Power crisis, interest rates, Reserve Bank e-mail glitch, Telstra 2

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Power crisis, interest rates, Reserve Bank e-mail glitch, Telstra 2


Transcript No. 2000/09


The Hon Peter Costello MP


Interview with Jon Faine


8.30 am

Friday, 4 February 2000

SUBJECT: Power crisis, interest rates, Reserve Bank e-mail glitch, Telstra



Peter Costello is the Federal Treasurer. Good morning to you again. And you’re no

stranger to industrial disputation. You cut your teeth at the Bar and created your

political reputation on these sorts of disputes, with Dollar Sweets and others.


Yes, I’ve been involved in numbers of these disputes. Let me take up a few things

that were just said. You would have to be suffering from collective amnesia if you thought

that when it was Government-owned you didn’t have problems down in the Latrobe

Valley. In fact, my recollection is that they were just as bad. From the union’s

point of view, they might like the Government to own the SEC because it would given them

another lever on the employer through Government ownership. I don’t think

there’d be any evidence at all to suggest that Government ownership led to better

industrial relations, in fact quite the reverse. The second point I’d just make in

observation is this. The really innocent parties here are the people of Victoria, and

South Australia for that matter too. It just seems to be the way, doesn’t it, that

where you have a critical industry and a concentration of power they always hit the soft

spot, and hold the community to ransom. And I would just say that the public interest

ought to be the pre-eminent interest here and work ought to resume so that the public can

be looked after.


And a thinly-veiled threat from the company, it being a British-owned multi national

with massive energy investments around the world, that if they can’t resolve this

dispute soon, they won’t invest further in Victoria in renewing the plant which has

got another ten or fifteen years of useful life in it.


Well, I don’t know that threats ought to be issued either way, but I do think

this: that people should return to work. I think that the dispute ought to be ended and I

think the really innocent party, which is the public of Victoria, ought to be pre-eminent

in the minds of everybody in this dispute.


All right. Now we’re taking people’s calls, all sorts of people ringing in

with particular problems caused by the power crisis and the heatwave. We’ll continue

to take notice of the different calls for help that people are giving to us and we’ll

be processing those through the morning.

[Instruction concerning calls to the station on power]

Now, Peter Costello, the interest rates that were put up by the Reserve Bank the other

day have been anything but plain sailing for you. We’ll talk about the GST in a

moment, but the interest rate issue first of all. The Democrats have called for a review

of the Reserve Bank Act. They describe the Reserve Bank as a secretive organisation.

Business groups, including the influential Australian Chamber of Commerce and Industry,

have said they want to see the minutes of the Reserve Bank meetings released to bolster

accountability. Much dissatisfaction in all sectors, many sectors, with the decision for a

half a per cent rise in interest rates two days ago.


Sure. Well, let me come to the first point. The Reserve Bank today is probably subject

to more scrutiny than it’s ever been in its history. One of the things that I put in

place was the twice-a-year appearance by the Governor of the Reserve Bank before a

parliamentary committee, which questions him in front of the press. In addition, they

always make a statement for, of their reasons when monetary policy is changed. And

you’ve probably got the most transparent and open arrangements that have ever been in

place in Australia, in Australian history. So I think we can put that to one side.

The second thing I’ve been saying in all of this is, that having stated the

reasons why it moved, it’s instructive to actually look at the reasons why the Bank

moved. And I know, I made this prediction that if the Bank tightened interest rates Mr

Beazley would say it was GST, and right on cue, he came out and said, oh, it must have

been GST. In fact, I’m a bit amazed he hasn’t yet claimed the power strike is

the responsibility of GST, because just about everything else in society is at the moment.

But what the Bank said, is that the principal reason is the strengthening world economy.

Now, nobody who is a home buyer is going to like their mortgage interest rates going up.

Of course if you are a depositor you might, but nobody who is a home buyer is going to

like interest rates going up. The good side of this is that the world economy is

strengthening, and that means that the Australian economy will be better placed and it

means there will be more jobs. There is a flip side to all of this, and the task for

monetary policy at the moment is, we’ve had incredibly good growth, four per cent per

annum for four years, the task now is to figure out how we can keep this economy growing.

If you were to keep this economy growing at four per cent for another four years you could

practically provide work for people who are looking for it. It’s a big if, but that

is the task of economic policy.


Do you still cling to your zero unemployment in four years prediction?


No, what I’ve said is this. If you were to grow the Australian economy at four per

cent for four years, then the experience of the last four years showed us that that

created 624,000 new jobs. The unemployment rate has fallen from 8.6 per cent to about 7 .

. .


7 per cent.


Well, 7, I think it’s probably a little under that, or it will certainly be under

that by mid-year. If you took another 1 points off, well the arithmetic tells you where

you’d be in four years’ time.


But on your own projections, the GST is going to have a one-off inflationary impact of

what, somewhere around 3 to 4 per cent. The post-Olympics slump is factored in as well.

In America, they only put interest rates up a quarter of a per cent, we put them up a half

a per cent. And people are saying well, hang on, is this the right management tool for the

times and for this economy.


Well, you see, that’s the other point I made. Mr Beazley said, oh, it’s all

related to the GST, and this was on Wednesday. And I said, well if the US Federal Reserve

raises interest rates tonight, as was widely expected, Mr Beazley is going to have a lot

of explaining as to why Dr Alan Greenspan moves American interest rates on the back of the

Australian GST. Now just to complete the picture, overnight the European Central Bank

raised interest rates 25 points, the Danish Central Bank raised rates 30 points, the Swiss

raised rates 50 points, the Canadians raised rates 25 points, the Americans, as you said,

raised on our time Thursday morning, 25 points, which meant that their total tightening is

now a full 100 points over the last six months. So they’ve actually tightened policy

more than Australia. Now although the US economy is running strongly, people would say its

unemployment is lower so you would expect a more significant tightening in the US.

Whereas, if you compared Australia to Europe, where unemployment in Australia is much

lower than Europe, in France and Germany it’s about 10 or 11 per cent, they’ve

had smaller tightenings. But you know, I can tell you this, as somebody who was at the IMF

in September and the meeting of the world’s largest 20 economies in Berlin in

December, the world economy is strengthening, everybody is tightening rates as a

consequence. The bad part is, that that has a cost on mortgages but there is a flip side

to this, and that is that the world economy is getting stronger and that’s going to

help Australia.


The Bank of Adelaide put its home loan rates up 0.7 per cent, not 0.5 of a per cent.

What are you going to do to them?


Well, I think my advice, and I don’t have the figures with me at the moment what

their standard variable is, but I assume it was the same as all the other banks right, so

they’ve come off the same base. Assuming they’ve come off the same base and

they’ve moved up by.7 of a per cent, I would say to anybody in Adelaide who has got a

standard variable mortgage with the Bank of Adelaide that has put its price up .7 per

cent, I would start talking to another bank frankly.


And let the market place sort it out? Not to refer it to the ACCC?


There is no reason, there is no monetary reason why it’s putting up its interest

rates .7 per cent, and I always find that the most direct way of making your displeasure

known is to go to another bank, because banks that overcharge in a competitive market

place are going to lose customers.


How have you made your displeasure known to the Reserve Bank about the stuff-up where

64 financial market dealers got advance notice by six minutes of the half a per cent rate

rise, and were able to conduct what otherwise would have been insider trading, but because

it was the Reserve Bank that told them, they became, many of them, instant millionaires?


I had a meeting with the Reserve Bank yesterday, a long meeting, and I raised it with

them. I asked them whether they were doing an inquiry, they told me that they are doing an

inquiry. I asked them whether some disciplinary measures would be taken against those that

are responsible, they assured me that they would. And I asked them to put in place

arrangements which would ensure that that never happened again, and they told me that they

will. I don’t even know why 64 people need e-mail notice of this. I think those 64

people could read the Reuters screen…


Just like everyone else…


Or a press release like everybody else. And one of the things I suggested to them was

that they actually abolish the list of 64. I also enquired , this is just an interesting

titbit for you, as to who was on the list of 64, and it’s true there are some

financial houses, there was also an ABC journalist.


Which one? No don’t say, don’t say.


Why, do you want to go and look at his trading record do you?


It wasn’t me.


And there were some other people. And it was, I am, they have assured me and I am sure

that there was no bad intent, it was just a straight clerical error. Somebody was typing

into a machine, to have it ready to punch at 9.30, and they punched it as they were typing

it in. Now I think the important thing here is to put in place systems where that cannot



All right. On Telstra 2 at the moment we are seeing the shares, or the instalment

receipts trading at less than the issue price. Does this dampen your enthusiasm to sell

the rest of Telstra?


Not in the slightest, no. The thing about the share market is, it’s an investment

like anything else, it’s an investment like a house. You buy a house, the value of

the house most probably over time will go up. But in between it will go up and come down,

and it will go up and come down, but across the graph, if you are looking at a graph, it

generally goes up. That’s what’s been happening in the share market, it

doesn’t mean it will go up every single day, there will be days when it will come

down. People have got to look at that as an investment.


A couple of GST specific questions. Some dispute, retailers saying they want to have

the right to display pre-GST and post-GST prices alongside each other. I’m sure

I’ve heard you somewhere along the way say to me, or I’ve seen you on the news

somewhere else saying you want one price tag, a GST-inclusive price tag, no ifs, no buts,

no arguments about it.


I want a situation where, when you walk into a store like now, the price that you see

on the shelf is the price you pay at the counter.




I don’t want a situation – I don’t know if you’ve ever been to America

where they have a price, like $8 on the shelf, you go to the cash register and they say

the price of that is actually $8.60. You know how they do it, they add their services

taxes at the counter.


And the retailers here are saying we want people to know what component of the price

they’re paying is not our fault, but is the GST.


Well, the thing about the price under a GST system is because the GST adds ten per cent

tax, one-eleventh of the price is always tax. That’s just the way it works out

mathematically. One-eleventh of the tax-inclusive price. Don’t ask me to go through

the maths, and you know, I don’t want to confuse people, but take it from me

that’s how it works out. So you always know. What you don’t know at the moment

is what the taxes are, and what I’m, which are being taken off, because some are at

nought, some are at 12, some are at 22, some are at 32, some are at 47, and what I’d

be very afraid of with this retailer’s scheme is whether or not they actually show

the taxes that are being taken off. Now I want a situation, where the person in the store

knows what they are being asked to pay. And that is the situation at the moment

incidentally. If you go into a store at the moment and you buy something that’s got a

22 per cent tax, they don’t give you a pre and post-tax price. This is the scheme.

Well it’s all inclusive, it’s already built in. And this is the scheme that

we’ve been operating in Australia since about 1932.


All right, the Premier Steve Bracks, available to us in just a moment on the power

crisis, one more question for you, Peter Costello. Ray Reagan, from the National Tax

Agent’ and Accountants’ Association, the other day said that you need to do

something about the plight of the people who live in caravan parks as permanent dwellings.

The poorest people in our community who can’t afford housing of any other kind, and

yet although rent in private housing is exempt from the GST, if you are paying rent in a

caravan park you’ll be hit with the GST. And you’ve got to do something for

these people, what’s your response?


Well people that are long-term tenants in caravan parks, I’m not talking about you

or me…


No, no if we are going on holiday…


. . . for a week, but people that are long-term, that is that are living in caravan

parks, get the same treatment in relation to caravans as normal rents. That is, that there

is no GST on the rent. It’s what’s called “input taxing” and the

owner, the landlord doesn’t get credits for the taxes on the inputs, but has no

liability for GST on the rents. There’s another alternative system. He can get full

input tax credits and charge half GST. But that is the rule to equalise it with people who

are in normal residential rents. And don’t forget this; that not only are we putting

up pensions but we are also putting up rent allowances, so that if there is an increase in

rent, rent allowances under the Commonwealth are going up to cope with it.


Peter Costello, a very busy morning for you and for us as well. Thank you for sparing

some time for our listeners this morning. We’ll speak again soon I’m sure.


A great pleasure to come in, Jon.


The Federal Treasurer and Deputy Leader, of course, of the Parliamentary Liberal Party,

Peter Costello.