TRANSCRIPT
THE HON PETER COSTELLO MP
Treasurer

Doorstop Interview

London Circuit, Canberra

Tuesday, 7 October 2003
7.00 pm

SUBJECTS: Reinsurance, Iraq, Interest Rates, IBNR Levy

JOURNALIST:

How long is the Commonwealth going to be in the business of reinsurance,

Treasurer?

TREASURER:

The Commonwealth has set up a reinsurance corporation to take risk which

insurers won’t offer for terrorist acts. You can’t get terrorism insurance

for commercial property at any price. Now, we hope, particularly if the

war on terror is successful, that insurers and reinsurers will start

offering terrorism insurance again, and that they will do it at commercial

rates like the normal market. And when it is apparent that that is the

situation then we will be getting out of this business. This is not a

business we intend to stay in long-term.

JOURNALIST:

Are there any other examples where you might see the Government having

to sort of, pull the market (inaudible) of a market failure situation?

TREASURER:

Well, there could be. I hope, the fewer the better. We did it, you will

recall, with our claims fund for HIH, when HIH got into trouble we established

a claims system. We had a system you will recall to pick up minimum employee

entitlements in relation to insolvency, which came out of the Ansett

matter. But, it is only as a last resort, it is only where there is a

real obvious market failure, the Government is not in the business of

running commercial operations, nor is it in the business of propping

up un-commercial operations. But, a you had a situation here with September

the 11^th, where it wasn’t predicted, where the payouts were

huge, where insurers just overnight cancelled all terrorism insurance.

And if we hadn’t stepped in, then commercial building would have ended

and the American Government has offered indemnities, its scheme is not

as advanced or sophisticated as ours, we have discussed this at the IMF

and other countries are looking at similar schemes.

JOURNALIST:

On another topic, the Prime Minister has been censured today in the Senate

over his reasons for going to war with Iraq. Do you think he owes the

Australian people an apology?

TREASURER:

I think he has explained his position, which is that he relied on reputable

intelligence, and nothing has been produced to the contrary, but at the

end of the day the world is a better place without Saddam Hussein. And

I don’t think we should spend too much time worrying about Saddam Hussein,

the people of Iraq have been freed from a tyrant, and it is important

that we get on with the reconstruction of Iraq, Australia is making its

contribution. It has made it through aid, we are making it with Treasury

officers, we are working on helping to re-build an economy there. That

is very important.

JOURNALIST:

Do you think that tomorrow we could be seeing our first rate hike?

TREASURER:

I never talk about future movements in interest rates. I haven’t for

the last 7 ½ years, and I am not going to start now.

JOURNALIST:

Treasurer, we have seen warnings from the Reserve Bank, the IMF, Ken

Henry, and in fact yourself on the housing bubble, but investors are

still taking on more debt and buying apartments and townhouses and what

not, how concerned are you at the moment about this?

TREASURER:

Well, I have said an awful lot about property investment over a long

period of time, and the points I have always made are these. Look, we

have 30 year lows for interest rates. I can remember a time when they

were 17 per cent. Now, that was admittedly under a Labor Government,

but if you were taking out a 30 year mortgage, you know, you could get

a Labor Government back in, and our last experience was interest rates

between 10 and 17 per cent. So, people have got to think in a 30 year

investment the Government can change, policies can change, interest rates

can change, that they have got to allow some room for that. I also say

that people should be careful about their investments, property markets

are not always one-way bets, just like equity markets are not always

one-way bets. But, having said all of that, for most home buyers, the

fact that the value of their home has gone up is a good thing. Believe

me, they’d be a lot less happy if the value of their home had gone down.

JOURNALIST:

What is your stand on the IBNR levy? Helen Coonan is maintaining that

the doctors should be paying it, and Tony Abbott has taken an opposite

direction?

TREASURER:

No, I don’t think that is right. I think that Helen Coonan has done a

great job in relation to the medical indemnity issue, and the tort law

has changed quite considerably. She has managed to get the States quite

considerably to change their tort laws, you know for medical injury and

so on. And bear this in mind, that the taxpayer has picked up. I think

it is $450 million of liability on behalf of that insurance fund. Now,

over a period of time, as doctors pay their premiums, they will also

be paying for that accrued liability, that’s what the IBNR levy is all

about. Tony Abbott announced that there would be a moratorium over $1,000

but he is proceeding with Senator Helen Coonan’s plan.

JOURNALIST:

So, doctors will still be paying the levy?

TREASURER:

Well, they will be paying $1,000, up to $1,000, for the next, there is

a moratorium period which requires they only have to pay $1,000, that

is an 18 month moratorium period, and for most of them, for most GPs,

it wasn’t that much above $1,000 anyway. Then there will be an actuarial

calculation, the rest will be recovered over time. OK, thanks.