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 07/12/2005

Press Conference

Parliament House, Canberra

Wednesday, 7 December 2005

12.00 noon

SUBJECTS: National Accounts September quarter 2005, leadership, Robert Gerard, competition

TREASURER:

Today’s National Accounts show there was modest growth in the Australian economy in the September quarter.

That growth was 0.2 per cent for the quarter and 2.6 per cent through the year. This comes after a stronger June quarter.

The non-farm GDP was stronger than the total GDP which indicates that the farm sector was growing more slowly.

National income remains very strong. Real Gross Domestic Income is 4.8 per cent higher through the year and this has been supported by higher prices for commodities and very favourable terms of trade. In fact, Australia’s terms of trade are now as high as at any period since the peak of 1974. What we are now seeing going on as a consequence, particularly of the mining boom, is very strong investment.

ABARE recently calculated that Australia had 84 projects in advanced stages totalling $30 billion and $86 billion in projects at a less advanced stage.

Household consumption was moderate, growing at 0.6 per cent to be 2.7 per cent higher through the year. No doubt this was affected by higher petrol prices. And also, the housing sector continues to ease.

So what we are seeing in the Australian economy at the moment is the household sector moderating, quite possibly people using the chance to build savings, but economic growth now being led by business investment.

Unfortunately, exports continue to disappoint on the volume side. Even during this quarter export volumes did not grow in the way we would have anticipated and subtracted 0.3 of a percentage point from GDP growth.

A big part of the reason for that could well be that as the new investment goes in, supply chains have to be stopped, for construction to take place; we saw that at Hay Point with BHP, where BHP had to close the terminal for a period to put in new investment. But what we would expect over the forthcoming quarter is, as that investment begins to take effect, export volumes will continue to grow.

Inflation remains contained despite higher petrol prices, with the inflation indicator closest to the CPI and the National Accounts growing at 2.3 per cent.

The Australian economy continues to grow albeit at a more modest level in the September quarter. It is supporting unemployment which is now at 30 year lows and notwithstanding a very large increase in the terms of the trade, inflation remains moderate.

We can’t afford to get complacent about this outlook. The minerals boom will not last forever and we cannot factor in these sorts of prices forever. Nor can we say that because demand is strong, Australia’s suppliers will necessarily get contracts overseas. Australia’s suppliers have to beat other producing countries by getting infrastructure in place so that they can take advantage of those markets while they are strong.

The National Accounts do tell a story of a moderating household sector and housing sector, the sector that we did worry about overheating some years ago, being supported now by very strong business investment, a business investment which will give Australia greater capacity in the years which lie ahead.

JOURNALIST:

Mr Costello, don’t these figures essentially show us we’re back in “J curve” territory and what is your assessment about how long it will take for that surge in business investment to boost the export (inaudible)?

TREASURER:

I am just trying to remember what the “J curve” was. Laura you have been around a lot longer than I have. I am sorry, I take that back. No, it doesn’t. What this shows us is that on very favourable terms of trade business is now investing record amounts; amounts that we haven’t seen in our lifetimes and terms of trade that we haven’t seen since the mid-70s. But it takes time to get infrastructure in place. If you are building a new train on the North-West Shelf for LNG, it takes time. If you are expanding the capacity at Hay Point, it takes time. If you are going to reconstruct Dalrymple Bay, it takes time. Now when the investment is concluded, I have no doubt that exports will flow and flow very strongly. But it is a question here of lifting that capacity. You saw in relation to October’s figures a narrowing of the trade deficit. As this investment comes online over the course of this quarter you will see that continue and you will see volumes begin to lift. Now, these prices have given Australia very strong terms of trade, the only point I make, and I made this point again, this will not be permanent. Every other country in the world that is a mineral exporter will be trying to take advantage of them. And we will be able to take advantage of them if we beat those other countries.

JOURNALIST:

Mr Costello, do you think we rely too heavily on those prices particularly, as a lot of economists are saying, you know the times are so good, now possibly areas in tax reform, do you think we rely too much?

TREASURER:

Well, I just make this point. If a terms of trade improvement and a mineral price improvement is going to be temporary you can’t count on it permanently. You can’t say that we will make some permanent change based on a temporary, favourable climate. Permanent changes will have to be based on the back of permanent outlook. And so the point I would make in relation to the terms of trade – I want to re-emphasise this to you – it is not our thinking that this will last for ever, I wish it would. I am quite confident that the demand will last for a long time, coming out of China and India. But as prices go up what happens is every other country around the world starts boosting its capacity - Brazil starts boosting its capacity, Indonesia starts boosting its capacity, Argentina starts boosting its capacity - if you boost your’ s first and fastest, you will get to take advantage of it. But you can’t rely on being able to take unique or total or unchallenged or unrivalled advantage of these changes.

JOURNALIST:

Mr Costello on the face of it 0.2 per cent growth in the quarter makes a 3 per cent target pretty hard to hit for the year. Do you think this quarter’s low growth is an aberration?

TREASURER:

Well, we’ll be looking at our mid-year forecasts when we bring out the Mid-Year Review. Our forecast is for a 3 per cent growth. I would agree with you that this is a slow start to the year at 0.2 percent but all will be revealed when the Mid-Year Forecast comes out, but I think 3 percent is still achievable.

JOURNALIST:

You said yesterday that your Mid-Year Budget would come out before Christmas without any sort of surprises in the GDP (inaudible). Does this constitute a surprise to you?

TREASURER:

No. This won’t knock-off the program to bring out the Mid-Year Review but I’m glad we waited for these figures because as I said they’re modest growth. Good growth, very strong business investment, a good quality of growth but modest, particularly when you compare a 0.2 in this quarter to a 1.3 in June. So I think it proves it’s worthwhile waiting for National Accounts before you update your Mid-Year Forecast. Bear in mind, this is the first quarter we have received in this financial year, in the ‘05-‘06 financial year. So when we go into our Mid-Year Review we’ve only got one quarter of data for the whole of the financial year.

JOURNALIST:

Treasurer, given the economy is growing at a sort of modest pace and that the terms of trade is at the best levels since 1974, where is the growth going to come from when commodity prices come down.

TREASURER:

Growth will come in my view from exports for quite some time, particularly if we can get this infrastructure and this investment in.

JOURNALIST:

…inaudible…

TREASURER:

Incomes are strong and profits are very strong. The company profit to total factor income is the highest ever recorded in Australia. Now, if the housing and the domestic consumption slows and the business investment and the exports start picking up, wouldn’t it be lovely if in the years to come as they come off again, household consumption is ready to strengthen again. If you could do that, then you’d have continuing growth in an economy which has already come quite a long way.

JOURNALIST:

Treasurer…

TREASURER:

Sorry, John, and then Jim.

JOURNALIST:

On these figures does it worry you that …inaudible… working more but producing less? Productivity is so, well, negative.

TREASURER:

Well the ABS calls an end to the most recent productivity cycle and they’ve done a report. We had a very strong productivity cycle in the late 1990s. We had a strong one from the late ‘90s to 2003-2004. That cycle has now ended. And I think the reason for that is as we know, growth has moderated in the Australian economy, whereas employment is still very strong. So as a consequence of that, your productivity is moderated and a new cycle begins. What we’ve got to do is we’ve got to make sure we make every post a winner over the years to come so we can keep that productivity going. A big part of the reason for IR reform. I believe in relation to regulatory reform we could do a lot more to get infrastructure built quicker and properly priced in this economy. We ought to have a national electricity market, we ought to have a national gas market, we ought to have one regulator over critical infrastructure at ports, like Dalrymple Bay. You know, we’re one country, we’re 20million people. Do you think we can afford 8 competition regulators dealing with our export infrastructure, you’re going to run out of good qualified people to run those things and I don’t think we can afford it. Jim.

JOURNALIST:

Treasurer, after this slow start, as you put it, are you still confident that you will, or Australia will still be able to at least meet the budget estimates of growth?

TREASURER:

Jim, we’ll update our forecast in the Mid-Year Review, so I’m not giving any formal forecast. It is a slow start to the year, but a 3 percent growth would still be achievable, notwithstanding this slow start, but I will give you a final word on that at the Mid-Year Review which will be before Christmas.

JOURNALIST:

Can you give a commitment today that you’ll hand down the Budget next year?

TREASURER:

Well, I’m preparing the Budget and I’m preparing it to be handed down by me. I’m not preparing it be handed down by anybody else. I can assure you of that.

JOURNALIST:

Does the camera lie, Treasurer?

TREASURER:

It can. Yes, it can.

JOURNALIST:

What would you say to people who picked up the paper this morning…

TREASURER:

I would say this…

JOURNALIST:

…and saw you and John Howard are at each other’s throats?

TREASURER:

Well you wouldn’t have concluded that from that picture, would you?

JOURNALIST:

Well the other thing, …inaudible…

TREASURER:

What I would say is, as you know, I think we’d been seated together for 2 hours in the Party Room, for 2 hours in the Parliament, and I think after that, for 3 hours in the Cabinet. We’d be on and off sitting next to each other for 7 to 8 hours yesterday. If the camera snaps for 7 hours and 59 minutes and you’re side by side, that’s not the picture they’re interested in, you know that. And, sorry I should say that to our camera people, you know that. I’m sure if I photographed you people here for 7 or 8 hours I could get a shot where you weren’t looking at each other and that’s not because you’re not friends, because I know you all love each other.

JOURNALIST:

…inaudible…

TREASURER:

Mr Brissenden, sir.

JOURNALIST:

Thank you very much. On the Robert Gerard matter, should the Tax Office have referred the audit report alleging tax evasion, his tax evasion to the DDP, as was apparently normal practice?

TREASURER:

That is a matter for the Tax Office. The Tax Office administers these things. The Tax Office is solely responsible for these things. If you have any inquiries as to procedures within the Tax Office, I suggest you direct them to the Australian Taxation Office or the Tax Commissioner. And that is a matter for the Tax Commissioner, which the Government has no engagement in and no control over.

JOURNALIST:

Does it concern you that there might have been, in inverted commas, a quote from today from a former tax auditor, of ‘a major breakdown of protocol’?

TREASURER:

Well I don’t, you can say to me something is said in the paper, that doesn’t make it true. If you want to know whether or not that is true, or whether or not there is any basis for that, I’d suggest you ask the Tax Commissioner. There is only one person that would know that, that’s the Tax Commissioner. Now let me make this absolutely clear. These things are handled by the Australian Taxation Office, they are not handled by the Government, they are not handled by a Minister. You know, we’ve had to put up with all sorts of things being thrown over recent days, this is just another one which has no basis at all. You have a question about that, you put it to the Australian Taxation Office.

JOURNALIST:

Treasurer, after you hand down the Budget next May, what’s your preferred timetable for becoming Prime Minister?

TREASURER:

Well, look, I get asked this question on a daily basis, my answer is always the same. There is no vacancy. We’ll deal with that if there is one. That’s all I’m going to say. I’ve said that a thousand times. I know you will ask the question over and over again hoping that you’ll get a different formulation, hoping that you’ll be able to make a headline out of it. That is the answer.

JOURNALIST:

Treasurer…

TREASURER:

Mr Shanahan.

JOURNALIST:

Mr Costello, you actually indicated that or acknowledged that you wouldn’t force a challenge on the Prime Minister. Does that acknowledgment have a time limit?

TREASURER:

Dennis, as I said the answer is always the same. I’ve just given it. I’m not deviating from it.

JOURNALIST:

Mr Costello, you said pictures can lie, how would you describe your relationship with the Prime Minister?

TREASURER:

Very good. I’ve never purported to be married to the Prime Minister. I do have a wife, I can assure, he has one too. But there’s the evidence, I was at a Party Room meeting from 9.30 until midday yesterday, Question Time from 2 to 4, Cabinet from 4 until 7. You’ve got to be able to work with someone if you sit next to them for 7 or 8 hours in the day, Michelle. I mean how do you go with your colleagues sitting next to them for 7 or 8 hours in the day? Or rather I should say, how do your colleagues go sitting next to you for 7 or 8 hours in a day?

JOURNALIST:

Is it a productive relationship still?

TREASURER:

Absolutely.

JOURNALIST:

Have you had better weeks Treasurer?

TREASURER:

Well these are just normal political weeks. You have an Opposition which tries to do its darndest – that is its job. The fact that an opposition says something doesn’t make it true. You know, let me make this point. The great revelation yesterday was that Mr Ron Walker had apparently told me something. Something which he himself hadn’t even been told, let alone told me. But you know, that is all published and when it is comprehensively disproven let’s move onto the next allegation, which will be in due course comprehensively disproven. The one point I would make in all of these things – you know what I think the important things this week have been? National Accounts - whether people can get jobs. Interest rate announcement this morning - whether they can service their mortgage. Industrial relations changes and whether that will boost productivity. That is what I think the big issues of the week have been. I think that is what the Australian public would think. And I will remind you of this, the Labor Party said it was going to re-establish economic credentials in this term. Have we had a question about the economy? Have we had a question about productivity? Have we had a question even about foreign debt? I think that was going to be one of their big issues. You know, they will be sitting around trying to think to themselves how do we get through another two Question Times without dealing with a major economic issue. And I think the Australian public, which is interested in their jobs and their mortgages, are much more interested in those sorts of issues.

JOURNALIST:

Treasurer, would it be good for export income and for consumers if there was more competition on the Pacific aviation route to America?

TREASURER:

Look, you know my views, I always support competition which can give consumers a better go and lead to better services, but the Pacific route aviation is something that is before the Government and I won’t pre-empt that decision in anyway. Mr Price, Sir.

JOURNALIST:

From your comments today on the radio Treasurer, you seemed to go further than you have been before, a commitment to give the Budget and a comment about not challenging. Are you saying that is the wrong interpretation?

TREASURER:

I am saying that I said today what I have been saying for a very long period of time. A very long period of time.

JOURNALIST:

(Inaudible) haven’t you Mr Costello?

TREASURER:

I said today what I have been saying for a very long time.

JOURNALIST:

What do you say to your supporters on the backbench that wanted you to challenge before, in the middle part of next year?

TREASURER:

I said today what I have been saying for a very long period of time.

JOURNALIST:

Do you think the man in the street would have any trouble accepting your argument that you didn’t know anything about the Gerard matter given that it was in newspapers? What do you think about the fact that it was widely known?

TREASURER:

Oh yes, oh yes, yes. There is a clip apparently in the Adelaide Advertiser after the appointment. But on the basis of that clip I was supposed to know before the appointment. Okay - first proposition. Second, and we can all put up our hands here, we all of course were aware of that story in the Adelaide Advertiser. Every person in this press conference who was aware of it can now put their hand up. Of course the Opposition was absolutely aware of it, they were on notice of it because they raised it in March of 2003. Or Kim Beazley said they were too busy with the Iraq war in March of 2003 so I assume they raised it in April, May, June, July, August – this is three years ago. No press outlet to my knowledge before the Australian Financial Review last week was apprised of this or reported this. No television, no Cabinet Minister, you know the…

JOURNALIST:

Crikey (inaudible).

TREASURER:

…oh Crikey, well now we are in to reliable sources, Mr Bongiorno, I would back the Ten Network against Crikey.

JOURNALIST:

(Inaudible).

TREASURER:

I am going to take two more questions, you have had one Misha I think, Mr Lewis and Mr Koutsoukis.

JOURNALIST:

(Inaudible).

TREASURER:

You did have one Mr Bongiorno, you had one.

JOURNALIST:

Mr Costello, on the leadership issue, you have never hidden your ambition to become Prime Minister. You said in 1999 to Mr Hartcher here that you had one or two budgets left in you. In 2003 you publicly aired your grievance over the fact that Mr Howard was not prepared to stand aside. Weren’t your comments this morning simply an acknowledgment for you that A) you don’t have the numbers in the Party Room to mount a challenge, B) there is no appetite amongst Liberal Party MPs, by and large, for a change of leadership and that you are consigned to remaining Treasurer while ever John Howard want to stay on as Prime Minister?

TREASURER:

Well I know what you are doing Steve. My answer on this matter today is the same answer that I have given before and I am not moving from it and I am trying to assist you with writing a story.

JOURNALIST:

Mr Gerard has never denied that he had that conversation with you about his problem with the Tax Office. Is he not telling the truth and did you or did you not have that conversation with him before you appointed him?

TREASURER:

What I said to Mr Gerard is that Mr Gerard would, like any other member of the Reserve Bank Board, have to sign a declaration that his affairs were in order. He was sent a standard form. It is the same form which has been sent to every other Reserve Bank Board member. It is the same form that is used for judges, for Tax Commissioners. The Commonwealth, this idea that the Commonwealth whenever it makes an appointment reads court files in all of the registries of all of the courts of all of Australia, it doesn’t happen. It never has happened. Let me make this point, you know, suppose you have a Tax Commissioner who you appoint. We don’t go round – and we appointed one recently – reading all of the registries to see if there is some case against that Tax Commissioner. Suppose you have got a Chief Justice, somebody who actually enforces tax laws, you don’t go round to these registries. What you do is you ask that person about their tax affairs and they give you a declaration which is a standard form, not a targeted form, which is a standard form. And that was the procedure which was done in this particular case. Now let me make this point. This appointment was three years ago. You know, the way the Opposition is going on, everybody in Australia has known about this for three years and they just chose to sit on it for three years. Nobody in Australia, to my knowledge, over the last three years thought this was an issue or raised it. So, not the Opposition, not the media until last week, not a Cabinet Minister, not the Cabinet. The procedure that was followed in relation to this matter was absolutely the standard procedure. Now as it turns out I think over the last three years monetary policy was pretty well run, was…

JOURNALIST:

Are you saying that…

TREASURER:

…hang on…

JOURNALIST:

…made was (inaudible)?

TREASURER:

…was the Reserve Bank Board in any way over the last three years compromised in doing its duty? No. Was monetary policy run properly? No, policy was run really, really well as far as I am concerned.

JOURNALIST:

(Inaudible) vetting processes at all?

TREASURER:

The vetting processes are the processes that I have described. They are asked to give their own declarations…

JOURNALIST:

(Inaudible).

TREASURER:

…they are asked to give their own declarations. Now can I say we do not have, we do not have an American style system. In America, as you know, private detectives and investigators go over nominees for all sorts of offices. We don’t do that in Australia. We don’t do that and it has nothing to do with the Reserve Bank Board. It is not done for the Governor of the Bank, it is not done for the Chief Justice, it is not done for the Governor General, it is not done for the Chief of the Defence Force, it is not done for Ambassadors…

JOURNALIST:

(Inaudible), Treasurer.

TREASURER:

…the material that is done in relation to the Reserve Bank Board, which I would have thought was probably less significant than Chief of the Defence Force, Commissioner of Taxation, RBA Governor, Chief Justice, Governor-General…

JOURNALIST:

Are you disappointed that he didn’t tell you that he…

TREASURER:

…was exactly the same. Thank you very much.