TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

Press Conference

Parliament House, Canberra

Wednesday, 2 June 2004

12.00 noon

SUBJECTS: National Accounts March Quarter 2004; economic growth; drug barons; police corruption; ministerial advice; Labor tax policy

TREASURER:

Today’s National Accounts show that growth slowed in the March quarter to 0.2 per cent and grew through the year at 3.2 per cent.

The way in which the composition of growth showed up was that demand is still quite strong, dwelling investment decreased by 1.3 per cent in the March quarter and private business investment fell 1.1 per cent. Growth came from inventories and as I indicated yesterday, net exports detracted from growth.

The good news in today’s figures showed that farm production continued to grow strongly in the March quarter and is now 41.6 per cent higher than a year ago but of course that was coming off a record drought. Whilst we welcome the fact that farm production has increased over the course of the year, the outlook for farm production is uncertain, and the drought persists in substantial parts of Australia.

Household consumption continued to grow strongly as I said, increasing 1.2 per cent the March quarter and 6.2 per cent through the year. Household consumption is supported by a low interest rate environment, low unemployment and strong consumer confidence.

The private business investment, which I mentioned earlier, fell although there is very substantial engineering construction work in the train and the business profits are still very strong, marginally off the all time record of profits to GDP in last National Accounts, but still a very high 25 per cent. And the amount of engineering construction that is currently in the pipeline indicates that engineering construction will be very strong for some time yet, with big projects such as Comalco at Gladstone, big road and infrastructure projects going on in Sydney and hopefully about to start in Melbourne and other parts of Australia as well.

We see in the National Accounts that inflationary pressures are very contained with the measures of inflation still very, very subdued and we don’t see any risks arising out of the National Accounts. Of course it is possible that if world oil prices stay high for some considerable time, that will have an effect on petrol prices, which feeds into the Consumer Price Index – but in the general economy inflation continues to be very low.

The National Accounts that we see today are consistent with the Government’s view that over the year ahead growth will re-balance out of the domestic economy, and with a recovery in the world economy that should support Australia’s exports and mean that the net export position and its contribution will be more positive in the year ahead than it has been up until now with a weak world, but a strong domestic, economy. Forward indicators also indicate that housing approvals are coming off and the housing market is plateauing as you have seen in relation to dwelling investment. That is something that we have been expecting for some time and an orderly adjustment in relation to the housing market will in fact be positive for the Australian economy.

So, the March quarter shows a slowing, somewhat, in growth in Australia but underlying fundamentals are still very strong and the Australian economy continues to show good growth prospects of three per cent plus growth over the twelve months which are ahead.

JOURNALIST:

Mr Costello what do you think the risks are that high world oil prices could have serious ramifications for the world economy and consequently Australia?

TREASURER:

The world oil price is now at record levels or near record levels, the kind of levels that we have only seen in relation to the first Gulf War. Undoubtedly a large factor is the instability in the Middle-East. The recent terrorist episodes in Saudi Arabia will also be worrying people about production and contributing to cost. So, if you were to see world oil prices sustained at high levels for a long period of time that would put a dampener on world growth. Yes it would. The critical thing of course is how long will these prices be sustained? It is not so important if it is for a month or two or three months. But if it were for twelve months or more it would have an effect.

JOURNALIST:

Are you worried that there is a fundamental supply issue in the equation as well?

TREASURER:

Well, I think that it is largely fears about supply which is driving the price. Yes. Fears about supply with Iraq still to recover its full production, fears about terrorist incidents in Saudi Arabia and there is a little bit of a demand effect in there too with China in particular being a strong importer of oil. China used not to be an importer of oil, it is now the second largest importer of oil in the world.

JOURNALIST:

Would it be wise then to take some sort of policy measures at the retail end of the petrol/oil chain to promote competition and hold prices down?

TREASURER:

Well, the price rise which you are seeing in Australia at the moment relates to the world oil price. Let’s be under no misapprehension about that.

JOURNALIST:

You can’t do anything about that but you could do some things about the…

TREASURER:

Well…

JOURNALIST:

…competition at the retail end of the industry?

TREASURER:

Well, for years I have supported increased competition at the retail level. So, I am not going to say I am against that. But anybody who thinks that increased competition at the retail level is somehow going to bring petrol prices down when the reason they have gone up is the world oil price, unless you think that something you can do in Australia is going to affect the world oil price, I don’t think you are going to make an impact on the petrol price. And a moments thought will lead you to the conclusion that people who say otherwise are either not well informed or not telling the truth.

JOURNALIST:

Mr Costello the National Accounts show (inaudible) mineral exploration down by about 18 per cent over the year. Would that lead you to (inaudible)?

TREASURER:

For business investment? I think business investment in engineering in particular will be very strong. And when you look at the projects which are in the pipeline – the Comalco Refinery in Gladstone, the Hammersley Iron Project, Bayu-Undan Gas Field, the fourth train on the North-West Shelf, the Western Sydney Orbital, the cross city tunnel, Spencer Street redevelopment in Melbourne, prospective projects like the Ravensthorpe Nickel Project, the Scoresby Freeway, these are, that is a prospective project as well, these are very large engineering projects and they indicate that engineering investment in Australia is, prospects are very strong.

JOURNALIST:

Can I ask, are you expecting faster growth over the next two or three quarters?

TREASURER:

Well, this is an annual through the year rate of 3.2 per cent. In the financial year 2004-2005, we are forecasting 3 per cent, so 3 , 3 , six of one, half dozen of the other, that is what we are forecasting.

JOURNALIST:

Hence, you are expecting this to be an aberration and growth to be much higher in coming quarters to reach those numbers?

TREASURER:

Well look, the four quarters that go to make up the 3.2 have a profile of something like, don’t hold me to this, well I will tell you, I might be able to find out what they are so that, 0.3, 1.4, 1.3, 0.2, so you know, and we are forecasting that over the next financial year it will be 3 so you know, on average what we are saying at 3 is what, 0.8, 0.9, something like that. Now, it might come bumpily as things quite often do in the National Accounts, but what we are forecasting is the Australian economy to continue to grow at 3 per cent plus.

JOURNALIST:

Treasurer, does the break in the drought mean (inaudible) to save (inaudible) going into negative growth?

TREASURER:

Well, the break in the drought has been positive for Australia, just as the drought was a negative, just as the hundred year drought was a negative and hopefully you only get those every hundred years, so too when it breaks and you return to more normal levels, it is a positive. But the thing that worries me actually, is this was the breaking of the 2002 drought, we don’t want to see a situation where we go back into drought in 2004.

JOURNALIST:

(inaudible) the size of these figures themselves are concerned, is there anything here that causes you any concern? (inaudible).

TREASURER:

Look, I would like to see stronger export growth and I think that there are two things that would help us there. First, the world economy is moving out of recession. You can’t sell your exports to an economy, a world economy which is in recession, people don’t have the wherewithal to buy them. And the second thing is I think that the exchange rate may be a little more supportive than it was in the March quarter for the export performance.

JOURNALIST:

Mr Costello you had quite a lot to say recently about crime in Victoria. Do you think it is time for a full Royal Commission into the situation there and the response to it, the police response to it as (inaudible)?

TREASURER:

I think it is time for an independent commission in Victoria to look at the subject of police corruption, murder by organised crime and drug distribution by people who are apparently well known to the police and maintain lavish lifestyles and, who should be brought to justice. And where you have a situation where people who were intending to give evidence against police corruption are executed before they get to court, you have a serious situation on your hands and the thought that an Ombudsman is the answer to this, is fanciful. Now, in New South Wales and in Queensland the question of corruption in the police force led to independent commissions. Now, how many murders do we have to have in Victoria? 24 or 25, if you put the two witnesses in, maybe 27, unsolved murders of people who apparently were engaged in rival gangs fighting for the distribution rights to sell drugs to our children. Now this trade is so lucrative, they are now murdering each other to preserve their distribution rights. How many murders do you have to have before the community gets outraged enough to do something about crime?

JOURNALIST:

What about the argument that a commission, a Royal Commission or a commission would jeopardise prosecutors (inaudible)?

TREASURER:

Well, I am not going into the question of whether it should be a Royal Commission or some other commission, all I am telling you is an Ombudsman, for heavens sake, is not going to fix the situation.

JOURNALIST:

What about the argument of setting up some sort of commission would jeopardise prosecutions (inaudible) Police Commissioner?

TREASURER:

Well, I am not aware that it got harder to enforce the law in New South Wales or Queensland when they had commissions.

JOURNALIST:

You are talking about…

TREASURER:

Did it? I mean you can’t be seriously saying that, can you?

JOURNALIST:

…you are talking about a permanent commission, are you?

TREASURER:

Look, I am not going to get into the detail Michelle, of what sort of a commission it should be, whether it should be like it is in New South Wales or Queensland or whether it should be a Royal Commission. All I am saying is this: you have got 24 or 25 unsolved murders, you have got drug barons who apparently are killing each other to preserve their distribution rights.

We now have people who were going to give evidence of police corruption who have been executed. Executed. And if you think that an Ombudsman is going to get to the bottom of that, I think you are living in another world. There is now a very serious allegation that something is rotten in the state of Victoria and I think all people of goodwill would want to get to the bottom of that and to clean it out, fast. How many murders do we have to have before somebody tries to clean this out, because the only thing I would say, is whatever the tactic has been to date, it hasn’t seemed to be working too well. Maybe the first murder or the first five murders, we’re up to 24 or 25.

JOURNALIST:

(inaudible) you think there should be a one-off commission inquiry (inaudible) New South Wales or an ongoing body such as (inaudible)?

TREASURER:

Well, that is a matter for the Victorians to work out, I don’t want to go into the detail, but the one thing I will tell you is to expect George Brouwer the Ombudsman to get on top of this, in a situation where witnesses are being executed for heavens sake, is asking somebody to do something which they are not resourced or equipped or properly empowered to do.

JOURNALIST:

So why is this happening in Victoria? Is it just…

TREASURER:

Well, I think some of the other states have probably cleaned up their messes and Victoria has not cleaned it up. It looks like drug barons got greedy about each others distribution rights and it also looks like there could have been some police that got compromised. Now, I don’t want to say that all police are corrupt for heavens sake, the overwhelming majority of police are honest and they are as outraged as anybody else when they see police corruption and that is why you have got to cut the cancer of police corruption out. That is what you have got to do and you have got to cut it out quickly because whilst the cancer stays it grows, and honest police get compromised by that.

JOURNALIST:

Mr Costello, is it good enough for the Defence Department to apologise for embarrassing the Government over Iraq, or do you think some of the top brass should at least offer their resignations over this?

TREASURER:

No, I don’t – if you’re talking about the top brass as General Cosgrove – no I don’t because I know General Cosgrove to be a very honest and a very, very valuable Defence Chief, and I have no doubt whatsoever that General Cosgrove was relaying matters that he himself believed to be true. Now, when he became aware of information that changed the situation, he and Ric Smith went out and corrected the record. And that was the right thing to do. But as far as I’m concerned, both Peter Cosgrove and Ric Smith are honest and diligent men.

JOURNALIST:

Can you understand how these two men, normally, presumably highly competent, could not sort out a really simple matter when both the documents and the people involved were on hand?

TREASURER:

Yes, I can actually, I think the Defence Department is a very large department with numbers and numbers of people and a very hierarchical command structure, and I think sometimes when the orders are given at the top, it takes a very long time for them to get down the ranks, and even longer to get back up the ranks again.

JOURNALIST:

Would you put up with that in Treasury, Treasurer?

TREASURER:

Well, see, I don’t have uniformed officers that work for me in a command structure.

JOURNALIST:

But you seek advice and you expect when you’ve got the advice it would be somewhere close to right, so that when you make a public statement you wouldn’t make a fool of yourself.

TREASURER:

I always try and get the right answers as fast as possible out of the Treasury, I can assure you of that.

JOURNALIST:

Mr Costello, you’ve been calling for pressure to be applied to the Labor Party to release its tax policy. I was wondering if you could explain to us the difference is between 2004 and 1995 when the Coalition held back its tax policy until two weeks before the election?

TREASURER:

Well I don’t think in 1995 we promised tax cuts to everybody. I don’t think we went out there and said, that the Government, by cutting $14 billion of taxes wasn’t doing nearly enough, and the Government should have done much, much more. And in criticising the Budget, gone on and said everybody deserved a substantial tax cut. Now, once you’ve gone out like that, as Mr Latham has, let’s remember this, Mr Latham said in his Budget Reply, tax cuts weren’t big enough, they didn’t go to enough people and Labor would give tax cuts to everybody below $50,000 and that they would be substantial. Now once he made that promise, the public’s entitled to know what the tax cuts are, what the thresholds are, what the rates are, how it will be paid for. Now you’re all sitting there thinking to yourself, oh, well, how could he put all of that together. He’s made the promise. He made the promise. He got front pages on all of your newspapers, tax cuts for all. Now that you’ve given him the upside of the promise, you should at least ask him to make good, that’s the point. In 1995, we didn’t go out and say Keating hadn’t done enough to cut taxes, he wasn’t cutting taxes as it turned out, we might have said that he let the Australian public down by taking back the L-A-W tax cuts. But once you make that promise, he made the promise, he replied to the Budget saying that people deserve, more people deserve bigger tax cuts. He made the promise.

JOURNALIST:

Well what difference does it make if he releases it now or in two months time?

TREASURER:

Well, what difference does it make? It gives you the capacity to see whether or not he was truthful when he made the promise. That’s one.

JOURNALIST:

You weren’t to know … the never ever GST? (inaudible).

TREASURER:

Can I just say one thing, because I remember GST very, very well. I remember the 1998 campaign. We went to an election and we said, if you elect us, we will introduce a 10 per cent GST. I remember it very, very well. I remember going on talkback radio day in, day out. I got asked every question about how it would affect everything. That election was fought on practically nothing else. That was an election where the Government, I remember it very well, August of 1998, remember working on that policy for 12 months, putting it out there, announcing it and then defending it through an election campaign, so, you know, let’s have accurate memories as to how that election actually turned. I remember it very well.

JOURNALIST:

When will you release the Government’s response to the Productivity Commission’s first home owners report?

TREASURER:

Which report?

JOURNALIST:

The first home owners (inaudible).

TREASURER:

Well, the matter, it’ll be referred to the Cabinet, and after the Cabinet has had an opportunity to be briefed on it, it will be released.

JOURNALIST:

Mr Latham has issued a detailed record of his fiscal performance as Mayor of Liverpool. Do you accept that he was slandered?

TREASURER:

Oh no. All I can recommend to you is that you all look very, very carefully at MrLatham’s record in the Liverpool Council, and can I suggest to you that this will go on for quite some time.

JOURNALIST:

So you don’t believe he reduced the debt ratio and did various other things to the economic advantage of the city?

TREASURER:

What Mr Latham said, he would spend more money and some one else would find the savings, and the savings didn’t materialise. And the Liverpool Council got into financial problems, which eventually led to it being disbanded. Now, it’s a repeat performance here. Mr Latham’s promising tax cuts and more spending and says somebody else will find the savings.

JOURNALIST:

You mentioned that the National…

TREASURER:

Now his record…

JOURNALIST:

Mr Costello, you have studied his statement?

TREASURER:

Oh I think there’s going to be a lot of study. I recommend that all journalists study his record very, very carefully. Don’t, please, please don’t rely on my study, go and do your own study. I think his record requires a very, very careful study and I’m surprised that investigative journalists to date haven’t shown sufficient interest in it, but I welcome, I welcome an Insight piece in the Sydney Morning Herald. Don’t take my word, go and do it yourself, you’ll find there’s a great story there. Start off with the Whitlam Centre that he built.

JOURNALIST:

Just back on the National Accounts, you mentioned that the National Accounts show the profit share of the economy is just a little bit off the record that was reported last quarter. I wonder in terms of the distribution benefits of economic growth, whether maybe the profit share, the recovery of the profit share, has gone a little bit too far?

TREASURER:

What, you’re saying the profit share is too high?

JOURNALIST:

Well we had a big debate in the ‘70s, you know about the profit share was too low and that generated lack of investment and unemployment, and you know, it’s a distributional question I guess I’m asking. Do you think there’s a case that the profit share has gone too far, there should be a shift back to the (inaudible)?

TREASURER:

No.

JOURNALIST:

Why not?

TREASURER:

Well I think good company profits and good profitable Australian companies create the opportunity for people to get jobs. And you don’t, there’s no employee without an employer. An employer won’t be able to give people jobs unless they’re making a profit and if you have profitable companies, they can create jobs. It’s one of the reasons why unemployment today is much lower than it’s been in previous times.

Thanks.