TRANSCRIPT
of
HON. PETER COSTELLO MP
Treasurer

Press Conference
National Accounts
Wednesday, 12 September 2001
12 noon

SUBJECTS: US terrorist attacks, June Quarter National Accounts, Ansett, MV Tampa

TREASURER:

Well, before I talk to you today about the National Accounts, I just want to express my horror at the events which transpired in the United States overnight. This was an attack on civilization itself. It was an attack on the right of people to peaceably go about their lives and their work without being killed in someone else’s cause. The Australian Prime Minister has conveyed to President Bush Australia’s prayers and thoughts for those that have lost their lives. And we utterly condemn, utterly condemn this kind of behaviour, and we will support the bringing to justice of those that are found responsible. We don’t know yet whether any Australians have lost their lives, it remains a possibility. But, every effort will be made by the Australian Government to find information and to notify the friends and families of those that are worried and concerned about them. We pay tribute to the American services, fire-fighting services and ambulance services as they go about their dreadful duty this morning and we pay tribute to their bravery.

I’ll now say something about the National Accounts. I’ll take any questions on the National Accounts and then we can return to other matters if you want to.

Today’s National Accounts for the June quarter of 2001 show that the economy grew by 0.9 per cent. The Australian economy continues to grow strongly notwithstanding a world slow-down.

The previous March quarter was revised down to 0.7 per cent so, taking 2001, the two quarters together, about 1.6 per cent after allowing for the negative December quarter which was caused principally by one-off transitional factors, particularly in the housing industry. Growth over the 2000-2001 year averaged 1.9 per cent which was in line with the Budget forecast.

Today’s National Accounts show that growth was led by exports, notwithstanding a weak world economy. They show that Australia’s current account deficit in the June quarter was at 2 per cent which is the lowest since 1980. They show that price pressures remain restrained, consistent with the target that the Government has and that we have considerable strength returning to the economy particularly in the construction area, which I expect to work out in this quarter and next quarter.

The calendar 2001, with growth of 0.7 per cent, 0.9 per cent, means that Australia is growing stronger than the major industrialised countries in calendar 2001, notwithstanding the downturn in the United States, what we can only describe as recession in Japan and significant recession in other Asian economies. The big challenge for Australia now is not the domestic, but the international economy which is weak and continues at least in this region to weaken. But, at a time like that, what you would want, is, you would want to have a competitive exchange rate to keep your exports up and you would want to have some domestic strength which I expect will come out of low interest rates, the First Home Owners Scheme, a pick up in building and construction.

If there are any questions on the National Accounts I’ll take those first and then we can move to other issues.

JOURNALIST:

Treasurer are you at all concerned at the possibility of a boom-bust cycle developing in the housing market in any capital cities in Australia?

TREASURER:

Look, housing went through a very significant rise in the lead up to the New Tax System, prior to 1 July 2000, it went through a very significant fall thereafter and it’s coming back again. It is true that approvals and finance have risen very considerably, but we’re still to see that work out in construction. I have no doubt it will work out in construction in this quarter, possibly more in the next quarter. So it’s been a volatile ride. There’s no doubt about that. But I think that the important thing at the moment, particularly considering the state of the world economy, is to ensure that we have a bit of domestic strength. I can’t emphasise to you the way in which the world has turned down over the last quarter. I was in China as you know over the weekend. I had discussions with the Japanese Finance Minister, the US Treasury Secretary and other counterparts, and the news is pessimistic. And in our region, countries like Singapore are now in deep recession, so we see a very significant challenge coming from the world environment. We want to keep domestic conditions expansionary in the way they are in the housing sector.

JOURNALIST:

Given the challenge of the world economy Treasurer, given events overnight are you worried that those events could exacerbate the problem we could be heading for the, could lead us in (inaudible) global recession?

TREASURER:

The first thing I want to say about the economic effects of this is, the Australian Stock Exchange opened as per normal this morning. There was a lot of discussion about that. We supported the decision of the Stock Exchange to open and it has traded. I’ve had discussions with the Reserve Bank, which tells me that the financial system is operating normally and it has made an announcement about the conditions which it will ensure continue, so that that occurs. The New York Stock Exchange obviously is closed and may be for some time, but the Federal Reserve in the United States is operating normally. The events in the United States obviously will have an economic effect. But don’t overestimate it. The US is a huge economy. This will have an effect in disruption. It will have an effect obviously in insurance, it will have an effect in loss of life. It will affect some Australian companies which had significant investments there in New York, but we shouldn’t overestimate it. The US is a huge economy. The tragedy here is the loss of life. The wanton destruction of life is the tragedy. And let’s not overemphasise the economic effects.

JOURNALIST:

Given the US economy is only hanging on at the moment because of their consumer demand, won’t this sort of crisis effect them in such a way that that will disappear and have flow-on effects for the whole world?

TREASURER:

The US economy didn’t grow in the June quarter, and that is a very significant slowdown from the position where it was last year. After discussions on the weekend, involving US Treasury Secretary O’Neill, his assessment was, that although the US economy will continue weak in this quarter, and possibly the next quarter, that supported by low interest rates and tax cuts, the American authorities are expecting a recovery through the course of 2002. The events of today, are wanton destruction of human life. Let’s not focus on economic issues, when much more important things are at stake. But I wouldn’t over-emphasise the effect that it will have. The US is a very, very large economy. It is something like $19 trillion Australian, so let’s keep things in perspective there.

JOURNALIST:

Treasurer, I don’t know if you’ve already addressed this particular aspect, but if there is going to be a Middle Eastern connection and the US retaliates, what will that mean for oil prices and the flow-on effects of that?

TREASURER:

Look you have seen the effect in the oil market this morning, and when you have major events like this the commodity markets get affected. The oil price as we know eventually feeds into petrol prices, but there are some significant time-lags in respect of that. And you have got to remember that the oil price is coming off a lower base than was the case earlier in the year, but you have already seen the effect in relation to the oil market.

JOURNALIST:

Treasurer, the future of Ansett may be decided today, are you concerned at the impact of the closure of Ansett might have on the economy?

TREASURER:

Well, I am not going to foreshadow what Ansett might do today. The Transport Minister and Deputy Prime Minister is discussing that with interested parties, and he is across the detail and I am not, so I will leave those questions to him.

JOURNALIST:

You’ve had 11 months of steady decline in full-time jobs, are these the sort of growth figures that would stop that decline?

TREASURER:

I think the biggest decline, actually, in employment was in the housing and construction industries with the dramatic slowing in the second half of last year. And as I said in that area, approvals and finance are significantly up, but it is still to work its way into construction. I would expect it would work its way into construction, a little in this quarter, but mostly in the December quarter. Now the employment in the construction sector fell by around 48,000 in the December and March quarters, so the slowing in employment in Australia was significantly in those sectors. Those sectors declined very significantly as a result of the transitional factors. The lead indicators in those sectors are now recovering and I would expect employment conditions in those sectors to recover, principally in the December quarter, but a little bit in the current.

JOURNALIST:

…(inaudible) seen the worst in the drop in full-time jobs?

TREASURER:

I am saying that the principal slowing, which is in employment, is now passing through the system, and in the December quarter, that is October, November, December, we should see a recovery in the area which was the area of principal slowing.

JOURNALIST:

Treasurer, while overseas there’s …(inaudible)… terrorism attacks on New York on one…(inaudible)… Do you fear that it could really hit confidence in the US and in that case, would you expect there might be a case for a further aggressive rate cut by the Fed to offset that?

TREASURER:

In the short term what the Fed will do, is, one, keep operating normally and keep liquidity in the system. That’s the task for today, and I believe it is being done, and similarly, but to a much lesser extent, the RBA will keep liquidity in the system. The longer term economic effects will be judged in accordance with the principal determinants of the US economy. Today’s events – and let us not overstate the economic effect of today’s events. We cannot overstate the human effects of today’s events. This is a wanton destruction of life, it is an attack on civilisation and the right of people to be able to go to work and work peacefully without being killed in someone else’s cause.

But when you are talking about the US economy, it is a huge economy with something like 250 million people going about their daily business. So let’s not overstate the effect of this on the overall economy, but let’s not underestimate the effect in terms of human suffering and human life.

JOURNALIST:

Treasurer, the share price of Qantas fell about 10 per cent this morning. Isn’t the, following the events in the US, is it sensible in the current climate of uncertainty, with short term uncertainty about the stock market and financial markets generally, that decisions about the future of Ansett, be made in the short time frame by today.

TREASURER:

Look, what is driving the decisions in relation to Ansett, is the financial position of the New Zealand company, Air New Zealand – a private company – Air New Zealand, and in particular, it has a reporting deadline. I’m not quite sure when it is, I think it is this week, it is imminent anyway. That is what’s driving this decision. What the decision is in relation to Ansett, will be in the first analysis, decided by the Air New Zealand Board, and they will decide it in accordance with their reporting deadlines. Now I can’t tell you what that Board will decide. It has been meeting, as I understand it more or less continuously. Whether it has an announcement to make or a decision, the Transport Minister will be able to inform you on that later in the day. But these are commercial issues which, as I understand it, are being driven by reporting deadlines and lenders’ requirements.

JOURNALIST:

Mr Anderson …(inaudible) price caps yesterday. Can you see a situation where that would be necessary or required, (inaudible) competition rules, in terms of Ansett and Qantas?

TREASURER:

Well, look let’s work down the tree. The best thing in the airline market, is competitors which keep each other’s prices under scrutiny. It you can’t get that situation then, and it looks like one of the competitors is not viable, then it would be consistent with protecting the business and serving the public to have services provided by an organisation which could pick up the business generally. And this is well-known in trade practices. It is what is called `failing company situation’. Not unknown for a company to be able to take over its only competitor if it is failing. That is not unknown, not unknown in trade practices doctrine. It is a question of, if the failing company goes out of business, you are only left with one supplier anyway, and so it’s well-known in Trade Practices law if there is a failing company, sometimes you can get proper outcomes by allowing the remaining company to take its business over. Now if that were to occur, that would be a matter which would be considered in the public interest at the time.

Where you only have a monopolist, if that occurs, there are other measures that you can take to protect consumers. Now, I don’t want to go into what they are, because I’m not sure of that situation yet, but as a general principle all of these things have precedents in trade practices requirements and they can all be looked at. At the end of the day what you try and do is, you try and ensure the best outcome for consumers. That’s what guides you in these kinds of decisions.

JOURNALIST:

…(inaudible) or would you support industry specific legislation that the Government would enact, like in a telecommunications situation where you have a monopolist to regulate access,

and regulate, you know, possible entry by new players? Would you support either one of those things – changes to competition law or industry specific legislation – to regulate Qantas, should it become a monopolist or near-monopolist?

TREASURER:

Well, under Trade Practices law the would-be monopolist can, if there is a failing company, pick up its business. It is well known in Trade Practices law and it is a question for assessment. I don’t think you need a change of law to actually achieve that outcome. If you have a monopolist and you want to protect the public interest the next thing that you can do is, you can lower barriers to entry and try and get new entrants into the market. That is one of the things that was done in relation to, well, to a limited extent in telecommunications, but it has happened in relation to lots of other industries. And it is only at the end of the day, when all of those matters are assessed that you can make a decision. In relation to telecommunications with industry specific legislation one of the reasons why you need interconnect, is, that the monopolist actually owns the infrastructure. In relation to airlines, as long as you have the capacity for a new entrant to get access to terminals and routes, the monopolists doesn’t actually own the infrastructure as well.

JOURNALIST:

…(inaudible) require legislation (inaudible) in order to facilitate that?

TREASURER:

I am not sure that is the case. You might know more than me, you might be right and I might be wrong, but it is certainly not my understanding. It is one of the reasons why you should refer aviation questions to John Anderson.

Can I take …

JOURNALIST:

(inaudible)

TREASURER:

Well okay, we’ll take three questions over here, alright. You’ve had… yes, Matt.

JOURNALIST:

Can you tell us when you found out, how you found out about what happened last night, what happened, what Government (inaudible), and did you know personally anyone involved? Have you been checking contacts in New York, etc?

TREASURER:

Well, I was notified as a result of information from Defence Headquarters and emergency management. And last night I was able to follow it, like many of you I imagine, on the television last night, which was giving graphic footage. Last night I was in contact, and my office was in contact, with key regulatory agencies. For example, the Reserve Bank has a trading office in the financial district in lower Manhattan and the Reserve Bank was able to account for all of its employees, I’m pleased to say. There would be other Australians who are working in financial houses in New York. We don’t yet know all of them and we don’t yet know whether all of them survived or not, I just can’t tell you that. It will be some time obviously. The situation is so insecure that the authorities can’t even go in and sift through the rubble. The Department of Foreign Affairs has established a call line, as you know, and many of the people who ring in actually ask after a relative and that gives DFAT the wherewithall to go and try and establish their identity.

But as far as we, have been able to establish, people who have been working in our official agencies, we are able to account for them, but people in the private sector it will be some time before we know. You have just got to say, that the number of Australians working in the financial district and in Manhattan, there could well be Australians involved.

JOURNALIST:

Have you spoken to Mr Howard?

TREASURER:

I spoke, actually I spoke to Mr Howard shortly before this happened and he spoke to Mr Anderson, I believe, shortly after it happened.

JOURNALIST:

Given the events overnight do you think there should be a change of tactics in relation to the boat people aboard the Manoora, in so far as, many of those on board come from the country from which the prime suspect is also believed to be harboured?

TREASURER:

Well, I don’t want to get into the suspects obviously. I am certainly not qualified to do that and I am not going to speculate on it. I make this point about refugees coming to Australia is that people who have documentation normally keep it, so that they can be properly assessed. And I think this highlights the importance of assessing people so that genuine refugees are given first priority into Australia. No country can, or should, say that anybody who sails can enter without documentation and without assessment. And where you have a limited number of refugee places, then you need to assess people so that the genuine refugees get priority. That is the principle that the Australian Government is fighting for here. That the genuine refugee, the most needy refugee, is the person that receives priority under our refugee intake. And the Australian Government has every right and every responsibility to do that. And if it abrogates that responsibility it will be neither fair to the refugees, the genuine refugees, nor will it be fair to the Australian public. And we as a Government, are determined that the elected government that is accountable to the people of Australia, which accounts to the people of Australia, in relation to immigration policy, retains control of that immigration policy. That is the way we think our system should work.

JOURNALIST:

Treasurer can you tell us any plans about getting the Prime Minister home?

TREASURER:

Yes. The Prime Minister will be cutting short his visit and getting home as soon as it is practical to do so. It may take some time because US air space, commercial air space, is closed, so, some other arrangements may be made, which I won’t go into…

JOURNALIST:

(inaudible) military aircraft?

TREASURER:

Well, I would prefer not to go into it. But other arrangements may have to be made, and he will be returning to Australia as soon as it is possible to do so. Obviously, at a time like this, normal engagements are not going to continue in Washington and New York, and nor would we expect normal arrangements to continue in Washington and New York. So he will make his way home as swiftly as possible and the arrangements will be, they will be consistent with that.

Thank you very much.