TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Interview with Alan Jones, 2GB

Tuesday, 4 March 2003

7.10 am

SUBJECTS: OECD Report; BOP; Free Trade Agreement; Dairy Deregulation; Services;

Petrol Prices; Superannuation; Defence Spending

 

JONES:

Treasurer, Peter Costello, is on the line. Treasurer, good morning.

TREASURER:

Good morning, Alan.

JONES:

What do you make of these figures?

TREASURER:

Well, let me come to the balance of payments first. As you said, we are now

seeing the drought, the worst drought in a hundred years biting into our rural

exports. So, it wasn’t a surprise, we already knew that was occurring, and it

has been occurring for a while, and as I said, until the drought breaks and

until farmers can get their crops back in, rural exports will be weak. And that

will continue, as I said yesterday, in the March quarter and the June quarter…

JONES:

So these figures could get worse?

TREASURER:

Well, no, exports will be weak, whilst the effects of the drought continue.

There will not be a recovery until the drought breaks and until farmers are

able to get their crops in, in respect of agricultural exports, which are a

big part of our exports. On the import side as you said, the fact that our economy

is growing stronger, actually leads to higher imports. You made the point about

Qantas, I think. Qantas imported four new airliners, $1.2 billion. Now the fact

that it imported those airliners, is indicating the fact that Qantas is strong

and re-tooling its whole fleet in one of the most profitable airlines in the

world. The strong capital input is actually a sign of the strength of an economy,

not of its weakness. And the fact that Qantas is one of the most profitable

airlines in the world, these airliners now that they have been imported and

bought, will lead to more income and will actually earn more income for Australia

down the track. So, the worrying thing about the figures is the drought and…

JONES:

What about, what do you make of the $354 billion net foreign debt which is nearly

double the level when you took office seven years ago?

TREASURER:

Well that is a percentage. We measure debt as a percentage of the economy because

the economy has grown so much over the last seven years. As a percentage of

the economy it is about 48 per cent. When the Government came to office it was

about 40 per cent. So it has gone up from 40 per cent to 48 per cent. I don’t

think we should be at all complacent, about our economic policy. I think the

message that we should take away from these figures, is, we have to continue

with economic reform.

JONES:

It is hard to believe though, isn’t it I guess, and this is giving you a bit

of a pat on the back, it is hard to believe in the light of what’s happened

to the international economy, or as someone said yesterday, it’s most probably

not a bad price to have to pay for avoiding what many say is one of the worst

global slowdowns in a long, long time?

TREASURER:

Well Alan, I don’t think we should be complacent. We have always got to try

and do better. But let me make this point – compared to the United States, compared

to the United Kingdom, compared to Japan, compared to France and Germany, the

other developed economies of the world, Australia leads the pack, and the OECD

said that yesterday. In fact, the OECD, which is the Paris-based organisation

that surveys all the advanced economies of the world, recommends Australia as

a role model for other economies. So I think Australians can take away the fact

that the work that we have done is paying dividends. Is the work finished? No.

The work is not finished. We have got to continue. But the one good thing about

a world which has been through a recession, a United States economy which has

been through a recession, is that Australia stood strong and tall and we survived.

JONES:

Okay, I want to come to an ideological question in a moment. But just for the

benefit of my cricket listeners out there, the news is, it is still raining

at the World Cup in the game between Sri Lanka and South Africa. Now it is twenty

past seven, the umpires have until a quarter to eight Sydney time to have the

match either resumed or called-off. If the match is called off because of the

weather, it will be a tie and that means South Africa will miss out on going

into the second round and New Zealand will advance. It will be the second time

of course that South Africa have been denied a victory because of the weather.

So they would be pretty dirty about that. Treasurer, can I just ask you this

question though about deficits? If we are to embrace a free trade mantra that

the rest of the world seemed to only pay lip-service to, we will continue to

be swamped with imports, because we have opened up our economy, but our exports

will struggle to penetrate the big markets, can we go on forever and a day living

with a shortfall of exports over imports?

TREASURER:

Well, one of the objectives of a free trade agreement with the United States

is to give our exporters a go. That’s what we are now working on…

JONES:

But you know the agricultural subsidies exist in the United States of America

and Europe, they are massive.

TREASURER:

That is what we are trying to get rid of. That’s what we are going into negotiations

about…

JONES:

So why do we lower our tariff barriers before that happens?

TREASURER:

Well, it depends on particular industries. Let’s take the airline industry.

The truth of the matter is, if you are running an international airline, you

have got to buy your jumbo jets from Boeing, because no one else makes them.

So, we import Boeing jumbo jets. That shows up in our trade figures. Is it a

bad thing? Well, actually in the longer term it’s a good thing because a profitable

Qantas will be bringing tourists in here and taking Australians travellers out

and actually adding to national income.

JONES:

But we also import dairy products. Isn’t that stupid? We deregulate the dairy

industry in such a way that we drive farmers out of business and then start

importing dairy products. I mean that’s a bit of a laugh in a country like Australia

when a country like Australia is importing dairy produce.

TREASURER:

Well, I don’t think there is any economic reason why we need to import dairy

produce because I think our farmers are the best in the world.

JONES:

Well, we are.

TREASURER:

I agree with you.

JONES:

We are.

TREASURER:

I agree with you.

JONES:

Well, who deregulated the dairy industry…?

TREASURER:

well…

JONES:

…P Costello?

TREASURER:

Well, no, let’s remember this Alan. The dairy industry itself put a plan to

the Government and the plan to the Government was to allow economies of scale

so that dairy farmers could get bigger. A levy was placed on milk so that people

who wanted to exit the industry could, and a lot of them did. And I think you

will find amongst the dairy farmers, the bulk of dairy farmers, not every dairy

farmer but the bulk of dairy farmers, that they think it has been successful.

JONES:

Just one thing on that, we have signed, this gets a bit heavy and I don’t want

to get heavy but it is an important issue that I get a lot of letters on, this

is the general agreement on trade in services. Where we are talking about opening

up areas of service industries in exchange for other countries opening up their

service industries to us. But isn’t this pie in the sky? They will swamp us,

we will continue to struggle, shouldn’t we give the electorate a list, a published

list, like Canada has done of the requests that are made for other countries

to provide services here so that we know what it is likely, what we are likely

to face in the future?

TREASURER:

Well, look, I think that public debate and information is good, and I am going

to agree with you on that. But I make the point in relation to services. We

do get opportunities in services. The number of Australian accountants, and

lawyers, and financial advisers that you will meet in places like Singapore,

or Hong Kong or Thailand, insurance services, we are exporting services, you

know, even Telecom. Now their export of telecommunications didn’t go so well

in Hong Kong…

JONES:

No, just a (inaudible) billion dollar down….

TREASURER:

…but at least they got the right to do it.

JONES:

Just another question that the finance world asks, I mean you’re the first Treasurer

since the mid 70’s that can say you have got Commonwealth debt off our back,

Government debt. But if you redeem all the Commonwealth bonds you eliminate

the bond market. What’s to happen to the bond market?

TREASURER:

Well Alan, we’ve repaid an awful lot of the Labor debt. We came to office, it

was $96 billion, we’ve, in net terms , re-paid about $60 billion, that’s from

running surpluses and prudently managing the nation’s finances. We’ve really

got the Government debt down. When you hear people talk about foreign debt,

incidentally, that is not what the Government owes, that is what individuals

owe, principally banks, but the Government debt we have really paid up an awful

lot of it. Now, people say, well what would happen if you were to eliminate

it completely, if you paid off all Government debt then you wouldn’t have any

Commonwealth bonds out there and people wouldn’t be able to invest in them.

So, I have said well look, we’ll have a discussion paper and we’ll have a, we’ll

open it up. We’ll invite, engage the whole community in the discussion and we’ll

make an announcement. But, can I make this point, Alan, since further sale of

Telstra is not going to go ahead in the near future the question is to some

degree academic because the Government would not be in a position to repay that

remaining debt in any event.

JONES:

Okay, just a couple of things which are very important. I mean, out there the

battlers who have got a few bob to spare have put it into the share market,

they have been encouraged to do so. You’ve got companies like Telstra have lost

about $16 billion, AMP $23 billion, there’s a problem about the global share

market, some say it could fall even further. They then look at their superannuation

and there are negative returns on their superannuation, they worry about war.

What does Treasurer Costello say to people about the safety of their investment

money and what they should do with the money they currently have?

TREASURER:

Well, in relation to superannuation you’re quite right. Stock markets have fallen

in the last couple of years and overseas stock markets have fallen more than

Australia. And those superannuation funds that went overseas, into overseas

stock markets, will also be affected by the fact that the Australian dollar,

as you know, has just been appreciating recently, so I don’t think it is that

wise a strategy to have big sums of money invested in overseas stock markets.

JONES:

But you don’t know that, you just stick your money in superannuation, you don’t

know where those fund managers are putting your money?

TREASURER:

Well, I think people should have more choice about that, incidentally, and they

should actually ask their investors, their managers, what the returns are and

what kind of exposures they’ve got.

JONES:

Is war going to further damage the stock market and the value of their shares

and the returns on their super?

TREASURER:

Well, the Australian economy, Alan, will be affected by world events, obviously,

the threat of war, rising oil prices. But the economies of the world, and you

heard it today from the OECD, it’s the best placed to ride out these difficulties.

And so, the Australian economy, although it will be affected by drought, we

won’t be immune to drought, it will be affected by war and rising oil prices,

but the Australian economy will continue to lead, and so I think we can have

a lot of confidence in the Australian economy…

JONES:

Well Treasurer, you say that, you keep talking about rising oil prices, but

so has the dollar gone up, why the hell if prices, and they are down today,

it’s $35 US dollars a barrel, and a bit, that’s down from yesterday, the dollar

is over 60 cents. Why is it that people are paying more for petrol? Aren’t they

being ripped off?

TREASURER:

Well Alan, the petrol that you’re buying in your bowser is not the petrol that

is bought on the world oil market today or yesterday. The petrol that is now

coming…

JONES:

All the more reason why, all the more reason why it shouldn’t be going up?

TREASURER:

Yes, well, it is the petrol that was probably bought about 3 months ago and

then was brought into Australia and then was refined…

JONES:

Okay, so on that argument the petrol in 3 months time will be cheaper because

it was bought when the Australian dollar was 60 US cents?

TREASURER:

You have got to have a look at the lead times in order to look at the pricing.

It doesn’t happen instantaneously. It’s got to be shipped, you buy it, you ship

it out of the Middle East, you get it to Australia, you refine it, you put it

in the tankers, you send it to the petrol stations.

JONES:

But if the prices go up you’ve made, some say, on GST revenue from petrol about

$220 million more than your Budget said last year and then the resource rent

tax, or petroleum resource rent tax has turned you in another $380 million.

You’ve got a windfall of about $660 million, do you give it back to us?

TREASURER:

This has been prodded around by the Opposition, Alan, and they claim they have

got figures which they won’t release. But let me give you the facts. The Commonwealth

Government didn’t get a dollar from GST, not a dollar. That goes to Mr Carr

and all of the other states. If the GST revenue goes up the States get the lot,

the Commonwealth does not get that. In relation to petroleum resource tax it

is true that if oil companies, these are people who discover and produce oil,

make more money they are taxed more, that is quite true. But the collection’s

three quarters of the year are as forecast.

JONES:

Okay.

TREASURER:

They are not in excess. And can I also say, there is another element in all

of this, as the oil price goes up company profits come down, the economy doesn’t

grow as fast and it’s more likely that the tax take will be less in the overall

economy because the economy is down as a consequence of oil prices, in the overall

economy.

JONES:

Okay, just before we go to the news can we, what will the war cost us if there

is a war?

TREASURER:

Well Alan, we have currently got Hornet fighter planes in the Gulf. We have

got amphibious ships, and we have got special forces.

JONES:

And we can pay for that?

TREASURER:

The cost of that deployment will be hundreds of millions. Now I can’t tell you

what the cost of a war would be because a war has not started and we hope that

it doesn’t. But the cost of the deployment will be hundreds of millions and

we’ll have to pay for that out of the Budget.

JONES:

Thank you for your time, we’ll talk again.

TREASURER:

Thank you very much Alan.