Peter Costello

Transcript No. 2000/112

SUBJECTS: Housing figures, interest rates, US economy, RACV car survey, petrol prices, Cabinet

JOURNALIST:

Mr Costello, how concerned are you by the slump in third quarter new housing starts?

TREASURER:

Well, the housing starts were taken into account in the National Accounts, which were released on Wednesday, and I made comments on those. Obviously had a big bring forward in relation to housing construction prior to 1 July because of the GST, and you are now seeing that unwind in the September quarter. Those figures have been taken into account already in the National Accounts, they were one of the factors that brought the National Accounts down, outweighed by the boost in exports. But it’s a transitional one-off factor which we expected and which we’ve seen come to pass as a result of the changes with the new taxation system.

JOURNALIST:

Are you expecting a recovery then?

TREASURER:

Well, the housing market is coming off a very, was coming off, a very steep increase prior to 1 July as people rushed to get contracts in. We’re expecting an unwinding. But this is an unwinding of an abnormally high figure. As both of those factors work out, one the increase, two the unwinding, you’d expect the housing market and housing starts to return to more stable levels. I might say to buyers that there are a lot of people that thought that getting in before 1 July would mean a cheaper contract, I think, actually now is very good time to get into a contract because getting in before 1 July when demand was high meant that prices weren’t, in some cases, as low as they are today. It’s a good time to actually get into a housing start.

JOURNALIST:

The industry is calling or continuing to call for a fall in interest rates. What is the chance of that?

TREASURER:

Well, interest rates, home mortgage interest rates now with the exception of the last year are the lowest that they have been since 1973. The fact that you can get a standard variable mortgage interest rate still in the 7 per cent range, means that absent the last year, it is much lower than we’ve seen since financial deregulation, in fact, for the last thirty years. Now, perhaps we are getting used to low interest rates, but the point I make is, if we keep inflation low and wages responsible, we can continue a low interest rate policy. The good news is, the National Accounts which were released on Wednesday of last week, showed that inflation was low and wages were restrained and that’s consistent with a low interest rate regime.

JOURNALIST:

Now that we’ve got a Republican in the White House who is committed to tax cuts for Americans, there is the suggestion that Alan Greenspan’s going to hold off on any interest rate reduction because that would fuel the American economy again. What impact, do you think, having Mr Bush will have on the Australian economy?

TREASURER:

Well, the US economy is slowing from the very high levels that it has achieved in the last couple of years. And as a result observers are saying that they’re not expecting interest rates to continue to rise in the United States. And, I think, the authorities there will have their eye really on growth and inflation when they are setting interest rate policy in the future. The election of President Bush, which the Government welcomes, the Prime Minister has welcomed, signals, I hope, that the period of division in the United States and legal challenges has come to an end, that the country can get on with firm leadership. We welcome the fact that President Bush has committed himself to an open trading regime, which is going to be good for Australian exporters. It’s very important for Australian exporters that are wanting to get access to the US markets, and we intend to continue to press the US to open its markets to Australia. We’ve just taken a lamb decision to the World Trade Organisation on behalf of Australian farmers to make sure that they get the right to trade into the United States, and if we find any other areas where the United States is lagging, I can assure you we will be taking very, very strong measures to look after Australian exporters.

JOURNALIST:

Treasurer, there is a survey out today from the RACV that the cost of running a car for ordinary mums and dads has gone up quite significantly since the GST was introduced. Do you think it is a fair indication of the cost?

TREASURER:

Since the tax changes on 1 July and the introduction of GST, tax on cars has fallen, and the price of cars fell accordingly. That is, the tax changes made the price of cars cheaper, and all of the findings were to that effect. Since then, you’ve had other factors, such as, the increase in world oil prices which has pushed up the price of petrol. There is no doubt about that. But I don’t think you can blame a rise in the world oil price on GST. It’s not the Australian GST that’s pushing up West Texas in intermediate crude or Saudi prices. But when you take into account those rises in world oil prices, yes, petrol has become more expensive. Petrol prices are still too high in Australia and the best avenue for relief is world oil prices coming down and you have seen some movement on that in the last couple of days. If we get through the northern winter, when demand from the northern hemisphere is at its peak and if you see a slowing of the US economy, which you are seeing at the moment, then they are the best conditions, along with increased supply from OPEC, for the price of oil to fall. And that will be good for Australian consumers.

JOURNALIST:

So you don’t feel pressured to do something about petrol prices immediately?

TREASURER:

The only thing you can do about petrol prices is attack the reason why they’ve gone up, which is the world price of oil. And if you want to attack the increase in the world price of oil you’ve got to keep supply up, it’s a matter for OPEC. But as I say, as demand comes off, slowing in the US economy, we get through the northern winter when people are demanding more oil for heating in the northern hemisphere, then they are much better conditions for prices to come off a bit.

JOURNALIST:

That’s pretty cold comfort though for people who are finding it more expensive to run their cars.

TREASURER:

Sure is. Petrol prices are too high. And they’re high because demand is strong and production is low. And if you want to address petrol prices then it’s important to address the causes which is the world price of oil….

JOURNALIST:

….is that too passive?

TREASURER:

….and not just in US dollar terms, by the way, but also in Australian dollar terms where the price has more than tripled in the last eighteen months.

JOURNALIST:

What’s the likelihood of a Federal Cabinet reshuffle some time soon?

TREASURER:

Well, I don’t know anything about it so I would say the likelihood is small to negligible.

JOURNALIST:

So no words from the Prime Minister’s office then?

TREASURER:

I’m not sure that anybody’s resigned. As far as I know nobody’s resigned. I’ve been out of touch of the media for the last three-quarters of a hour, but three quarters of an hour ago nobody had resigned. Thank you all for your time.