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 28/06/01

Transcript No. 2001/084

TRANSCRIPT
of
HON PETER COSTELLO
Treasurer

Doorstop
Thursday, 28 June 2001
10.00am

SUBJECTS: US interest rates, exchange rate, Reserve Bank, GST, Knowledge Nation, Reconciliation


TREASURER:

Well, overnight the Federal Reserve in the United States cut interest rates again and interest rates have now been cut by two and three quarter per cent in the United States. That indicates, obviously, that the US economy has been weakening, and we welcome the fact that interest rates have been cut, because we think that will stimulate the US economy, which is important to world growth and important to Australia. As you know, the United States economy in the March quarter was weaker than the Australian economy, but undoubtedly as that flows through to the world, that will have an effect back on us. The principal area where you would expect it to have an effect would be in relation to exports. Fortunately for Australia we have taken a couple of pro-export decisions, particularly taking taxes off our exports in the last 12 months. We took $3.5 billion of taxes off when we moved to the New Tax System, and that has been helping our export volumes grow over the course of the year. But as far as Australia is concerned, we remain committed to pro-growth policies. We have a taxation system which has now delivered big income tax cuts which has found their way into consumer spending. On Monday of next week, I think it is, we cut the company tax, 1 July, thats Monday of next week, we cut the company tax further to 30 per cent. We cut Financial Institutions Duty, and we make Australia a great place for share investment by cutting stamp duties on shares.

JOURNALIST:

Are conditions in Australia conducive to another rate cut at all here?

TREASURER:

We have got pro-growth policies in place at the moment. We have got income tax cuts which have obviously been important for consumer spending in the last quarter. We have got a bonus for first home building, $14,000. We are cutting the company tax rate, we are abolishing Financial Institutions Duty, we are abolishing stamp duties on 1 July and we have also just had a bonus for pensioners. So these are pro-growth policies. I think the settings are good for pro-growth policy at the moment. We had a strong March quarter, but the Government is committed to keeping pro-growth policies in place.

JOURNALIST:

(inaudible) the Reserve Bank to further stimulate growth?

TREASURER:

Well, the Reserve Bank has reduced interest rates over the course of this year, really unwinding the rises it started putting in place from 1999, and that has got mortgage variable interest rates, down now at 6.8 per cent, which are pretty near historical lows - a good time for home buyers - and that has been pro-growth as well. You have got to remember when we came to office, the home mortgage interest rate was 10.5 per cent, today it is 6.8 per cent and thats a saving of about $3000 on your average mortgage, already, with interest rates where they currently are.

JOURNALIST:

Mr Costello, Mr Murray said yesterday that a weak currency reflected bad savings and bad government. Do you agree with that?

TREASURER:

I didnt see what Mr Murray said yesterday, so I wont comment on what he is alleged to have said or not said. But I can say this, that we run a floating exchange rate regime, and like most other floating exchanges, particularly the Euro, the US dollars rise through the course of the last year or so, has meant correspondingly, that the exchange rate against the US dollar is lower. But the Australian exchange rate against the Euro and the Yen has not moved anything like its movement against the US dollar. And of course, Japan is our largest trading partner, I think Europe totally, when you combined all of Europe, would be one of our other major trading partners, and although I dont believe there is any reason why the $A dollar and the Euro should move in sync, the fact that we have a floating exchange rate allows us to adjust to external conditions.

JOURNALIST:

Treasurer, there have been calls for increased transparency in the Reserve Bank policy setting, in particular calls for a statement to be made after each Board meeting. What do you think about that idea?

TREASURER:

Obviously that has been around for years, and we have looked at that. We have concluded that the current arrangements are the best arrangements, by which the Bank makes an announcement when it adjusts rates and it explains its decision. And this is in accordance with procedures which I put in place when I became Treasurer some five and a half years ago. We have an independent bank, it makes a statement, it explains its reasons, and I think the level of transparency in relation to the Reserve Bank of Australia is higher than it has ever been.

JOURNALIST:

Treasurer the Financial Review (inaudible) the Howard Governments economic record from seven out of ten down to six out of ten, do you think the first year of the GST, has been handled well?

TREASURER:

The one thing I can say about the introduction of the GST, and what it has also led to - cuts in income tax, abolition of Wholesale Sales Tax, abolition of Financial Institutions Duty, abolition of stamp duties on shares, cuts in company tax and cuts in capital gains tax...

JOURNALIST:

Has the Governments economic standing been eroded?

TREASURER:

...is that over all of that tax reform, it has been pro-growth, and it will set Australia up for much better opportunities in the future. And the proof of the pudding is this - no one wants to reverse it. There is nobody in Australia today, as far as I am aware, that says we should abolish GST, increase income tax, increase company tax, increase capital gains tax, re-introduce Wholesale Sales Tax, re-introduce Financial Institutions Duty, stamp duties on shares. Not even Mr Beazley. And I guess imitation is an indication that he knew all along what was necessary for Australia. The difference between Beazley and us is we had the courage to lead. He didnt have the ticker...

JOURNALIST:

So, one year on...

TREASURER:

except to follow. And let me make, while we are on the subject of Mr Beazley, he is apparently going to release Knowledge Nation on Monday. Now, the Knowledge Nation is built on a report from a man by the name of Professor Simon Marginson. He is the one that did the research for the Chifley Centre which was the basis for Mr Beazleys speech in Sydney recently. Mr Simon Marginson has written that, he believes, to achieve the Beazley vision, an additional $12.3 billion a year is required in expenditures. That is what Mr Marginson says, to reach this level we need to invest an additional $12.3 billion a year. Now, Carmen Lawrence says, well maybe we will need education bonds because the Budget will be back in deficit, Senator Stephen Conroy says, well we will have to cut programmes or increase taxes, Mr Beazley says we need mezzanine finance, Senator Chris Schacht in the Senate yesterday was bemoaning the abolition of death duties. But if you are looking for $12.3 billion, whether it is going to be death duties, higher income taxes, mezzanine finance, or the Budget back in deficit, on Monday Kim Beazley has a huge financing problem.

JOURNALIST:

Treasurer

TREASURER:

Now, anybody can run around and say, oh we are in favor of more expenditures, and what is more against all taxes, but on Monday comes the moment of truth. How does he pay for this? And how high will interest rates go under a Labor Party which has unfunded promises, which will drive the Budget back into deficit? How high will they take those interest rates?

JOURNALIST:

Treasurer, William Deanes last day in the job. Has he furthered the cause of Reconciliation where the Government hasnt over the past few years?

TREASURER:

Look, the Government has been working on the idea of practical reconciliation. We think the best way of improving the position of Aboriginal people in our society is to help them get a decent education, good housing, good health care. It is obvious from the events of the last week that violence and sexual abuse need to be dealt with in Aboriginal communities and I think these issues are top of mind issues and

JOURNALIST:

And has Sir William played a positive role in that?

TREASURER:

And I think Sir William has played a positive role in raising these issues. The issues are raised and it is the answers we have now got to deal with. And the answers are going to be accountable spending, not wasting of taxpayers money, accountable spending, to get better housing and better education and to deal with abuse in some of these communities. And I think practical reconciliation, goodwill on both sides - I make this point - you need goodwill on both sides. You need goodwill from the Aboriginal community to the non-Aboriginal, you need goodwill from the non-Aboriginal to the Aboriginal and I think as long as we are hard headed, we have got to be hard headed, but if we show that goodwill, that we can improve things. But I dont think there is the magical solution out there. The people that say, you know, its just, its just a question of a formula, you have just got to engage in a formula and all the problems are fixed. No, the problems are much deeper than that. And this is something that has got to be worked on, worked on on an individual basis, worked on on a community basis and I suspect it is going to be worked for a very long time.

JOURNALIST:

Is this something you are going to pay more attention to yourself?

TREASURER:

Yes. I believe it is something that has got to be worked on. I think I said at the time of the marches that we have got to work on it as individuals, and as communities. And in this last Budget I was very pleased that we were able to increase funding for Aboriginal housing. But the people that say, oh well, you have just got to have some kind of formula, youve got to have some kind of statement, and if you engage in a statement, sexual abuse and violence in the communities drop, or educational standards lift, or housing improves - that is absolute nonsense. We know that. It is the hard work of months and years doing the hard things that are really going to make a difference here, and we have got to approach that in a hard-headed way but with goodwill on both sides.

Thanks.