The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Peter Costello

Peter Costello

Treasurer

11 March 1996 - 3 December 2007

Transcript of 28/07/99

Transcript No. 99/55

TRANSCRIPT

of

THE HON PETER COSTELLO MP

Treasurer

Doorstop, Sydney

Wednesday, 28 July 1999

12.00 pm

 

SUBJECT: CPI - June Quarter 1999, Banks, PNG

TREASURER:

The Consumer Price Index for the June Quarter is showing inflation at 1.1 per cent through the year, is a first class result for Australians. We now have an economy which is growing in excess of 4 per cent, on a 1 per cent inflation rate and you would have to go back decades to see a result as good as that for Australia. What low inflation means is that it is good for savers because you can save money and it’s not being eroded by inflation, it’s good for homebuyers because low inflation means low interest rates and it’s good for jobs because low inflation is good for business and the job creation. Today’s figures of 1.1 per cent CPI through the year show there’s no life in the inflation dragon. The dragon’s not stirring, inflation is low, growth is strong and that is a first class result for Australians.

 

JOURNALIST:

…inaudible…

 

TREASURER:

This is a first class result. To have a 1 per cent inflation result which by world standards is one of the best in the world, in a strongly growing economy, an economy which is growing above 4 per cent, you would have to go back decades back to the glory days of the 60s to see something comparable to that. And it is good for savers, it’s good for homebuyers, and good for jobs.

 

JOURNALIST:

Does it pave the way for the Reserve Bank to cut interest rates?

 

TREASURER:

Well, low inflation is consistent with low interest rates, when you’ve got low inflation you can have low interest rates. We’ve got low interest rates, we’ve got home mortgage rates as low as they’ve been in decades and what low inflation means is you can actually keep them there.

 

JOURNALIST:

The two banks that ..inaudible… recently of the other banks not following suit, ..inaudible…follow suit?

 

TREASURER:

Well, I like to see competition between banks and if two banks want to put up rates, well I hope the other banks that have kept their rates down get more business, because competition between banks is good for consumers.

 

JOURNALIST:

Are you concerned at all by the NSW Government’s decision to increase transport costs by about 18 per cent. Does that further hinder it?

 

TREASURER:

Well, all price increases feed into inflation. The NSW Government puts up public transport fares that will feed into inflation. I like to see low inflation. I’ll tell you why - low inflation is consistent with low interest rates. Low interest rates are good for homebuyers and they’re good for job creation. If we could keep inflation low in this country and growth high there will be great job opportunities for Australians in the future. I think that’s what we’ve got to be looking at, good growth, low inflation, low interest rates - more jobs.

 

JOURNALIST:

Mr Costello, why will they be ceasing to publish the underlying rates, the underlying base measure…..

 

TREASURER:

Well we announced this change some time ago, and the reason was that we were publishing two measures; an underlying and a headline CPI. What we’ve done is, I think, on the recommendation on the Australian Bureau of Statistics, essentially made changes so that the CPI becomes the underlying rate. That is a much better measure of inflation in the economy, you won’t get confused with two rates. The published CPI will be much more like the underlying rate in the future.

 

JOURNALIST:

Mr Costello the Reserve Bank has said it will look through the headline rate at various times when it targets inflation and sets monetary policy. What is now left for the public to see in terms of underlying inflation, you know, …inaudible.. Reserve Bank?

 

TREASURER:

You won’t need to look through the CPI, because the CPI and the underlying rate will be more or less the same. The big difference between the CPI and the underlying rate in the past was that the CPI had interest charges in relation to home mortgages in it. We used to extract that out to get the underlying inflation rate, the new series will do that automatically, so you won’t need to look through anything. The published headline rate will be the more accurate rate, which is the underlying rate.

 

JOURNALIST:

The GST, that will bump up the CPI on a one-off basis whereas Government charges and tax changes are excluded. So how will people, for instance, have an idea of how the CPI is being pushed around by GST?

 

TREASURER:

Well, the CPI will be an accurate measure of prices in the economy, including prices which are affected by GST. It’s an accurate measure of prices, if you keep mortgage interest rates out, but you had the situation in the past were when interest rates went up to try and counter inflation, because interest rates where in the CPI numbers, they pushed inflation up. And that’s why we and the Treasury started constructing an underlying measure. We’ve now got a much better fix on that because the CPI will be a much more accurate reflection.

 

JOURNALIST:

Treasurer, the Treasury published a paper last week, The Roundup, talking about the structural employment rate down to about 6.5 per cent. Does that mean that we can see our unemployment rate dropping to around 6.5 per cent?

 

TREASURER:

Well, probably at the beginning of this decade it was being said that structural unemployment in this country was 6.5 per cent. That is that you wouldn’t go lower than 6.5 per cent. What the OECD was saying until quite recently. Our unemployment rate at the moment is 7.2. There are no signs of inflation in the economy. The inflation dragon is dormant, and as we approach those sorts of levels with low inflation, people are now starting to rethink, well what is structural unemployment in Australia, and they’re starting to think, we’re starting to think, it might be lower. And the good news about that is in a growing economy with low inflation that you can take unemployment lower, and you can start to challenge what were hitherto thought as the barriers. And now if we keep growth going strongly, we work on structural reforms, tax reform, industrial relations reform in our country. If productivity increases at the level that it currently is, in the next decade we could have some very significant opportunities in Australia. And as I said in the most recent Budget it could be a very special decade. These are the benefits of hard economic work. And it wouldn’t have happened if we hadn’t put in place good economic policy, if we hadn’t have done the hard yards.

But the hard yards of the last three years are now being reflected in a 4 per cent plus growth economy, a 1 per cent inflation, a Budget in surplus, a debt reduction program, an unemployment rate which is now the lowest it’s been in a decade, with people seriously now starting to talk about revising the possibilities for the Australian economy. That’s policy, that’s the benefits of good policy and we’ve got to make sure we keep it going.

 

JOURNALIST:

Does that mean that Treasury will revise upwards it’s growth forecasts. They’re quite low and there’s been no signs of a slow down?

 

TREASURER:

Well, we’ve got our forecast out for 1999/2000, and we won’t be revising that, no. The only time we revise that will be in the mid-year review at the end of the year, if necessary. Thanks.

 

JOURNALIST:

Just on PNG.

 

TREASURER:

Last subject.

 

JOURNALIST:

You’ve said that the Government’s clearly signaled strong support for the PNG Government. What sort of support would you be looking at in terms of IMF package, similar to what we contributed in Thailand, that sort of thing or…?

 

TREASURER:

Well, PNG has not been working on an IMF-World Bank package for some time now. There was a package that was put forward and financing was made available to implement it, and the Government hadn’t been pursuing it. With the new Government, I think they can now change that, and if they are prepared to re-engage with the IMF and the World Bank, there will be financing from those sources available. What’s more there will be strong support from Australia. There is no point in making funds available if they’re not going to be used properly, and they’re not going to be used for economic restructuring. If the loans made available for the purpose of restructuring so that the economy is restructured so it can strengthen, and so the bridging finance can make the situation stable, and that’s what I will be discussing in PNG later on this afternoon with the Government there. Getting in place the restructuring program and the financing that goes with it, so that the finance leads to structural change and economic stability.

Thanks.