, leadership

O’BRIEN:

Peter Costello, you have lowered the growth forecast for this financial year

to 3 per cent which I am sure you will still be happy with, given the drought

and international factors. But 4 per cent next year is a bit optimistic isn’t

it?

TREASURER:

Well we would be happy with 3 per cent growth this year Kerry because…

O’BRIEN:

Well, next…

TREASURER:

…given the fact that we have got an international situation which is pretty

fragile and we have got a drought which is at least as severe as 1982, if we

can grow at 3 per cent, which would lead the developed world, we would be very

happy. I think that is a very realistic estimate. Then we look forward to next

year, which is the year beginning 1 July 2003, and we have put a tentative forecast

on that of 4 per cent. As I have been very candid in admitting, that assumes

that the drought will break by the 2003 – 2004 financial year. If that is not

the case, then we would probably be marking that down again. But we hope that

the drought does break.

O’BRIEN:

And it also assumes that America is going to be okay, and it assumes, presumably,

no war or no big impact from a war, and it assumes that the deteriorating situation

in Europe would turn around?

TREASURER:

Well, let me come to a couple of those factors. The US economy is weak, there

is no doubt about it, but it seems to have pulled out of recession and it was

in actual recession last year. But the recovery is slower than we had hoped.

Europe is pretty sluggish, you are quite right, and people are revising down

forecasts in relation to Europe. In relation to the prospect of war, I think

many of the worries, you know, such as oil price rises, they have probably already

been factored in by many of the businesses already. So, although it is a difficult

international environment, there is no doubt about it, it is a little better

than it was last year and hopefully will gradually improve over the course of

2003. Now, most forecasters still believe that Australia will lead the world

in 2003, and obviously if the world gets stronger that will be good for us.

O’BRIEN:

Your surplus has been protected by company tax and individual tax windfalls.

On that individual front are we starting to see a growing GST dividend from

the black economy?

TREASURER:

I think we are. The wage and salary earner tax was down a little bit…

O’BRIEN:

Yep.

TREASURER:

…but self-employed was up a little bit on what we had actually forecast.

Now, I think as the GST system becomes more robust, as the Australian Taxation

Office has more experience in administering it, I think we are seeing a bit

of a dividend in that particular area. In company tax we had strong company

profits in 2002 and you are probably seeing some of that flow through as well.

O’BRIEN:

But despite that surplus staying solid, you are saying little or no room for

increased spending in the next Budget beyond Defence?

TREASURER:

Well, Kerry, we have in this Budget had to cope with large increases in domestic

security, about $1.4 billion in the Budget. Post-Bali we increased measures

again. We are looking at the situation where there could be additional calls

in relation to defence. Our prospects are for a moderate surplus in 2003, and

what I have said, is, if there are going to be any calls for new expenses defence

is the priority. So there will not be room outside of that.

O’BRIEN:

On Telstra, Mr Costello, the Prime Minister said yesterday “…it is absurd

for Telstra to be half-pregnant, half owned by the Government and half by private

shareholders.” Isn’t that a bit disingenuous, given that you are the ones

who made it half pregnant?

TREASURER:

Well, we were successful in offering equity in half of it and it has always

been our policy, subject to rural and regional services to make it fully pregnant.

Or to reverse the analogy…

O’BRIEN:

Yes, well, I don’t know how, I don’t know how far you want to persist with

this analogy.

TREASURER:

…non-pregnant. But at least to get it out of that, out of that half-way house.

That has always been our view. Look, if you believe the Government has to own

something to run it properly, then you should fully nationalise Telstra. If

you believe, like the United States and the UK, and New Zealand, that telecommunications

can be run by the private sector, then you ought to have it in the private sector.

But the idea that you can have it half in the private sector and half out of

the private sector, doesn’t make sense…

O’BRIEN:

And yet at the same time, when you went to the ’96 election saying you would

sell only one third of Telstra in that term and see how it went and then when

you sold the second tranch, you said you would see how that went, did you explain

to the electorate that you were making it half pregnant in the process and that

that was an absurd situation?

TREASURER:

I think in 1998 what we actually did, is, we put legislation into the Senate

seeking full privatisation and the Senate did not pass it. The Senate actually

lifted the amount that it would allow to 49.9 per cent. So it has always been

our policy – subject to rural and regional concerns – we don’t believe that

it is necessary for the Government to own a telecommunications company to have

good telecommunications services. Since when did the government have to own

something to make it run properly…

O’BRIEN:

(inaudible)

TREASURER:

…the private sector generally provides better goods and services than governments

do.

O’BRIEN:

But exactly how has majority public ownership hindered Telstra since you sold

off the 49 per cent?

TREASURER:

Well, in some obvious ways. One is that Telstra has a real problem raising

additional capital. Telstra, probably if it were a private sector company, would

be able to raise additional capital to improve services and to do better ventures,

but it can’t do that because its capital structure is fixed. Now the United

States and the United Kingdom, and New Zealand, Canada, these countries all

have private sector owned telecommunications, what the Government has a role

in doing, is stipulating that there would be services to areas which wouldn’t

otherwise be commercially as profitable, you can do that by legislation, but

you don’t need to own it. As I say there are essential services in our community

which are owned and run by the private sector and they seem to be able to do

it – services such as food production and a whole host of other are areas. The

Government doesn’t have to own…

O’BRIEN:

Not near monopolies.

TREASURER:

Well, this is another point isn’t it, you have got the Government which is

the regulator, and the majority owner of a near monopoly. What about a conflict

of interest there Kerry?

O’BRIEN:

Well, it’s been there for an extremely long time.

TREASURER:

Absolutely.

O’BRIEN:

Coming to the share price, you have put off the sale for another twelve months

on the basis that the share price is below what you want it to be to sell, but

it’s really only dropped, it’s dropped less than five per cent it was already

very low, when you fixed next year as your sale time in the Budget.

TREASURER:

Well, it has dropped a considerable amount since we actually offered equity

with T2…

O’BRIEN:

But only less than five per cent since Budget day when you said we were going

to sell it next year.

TREASURER:

Well, look I think the fall in value of the Government shareholding has actually

dropped something like $30 billion from peak to trough incidentally.

O’BRIEN:

Yeah.

TREASURER:

Now we sit down and we say, well, when is a realistic time given what has to

be done for a sale, so what has to be done? First of all, we have to respond

to the Estens inquiry and ensure that rural and regional services are sufficient.

Number one. Number two, legislation has to pass the Senate. Now, if somebody

could tell me when that legislation is going to pass the Senate, then I could

give you a more precise date as to when we would offer additional equity, but

my assessment is it’s not going to happen early next year…

O’BRIEN:

But isn’t it also…

TREASURER:

…it might not happen next year at all.

O’BRIEN:

And is that an important enough issue to go to a double dissolution on next

year or the year after?

TREASURER:

Well, we’re not thinking about double dissolutions at the moment…

O’BRIEN:

You may well be next year.

TREASURER:

…t is something that I don’t think the Senate is going to vote and approve

in the near future, so I was factoring in a sale from 1 July of next year, I

don’t think it is realistic to have that, so we put it back a year. Now, if

the Senate keeps defeating the legislation, we would have to reassess that decision,

but I think that it is realistic, and this is what I have said today, it is

realistic to say that it is not going to happen before 2004-05.

O’BRIEN:

Mr Howard seems to be in an almost unassailable position at present in the

public eye. Do you agree with a growing number of your colleagues, that he’s

the best person to lead the Government to the next election?

TREASURER:

Well, the Prime Minister has said that he will consider his position next year,

and he will do that, he is a man of his word, and this issue will be addressed

next year and I’ll be very happy to wait until that occurs, Kerry.

O’BRIEN:

Well, you’re his Deputy, are you going to be one of those who will be going

to him urging him to stay for the good of the party and the good of the Government?

TREASURER:

Look, he has said what he is going to do, and he will do it, and there is

no point speculating outside of that.

O’BRIEN:

No, no, I’m not speculating, I’m asking you…

TREASURER:

Well neither am I. My point is I am not speculating.

O’BRIEN:

I am saying whether you, as his Deputy given his massive popularity lead at

the moment, that you as his Deputy with the good of your party, at heart, you

wouldn’t want to go to him and say listen John, we know you are reconsidering,

we think you should stay, for the good of the Party?

TREASURER:

Well, as I said I am not speculating on these things, I think when you ask

him those questions, he says to you he has nothing to add…

O’BRIEN:

Yeah that’s him, I’m talking to you.

TREASURER:

Yes, well I have nothing to add, to his nothing to add Kerry.

O’BRIEN:

Well this is a simple proposition, it is not hypothetical…

TREASURER:

It is hypothetical. You don’t know what is going to happen next year.

O’BRIEN:

…if he is the most popular…

TREASURER:

…and he is not adding to it, so it’s entirely hypothetical.

O’BRIEN:

If he is the most popular person in your Party, why wouldn’t you be urging

him to lead you into the next election?

TREASURER:

It’s a hypothetical question, I’m not speculating.

O’BRIEN:

You are still a relatively young man, you can afford to wait a few more years

for your turn, can’t you?

TREASURER:

Oh well, you know, I’m a little bit younger than you Kerry, but not nearly

as well preserved .

O’BRIEN:

That’s a matter of opinion. Peter Costello, thanks for talking with us.

TREASURER:

Thank you.