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 01/09/99

Transcript No. 99/60

TRANSCRIPT

of

THE HON PETER COSTELLO MP
Treasurer

Press Conference

National Accounts - June Quarter

Wednesday, 1 September 1999

12.00 pm

 

SUBJECTS: National Accounts

TREASURER:

Following a very strong period of sustained economic growth, the National Accounts for the June quarter in Australia today showed a moderation in growth to 0.2 per cent for the quarter. And the figures were revised up in relation to the March quarter from about 1.1 to 1.4. So as I have said repeatedly one has to take care about the individual quarterly numbers but there's certainly evidence of a moderation in growth occurring as a result of these figures. Notwithstanding that, growth through the year averaged 4.5 per cent which exceeded the forecast we made in May in the Budget of 4 per cent, largely as a result of strong revisions upwards in the March quarter. And through the year growth was about 4.1 per cent which means that over the last two years, in the face of the Asian financial crisis we have had nine consecutive quarters of growth exceeding 4 per cent in through-the-year terms, which was the longest sustained period of GDP growth above 4 per cent since the early 1970s.

Today’s National Accounts also confirm that inflation is low, notwithstanding strong growth, notwithstanding exchange rate affects that we’ve seen in the course of the last year, subdued price pressures with the household consumption deflator rising by 0.1 per cent in the quarter and 1.1 per cent through the year.

In relation to the June quarter, what the National Accounts show was that domestic demand was flat in the June quarter following a very large increase in March of 2.1 per cent. But the Government believes that domestic demand will continue with solid levels throughout 1999/2000 supported by employment growth, high productivity, healthy corporate profitability, historically low interest rates and low inflation. The picture that we see out of these National Accounts is the picture that the Government has been putting forward in its forecasts for 1999/2000. That is a slowing of growth from the exceptionally strong levels of 4.5 per cent through 1999/2000, growth coming back more to the levels of 3 per cent before growth picks up again in 2000/2001, particularly with the new tax system and the changes that are going to come into place in July of 2000.

So we see a moderation of growth as we come off exceptionally high levels, with the world economy picking up later in 2000/2001 and providing an external impetus and Australian growth continuing to grow strongly.

It’s important, however, that we maintain the impetus in relation to economic policy. The point that I’ve made repeatedly is that at a time where you have pressure on your current account it is important that the Government runs a surplus fiscal position, it is important that the Government carries forward it’s structural changes in relation to tax and it’s important that we make sure that we have a non-distortionary economic investment climate. We see strong opportunities for Australia in relation to that in the forthcoming year and the Government will continue to work at that.

JOURNALIST:

Mr Costello is the Government actually happy that the June quarter figure is just 0.2 per cent, doesn’t that take the heat out of the economy and reduce the chance of an interest rate rise down the track?

TREASURER:

Well, we’ve always said you’re not going to maintain growth at 4.5 to 5 per cent indefinitely through a monumental regional world financial and economic crisis. And we have been predicting a slow down, which is consistent with these numbers. Now, it’s not unexpected, and there will be some bright sides to that, but having said all of that, as a general rule strong growth, strong sustainable growth is always better than weaker growth.

JOURNALIST:

Would it be enough to offset the fiscal stimulus you are going to give next year of something like $7 billion net of tax cuts?

TREASURER:

Well, I think this is thoroughly consistent with the new tax system and the fiscal stimulus that it involves. We forecast a slowing economy through 1999/2000 and there is a fiscal stimulus in July. You’ve now seen the moderation starting to come through, so I think it’s very consistent with that. I think the view amongst many people over the last couple of months is, you know, where is the evidence of the moderation. Well here is some evidence of moderation. Now, when we talk about moderation in growth, for many countries 3 per cent is not a moderation in growth, 3 per cent would be considered beyond their expectations and wildest dreams. People talk about the powering on of the US economy because it’s growing at about 3 per cent. It’s a luxury we have in Australia, I guess, to be able to talk about 3 per cent as a moderation of growth, but we see that as thoroughly consistent with the picture that we’ve been painting.

JOURNALIST:

So has the Reserve Bank Governor been alarmist or realistic, in his reported remarks on the front page of the Financial Review?

TREASURER:

Well, I spoke to the Governor of the Reserve Bank this morning from San Francisco, and he was not giving a speech in Jackson Hole. He chaired a meeting. He did not speak to journalists and he did not make any comments to the effect reported in the Financial Review, and that’s what he told me this morning. And since he made no speech, it is pretty hard to figure out where he is supposed to have made those comments. But he told me that the story is false. He did not make those comments, he did not make a speech and he did not speak to journalists.

JOURNALIST:

Treasurer are you satisfied with the national saving implications that appeared in the National Accounts today? Are you satisfied they’re strong enough?

TREASURER:

Well, there’s a bit of turn up in the savings ratio, which you saw in the National Accounts today, and that’s consistent actually with flat demand. But I’ve never made too much out of the savings ratio. I’ve always said that you’ve got to be careful of the figure in fact, and I always point you to the fact that the National Accounts themselves say that caution should be exercised in interpreting the ratio. But I suppose the fact that it has gone up is welcome, I’m not sure that you can put too much store on it. But you can’t have it both ways, you know. You can’t have massive consumption and increased savings, and the fact that we have had some flattening out in consumption and has led to increased savings I suppose is a welcome note in this particular quarter’s National Accounts.

JOURNALIST:

Mr Costello what will be the inflation impact of the revised GST deal with the Democrats?

TREASURER:

Well, the inflationary impact will be around about that which the Government forecast during the course of the election campaign. There will be some adjustments because, as you know, food will not be subject to GST, but on the other hand reductions in indirect taxes will be delayed, or abolition of indirect taxes will be delayed. But I will probably have some more to say about that a little bit later after we’ve analysed it very closely.

JOURNALIST:

It’s been 3 months now since you’ve actually done that deal, I mean, you must have the figures by now.

TREASURER:

Well, I’ll be, as I said I intend to say a little bit more about that after I’ve done some more analysis.

JOURNALIST:

Mr Costello what is your timetable now on the release of the Ralph decisions? And how soon after the first lot of decisions do you think that you can make the decisions on the rest of Report, are you talking a two-stage process?

TREASURER:

Well, there are some matters in the Ralph Report which are market sensitive, and some matters that need to take effect from it’s release. And so it’s important that the Cabinet feels comfortable with those issues so that we can make the announcement, date the measures from the announcement and release the Report. I expect that will be probably this month, at this stage. There are some other matters which are not as sensitive and the Government doesn’t have to make an immediate announcement and so it has a bit more, the luxury of a bit more time in relation to that. But the point I keep making is that this is a complicated area. Business taxation is, is exceptionally complex and some of these issues involve matters that aren’t the stuff of political debate, but the stuff of highly tuned international tax lawyers and the Cabinet has to get its mind around it and that’s only fair. Look Mr Ralph took 12 months, so I think the Cabinet’s entitled to have weeks.

JOURNALIST:

Treasurer, you’d expect in that first tranche of decisions, you’d expect the Capital Gains decisions there?

TREASURER:

Well, I would expect the Government to make some announcement on its attitude in relation to Capital Gains because we referred, don’t forget this, we referred Capital Gains to Mr Ralph. We asked Mr Ralph to report on Capital Gains. We actually referred specific ideas to Mr Ralph, we asked him for an economic analysis of those ideas and we said if you have some others or better ones, give us the benefit of your wisdom on that too. So when we set this up, we set this up as a vehicle to consider Capital Gains Tax and I expect that in the context of Ralph we will, we will be announcing a position.

JOURNALIST:

In the first lot of decisions?

TREASURER:

Well, I expect we will be announcing a position. I mean I’m not, I’m not going to tie myself down in advance.

JOURNALIST:

Are you still keen on the $1,000 . . .

TREASURER:

Well, that was one of the three things we referred to Ralph. We referred to Ralph $1,000 exemption for book keeping reasons; we referred the idea of a stepped rate to Ralph; we referred scrip for scrip and we said make sure you have a look at those and think of a few more.

JOURNALIST:

. . . still keen on $1,000.

TREASURER:

Well I put that forward as an idea for investigation and I’d be very interested that it has been investigated. But I’m not tying myself down.

JOURNALIST:

Is it stating the obvious to say that if the tax cuts overheat the Australian economy then monetary policy would be needed to restrain it?

TREASURER:

Well, no doubt you’ll take your own assessment in relation to that Mr Bongiorno, but no doubt you could do that as a piece to camera yourself, rather than have me do it as a piece to your camera.

JOURNALIST:

It would be more credible I would think.

TREASURER:

Well, you know, it’s a funny old world isn’t it? Here we have a set of national accounts which are showing a moderation in growth and you’re asking me about overheating in the economy.

JOURNALIST:

Twelve months later.

TREASURER:

Now let’s, let’s put all of this in context. The national accounts which showed 0.2 per cent for the quarter in June also revised up to 1.4 for March. Now what that tells you is that there’s some averaging that’s got to be done and probably the best averaging that you can look at is the trend figures. And you got trend GDP growth coming out as I recall at about 0.9. 0.9, 0.8, round about the 3 per cent mark for 1999-2000 and that’s why I say this is the consistent view with 3 per cent growth, growth moderating throughout the course of 1999-2000.

JOURNALIST:

Would you expect to be able to continue to boast the historic low interest rates well into 2000?

TREASURER:

Well, interest rates, not only are interest rates historically low but Australian official interest rates now 50 basis points below the US. And the third thing that I’d ask you to note about monetary policy is it’s been exceptionally stable. Go back through the Asian financial crisis, find another country in Asia, a market economy in Asia, that didn’t move interest rates in the last two years. Or compare Australia to the US which cut interest rates and now is rising them. Or compare it to Canada which pushed interest rates up in 1998 to defend the Canadian dollar. And the fact that the Australian interest rates were stable right throughout 1998-99 is a testament to a very strong monetary and economic position. And almost without peer in the world. And that of course is precisely what the Australian economy needed through 97-98, huge external downturn, low interest rate environment in Australia, strong domestic demand, counter cyclical against the world, Australia sails through the biggest financial downturn of our, of our age. Growing and growing faster than the world. I mean in many respects we’ve been living, because we’ve been living inside all of this, we don’t see what, what an exceptional performance that it was, that most of the world sees. And now you see growth coming off a bit but again let’s put it in context, growth coming off to 3 per cent, in France or Germany or the UK they’d be talking about growth massively accelerating to 3 percent.

JOURNALIST:

Mr Costello, isn’t Cabinet’s lengthy consideration of Ralph sidetracking you in making a contribution to the Republic debate and couldn’t this be some sort of a conspiracy regarding the monarchists (inaudible).

TREASURER:

Well, you know that monarchists don’t conspire. They haven’t conspired since the Guy Fawkes rebellion so I think that’s a bit unfair. Look it’s exceptionally hard work, indirect tax is tough and hard and income tax is tough and hard, but I keep making the point in relation to Business Tax you’re looking at things like balancing charge offsets and imputation credits on dividend withholding taxes and consequences under double taxation agreements. You know people don’t go into pubs and say tell me your policy on the imputation credit of a dividend withholding tax. But for those that actually engage in it, there’s nothing more important to them in life. And so it’s a question of the Ministers getting their minds around it and not only around where we want to go, but around where we are and the implications of getting there. It’s, it’s a complicated business this and it’s taking a lot of time, I can assure you of that.

JOURNALIST:

If Ministers have trouble getting their minds around it Treasurer, once small business people have it, isn’t there in fact a case to perhaps delay at least some of the reforms?

TREASURER:

Sure, but very few small businesses engage in imputation credits on dividend withholding taxes. Very few small businesses do, now…

JOURNALIST:

But they have to go with entity taxation changes and …

TREASURER:

Well, entity taxation changes for small businesses aren’t all that complicated and they were in fact - the entity tax changes were announced in ANTS in August of 1998. It’s all out there. That was announced in August of 1998 for July 2000, that’s two years. Now you might say oh well look, two years is not along time, but we only have Parliamentary terms that go for three years and if we sit around and we’ll say we’ll give away the first two years and run an election in the third we’ll never get anywhere in this country. Really, we’ve, you’ve got to keep moving on all of these things.

JOURNALIST:

Has Mr Downer given you the opportunity to sign the petition?

TREASURER:

No, I haven’t signed it and I haven’t been shown it. No.

JOURNALIST:

You said the reforms are very technical and undoubtedly that’s correct (inaudible). But do you still see these potential changes in business tax in much the same light (inaudible) which is, transformation of the Australian economy if it makes the right decisions.

TREASURER:

Oh yes. Look, this is the chance of the decade in business tax. This is the chance of the decade. This is a complicated area which takes political momentum and will to drive changes. Now, we don’t do it now, it won’t be done for a decade. The business taxation system will just atrophy and become a weight on Australia. Now, people can say, oh well, you know, you’ve got indirect tax changes, you’ve got income tax changes, you’ve got family assistance changes, you’ve got Commonwealth-State changes. We can finish off the picture. We can round it out and finish it off. And then if we do it right, Treasurers for the next couple of decades won’t have to worry about tax reform. Tax reform is something you should do about, I don’t know, once every 50 years or so.

JOURNALIST:

Who are going to be the winners out of this transformation of the economy? Which industries are going to win this?

TREASURER:

Well, I don’t sit down and look at it as which industry is winning vis vis another industry. I don’t think you can devise tax systems like that. Should we sit down and say, that we’re going to design a tax system to help him and punish him? I mean, the more you sit down and have these special rules, the more complexity you get into your tax system, the more the compliance costs mount, the more you get into the situation where we are. That’s how we got where we are. I think if you are designing tax systems, the only thing you can do is try and produce the fairest, simplest tax system which is neutral as far as possible and in which the right investment, non-distortionary investment decisions are made. That’s what I think you should be looking for when you’re designing tax systems. And you keep your tax system non-distortionary, pro-investment, you get better economic growth, you get better outcomes for everybody.

JOURNALIST:

But doesn’t the lengthy consideration, Treasurer, indicate that rather than building a new tax system from the ground up, the outcome is more likely to be a political compromise. I mean, people like John Anderson would consider that depreciation now, they think they’re quite happy with the way it’s looking.

TREASURER:

Well look, when I started out on this, don’t underestimate this, my intention was always to produce a tax system which would be sympathetic to rural Australia. I didn’t, nobody had to, sort of, tell me to do that. We’ve always been looking at that and it’s always been uppermost in our mind. I’ve made this point before. I mean, in the four years that we’ve been in office we’ve always tried to design tax arrangements sympathetic to rural Australia. Always. From Landcare rebates to farm managements deposits, all of these decisions. And so we’ve got to keep those sorts of things uppermost in our mind and we all do that. We all do that.

JOURNALIST:

(inaudible)

TREASURER:

Well, the greatest beneficiaries of indirect tax reform are manufacturers. Let’s put this in context. The whole GST was pro-manufacturing. Why? Because we had a narrow, goods based indirect tax system. Worn by whom? Worn by manufacturers. And we came along and we took this load off the manufacturing base and we spread it. Didn’t take it completely off, there’s still a 10 per cent tax on goods, but it’s now on services as well. And that meant, for example, they weren’t carrying 22 per cent. And the reason why manufacturers have so strongly supported tax reform is that they were major winners. And if you’re an exporter you’re a double winner, because we took all of the embedded taxes out of exports. Now, this was the greatest pro-manufacturing, pro-export tax reform that you’ve seen. And when we come to the remaining part of business tax we’ve got to make sure you see it as a whole picture.

JOURNALIST:

Treasurer, if you do reduce the company tax rate to 30 per cent, would you also like to see a system where companies actually pay it?

TREASURER:

Well, I make this point. There are some people who have said to me, oh, we’re not interested in company tax reductions because we don’t pay company taxes at anything like the legislated rate. Now, that’s not an argument that really washes all that much with me. I’m interested in the people who are doing the right and proper and honest thing, who I think need relief. And for people who are not burdened by that to say, that we’re against giving other people relief because we’ve never found ourselves caught by these laws in the first place is hardly an argument against tax reform. You know what I think we ought to do? I just think it’s the same principle in relation to indirect tax. Everybody pays their fair share and no more. And if you’ve got people paying fair shares, you should have lower rates. But the argument, that I’m not interested in a lower rate because I’m not even interested in paying a fair share is not likely to wash with me or with the Australian people for that matter.

JOURNALIST:

(inaudible) who pay their fair share have been repeatedly over the years it seems unsuccessful.

TREASURER:

Well of course, because, you know, you’ve got so many concessions and so many opportunities, those that have resources can exploit them. And, you know, you can play this game of trying to chase the concessions, you can play this game of trying to chase the exploitations, you’re better just not to open weaknesses in the net in the first place – that’s a general principle of tax.

JOURNALIST:

You’ve given a very strong guarantee that the farming sector, the rural sector will be better off with your tax reforms. But you’ve also said that . . .

TREASURER:

Which tax reforms?

JOURNALIST:

The business tax reforms.

TREASURER:

Oh yeah, well they’re better off under the ones we’ve already done. I mean . . .

JOURNALIST:

You’ve also said that manufacturers have been the biggest winners out of the GST. Do you have any sympathy for the view that the mining industry doesn’t win out of the GST and could be the biggest losers, at least in the top end of the industry, from the abolition of accelerated depreciation?

TREASURER:

Mining has been a major winner from indirect tax reform. And you would’ve seen some work, I think it was published, I better not name the newspaper, I think it was in your newspaper, from Econotech on the weekend . . .

JOURNALIST:

And our newspaper.

TREASURER:

Well, in your newspaper too. Lots of good newspapers in this country. Showing the benefits to mining. Mining is nearly in Australia, nearly totally an export industry. And when you took embedded taxes out of exports, mining was a major winner. Mining also was a winner in relation to diesel and diesel fuel rebates, and also a major winner in relation to reductions in transport costs. And you have a look at the work, mining has been a major winner from indirect tax reform. A major winner. And the point I make is, when you’re looking at the overall tax and I’ve said this before. You know, you’ve got the indirect tax system – the I.T.S; the personal income tax system – the P.I.T.S; the business income tax system – the B.I.T.S. The ITS, the PITS and the BITS. And you’ve got to look at the ITS, the PITS and the BITS, you’ve got to have it as a full picture. You’ve got to see how it all works out and you’ve got to make sure that they all work together to give a competitive tax system. But to say, oh, I was a huge winner out of the ITS and we now come back to square one in the BITS, is rather trying to divide your canvas and do abstract art.

Thanks very much.