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 24/04/01

Transcript No. 2001/045

Transcript
of
Hon Peter Costello MP
Treasurer

Press Conference
Parliament House, Canberra
Tuesday, 24 April 2001
12 noon

E&OE

SUBJECTS: CPI Figures, Shell/Woodside, Fuel Sales Grant Scheme, Beer, Peter Nugent, Budget

TREASURER:

Todays Consumer Price Index indicates that inflationary trends are in check in Australia. For the March quarter there was a 1.1 per cent increase, mostly influenced by special factors, in particular in relation to food and vegetable prices. Abstracting from these special factors, the CPI increased by a moderate 0.6 per cent in the March quarter following on from 0.3 in the December quarter.

The special one off factors particularly in relation to fruit and vegetables, which increased by 13.5 per cent in the quarter, and in fact the increase in vegetables was even more significant than that with the increase in the price of vegetables 20 per cent in the quarter. This is largely the result of the floods in northern New South Wales and Queensland which restricted supply. As production returns to a more normal level, we would expect that to unwind in future quarters.

In addition there was a 4.1 per cent increase in meat products. This is largely the result of increasing meat products worldwide arising from foot and mouth disease in Europe and some other areas and that has pushed meat prices higher in Australia.

There were seasonal increases with the return to school and in relation to pharmaceuticals.

Areas which fell included petrol, because in the March quarter, and remember were talking about the March quarter here, petrol price has probably gone back up again in April, in the June quarter, but in the March quarter there were falling oil prices and also the Governments reduction in the excise rate.

Looking ahead to the next quarter we see a number of factors which should work to moderate the Consumer Price Index. In the next quarter youll get reductions in excise on draught beer, youll get reductions in housing as a result of the increase in the First Home Owners Scheme and reducing interest rates. And looking ahead even further youll get reduces in consumer prices when the Government abolishes Financial Institutions Duty on 1 July of this year.

The yearly inflation rate remains at around 6 per cent which has been the annual rate now since the September quarter. That includes around 3 per cent, the one-off effect of the New Tax System. When you take the one-off factor of the New Tax System out of the figures and you look through the seasonal factors, you are seeing an inflation rate which is around about 2.25, 2.5 per cent. Around about the middle of the target which has been set by the Government and Reserve Bank at 2 to 3 per cent over the inflation cycle.

These figures are consistent with inflationary pressures being held in check in Australia. The annual figure largely shows the effect of the one-off tax changes in the September quarter. We have now had two quarters since then, and the tax changes will from now on be reducing the overall CPI effect.

I point out for the record that those areas which have driven the CPI in this quarter, in particular fruit, vegetables and meat are areas where there is no GST. There is no GST on fresh food. So anybody who might be misled into thinking that price rises in fresh fruit or vegetables or meat could be related to tax, would be making an error. There is no GST on fresh food. Not on vegetables, not on fruit, and not on meat. So the changes in relation to those prices which have been quite significant are not related to tax.

 JOURNALIST:

Do you have any, do you have concerns, or do you think the 0.6 figure looking through (inaudible) suggests that some businesses were trying to make up margins during the March quarter after being squeezed in the December quarter?

TREASURER:

I think youve got to break down the figures to actually see where all of this comes. Lets exclude food because there are seasonal and international factors and as I just said there was no GST. Nobody had to make up any margin on a food price. If you look through them, there were changes in alcohol and tobacco, mainly health related. Some changes in relation to hospital and medical services, hard to think anybody was making up margins there. Clothing and footwear actually fell, might have been one of the areas where you would have expected margins to have been made up, but it doesnt appear that there was anything going on there. And the other significant contributor was in relation to education, which as the ABS noted was associated with the commencement of the new school year in March. So I think if you actually break it down, its hard to find any evidence in these figures that people were trying to make up margins in the March quarter.

JOURNALIST:

(inaudible)

TREASURER:

Well, Im not going to speculate on what the bank might be thinking. But Ill make this observation. You see one-off seasonal factors coming into play in this quarter. In particular floods which have affected fruit and vegetable prices and some international developments which have affected meat prices. When you look through those factors, because they will unwind, you see a Consumer Price Index which is moving by about 0.6 which is about the middle of the range. You dont see any undue inflationary pressures but by the same token, you dont see any great deflationary pressures. Thats quite a healthy tick-over, 0.6 of a per cent. And quite consistent with our target of 2 to 3 per cent. So this is a middle of the range result and frankly wed be quite happy to, with a middle of the range result.

JOURNALIST:

Treasurer, can I ask you a question about foreign investment? Is there any merit in suggestions that the national interest test that the Treasurers required to apply in relation to foreign investment proposals should be made more specific so that its easier to be better understood and precise (inaudible)...

TREASURER:

No, I dont. Because I think if you made it more specific, you are more likely to complicate it. If you were to give a sub-definition of national interest, you could either go down to a sub-definition of 5 elements, or 50 elements or 5,000 elements. Youve got to remember this, that these things are litigated. And what would then happen is you would have the courts going through those factors one by one and quite possibly substituting their own judgement for that of the policy makers. One of the things thats changed in this country is the doctrines of administrative law. These things are now all litigated. And the more detail you put in, the more grounds of litigation you have, and the more likely you are in my view, to have judges making the decisions. Now that definition of national interest has been in that Act since I think 1975. Well that Act was enacted in 1975, so I would say its 25 years old, and I think it is a broad statement which allows a broad view to be taken.

Now the only suggestion about this that I saw yesterday came from the Opposition. What did the Opposition do yesterday? They attacked the decision and then they were asked whether theyd make the same decision, they didnt know, and then they were ringing newspaper journalists later in the day saying oh actually they did support the decision. What they wanted to do was attack the decision, hope that it went badly and then say it was the wrong one. They attacked the decision, and because it went well, they were forced to come out say it was the right one. Thats what happened yesterday. And then they said oh well maybe, thinking of no other ground, oh maybe we should specify national interest further. Well they were only in office for 13 years. This is their test. This is their test. They were only in office for 13 years, they never once touched it, and now theyve suddenly got interested in it. What happened yesterday was they completely missed it. They completely missed the issue and they try and hop back into the issue by going on with this phony thing which they were never interested in for 13 years. And again is ill thought out. Now if Beazley wants to announce a policy and say thats his policy, let him say it. But this is what happens with them all the time. Off the record, you know, underneath theyve always got an out of the side of the mouth sort of proposition which is basically designed to hide the fact that they cant make decisions and they dont have a policy.

JOURNALIST:

Mr Costello, can I ask you about (inaudible)

TREASURER:

I think that, thats been, terms of reference are being worked on, as I understand it, by the Industry Minister and the Transport Minister. And there is also a requirement that was negotiated with the Australian Democrats at the time the legislation for the New Tax System went through the Parliament to have an overall look at taxation in relation to energy generally and they have had discussions with the Australian Democrats too, on whether we can bring those two inquiries together and do it as part of one. And I understand that those discussions are still continuing. And thats...

JOURNALIST:

(inaudible) about who would actually conduct the inquiry and what sort of time frame...

TREASURER:

Well, there is a time limit, I cant just tell you what it is off the top of my head, but in the correspondence with the Australian Democrats at the time the legislation was passed, there was a time frame on looking at an overall energy tax policy. I cant remember if that was 2002 or some period like that.

JOURNALIST:

Do you think that youre going to be (inaudible) petrol prices with perhaps (inaudible) for the first 6 months of last year. Do you think (inaudible)...

TREASURER:

I dont concede for a moment theres a lack of success. The fact of the matter is that the Government is now spending up to a billion dollars to equalise the price of petrol between remote areas and the cities. If you were not to spend that, the differential would widen. It was never said that this scheme would remove the differential, what was said was that putting in place this scheme would ensure that the tax changes didnt widen it, and it has.

JOURNALIST:

Are you confident that its actually going to be noticed? I mean even the ACCC has been saying that theyre not confident, sorry, that they cant say for sure that its not going to ...

TREASURER:

Well, the ACCC is tasked with monitoring this and where there are complaints, it goes and has a look at it. I am not aware of any case that its yet identified where it was not being passed on and if it were, I am sure that Professor Fels would ensure that it is post haste.

JOURNALIST:

Do you have any comment to make about the behaviour of the Australian dollar overnight, given that the falls were all immediately after the decision but in overseas markets there hasnt been as much movement. Do you have any comment?

TREASURER:

Well I think thats a pretty acute observation.

JOURNALIST:

In relation to beer prices, you have said that you would expect them to come down as a result of the excise rate in the next quarter. Are you disappointed that the price over the counter of draught beer appears to be not as low as predicted by the brewing industry?

TREASURER:

Absolutely. The brewers ran a multi-million dollar campaign on television featuring footage of beers coming over the bar. And said that if their policy were accepted, they would fall. And in my view the brewers have an obligation to ensure that every single hotel in this country has reduced its prices. Thats what they promised. That was their, that was the basis of their whole campaign. Its not enough for the brewers to say, Oh well, its not our business. The brewers made it their business. The brewers advertised on television saying it would be their business. And they cant hide behind the hotels. The brewers have an obligation to make sure that they deliver on what they claimed would be the benefit. Its the first thing I say. It shouldnt have been necessary for people to lodge complaints and the Australian Competition Commission to investigate. The brewers should have ensured it. They advertised it. They claimed it. It was their campaign. But having failed in ensuring that that was delivered, the appropriate thing to do is to notify the Australian Competition Commission and it is investigating those complaints and where that price reduction is not being passed on, I think companies can be liable for up to $10 million fines.

JOURNALIST:

What about the price differential with low alcohol beer? The price differential appears now to be less than it was before the excise. On health grounds and on State Government finance grounds, what steps should be taken?

TREASURER:

It looks as if some of the States may have taken the opportunity in all of this to reduce their subsidies. I say to them that there is no grounds to do so. We are going to look at that very carefully and we will be writing to the States concerned to make that plain to them.

JOURNALIST:

Mr Costello, do you think that the latest CPI figures are consistent with the slowing of ...inaudible... economy. Do you think you draw any links between what youre saying is a fairly moderate rate of inflation and slowing demand?

TREASURER:

No. No I dont.

JOURNALIST:

Mr Costello, would you care to say anything about your colleague Peter Nugents very sudden death ....inaudible...

TREASURER:

Peter Nugent, the Member for Aston, died early this morning. It was without warning. It was a massive heart attack. He was still a young man, in his early sixties, and it was a shock to all of us. Ive spoken to Carol, his wife, this morning. The Prime Minister has also spoken to Carol and conveyed our deep sense of personal loss. Peter was a fine man. He was someone I knew pretty well because he came from my home State. We entered the federal parliament on the same day. He was somebody who was always committed to social issues. He chaired the Amnesty International Group. He was intensely concerned about human rights in China and East Timor and worked on the Foreign Affairs Committee on Human Rights Issues. He has a long and abiding interest in reconciliation issues. He was the Government representative for a long period on the reconciliation process. He walked in the Reconciliation March in Sydney and I had the opportunity to walk with him in the Reconciliation March in Melbourne. He was somebody that was passionately devoted to reconciliation issues and from the moment he set foot in this Parliament until he left it, he had a sense of commitment to human rights and social justice and I pay tribute to him. To his wife Carol and to his family we send our deepest condolences. We will sorely miss him.

JOURNALIST:

...inaudible...

TREASURER:

Its too early to start speculating on the by-election. He died just hours ago. It was a shock to all of us and at this time I think our thoughts should be with his wife and his family.

JOURNALIST:

Treasurer, the higher CPI result...inaudible... budget surpluses?

TREASURER:

Look, the important thing about the budget is that we carefully manage expenditures, that theyre targetted consistent with strong fiscal policy. We didnt drive the budget into surplus and start paying off Labors debts to give the game away at a time like now. People should understand weve now repaid nearly $50 billion of the Labor debt that they ran up in the last five years, but we still havent got back to where we were before those last wanton mismanaged five years, and consistent with the economic needs, I want to continue to finish the job. Thats all we want to do.

JOURNALIST:

Will there be a healthy surplus or a respectable balance as the Prime Minister ...inaudible...

TREASURER:

Look on the measurement scales, Michelle, I dont know where on the index respectable balance comes compared to healthy surplus. You know, its like when the weather forecasters give out sunny or very sunny, Im not quite sure, you know, where you pass from sunny to very sunny, and Im not quite sure where you pass from respectable balance to healthy surplus. You know, the truth of the matter is we are aiming to keep our budget in balance. Thats what were aiming to do. And that allows us to fund necessary expenditures out of our revenues without borrowing and it allows us to pay back more Labor debt...

JOURNALIST:

(inaudible)

TREASURER:

...and thats what well be doing. Thank you very much.