Press Conference
Parliament House, Canberra

Wednesday, 1 June 2005

12.00 noon

 

SUBJECTS: National Accounts March Quarter 2005, Mandatory Detention, Air

Warfare Destroyer, GST

TREASURER:

The Australian economy rebounded in the March quarter showing growth of 0.7

per cent and through the year growth of 1.9 per cent.

Incomes continued to grow stronger than the general economy because the terms

of trade moved in Australia’s favour.

Household consumption was quite strong in March growing by 0.8 per cent but

that is more moderate than we have seen in recent years.

The mild downturn in the housing sector is now taking place. Dwelling investment

fell by 0.5 per cent and is down 3.8 per cent over the year. Now this is not

an unwelcome thing. I remember pointing out that we would not be upset if the

housing sector were to moderate. I believe that certainly it was growing at

an unsustainable pace and this is actually as mild a downturn as you could have

hoped for, and actually, quite a welcome downturn in the housing sector.

Although business investment was down in the quarter it is up over the year

and the profit share of the Australian economy is now at near records.

As I indicated yesterday in relation to the Balance of Payments figures –

exports are up, imports are up – but particularly disappointing is the

rural sector which is now very dramatically being affected by drought. Whilst

there have been some good rains in Western Australia and conditions look favourable

in the West Australian grain belt, unless we get rains shortly in eastern Australia,

crops will not be planted.

Farm incomes have now not recovered from the 2002-03 drought and agricultural

production is 16 per cent lower over the year to the March quarter, 16 per cent

lower. So, that is quite a significant impact.

Notwithstanding the drought, the condition of the Australian economy is strong.

Our unemployment is at 30 year lows – interest rates and inflation are

low – and again the measures of household prices in these National Accounts

are very low, well within the Government’s targets. Our Budget is in surplus

and Commonwealth Government debt is rapidly reducing.

Having said all of that, Australia needs to continue to work on economic reform

– I want to make that clear. The biggest economic reform that this country

now has to engage in is industrial relations reform. That will take reform into

every single workplace across this country and will boost productivity and lift

the capacity of the Australian economy. There is no more important reform for

Australia than industrial relations because it has the capacity to affect every

single workplace throughout this country.

But having said that, we welcome the fact that growth has rebounded in the

March quarter. I think I said to you when we had the December quarter National

Accounts that it did not feel like an economy which was growing at 0.1 per cent.

What this shows is it was not an economy which was growing at 0.1 per cent.

This is an economy which is growing around about 2 per cent per annum, a little

slower than it was previously but solidly rebounding nonetheless.

JOURNALIST:

Mr Costello you said the economy was growing strongly but (inaudible) actually

went backwards in the March quarter. Does that concern you?

TREASURER:

Well, some of them go backwards and some of them go forwards. But the important

thing is to look overall. Agriculture is going back, I make no bones about that,

and has gone back 16 per cent. The mining industry is going forward, not just

in price terms, but in volume terms. Let me give you some figures here –

iron ore volumes are up 14 per cent over the year, metallurgical coal is up

17 per cent. So, different areas of the economy are responding in different

ways, they are volumes for mining and we have still got the price pressures

to kick in. So, the economy is rebounding, it rebounded from the abnormally

low figure that we saw in December and it is growing at around about a 0.7 per

cent clip.

JOURNALIST:

Do you think that there will be any inflationary pressures that the Reserve

Bank should take into consideration?

TREASURER:

Well you see, this is my point, that I think the economy has actually slowed

a bit, that it is actually a bit slower than it was say, two years ago. Now

incomes are being supported by good terms of trade, there is no doubt about

that, but I do not see an economy which is accelerating here. I actually see

an economy which is a bit slower where we are now seeing the unwinding of the

housing story, which is welcome, and where we are now seeing lower credit growth

than we have seen for a number of years. So, what we have been wanting to see

is lower credit growth with the housing sector slowing, but not slowing in a

huge way, and so far so good. So, that is quite welcome.

JOURNALIST:

Mr Costello can we look forward to a slightly weaker June quarter given the

large build-up in inventories and also signs that consumer demand might be slowing

a little bit now?

TREASURER:

Well, I think consumer demand has slowed from what it was and I actually believe

that households might be consolidating their position, I hope so actually. I

think that is what might actually be occurring. In the June quarter, I do not

know that I would say you would see a slowing because I would expect the net

export position to improve. Net exports are still detracting from growth here

so I would expect that to improve. I expect incomes to be quite strong over

the next quarter, you will see a slowing in housing continuing, but it is an

orderly slowing. So, I would expect, you know, something of the dimension that

we are now seeing in the June quarter. Do not hold me to that of course.

JOURNALIST:

Treasurer could you just elaborate on what you mean by households consolidating?

TREASURER:

I think that there is the first tentative signs that people are now reducing

their borrowings and that is adding to savings and they are consolidating their

financial position. Now I do not want to overstate that but when you look at

what is happening in the housing market which is cooling, approvals coming down,

dwelling investment coming down, it is not because people are losing jobs, it

is not because their incomes are falling – it is because I believe there

is a consolidation going on. Actually I welcome that, to be frank, I welcome

that. And you also saw in the April Retail figures yesterday that they were

again lower than expected, there might be some seasonal reasons for that. I

think consumption is coming down, the housing market is plateauing, the economy

is growing a little bit slower, people may well be saving and this might be

a very good time for tax cuts to take effect on 1 July. Laura?

JOURNALIST:

Treasurer, these figures do show the economy slowing but they seem to suggest

earnings are actually rising. They are up by 1.9 per cent this quarter, which

is higher than the last two quarters. And also enterprise bargaining figures

today show 4.3 per cent wages growth, led by a 4.4 per cent growth in the public

sector. How concerned are you that we are seeing a direct transfer from the

terms of trade growth into incomes which could be an inflationary problem?

TREASURER:

Well the compensation of employees takes into account the fact that employment

has been strong, you’ve got to bear that in mind. This is…

JOURNALIST:

(inaudible).

TREASURER:

Yes, I know, but it is not just, it is not just a wage measure. The wage measures

are still around 4 per cent, and I take your point in enterprise bargaining,

the figures today showed a little bit higher. But, you know, frankly you would

expect it in enterprise bargaining to be a little bit higher. Why? Because the

whole idea of enterprise bargaining is to get higher wages backed off higher

productivity. That’s what we actually want.

So, I don’t think that there is any evidence yet that there’s a

general wages move on, but I do make this point, and I’ve made this point

before, that undoubtedly prices are booming in the mining industry. Undoubtedly

miners who are now engaging in huge new investments, $27 billion over the last

three years are sucking in skilled labour. The miners can afford it. That’s

not a problem for them. They’ve got 100 per cent price increases. What

would be a problem is if wage settlements that are occurring in the mining related

industries broke out into the general economy, like the manufacturing economy.

You can justify this in a mining industry where your price of coal has gone

up 100 per cent, but it is much harder to justify it in manufacturing which

I think is probably doing it tough at the moment, not the least because of the

exchange rate. So you’ve really got a different tale out there, I think,

if you’re in the commodities business, a good time to be in it. But let’s

not transfer their settlements into the general economy. This is, by the way,

what is wrong with centralised wage fixation. Once upon a time, you used to

break your wages out of competitive areas of the Australian economy into the

general economy. That’s what is wrong with it. That is why we believe

in enterprise bargaining, it can be justified in some areas, but that doesn’t

mean it can be justified in all areas.

JOURNALIST:

Treasurer, how bad will the tale get, do you believe, in the bush as a result

of drought? And do you share the concerns of the Deputy Prime Minister that

it could actually end up taking one per cent off GDP?

TREASURER:

Well, look, I make the point here that it has already taken off GDP, taken

off this year’s GDP, right. I think the non-farm economy grew at about

2.6 per cent, but the overall economy, what 1.9 per cent. So it has already

detracted. However, tell me when the rains will come and I’ll give you

a precise outcome as to the effect it will have. We still hope that there will

be rains in Eastern Australia. If there aren’t, things will be more difficult.

There have been rains in Western Australia. In fact, it could be a great time

for the West Australian grain belt because not only are they going to have production,

but they could have production when there’s a shortage of product. Prices

could be very high if you’re a West Australian grain farmer. But you tell

me when the rains will come and I’ll tell you the precise outcome of rural

production.

JOURNALIST:

(inaudible)

TREASURER:

…None of us would continue working here though…

JOURNALIST:

Treasurer, what is your position on Petro Georgiou’s Private Member’s

Bills?

TREASURER:

Well, mandatory detention was introduced in Australia by the Labor Party in

1992 and I supported it then. And I haven’t changed my view. That was,

this is a very important point, it wasn’t introduced by this Government.

It was introduced by the Labor Party over 10 years ago. Many of the people that

are, many of the children, in particular, that are held in detention centres

on mainland Australia are not refugees. They didn’t come by boat. Most

of them are over-stayers. Now I think we should do everything we can to minimise

one, the number of children held in detention, and two, the time, obviously.

Everything we can. But one of the reasons for the delay is the court process.

It is very hard to get cases in the court in a month or two months or three

months. And I think that’s one of the problems with his Bill. His Bill

proposes going back to the court every 90 days for a new order. Well, if you

think you can get in to a court every 90 days and you think people are going

to be able to prove cases within 90 days, it is not the Australian court system

that I know.

JOURNALIST:

Should the Government be looking at trying to shorten and reduce the number

of levels of appeal that people can go through?

TREASURER:

Absolutely. I think we should shorten the number of appeals. You can go to

the Migration Tribunal, the Refugee Review Tribunal. Out of that you can appeal

to the Federal Court, out of that the Full Federal Court, out of that to the

High Court. And then people say, ‘oh, well how come it’s taken three

years?’ Well, you’ve gone through about 4 or 5 tribunals by now.

Now, personally, I think we should have far fewer tribunals and quicker decisions.

The problem has been, in the past, the problem has been one, legislating that,

and two, even if you do legislate that, the courts themselves decide that the

legislation is ineffective. They say, it is, you know, I won’t go into

the legal doctrine, it is all about privative clauses. They say you can’t

oust the jurisdiction of the court in certain circumstances. So, in a funny

kind of a way, I think the processes have become the victim of well-intentioned

lawyers who believe they are giving people more rights, but in the process of

giving people more rights, have delayed proceedings inordinately.

JOURNALIST:

Treasurer, is there a way around this, could the Government legislate effectively

to shorten the process and collapse the levels of appeal?

TREASURER:

Well the Government has been trying to do that for many, many years and I hope

that the Government could be successful in shortening the terms, shortening

the legalities, the legalism, you know, shortening. See a lot of these cases

that go into the courts Michelle, they don’t even go into the courts on

the question of whether you are a refugee or not, they go into the courts on

procedural questions. Was there natural justice? Was there an apprehension of

bias? You know, all these legal issues. Meanwhile people are waiting for their

decisions whilst all of this wraps through the court. This is why I don’t

think a Bill that says let’s go back to the court every 90 days, is going

to help. What do I think? I think the principle of mandatory detention which

was introduced in 1992 which I have supported should stand, but I think the

number of children in detention should be, we should take very step available

to minimise it. The time that is taken through the court should be minimised

as fas as possible. But you don’t want to compromise on that principle.

JOURNALIST:

So all children should be out?

TREASURER:

Look, can I say this? There is a view in the community that some of the children

that are in detention centres came here on boats – very few, if any –

what has happened, you will find that nearly all of those children, mainland

Australia, came here legally or their parents came here legally on tourist visas,

were picked up, agreed to leave, were picked up again, agreed to leave and at

some point, because they didn’t actually leave and they were overstaying

their visas were subject to detention. Now…

JOURNALIST:

Regardless of how they came shouldn’t they be released?

TREASURER:

…well, what should actually happen is, with many of these people and

I read about them in the press, it is known where their home is, there was a

case in the press from Tonga I think, what should happen is we should help these

people get back to Tonga, that is the answer in relation to this. And can I

make this point, I would be very surprised if someone from Tonga was a refugee.

Tonga doesn’t persecute its citizens, we know that.

JOURNALIST:

(inaudible) Georgiou Bill would like to, people found to be genuine refugees

to be allowed to stay, (inaudible) the temporary protection visa may have served

a purpose but now no longer does.

TREASURER:

Well look, there was a big shift I believe in the Government’s position

on this recently, when the Government announced a new category of visa for people

who couldn’t be repatriated that they would be given a new category of

visa which would give them rights, that would release them into the community

but the understanding would be, if, for some reason they could eventually be

repatriated they would agree with that. I thought that was an enormous modification

of the system. I supported that and I actually think that if you could get that

visa operating, you would make a great improvement. Now, you know, somebody

over your right shoulder there Paul, yells out that it is not being taken up

by as many as we would like and I understand that that is true, but it is there

and it is open. I also understand that some lawyers are advising their clients

not to take it up.

JOURNALIST:

Treasurer (inaudible).

TREASURER:

Come on, now, now, now, you have had a few.

JOURNALIST:

Mr Costello, are there more or less children in detention now than in 1992

and isn’t that one of the deficiencies (inaudible) 1992 law that perhaps

should be changed?

TREASURER:

I don’t know about that. To be frank, I have seen some figures that suggest

that during the nineties there were a lot more. I can find that out for you,

but my belief is that by historical standards the number is quite low at the

moment. That is my belief.

JOURNALIST:

(inaudible) deficiency whether there is, even if there are, you say you supported

the 1992 Bill, but doesn’t that suggest that something about it needs

to be changed.

JOURNALIST:

There were more people, boat people then.

TREASURER:

In ‘92, I don’t think there were in ‘92, there were certainly

a lot more in 2001, I am not quite sure about ‘92, but to my knowledge,

the number peaked in 2001 where in a short period of time there were well over

1,000 unauthorised arrivals. But the point I am making here of course is that

most of the people that are now in detention were not boat arrivals. They are

people who quite validly entered Australia on a visa and overstayed it and breached

it and you know, you shouldn’t actually wrap up mandatory detention. I

am going to make this point, I think it is an important point, mandatory detention

doesn’t just apply to unauthorised boat arrivals. We know there haven’t

been hardly any unauthorised boat arrivals since the end of 2001. Most of the

people that are in mandatory detention entered Australia on a student visa or

a tourist visa, they were told that they could stay in the country for a certain

period of time and they breached it. Now, as I understand it, most have been

given opportunity, after they have been picked up to leave, and have agreed

to, but haven’t. And after you have been given an opportunity, after a

while you are placed in detention. Do I like it? No, but what is the answer?

The answer frankly is to try and speed up the return of these people, not to

say, well you can live in the community because I think you might be a few more

over-stayers if you took that view.

JOURNALIST:

Treasurer, did you do everything you could to ensure, lobby for Melbourne to

get the air warship contract?

TREASURER:

I was a member of the National Security Committee that heard the recommendation

of the Australian Navy, the Defence Materiel Organisation, the technical advisers

and the financial consultants. I was thorough in my cross examination to try

and find holes in their recommendations. Unfortunately, there weren’t

any. The technical advice was that the ASC had the best technical capacity and

the financial advice was that the ASC bid was substantially cheaper.

JOURNALIST:

So you haven’t failed Melbourne?

TREASURER:

Well hang on, hang on, did you hear what I said? Did you hear what I said?

The financial advice which was presented incidentally by a Melbourne resident

from the firm of Carnegie Wylie, was that it was substantially cheaper. Now,

you explain to me how, when you are dealing with taxpayers money, you say, we

will ignore the cheaper bid and buy the more expensive one.

JOURNALIST:

How much cheaper?

TREASURER:

You explain that to me. And frankly, you know, I was at my best trying to pull

apart these financials, but the trouble is, if one price is less than the other

as found by the independent financial consultant who happens to be a resident

of Melbourne, gee that is letting the side down.

JOURNALIST:

How much cheaper?

TREASURER:

Substantially.

JOURNALIST:

And what do you say to the suggestion emanating from the Victorian Government

that somehow this was a slap in the face to you personally because of leadership

issues?

TREASURER:

Well look, how can I respond to everything that emanates from the Victorian

Government? You know, they ought to explain why their bid was higher. Let me

tell you this. If their bid had been lower, or even if it had been the same,

we’d have been in business here. But you have got to remember this, it

is very, very hard when you are dealing with taxpayers’ dollars to say,

oh we will ignore the lowest bid and go for the highest. Try explaining that,

Mr Harvey, try explaining that Sir. How would you do that, you know? Suppose

you are selling your house, and a bloke puts the highest bid at the auction,

‘I don’t want his money, no, no, no’ over the bloke that bid

ten times ago with a much lower price because I liked the cut of his jib. Now

try explaining that, it is very hard. You have got to remember at the end of

the day this is taxpayers’ money and when you have a technical adviser

that says, ‘better on technical grounds’, a financial adviser that

says ‘lower price,’ the Australian Navy that says ‘this is

the bid,’ a probity adviser who says, ‘I have walked all over this

and it is clean,’ what are you going to then say? Ignore all of the evidence?

Gee that would be a scandal. You would be, your paper would be right up that

scandal if…

JOURNALIST:

(inaudible).

TREASURER:

…they wouldn’t be up it if a footballer injured his knee that day,

that is for sure. They know a story when they see one down there.

JOURNALIST:

You spoke very strongly about industrial relations reform. Will you show the

same sort of leadership on the broader reform agenda outlined by the Productivity

Commission in its competition policy document a few months ago?

TREASURER:

Well, can I say this, I have been administering competition policy over the

last nine years. Whenever the National Competition Council made a finding against

a State and recommended applying a financial penalty, I applied it. How many

State Premiers supported me? Every singe State Premier took the view that he

was entitled to the money and didn’t have to do any competition and it

just became a game after a while. They refused to do anything that was required,

if they refused to do anything that was required, and I enforced a financial

sanction, it was always that mean Mr Costello taking our money away again. One

person was prepared to take that issue up and enforce it. If I may say so, we

didn’t get much help from the State Governments. Now we went through this

process, there are State Governments that as we speak, in you State, are now

subject to financial penalties because they refused to engaged in competitive

reforms. And you know, frankly a bit of scrutiny on why and how would be good.

There is a State Premier in your State who as at this moment is refusing to

cut indirect taxes in compliance with the GST agreement. Who is driving the

competition? Who is driving the tax reform? It is being driven from here. Now,

I think that the important thing now is not to go over chicken meat and rice

growers and hoteliers you know, which are all big competition issues, I think

the important thing now in a competition agenda is to go for the big items.

The big items are these; water, electricity, gas. They are the big items. So,

rather than you know, have money on offer for these State Governments for reforming

chicken meat and rice growing and hoteliers, we are going to save that money

and we are going to say, we are going for the big items now, here is money to

reform water, here is money to reform other areas and since we are going to

get involved in competitive agendas, what about IR? Name me an issue where we

need more competition reform than industrial relations?

JOURNALIST:

Infrastructure.

TREASURER:

I thought you were going to say media.

JOURNALIST:

Will this agenda be outlined on Friday at the COAG meeting, Mr Costello?

TREASURER:

Well I hope so, yes.

JOURNALIST:

Treasurer, the Grants Commission has said that the methods it is using may

be unreliable, does that mean that New South Wales has a case when it comes

to the amount of money they are getting back from GST?

TREASURER:

Look, can I say this, the formula for equalisation didn’t begin with

GST, it has been in place since the 1930s. The only thing that has happened

in the last four or five years is Bob Carr has got more money than he ever expected.

That is the only thing that has changed. The equalisation formula hasn’t

changed. The only thing that has changed is that he has got more money than

ever. Sitting flush with more money than ever, having an obligation, as we have

seen in the other states, to abolish taxes and refusing to do so because of

his financial problems. He has got to have an explanation. And what is the explanation?

The system of equalisation which began in the 1930s.

Now, I make this one other point to you. When Federation occurred in this country,

and when the States agreed that there would be equalisation between themselves,

New South Wales and Victoria as the two major States became what are called

donor States. Now, think about this very clearly. Victoria is a donor State.

Victoria apparently can abolish indirect taxes. New South Wales is a donor State.

New South Wales cannot…

JOURNALIST:

So what are you going to do about…

TREASURER:

…Why, just think about this for a moment. It is not because it is a donor

State, Victoria is a donor State. You know, you have had a mismanaged State

which far from abolishing taxes has been increasing them. And you do not want

to sort of say, you know, it is everyone else’s fault but the Premier’s.

JOURNALIST:

So what are you going to do Mr Costello about New South Wales and WA (inaudible)?

TREASURER:

Well…

JOURNALIST:

And when are going to do it?

TREASURER:

Well, we are going to deal with them after we finish with Federal Labor, alright.

Now, pardon? …

JOURNALIST:

(inaudible) New South Wales?

TREASURER:

…I don’t think so Michelle, because we are trying to cut taxes

and Federal Labor is trying to stop Federal taxes being cut. This has to come

to a denouement before the 30^th of June. And we will bring

it to a denouement before the 30^th of June and, you know,

let me just remind you, here we are, the schedules have been in the House of

Representatives now for, I believe Thursday last week, Monday, Tuesday, Wednesday,

we have not seen a motion of disallowance yet. Those schedules will hit the

Senate as soon as it sits on the 14^th of June and the question is,

will Mr Beazley be moving his disallowance? The whole of Australia waits. Every

employer in this country needs to know and they need to know now. So, you know,

what is wrong with asking him to determine his position. All he has got to say

is what he is going to do, every single employer is in a state of flux and confusion

because he cannot tell you what his policy is on those schedules.

Now, this has to be fixed, it should be fixed today frankly. He should just

announce today he is either going to do it or he is not. You either will or

you will not. Tell us, because this is a huge problem, this is really a huge

problem for 850,000 employers…

JOURNALIST:

Back to the National Accounts, notwithstanding your earlier comments on household

savings. The National Accounts show the worst household savings in over a year

with consumer spending running significantly ahead of income growth. I was interested

in how you would explain that given your earlier comments. Also while I have

got your attention, the productivity results show further decline. I was interested

in your comments on why that is.

TREASURER:

Well, I think the productivity story is really an arithmatic story, that is

that GDP growth has slowed whilst employment is increased. It is just the outcome

of that. That is what is going on in the economy. On the household…

JOURNALIST:

(inaudible) over the years?

TREASURER:

… Yes, that is the explanation of it. You could boost productivity in

the economy, in a slowing economy by putting off labour, of course you could.

But at a period where they are still putting on labour, that is the explanation.

On your other question which was household saving. The household savings, as

the National Accounts say, they warn that their consumption surveys are not

accurate and they have not been updated and they take into account depreciation

which is ground we have been down on many occasions. But I do believe, as I

said earlier, that there is evidence that people are not investing in housing

as much. And we do see that consumption is moderating and we do know that incomes

are growing and, as I said, what I believe that may herald, is households consolidating

their balance sheets. That is what I believe it may herald, and as I said earlier

if that were the case it would not disappoint us. Thanks very much.