Transcript No. 2000/62

TRANSCRIPT

Treasurer

Press Conference

12.00 pm

SUBJECTS: National Accounts, Brewers Campaign, NSW Light Beer Subsidy, QLD Fuel

Subsidy, ATO/ABN

Well, today’s National Accounts for the March Quarter 2000, shows that the

exceptional performance of the Australian economy continued through the March Quarter with

growth of 1.1% and through-the-year-growth of 4.3%. For twelve consecutive quarters now

the Australian economy has been growing at 4% or above. That is matched only by one other

recorded period, and that was the period from June of 1968 to March of 1971. So the growth

has not only been high, but it has been consistent – above 4% for twelve consecutive

quarters. And what’s more, it has been done on very low inflation. The measures of

inflation which are in today’s National Accounts, show consumer prices rose by 0.6%

in the March Quarter and just 1.2% through the year. Now what we’ve also seen in

these National Accounts is business investment recovering strongly in the March Quarter to

a figure of about 3.6% higher than a year ago. We saw strong movements in relation to

dwelling investment as you would have expected in the March Quarter ahead of the New Tax

System changes which are coming in on 1 July, and although we saw a detraction from

inventories, one would expect in the next quarter that that will be reversed, in fact

start contributing back to growth. The mining industry recorded very strong growth in the

March Quarter, partly as a result of new oil fields coming into production, and although

retail trade was weak, it now appears as if there was spending in relation to services and

consumption, private consumption was not as weak as many people were expecting in these

figures. Indeed household consumption has shown some moderation and that’s consistent

with what we think is a switch of growth coming out of consumption, moving more into

business and moving especially into exports in the next quarter. I would expect that

export growth would be strong in the next couple of quarters and continuing through this

year, for a number of reasons. One is obviously changes in relation to the exchange rates,

the world economy which is picking up, and the Olympics in September of this year. The

National Accounts for the March Quarter show that the economy is well on track to reach

the Budget forecast for this year of 4.25% and barring any foreseen accidents that outcome

should be well and truly met and one would say if anything there was an upside risk on

that forecast for 1999-2000. The Government still expects growth to moderate in the

2000-01 year in line with our Budget forecast of 3.75%. The story that comes out of these

National Accounts is continued strong growth, twelve consecutive quarters above 4%, low

inflation and with the pick up in world trading conditions, the export opportunities which

I believe that will give Australia over the course of this year a very strong platform for

growth in the forthcoming year, continuing inroads into unemployment and we have seen in

these National Accounts a contribution not only from the growth in employment but very

strong corporate profits as recorded in the March Quarter. One should never of course get

over-optimistic in relation to these things but I think this is a strong platform for

entering 2000-01 with the changes due from the New Tax System making investment more

competitive still, I believe that will give Australia a strong base for growth in the

years which are to follow.

Treasurer, what do these figures do to address the concerns of Australian businesses

who in surveys have been shown to have lost confidence almost completely in the economy.

Well, I don’t believe that the surveys show that at all. And you would have been

familiar that in fact Westpac put out a Consumer Sentiment Survey today saying that

there’s been a big rebound in consumer sentiment. We had some surveys yesterday in

relation to business confidence which showed that there’d obviously been some effect

on confidence, particularly I believe out of interest rate rises earlier in the year. But

the figures you’re getting here are actualities, outcomes. And the outcomes that

you’re seeing for the March Quarter where corporate profits grew 5.4%, and they

increased 10% over the year. You’re seeing businesses which are still putting on

employees. And you saw in the most recent labour force, I think it was another 12,000 net

new jobs bringing to 712,000 the number of net new jobs since the Government was elected.

Now we have seen since the Asian crisis, a bit of a diversion between confidence surveys

and outcomes. That was particularly the case in 1997-98 when most of the press for example

was predicting that Australia would go into recession, and obviously affected consumer

confidence, and in fact the Australian Economy as we now know grew at around 4%. So

confidence factors can be influenced by short term movements particularly in relation to

monetary policy, but outcomes, outcomes in relation to corporate profits, outcomes in

relation to business investment, outcome in relation to hiring of new employees are still

very strong. In fact exceptionally strong.

Mr Costello you said recently that with the Reserve Bank being independent (inaudible)

you could be a bit more of a commentator on interest rates. What’s your commentary on

the future (inaudible).

Well I did make that point. That properly understood, that the Bank is entirely

independent, one as a Treasurer would get more freedom to comment. But unfortunately

public perceptions and media perceptions may need a bit of a longer time for that

educational proceeds, process, so I may refrain from exercising my new found freedom and

be a little bit cautious. The Australian official interest rates are now at 6%, that is

lower than the United States, which is 6.5% and as I recall yesterday at least and

probably for some of the last week or so, our 10 year bond has been lower than the US 10

year bond. We’ve never been in this territory before. Now 10 year bonds with lower

yields than the US, short term interest rates lower than the US. We’ve always had to

pay a premium. Australia, when Australia was seen as an inflation risk country, we always

paid a premium off the US benchmark. And if you want to look at standard variable mortgage

interest rates, although they are now higher than they were a year ago, excluding the last

year, they are still the lowest variable mortgage interest rates since deregulation. These

are historically low mortgage interest rates. In fact, you have to go back to 1973 to find

mortgage interest rates of this level. And there is no period after deregulation in 1983,

which had mortgage interest rates as low as they are today. So Australia still has a low

interest rate regime which is compatible with a low inflation economy, and to the degree

that we can maintain strong fundamentals, we can ensure that people get the benefits of

good economic policy.

You and the Prime Minister seemed to be of the view that the Australian Reserve

doesn’t have to play follow the leader, as it were, with the American Federal

Reserve. Their August meeting is widely tipped to rise interest rates, so is that still

your view, that our Reserve doesn’t have to play follow the leader when determining

rates?

Look, we operate our own monetary policy, which is directed at Australian conditions.

But Australian conditions are influenced by international conditions. We don’t target

our monetary policy at what is happening overseas. We target our monetary policy at what

is happening here. But what is happening here is influenced by a whole number of factors.

And throughout the course of the early part of this year, world projections of growth were

revised up, not just in the United States, but in the world as a whole. And central banks

throughout the world saw a strengthening world environment and began tightening monetary

policy. I kept making the point that a stronger world economic environment was not

entirely a bad thing for Australia. If you had the choice of a weak world environment or a

strong world environment, you would take the strong world environment. We had lived

through the biggest downturn of our time in 1997-98, which had knocked around our exports,

and what kept our economy growing was strong consumer demand. Now what we’re seeing

in 2000 is consumer demand is coming off, you would want the world economy to be growing,

because that’s now going to give us the opportunity to switch into exports. And I

think that we do have good opportunities in exports. You’ve got the exchange rate

position as I previously mentioned, you’ve got a strengthening world economy,

you’ve got the Olympics which is going to bring tourists from all over the world into

Australia. And can I interrupt myself, tourists coming into Australia contributing to the

Australian taxation system, just like Australians who go as tourists elsewhere in the

world, contribute to their taxation systems. As I’ve previously said in these press

conferences, you would have been a mug to run an economy where everybody could come into

this country and make no contribution, when we go into their countries and make

contributions. So we’ve got good export opportunities in relation to the Olympics in

September. So I think you’re going to see a bit of a change in the composition of

growth. Consumer demand coming back – not entirely a bad thing because we’ve

been growing very fast and the opportunity to switch a bit more into exports.

Given the strength of the economy (inaudible) and the growth we see from Olympics and

the stronger world economy, is this the right time to be putting $6 billion net worth of

tax cuts onto the economy, is that going to risk an overheating?

I don’t see risks of overheating in the Australian economy. In fact, as I’ve

said, what we’re seeing is consumer demand moderating. And if you looked at retail

trade, those figures, and I know there’s been some argument about how reliable those

figures are, but those figures in relation to retail trade would show quite a good deal of

moderation. In fact, you’ve had negative growth in relation to retail trade. So

it’s not as if you’re giving tax cuts in the midst of a retail boom. As I said

earlier, retail trade I don’t think…

(inaudible)

I was going to go on and say, as I said earlier, I don’t think retail trade tells

the full story because there is another part of the economy which is services, which I

think is growing strongly,and there is good spending in relation to services, probably

telecommunication services and all those sorts of things. But I don’t see this as an

economy which is showing signs of overheating, no I don’t. This is a low inflation

economy. If you want to look at the deflators today, I think it was 1.2 per cent for the

year. If you want to look at the CPI as an indicator, the CPI was a little higher, I think

it was in the two’s. But these are historically very low CPI results and, headline

was 0.9 in the March quarter and 2.8 over the year. This is not an overheating economy.

In the 1980s we had reached a CPI of eight per cent per annum, the era of 8 per

cent on 8 per cent on 8 per cent on 8 per cent on 8 per cent on 8 per cent. If you want to

go over the 13 years of the Labor Government, including its recession which brought the

average down, it was 5.2 per cent per year for 13 years, 5.2 on 5.2 on 5.2 on 5.2 for 13

years. Now where you have an inflation rate which is down in the one’s or the

two’s, I don’t think you could say it’s an overheating economy.

Do you expect the make the record 13^th quarter of consecutive growth above 4

per cent?

Well, this is a dangerous business. We predicted 4 for 1999-2000. Even with a weak

June quarter you would get an outcome near that, and I think you’ll get some growth

in the June Quarter. As I said, I think inventories, which have detracted will come back,

I think exports, which have detracted will come back. I still think that there is

considerable employment growth out there, falling unemployment. We’ve predicted that

unemployment, we’ve forecast that unemployment be at 6. So you’d expect some

inventory growth, some export growth, some employment growth, you’ll get something on

the income side, so I think it’ll be a positive quarter, whether it’s a quarter

above one or not, why prognosticate now, we’ll know in three month’s time. But I

don’t think it will go too surprising.

Treasurer, the beer companies today launched their second commercial against the

Government’s tax changes on excise, targetting regional television. Are you going to

change your mind in terms of excise?

No, no not for a moment. The beer companies know this. The beer companies, and there

are only really two of them, there’s the Fosters Brewing Group and there’s Lion

Nathan, had more meetings with the Prime Minister and the Treasurer I think than any other

industry with the possibility of the wine industry. They know precisely what the situation

is. They have been on notice of it throughout. Their complaint, I think, is that a draught

beer, which involves a service component, will go up possibly by 7 per cent. And at the

end of the day, beer drinkers like anybody else are going to have $40 or $50 more to

spend.

What the brewers will never put into their equation, is that beer drinkers have $40 or

$50 more a week to spend. And they say, as I recall that a pot of beer, or a schooner of

beer will go up something like 20 or 30 cents, I think, and consumers have $40 a week more

to spend. That’s an awful lot of schooners if they increase 30 cents a schooner. Now

there are a lot of other industries whose products are going to be affected by prices, and

yet they are industries who believe in the overall benefit to Australia of tax reform.

Clothing will increase in price. And yet people will have more money to spend on clothing.

Now this idea that the one product that has to be singled out above all else for iconic

special treatment, is the draught beer across the bar, is not a proposition to which we

subscribe. If you happen to be a brewer, and you make your money out of brewing, perhaps

you would subscribe to it. But we don’t think the beer across the bar is more

important than children’s clothing, brewers might. We don’t think that it’s

more important to hold the price of a beer across a bar than it is to hold children’s

clothing. We don’t think that. Lion Nathan might. We don’t think that. We think

that if prices move, but take-home incomes increase even more, that is you’ve got $40

or $50 more to spend, and you get a national benefit, it’s worth going ahead with tax

reform. In all of these meetings, that’s been entirely clear to the brewers.

Now can I make another point, just while I’m here, on the Queensland situation,

because I noticed that Mr Beattie has announced that he is going to withdraw an 8 cent a

litre petrol subsidy in the State of Queensland. I want to just go back and explain where

that subsidy derives from. Up until 1997 State Governments used to levy things called

Business Franchise Fees on tobacco, beer and petrol. And in 1997 the High Court declared

that these business franchise fees were effectively customs and excise, that because the

Commonwealth has the sole power to levy customs and excise under the Constitution,

business franchise fees were unconstitutional.

The States wrote to the Commonwealth and said, we are now in danger of losing this

revenue, not only losing this revenue, but we could be sued by anyone who’s paid a

Business Franchise Fee in the last 20 years because we’ve been recovering them

unconstitutionally. And they asked the Commonwealth unanimously to exercise its customs

and excise power to collect the money that was previously raised by Business Franchise

Fees and to hand the money across to States. The Commonwealth could only do that with a

uniform tax. So, those States like Queensland, which didn’t have the maximum amount

or didn’t have one at all, right, would’ve had to put up their prices when the

Commonwealth came in and levied a uniform rate. And the Commonwealth said, we will levy a

uniform rate, we will pay the money to the States, but we insist that money be used to

subsidise the price back to where it was. So in other words, if we collect a uniform fee

on petrol and you didn’t have a Business Franchise Fee on petrol, here’s the

money, you pay it to the service station operators so the price doesn’t go up. Or in

the case of New South Wales with light alcohol, here’s the money which is raised from

the excise on low alcohol, you pay a subsidy so that the price of low alcohol doesn’t

go up. That’s the only condition under which we’ll step in. And every State,

including the State of Queensland and the State of New South Wales requested the

Commonwealth to intervene and gave a pledge that they would use that money to keep those

subsidies up. Now, that money is still being paid across. Mr Beattie is still getting the

equivalent of that money, but now has announced that he does not intend to keep the 8 cent

a litre subsidy to petrol. The Queensland Government abolishes the 8 cent a litre subsidy

on petrol, let’s make no mistake about this, they are putting up petrol prices in

Queensland. It is a Labor decision to put up petrol prices in Queensland, and people in

Queensland will suffer as a consequence. Now, when this scheme came in nobody was more

loud in clamoring for an 8 cent a litre subsidy in Queensland than Mr Beattie. And I will

pull out the clips that show it. What he’s obviously trying to do now is, he’s

trying to walk away from that, put petrol prices up and see if he can confuse people

enough to blame the Commonwealth Government. I want to make it entirely clear, the

Commonwealth is no party to this decision. This is uniquely the decision of a Queensland

Labor Government alone, and it apparently is intending to put petrol up by 8 cents a

litre. And I hope Queenslanders complain so loudly that Mr Beattie does not go ahead with

this foolish plan.

So you don’t accept his argument that the petrol companies have been pocketing

this rather than passing it on?

No, I don’t accept that argument. What, that subsidy was put in place, part of an

agreement in 1997, and I will release the correspondence which shows that agreement. I

think what Mr Beattie is trying to do is, he is trying to end the subsidy of Queensland

petrol and see prices go up and try and point the blame elsewhere. As you know, the

Federal Labor Party has been running around for months now saying that GST would cause

price increases. This has got nothing to do with GST. This is a Queensland Labor

Government decision which will put the price of petrol up 8 cents a litre. I’d be

very interested to know what the Federal Labor Party has to say about that. I mean,

they’ve been running around for the last couple of months trying to find

differentials of 1 cent here or there. This is 8 cents a litre throughout the whole State

of Queensland.

Can you do anything about it Mr Costello?

Well I, well the first thing I’ll do about it is, I will try and explain to the

people of Queensland why this is happening. And I hope that the people of Queensland put

sufficient pressure on Mr Beattie for him not to go ahead with the decision. You know, Mr

Beattie in the Courier Mail on the 2^nd of October 1997 was demanding the

introduction of an 8 cent a litre subsidy scheme in Queensland, he was then Opposition

Leader. And I’ll also release that. I want to make this entirely clear. This has

nothing to do with any Federal Government decision or any taxation change. The State of

Queensland since 1997 as a result of a High Court decision has had an 8 cent a litre

subsidy in place. And for reasons best known to itself it proposes to withdraw that which

will put petrol up in Queensland 8 cents a litre, and it is totally their decision alone.

Now the reason I raise that is we’ve had experience on another front with the New

South Wales Government, Mr Egan, who had his subsidy in place, you recall on light

alcohol, which he decided to withdraw and tried to confuse people into thinking this had

something to do with Federal tax reform. It has nothing to do with Federal tax reform. The

New South Wales Government put that subsidy in place as a result of the 1997 arrangements.

They agreed that they would continue them in place, and they are trying to keep the money

and withdraw the subsidy. Now you recall when I raised this in the Parliament, there were

then two States that were proposing to do it – they were New South Wales and Tasmania.

David Crean, the Treasurer of Tasmania, has now backed off and announced he will continue

the subsidy. There is now only one State which is threatening to abolish its subsidy, and

it’s New South Wales. And I want to make it entirely clear again. Mr Egan’s

attempts to abolish that

subsidy are in breach of the agreements that we reached in 1997. They have nothing to

do with Federal tax changes. It is the New South Wales Labor Government that is proposing

to withdraw that subsidy which was put in place for valid public health reasons.

Why did that 1997 agreement not have some Federal Government enforcement to ensure

States kept the subsidies where they were?

Well, we have an agreement and we can release the correspondence, you know, the States

have given us written agreements. If the States breach those written agreements, well, we

could look at enforcement mechanisms.

So that’s a possibility?

Well, I said in relation tot he New South Wales and Tasmanian cases that one of the

options we could look at would be deducting the amount of money we give them to pay the

subsidy. We are paying them money for a subsidy which they’re not passing on, so one

of the things I said we could look at is, for a start, not paying them the money for a

subsidy which they aren’t passing on. But . .

(inaudible)

. . . but after I made that statement, the Tasmanian Government to its credit, Dr David

Crean, changed its position and announced that it would keep the subsidy. I’m calling

on Mr Egan now alone, among all of the States to do the same. I don’t want to come

bearing a heavy stick until we’ve made our point, and I hope that he reconsiders.

He’s got until the end of the month to do that.

Your advice (inaudible) in the case of the light alcohol, light alcohol beer in New

South Wales and petrol in Queensland, that should push come to shove you can withdraw some

of the Federal money that’s going to them because they’ve withdrawn the subsidy?

Look, I’m not, I don’t want to be seen to be wielding the big stick, but the

Commonwealth can do a number of things. At the moment I’m appealing to their good

senses, and I think people would want me to do that first, wouldn’t they? And my

appeal to the good sense of the Tasmanian Labor Government was successful. The New South

Wales Labor Government is now isolated alone on this point . . .

But wouldn’t you be . . .

. . . and I . . .

. . . (inaudible) to get cheaper beer and cheaper petrol?

Well it won’t be cheaper Jim, it would just be the same . . .

Well, no more then?

. . . you know, that’s right. The subsidy would not make it cheaper, it would just

keep the differential between . . .

Would you like to (inaudible) . . .

. . . low and beer. Whereas the New South Wales Labor Party wants to increase low so

that it’s no longer cheaper than high alcohol beer. Now I don’t think

that’s in the interest of public health. I can’t see why the Commonwealth would

pay the New South Wales Government a subsidy, money for a subsidy which it never paid on.

It’s one of the things that we can do. And I now appeal to the New South Wales Labor

Government, alone and isolated on this point, falsely trying to claim that this was a

result of some Federal tax change, to fall into line with the other States.

Have you asked the brewers to help on that issue?

No I haven’t. But, you know, I’d be interested to see the brewers campaign on

television against the New South Wales Labor Government, asking that it fall into line

with its previous agreement.

Mr Costello there has been a lot of criticism of the Tax Office (inaudible) in relation

to privacy. Are you satisfied with that performance, do you think there should’ve

been better provisions, and that you should have been kept better informed?

Oh look, I think it’s going to work out in the best way, in the way it

should’ve worked out.

(inaudible) not satisfied?

The way it is going to work out is that there will be material on the public register

which is public material. It will not have private details, private addresses or anything

like that. And even in relation to the public register people will, if they have reason to

believe that their privacy is at risk, they will be able to take material off the public

register. So, I think it will work out well. It’s another one of these balance

things. We want to protect privacy, we’re not going to compromise privacy, we want to

make that entirely clear. On the other hand there is actually a benefit in having a public

register of businesses so you can know who you’re dealing with. And we are moving,

this is nothing to do with GST by the way, we are moving to a new system which is going to

add to the clamp down on the black economy. And that’s the witholding system if you

don’t have an Australian Business Number. And businesses are going to want to know,

other businesses’ Australian Business Number so that they can deal with them

lawfully. So there is a public interest in having that information out. There is no

necessity to have private addresses or anything like that and they won’t be part of

the public register.

(inaudible)

Look, I think that there’s been no disclosure to date, of any confidential

material. We have in place a system which is going to be ensuring that there is no

disclosure at all. And the system hasn’t even yet started. So the system is going to

start on 1 July and we will have in place on 1 July, when the system starts, a system

which will ensure full privacy. So it’s got a happy outcome.

Mr Costello are you concerned that there might be (inaudible) on petrol and can I just

clarify, do you have the same options with the Queensland situation that you outlined with

low alcohol beer?

Well look, at the end of the day, the Commonwealth can look at all sorts of options and

I don’t rule any of them out. And at the moment I’m not going to rule any of

them in. I’m going to ask the Queensland Government to honour the agreement that was

entered into in 1997 and I will release today, the letter. The then Premier was Joan

Sheldon, but it was for and on behalf of the Queensland, sorry, the then Deputy Premier

and Treasurer was Joan Sheldon, but it was for and on behalf of the Queensland Government

and I will release that correspondence today. I will also release today statements by Mr

Beattie which makes it clear that it was a bipartisan policy. It wasn’t just the then

Coalition Government. It was a bipartisan policy. So I will ask them to review that

correspondence and I will ask them to maintain the integrity of the subsidy. I don’t,

and I want to make this entirely clear, the Commonwealth Government, I don’t and the

Commonwealth

Government doesn’t want to see Queenslanders paying 8 cents a litre more for

petrol because of the Queensland Labor Beattie Government. And we’re going to stick

up for the Queensland consumer in relation to this.

Don’t you run the danger of (inaudible) the Constitution?

We always act within the Constitution. Thanks