TRANSCRIPT
of
THE HON PETER COSTELLO MP
Treasurer

A Current Affair

Full Transcript
Interview by Mike Munroe
Tuesday, 18 September 2001
7pm

SUBJECTS: US economy, Australian economy, Ansett

MUNROE:

Mr Costello, thanks for your time. Do you believe we have seen the worst on Wall Street?

TREASURER:

Mike, the first reaction was down by about 7 per cent. It is the largest points fall ever, but in percentage terms not as bad as October of 1987, but very significant. It is going to take some days, probably weeks, before all of this works through. The US economy was already weak. It has taken a terrible shock and it will take some time before the full ramifications are known.

MUNROE:

But overall, not as bad as you expected?

TREASURER:

Oh, it was a pretty severe fall. And you have got to remember that the United States economy was weak. It had stopped growing.

Before the terrorist attacks in New York, the United States had stopped growing, unemployment was rising. Along comes this very large shock, it has had a big effect on Wall Street. It will have a big effect on some industries, like airlines and insurance, and, and they will suffer in the first line. The question now, is, what effect will it have on US consumer confidence? Because if consumers lose confidence and business loses confidence, then it will feed back in. I hope they don’t, but it is just too early. As the US authorities have been saying, we have no previous experience of something like this, so we don’t really know how to judge it.

MUNROE:

Yeah, that was my next question. US, already a shaky economy, huge insurance losses, job losses, massive job losses in the airline industry…

TREASURER:

Hmmm…

MUNROE:

…do you think America will go into recession?

TREASURER:

Mike, it was possible that it would go into recession before this. The June Quarter was showing no growth at all, and the September Quarter was probably weaker. So, it was quite possible that you would get negative growth in the September Quarter. So absent all of this, the US was right on the edge. This is going to make those two industries much worse – airlines and insurance. But, this is a huge economy and you can quarantine the effect in those industries. You won’t quarantine it if it feeds back into consumer confidence or business confidence, that is where the potential second round comes from.

MUNROE:

You make it sound likely though?

TREASURER:

Look, the US economy was very weak anyway, Mike, and it was an even money chance heading for recession absent this. The one thing we know about this, is, it won’t have helped, certainly won’t have helped. We have no experience of this before. We can’t reach back and say what happened 10 years ago when something like this happened. This is unprecedented, this is an unprecedented attack on civilisation, and the loss of life is the tragedy here. We are still trying to get to grips with the economic ramifications.

MUNROE:

And of course, if America sneezes we often can, here in Australia, get a cold.

TREASURER:

The situation at the moment is the US economy has stopped, Japan is in a recession, and Europe has stopped. But, the good news for us, is, that in the June Quarter, amongst the developed countries of the world, Australia was the strongest.

So we were better placed than Japan, and Europe, and America. We will not be immune. This will affect us because it will affect the world, but we were in a stronger position than those economies. Our domestic economy is strengthening, we have got low interest rates, we have got the housing sector kicking back in, we had good National Accounts. We won’t be immune, but we come to this from a stronger position than America, Europe, and Japan.

MUNROE:

The Aussie dollar dipped below 50 cents today, are you confident it will pick up?

TREASURER:

Look, there was a lot of fall-out in the world financial markets – people coming back into US dollars, people going into gold. What happened on the Australian dollar had nothing to do with events in Australia. It had to do with events in the United States, and principally the terrorist attack. Looked at from the Australian economic perspective, because we have a strong economy, and stronger than most of the developed world, you would expect over time that it would reflect those fundamentals.

MUNROE:

Do you think Australia should follow America’s lead and cut interest rates?

TREASURER:

Well, Mike, we haven’t overnight. America cut, Europe cut, Canada cut, we haven’t overnight because our economy was in a stronger position. But, we will continue to monitor the situation. We will make sure that our monetary policy and our Budget policy is conducive to growth. We already have the lowest housing interest rates in 30 years, so that is helping keeping spending up a bit too.

MUNROE:

We almost have to cut, don’t we?

TREASURER:

No, the Australian economy has been stronger than America, and Japan, and Europe, so we have got some different circumstances. But, the low interest rates have been important for Australia and obviously the Bank will keep developments under review.

MUNROE:

Mr Costello, coming back here to home, we have had the HIH collapse, One.Tel, and now Ansett. Do you think the Government has taken its eye off the ball, maybe caught napping in recent times?

TREASURER:

Well let’s say in relation to Ansett. Ansett is a private company. The Government doesn’t own Ansett and the Government is not responsible for the economic performance of Ansett.

MUNROE:

And nor One.Tel?

TREASURER:

Nor One.Tel, by the way. These people all have directors and shareholders who are running their businesses. But what we have done in relation to Ansett, and I think it is important, is, we have put in place a scheme which will guarantee the employees’ entitlements. People should understand this. It will guarantee their lawful entitlements and redundancy up to 8 weeks. So they will be paid. We are not going to let Air New Zealand off the hook though. We are then going to try and recover that money from Air New Zealand. You have got to understand this, Mike, Ansett had an owner, it was called Air New Zealand. It had directors who were also directors of Air New Zealand, and the people that had the responsibility, in relation to Ansett, were those private sector directors…

MUNROE:

Who copped some pretty hefty bonuses?

TREASURER:

Who were awarded bonuses at the time the airline was going down. I mean, you would have to wonder, wouldn’t you? You get a bonus when you send the airline down. Gee, what would they have paid themselves if it had kept on trading? Well, we think it is important that the employees are looked after, and the Australian Government will look after them. But, we also think that it is important that Air New Zealand recognises its lawful responsibilities, and I can assure we will be ensuring that it does.

MUNROE:

Guaranteeing it?

TREASURER:

We will be taking all avenues under the law that are open on behalf of those employees to ensure that Air New Zealand recognises its obligations.

MUNROE:

Do you think the Government could have acted a little earlier to perhaps save Ansett? Maybe not bail it out, but just save it?

TREASURER:

Well, this is the point. People say, oh well, you should have done something. What?

MUNROE:

I don’t know, sat down and maybe tried to work it out before it crashed?

TREASURER:

Well the Australian Minister, John Anderson, was encouraging other players to come in and put capital in, Singapore Airlines and others. The truth of the matter is, when they saw the airline, they wouldn’t put their capital in. You have got to remember this Mike, this airline was offered to Qantas for one dollar, and Qantas wouldn’t pay one dollar.

Now, the reason is, if you paid one dollar you have got an airline with huge liabilities, liabilities which now look in the billions. That is why the taxpayer couldn’t step in. You would have had to have put billions of dollars into this. The fair thing is to look after the employees entitlements and to make sure that Air New Zealand, the parent company, observes its lawful obligations.

MUNROE:

Okay, well we’ll leave it there. Mr Costello, thanks for your time, we appreciate it.

TREASURER:

Thanks very much Mike.