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 06/11/2003

TRANSCRIPT

THE HON PETER COSTELLO MP

Treasurer

Interview with Alan Jones
2GB

Thursday, 6 November 2003
7.15 am

SUBJECTS: Interest Rates, Economy, Dollar, Housing Finance, Banks, NSW Poker Machine Tax Rebate, Marginal Tax Rates

JONES:

Treasurer, good morning.

TREASURER:

Good morning Alan.

JONES:

Interest rates are a surprise to the financial markets, a surprise to Peter Costello?

TREASURER:

Well look, I follow the debate very closely and I talk to the Bank about these things so, it’s not really worth going into the way in which…

JONES:

I just asked that because our listeners don’t, just to clarify, you don’t have any say in any of this?

TREASURER:

Oh sure, let me make this clear, the Reserve Bank is independent and the Reserve Bank makes these decisions, they’re not Government decisions. We put it on an independent basis and it makes the decision solely itself now, as I was saying earlier you follow the debate you get some idea of what they might be thinking but it is an independent board and it makes the decision itself.

JONES:

And there is talk that there could be another rise over the next 6 months, even as early as next month?

TREASURER:

Well look Alan, you will find that people go out and make their predictions and I have said this before, I have watched some people predict six of the last one interest rate rise.

JONES:

Yes six of the last one interest rate rise I agree. But however, immediately this occurred the Australian dollar went to over US71c, what do you think the farmer is saying today?

TREASURER:

Well, I know what the National Farmers Federation…

JONES:

They are angry

TREASURER:

…said, yes, they were very critical of the decision, they were critical of the decision because obviously they are being hit by a high currency at the moment and that’s a point that I understand very very well for the farmer. The second thing is, although some parts of the drought have broken, the drought has not broken throughout all of Australia…

JONES:

Sure as hell hasn’t, absolutely, so they have got debt as well to service.

TREASURER:

Yes, well, there is a view in some circles that the drought is completely over, it is in some areas, but it’s not in other areas and I think if you happen to be in one of those drought areas, you are still doing it really hard.

JONES:

It seems extraordinary though doesn’t it, we go through this cycle over and over again, and acknowledging that we most probably still got the lowest interest rates in 30 years and great credit to you for your economic management in that, but none the less you get economic growth to about three and three quarter per cent, you get excited that means more revenue for the Government, more income for the wage and salary earner and more jobs for the people out there and yet you suddenly say hang on hang on we got to put the breaks on now and put the price of money up.

TREASURER:

Well, you said it, the reason why I think there is a lot of focus on yesterday’s decision is that interest rates haven’t moved for fourteen months, that is very very unusual, in fact probably more, I think it was back in June of last year, very very unusual that you get a period without that movement. The second point to bear in mind is, you see an interest rate with a six in front of it, it is historically low and I think there are some people that think, oh well maybe interest rates have always been at six per cent, well Alan, even under our Government the average interest rate has been 7.15 per cent and of course under the previous Government the interest rate averaged under Labor 12 per cent, so you have to, twelve and three quarter, yeah that’s right, double, double the current rate.

JONES:

But if the United States, Japan and Europe, which is this case, have interest rates lower than ours, then our currency could in fact go even higher and that continues to cause problems for our exports and we come back to the old farmer.

TREASURER:

Well, as I was saying earlier the mortgage rate is still an historic low in Australia. Now you come to Japan and the United States, these economies have been in recession and because they are, both of those economies went into recession, in Japan’s case a very deep recession, in order to try and kick start the economy interest rates were put low and they are recessionary economies. The US is moving out of recession now and so it’s moving on, Japan maybe, I don’t know, but the thing about currency movements I do want to say something about that, is that the Australian dollar went very low, you can recall in 2000 and 2001 and that’s mainly because America was over valued, a lot of that has come off and the Australian dollar has gone back up, and I make the point, I always have, that, that makes it tougher for our exporters and our farmers are exporters and it makes it cheaper for our importers.

JONES:

…(inaudible) pushes the debt up.

TREASURER:

When the dollar was low incidentally and there was a lot of criticism in the press at the time Alan, I can remember the press were fulminating against that, it was actually a very good thing for our exporters…

JONES:

My word it was.

TREASURER:

...it helped them, it helped them through a time when, when a lot of the world went into recession.

JONES:

This all seems to though derive, yesterday’s decision, from the Friday figure of a seven and a half per cent increase in building approvals in September when the forecast was for one per cent. Now I guess the concern the Reserve Bank had was that this accelerates the level of debt as more and more people are seeking to buy and every person who buys a house, normally on their credit card then buys the washing machine and the kitchen wear and the curtains and so on. Aren’t there other ways though of slowing that down rather than increasing the price of money? Do you think for example that people have too easy an access to credit? I mean on credit cards alone they post them out to school kids.

TREASURER:

Well I do think that one of things that has led to increased borrowing is the willingness of the banks to lend money against home equity. There seems to be quite a new phenomena, you’ve seen them advertised on TV, the home equity loan the bank writes to you and says oh “look, the value of your home has gone up, would you like to draw down against it?” In fact, they send you letters. I know this because they have sent me letters saying “would I like to borrow against my home” and that is a new product and banks have been very free with finance particularly in relation to those new instruments. I do think that finance is very easy and finance is cheap. As I keep saying by historical standards, interest rates are very, very low. I just want to make this point because I make it over and over and over again to people that are thinking about taking out a mortgage. You have got to remember if your mortgage has six in front of it, it’s a historical low. There are some young people that think six per cent is a normal interest rate. Well, I can remember when I bought my first home it was seventeen and a half per cent.

JONES:

Absolutely, I agree with you.

TREASURER:

Seventeen and half per cent. And so I say to people when you are taking out a twenty five or thirty year loan just leave some cushion in there because if you see a mortgage interest rate with a six in front of it, it’s a historical low and over twenty or thirty years you don’t have thirty year lows.

JONES:

But the flip side of this of course with the housing as I mentioned to you is stocking the house up with its furniture and fittings. Average credit card debt per household has now trebled in 7 years from $1,601 in June 1996 to nearly $5,000 in July 2003. I mean we’ve got one and a half, one and three quarter million people here holding credit and charge cards, some hold many. Do you have a concern about the easy access that people have independently of their credit worthiness to credit cards.

TREASURER:

Well, I would say to the credit providers and principally this country, their banks, that the banks should properly assess people. I think it’s a matter between a customer and their bank and these banks ought to properly assess people…

JONES:

It doesn’t happen

TREASURER:

…because, well who knows what these bankers think.

JONES:

You must call them from time to time and take the whip out don’t you?

TREASURER:

Well, I make these points that we expect the banks to be responsible and their lending practices. We had a regulator go through the banks recently to stress test them. The regulators said that the banks were in fine condition but I would re-emphasise the point that where a credit provider is allowing credit to somebody they have an obligation to properly assess their credit worthiness.

JONES:

Treasurer, the poker machine tax issues in New South Wales. You approved the GST rebate in July 2000 to ensure that clubs weren't going to be out of pocket following the introduction of the GST. Then there was a lot of public pressure here, as a result of the fact that was going to end next 30th of June next year and Treasurer Egan made a request to you, did he not, for the rebate to be continued for clubs with under $1 million in revenue. Now under the cover of the Melbourne Cup, you actually did say to the New South Wales Treasurer, well hang on if it is going to go to some it should go to everybody. What’s the background of that? A press release came out on Melbourne Cup Day. No one knew anything about it. Is Treasurer Egan a bit embarrassed about the fact that the poker machine clubs are going to get the GST rebate?

TREASURER:

Yes, well he seems to be very backward about this particular issue for reasons which I can’t understand. You have properly recited what happened. When the GST came in, because GST was going on gambling, we said to the State Governments you have got to reduce your gambling margins. And in New South Wales that involved giving the clubs an actual rebate, because they weren’t applying tax at low levels of turnover. And the New South Wales Government said, yes, we will give them a rebate for four years and the Commonwealth said fine, here’s the reimbursement for that. But when the four years were up, the New South Wales Government first, apparently didn’t want to keep the rebate at all, and then said, oh well, we will allow the rebate for the smaller clubs but not the larger ones. I pointed out to the New South Wales Government that we would not reimburse them if they didn’t pay it to the clubs. But if they decided to pay it to the clubs they would be reimbursed by the Commonwealth. I made that very clear to them. I wrote to Treasurer Egan on Friday of last week and I said, all right, you have now agreed to pay it to the smaller clubs you will be reimbursed, if you agree to pay it to the larger clubs as well, you will also be reimbursed. By the way…

JONES:

And he, and he didn’t want to pay it to the larger clubs?

TREASURER:

Well, as far as I know, he has not yet agreed to pay it to the larger clubs. The moment he agrees to pay it to the larger clubs, that is, the New South Wales Government agrees to pay it, they will be reimbursed. But if the New South Wales Government does not agree to pay it, there is nothing to reimburse them.

JONES:

But am I right in saying that, Treasurer Egan, with all the problems that clubs are facing, he did not even make you a request?

TREASURER:

No, he did not make a request in the first analysis for any clubs and he has still not made a request for those clubs above one million. He has still not made it.

JONES:

Even when the Commonwealth Government is quite prepared to give, to continue the GST rebate after June 30, 2004?

TREASURER:

Even though I wrote to him last Friday and said, you have still not made a request. You will not be paid if you are not going to return it to the clubs. But if you decide to return it to the clubs and request reimbursement you will get it. I am still waiting for that request.

JOURNALIST:

Treasurer can I shift the focus a bit, that is extraordinary. Tax, just back to this tax thing, our highest tax bracket, what are you going to do about these poor coots out here on sixty something thousand and suddenly find themselves on the highest tax, $62,000, highest tax bracket in the country. I mean you can’t save in that environment can you?

TREASURER:

Well, I have said before, and I will say it again, that I think the top rate cuts in at too low a threshold. The threshold at the moment is $62,500 and when we came to office it was cut in at $50,000 and when we were introducing the New Tax System, I wanted to lift that to $75,000 and Labor opposed it. And as a consequence of that we were only able to lift it from $50,000 to $60,000. We have since increased it a little bit to $62,500 but my original plan was to take it out to $75,000 and if we had been able to take it out to $75,000 it would have been higher than that today. But I don’t think $62,500 is the right level, back in 2000, I thought $75,000 was the right level…

JONES:

Right.

TREASURER:

…so it should be higher than that today. But see you have got to remember this Alan, people ask me about this, they say why don’t you do this or why don’t you do that with the tax system…

JONES:

(inaudible)

TREASURER:

…let me make this point, the tax system is contained in legislation. It cannot be altered except by an Act of Parliament - a lot of people don’t know this - and to get an Act of Parliament through, you have got to not only pass it through the House of Representatives which has a Liberal/National majority but you have got to pass it through the Senate, which has a Labor/Democrat...

JONES:

I understand that. Listen we have got to go to the news. You are talking to a very sophisticated electorate here, they do understand that. But thank you for your time, we need to talk again.

TREASURER:

Thanks very much Alan.