US Interest Rates; US Economy; Share Options; Political Research; Zonal Tax Allowances

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US Interest Rates; US Economy; Share Options; Political Research; Zonal Tax Allowances


Stockmans’ Hall of Fame
Wednesday, 14 August 2002
10.40 am


SUBJECTS: US Interest Rates; US Economy; Share Options; Political Research;

Zonal Tax Allowances.


The Federal Reserve in the United States kept interest rates unchanged this

signals that the next move will most likely be down. What do you (inaudible)

about that?


The announcement by the Federal Reserve indicates that they have removed their

bias towards tightening and possibly now have a bias towards loosening monetary

policy, that is a bias towards reducing interest rates in the United States.

This indicates that the Federal Reserve has some concerns about the US economy

particularly in the light of the enormous volatility that you have seen on stockmarkets

in the last week and really over the course of the year. You have seen a lot

of people lose quite a bit of money in the United States and if that begins

to affect their consumption, if it affects business confidence, an economy which

was just coming out of recession could be affected and the indication by the

Federal Reserve overnight indicates that it shares the concerns that many of

us have had for a while that the United States economy is not emerging from

recession as fast we would like, as fast as the world would have liked. And

there could be a rocky period ahead in relation to the US economy and because

of the US economy, to global growth.


So do you think there will be a bigger knock on effect here than you might

have hoped?


The United States went through a recession. They had three negative quarters

in 2001. They were beginning to emerge in 2002 and their forecasts were for

growth to strengthen. The developments that you have seen in the last couple

of weeks indicate that there is a bit of concern about that recovery, and if

there is concern about the US recovery, that will lead to people downgrading

their forecasts for global growth and that in turn would have an effect on Australia

through exports. But having said that, I hasten to add, the Australian economy

survived the US recession of 2001. It continued to grow. Australia is forecast

to continue as the strongest growing economy amongst the developed nations of

the world in 2002 and 2003. And these events are difficulties for us but our

economy is strong and I believe the Australian economy will continue to grow

through them.


…are we strong enough to survive a double dip…?


I would not start talking about a double dip US recession. They have had a

recession in 2001. They began growing in 2002. What I would say, is that the

recovery appears to be weak, weaker than people expected. At this stage, and

it is obviously a matter of concern for the Federal Reserve, that is why it

made the statement that it did overnight.


Treasurer, Hugh Morgan from Western Mining was saying that share options for

executives is an inefficient way of rewarding executives. Do you applaud his



Look, I think public companies have got to think very carefully about options.

I think an option fever swept the world during the bull run of the American

economy. And every analyst on every street corner was saying options, options,

options. And we now know that some of the options that were issued particularly

in the United States may have been issued so that they could be dressed up on

the balance sheet, not expensed, were being issued because it was a way of executives

rewarding themselves with extraordinarily high remuneration and a number of

those companies are now in trouble. And I think it is time to sit down and take

some stock in relation to this and to say that sure we want executives to profit

from running companies well but one of the ways to do that is to pay them rather

than to try and disguise it through options. And we also know in Australia that

when you do have these option incentive plans, sometimes the Chief Executive

is still getting paid even when the company goes down. And there is no basis

whatsoever for companies to be rewarding their Chief Executives at the time

that the company is performing badly. So, I would say to the people that were

yelling options, options, options all the way through the mid and late ’90s,

time to think again and I welcome the remarks that Mr Morgan has made.


The kids at the School of the Air asked you, I will ask you again, would you

like to be the Prime Minister?


Well, it was a question that gets me into a lot of trouble. So I generally

decline to, your kind invitation to answer that question.


You said you would get back to Kyle, you said you would get back to him sometime.

When do you think you will get back?


Perhaps I will get back to him by next years birthday.


You have done three functions here, do you get a sense country people like

you or not?


I think people, all Australians, have an easygoing attitude. They are concerned

about the issues that are confronting their country. They like to talk about

them. They are not hesitant about talking about them. I enjoy talking about

them. I love being out in a part of Australia like this. I find it gives you

a lot more energy than being in Canberra. I find that when you get outside Canberra,

by and large, you have a wonderful reception from genuine people. And I often

think that it is Canberra that is out of step rather than the rest of Australia

that is out of step.


But (inaudible) a lot of these functions are invite only?


Oh, anyone can come to the Stockmans’ Hall of Fame. Anybody can go on the long

distance school and anybody can listen to the ABC radio and, you know, we go

out and we meet people and their various walks of life. And we enjoy doing it.


Mr Costello, Mr Costello. You challenged the Labor Party to release its research

on Simon Crean. If they met that challenge would you release the Liberal Party

research on you?


Well, I have never been party to the Liberal Party’s research, so I would be

very interested to see it myself. I doubt that we actually go around polling

particular individuals. But I think it is a measure of Labor’s concern really

isn’t it, that they apparently or they claim to be researching these things.

Leaking to selected journalists. I would have thought that the thing that the

Labor Party is more likely to do than to be polling the Government would be

polling its own people. And I would be very interested for them to leak their

own polling on themselves to the media, very interested.




Well, it is interesting isn’t it. You would have to ask them why they are polling.

I think one of reasons why they poll these things is, as you know, they try

and politically oppose and dent people that are carrying Government policy.

And they have had numbers of Shadow Treasurers try and dent our economic program

since the time I have been the Treasurer of Australia and they have currently

got another one trying his damnedest to do the job. We will see how he goes.


Simon Crean says, you know, he has got some image problems but so have you.

And he is admitting his own but claiming you have them as well. Do you think

there is a bit each way?


Look Simon, Simon Crean can talk about himself. I am very happy for him to

do so. But I would not regard Simon Crean as an authority on me. He has got

his own problems. He can deal with them. I won’t advise him on how to do that.


(inaudible) is there an argument to revisiting the issue of the zonal tax allowances



The thing about zonal tax allowances is that the boundaries were drawn a long

time ago. And whenever you draw lines on a map you have got to put somebody

on one side of the line in and somebody on one side of the line out. And whenever

you redraw these lines, some people win and some people lose. And that is good

if you happen to be a person that wins, bad if you happen to be a person that

loses. I have never yet known a person who lost an allowance who was happy about

doing it. And so yes, in an ideal world, you would draw these lines in a much

clearer and plainer world but we don’t live in such an ideal world. And I think

you would get arguments either way. Now we are prepared to take submissions

in relation to this. But the zonal allowances are not large sums. The much more

important thing frankly as to how you help people from a tax point of view in

rural and regional Australia is to reduce income taxes, to reduce capital gains

taxes as we have, very substantially, particularly for people that are on farms,

and to put in place cuts in fuel taxes which we also did by cutting the excise

on long distance transport in relation to diesel. And now when you combine the

outcome of all of those tax changes, they outweigh the zonal allowance by very

significant sums. And I would actually prefer to be working on the overall tax

system, reducing it for people in rural and regional Australia, than the question

of the allowances which is a smaller issue. I am not saying that we are indifferent

to it, but it is a smaller issue than the overall structure of the tax system.

Let me put it this way, you have got a high income tax rate that people are

paying and low allowance, you are not better off than having a low income tax

rate. It doesn’t make you better off. The important thing is to try and deal

with the overall income tax, capital gains tax, diesel excise. Thanks.