Doorstop Interview

Northbrook

Malvern, Victoria

Friday, 2 September 2005
12.30 pm

SUBJECTS: Telstra, tax, leadership, Indonesia

JOURNALIST:

Mr Costello, your response to Telstra executives talking down the share price?

TREASURER:

Look, the directors of Telstra have an obligation to all of their shareholders

and that obligation of course is to so run the company as to make profits and

to give them a good return on their investment. And I think the directors will

want to maximise the price for their shareholders who include a lot of private

mums and dads but also the Government. That is their obligation as directors.

JOURNALIST:

So have their actions been consistent with their duties as directors?

TREASURER:

Well, obviously the directors have to act in the interests of their shareholders,

but what is the interest of the shareholders? The interest of the shareholders

is a price which is rising and they have got to take their decisions accordingly

to preserve value for their shareholders.

JOURNALIST:

Is this is the right leadership team to be running Telstra at the moment?

TREASURER:

Look, it is a very difficult job being a director of Telstra because this is

a company which is half owned by the Government, half owned by private shareholders,

they are in a very difficult conflict situation on occasion and it is really

the reason why the shareholding has to be worked out. It has to be resolved

one way or the other otherwise you are going to have competing demands placed

on this company and its directors which will make life very difficult.

JOURNALIST:

Would you personally like the shareholders to take a lower public profile?

TREASURER:

Do you mean the directors?

JOURNALIST:

The directors, sorry.

TREASURER:

Look, the Directors’ obligation is to the shareholders. They have got

to do what is in the interests of the shareholders. The Government’s obligation

is to ensure there is a competitive framework. The Government’s obligation

is to ensure that the ownership is resolved. The Government’s obligation

is to determine what happens to the proceeds. Those are matters for the Government.

The matters for the directors of course are to so run the company as to preserve

value and increase value for shareholders. And I think there are different players

here with different focuses and we have got to remember whose focus is what.

JOURNALIST:

Do you have some sympathy with the directors who are saying that there is too

much regulation proposed for a privatised Telstra?

TREASURER:

No, I don’t believe that there is too much regulation. There is a regulatory

system which is designed to promote competition and Telstra has to work within

that. That is not an over-regulatory system, it is a system which is there to

enable competitors to come into the market and keep prices low for consumers.

I wouldn’t want to see a less competitive regime than we currently have

in relation to Telstra.

JOURNALIST:

Do you think the new group that are leading Telstra have misjudged the unique

nature of telecommunications here in Australia?

TREASURER:

Look, it is a very difficult arrangement at the moment. Telstra is not a normal

company. It is a company that has half private ownership and 51 per cent Government

ownership. What that means is there are competing demands. There are political

demands from the majority shareholder, there are investment demands from the

mums and dads and this really illustrates why the whole ownership has got to

be resolved. You have got to resolve it one way or another, it has got to either

be a public company or a private company and until you resolve that you are

going to have these difficulties.

JOURNALIST:

What do you think of their approach to government relations?

TREASURER:

Well, that is a matter for them.

JOURNALIST:

If the share price goes down below $2, would you consider nationalising it?

TREASURER:

I don’t think any government would get into the business of renationalising

Telstra. There is nowhere in the world where telecommunications is moving in

the direction of nationalisation. There are places in the world where it is

moving in favour of privatisation but there is nowhere in the world where it

is moving in favour of nationalisation.

JOURNALIST:

What about the fact Phil Burgess said he wouldn’t recommend his mother

buy shares?

TREASURER:

Well, I don’t know that we were looking for his mother to be a major

shareholder…

JOURNALIST:

But we are talking about mums and dads…

TREASURER:

…that is a matter for Phil Burgess’ mother.

JOURNALIST:

What about your mother….

TREASURER:

I don’t give investment advice to my mother either.

JOURNALIST:

Just on tax Mr Costello, you were saying earlier in the week that Mr Turnbull

should come out with some specific proposals. He has come out with two specific

options that he is prepared to put his name to today. What do you think of those

two proposals?

TREASURER:

Look, people are prepared to put forward options, that is all part of the political

debate. The Government’s responsibility however is to balance the Budget,

keep interest rates low, fund health and aged care and to hold all of that in

balance with a good competitive tax system. And the Government policy which

we brought down at the last Budget does all of those things whilst cutting taxes

by $22 billion. You know, we have got an obligation to the whole of Australia,

to all of the taxpayers, we can’t just single out one class of taxpayer.

We have got an obligation to all taxpayers to make sure that the tax system

is as competitive as possible and we can hold that together with balanced Budgets,

repaying debt, keeping interest rates low, funding health, funding aged care

and making sure Australia’s economy keeps growing.

JOURNALIST:

He says his proposal does look after all taxpayers in a sense that it raises

the tax free threshold as well as dropping the top marginal rate.

TREASURER:

Well as I say, the Government has got a responsibility in all areas of economic

policy – not just tax, but expenditure, interest rates and of course balancing

the Budget. And of course in an ideal world we wouldn’t have those constraints

but unfortunately we take the world as we find it. And the important thing at

the moment is keeping the Budget in surplus because that is a big part of our

strategy to keep interest rates down. I have said over and over and over again,

this Government is not going to do anything that will put pressure on interest

rates for homebuyers.

JOURNALIST:

So you reject those two proposals?

TREASURER:

No I said the Government welcomes people putting forward any proposals that

they like. But the Government has to take a decision in the interests of all

taxpayers and it has to be taken not just in respect of tax but in respect of

expenditures, in respect of budget outcomes, in respect of monetary policy.

We have got to make sure that it is consistent with good macroeconomic management.

JOURNALIST:

Mr Costello, your former colleague John Hewson said on radio today that the

Prime Minister is unlikely to be retiring any time soon. Now what do you make

of those comments, do you agree with him?

TREASURER:

Well you would have to refer those to Dr Hewson.

JOURNALIST:

Mr Costello, on high petrol prices, today we are seeing Victorian commuters

are going more to public transport and getting off the roads because of high

petrol prices. Do you think that that is a trend that we might see across Australia?

TREASURER:

Look, I don’t like petrol prices being as high as they are. It is bad

for consumers and it is bad for the economy. But if higher prices are going

to be with us for some time – and they may well be – then I think consumers

are increasingly going to be drawn to cars that have lower petrol consumption.

The days of the four wheel drive in suburban streets might be coming to an end.

People may well be looking at smaller cars because they give better consumption

and that wouldn’t be an altogether bad thing.

JOURNALIST:

How do you think Hurricane Katrina will effect the Australian economy?

TREASURER:

Well the immediate effec… Let me say first of all, this hurricane has

done enormous damage, there had been loss of life and I think all of us feel

for those that are suffering and our good wishes are with the people of New

Orleans and the Americans south in this time of trial. What has the effect been

immediately? Well it has obviously pushed up oil prices because it has reduced

production out of the Gulf of Mexico. What is the consequence of that? Petrol

prices are higher. What is the consequence of that? That will dent other areas

of consumption in the Australian economy, so it is not a good result. Higher

petrol prices are in no one’s interest but we hope that once those rigs

get back into production, coupled with increased production elsewhere in the

world, the oil price will come back and petrol prices will come down but it

is going to be a matter of time.

JOURNALIST:

Indonesia is facing some fairly tough economic decisions ahead. Will you be

giving any advice to the Indonesian President when you are there about how to

manage that?

TREASURER:

Oh no, we don’t go to give advice. I will be going to meet with senior

members of the Indonesian Government and particularly to talk about Australia’s

role in reconstruction in Aceh. We have made a pledge of $1 billion. It is the

largest pledge that has ever been made on behalf of Australia. We are now actively

working for the reconstruction in Aceh and I want to go, I want to see what

progress has been made, to see that the money is getting through and getting

to the people who need it. And because I am one of the two Ministers responsible

for that billion dollar project, I think it is important that we get up there

and make sure the people who need it are helped, the Australian taxpayers are

assured that their money is getting through, and that large aid project is alleviating

suffering for people who suffered terribly in a tsunami.