National Accounts June Quarter 2004, economic management, Budget, housing, interest rates, costings, Medicare Safety Net, Galt – Press Conference, Parliament House, Canberra

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National Accounts June Quarter 2004, economic management, Budget, housing, interest rates, costings, Medicare Safety Net, Galt – Press Conference, Parliament House, Canberra




Press Conference
Parliament House, Canberra

Wednesday, 1 September


12.00 noon


SUBJECTS: National Accounts June Quarter 2004, economic management,

Budget, housing, interest rates, costings, Medicare Safety Net, Galt


Well the National Accounts are like the quarterly report on a company.

They are the quarterly statement of what has happened in the economy in

the preceding quarter. Today’s National Accounts showed that in the June

quarter of 2004 the Australian economy continued its solid run, growing

by 0.6 per cent to be 4.1 higher through the year.

And out of the 33 quarterly National Accounts during the term of this Government,

32 of them have been positive. And today’s National Accounts showed that

the Australian economy continued to grow in a strong and solid way at 0.6

per cent in the quarter and 4.1 per cent through the year to the end of


The Australian economy is supported by consumer confidence which is at

historically high levels. It is supported by robust employment growth with

unemployment now at 22 year lows.

And today’s figures show that corporate profitability is the highest ever

recorded in Australian history. And strong companies make for strong employment

prospects. In fact the corporate profit share to GDP is almost 1 per cent

higher than the previous Australian record. The corporate profitability

to GDP, the profit share of total factor income, was 26.5 per cent in the

June quarter of 2004. And what that tells you is that in proportion to the

economy, Australian companies are as profitable, more profitable than they

have ever been and that is supporting employment growth, supporting the

lowest unemployment in 22 years and strong companies are making for a strong


Now as we look through the figures in this particular June quarter we see

that domestic demand retained significant momentum, but our growth continues

to be supported by moderate wage increases and low inflation. The outcome

for the year to June of 2004 was the Australian economy grew by the Budget

forecast of 3¾ per cent.

Farm production fell in the June quarter but was 36 per cent higher through

the year. Now there could be a number of explanations – the drought

persists in some areas of Australia but undoubtedly there is also the statistical

problem of seasonally adjusting for a 100 year drought. And it is very difficult

as you are coming out of the worst drought in 100 years to make sure that

you can get that seasonal adjustment right. And the large grain harvest

in 2003 gave support to the rural sector which increased 40.6 per cent through

the year.

Private business investment increased by 4.9 per cent in the June quarter

with activity at very high levels.

And dwelling investment, whilst increasing, appears now to have moderated.

This is in line with other forward indicators in relation to the housing

sector such as building approvals, finance approvals and auction clearance

rates. We welcome the fact that it continued to grow but it looks like dwelling

investment has moderated.

Exports rose 1.8 per cent in the June quarter but imports rose by 2 per

cent so that net exports detracted from growth.

The National Accounts provide further evidence that wage and inflationary

pressures remain contained. The National Accounts measure of inflation was

1.8 per cent higher through the year. So that is somewhat lower than the

CPI measure of inflation. And employment outcomes continue to remain moderate.

This has been a remarkable run for the Australian economy which has continued

growing through the Asian financial crisis, a US recession, the worst drought

in 100 years, the SARS epidemic, the terrorist attack on the World Trade

Centre, the war in Iraq and record oil prices.

Economic management is not an accident. It is not a fluke. This is a very

large economy, this is an $800 billion economy. And the management that

is required takes experience and discipline. The fact that the Australian

economy has had this remarkable run doesn’t mean we can take it for granted

in the future. There are still pressures around the world – the pressure

of high oil prices, the pressure of rising global interest rates, domestically

the fact that the drought is not yet still broken and the management of

the housing cycle – are all matters which will take considerable,

disciplined economic management over the course of the next year. And if

we have consistent and disciplined economic management and can continue

to keep the Australian economy growing in a solid and sustainable way we

can keep unemployment at the 22 year lows that they are currently at and

structurally we could continue to work going further.


Mr Costello how much disciplined economic management is it to have spent

$3 billion since the Budget which is an underdebt in an economy that is

as strong as the National Accounts suggest today?


Well our Budget is probably the most disciplined Budget in the western



On what basis are you saying that?


Well, I think the US Budget is 5 per cent deficit, Britain is in deficit,

France is in deficit, Germany is in deficit, Japan is in deficit, Italy

is in deficit. There may be only one country in the G-7 that is not in deficit.

The fact that Australia has a surplus Budget unlike the G-7, unlike the

OECD, the fact that we have now reduced our debt to GDP ratio below 3 per

cent, the fact that we have now paid off over $70 billion of Labor’s deficits

would indicate that Australia’s fiscal performance is probably the strongest

in the western world.


Mr Costello you say managing the housing cycle takes disciplined economic

management, I am just wondering on whether you can elaborate on that a little



Well, as you know the housing cycle has been very strong, house prices

have risen quite significantly over 3 or 4 years and it is important that

they don’t grow in an unsustainable way. I have been saying for some time

that it is in our interests for the growth in house prices to reduce, the

growth in prices to reduce. I don’t want to see crashes in house prices

but I would like to see a plateauing in prices. And there are a lot of economists

that were saying this time 12 months ago that you would see a crash in Australia’s

housing market, you haven’t, but you have see a slowing and managing that

slowing will take incredible discipline. Now, I think if you get incompetents

bumbling in they can make big mistakes. Treasurer Egan in New South Wales,

bumbling into the middle of the New South Wales housing cycle with his new

investment tax was a classic case of somebody bumbling into something they

did not know anything about. And if you got people that bumbled into this

situation, it could have very bad effects.


Treasurer couldn’t people though, according to a new report that shows

that 30 per cent of household incomes are going to paying off the mortgage,

wouldn’t they be pretty worried with today’s figures in the sense that the

economy is going gangbusters on the back of record, near record imports,

this is enormous pressure on the Reserve Bank isn’t it and the, and interest



Well I wouldn’t describe today’s figures as gangbusters, I would describe

today’s figures as very solid economic growth, 0.6 per cent for the quarter,

4.1 per cent for the year. It is good, it is good growth, I mean there are

other countries around the world that would give their arms to have that

kind of growth. Would I describe it as gangbusters? No, it is not 5 per

cent and it is not 6 per cent and we have been through those sorts of periods.

More importantly Paul, the price pressures are contained. The measure of

inflation in these National Accounts is below 2 per cent. We have a target

of 2 to 3 per cent over the course of the cycle and there is no indication

of inflation breaking out in Australia, so I wouldn’t be worried about inflationary

forces at all.


I’m sorry, the GDP deflator is 4 per cent according to Table 13 and the

contained price index for GDP has gone up 4 ½ per cent, and it is

certainly consumer prices are the ones that you have been quoted, they are

1.8, (inaudible) is it a worry that the rest of the economy is experiencing

much higher inflation than we get in the CPI?


The household Consumption Chain Price Index, if you want me to give the

full definition, rose by 0.2 per cent in the quarter to be 1.8 per cent

higher through the year, that is the closest National Account Measures to

the CPI as I said, and it is lower than the CPI. Our inflation target is

based on the CPI – 2 to 3 per cent over the course of the cycle. The

closest measure in these National Accounts is actually below the CPI, that

is the point I am making.


Mr Costello, why did the Reserve Bank then say that it would be likely

that interest rates would have to rise in this cycle?


I don’t believe that it did. I know that you know, general commentary has

been to say, particularly out of the markets that we need an interest rate

rise, I don’t believe that the Reserve Bank has said that.


I think it said it quite clearly.


No, no, no, no, the Reserve Bank, I said, there was some phrase like, during

this period of expansion, right, during this period expansion. Well this

period of expansion has gone on an awful long time and if I have my way

it would go another awful long time. If you want to say during this expansion,

and measure it by another 8 ½ years…


Well, Treasurer do you…


…but the financial markets that, you know, want to price in interest

rates changes, in much shorter time frames than 8 ½ years…


If those interest rate markets are right, we haven’t got much of a risk

of significant interest rate rises, how does that gel with your comments

on what happened under Labor?


 Well you don’t, well it is a different fish if you get a change of

government, of course it is a different fish.


Wouldn’t they putting that risk into their calculations now?


Who? The Reserve Bank?


No, the financial markets.


Well, I don’t think that the Reserve Bank could start putting into its

assessment the possibility of a change of Government. And how would you?

You see, Mark Latham hasn’t released an economic policy yet and you say

start factoring in what a Labor Government would do, do you know? I read

in the newspaper today, that Mark Latham has got the mother of all tax breaks.

Has he? He promised his tax policy 16 weeks ago, you know, if this tax policy

takes any longer in its gestation, he will be asking for the maternity bonus

when he releases it.


It will be an elephant.


You know, 16 weeks late and now it is the mother of all tax breaks. The

only people that are never let in on the secret are the Australian public.

Now there are informed commentators out there today saying, ‘where is his

tax policy?’ Promised in the Budget week. He leaks out to these papers right,

informed speculation so he can get headlines like, ‘Mother of all tax breaks.’

Now journalists that want to be searching in this election would say, well

if you are promising the mother of all tax breaks, then please tell us,

what the rates are, what the thresholds are, who gets them, how it will

be paid for, what the cost is and what other decisions will be made to pay

for them. But you have got a bloke who is going around feeding out to journalists

that he has got ‘mothers of all tax breaks’ and yet refusing to release

a policy, you have got to get serious in this election. Mr Latham wants

to be Prime Minister. You know, it is not like running the Liverpool Council

where you leak an easy story out to a soft journalist. You want to have

a real policy, you announce a policy and you have it costed and you come

out and you defend it. 16 weeks late.


Well speaking of costing policies Mr Costello, how much is your new Medicare

initiative going to cost?


Which Medicare initiative is that?


It was announced by the Health Minister last night, on obstetricians.


Well that is a previously announced initiative, that is the Medicare safety



No, it is about meeting obstetricians’ costs, it is a new element of the…


It is an announcement about the fact that you are entitled to recover out-of-pocket,

out-of-hospitals, including those which are charged by obstetricians, and

it was an announcement as to how much an obstetrician could actually allocate

their fees between in-hospital and out-of-hospital.


How much will it (inaudible)…


If it is out-of-hospital and out-of-pocket, and if you are entitled by

reason of the fact that you are a Commonwealth Seniors Health Care card

holder, or you are on Family Tax Benefit, over $300, you are entitled to

an 80 per cent rebate.


He was announcing it as a new policy Mr Costello, and I am just trying

to clarify how much it is going to cost.


Well I am telling you the policy is, we have already announced, you get

80 per cent rebate on out-of-hospital, out-of-pockets including for obstetricians.

What was being done in consultation with the obstetricians, is that once

upon a time they used to treat all of their fee as an in-hospital fee, even

though that lump sum fee would have included numbers of consultations before

the actual delivery. So the question was, with that lump sum fee, how much

would be allocated out-of-hospital, how much would be allocated in-hospital,

because the allocation in relation to out-of-hospital would qualify for

the Medical Safety Net.


So are you saying that there is no net change in the cost of the safety

net as a result of this…


The Medicare Safety Net has been properly costed in the Budget and you

know, if there is any variation to that, Finance and Treasury are going

to release their costings in 10 days time. You know, if I had been doing

a Beazley on you and telling you, or if I had been doing a Labor Party and

telling you the Budget was in surplus when it was actually $10 billion in

deficit, Friday’s announcement would show you whether or not I had been



Tony Abbott said last night that the…


Wouldn’t it? And if Kim Beazley and the Labor Party had done during the

1996 campaign what we do, the Pre-Election Fiscal Outlook, you would have

come out during the campaign, and said, $10 billion deficit. Now, we have

put that in place so that you can have the Treasury and the Finance Department

tell you what the bottom line is 10 days after the issue of the writs.


So, was Tony Abbott…


…no motivation, no motivation not to disclose the situation whatsoever,

free and open. You know what, something the Labor Party never allowed either,

you can actually have your policies costed by the same people that cost

the Government’s. So there can never be any argument about costing, you

can put your policies into the Treasury and Finance Departments, so there

can be no argument about costing. We don’t have to have any argument about

costings in this campaign, if the Labor Party will submit its policies and

have them costed in the same way as we do…


Tony Abbott…


…nothing to stop it happening now.


…Tony Abbott said last night that the cost of the safety net is going

to blow out. He said…




…Tony Abbott said last night that the cost of the safety net is going

to blow out. Does the Government know how much by?


Well I didn’t see him say that.


It is in The Sydney Morning Herald this morning and The Herald



Well I know The Herald Sun is a reliable newspaper, but I didn’t

see that comment. But let me tell you, costings in relation to the Medicare

Safety Net will be taken into account in the Pre-Election Fiscal Outlook.

It will all be there in ten days time.


Does the Government not have anything better to spend its health money

on than to underwrite private hospital births?


Well I don’t agree with your question. I think the Government spending

money on helping mothers who are giving birth and helping them pay the costs

that they incur in giving birth from their obstetricians, it is good use

of taxpayers’ dollars.


Mr Costello, one policy that we have had from Mr Latham is that he has

ruled out ever running a fiscal deficit. Would you do the same?


Well, you know, can I just say, I don’t think he, a fiscal deficit did

he say? Did he say a fiscal deficit or a cash deficit?


A budget deficit.


Well did he say which? No. See this is the thing with Mr Latham. Mr Latham

is not good on detail, is he? He is not good on detail, is he?




No, no, let me tell you what the policy is. The policy of this Government

is, and we put it in our Budget every time whilst the economy grows, we

run underlying cash surpluses. That is the policy of this Government. That

was put in place in 1996. That is what we do. Now, can I just say, do not

listen to what Mr Latham says, look at what Labor does. The economy was

actually growing in 1996, it just had a $10 billion deficit. See, it’s time,

this, you know, there’s been this tendency so far with Mr Latham to say,

well, we can’t expect much of him because he’s the new leader. He’s running

for Prime Minister. He’s got to come under some scrutiny. He’s got to be

assessed by reason of his policy and his experience and his record.


So there is a place for fiscal deficit?


I’m sorry.


Is there a place for a fiscal deficit?


Well I’m just asking what he announced. I’m telling you what our policy



Mr Costello, has the brawl in Queensland and the alleged “rodent”

comment damaged the Prime Minister’s ‘honest John’ image?


No, because I do not believe for a moment that the combined statements

of George Brandis, Brett Mason and the statement of Michael Johnson could

in any way be undermined by the statement of Mr Galt. Senator Brandis was

there, Senator Mason was there, Mr Johnson was there. The only person who

allegedly heard this was Mr Galt, who, as I understand it, recently resigned

from offices in the Liberal Party, was unsuccessful in a preselection attempt,

and this incident is supposed to have happened, was it 16 months ago, and

he just decided to release it now. Now, Senator Brandis, I think, has been

a powerful performer on that Senate Committee and in the media, and there

is no doubt in my mind that Senator Brandis believes that the Government

was telling what it knew and believed to be the truth. And I don’t think

for a moment the statement of Mr Galt undermines that one iota.


Mr Costello, has George Brandis ever publicly or privately described the

Prime Minister to you as a “lying rodent”?


I have never heard Senator Brandis speak in that way.


Mr Costello, why do you defer some of the Reserve Bank bulletin, sorry,

Reserve Bank dividend, until next year?


Because we have decided to smooth the dividends, and if we had not actually

smoothed the dividends you would have had some years where there would be

very large dividends and some years where there would be no dividends. So

we have decided to smooth them. That has been a policy which I’ve announced



Is that to help pay for promises?


No. It is all in the Budget already. It was already in the Budget.


In the Charter of Budget Honesty will you also undertake to submit any

new policies that you announce in time for costing by Finance and Treasury

beyond PEFO?


Yes. Okay. Thank you very much.