Standard and Poor’s credit upgrade, executive remuneration, Victorian Liberal Party, election speculation, Budget, Iraq

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Standard and Poor’s credit upgrade, executive remuneration, Victorian Liberal Party, election speculation, Budget, Iraq




Doorstop Interview

4 Treasury Place, Melbourne

Monday, 17 February 2003

12 noon

SUBJECTS: Standard and Poor’s credit upgrade, executive remuneration, Victorian

Liberal Party, election speculation, Budget, Iraq


Today the international rating agency Standard and Poor’s upgraded Australia’s

foreign currency credit rating to AAA. It is a rating which Australia lost during

the Labor period, the `Banana Republic’ period of 1986, when Australia had its

first downgrade and its second in 1989.

It has been a long road back, and it has taken a lot of work. But Standard

and Poor’s has now recognised that Australia’s financial position is strong

again and we are AAA.

The other international ratings agency Moody’s also rated Australia at its

highest level as a result of the reforms in 2002, last year. So both of those

agencies now have Australia along with some other 16 countries around the world

at the top level of foreign currency rating.

What this means is that if the Government were to borrow it would be able to

borrow at cheaper rates but the Government is not borrowing at present because

we are repaying debt. But it means the ceiling for the private sector has been

improved so that private sector Australian companies can now borrow overseas

and not have a risk premium built in as a consequence of a lower than top rating.

So, the good news is that Australian companies will now be able to borrow at

better rates, that’s better for them and it means that Australia’s economy will

be stronger for it. Australia has returned after some 17 years to the AAA rate,

a AAA rating for sovereigns, and that will improve our private sector’s position

as well.


What sort of credit can you take for this?


Well, the Standard and Poor’s said that the two reasons why Australia regained

its AAA rating. The first is we have got one of the strongest Budget positions

in the world. As Standard and Poor’s said, “Government surpluses in all

but one year since 1997”, “Net Government debt to GDP projected to

fall to nearly 3 per cent”.

What you are seeing is you are seeing the long hard work that we have been

engaging in since 1997, repairing the finances of the Australian economy, has

now put Australia back in the position it was before the damage was done during

the eighties. In addition to that the announcement recognises the sophistication

of the Australian private sector in relation to the high credit standings of

the banks, the depth of foreign exchange and derivative markets and the substantial

claims on non-residents by the Australian private sector. So, with a sound financial

sector, now backed-up by a Government sector which is in a very strong financial

position, Australia has now regained its AAA rating, something it lost in 1986,

17 years ago. So, it has been a long way back.


How does this position Australia as part of the international economy?


Well, the international economy is very difficult. There is no doubt about

that. The United States has been through a recession, Japan has been through

a recession, Europe is weak and the international environment is as difficult

as it has been, certainly in the last couple of decades. So it is a difficult

situation but Australia is one of those countries in the world best placed,

to ride it out. I don’t say that there will be no effect. There will be an effect.

That is obvious. But we are one of the countries best placed to ride out a very

difficult international situation.


Treasurer, something like this, how does it impact on the currency?


Oh look, I don’t predict currency movements. Long experience has told me it

is not a good policy.


But surely like an upgrade such as this has got to be a positive?


Look, the positive of this is that now that Australia, the country, the Commonwealth,

has got the top AAA rating, our companies which cannot exceed that ceiling can

now get upgrades. And what that means is that those companies borrowing the

same amount of money can get cheaper finance. Now that is good for them, that

is good for the economy. So you can draw your own conclusions in relation to

foreign exchange markets.


Treasurer, speaking of companies, do you have plans under CLERP 9 to (inaudible)

companies to better reveal their (inaudible) executive remuneration?


Well, CLERP 9 is a proposal for corporate law improvement which we put out

last year to enhance transparency, and I have said that if there are any new

measures that the regulator, ASIC, wants to have incorporated as part of that

I would be very happy to do so. In fact I will be discussing that with the Chairman

of ASIC later on tonight. So, we stand very ready to enhance transparency. I

guess the good thing is, that under the current laws this was forced out. That

is the good thing. Whether or not it should have been forced out at an earlier

stage, back when it was entered into, the early nineties, when our corporate

laws weren’t as advanced then as they are now, but we have got to have a look

at that question, and I think it is very important that these things are made



So the payout last week by the Commonwealth Bank has encouraged you to set



The contract as I understand it was entered into back in the early nineties,

and it was the disclosure rules that forced the disclosure in recent times.

Now, the thing to remember about this is that this money was shareholders’ money.

It wasn’t the Government’s money, it was the shareholders of the Commonwealth

Bank that owned this money, and the Directors have to account to the shareholders

for what they do with their money. And if shareholders are unhappy they have

the right to get an explanation or indeed to get further action in relation

to the Directors. That is where the chain of responsibility lies.


Treasurer, just with the meeting with ASIC tonight, are you saying you will

specifically be asking them do you want to tighten up the disclosure or will

you be specifically…?


Well, the good thing about what has happened in relation to this contract is

the existing rules forced the disclosure. So it is not to do with this current

one because the existing rules forced it. But some people say that ASIC’s guidelines

are still complicated. That they have trouble knowing where they begin and where

they end. That is one of the things that has been put to me. In view of that,

I am meeting the Chairman of ASIC tonight and I want to raise with him whether

or not those requirements can be made user-friendly, whether there can be an

explanation to give greater guidance to company directors in relation to compliance.


Mr Costello, you have chosen to publicly back Helen Kroger for the State Presidency.

Why did you choose to go public and secondly what reforms do you think she,

if she was successful would she need to implement to the Party?


Look, my view on the Victorian Liberal Party is that it is in urgent need of

reform and renovation. I think that is obvious. When you come out of your worst

defeat ever, you can’t sit around and say that everything should remain the

same as it was. Defeat is a wake up call for political parties. To wake up and

to renew and renovate. And I am supporting renewal and renovation. That is what

I am supporting. And I want to make sure, as do my Federal colleagues, that

no stone is left unturned before the next Federal Election because we certainly

don’t want a result like we had in the State Election.


But what specifically are you pushing for Treasurer? What do you think needs

to be done? What is the…?


It’s not my role to publicly talk about the things that need to be done in

the organisation. I will make my views known in private. But the organisation

needs to be rebuilt and renovated. That is what needs to happen.


There is some suggestion that you were being asked to take a leadership role

as the most senior Liberal in Victoria. Are you prepared to take, that’s from

senior people talking to me, do you think, are you prepared to take on that

leadership role to pull us through what happened in the late eighties and early

nineties under Michael Kroger?


I don’t see it as my role to run the organisation. That is not my role. I have

other duties. I have a role as an MP, I have a role as a Federal Minister, I

have a role with my Federal colleagues. But my Federal colleagues want to know

that they will be put in the best possible place at the next Federal Election.

They have been to me and they have asked me to do that, and they have asked

me to represent that view back to the organisation, and I am representing that

view back to the organisation. They have asked me to register that with the

organisation, and they are concerned. And I have registered that fact, and their

concern is that we not repeat what just happened. And to not repeat that we

want to make sure we have got a renewed and rejuvenated and renovated organisation.


Treasurer, how do you respond to speculation that the Government may go to

an early election (inaudible)?


You will always have that speculation. The fact that you have the speculation

doesn’t mean that it is going to happen.


Is it possible?


Look, the way I put it is this, it is up to the Senate to pass our legislation.

I am now doing a Budget, 2003-2004 Budget, in a situation where our Budget Measures

in 2002-03 have not yet passed. We are leapfrogging last Budget and we are going

now into next years’ Budget. There are some measures which were announced two

Budgets ago which have still not passed the Parliament. You have got this campaign

of obstructionism by Labor in the Senate and what I say to the Senate is: pass

the legislation. Now, that is what I am focussing on, and let’s be very clear

about this, the best way for a Government to function is if the Senate, sure

it is a house of review, passes the legislation which the Government has a mandate

and an obligation to introduce. And that is what I am focussing on.


Are you suggesting it might be (inaudible)?


I am saying it would be in everybody’s interest, for legislation to pass the

Senate. That is what I am saying.


Would an early election be a solution to the obstruction?


Well I am not jumping down the path. I am looking at clearing the obstruction.

That is what I am looking at.


And if that means a double dissolution…?


No, I am not speculating. There is far too much speculation. What I, the only

point I am making is I think the Senate should deal with the Budget legislation

and pass it. And that is what I am calling on the Senate to do. And I am not

speculating on anything other than that.


So while you are doing the figures on the Budget, how is it looking for next



Well, it is going to be a difficult year. The international economy is weak.

There is all of the uncertainty of war, possibility of war. There is the effect

that that has in relation to confidence and it is going to be a difficult year.


So is the Budget going to (inaudible)?


Well, I have made the point before that obviously there is going to be a big

call on the Budget in relation to our defence as we have pre-deployed troops

and that will have the priority in relation to new expenditures.


What is your sense of…?


Last question.


What is your sense of the significance of the anti-war marches over the weekend

and the number of people that (inaudible)?


Look, I think that over the weekend there were a number of people who expressed

their views that they would like to see peace, and I think we would all like

to see peace. But it is a question of short-term and long-term peace. We would

all like short-term peace. But it is very important that we also get long-term

peace and in my view, long-term peace involves ensuring that dictators, brutal

dictators, don’t have the capacity to unleash chemical and biological weapons.

And whilst brutal dictators still have the capacity to unleash biological and

chemical weapons your long-term prospects of peace are not good. So I think

a lot of people are saying they want peace and I thoroughly agree that in both

the short and the long-term sense, we ought to be aiming for peace. And we have

got to keep both in mind. Thank you.