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 07/06/2006

Doorstop Interview
Treasury Place, Melbourne

Wednesday, 7 June 2006
12.00 noon

SUBJECTS: National Accounts, State Budgets, nuclear review, gay marriage

TREASURER:

Today’s National Accounts show that the Australian economy grew 0.9 per cent in the March quarter of 2006 and 3.1 per cent through the year. This is very solid growth and in through the year terms we have not had growth above 3 per cent for some time. The growth in the Australian economy was led by household consumption which grew 2.9 per cent through the year, exports grew and for the first time in some time did not detract from growth and business investment is very strong. We are coming off a high base but business investment is holding up, in fact machinery and equipment investment is 27.1 per cent higher through the year and private construction investment 13.8 per cent higher through the year.

What detracted from growth was dwelling investment which fell 2.5 per cent for the quarter. So what we are seeing in the Australian economy is we are seeing a continuing unwinding in relation to the housing sector – an unwinding which, towards the earlier part of this decade the housing cycle had grown too fast, we were looking for an unwinding, we are seeing it and growth is now being led by business investment, by exports and by moderate consumption.

Our exports were interrupted to some degree in March by tropical cyclones which struck the north-west shelf and Pilbara regions of Western Australia and so as trading in relation to resources returns to more normal conditions in this the June quarter we would expect exports to pick up even further. Profits are robust, just a little below all time records as a proportion of the economy and inflation remains contained.

So all in all a picture of an economy which is rebalancing out of housing into business investment, pick up in export growth which we would expect to strengthen in the next quarter, good robust economic growth of 3.1 per cent but without any signs that household consumption is running ahead – household consumption in fact is only 2.9 per cent higher through the year. This is laying the foundation for increased capacity in the Australian economy as this business investment continues giving favourable conditions as we look ahead.

JOURNALIST:

Treasurer are you concerned by comments from Standard and Poors that Australia’s AAA credit rating could be in jeopardy because of its external liabilities?

TREASURER:

No I don’t think Standard and Poors said that.

JOURNALIST:

There is some concern over foreign debt, how much (inaudible) is it going to be to address foreign debt given that the banks owe 80 per cent of it?

TREASURER:

Well the Australian Government has reduced its net debt to zero. And so the Australian Government in fact doesn’t have foreign debt. The Australian Government in fact adds to savings. Those people that borrow on foreign markets are principally Australian banks who own 80 per cent of borrowings and those banks are very well capitalised and highly profitable. Our Reserve Bank, our prudential regulator and indeed the IMF have all done stress tests on the Australian banking system which is in very good condition. We don’t believe that there is any risk in the system to those banks that is not adequately prepared for.

JOURNALIST:

How much concern do you have about manufacturing and the way it is detracting from growth?

TREASURER:

I think times have been tough for manufacturers, particularly the level of the currency has made it hard for manufacturers on the export front and of course it has made imports cheaper which is making things difficult for manufacturing. But I think that the conditions in relation to the global economy should support manufacturing, I think improvements for example in industrial relations should support manufacturing and although I acknowledge they have had a difficult period I think there is still good prospects in relation to manufacturing.

JOURNALIST:

Given your comments I think it was last month or maybe the month before that banks should stop pushing money onto people I think were your words, how does your position now a bit of a change from that point?

TREASURER:

Oh no, I had a meeting with the Chief Executives of the major banks some time ago and I said I didn’t want them to let their credit standards slip and they assured me that they wouldn’t let their credit standards slip. And I will look to them to make good on that. It is very important not just for the banks but may I say also for mortgage originators that they don’t let their credit standards slip and that they adequately price in risk.

JOURNALIST:

You don’t seem too concerned about the level of household consumption but it is one of the strongest factors in the accounts that have been released today. You have no worries about the level of spending that’s occurring by households?

TREASURER:

Household consumption grew 0.9 per cent in the March quarter and is 2.9 per cent higher through the year. That is reasonably moderate and certainly much more moderate than we were getting some years ago. So it is decent expenditure but 2.9 per cent is in line with growth which is 3.1 per cent so we wouldn’t see any evidence of that happening.

JOURNALIST:

Treasurer a couple of bank economists are predicting that you mark it a negative quarter in either June or September because of mainly because of the way a couple of things are lining up – retail spending seems to have come off since the interest rate rise, net exports are still detracting from GDP and the other parts were when I look at these accounts New South Wales and Victoria contributed zip to growth in the March quarter. It was pretty much Queensland and to a lesser extent and to a significant extent WA as well that way up the back with the gross state product figures you can see that NSW and Victoria make zero contributions in the quarter. Any thoughts on that on whether the pace is slowing down a bit or slowing back?

TREASURER:

Well State Final Demand didn’t grow at all in NSW in March and grew 0.1 in Victoria and so you are quite right, both of those States had weak performance in the March quarter. Although over the course of the year they have grown. Over the course of the year State Final Demand was strongest in Queensland and Western Australia as you would expect with those two States profiting from resource prices. But when you look at the growth figures overall, 3.1 per cent through the year, now we have had a three in front of growth for some time probably 6 or 7 quarters and so if anything has ticked up, what will happen in relation to future quarters? Well as I said earlier I think that exports which have grown in these figures if anything will strengthen partly because in these figures in March there was an interruption to exports because of cyclone activity up on the north-west shelf and production is coming back to the more normal. And business investment is still very strong, profit share almost at an all time record. So I see the growth coming in business investment in the course of the year. I don’t think exports will be detracting as much, in fact they didn’t detract at all in relation to these figures and therefore I think that the prospects are quite firm.

JOURNALIST:

How would you explain NSW’s performance over the past, maybe we can look back 4 or 5 years, since the Olympics they have tracked pretty much under the national growth rate, certainly they are tracking behind Victoria which is a comparable state, obviously NSW is a bit bigger, but how would you explain its performance?

TREASURER:

NSW premised its economic policy on the housing cycle. They bet the budget on the house market. That was all very well when it was booming in NSW but I was warning for a long time that we were actually looking to a correction, we wanted a correction. Policy was directed at getting a correction but they misread the signs, in fact they worsened things by introducing a new vendor tax right at the peak of the market and the market was going to correct anyway and they blundered in with this vendor tax. And so they bet the budget on the housing market and then blundered the bet and now you are getting a correction in NSW. The consequence of that is that their budget is in deficit and they are substantially borrowing. In Victoria they didn’t make the same mistakes to the same degree but I think in Victoria they also let expenses grow at a rate which was not long term sustainable.

JOURNALIST:

They are making your job harder though aren’t they, to manage a national economy if you have got the biggest State, New South Wales, as you say betting the house on the property cycle.

TREASURER:

Betting the budget on the property cycle.

JOURNALIST:

Hmm.

TREASURER:

Well, if you look at the State governments now, they are all practically all out borrowing and so at a time when the Commonwealth Government is trying to run surplus Budgets and add to savings you have now got the state governments that are deciding to run down savings and add to debt. That doesn’t make things any easier. But having said all of that, we, State governments have an influence on their State economies but they are not the major influence on economic policy in Australia. At the margins they have an influence, the fact that they are borrowing will have an influence, but they are not the dominant players in relation to economic policy.

JOURNALIST:

So were you unimpressed with yesterday’s New South Wales Budget with respect to debt levels?

TREASURER:

Well New South Wales yesterday brought down a Budget which is in deficit, which will require considerable borrowing, that borrowing means that the government is in the market and into debt to the degree that the government is having an effect, that is putting upward rather than downward, pressure on interest rates and you know they have got some assumptions in there that it will all come good in a few years time, well I wish them luck. I hope it does.

JOURNALIST:

So it was an irresponsible Budget?

TREASURER:

Well I think they have got themselves into an irresponsible position. They have got themselves into an irresponsible position by not restraining expenses, by narrowly betting on a buoyant property market and by not preparing for what we always regarded as an inevitable downturn. Now having got themselves into an irresponsible position they are now living with the consequences and the consequences will be high debt, and higher taxes.

JOURNALIST:

Any kick in the Victorian figures from the Commonwealth Games and you mentioned Victorian expenses how could they have better restrained their expenses and just a third point from the Treasurer wouldn’t he be blaming you for their increased infrastructure spending saying that you should have done it in your Budget.

TREASURER:

Should have done what?

JOURNALIST:

Increased infrastructure spending.

TREASURER:

On what?

JOURNALIST:

Well on, presumably from roads to ports to whole areas where they are spending now, areas where they are spending now.

TREASURER:

Well that is the reason that I ask you because we have got the largest ever spending on roads in Australia’s history. A $12 billion AusLink programme with a $2 billion build-up in the Budget and so whatever they are saying it is not borne out by facts is it. In relation to the Commonwealth Games I am just trying to remember, the Commonwealth Games were they March? I think they were March. Well, the State Final Demand for Victoria in March is 0.1 per cent growth. So I am sure there is a kick in there but it may have been worse if it hadn’t have been for that kick. It is not a big figure is it. It is 0.1 per cent.

JOURNALIST:

And just a point on Victorian expenses how could they be reined in?

TREASURER:

Oh it is important that they keep a grip on their expenses and that is a matter for them.

JOURNALIST:

Treasurer with the inquiry into nuclear energy – do you think it should be broadened to have a look at a tax on fossil fuel emissions?

TREASURER:

Look I don’t think the purpose of this inquiry is to come up with new taxes. No. I most definitely do not think that. The purpose of this inquiry is to see, given our current energy and our current taxation system which is a low taxation system, whether a new entrant will become competitive. Now you can make any new entrant competitive if you are willing to bag the existing players down with enough taxes. We all know that. But that is not the purpose of this inquiry. The purpose of this inquiry is to see whether the current fuel sources on the current taxation regime are more economical, the same or less economical than nuclear energy.

JOURNALIST:

Is it possible to properly test the economic viability of nuclear power without assessing potential sites for nuclear power generators?

TREASURER:

Of course. What this is looking at is we’re a uranium miner, do we have the capacity to increase our exports and should we? I think that is a pretty obvious question. If we use our own exports for making energy would we get cheaper energy or would it be more expensive. If it is going to be more expensive obviously you will stay with the energy generation we have currently got which is coal predominantly. And now the question over hear was well what if it turns out that nuclear energy is more expensive than coal, if we think up a new tax which would so weigh down the coal industry as to make it competitive that is not the objective here, the objective here is to say given our current taxation regime, given the cost of generating from our current fuels, will this new source be cheaper? If it is not then people won’t build it.

JOURNALIST:

If they set the reference to a carbon tax into their report do you think they would be going outside their terms of reference?

TREASURER:

What they would then be telling you is it is not economical and it will only become economical if we bag the current energy source. Now as I said, you can make anything competitive if you are willing to weigh down all of the alternatives with crippling taxation, of course you can do that, that doesn’t tell you anything. But that is not the purpose of this and I don’t think we should be answering this with that in mind.

JOURNALIST:

Treasurer do you support gay marriage?

TREASURER:

No, I don’t and I have made that clear on a number of occasions. I think marriage is a traditional institution between men and women and always has been and that is what always been the law in Australia.

JOURNALIST:

So why do you have concerns about the ACT’s laws and not Tasmania’s laws which are very similar?

TREASURER:

Well as I understand it the Commonwealth Government doesn’t have a constitutional power in relation to Tasmania whereas because it is the Commonwealth Government in a Territory it does have powers.

JOURNALIST:

The ACT made several concessions. What was it specifically about that legislation that applies to the Commonwealth (inaudible)?

TREASURER:

Well look I just think that the legislation in the ACT was not well thought through and there were various Commonwealth objections. I think the Attorney-General has laid them down and I will leave it to him to explain what they are.

JOURNALIST:

So what do you think of Warren Entsch having a Private Members Bill on this?

TREASURER:

I am not sure that he is going to. I don’t think he is going to have a Bill on civil unions, I think he is looking at other matters including superannuation matters and can I just say that one of the things that I have been very supportive of is improving rights to superannuation for gay couples. It is a reform that the Government adopted a couple of years ago, so that they would get the same taxation treatment in relation to superannuation left to a dependent we introduced a new thing called an interdependency relationship and I think that was an improvement, something that I was very supportive of but not that I know what Warren’s Bill is because I haven’t seen it but I think that is more the line that he is on.

JOURNALIST:

And how do you think Ted Baillieu is going here in Victoria?

TREASURER:

He is doing well. I think the Victorian people want an alternative government. And it is his job to give them the option to vote for one and I think he is doing well.

JOURNALIST:

He hasn’t been highly visible. He hasn’t been out a lot saying too much about anything. Do you think he should be more visible taking into account the PM’s comments a couple of months ago that people’s minds need to be changed from several months out from an election?

TREASURER:

Well look in politics you take every opportunity you can – obviously. But I think he has been out a lot, out and about, I have seen quite a bit from him. And bearing in mind his height he is highly visible.

JOURNALIST:

Have you spoken to him recently?

TREASURER:

Not recently, no.

JOURNALIST:

Sorry to drag you back to…

TREASURER:

All right, last question.

JOURNALIST:

What is your personal feeling about nuclear energy and the consequences for Australia?

TREASURER:

Here is what I think, we mine uranium, we sell it around the world for people to use to make energy. And so how could we be opposed to the principle? How could we say it is fine for other people to make energy out of our uranium but it is wrong for us? I couldn’t be opposed to the principle and I am not. Does that mean we should build a nuclear energy plant? No, not unless it is competitive and economical. If we can get our energy cheaper than we can get it from a nuclear plant why have a nuclear plant? So as far as I am concerned the whole object here is to get some handle on the price of electricity that you would get from a nuclear plant as compared to the price of electricity which we know we can get from our coal plants, without any attempt to try and load the coal plants up with taxes to try and get nuclear into the game. That is not the object here and I will see what comes out of it. You know, it may say that it is not competitive now but it will be in 10 years time or it is not competitive now but it will be in 20 years time. And so in 10 years time or in 20 years time we will revisit those issues then. But let’s get a handle on it, I have got my own hunches as to where this will end up but I think we ought to “do the math” as the Americans would say. Thank you very much.