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 17/08/2006

Interview with Oriel Morrison
Bloomberg

Thursday, 17 August 2006
9.50 am

SUBJECTS: Economy

TREASURER:

Well I think the global economy will remain strong, it has been growing at above average for about four years and of course a lot of that is led by China and demand coming out from India too. The flip side of that is that energy prices have been increasing and the record oil prices that you see now are starting to trip inflationary forces in some economies. So I think there will be a global concern about inflation, about the consequences of its above average growth and the sustainability of it.

JOURNALIST:

Well the oil price is tipped to stay high for some time and in fact predictions are for it to rise above $US100 a barrel. That is a scary number, not just for Australians but for the global economy.

TREASURER:

The answer globally will be an increase in supply because I can’t see demand coming off. It will take some time I think, to get new investment and there is certainly a hope that improved technology can increase yields from existing fields. Added to that I think will be the emergence of other energy sources. From Australia’s point of view this could be a very good thing with LNG which I think is going to become a very, very important energy source in the future, we have got inquiries coming from all over the world in relation to LNG and I think alternatives to oil are going to become much more commercial as the months and the years go by.

JOURNALIST:

So is energy security then going to become the battle ground for the future?

TREASURER:

I think energy security is going to be a big issue for the globe. As energy becomes more expensive, importing countries in particular are going to be looking for energy supply and security of energy supply. And the question is, how do we best ensure global energy supply? I think what we need is we need an international framework, a market where there is supply and demand and it meets in a market with assurances and protections and liquidities. There is a different view that says that countries are going to have to compete to get control of resources and lock them up for national interest. I don’t think that is in anyone’s interest, I think that could lead to a lot of dislocation and if you got that competition to lock up energy supplies that could introduce quite a view of instability.

JOURNALIST:

The Australian economy has been the trophy economy for some time and inflation is now of course posing a significant threat to that economic growth. The Government of course does need a plan to manage inflation but at this point it is not clear exactly what that plan is going to be.

TREASURER:

Well the important thing is to make sure that we don’t get second round effects from these oil rises, we need to hold wages and we need to ensure that they are consistent with our inflation targets. It is important for us to continue to run a strong fiscal position and the Government is now running its ninth surplus Budget in the last 11 years. It is important that the Government boosts savings which we are now doing through our Future Fund which is going to save for generations to come and it is important to bring online new investment. We have now got record business investment going into the Australian economy which will lift capacity and I look forward to that coming through in the next couple of years.

JOURNALIST:

China has been taking some quite significant steps to try and slow their growth rate, is there any concern that they may overstep the mark?

TREASURER:

I think the Chinese economy has got a long way to run. You have got the process of industrialisation that is going on, moving from an agricultural to an industrial society. You have got the process of moving from a communist society to a more market-oriented society and when you put the two of those factors together in the one country which happens to have a billion people, you have got a recipe for very strong growth over a long period of time. And sure there will be ups and there will be downs in this process but I think strong Chinese growth is going to be a feature of the global economy for quite some time.

JOURNALIST:

There has been some talk of a trade deal with Japan, how far advanced are these discussions?

TREASURER:

It has been raised from time to time, there are I think, expressions of goodwill in relation to that but whether or not that can be progressed will depend principally I think on Japan, Australia of course would be very interested in liberalising trade with Japan and we would welcome similar goodwill in that regard from Japan itself.